Goodman & Company, Investment Counsel Ltd. - MRRS Decision

MRRS Decision

Headnote

MRRS -- relief to permit certain funds to invest, directly or indirectly, in silver and platinum as part of a defensive strategy for when equity markets are uncertain or volatile -- investment in each of silver and platinum is subject to a limit of 5% of net assets -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.3(f), 2.3(h), 19.1.

June 12, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

THE NORTHWEST TERRITORIES, NUNAVUT

AND THE YUKON

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

GOODMAN & COMPANY, INVESTMENT COUNSEL LTD.

(the "Manager")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application in connection with the funds listed in Appendix "A" (the "Funds") for a decision under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the requirements in subsections 2.3(f) and (h) of National Instrument 81-102 Mutual Funds ("NI 81-102") permit the Manager of the funds listed in Appendix "A" attached hereto (the "Funds"), on behalf of each of the Funds, to invest up to 5% of the net assets of each Fund, taken at the market value thereof at the time of investment, in each of silver and platinum (or the equivalent in certificates or specified derivatives of which the underlying interest is silver or platinum) (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission (the "OSC") 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 meanings in this decision unless they are defined in this decision.

Representations

1. Each of the Funds is established under the laws of the Province of Ontario or of Canada as investment funds that are (i) open-ended mutual fund trusts or (ii) open-ended mutual fund corporations.

2. A simplified prospectus and annual information form of Dynamic Funds, including the Funds, each dated December 19, 2007, (the "Prospectus") has been filed in all Jurisdictions for purposes of distribution of securities by the Funds.

3. Each of the Funds is a reporting issuer under the securities laws of each of the Jurisdictions.

4. The investment objectives of each of the Funds is as follows:

(a) Dynamic Dividend Fund seeks to maximize dividend income through investment primarily in preferred and equity securities of Canadian companies;

(b) Dynamic Dividend Income Fund seeks to achieve moderate income through investment primarily in preferred and equity securities of Canadian companies;

(c) Dynamic Power Balanced Fund seeks to maximize long-term capital appreciation in a manner that outperforms the Fund's benchmark primarily by investing in both equity and fixed-income securities with the goal of achieving a 50/50 balance;

(d) Dynamic Power Canadian Growth Fund seeks to achieve long-term capital growth by investing primarily in equity securities of Canadian businesses;

(e) Dynamic Power Small Cap Fund seeks to achieve long-term capital growth by investing primarily in securities of small-sized Canadian corporations;

(f) Dynamic Diversified Real Asset Fund seeks to achieve long-term capital appreciation through investment primarily in securities which are expected to provide a hedge against inflation. The Fund invests primarily in equity securities, fixed-income securities, permitted comities and securities of other mutual funds;

(g) Dynamic American Value Fund seeks to achieve long-term capital growth by investing primarily in equity securities of United States-based businesses;

(h) Dynamic Global Discovery Fund seeks to provide long-term capital growth through investment in a broadly diversified portfolio consisting primarily of equity securities of businesses based outside of Canada;

(i) Dynamic Global Dividend Value Fund seeks to provide long-term capital growth through investment in a broadly diversified portfolio consisting primarily of equity securities of businesses located around the world;

(j) Dynamic Global Value Balanced Fund seeks to achieve long-term capital growth through investment in a broadly diversified portfolio consisting primarily of equity securities and debt obligations of businesses based outside of Canada;

(k) Dynamic Dividend Income Class seeks to achieve moderate income through investment primarily in preferred and equity securities of Canadian companies as well as in securities of other mutual funds;

(l) Dynamic Power Canadian Growth Class seeks to achieve long-term capital growth by investing primarily in equity securities of Canadian businesses;

(m) Dynamic Global Discovery Class seeks to provide long-term capital growth through investment in a broadly diversified portfolio consisting primarily of equity securities of businesses based outside of Canada, as well as securities of other mutual funds; and

(n) Dynamic Global Dividend Value Class seeks to provide long-term capital growth through investment in a broadly diversified portfolio consisting primarily of equity securities of businesses located around the world, as well as in securities of other mutual funds.

5. The Manager is the manager, trustee (where applicable), portfolio adviser, principal distributor/promoter and registrar of the Funds.

6. NI 81-102 allows mutual funds to purchase gold or permitted gold certificates up to 10% of the net assets of the mutual fund, taken at market value at the time of purchase, in its recognition that gold is a fairly liquid commodity. The Funds are requesting a similar investment flexibility in the form of an exemptive relief that would permit them to make investments in two other precious metals, silver and platinum, although to a reduced limit, not exceeding 5% for each of silver and platinum, based on the same rationale applied for gold and its liquidity.

7. The Manager believes that the markets in these precious metals are highly liquid, and there are no liquidity concerns that should lead to a conclusion that investments in silver and platinum need to be restricted to even 10% to preserve a Fund's liquidity.

8. The Manager is well known in Canadian capital markets for its expertise and investment strategies involving precious metals and minerals. The Manager does a substantial amount of research in this area and believes that this expertise and research should be available to unitholders of the Funds.

9. The Manager intends to invest in precious metals, including silver and platinum, as a defensive strategy in adverse market economic, political or other circumstances. The Manager considers precious metals to be a viable alternative to holding cash or cash equivalents in such markets. The Manager has advised that permitting the investments in silver and platinum, along with gold, will permit the portfolio manager of each of the Funds additional flexibility to increase gains for the Funds in certain market conditions, which may have otherwise caused the Funds to have significant cash positions and therefore deter from its ability to achieve its investment objective of providing long-term capital appreciation and value.

10. The Manager believes that the potential volatility or speculative nature of silver and platinum (or the equivalent in certificates or specific derivatives of which the underlying interest is silver or platinum) is no greater than that of gold or of equity or debt securities of issuers in which the Funds' invest and, in the portfolio context of the Funds, can provide additional diversification to the Funds.

11. As the investments in each of silver and platinum (or the equivalent in certificates or specified derivatives of which the underlying interest is silver or platinum) would be less than 5% of the net assets of each Fund, taken at the market value, at the time of investment, there would be no significant change in the risk profile of a Fund. The Prospectus will be amended to reflect that the Funds will invest in precious metals and the risks associated with such investments.

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, provided that:

(a) The investment strategy section in Part B of the simplified prospectus for each of the Funds will include disclosure to the effect that the Fund (i) may invest in precious metals when deemed appropriate by the portfolio adviser and (ii) has received approval of the Canadian securities regulators to permit the Fund to invest up to 5% of its assets in each of silver and platinum (or the equivalent in certificates or specified derivatives of which the underlying interest is silver or platinum); and

(b) The risks section in Part B of the simplified prospectus for each of the Funds will include disclosure to the effect that (i) the unit value of the Fund will be affected by changes in the price of, among other things, the price of gold, silver and platinum, (ii) commodity prices can change as a result of supply and demand, speculation and government and regulatory activities and (iii) gold, silver and platinum are also affected by international monetary and political factors, central bank activity and changes in interest rates and currency values.

"Rhonda Goldberg"
Manager, Investment Funds Branch
Ontario Securities Commission

 

Appendix "A"

Dynamic Dividend Fund
Dynamic Dividend Income Fund
Dynamic Power Small Cap Fund
Dynamic Power Canadian Growth Fund
Dynamic Power Balanced Fund
Dynamic Diversified Real Asset Fund
Dynamic American Value Fund
Dynamic Global Discovery Fund
Dynamic Global Dividend Value Fund
Dynamic Global Value Balanced Fund
Dynamic Global Discovery Class
Dynamic Dividend Income Class
Dynamic Power Canadian Growth Class
Dynamic Global Dividend Value Class