Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger and to suspend the rights of redemption of the units of continuing funds pursuant to the mergers -- approval required because merger does not meet the criteria for pre-approval -- merging funds have different investment objectives -- fee structures of terminating funds and corresponding continuing funds not substantially similar -- five-days suspension of redemptions needed to facilitate operational steps to transfer units upon completion of mergers.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.5(1)(d), 5.6(2)(a)(ii), 19.1.

March 10, 2010

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

GOODMAN & COMPANY,

INVESTMENT COUNSEL LTD.

(the Filer)

AND

DIVERSITRUST STABLE INCOME FUND

(the Terminating Fund)

AND

DYNAMIC STRATEGIC YIELD FUND

(the Continuing Fund, and together with the

Terminating Fund, the Funds)

AND

DYNAMIC GLOBAL DIVIDEND VALUE FUND AND

DYNAMIC ENERGY INCOME FUND

(the Other Continuing Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for (i) approval of the merger (the Merger) of diversiTrust Stable Income Fund (the Terminating Fund) into Dynamic Strategic Yield Fund (the Continuing Fund) pursuant to clause 5.5(1)(b) of National Instrument 81-102 -- Mutual Funds (NI 81-102) (the 81-102 Merger Approval) and (ii) approval pursuant to clause 5.5(1)(d) of NI 81-102 of the suspension of the rights of redemption of Series A units of the Continuing Fund and the Other Continuing Funds distributed pursurant to the Merger and the Other Mergers (as defined below) for up to five (5) business days subsequent to completion of such mergers (the 81-102 Redemption Approval, and collectively with the 81-102 Merger Approval, the 81-102 Approval).

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

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

(b) the Filer has 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 provinces and territories of Canada, other than the province of Ontario (the Non-Principal Jurisdictions).

Interpretation

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

Representations

This decision is based on the following facts represented by the Filer:

81-102 Merger Approval

1. The Filer intends to merge the Terminating Fund into the Continuing Fund, which will involve the transfer of assets of the Terminating Fund in exchange for series A units (the Series A Units) of the Continuing Fund. Unitholders of the Terminating Fund will receive Series A Units of the Continuing Fund, the value of which are equal to the net asset value (NAV) of the units held by such unitholder in the Terminating Fund. The Filer also intends to merge diversiGlobal Dividend Value Fund with Dynamic Global Dividend Value Fund, diversiTrust Energy Income Fund with Dynamic Energy Income Fund and each of diversiTrust Income Fund, diversiTrust Income+ Fund and diversiYield Income Fund with Dynamic Strategic Yield Fund on the same basis (collectively, the Other Mergers).

2. The Filer is a corporation existing under the Business Corporations Act (Ontario) (the OBCA) and is registered as a portfolio manager under the securities legislation of Ontario, Alberta, British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Québec and as a commodity trading manager under the Commodity Futures Act (Ontario).

3. At the time that the Merger steps are completed, the Filer will manage the investment portfolios of each of the Terminating Fund and the Continuing Fund.

4. Each Fund was established pursuant to a declaration of trust under the laws of the Province of Ontario and the Filer is the trustee and manager of each Fund. Accordingly, each Fund is an associate of the Filer.

5. Each Fund is a mutual fund for the purposes of the Legislation.

6. The Continuing Fund offers its Series A Units and certain other series of units in all of the provinces and territories of Canada on a continuing basis pursuant to a simplified prospectus dated December 23, 2009.

7. The head office of the Filer is located in Ontario.

8. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada (the Canadian Legislation) and are not on the list of defaulting reporting issuers maintained under such securities legislation.

9. Unless an exemption has been obtained, each of the Funds follows the standard investment restrictions and practices established under the Canadian Legislation.

10. The NAV for units of each of the Terminating Fund and the Continuing Fund is calculated on a daily basis on each day that the Toronto Stock Exchange (the TSX) is open for trading.

11. The board of directors of the Filer approved the Merger on December 8, 2009 and a press release and material change report in respect of the Merger was filed on SEDAR in December 2009.

12. As required by National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107), an Independent Review Committee (IRC) has been appointed for the Funds, and the Filer presented the terms of the Merger to the IRC for a recommendation. The IRC considered the proposed Merger and provided a positive recommendation to the Filer on the basis that the Merger would achieve a fair and reasonable result for each of the Funds.

13. Unitholders of the Terminating Fund approved the Merger at a special meeting of unitholders held on March 2, 2010 (the Meeting).

