Securities Law & Instruments

Headnote

Exemptive relief for a mutual fund dealer fromthe requirement to become a member of the Mutual Fund DealersAssociation.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am s.25.

Applicable Ontario Securities CommissionRule

Rule 31-506 - SRO Membership - Mutual Fund Dealers,s. 2.1.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

DYNAMIC MUTUAL FUNDS LTD.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the provinces of British Columbia and Ontario (the "Jurisdictions")has received an application (the "Application") fromDynamic Mutual Funds Ltd. (the "Registrant") for adecision pursuant to the securities legislation of the Jurisdictions(the "Legislation") that the Registrant not be requiredto file an application to become a member of the Mutual FundDealers Association of Canada (the "MFDA") and tobecome a member of the MFDA.

AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application.

AND WHEREAS it has been represented bythe Registrant to the Decision Makers that:

1. the Registrant is a corporation subsistingunder the laws of the Province of Ontario and is registeredas a dealer in the category of "mutual fund dealer"in each of the Jurisdictions;

2. the Registrant also is registered as anadviser in the categories of "investment counsel"and "portfolio manager" in Ontario;

3. the Registrant's principal business activityis managing mutual funds (the "Mutual Funds"), thesecurities of which are qualified for sale to the public insome or all of the provinces and territories of Canada pursuantto prospectuses for which receipts have been issued by therelevant Canadian securities administrators;

4. the Registrant also manages investmentsthrough other collective investment vehicles ("OtherFunds") currently consisting of a closed-end investmentfund that is listed on The Toronto Stock Exchange and fiveredeemable investment trusts (collectively, the "PooledFunds");

5. the Registrant also manages investmentson a segregated account basis;

6. the Registrant also engages in activitiesincidental to its principal business activities that currentlyinclude marketing the sale of its Mutual Funds and PooledFunds, servicing "in-house" accounts ("In-houseAccounts") for investors ("In-house Investors"),selling its Pooled Funds on a prospectus-exempt basis to accreditedinvestors and other investors and processing redemption ordersforwarded directly to the Registrant by clients holding MutualFunds in "client name" in the Jurisdictions;

7. to the best of the Registrant's knowledge,the In-house Investors currently are comprised exclusivelyof present or former directors, officers and employees ofthe Registrant and its affiliates, the members of the boardof governors of the Dynamic Mutual Funds, directors, officers,partners and employees of certain service providers of theRegistrant and relations and personal holding companies ofthe foregoing;

8. the Registrant's activities as a mutualfund dealer currently represent and will continue to representactivities that are incidental to its principal business activities;

9. the Registrant has agreed to the impositionof the terms and conditions on the Registrant's registrationas a mutual fund dealer set out in the attached Schedule "A",which outlines the activities the Registrant has agreed toadhere to in connection with its application for this Decision;

10. any person or company that is not currentlya client of the Registrant on the effective date of this Decision,will, before they are accepted as a client of the Registrant,receive prominent written notice from the Registrant that:

The Registrant is not currently a member,and does not intend to become, a member of the Mutual FundDealers Association; consequently, clients of the Registrantwill not have available to them investor protection benefitsthat would otherwise derive from membership of the Registrantin the MFDA, including coverage under any investor protectionplan for clients of members of the MFDA;

11. upon the next general mailing to its accountholders and in any event before November 30, 2002, the Registrantshall provide, to any client that was a client of the Registranton the effective date of this Decision, the prominent writtennotice referred to in paragraph 10 above;

AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

IT IS THE DECISION of the Decision Makerspursuant to the Legislation that, effective May 23, 2001, theRegistrant not be required to file an application to becomea member of the MFDA and to become a member of the MFDA;

PROVIDED THAT:

The Registrant complies with the terms and conditionson its registration under the Legislation as a mutual fund dealerset out in the attached Schedule "A".

July 9, 2002.

"David M. Gilkes"

 

SCHEDULE "A"

TERMS AND CONDITIONS OF REGISTRATION

OF

DYNAMIC MUTUAL FUNDS LTD.

