Variance of decision document dated March 31, 1999 to allow the Canada TrustPortfolios ,which were the subject of the original order, complete a mergertransaction with TD Green Line Portfolios by first completing a "Pre-Merger AssetConversion" (as that term is defined in the decision document).
Section 144 of the Securities Act (Ontario) and section 5.5(1)(b) of NationalInstrument 81-102 Mutual Funds
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
CT INVESTMENT MANAGEMENT GROUP INC., TD ASSET MANAGEMENT INC. ANDCANADA TRUST CONSERVATIVE INCOME FUND PORTFOLIO CANADA TRUST INCOME FUND PORTFOLIO, CANADA TRUST INCOME GROWTH FUND PORTFOLIO,CANADA TRUST RSP INCOME GROWTH FUND PORTFOLIO, CANADA TRUST BALANCED FUND PORTFOLIO,CANADA TRUST RSP BALANCED FUND PORTFOLIO, CANADA TRUST CANADIAN GROWTH FUND PORTFOLIO, CANADA TRUST RSP CANADIAN GROWTH FUND PORTFOLIOCANADA TRUST WORLD GROWTH FUND PORTFOLIO, CANADA TRUST RSP WORLD GROWTH FUND PORTFOLIO,CANADA TRUST ALLIANCE INCOME GROWTH FUND PORTFOLIO, CANADA TRUST ALLIANCE RSP INCOME GROWTH FUND PORTFOLIO,CANADA TRUST ALLIANCE BALANCED FUND PORTFOLIO, CANADA TRUST ALLIANCE RSP BALANCED FUND PORTFOLIO, CANADA TRUST ALLIANCE CANADIAN GROWTH FUND PORTFOLIOCANADA TRUST ALLIANCE RSP CANADIAN GROWTH FUND PORTFOLIO, CANADA TRUST ALLIANCE WORLD GROWTH FUND PORTFOLIO,CANADA TRUST ALLIANCE RSP WORLD GROWTH FUND PORTFOLIO (collectively, the "CT Portfolios")
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the"Decision Maker") in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, theNorthwest Territories, Nunavut and Yukon (the "Jurisdictions") has received anapplication from CT Investment Management Group Inc. ("CT IMG"), the manager,principal distributor and promoter of the CT Portfolios and from TD AssetManagement Inc. ("TDAM"), the trustee, manager, principal distributor and promoterfor the 30 TD Green Line Managed Portfolios (the "Green Line Portfolios"),(collectively, CT IMG, the CT Portfolios, TDAM and the Green Line Portfolios arereferred to as the "Applicant"), for a decision pursuant to the securities legislation ofthe Jurisdictions (the "Legislation") varying the conditions of the MRRS DecisionDocuments In the Matter of CT Investment Management Group Inc. et al. datedMarch 31, 1999 (the "CT Portfolio Decision") to permit the completion of thereorganization or transfer of assets (the "Portfolio Mergers") of each CT Portfolio toa Green Line Portfolio (the "Continuing Portfolio") in the manner hereinafterdescribed;
AND WHEREAS the Decision Makers and the Commission des valeursmobilière du Quebec, have approved the Portfolios Mergers pursuant to section5.5(1)(b) of National Instrument 81-102 ("NI 81-102") of the Canadian securitiesregulatory authorities;
AND WHEREAS pursuant to the Mutual Reliance Review System forExemptive Relief Applications (the "System"), the Ontario Securities Commission isthe Principal Regulator for this application;
AND WHEREAS it has been represented by the Applicant to the DecisionMakers that:
1. TDAM is the trustee, manager, principal distributor and promoter for theGreen Line Portfolios. The Green Line Portfolios currently comprise 30unique portfolios, each of which is an open-ended mutual fund trustestablished under the laws of Ontario pursuant to a declaration of trust, andeach of which is qualified for distribution in all provinces and territories ofCanada by means of a simplified prospectus and annual information form(the "Disclosure Documents"). The Green Line Portfolios are structured asfund-on-fund arrangements and are tantamount to an asset allocationservice.
2. Each Green Line Portfolio invests its assets (exclusive of cash and cashequivalents) in a model portfolio comprising Green Line Mutual Funds("Green Line Funds"), mutual funds managed by persons or companiesunrelated to TDAM ("Third Party Funds") and/or other securities that aredistributed by TDAM ("Exempt Securities") in branches of TD Bank. Suchinvestments are made in accordance with the terms and conditions of a CSADecision Document dated November 3, 1998 (the "Green Line PortfolioDecision").
3. The investment characteristics that are unique to each Green Line Portfolioare described in a portfolio profile (the "Green Line Portfolio Profile") which isincorporated by reference into, forms part of, and accompanies the deliveryof, the simplified prospectus for each Green Line Portfolio. The simplifiedprospectus contains disclosure to this effect and the Green Line PortfolioProfile includes a description of, among other things, the investmentobjective, investment policy, consolidated management expense ratio andrisk profile of the Green Line Portfolio as well as the investment objective,management fees, management expense ratio and risk profile of, and theadviser to, each underlying asset that is either a Green Line Fund or a ThirdParty Fund (in either case, a "Green Line Underlying Fund"), and includesthe specific target weighting ("Target Weighting") assigned to each GreenLine Underlying Fund or Exempt Security, as the case may be.
4. Each Green Line Portfolio is managed in accordance with the Green LinePortfolio Decision which provides, in part, that Target Weightings cannot varyup or down by more than 2.5%, and that the Green Line Underlying Funds,the Exempt Securities and their Target Weightings, that are disclosed in theGreen Line Portfolio Profile for each Green Line Portfolio, may not bechanged unless and until the Green Line Portfolio Profile is amended toreflect the proposed change, the amended Green Line Portfolio Profile isfiled with the CSA, existing unitholders of the Green Line Portfolio are givenat least 60 days' prior written notice of the proposed change, which includesa copy of the amended Green Line Portfolio Profile, and each prospectivepurchaser of the units of the Green Line Portfolio who proposes to acquirethe units following the delivery of such written notice to existing unitholders ofthe Green Line Portfolio receives a copy of the amended Green Line PortfolioProfile together with the simplified prospectus for the Green Line Portfolio(the "Green Line Portfolio Investment Restrictions").
5. In general terms then, the Green Line Portfolios are intended to provideTDAM's customers with a cost-effective asset allocation service whichconsolidates the administrative processes that would otherwise have to befollowed in order to replicate a Green Line Portfolio utilizing segregatedaccounts and the TDAM's Wealth Allocation Model brochures.
6. CTIMG is the manager, principal distributor and promoter for the CTPortfolios. The CT Portfolios currently consist of 18 different portfolios, eachof which is an open-ended mutual fund trust established under the laws ofOntario pursuant to a declaration of trust and each of which is qualified fordistribution in all provinces and territories of Canada by means of DisclosureDocuments. Currently, each CT Portfolio can issue three series of units but,to date, only the Investor series has been offered for sale to the public.
7. Like the Green Line Portfolios, the CT Portfolios are intended to provideCTIMG's customers with a cost effective asset allocation service by way offund-on-fund arrangements which are governed by the CT Portfolio Decision.
8. The CT Portfolios have investment objectives which range from conservativeincome to aggressive equity. Ten of the CT Portfolios invest exclusively inCanada Trust Mutual Funds ("CT Funds"), and eight of the CT Portfoliosinvest exclusively in Third Party Funds.
9. Each CT Portfolio is intended to represent a model asset allocation portfolioand its assets are invested and rebalanced from time to time in CT Fundsand Third Party Funds (collectively, "CT Underlying Funds") to maintain thetarget asset mix of the model. In order to create the CT Portfolios, CTIMGdetermined the CT Underlying Funds to be held within each CT Portfolio, aswell as their Target Weightings, based on fundamental and quantitativeinvestment analysis.
10. The simplified prospectus for each CT Portfolio contains disclosure withrespect to the investment objective, investment policy, Target Weightings forinvestment in CT Underlying Funds, maximum management expense ratioand risk profile of the CT Portfolios as well as the name, investmentobjective, management expense ratio, risks and the manager of each CTUnderlying Fund.
11. Each CT Portfolio invests its assets (exclusive of cash and cash equivalents)in CT Underlying Funds in accordance with the Target Weightings prescribedtherefor by the CT Portfolio, subject to a permitted variation above or belowsuch Target Weightings of not more than 2.5%.
12. As a result of the terms and conditions of the CT Portfolio Decision, the CTUnderlying Funds and their related Target Weightings that are disclosed inthe Disclosure Documents of the CT Portfolios may not be changed unlessand until the Disclosure Documents are amended to reflect the proposedchange and the amendments are filed with the CSA, existing unitholders ofthe CT Portfolio are given at least 60 days' prior written notice of theproposed change, and each purchaser who acquires the units following thedelivery of such written notice to existing unitholders of the CT Portfolioreceives a copy of the amended simplified prospectus and, upon request, theannual information form for the CT Portfolio (the "CT Portfolio InvestmentRestrictions").
13. On February 1, 2000, TD Bank acquired all of the outstanding commonshares of CT Financial Services Inc. (the "Merger") and thereby acquiredindirect control of CTIMG. This indirect acquisition of control was approvedby the Director of the Ontario Securities Commission on behalf of allprovinces and territories of Canada by letter dated January 26, 2000 (the"CSA Approval Letter"), in accordance with section 9.02 of National Policy39.
14. As a result of the Merger, TD Bank now controls two distinct, but very similar,mutual fund complexes. In order to reduce the costs associated with themaintenance of two separate administrative frameworks for such complexes,and to permit unitholders to benefit from the economies of scale that willresult from the combined operation of both complexes, it is proposed toamalgamate TDAM and CTIMG to form TD Asset Management Inc.("Amalco"), and to conduct two distinct groups of mutual fund mergertransactions. The first group of merger transactions (the "Fund Mergers") willinvolve a merger of certain CT Funds and Green Line Funds, while thesecond group of merger transactions (the "Portfolio Mergers") will involve amerger of the CT Portfolios set out below in the "Terminating Portfolio"column with the Green Line Portfolios set out below in the "ContinuingPortfolio" column opposite the name of each Terminating Portfolio.
|Terminating Portfolio||Continuing Portfolio|
|Canada Trust Conservative IncomeFund Portfolio||to mergewith||Green Line Managed Income RSPPortfolio|
|Canada Trust Income Fund Portfolio||to mergewith||Green Line Managed Income RSPPortfolio|
|Canada Trust RSP Income GrowthFund Portfolio||to mergewith||Green Line Managed Income RSPPortfolio|
|Canada Trust RSP Balanced FundPortfolio||to mergewith||Green Line Managed Income &Moderate Growth RSP Portfolio|
|Canada Trust RSP Canadian GrowthFund Portfolio||to mergewith||Green Line Managed Balanced GrowthRSP Portfolio|
|Canada Trust RSP World Growth FundPortfolio||to mergewith||Green Line Managed AggressiveGrowth RSP Portfolio|
|Canada Trust Income Growth FundPortfolio||to mergewith||Green Line Managed Income Portfolio|
|Canada Trust Balanced Fund Portfolio||to mergewith||Green Line Managed Income &Moderate Growth Portfolio|
|Canada Trust Canadian Growth FundPortfolio||to mergewith||Green Line Managed Balanced GrowthPortfolio|
|Canada Trust World Growth FundPortfolio||to mergewith||Green Line Managed AggressiveGrowth Portfolio|
|Canada Trust Alliance RSP IncomeGrowth Fund Portfolio||to mergewith||Fundsmart Managed Income RSPPortfolio|
|Canada Trust Alliance RSP BalancedFund Portfolio||to mergewith||Fundsmart Managed Income &Moderate Growth RSP Portfolio|
|Canada Trust Alliance RSP CanadianGrowth Fund Portfolio||to mergewith||Fundsmart Managed Balanced GrowthRSP Portfolio|
|Canada Trust Alliance RSP WorldGrowth Fund Portfolio||to mergewith||Fundsmart Managed AggressiveGrowth RSP Portfolio|
|Canada Trust Alliance Income GrowthFund Portfolio||to mergewith||Fundsmart Managed Income Portfolio|
|Canada Trust Alliance Balanced FundPortfolio||to mergewith||Fundsmart Managed Income &Moderate Growth Portfolio|
|Canada Trust Alliance CanadianGrowth Fund Portfolio||to mergewith||Fundsmart Managed Balanced GrowthPortfolio|
|Canada Trust Alliance World GrowthFund Portfolio||to mergewith||Fundsmart Managed AggressiveGrowth Portfolio|
15. In accordance with section 5.1(f) of NI 81-102, meetings of the unitholders ofeach of the Terminating Portfolios ("Terminating Portfolio Meetings") will beconvened on August 18, 2000 to consider and, if thought advisable, approvethe merger of each Terminating Portfolio with its corresponding ContinuingPortfolio.
16. All costs relating to the proposed Portfolio Mergers, including the costs of allTerminating Portfolio Meetings and the termination of the TerminatingPortfolios, will be borne by TDAM or Amalco, as the case may be.
17. Although it may be possible for each Continuing Portfolio to acquire all of theassets of its corresponding Terminating Portfolio for the purpose ofconducting each Portfolio Merger as a "qualifying exchange" within themeaning of section 132.2 of the Income Tax Act (Canada) (a "QualifyingExchange"), a Continuing Portfolio could only do so if the assets of theTerminating Portfolio were generally acceptable to TDAM, as the manager ofthe Continuing Portfolio, and if the Continuing Portfolio accommodated itsacquisition of such assets by first complying with the Green Line PortfolioInvestment Restrictions. As described above, each Green Line Portfolio hasbeen structured to achieve its investment objective by investing exclusively inGreen Line Funds and certain Third Party Funds based upon TDAM's assetallocation methodology. Each Continuing Portfolio would therefore have tobe restructured rather significantly before it could even begin to comply withthe Green Line Portfolio Investment Restrictions for the purpose ofaccommodating a Portfolio Merger, and it is unlikely that such a restructuringwould incorporate the assets of a Terminating Portfolio in any event.
18. It is therefore proposed that, prior to each Portfolio Merger, the relevantTerminating Portfolio will liquidate all of its assets and use the cash proceedsof such liquidation to replicate the asset portfolio of its correspondingContinuing Portfolio by purchasing, in the same proportion, the Green LineUnderlying Funds that are held by the Continuing Portfolio (a "Pre-MergerAsset Conversion"). Immediately following a Pre-Merger Asset Conversion,each Portfolio Merger will be conducted as a Qualifying Exchange.
19. Following a Pre-Merger Asset Conversion, a Terminating Portfolio will berequired to distribute any net gains realized on the liquidation of its assets toits unitholders.
20. Conducting a Pre-Merger Asset Conversion prior to each Portfolio Merger, sothat each Portfolio Merger can be conducted as a Qualifying Exchange, is themost tax effective way in which to conduct fund-on-fund arrangementmergers such as the Portfolio Mergers given the purpose and investmentmandate of the Green Line or Continuing Portfolios, the rationale for thePortfolio Mergers, and the CT Portfolio Investment Restrictions which governthe operation of each Terminating Portfolio.
21. The structure, rationale, benefits and tax consequences of each PortfolioMerger will be disclosed to unitholders of the Terminating Portfolios in themanagement information circular that will be prepared and distributed inadvance of unitholder meetings that will be convened on August 18, 2000 forthe purpose of considering, and, if thought advisable, approving the PortfolioMergers. The Portfolio Mergers are also disclosed in the TerminatingPortfolio Disclosure Document amendments dated June 21, 2000 which havebeen filed and will be delivered in accordance with section 5.6(g) of NI 81-102. Terminating Portfolio unitholders will be given an opportunity to vote foror against the Portfolio Mergers at such meetings.
22. As each Terminating Portfolio is a no-load mutual fund, its unitholders will beable to redeem their units at any time prior to the close of business on thebusiness day immediately preceding the effective date of the PortfolioMergers.
23. The Portfolio Mergers will be beneficial to the unitholders of both theTerminating Portfolios and the Continuing Portfolios because they willeliminate product duplication and the duplication of related services of twovery similar asset allocation structures. Unitholders will thereby benefit fromthe cost efficiencies associated with the consolidation of fund administrationand the increase in the assets under management by the ContinuingPortfolios as a direct result of the Portfolio Mergers.
AND WHEREAS, pursuant to the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS the Decision Makers are of the opinion that it would not beprejudicial to the public interest to make the Decision;
THE DECISION of the Decision Makers pursuant to the Legislation is that theCT Portfolio Decision is hereby varied as follows to permit each TerminatingPortfolio to conduct a Pre-Merger Asset Conversion and participate in a subsequentPortfolio Merger immediately prior to the Terminating Portfolio's termination:
(a) renaming existing paragraph (p), paragraph (q); and
(b) adding new paragraph (p) which will read as follows:
"Notwithstanding any provisions to the contrary, in respect of the completionof the reorganization or transfer of assets (the "Portfolio Mergers") of each ofthe Portfolios to TD Green Line Managed Portfolios (the "ContinuingPortfolios"), each Portfolio may:
(i) mail a management information circular, which describes the PortfolioMergers to each existing unitholder of a Portfolio, in lieu of the noticecontemplate by paragraph (b) for a change in underlying funds;
(ii) liquidate all its assets;
(iii) hold the cash proceeds from the liquidation of all of its assets;
(iv) use the proceeds of such liquidation to replicate the portfolio assets ofits corresponding Continuing Portfolio by purchasing units of theunderlying funds of the corresponding Continuing Portfolio, whichconsist of TD Green Line Mutual Funds and mutual funds managed bypersons or companies unrelated to TD Asset Management Inc., thetrustee, manager, principal distributor and promoter of the ContinuingPortfolios;
(v) conduct a "Qualifying Exchange", as defined in section132.2 of theIncome Tax Act (Canada), by transferring such replicated portfolioassets to the Continuing Portfolio in exchange for units of theContinuing Portfolio;
(vi) hold units of the Continuing Portfolio; and
(vii) distribute the units of the Continuing Portfolio pro rata to unitholders ofthe Portfolio."
August 3rd, 2000.
"Howard I. Wetston" "J. F. Howard"