1832 Asset Management L.P. et al.

Decision

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – approval of investment fund mergers – approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds – certain terminating funds and continuing funds do not have substantially similar fundamental investment objectives – the mergers will not be a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act – Fund Facts documents not available for certain series of the Continuing Funds– securityholders provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 5.7(1)(b), 19.1(2).

June16, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
1832 ASSET MANAGEMENT L.P.
(the Manager)

AND

DYNAMIC STRATEGIC BOND FUND,
DYNAMIC CANADIAN ASSET ALLOCATION CLASS,
DYNAMIC POWER BALANCED CLASS,
DYNAMIC AURION TACTICAL BALANCED CLASS,
DYNAMIC POWER CANADIAN GROWTH CLASS,
DYNAMIC POWER DIVIDEND GROWTH CLASS,
DYNAMIC GLOBAL VALUE CLASS,
DYNAMIC EAFE VALUE CLASS,
DYNAMIC EMERGING MARKETS CLASS,
DYNAMIC EMERGING MARKETS FUND,
DYNAMIC POWER AMERICAN CURRENCY NEUTRAL FUND,
DYNAMIC RESOURCE FUND,
DYNAMIC STRATEGIC GROWTH PORTFOLIO
(each, a Terminating Fund, collectively the Terminating Funds,
and together with the Manager on behalf of the Terminating Funds, the Filers)

DECISION


Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filers, for a decision under the securities legislation of the jurisdiction of the principal regulator (the Legislation) approving the proposed reorganization of each of the Terminating Funds with applicable Continuing Funds (each as defined below) (the Mergers), pursuant to subsection 5.5(1)(b) of National Instrument 81-102 – Investment Funds (NI 81-102) (the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission is the principal regulator for this application; and

(b)           the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories in Canada (the Other Jurisdictions and collectively with Ontario, the Jurisdictions).

Interpretation

Terms defined in NI 81-102, National Instrument 14-101 – Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Circular means the management information circular dated May 1, 2017 and provided by the Manager in connection with the Mergers.

Closed Mergers means the following Mergers involving the existing series of the Continuing Funds specified below which are not currently offered for purchase and are not currently qualified for distribution under a prospectus:

Closed Mergers

Terminating Fund

Continuing Fund

Fund Name

Series

Fund Name

Series

Dynamic Power Balanced Class

Series E

Dynamic Power Balanced Fund

Series E

Dynamic Aurion Tactical Balanced Class

Series E

Dynamic Power Balanced Fund

Series E

Dynamic Power Canadian Growth Class

Series IP

Dynamic Power Canadian Growth Fund

Series IP

Dynamic Power Dividend Growth Class

Series I

Dynamic Power Canadian Growth Fund

Series IP

Continuing Funds means, collectively, Dynamic Canadian Bond Fund, Dynamic Canadian Dividend Fund, Dynamic Power Balanced Fund, Dynamic Power Canadian Growth Fund, Dynamic Global Value Fund, Dynamic Power American Growth Fund, Dynamic Strategic Resource Class and DynamicEdge Balanced Growth Portfolio and each individually, a Continuing Fund.

Exempt Mergers means the following Merger, where Series UN of the Continuing Fund will be offered only on an exempt distribution basis:

Exempt Mergers

Terminating Fund

Continuing Fund

Fund Name

Series

Fund Name

Series

Dynamic Power American Currency Neutral Fund

Series U

Dynamic Power American Growth Fund

Series UN

Funds means collectively, the Terminating Funds and the Continuing Funds.

Grandfathering Mergers means the following Mergers, where the following series of securities of the Continuing Funds are being created solely to facilitate the Mergers, will not be qualified for distribution under a prospectus and will not be available for purchase subsequent to the Mergers:

