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Phillips, Hager & North Investment Management Ltd. - s. 5.1
Headnote
Section5.1 of Rule 31-506 SRO Membership - Mutual Fund Dealers - mutualfund dealer exempted, subject to conditions, from the requirementsof the Rule that it file an application and prescribed fees withthe Mutual Fund Dealers Association of Canada ("MFDA") and becomea member of the MFDA- mutual fund dealer is reorganizing its activitiesand has consented to terms and conditions of registrationStatuteCited
SecuritiesAct, R.S.O. 1990, c. S.5, as am.RuleCited
Rule31-506 SRO Membership - Mutual Fund Dealers, ss. 2.1, 3.1, 5.1INTHE MATTER OF
THESECURITIES ACT
R.S.O.1990, CHAPTER S.5, AS AMENDED (the "Act")
AND
ONTARIOSECURITIES COMMISSION
RULE31-506 SRO MEMBERSHIP
-MUTUAL FUND DEALERS
(the"Rule")
AND
INTHE MATTER OF
PHILLIPS,HAGER & NORTH INVESTMENT MANAGEMENT LTD.
DECISION
(Section5.1 of the Rule)
UPONThe Director having received an application (the "Application")from Phillips, Hager & North Investment Management Ltd. (the"Registrant") for a decision, pursuant to section 5.1 of the Rule,exempting the Registrant from the requirements in sections 2.1and 3.1 of the Rule, which would otherwise require that the Registrantbe a member of the Mutual Fund Dealers Association of Canada (the"MFDA") on and after July 2, 2002, and file with the MFDA, nolater than January 1, 2002, an application and corresponding feesformembership;
UPONconsidering the Application and the recommendation of staff ofthe OntarioSecuritiesCommission;
ANDUPON the Registrant having represented to the Directorthat: 1.the Registrant is a company incorporated under the laws of BritishColumbia; 2.the Registrant is registered as an investment counsel, portfoliomanager and mutual fund dealer in Ontario; 3.under the Registrant's current business structure, the Registrantis engaged in both portfolio management/investment counselling-relatedactivities and mutual fund dealing-related activities. In particular,under the Registrant's current business structure the Registrantis engaged in the following activities: (a)the administration and management of mutual funds and pooled fundsestablished by the Registrant; (b)the management of fully-managed client accounts containing individualsecurities (i.e., segregated accounts); (c)the management of fully-managed client accounts containing onlymutual fund securities; (d)the direct sale of mutual fund securities on an exempt basis (i.e.,pooled funds); and (e)the direct sale of mutual fund securities which are qualifiedfor sale to the public pursuant to a prospectus filed with applicablesecurities regulatory authorities (such direct sales-related activitiesof the Registrant, the "Retail Distribution Business"); 4.Phillips, Hager & North Investment Funds Ltd. ("Dealerco")is a corporation incorporated on April 10, 2001 under the lawsof British Columbia and is a wholly-owned subsidiary of the Registrant.The Registrant was incorporated for the purposes of carrying onthe Retail Distribution Business of the Registrant in compliancewith the rules of the MFDA; 5.Dealerco has applied for mutual fund dealer registration in eachof the provinces and territories of Canada and membership in theMFDA; 6.upon Dealerco obtaining registration as mutual fund dealer ineach of the jurisdictions, the Registrant will transfer all ofthe Retail Distribution Business to Dealerco (the "Reorganization"); 7.after the completion of the Reorganization, Dealerco will carryon the Retail Distribution Business and the Registrant's businesswill be restricted to the following: (a)the administration and management of mutual funds and pooled fundsestablished by the Registrant; (b)the management of fully-managed client accounts containing individualsecurities (i.e., segregated accounts); (c)the management of fully-managed client accounts containing onlymutual fund securities; and (d)the direct sale of mutual fund securities on an exempt basis (i.e.,pooled funds); 8.under Decisions dated June 4, 2001 and October 10, 2001, the OntarioSecurities Commission granted the Registrant a temporary exemptionfrom the requirement to apply for MFDA membership in order topermit the Registrant sufficient time to complete the Reorganization.In particular, the Decisions exempted the Registrant from therequirement set out in section 3.1 of the Rule to apply for membershipwith the MFDA on or prior to May 23, 2001 on the condition that,prior to January 1, 2002, the Registrant will have: (a)applied for membership with the MFDA; (b)surrendered its registration as a mutual fund dealer; or (c)applied for and obtained a permanent exemption from the requirementto become a member of the MFDA; 9.by letter dated December 18, 2001, the Applicant applied for afurther temporary exemption from the requirement to apply forMFDA membership due to unforeseen delays in completing the Reorganization; 10.In order to continue to carry on the business described abovein paragraph 7 (in particular, the business described in sub-paragraphs(c) and (d) of paragraph 7), the Registrant intends to continueto maintain