By James Lanton
(October 23 – 16:35 ET) – Dynamic Mutual Funds has published an Information Circular dealing with fund mergers that are being pitched as deals to increase economies of scale, yet the planned deals may result in increased costs for investors. The merger proposal was announced on October 16.
The fund company is proposing to merge the Dynamic Global Income & Growth Fund with the Dynamic Global Partners Fund, and the Dynamic Power Canadian Fund with the Dynamic Power Canadian Growth Fund. The circular states the rationale for the proposed mergers thusly, “As a result of the mergers, the size of each continuing fund will increase and the post-merger continuing funds should experience greater operating efficiencies due to the economies of scale associated with increases of assets under management.”
After the merger between the Global Income & Growth Fund and the Global Partners Fund, unitholders in the combined fund will pay a 2% management fee. The fee is unchanged for unitholders in the Partners fund, but rises from the 1.75% currently paid by the unitholders of the Income & Growth fund.
Unitholders in the merged Power Canadian Growth Fund will pay a management fee of 2%, with an overall MER capped at 2.25%; and a “performance fee” of 10% of the outperformance by the fund of its benchmark, with a 3% cap. This is the fee structure that the Power Canadian Fund already operates under.
Holders of the Power Canadian Growth Fund currently pay just a 2% management fee, while there is no MER cap, there is no performance fee either. According to the circular, “Had the fee modification been in force during Dynamic Power Canadian Growth Fund’s last completed fiscal period, the fund’s management expense ratio (after performance fees) would have been 4.22%,” the circular reveals.
Dynamic intends for the mergers will be effected on a tax-deferred basis, noting that to the extent that one of the funds involved has accrued or realized losses, its merger partner will elect to trigger capital gains against which losses may be applied.
The company expects that in the deal between Dynamic Power Canadian Fund and Dynamic Power Canadian Growth Fund, gains will fully offset losses. In the case of the merger between Dynamic Global Income & Growth Fund and Dynamic Global Partners Fund, it is anticipated that there will be some losses that will not be able to be utilized in connection with the merger, and any such losses will expire unutilized.
Dynamic says that if it has to sell stocks as part of the mergers it will absorb any brokerage fees. The meeting to consider the mergers will be held on November 14 at the offices of Toronto Board of Trade.