Grandfathering Mergers

Terminating Fund

Continuing Fund

Fund Name

Series

Fund Name

Series

Dynamic Strategic Bond Fund

Series H

Dynamic Canadian Bond Fund

Series H

Dynamic Canadian Asset Allocation Class

Series A
Series T

Dynamic Canadian Dividend Fund

Series A1

Series E

Series E

Dynamic Power Dividend Growth Class

Series A
Series T

Dynamic Power Canadian Growth Fund

Series A1

Series F

Series F1

Dynamic Emerging Markets Class

Series IP

Dynamic Global Value Fund

Series IP

Dynamic Resource Fund

Series A

Dynamic Strategic Resource Class

Series A1

Series G

Series G1

Series E

Series E

Series F

Series F1

Series FI

Series FI

Dynamic Power American Currency Neutral Fund

Series I

Dynamic Power American Growth Fund

Series IN

Select Mergers means the following Mergers, where Series N and Series FN of Dynamic Power American Growth Fund as well as Series O of Dynamic Strategic Resource Class are being created to facilitate the Mergers, will be qualified for distribution under a prospectus and will be available for purchase subsequent to the Mergers:

Select Mergers

Terminating Fund

Continuing Fund

Fund Name

Series

Fund Name

Series

Dynamic Power American Currency Neutral Fund

Series A

Dynamic Power American Growth Fund

Series N

Series F

Series FN

Dynamic Resource Fund

Series O

Dynamic Strategic Resource Class

Series O

Tax Act means the Income Tax Act (Canada).

Representations

The Manager

1.             The Manager is an Ontario limited partnership, which is wholly-owned indirectly by The Bank of Nova Scotia. The general partner of the Manager (the General Partner) is 1832 Asset Management G.P. Inc., an Ontario corporation wholly-owned directly by The Bank of Nova Scotia, with its head office in Toronto, Ontario.

2.             The Manager is the manager of the Funds and is registered as: (i) a portfolio manager in all of the provinces of Canada and in the Northwest Territories and the Yukon; (ii) an exempt market dealer in all of the provinces of Canada (except Prince Edward Island and Saskatchewan); (iii) an investment fund manager in Ontario, Québec, Newfoundland and Labrador and the Northwest Territories; and (iv) a commodity trading manager in Ontario.

The Funds

3.             Each of the Funds is either a mutual fund trust or a class of a mutual fund corporation established or incorporated under the laws of Ontario or the laws of Canada and is a reporting issuer under the applicable securities legislation of each Jurisdiction.

4.             Neither the Manger nor any Fund is in default of securities legislation in any Jurisdiction.

5.             Other than circumstances in which the securities regulatory authority of a Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions established under NI 81-102.

6.             The securities of each Fund (other than Series A, Series G, Series IP and Series OP securities of certain Funds and securities to be received by the securityholders of the Terminating Funds in connection with the Grandfathering Mergers, the Closed Mergers and the Exempt Mergers) are or will be qualified for distribution in the Jurisdictions pursuant to a simplified prospectus and annual information form prepared and filed in accordance with the securities legislation of the Jurisdictions.

7.             Series U and Series UN securities of certain Funds are or will be offered only on an exempt distribution basis. Series A, Series C, Series E, Series FC, Series FI, Series G, Series I, Series IP and Series OP securities of certain Funds are no longer available for purchase. Finally, Series A1, Series E, Series F1, Series FI, Series G1, Series H, Series IN and Series IP of certain Funds are being created with the sole purpose of facilitating the Mergers and are not or will not be qualified for distributions or available for sale following the completion of the Mergers.

8.             The net asset value for each series of securities of the Funds is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the simplified prospectus and annual information form for the Funds.

Reasons for the Requested Relief

9.             Approval of the Mergers is required because:

(a)           in respect of certain Mergers, the fundamental investment objectives of certain Continuing Funds are not, or may be considered not to be, “substantially similar” to the fundamental investment objectives of their corresponding Terminating Funds;

(b)           the Mergers will not be completed as a “qualifying exchange” or a tax-deferred transaction under the Tax Act; and

(c)           in respect of certain Mergers, the materials to be sent to certain securityholders of the Terminating Funds will not include the most recently filed Fund Facts documents for the series of the Continuing Funds into which the applicable series of the Terminating Funds are merging because:

(A)           the applicable series of the Continuing Funds are being created solely to facilitate the Mergers, will not be qualified for distribution under a prospectus and will not be available for sale subsequent to the Mergers (the Grandfathering Mergers);

(B)           the applicable series of the Continuing Funds are being newly created to facilitate the Mergers and Fund Facts documents were not available prior to the mailing date of the Meeting Materials (the Select Mergers);

(C)          the applicable series of the Continuing Funds are no longer offered for sale and are no longer qualified for distribution under a prospectus (the Closed Mergers); and

(D)          the applicable series of the Continuing Funds are or will be offered only on an exempt distribution basis, as is the case with the series of the Terminating Funds merging into these series (the Exempt Mergers).

