Goodman & Company, Investment Counsel Ltd. et al.
Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet criteria for pre-approval -- differences in investment objectives -- financial statements of continuing fund not required to be sent to unitholders of the terminating funds provided that information circular sent for the 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.
October 27, 2008
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
IN THE MATTER OF
THE PORTFOLIOS SET OUT IN SCHEDULE A
(the Portfolios)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Portfolios for a decision under the securities legislation of the Jurisdiction (the Legislation) for:
(a) approval of the Current Mergers, described in Schedule B and defined below, under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102); and
(b) relief from the financial statements delivery requirements contained in subsection 5.6(1)(f)(ii) of NI 81-102 in respect of:
(i) the Current Mergers; and
(ii) all future mergers of mutual funds managed by the Filer or an affiliate of the Filer (referred to as the Future Mergers and collectively with the Current Mergers, the Mergers)
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland & Labrador, Northwest Territories, Yukon and Nunavut (the Non-Principal Jurisdictions, together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 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:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Ontario and holds a registration in the categories of "investment counsel" and "portfolio manager" in Ontario. The Filer also holds a registration in the categories of "investment counsel" and "portfolio manager" or the equivalent in each of Quebec, British Columbia, Alberta, Manitoba, Saskatchewan, Nova Scotia and New Brunswick. The Filer is the manager, trustee, principal distributor and registrar of the Portfolios.
2. The head office of the Filer is located in Toronto, Ontario.
3. The Filer is not in default of securities legislation in any of the Jurisdictions.
The Portfolios
4. Each of the Portfolios are reporting issuers in the Jurisdictions and are not on the list of defaulting reporting issuers maintained in the Jurisdictions.
5. The Portfolios are not in default of securities legislation in any of the Jurisdictions.
6. Each Portfolio is an open-ended mutual fund trust that is subject to the provisions of NI 81-102. The securities of each Portfolio are qualified in each of the Jurisdictions pursuant to a simplified prospectus and an annual information form that have been previously filed under securities legislation.
The Reorganization
7. The reorganization of the Marquis Investment Program and the Radiant Strategic Portfolios (the Reorganization) to create a single streamlined wrap program is being proposed to encompass the mergers of products with similar mandates, and thereby eliminate overlap while achieving expense ratio cost-efficiencies for securityholders, to reduce management fees for many securityholders, to change the investment objectives of certain Continuing Portfolios (refer to Schedule D) to better reflect the evolving market environment, and to appoint new sub-advisors and underlying mutual funds designed to enhance the Portfolios.
8. The Filer proposes the following steps in connection with the Reorganization:
(a) To merge the mutual fund (each a Terminating Portfolio) identified under the heading "Terminating Portfolio" in Schedule B into the mutual fund (its Continuing Portfolio) identified beside the name of such Terminating Portfolio in Schedule B (individually, a Current Merger and, collectively, the Current Mergers).
(b) To change the name of certain current Portfolios without a Current Merger (refer to Schedule C).
(c) To change the investment objective of certain Continuing Portfolios as described in Schedule D.
(d) To "exchange" the securities of each series of a Terminating Portfolio for securities of an appropriate series of the applicable Continuing Portfolio. The term "exchange" as used in the context of a Current Merger means that the appropriate series of securities of a Continuing Portfolio is issued to the Terminating Portfolio, which then distributes such securities to its securityholders upon redemption of their securities of the Terminating Portfolio.
More particularly, securities of a series of a Terminating Portfolio will be exchanged for securities of the same series of the applicable Continuing Portfolio except as follows: Series C securities of Radiant High Growth Portfolio will be exchanged for Series A securities of Marquis MultiPartners Equity Portfolio (to be renamed as Marquis Growth Portfolio), Series A securities of Marquis Diversified Defensive Portfolio will be exchanged for newly created Series C securities of Marquis Diversified Balanced Portfolio (to be renamed as Marquis Institutional Balanced Portfolio) and Series I securities of Radiant Bond Portfolio will be exchanged for Series O securities of Dynamic Canadian Bond Fund. While the series name of the applicable Continuing Portfolio differs in these cases from the series name of the Terminating Portfolio, there are no differences between the series and, accordingly, there will be no increase in management fees or any other fees or costs borne by securityholders for such exchanges.