AS A MUTUAL FUND DEALER

Definitions

For the purposes hereof, unless the contextotherwise requires:

(a) "Act" means, in Ontario, theSecurities Act, R.S.O. 1990, c.S5, as amended, and, in BritishColumbia, the Securities Act, R.S.B.C. 1996, c. 418;

(b) "Adviser" means an adviseras defined in the applicable Act;

(c) "Client Name Trade" means,for the Registrant, a trade to or on behalf of a personor company in securities of a mutual fund that is managedby the Registrant or an affiliate of the Registrant where,immediately before the trade, the person or company is shownon the records of the mutual fund or of an other mutualfund managed by the Registrant or an affiliate of the Registrantas the holder of securities of such mutual fund, and thetrade consists of:

(A) a purchase by the person or companythrough the Registrant of securities of the mutual fund;or

(B) a redemption by the person or companythrough the Registrant of securities of the mutual fund;

and where the person or company

(C) is a client of the Registrant thatwas not solicited by the Registrant; or

(D) was an existing client of the Registranton the Effective Date;

(d) "Effective Date" means May23, 2001;

(e) "Employee", for the Registrant,means:

(A) an employee of the Registrant;

(B) an employee of an affiliated entityof the Registrant; or

(C) an individual that is engaged toprovide, on a bona fide basis, consulting, technical,management or other services to the Registrant or toan affiliated entity of the Registrant, under a writtencontract between the Registrant or the affiliated entityand the individual or a consultant company or consultantpartnership of the individual and, in the reasonableopinion of the Registrant, the individual spends orwill spend a significant amount of time and attentionon the affairs and business of the Registrant or anaffiliated entity of the Registrant;

(f) "Employee", for a ServiceProvider, means an employee of the Service Provider or anaffiliated entity of the Service Provider, provided that,at the relevant time, in the reasonable opinion of the Registrant,the employee spends or will spend, a significant amountof time and attention on the affairs and business of:

(A) the Registrant or an affiliatedentity of the Registrant; or

(B) a mutual fund managed by the Registrantor an affiliated entity of the Registrant;

(g) "Executive", for the Registrant,means a director, officer or partner of the Registrant orof an affiliated entity of the Registrant or a member ofa board of governors relating to mutual funds managed bythe Registrant or an affiliated entity of the Registrant;

(h) "Executive", for a ServiceProvider, means a director, officer or partner of the ServiceProvider or of an affiliated entity of the Service Provider;

(i) "Exempt Trade", for the Registrant,means:

(i) a trade in securities of a mutualfund that is made between a person or company and an underwriteracting as purchaser or between or among underwriters;

(ii) in Ontario, a trade in securitiesof a mutual fund for which the Registrant would have availableto it an exemption from the registration requirementsof the Act if the Registrant were not a "market intermediary"as such term is defined in section 204 of the OntarioRegulation;

(iii) in British Columbia, a trade insecurities of a mutual fund for which the Registrant wouldhave available to it an exemption from the registrationrequirements of the Act; or

(iv) a trade in securities of a mutualfund for which the Registrant has received a discretionaryexemption from the registration requirements of the Act;

(j) "Fund-on-Fund Trade" meansa trade that consists of:

(i) a purchase, through the Registrant,of securities of a mutual fund that is made by anothermutual fund;

(ii) a purchase, through the Registrant,of securities of a mutual fund that is made by a personor company where the person or company, an affiliatedentity of the person or company, or an other person orcompany is, or will become, the counterparty in a specifiedderivative or swap with another mutual fund; or

(iii) a sale, through the Registrant,of securities of a mutual fund that is made by anothermutual fund where the party purchasing the securitiesis:

(A) a mutual fund managed by the Registrantor an affiliated entity of the Registrant; or

(B) a person or company that acquiredthe securities where the person or company, an affiliatedentity of the person or company, or an other personor company is, or was, the counterparty in a specifiedderivative or swap with another mutual fund;

and where, in each case, at least oneof the referenced mutual funds is a mutual fund that ismanaged by either the Registrant or an affiliated entityof the Registrant;

(k) "In Furtherance Trade" means,for the Registrant, a trade by the Registrant that consistsof any act, advertisement, or solicitation, directly orindirectly in furtherance of another trade in securitiesof a mutual fund, where the other trade consists of:

(i) a purchase or sale of securities ofa mutual fund that is managed by the Registrant or anaffiliated entity of the Registrant; or

(ii) a purchase or sale of securitiesof a mutual fund where the Registrant acts as the principaldistributor of the mutual fund;

and where, in each case, the purchase orsale is made by or through an other registered dealer ifthe Registrant is not otherwise permitted to make the purchaseor sale pursuant to these terms and conditions;

(l) "Managed Account" means, forthe Registrant, an investment portfolio account of a clientunder which the Registrant, pursuant to a written agreementmade between the Registrant and the client, makes investmentdecisions for the account and has full discretionary authorityto trade in securities for the account without obtainingthe client's specific consent to the trade;

(m) "Managed Account Trade" means,for the Registrant, a trade to, or on behalf of a ManagedAccount of the Registrant, where the trade consists of apurchase or redemption, through the Registrant of securitiesof a mutual fund, that is made on behalf of the ManagedAccount;

where, in each case,

(i) the Registrant is the portfolio adviserto the mutual fund;

(ii) the mutual fund is managed by theRegistrant or an affiliate of the Registrant; and