10.          Pursuant to the Mergers, securityholders of each of the Terminating Funds would become securityholders of the applicable Continuing Fund, as follows:

TERMINATING FUND

CONTINUING FUND

Dynamic Strategic Bond Fund

Dynamic Canadian Bond Fund

Dynamic Canadian Asset Allocation Class

Dynamic Canadian Dividend Fund

Dynamic Power Balanced Class

Dynamic Power Balanced Fund

Dynamic Aurion Tactical Balanced Class

Dynamic Power Canadian Growth Class

Dynamic Power Canadian Growth Fund

Dynamic Power Dividend Growth Class

Dynamic Global Value Class

Dynamic Global Value Fund

Dynamic EAFE Value Class

Dynamic Emerging Markets Class

Dynamic Emerging Markets Fund

Dynamic Power American Currency Neutral Fund

Dynamic Power American Growth Fund

Dynamic Resource Fund

Dynamic Strategic Resource Class

Dynamic Strategic Growth Portfolio

DynamicEdge Balanced Growth Portfolio

11.          Except as noted above, the Mergers will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

12.          Other than in the case of Dynamic Strategic Resource Class, the Mergers do not require approval of securityholders of the Continuing Funds as the Manager has determined that none of those Mergers will result in a material change to the corresponding Continuing Funds.

13.          The Manager has determined that the Merger of Dynamic Resource Fund into Dynamic Strategic Resource Class will constitute a material change for Dynamic Strategic Resource Class as the assets under management of Dynamic Resource Fund were larger than those of Dynamic Strategic Resource Class as at March 31, 2017. As a result, the Manager will be seeking the prior approval of the securityholders of Dynamic Strategic Resource Class to the Merger of Dynamic Resource Fund into Dynamic Strategic Resource Class.

14.          As required by National Instrument 81-107 – Independent Review Committee for Investment Funds, the Independent Review Committee (IRC) has been appointed for the Funds. The Manager presented the terms of the Mergers to the IRC for a recommendation. The IRC reviewed the Mergers and provided a positive recommendation for each of the Mergers on March 29, 2017, having determined that the Mergers, if implemented, would achieve a fair and reasonable result for each of the Funds and their respective securityholders.

15.          In accordance with National Instrument 81-106 – Continuous Disclosure, a press release describing the Mergers was issued and filed on SEDAR on March 30, 2017. An associated material change report with respect to the Terminating Funds and Dynamic Strategic Resource Class was filed on SEDAR on April 5, 2017. Amendments to the simplified prospectus, annual information form and Fund Facts documents of the Terminating Funds and Dynamic Strategic Resource Class were filed with the Principal Regulator on April 7, 2017.

16.          In reliance on notice-and-access exemptive relief issued on November 4, 2016 (“Notice-and-Access Relief”), the Manager received an exemption from the requirement to deliver an information circular to each registered holder of securities of a Fund whose proxy is solicited if, instead, the Manager delivered a “notice-and-access document” using the “notice-and-access procedure” (each as defined in the Notice-and-Access Relief). Therefore, pursuant to the Notice-and-Access Relief, the Manager made available a copy of the Circular and mailed a notice-and-access document, proxy and Fund Facts documents, where applicable, of the applicable series of the Continuing Funds (collectively, Meeting Materials) to securityholders of the Terminating Funds and Dynamic Strategic Resource Class on May 4, 2017.

17.          The Meeting Materials outline the material facts concerning the Mergers relevant to each securityholder, including the differences between fundamental investment objectives, fee structure and valuation procedures of the Terminating Funds and the Continuing Funds, the IRC's recommendation of the Mergers, and income tax considerations so that securityholders of the Terminating Funds may consider this information before voting on the Mergers. The Meeting Materials also describe the various ways in which securityholders can obtain a copy of the simplified prospectus and annual information form of the Continuing Funds, as well as the most recent interim and annual financial statements and management reports of fund performance for the Continuing Funds, at no cost.