(e) To exchange Series C securities of Radiant Growth Portfolio (which are no longer offered for sale) for Series A securities of such portfolio (to be renamed Marquis Balanced Growth Portfolio).
(f) To no longer offer the Series I securities presently offered pursuant to the simplified prospectus dated February 29, 2008 of each of Radiant All Equity (to be renamed as Marquis Equity Portfolio) and Radiant Growth Portfolio (to be renamed as Marquis Growth Portfolio).
(g) The management fees of an applicable Continuing Portfolio will either be reduced to that of or will remain the same as its Terminating Portfolio(s).
(h) To appoint new sub-advisors and terminate the services of certain existing sub-advisors for certain Portfolios.
(i) To invest in new underlying mutual funds and remove other existing ones for certain Portfolios.
9. The Current Merger is subject to securityholder approval and regulatory approval for the applicable Terminating Portfolios and Continuing Portfolios.
10. Securityholders of each of the Terminating Portfolios and the applicable Continuing Portfolios will be asked to approve their Current Mergers at special meetings of securityholders to be held on or around November 4, 2008 (the Meetings). In connection with the Meetings, the Filer has sent the notice of Meetings, the management information circular (the Circular) and a related form of proxy to the securityholders of the applicable Portfolios (the Meeting Materials). If securityholders approve the applicable Current Mergers and applicable regulatory approvals are received, it is proposed that the Reorganization will occur after the close of business on a date to be determined by the Filer (the Effective Date), currently expected to be on or around November 14, 2008. The Filer may, in its discretion, postpone until a later date (which shall be not later than December 31, 2008) and/or elect to not proceed with any Current Merger or any other steps of the Reorganization.
11. Securityholders will continue to have the right to redeem securities of the Terminating Portfolios up to the close of business on the business day that is immediately before the Effective Date.
12. Three business days before the Effective Date, the Filer will suspend purchases and switches into securities of the Terminating Portfolios.
13. The amendments to the simplified prospectuses and annual information forms regarding the announcement of the Reorganization were filed on SEDAR on behalf of each of the Terminating Portfolios on September 9, 2008.
14. A press release regarding the announcement of the Reorganization and the material change report on behalf of each of the Terminating Portfolios and the applicable Continuing Portfolios were filed on SEDAR on September 2, 2008 and September 9, 2008, respectively.
15. The Filer will pay all costs and expenses relating to the Reorganization, including costs and expenses for solicitation of proxies, holding Meetings and printing of the Meeting Materials. None of the Portfolios will bear any of the costs and expenses of the Reorganization.
16. A securityholder's deferred sales charge schedule is not changed as of result of the Reorganization.
17. Pursuant to NI 81-107 Independent Review Committee for Investment Funds, the Independent Review Committee (the IRC) of the Portfolios has reviewed the Reorganization and the process to be followed in connection with such Reorganization, and has advised the Filer that, in the IRC's opinion, having reviewed the potential conflicts of interest in the Reorganization, and the process proposed, the Reorganization achieves a fair and reasonable result for the Portfolios.
18. The value of each Terminating Portfolio's investment portfolio and other assets will be determined at the close of business on the Effective Date in accordance with constating documents of the Terminating Portfolio.
19. Each Continuing Portfolio will acquire substantially all of the investment portfolio and other assets of the Terminating Portfolio. In return, each Continuing Portfolio will issue to its Terminating Portfolio securities of the Continuing Portfolio having a net asset value equal to the value of the assets acquired.
20. Each Continuing Portfolio will not assume its Terminating Portfolio's liabilities. Instead, each Terminating Portfolio will retain sufficient assets to satisfy its liabilities, if any, as of the Effective Date.
21. Each Terminating Portfolio and its Continuing Portfolio will distribute to its securityholders sufficient net income and net realized capital gains such that it will not be required to pay tax under Part I of the Income Tax Act (Canada) (the Tax Act) for its taxation year ending on the Current Merger.
22. Immediately thereafter, the Terminating Portfolio will redeem all of its outstanding securities at their net asset value and pay the redemption price by delivering to its securityholders securities of an appropriate series of the Continuing Portfolio having an equal aggregate net asset value.
