SHSC Financial Inc. and Social Housing Canadian Money Market Fund

Decision

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of Mutual Fund Merger -- approval required because merger does not meet the criteria for pre-approval -- merger has differences in investment objectives -- mergers not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act -- financial statements of continuing funds not required to be sent to unitholders of the terminating funds in connection with the merger and future mergers, provided the information circular sent for unitholder meeting clearly discloses the various ways unitholders can access the financial statements.

Applicable Legislative Provisions

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

November 12, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF ONTARIO

AND

IN THE MATTER OF

SHSC FINANCIAL INC.

(the Filer) AND

SOCIAL HOUSING CANADIAN MONEY

MARKET FUND

DECISION

Background

The Ontario Securities Commission (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of Ontario (the Legislation) for:

(a) approval under paragraph 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) of the merger (the Proposed Merger) of Social Housing Canadian Money Market Fund (the Terminating Fund) with Social Housing Canadian Short-Term Bond Fund (the Continuing Fund) (the Terminating Fund and the Continuing Fund are sometimes collectively referred to as the Funds and individually as a Fund) (the Approval); and

(b) relief from the financial statement delivery requirements contained in subsection 5.6(1)(f)(ii) of NI 81-102 in respect of the:

(i) the Proposed Merger; and

(ii) all future mergers of mutual funds manager by the Filer or an affiliate of the Filer (the Future Mergers; which together with the Proposed Merger are referred to as the Mergers and individually as a Merger) (the FS Exemption).

(The Approval and the FS Exemption are, collectively, the Exemption Sought)

Interpretation

Terms defined in 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.

1. The Filer is the manager and State Street Trust Company Canada (State Street) is the trustee of the Funds. The Filer is a corporation incorporated under the Business Corporations Act (Ontario).

2. The Funds are open-end investment trusts governed by an Amended and Master Trust Agreement dated as of June 7, 2004 between the Filer and State Street.

3. Each of the Funds is a reporting issuer in the province of Ontario and is not in default of any requirements of applicable securities legislation.

4. The Filer intends to reorganize the Funds such that the Terminating Fund will be merged into the Continuing Fund.

5. The Series A units of the Funds are offered under a combined simplified prospectus and annual information form each dated July 8, 2009, as amended (the Prospectus).

6. Each of the Funds follows the standard investment restrictions and practices set out in NI 81-102.

7. The net asset value for the Series A units of each of the Funds is calculated on a daily basis on each day that the Toronto Stock Exchange and Canadian banks are open for business.

8. The portfolio and other assets of the Terminating Fund to be acquired by the Continuing Fund arising from the Proposed Merger will be acceptable, on or prior to November 30, 2009, the effective date of the Proposed Merger (the Effective Date), to the portfolio advisor of the Continuing Fund and will be consistent with the investment objective of the Continuing Fund.

9. No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolio of the Terminating Fund.

10. Unitholders of the Terminating Fund will continue to have the right to redeem their Series A units of the Terminating Fund for cash or to switch their investment to other mutual funds offered and managed by the Filer at any time up to the close of business on the business day immediately before the Proposed Merger.

11. A press release was issued on September 16, 2009. Amendments to the simplified prospectus and annual information form of the Terminating Fund with respect to the Proposed Merger were filed via SEDAR on September 16, 2009. A material change report was filed on September 16, 2009.

12. A form of proxy, notice of meeting and management information circular (the Meeting Materials) were mailed to unitholders of the Terminating Fund on October 21, 2009 and filed on SEDAR in accordance with applicable securities legislation. The management information circular provides sufficient information about the Proposed Merger to permit unitholders to make an informed decision about the Proposed Merger. The Prospectus and Amendment No. 1 were previously sent to all unitholders of the Terminating Fund.

13. Unitholders of the Terminating Fund will be asked to approve the Proposed Merger as a meeting to be held on November 16, 2009. Implicit in the approval of the unitholders of the Proposed Merger is the adoption of the investment objectives and strategies of the Continuing Fund.

14. If approved by unitholders, the Terminating Fund will merge into the Continuing Fund on or about the close of business on the Effective Date and the Continuing Fund will continue as a publicly offered open-end mutual fund governed by the laws of Ontario.

15. The Terminating Fund will be wound up as soon as reasonably possible following the Proposed Merger.

16. The Filer will pay for the costs of the Proposed Merger. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the date of the Proposed Merger and legal, proxy solicitation, printing, mailing and regulatory fees.

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

(a) contrary to section 5.6(1)(a)(ii), a reasonable person would not consider the Terminating Fund and the Continuing Fund to have substantially similar fundamental investment objectives;

(b) contrary to section 5.6(1)(b) of NI 81-102, the Proposed Merger will not be completed as a qualifying exchange or a tax-deferred transaction under Income Tax Act (Canada) (the Tax Act); and

(c) contrary to section 5.6(1)(f)(ii) of NI 81-102, the most recent annual and interim financial statements for the Continuing Fund were not be sent to the unitholders of the Terminating Fund. Instead, the Filer sent to each unitholder of the Terminating Fund a management information circular fully describing the Proposed Merger, included a statement describing how unitholders can obtain the financial statements, management reports of fund performance and annual information form of the Continuing Fund.

18. The tax implications of the Proposed Merger as well as the differences between the Terminating Fund and the Continuing Fund are described in the Meeting Materials so that the unitholders of the Terminating Fund may consider this information before voting on the Proposed Merger. The Proposed Merger will be effected on a taxable basis. Currently, investors in the Funds are limited to certain prescribed social housing providers under the Social Housing Reform Act 2000 (Ontario) each of which is exempt from tax under Part I of the Tax Act on the basis of being a non-profit organization for purposes of paragraph 149(1)(1) of the Tax Act.

19. The Filer believes that the Proposed Merger will be beneficial to unitholders of the Terminating Fund and the Continuing Fund for the following reasons:

(a) offering two short-term funds creates confusion among investors;

(b) money market funds in general are producing negligible returns as a result of low short-term interest rates; short-term bond funds in general realize higher returns;

(c) unitholders of both the Terminating Fund and the Continuing Fund will enjoy increased economies of scale as part of a larger continuing fund; and

(d) the Continuing Fund will have a portfolio of greater value allowing for increased portfolio diversification opportunities.

20. As required by National Instrument 81-107 - Independent Review Committee for Investment Funds, the Filer presented the terms of the Proposed Merger to the independent review committee of the Funds (the IRC) for its review. The IRC determined that the decision of the Filer to complete the Proposed Merger achieves a fair and reasonable result for the Funds.

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for it to make the decision.

The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:

(a) the management information circular sent to unitholders in connection with a Merger provides sufficient information about the Merger to permit unitholders to make an informed decision about the Merger;

(b) the management information circular sent to unitholders in connection with a Merger prominently discloses that unitholders can obtain the most recent interim and annual financial statements of the applicable continuing fund by accessing the SEDAR website at www.sedar.com, by accessing the Filer's website, by calling the Filer's toll-free telephone number or by faxing a request to the Filer;

(c) upon request by a unitholder for financial statements, the Filer will make best efforts to provide the unitholder with financial statements of the applicable continuing fund in a timely manner so that the unitholder can make an informed decision regarding a Merger; and

(d) each applicable terminating fund and the applicable continuing fund have an unqualified audit report in respect of their last completed financial period.

Rhonda Goldberg
Manager, Investment Funds Branch
Ontario Securities Commission