14. In connection with the Meeting, the Filer, as manager of the Terminating Fund, sent to the unitholders of the Terminating Fund a notice of special meeting of unitholders and joint management information circular (the Circular) each dated January 20, 2010 and a related form of proxy (collectively, the Meeting Materials).

15. The Filer intends to rely on the exemption from the requirement to send annual and interim financial statements to unitholders of the Terminating Fund that was granted by the Principal Regulator to all mutual funds managed by the Filer pursuant to an order dated October 27, 2008. The Filer has sent to the unitholders of the Terminating Fund Part A of the simplified prospectus of the Continuing Fund dated as of December 23, 2009, as well as Part B of such simplified prospectus as it relates to the Continuing Fund. The Circular prominently disclosed where unitholders of the Terminating Fund can obtain the most receint interim and annual financial statements.

16. It is proposed that the Merger will occur on or about March 26, 2010 (the Merger Date), subject to regulatory and unitholder approvals.

17. Following the Merger, the Continuing Fund will continue as a publicly offered open-end mutual fund and the Terminating Fund will be wound up and terminated.

18. Unitholders of the Terminating Fund have been provided with tax disclosure about the ramifications of the Merger as well as the differences between the Terminating Fund and Continuing Fund in the Meeting Materials.

19. The Merger will take place on a non-taxable basis.

20. The Merger is expected to take place using the following steps:

(a) Effective as of close of business on March 16, 2010, the Terminating Fund will be de-listed from the TSX.

(b) On the Merger Date, the Terminating Fund will transfer all of its assets (other than such assets as are sufficient to satisfy its liabilities) to the Continuing Fund in exchange for Series A Units of the Continuing Fund. The Terminating Fund will receive Series A Units of the Continuing Fund, the value of which is equal to the NAV of the Terminating Fund, in each case calculated as of the close of business on the Merger Date. Unitholders of record as of the Merger Date will receive a distribution on the Merger Date that would have otherwise been received on March 31, 2010 had the Terminating Fund not been terminated. The Terminating Fund may also make additional distributions.

(c) Immediately thereafter, the Series A Units of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund and the unitholder's units of the Terminating Fund will be redeemed and cancelled. Each unitholder of the Terminating Fund will receive Series A Units of the Continuing Fund, the value of which are equal to the NAV of the units of the Terminating Fund previously held by the unitholder as of the close of business on the Merger Date. While the distribution of Series A Units of the Continuing Fund to unitholders of the Terminating Fund will occur immediately following the Mergers, it is not expected that the Series A Units will immediately appear in the individual unitholder's account. As a result, immediately following the Merger Date, there may be a period of up to five (5) business days of illiquidity (the Illiquidity Period) during which time the individual unitholders of the Terminating Fund may not be able to redeem their Series A Units of the Continuing Fund. Following the Illiquidity Period, individual unitholders will be able to redeem their Series A Units in accordance with the redemption procedures of the Continuing Fund without a corresponding redemption fee. This Illiquidity Period may also to the Other Continuing Funds upon completion of each of the Other Mergers.

(d) Subsequent to completion of the Merger, the Terminating Fund will be wound up and terminated.

(e) The Filer will issue a press release forthwith after the Merger is completed announcing the completion of the Merger and the ratio by which units of the Terminating Fund were exchanged for Series A Units of the Continuing Fund.

21. The Terminating Fund and the Continuing Fund are each a mutual fund trust under the Tax Act and, accordingly, units of all of the Funds are "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans and tax-free savings accounts.

22. Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102 because:

(a) the fundamental investment objective of the Terminating Fund may not be considered to be substantially similar to the fundamental investment objective of the Continuing Fund; and

(b) the Funds may be considered to not have the same fee structure.

23. In accordance with the requirements of NI 81-102, the Continuing Fund and the Terminating Fund will bear none of the costs and expenses associated with the 81-102 Merger, and no sales charges, redemption fees or other fees or commissions will be payable by unitholders of the Terminating Fund in connection with the Merger.

24. The management fee for the Terminating Fund is 1.1% of NAV plus a service fee of 0.40% and the management fee for the Series A Units of the Continuing Fund is 1.85% of NAV. While the management fees of the Continuing Fund are higher than the Terminating Fund, the expenses associated with each Fund vary and the unitholders of the Terminating Fund are able to switch to other open-end funds managed by the Filer.

25. Securityholders of the Terminating Fund will continue to have the rights of redemption provided under the Terminating Fund's declaration of trust dated as of August 22, 2003, as amended January 7, 2004 and as amended October 31, 2007, until the completion of the Merger.