23. A Terminating Portfolio will be wound up within 30 days following the Current Merger.
24. The result of the Current Mergers will be that investors in the Terminating Portfolios will cease to be securityholders in the Terminating Portfolios and will instead become securityholders in their Continuing Portfolios.
Approval
25. Approval of the Reorganization is required because the Reorganization 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 investment objectives of all the Terminating Portfolios are not substantially similar to the investment objective of their Continuing Portfolios, thereby making the Reorganization non-compliant with subsection 5.6(a)(ii);
(b) certain Continuing Portfolios as specified in Schedule B have a net asset value that is smaller than the aggregate net asset value(s) of their Terminating Portfolios;
(c) certain Current Mergers will not be tax-deferred transactions or will not be a "qualifying exchange" within the meaning of the Tax Act, thereby making the Reorganization non-compliant with subsection 5.6(b); and
(d) the Meeting Materials to be sent to securityholders of the Terminating Portfolios in connection with the Reorganization will not include the most recent annual and interim financial statements of the applicable Continuing Portfolios, thereby making the Reorganization non-compliant with subsection 5.6(1)(f)(ii).
26. Except as noted in paragraph 25 above, the Reorganization will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
27. The Filer has proposed to change the investment objectives of certain Continuing Portfolios, namely, Marquis MultiPartners Growth Portfolio (to be renamed as Marquis Balanced Portfolio); Marquis MultiPartners Equity Portfolio (to be renamed as Marquis Growth Portfolio); Marquis Diversified All Income Portfolio (to be renamed as Marquis Balanced Income Portfolio); Marquis Global Equity Pool (to be renamed as Marquis Balanced Income Portfolio); and Marquis Enhanced Canadian Equity Pool (to be renamed as Marquis Institutional Canadian Equity Portfolio) on the Effective Date as described in paragraph 8(c) above.
28. These changes to the investment objectives are being proposed to better reflect the current market environment and such that, post-Reorganization, the Filer is able to offer a streamlined selection of Portfolios to better meet investor needs.
29. The proposed changes to the investment objectives are described in the Meeting Materials such that the securityholders of the applicable Portfolios may compare the investment objectives before voting on the Current Mergers.
30. The difference in net asset values between the applicable Continuing Portfolio and its Terminating Portfolio(s) are described in the Meeting Materials such that securityholders of the applicable Continuing Portfolios may compare such net asset values before voting on the Current Mergers.
31. Each of the Current Mergers involving (a) Radiant All Income Portfolio into Marquis Diversified All Income Portfolio (to be renamed as Marquis Balanced Income Portfolio); (b) Radiant Bond Portfolio into Dynamic Canadian Bond Fund; (c) Marquis International Equity Pool and Marquis U.S. Equity Pool into Marquis Global Equity Pool (to be renamed as Marquis Institutional Global Equity Portfolio); and (d) Marquis High Yield U.S. Bond Pool into Marquis Canadian Bond Pool (to be renamed as Marquis Institutional Bond Portfolio) will not be implemented as a "qualifying exchange" within the meaning of section 132.2 of the Tax Act.
32. The Filer has determined that the Current Mergers that will not be effected as a qualifying exchange within the meaning of section 132.2 of the Tax Act will not have a material adverse effect on securityholders of the Portfolios for the following reasons:
(a) each Continuing Portfolio has significant unutilized loss carryforwards which will be lost if the Current Merger with its Terminating Portfolio is completed as a "qualifying exchange" under the Tax Act. Therefore, these Current Mergers will be effected on a taxable basis so that investors will retain the benefit of unutilized loss carryforwards in their respective Continuing Portfolios;
(b) each Terminating Portfolio is not expected to have a material amount of unrealized gains to enable it to transfer its assets to its Continuing Portfolio at their current market value without triggering any material adverse tax consequence for securityholders of the Terminating Portfolio; and
(c) most securityholders of each Terminating Portfolio are not expected to realize material gains on the disposition of their securities of the Terminating Portfolio at their current market value.