(iii) either of:

(A) the mutual fund is prospectus-qualifiedin the jurisdiction where the trade occurs; or

(B) the trade is not subject to theregistration and prospectus requirements of the Act;

(n) "Mutual Fund Instrument" meansNational Instrument 81-102 Mutual Funds, as amended;

(o) "Ontario Regulation" meansR.R.O. 1990, Reg. 1015, as amended, made under the OntarioAct;

(p) "Permitted Client" means aperson or company that is a client of the Registrant, andthat is, or was at the time the person or company becamea client of the Registrant:

(i) an Executive or Employee of the Registrant;

(ii) a Related Party of an Executive orEmployee of the Registrant;

(iii) a Service Provider or an affiliatedentity of a Service Provider;

(iv) an Executive or Employee of a ServiceProvider; or

(v) a Related Party of an Executive orEmployee of a Service Provider;

(q) "Permitted Client Trade" means,for the Registrant, a trade to a person who is a PermittedClient or who represents to the Registrant that he or sheis a person included in the definition of Permitted Client,in securities of a mutual fund that is managed by the Registrantor an affiliate of the Registrant, and the trade consistsof a purchase or redemption by the person through the Registrantof securities of the mutual fund;

(r) "Registered Plan" means aregistered pension plan, deferred profit sharing plan, registeredretirement savings plan, registered retirement income fund,registered education savings plan or other deferred incomeplan registered under the Income Tax Act (Canada);

(s) "Registrant" means DynamicMutual Funds Ltd.;

(t) "Related Party", for a person,means another person who is:

(i) the spouse of the person;

(ii) the issue of:

(A) the person,

(B) the spouse of the person, or

(C) the spouse of any person that isthe issue of a person referred to in subparagraphs (A)or (B) above;

(iii) the parent, grandparent or siblingof the person, or the spouse of any of them;

(iv) the issue of any person referredto in paragraph (iii) above; or

(v) a Registered Plan established by,or for the exclusive benefit of, one, some or all of theforegoing;

(vi) a trust where one or more of thetrustees is a person referred to above and the beneficiariesof the trust are restricted to one, some, or all of theforegoing;

(vii) a corporation where all the issuedand outstanding shares of the corporation are owned byone, some, or all of the foregoing;

(u) "securities", for a mutualfund, means shares or units of the mutual fund;

(v) "Seed Capital Trade" meansa trade in securities of a mutual fund made to a personsor company referred to in any of subparagraphs 3.1(1)(a)(i)to 3.1(1)(a)(iii) of the Mutual Fund Instrument;

(w) "Service Provider" means:

(i) a person or company that providesor has provided professional, consulting, technical, managementor other services to the Registrant or an affiliated entityof the Registrant;

(ii) an Adviser to a mutual fund thatis managed by the Registrant or an affiliated entity ofthe Registrant; or

(x) person or company that provides or hasprovided professional, consulting, technical, managementor other services to a mutual fund that is managed by theRegistrant or an affiliated entity of the Registrant.

For the purposes hereof, a person or companyis considered to be an "affiliated entity" of an otherperson or company if the person or company would be an affiliatedentity of that other person or company for the purposes of theOntario Securities Commission Rule 45-503 Trades To Employees,Executives and Consultants and British Columbia Instrument 45-507Trades to Employees, Executives and Consultants.

For the purposes hereof:

(y) "issue" and "sibling"includes any person having such relationship through adoption,whether legally or in fact;

(z) "parent" and "grandparent"includes a parent or grandparent through adoption, whetherlegally or in fact;

(aa) "registered dealer" meansa person or company that is registered under the Act asa dealer in a category that permits the person or companyto act as dealer for the subject trade; and

(bb) "spouse", for an Employeeor Executive, means a person who, at the relevant time,is the spouse of the Employee or Executive.

4. Any terms that are not specifically definedabove shall, unless the context otherwise requires, have themeaning:

(a) specifically ascribed to such term inthe Mutual Fund Instrument; or

(b) if no meaning is specifically ascribedto such term in the Mutual Fund Instrument, the same meaningthe term would have for the purposes of the Act.

Restricted Registration

Permitted Activities

5. The registration of the Registrant as amutual fund dealer under the Act shall be for the purposesonly of trading by the Registrant in securities of a mutualfund where the trade consists of:

(a) a Client Name Trade;

(b) an Exempt Trade;

(c) a Fund-on-Fund Trade;

(d) an In Furtherance Trade;

(cc) a Permitted Client Trade; or

(dd) a Seed Capital Trade;

provided that, in the case of all trades thatare only referred to in clauses (a) or (e), the trades are limitedand incidental to the principal business of the Registrant.