18.          Fund Facts documents relating to the applicable series of each Continuing Fund will be mailed to securityholders of the corresponding series of each Terminating Fund in all instances other than in respect of the Grandfathering Mergers, the Select Mergers, the Closed Mergers and the Exempt Mergers.

19.          In respect of the Grandfathering Mergers, the Closed Mergers and the Exempt Mergers, because a current simplified prospectus and Fund Facts documents are not available for the applicable series of the Continuing Funds, securityholders of each of the corresponding series of the Terminating Funds will be sent Fund Facts documents relating to Series A securities of the applicable Continuing Fund, or, where appropriate, another series of securities of the applicable Continuing Fund.

20.          In respect of the Select Mergers, because the simplified prospectus and Fund Facts documents were not available as of the mailing date of the Meeting Materials for the securities of the Continuing Funds to be distributed in connection with the Select Mergers:

a)            securityholders of Series A and Series F of Dynamic Power American Currency Neutral Fund were sent Fund Fact documents relating to Series A and Series F, respectively, of Dynamic Power American Growth Fund; and

b)            securityholders of Series O of Dynamic Resource Fund were sent Fund Facts documents relating to Series I of Dynamic Strategic Resource Class.

For Fund Facts delivery purposes, Series A and Series F of Dynamic Power American Growth Fund (for the Mergers in paragraph 20(a)) and Series I of Dynamic Strategic Resource Class (for the Mergers in paragraph 20(b)) were selected since these series have a fee structure that most closely compares to the fee structure of the applicable series of the Continuing Fund.

21.          In order to affect the Select Mergers, the relevant series of the Continuing Funds were qualified for distribution and the relevant amendment to the simplified prospectus, annual information form and Fund Fact documents of those Continuing Funds were receipted on June 2, 2017.

22.          The Manager will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the trades that occur both before and after the date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees. There are no charges payable by securityholders of the Terminating Funds who acquire securities of the corresponding Continuing Funds as a result of the Mergers.

23.          Securityholders of each of the Terminating Funds and Dynamic Strategic Resource Class approved the Mergers associated with those Funds at special meetings of securityholders held on June 9, 2017 (the Securityholders’ Meetings), with the Mergers to be implemented on or before June 30, 2017.

24.          The Mergers will be affected on a taxable basis to the Terminating Funds, which the Manager has determined will be in the overall best interests of the investors of the Terminating Funds and the Continuing Funds. Affecting the Mergers on a taxable basis will preserve, where applicable, any unused tax losses of the Continuing Fund, which would otherwise expire upon implementation of the Merger on a tax deferred basis and therefore would not be available to shelter income and capital gains realized by the Continuing Fund in future years. Where a Continuing Fund does not have any unused tax losses, the Manager has determined that it is in the best interest of these Funds to affect the Mergers on a taxable basis because (i) a non-taxable merger would result in a deemed tax year-end for corresponding Continuing Funds; (ii) a deemed tax year-end for a Continuing Fund will also cause a deemed disposition by the Continuing Fund of all of its investment at the lower of cost or fair market value (FMV) and reacquire those investments at the same amount. The result of which will cause any accrued losses on investments in the Continuing Fund’s investment portfolio to be realized on the Merger such that it cannot be carried forward to offset capital gains realized in tax years following the Merger; and (iii) under a non-taxable merger the Terminating Fund will defer any accrued and unrealized capital gains on investments in its investment portfolio. Such accrued and unrealized capital gains will be transferred to the corresponding Continuing Fund which, if the investments are disposed of in the year following the Merger, will be distributed to all securityholders of the Continuing Fund, including the original securityholders of the Continuing Fund.

25.          Following the Mergers, all operational services (such as systematic withdrawal plan and pre-authorized contribution plans, other than in the case of the Grandfathering Mergers and the Closed Mergers) will continue to be available to investors who will be automatically enrolled in comparable plans with respect to the securities of the corresponding Continuing Funds unless investors request otherwise. However, series of a Continuing Fund issued in connection with a Grandfathering Merger or Closed Merger will not be in distribution following the Mergers and, therefore, no new pre-authorized contribution plan will be made available.

