Dynamic Corporate Bond Fund et al. - MRRS Decision
Headnote
Approval of fund mergers pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Mutual Funds.
Rule Cited
National Instrument 81-102 Mutual Funds, s. 5.5(1)(b).
June 30, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, NEWFOUNDLAND AND LABRADOR,
PRINCE EDWARD ISLAND, NORTHWEST
TERRITORIES, NUNAVUT and YUKON
(the Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
DYNAMIC CORPORATE BOND FUND
DYNAMIC TECHNOLOGY FUND
DYNAMIC FOCUS+ AMERICAN FUND
DYNAMIC STRATEGIC DEFENSIVE PORTFOLIO
DYNAMIC STRATEGIC CONSERVATIVE PORTFOLIO
DYNAMIC STRATEGIC BALANCED PORTFOLIO
DYNAMIC STRATEGIC HIGH GROWTH PORTFOLIO
DYNAMIC STRATEGIC ALL EQUITY PORTFOLIO
DYNAMIC QSSP FUND
(the Terminating Funds)
AND
GOODMAN & COMPANY, INVESTMENT COUNSEL LTD.
(the Filer)
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer, on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdictions (the Legislation) granting approval for each Terminating Fund to merge into its respective continuing fund, as contemplated by section 5.5(1)(b) of National Instrument 81-102 (NI 81-102) (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is the manager of each Terminating Fund for purposes of NI 81-102.
2. The Filer is seeking the approval of the securityholders of the Terminating Funds to merge each Terminating Fund into the mutual fund (the Continuing Fund) identified opposite its name below (the Mergers):
3. under the securities legislation of each Jurisdiction and currently distributes its securities in each Jurisdiction pursuant to a simplified prospectus and annual information form dated December 19, 2006, as amended, (the Dynamic Prospectus).
4. Dynamic QSSP Fund is a reporting issuer under the securities legislation of Québec but does not currently distribute its securities pursuant to a prospectus.
5. The Filer has filed a press release, a material change report and an amendment to Dynamic Prospectus to announce the Mergers.
6. The Mergers are being proposed in order to:
(a) rationalize and streamline the line up of mutual funds offered by the Filer for the benefit of the securityholders of the Funds;
(b) eliminate the costs of operating each Terminating Fund and its Continuing Fund as separate mutual funds;
(c) seek increased economies of scale for certain expenses such as brokerage charges and legal and audit fees; and
(d) create larger mutual funds which will be better able to maintain diversified, well-managed portfolios with a smaller proportion of assets set aside to fund redemptions.
7. Due to the different structures utilized by the Funds and their current tax circumstances, the procedures for implementing the Mergers will vary. However, the result of the Mergers will be that investors in the Terminating Funds will cease to be securityholders in the Terminating Funds and will instead become securityholders in the Continuing Funds. Each Terminating Fund will be wound-up as soon as reasonably possible following its Merger.
8. Investors in the Terminating Funds will be asked to approve the Mergers at special meetings of securityholders to be held on June 22, 2006 (the Meetings). In connection with the Meetings, the Filer is sending to the securityholders of each Terminating Fund a management information circular dated May 12, 2006, a related form of proxy and the simplified prospectus of its Continuing Fund (the Meeting Documents). If securityholders approve the Mergers, it is proposed that each Merger will occur after the close of business on a date to be determined by the Filer (the Effective Date), currently expected to be between June 24 and July 15, 2006. The cost of effecting the Mergers (consisting primarily of proxy solicitation, printing, mailing, legal and regulatory fees) will be borne by the Filer. The Filer may, in its discretion, postpone implementing any Merger until a later date (which shall be not later than December 31, 2006) and may elect to not proceed with any Merger.
9. Purchases of and switches into securities of each Terminating Fund will be suspended on or prior to the Effective Date of its Merger. Following each Merger, automatic purchase plans and systematic redemption plans which were established with respect to each Terminating Fund will be re-established with respect to its Continuing Fund unless securityholders who are affected by the Merger advise the Filer otherwise. Securityholders may change any automatic purchase plan or systematic redemption plan at any time and investors in each Terminating Fund who wish to establish an automatic purchase plan or systematic redemption plan in respect of their holdings of the Continuing Fund may do so following its Merger.
10. The Filer believes that each Merger may not satisfy all the criteria for pre-approved reorganizations and transfers set forth in section 5.6 of NI 81-102. As described in the application:
(a) in respect of the Mergers involving Dynamic Corporate Bond Fund, Dynamic Technology Fund, Dynamic Focus+ American Fund, Dynamic Strategic Defensive Portfolio, Dynamic Strategic Conservative Portfolio, Dynamic Strategic Balanced Portfolio, Dynamic Strategic High Growth Portfolio, Dynamic Strategic All Equity Portfolio and Dynamic QSSP Fund, a reasonable person may not consider that the fundamental investment objectives of these Terminating Funds and their respective Continuing Funds are substantially similar;
(b) in respect of the Mergers involving Dynamic Corporate Bond Fund, Dynamic Technology Fund, Dynamic Focus+ American Fund and Dynamic Strategic High Growth Portfolio, a reasonable person might not consider that the fee structures of these Terminating Funds and their respective Continuing Funds are substantially similar; and
(c) in respect of the Mergers involving Dynamic Technology Fund, Dynamic Focus+ American Fund and Dynamic QSSP Fund, the Mergers will not be implemented as either a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of that Act.
The foregoing differences between the Terminating Funds and the Continuing Funds, as well as the tax implications of each Merger, are disclosed in the Meetings Documents.
11. Purchases of and switches into securities of each Terminating Fund will be suspended on or prior to the Effective Date of the Merger involving such Terminating Fund. Following each Merger, automatic purchase plans and systematic redemption plans which were established with respect to the Terminating Fund will be re-established with respect to its Continuing Fund unless securityholders who are affected by the Merger advise the Filer otherwise. Securityholders may change any automatic purchase plan or systematic redemption plan at any time and investors in each Terminating Fund who wish to establish an automatic purchase plan or systematic redemption plan in respect of their holdings of the Continuing Fund may do so following its Merger.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met. The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.