The tax implications to these Terminating Portfolios and their securityholders are disclosed in the Meeting Materials such that securityholders of these Terminating Portfolios may consider the tax implications before voting on the Current Mergers.
33. The Filer does not propose to send the most recent annual and interim financial statements of the Continuing Portfolios to securityholders of the applicable Terminating Portfolios. Instead, the Meeting Materials sent to securityholders of the Terminating Portfolios by the Filer prominently discloses that they can obtain the most recent annual and interim financial statements of their Continuing Portfolios at the Filer's website or the SEDAR website or on request from the Filer by mail, by toll-free number, by fax or by e-mail.
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 Exemption Sought is granted provided that:
1. In connection with the Mergers:
(a) the management information circular sent to securityholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;
(b) the management information circular sent to securityholders in connection with a Merger prominently discloses that securityholders 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, by faxing a request to the Filer or by contacting a Filer's consultant;
(c) upon a request by a securityholder for financial statements, the Filer will make best efforts to provide the securityholder with financial statements of the applicable continuing fund in a timely manner so that the securityholder can make an informed decision regarding a Merger; and
(d) each applicable continuing fund and the applicable continuing fund with respect to a Merger have an unqualified audit report in respect of their last completed financial period.
2. This decision with respect to the Future Mergers will terminate one year after the publication in final form of any legislation or rule dealing with matters in paragraph 5.5(1)(b) of NI 81-102.
SCHEDULE A -- LIST OF PORTFOLIOS
(each a Portfolio and collectively, the Portfolios)
SCHEDULE B - LIST OF CURRENT MERGERS
{•} The Continuing Portfolio has a net asset value smaller than the aggregate net asset value(s) of the applicable Terminating Portfolio(s).
SCHEDULE C - LIST OF NAME CHANGES WITHOUT A CURRENT MERGER
SCHEDULE D - INVESTMENT OBJECTIVES
Portfolio | Current Investment Objective | Proposed Investment Objective | ||
| ||||
Marquis MultiPartners Growth Portfolio (to be renamed as Marquis Balanced Portfolio) | To obtain long-term moderately volatile total returns incorporating predictable income streams and capital protection, through investment in securities of mutual funds that generally invest in Canadian equities and bonds, including underlying funds offered by Goodman & Company. | To seek a balance of income and long-term capital growth, through a diversified portfolio with exposure primarily to domestic fixed-income and equity mutual funds and, to a lesser extent, to foreign equity mutual funds. | ||
| ||||
Marquis MultiPartners Equity Portfolio (to be renamed as Marquis Growth Portfolio) | To obtain maximum capital growth through investing in securities of mutual funds which generally invest in Canadian equities and, to reduce volatility, a small portion in securities of mutual funds that generally invest in Canadian bonds, including underlying funds offered by Goodman & Company. | To seek maximum long-term capital growth, through a diversified portfolio with exposure primarily to domestic and foreign equity mutual funds and, to a lesser extent, to fixed-income mutual funds. | ||
| ||||
Marquis Diversified All Income Portfolio (to be renamed as Marquis Balanced Income Portfolio) | To obtain moderate income and to provide long-term capital growth by investing primarily in a portfolio of other mutual funds. The Fund maintains a diversified portfolio of income-generating securities, with exposure to preferred and equity securities of Canadian companies as well as domestic and foreign convertible debentures and fixed-income securities. | To seek moderate income and long-term capital growth, through a diversified portfolio with exposure primarily to domestic and foreign equity mutual funds as well as to fixed-income mutual funds. | ||
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Marquis Global Equity Pool (to be renamed as Marquis Institutional Global Equity Portfolio) | To obtain long-term growth superior to that of the Morgan Stanley Capital International World Index by investing primarily in international equity securities and in derivatives in order to replicate international market indices. | To seek long-term capital appreciation through investment primarily in equity securities of issuers located around the world. | ||
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Marquis Enhanced Canadian Equity Pool (to be renamed as Marquis Institutional Canadian Equity Portfolio) | To obtain a higher level of long term capital appreciation than that of the S&P/TSX Composite Index through investment primarily in a diversified portfolio of Canadian equity securities offering growth potential. | To seek long-term capital appreciation through investment primarily in equity securities of Canadian issuers. | ||