26.          Following the Mergers, investors in any Continuing Fund may change or cancel any systematic plan at any time.

Procedure for the Mergers

27.          The Manager will carry out the following steps to complete the Mergers:

(i)            Prior to affecting the Mergers, each Terminating Fund may sell any investment that is not consistent with the investment objective and investment strategies of the applicable Continuing Fund or acceptable to the portfolio manager of the applicable Continuing Fund. As a result, some of the Terminating Funds may temporarily hold cash or money market instruments and may not be fully invested in accordance with their investment objectives for a brief period of time prior to the Merger being effected.

(ii)           The value of each Terminating Fund’s portfolio and other assets will be determined at the close of business on the effective date of each respective Merger in accordance with the constating documents of the applicable Terminating Fund.

(iii)          Each Continuing Fund will acquire the investment portfolio and other assets of the corresponding Terminating Fund in exchange for securities of the Continuing Fund. The securities of the Continuing Fund received by the Terminating Fund will (a) have an aggregate net asset value equal to the value of the net assets transferred by the corresponding Terminating Fund and (b) be issued at the net asset value per security of the Continuing Fund as of the close of business on the effective date of the applicable Merger.

(iv)          Each Terminating Fund will subsequently redeem its outstanding securities and distribute the corresponding securities of the Continuing Fund to the securityholders of the Terminating Fund on a dollar-for-dollar basis.

(v)           In each case, the investors in the Terminating Funds will receive either the same series of securities of the Continuing Funds as such investors hold in the Terminating Funds or an equivalent series of securities with attributes similar to those of the series of securities held by such investors in the Terminating Funds.

(vi)          The Continuing Funds will not assume any liabilities of the corresponding Terminating Funds and the Terminating Funds will retain sufficient assets to satisfy their respective estimated liabilities, if any, as of the effective date of the respective Merger.

(vii)         The Terminating Funds will distribute a sufficient amount of their net income and net realized capital gains, if any, to securityholders to ensure that the Terminating Funds will not be subject to tax for their current tax year.

(viii)        Each Terminating Fund will be wound up as soon as reasonably possible following the completion of the applicable Merger.

28.          Securityholders of the Terminating Funds will have the right to redeem their securities prior to the Mergers should they wish to do so up to the close of business on the last business day before the effective date of the Merger.

29.          Following the Securityholders’ Meetings, a press release announcing the results of such meetings in respect of the Mergers will be issued and filed.

30.          Following the implementation of the Mergers, the Continuing Funds will continue as publicly offered open-ended mutual funds offering securities in the Jurisdictions or as classes of a mutual fund corporation.

31.          No commission or other fee will be charged to investors in connection with the Mergers on the exchange of securities of the Terminating Funds for the securities of the corresponding Continuing Fund.

Merger Benefits

32.          The Manager believes that the Mergers are beneficial to securityholders of the Terminating Funds and corresponding Continuing Funds for the following reasons:

(i)            Economies of scale: The Mergers will provide economies of scale by eliminating duplicative administrative and regulatory costs of operating the Terminating Funds and the corresponding Continuing Funds as separate mutual funds. The Mergers will also allow the Manager to make its product offering smaller and simpler, and therefore easier for investors to navigate.

(ii)           Flexible mandate of the Continuing Fund: In certain cases, the Continuing Funds provide a substantially similar yet broader or more flexible mandate with consistency of management that the Manager believes provides those Continuing Funds with broader investment opportunities that may lead to increased return potential.

(iii)          Increased diversification: In certain cases, the assets of the Terminating Funds have decreased to such a point where it has become inefficient to manage a Terminating Fund as a standalone fund and provide proper diversification. Following the Mergers, the Continuing Funds will have more assets allowing for increased portfolio diversification opportunities and a smaller proportion of assets set aside to fund redemptions.

(iv)          Similar or lower fees: Terminating Fund investors will receive securities of the Continuing Fund that have a management fee and a fixed administration fee that is substantially similar and/or lower than the management fee charged in respect of the securities of the Terminating Fund that they currently hold.

Decision

The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.

The decision of the Principal Regulator under the Legislation is that the Requested Relief is granted.

“Vera Nunes”
Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission