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Pension plan nails Retrocom with lawsuit

Sheet metal workers seeking damages from the troubled labour-backed fund, KEITH DAMSELL writes

MUTUAL FUNDS REPORTER

Retrocom Growth Funds Inc., a troubled labour-sponsored fund that has halted redemptions, has been hit with a $2-million lawsuit from an institutional investor.

The legal action, filed by the Sheet Metal Workers Local 30 Pension Trust Fund, is more bad news for the Toronto-based fund. In December, a flood of redemptions forced the $50-million fund to freeze its assets. Then, earlier this month, it warned its estimated 21,000 investors that its shares are expected to plunge.

"It has come to the attention of the fund that a significant reduction to its net asset value will be required as a result of the annual independent valuation of the fund's investments," Retrocom said in a Jan. 19 statement. In addition, the labour-sponsored fund (LSF) delayed until Feb. 28 the release of its audited financial statements for the year ended Aug. 31, 2005. The 10-year-old LSF holds interests in bowling alleys, ice rinks, residential developments and the underperforming Retrocom Mid-Market Real Estate Investment Trust.

The Sheet Metal Workers pension fund is one of Retrocom's major investors, sinking $1-million into the fund in March, 1996. Under the terms of the investment, the pension plan was required to remain invested for a minimum of five years and give two years notice when it wished to exit.

In February, 2003, the plan gave notice of its intention to redeem and two years later, asked for its money, then worth an estimated $956,780. Retrocom refused to pay, the Sheet Metal Workers claim.

The labour-sponsored fund has shown "flagrant and wanton disregard" and exerted "unfair financial pressure" on the Sheet Metal Workers, the pension plan alleges in its July 26 statement of claim. The plan is seeking its $956,780 investment and an additional $1-million for damages, loss of profit and breach of contract.

In its Sept. 2, 2005, statement of defence, Retrocom states that risk factors outlined in the fund's prospectus make it clear that the fund "may suspend redemptions for substantial periods of time in certain circumstances." The fund is "not in a position to redeem . . . due to the liquidity requirements set out in the subject prospectus," Retrocom claims, and argues that the Sheet Metal Workers lawsuit should be dismissed.

In an Oct. 3, 2005 reply, the Sheet Metal Workers allege the plan was never advised of Retrocom's liquidity requirements to redeem its investment. In addition, the Sheet Metal Workers note that in a June, 2005 letter, Retrocom told the plan it had secured financing to redeem the shares and pay the money owing.

Next month, the Sheet Metal Workers will ask the Ontario Superior Court to rule on the dispute, thereby forgoing a trial.

Retrocom officials declined to comment for this article but in an earlier interview attributed the fund's cash crunch to the Ontario government's plan to unwind its tax credit benefiting LSFs. Ontario residents who invest $5,000 and have owned a fund for eight years receive a 30-per-cent combined provincial and federal tax credit.

But in September, the province said it would shrink its 15-per-cent credit over the next five years, and end it by 2011. The news affects more than 40 Ontario LSFs, which collectively have about $3-billion in assets under management.

Several industry sources said that, despite the move by the Ontario government, retail demand for LSFs remains strong. They describe Retrocom as an anomaly within the asset class, noting the fund's real estate portfolio has limited upside, and its large institutional following lent itself to liquidity problems.

Matter of opinion

A flood of opinion polls is a sure sign that registered retirement savings plan season is upon us.

Polls figure prominently in the marketing plans of the fund industry, and every January, a flood of data is used to support the need to invest. A sampling of this month's surveys:

One-third of Canadians manage their own retirement savings plans while another 44 per cent use a financial adviser, reports Desjardins Financial Security.

A poll by Bank of Nova Scotia found 23 per cent of Canadians have taken money out of their RRSPs.

Eighty per cent of Canadians own a credit card, and of those, nearly half carry an average balance of about $1,700, Mackenzie Investments reports.

Van Arbor's eleven

Eleven blue-chip stocks may be the key to a 30-per-cent-plus return.

The little-known Van Arbor Canadian Advantage Fund has returned a stellar 35.5 per cent since inception in May, 2004. Quantitative fund manager Van Arbor Asset Management Ltd. of Vancouver has developed a stock picking methodology that looks at a series of criteria based on volatility, price, dividends and ultimately, returns to the shareholder. The top 20 performers make it into the portfolio. The deck is shuffled on a monthly basis; on average, there is a 25-per-cent annual turnover.

Here's a list of the month-after-month survivors that have helped drive returns since the beginning: Canadian Western Bank; Enbridge Inc.; Fortis Inc.; Imperial Oil Ltd.; Loblaw Cos. Ltd.; National Bank of Canada; Petro-Canada; Power Financial Corp.; Shell Canada Ltd.; SNC-Lavalin Group Inc. and lastly, Suncor Energy Inc.

kdamsell@globeandmail.com

© 2007 The Globe and Mail. All rights reserved.

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