26. In the opinion of the Filer, the Merger will not adversely affect unitholders of the Terminating Fund or the Continuing Fund and will in fact be in the best interests of unitholders of the Terminating Fund. The Filer believes that the Merger will be beneficial to unitholders of the Terminating Fund for the following reasons:

(a) The Continuing Fund has a larger portfolio and broader investment mandate than the Terminating Fund, and so should offer improved portfolio diversification to unitholders of the Terminating Fund;

(b) Unitholders of the Terminating Fund should benefit from increased economies of scale and lower proportionate fund operating expenses as unitholders of the Continuing Fund, as the Merger is expected to eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate investment fund which costs are borne by the Terminating Fund and, therefore, indirectly by the unitholders;

(c) Series A units of the Continuing Fund will have greater liquidity through daily purchases and redemptions of Units than the Terminating Fund and the Merger will eliminate the discount to NAV for the Terminating Fund;

(d) Changes to the tax treatment of income trusts (which will result in them generally being taxed at the same rate as corporations beginning in January 2011) have resulted in a reduction in the number of income trusts in which the Terminating Fund can invest due to merger and acquisition activity and conversions back into corporations, and it is anticipated that this trend will continue. The Filer believes that the interests of the unitholders of the Terminating Fund will be better served by being invested in the larger Continuing Fund with a more flexible mandate; and

(e) The Continuing Fund allows greater unitholder flexibility with respect to switches, reclassifications and conversions.

81-102 Redemption Approval

27. The Illiquidity Period that may apply to the Merger and each of the Other Mergers is required in order to facilitate the operational steps required to transfer the Series A units of the Continuing Fund and the Other Continuing Funds upon completion of the Merger and the Other Mergers. The Filer serves as the transfer agent of the Continuing Fund and the Other Continuing Funds. Upon completion of the Merger and the Other Mergers, unitholders acquiring Series A units of the Continuing Fund and the Other Continuing Funds will need to have an account established on the Filer's unitholder recordkeeping system. This process will require extensive communication and coordination among various entities and may take up to five (5) business days to complete after the Merger and the Other Mergers are completed.

28. The Illiquidity Period that may apply to the Merger and each of the Other Mergers will be considered to be a suspension of the rights of securityholders to request that the Continuing Fund and each of the Other Continuing Funds redeem their securities and will require approval of the Principal Regulator pursuant to clause 5.5(1)(d) of NI 81-102.

29. As required by NI 81-107, an IRC has been appointed for the Funds, the terminating funds for the Other Mergers (the Other Terminating Funds) and the Other Continuing Funds, and the Filer presented the terms of the Merger and the Other Mergers to the IRC for a recommendation. The IRC considered the proposed Merger and Other Mergers and provided a positive recommendation to the Filer on the basis that the Merger and the Other Mergers would achieve a fair and reasonable result for each of the Funds, the Other Terminating Funds and the Other Continuing Funds.

30. Unitholders of each of diversiGlobal Dividend Value Fund, diversiTrust Income Fund and diversiYield Income Fund approved the merger applicable to such terminating fund at special meetings of unitholders held on March 2, 2010, and unitholders of each of diversiTrust Energy Income Fund and diversiTrust Income+ Fund will be asked to approve the merger applicable to such terminating fund at adjourned special meetings of such unitholders scheduled to be held on March 16, 2010.

31. Following the Merger and the Other Mergers, Continuing Fund and each Other Continuing Fund will continue as a publicly offered open-end mutual fund and Terminating Fund and each Other Terminating Funds will be wound up and terminated.

32. The Funds, the Other Terminating Funds and the Other Continuing Funds will bear none of the costs and expenses associated with any of the Merger and the Other Mergers, and no sales charges, redemption fees or other fees or commissions will be payable by unitholders of any of the Terminating Fund and Other Terminating Funds in connection with any of the Mergers.

33. In the opinion of the Filer, the Merger and Other Mergers will not adversely affect unitholders of the Funds, Other Terminating Funds, or Other Continuing Funds and will in fact be in the best interests of unitholders of each of the Terminating Fund and the Other Terminating Funds.

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 81-102 Merger Approval is granted.

The decision of the Principal Regulator under the Legislation is that the 81-102 Redemption Approval is granted provided that the Illiquidity Period in respect of the Continuing Fund and each of the Other Continuing Funds does not extend beyond five (5) business days from the date of completion of the Merger and the Other Mergers.

"Darren McKall"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission