Approval of change of control of mutual fund manager under National Instrument 81-102 Mutual Funds.
National Instrument 81-102 Mutual Funds, s. 5.5(2).
August 4, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, ALBERTA, BRITISH COLUMBIA, SASKATCHEWAN, QUÉBEC,
NEW BRUNSWICK, NEWFOUNDLAND AND LABRADOR, NOVA SCOTIA
AND PRINCE EDWARD ISLAND (the "Jurisdictions")
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
NEWPORT INVESTMENT COUNSEL INC.
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (each, a "Decision Maker", and together, the "Decision Makers") in each of the Jurisdictions has received an application from Newport Investment Counsel Inc. ("NICI") dated July 20, 2005 (the "Application") for approval pursuant to Section 5.5(2) of National Instrument 81-102 -- Mutual Funds ("NI 81-102") for a change of control of NICI which is the manager of the funds set forth in Schedule A to this decision ( "The Newport Funds"). The change of control will occur as a result of the transactions taking place in connection with the initial public offering of the Newport Income Fund (the "Fund") as described in further detail below.
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) the Ontario Securities Commission is the principal regulator for this Application, and
(b) this MRRS decision document evidences the decision of each Decision Maker, as applicable.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.
This decision is based on the following facts represented by NICI:
1. Newport Partners Inc. ("NPI") is an independent wealth management company which provides investment counselling and sophisticated financial planning, management and solutions services to its personal and corporate clients, with a focus on understanding and servicing the needs of entrepreneurs. NPI's business is carried on through its wholly-owned subsidiaries which include NICI.
2. All of the issued and outstanding shares in the capital of NPI are beneficially owned directly or indirectly by 15 individuals (the "Principals").
3. The 15 Principals of NPI manage NPI's business, including the business of NICI.
4. NPI owns all of the issued and outstanding shares in the capital of NICI and all of the directors and officers of NICI are Principals.
5. NICI is registered as an adviser in the categories of investment counsel and portfolio manager or their equivalent in Ontario, British Columbia, Alberta, Saskatchewan, New Brunswick, Nova Scotia, Newfoundland and Prince Edward Island and is also registered in Ontario as a dealer in the category of limited market dealer.
6. NICI engages in a number of advisory activities as a registered adviser, including acting as a portfolio manager for clients on a discretionary and non-discretionary basis, and as the manager and trustee for The Newport Funds. All of the unitholders of The Newport Funds are discretionary clients of NICI.
7. In 2004, NPI initiated the formation of Newport Private Yield LP ("NPY LP"). Newport Private Yield Inc. (the "GP"), a wholly-owned subsidiary of NPI, is the general partner of NPY LP.
8. NPY LP is an Ontario limited partnership formed in March of 2004 on the initiative of NPI. The objective of NPY LP is to invest in private businesses ("Investee Businesses") with a history of profitability and positive cash flows.
9. NPY LP currently holds varying equity interests in six Investee Businesses in four principal areas: financial services, distribution, marketing and oil and gas services.
10. NPY LP intends to access capital in the public market through an initial public offering (the "IPO") using an income fund structure. Under that structure, a lawyer engaged by the GP has established the Fund, which will acquire holdings in NPY LP. The Fund's holdings in NPY LP will be indirectly held through a commercial trust (the "Trust").
11. The final prospectus (the "Prospectus") for the IPO of the Fund was filed with the securities regulatory authorities in each of the Jurisdictions on July 29, 2005.
12. As part of transactions taking place in connection with the IPO, NPY LP will acquire the businesses of NPI (a wealth manager with an entrepreneurial focus), which include NICI (the "NPI Acquisition") and interests in the businesses of Brompton Management Limited (an investment fund manager) and Morrison Williams Investment Limited (an institutional adviser).
13. These acquisitions are contingent on and will occur contemporaneously with the closing of the IPO.
Change of Control
14. Upon completion of the IPO, NPY LP will become an indirect subsidiary of the Fund owned by the Fund and the holders of units in NPY LP which will be exchangeable for units of the Fund. NPY LP will indirectly own interests in a number of Investee Businesses including NICI.
15. Following the IPO, the Principals will indirectly own approximately 19.2% of the units of the Fund as disclosed in the Prospectus.
16. The NPI Acquisition will result in a technical change of control of NICI. However, the actual control of the day-to-day management of NICI and The Newport Funds by NICI will continue to be with the Principals (the "Change of Control").
17. Major strategic and capital allocation decisions will require the approval of NPY LP, whose officers will be all of the Principals and the pre-existing management of NICI will remain the same immediately after the IPO. As a result, the IPO will not affect the operations of the business of NICI except to the extent that as a result of the IPO the business will have greater access to public capital markets, which are seen to be larger, less expensive pools of capital.
18. The activities of NICI will continue to be carried on as they were and NICI will continue to operate as a separate and distinct entity at an operational level in the same manner as it had prior to the IPO and the NPI Acquisition.
Notices to unitholders
19. NICI also provided a written notice dated April 15, 2005 (the "Notice") to all of its discretionary clients (which include all unitholders of The Newport Funds) of the proposed Change of Control and provided those clients with an updated notice of the Change of Control dated July 15, 2005 (the "Updated Notice") with the quarterly mailing of materials to clients. The Updated Notice advised NICI's clients of the fact that securities regulation requires NICI to notify them of a change in control and advised them of their right to withdraw their account.
20. NICI also issued a press release dated July 14, 2005 advising of the Change of Control.
Each of the Decision Makers is satisfied that, based on the information and representations contained in the Application and this decision, and for the purposes described in the Application, the Decision Makers, as applicable, hereby grant approval pursuant to Section 5.5(2) of NI 81-102 in respect of the change of control of NICI.
The Newport Funds
Name of Fund
Reporting Issuer Jurisdiction
The Newport Fixed Income Fund
British Columbia, Alberta, Ontario, Quebec, New Brunswick, Nova Scotia, Newfoundland
The Newport Canadian Equity Fund
The Newport U.S. Equity Fund
The Newport International Equity Fund
The Newport Yield Fund