its registration as a mutual fund dealer in Ontarioand comply with applicable securities legislation, other thanthe Rule; 11.upon completion of the Reorganization, the Registrant's tradingactivities as a mutual fund dealer will represent and will continueto represent activities that are incidental to its principal businessactivities as set out above; 12.the Registrant has agreed to the imposition of the terms and conditionson the Registrant's registration as a mutual fund dealer set outin Schedule "A" to the attached draft Decision, which outlinesthe activities the Registrant has agreed to adhere to in connectionwith its application for this Decision; 13.any person or company that: (A)is not currently a client of the Registrant on the effective dateof this Decision, and (B)for whom the Registrant does not intend to conduct Retail DistributionBusiness, will,before he, she or it is accepted as a client of the Registrant,receive prominent written notice from the Registrant substantiallyas follows: TheRegistrant is not currently a member, and does not intend to becomea member of the Mutual Fund Dealers Association. As a result,clients of the Registrant will not have available to them investorprotection benefits that would otherwise derive from membershipof the Registrant in the MFDA, including coverage under any investorprotection plan for clients of members of the MFDA; 14.upon the next general mailing to its account holders and in anyevent before May 23, 2002, the Registrant will provide, to anyclient that was a client of the Registrant on the effective dateof this Decision, the prominent written notice referred to inparagraph 13 above. ANDUPON the Director being satisfied that to do so wouldnot be prejudicial to the public interest; ITIS THE DECISION of the Director, pursuant to section5.1 of the Rule, that the Registrant is exempt from the requirementsin sections 2.1 and 3.1 of the Rule; PROVIDEDTHAT: (A)the Registrant uses its best efforts to provide at least ten daysprior to the Reorganization and, in any case, provides prior tothe Reorganization, notice to each client who holds an account(or accounts) for which Retail Distribution Business activitiesare carried ut, of: (i)the fact that the Registrant will no longer be the mutual funddealer servicing the client's account(s);(ii) the fact that Dealerco will be the mutual fund dealer servicingthe client's account(s); and
(iii)the name and telephone number of a contact person at the Registrant'soffice who is available to provide further information; and (B)from and after the Reorganization, and, in any case, beginningno later than July 2, 2002, the Registrant complies with the termsand conditions on its registration under the Act as a mutual funddealer set out in the attached Schedule "A". December21, 2001. "RebeccaCowdery"
Schedule"A"
TERMSAND CONDITIONS OF REGISTRATION
OF
PHILLIPS,HAGER & NORTH INVESTMENT MANAGEMENT LTD.
ASA MUTUAL FUND DEALER
Definitions
1.For the purposes hereof, unless the context otherwise requires:
(a)"Act" means the Securities Act, R.S.O. 1990, c. S.5, as amended; (b)"Adviser" means an adviser as defined in subsection 1(1) of theAct;(c) "Client Name Trade" means, for the Registrant, a trade to,or on behalf of, a person or company, in securities of a mutualfund, that is managed by the Registrant or an affiliate of theRegistrant, where, immediately before the trade, the personor company is shown on the records of the mutual fund or ofan other mutual fund managed by the Registrant or an affiliateof the Registrant as the holder of securities of such mutualfund, and the trade consists of:
(A)a purchase, by the person or company, through the Registrant,of securities of the mutual fund; or (B)a redemption, by the person or company, through the Registrant,of securities of the mutual fund; and where, the person or companyis either a client of the Registrant that was not solicited bythe Registrant or was an existing client of the Registrant onthe Effective Date; (d)"Commission" means the Ontario Securities Commission; (e)Effective Date" means May 23, 2001; (f)"Employee", for the Registrant, means: (A)an employee f the Registrant; (B)an employee of an affiliated entity of the Registrant; or (C)an individual that is engaged to provide, on a bona fide basis,consulting, technical, management or other services to the Registrantor to an affiliated entity of the Registrant, under a writtencontract between the Registrant or the affiliated entity and theindividual or a consultant company or consultant partnership ofthe individual, and, in the reasonable opinion of the Registrant,the individual spends or will spend a significant amount of timeand attention on the affairs and business of the Registrant oran affiliated entity of the Registrant; (g)"Employee", for a Service Provider, means an employee of he Servicerovider or an affiliated entity of the Service Provider, providedthat, at the relevant time, in the reasonable opinion of the Registrant,the employee spends or will spend, a significant amount of timeand attention on the affairs and business of: (A)the Registrant or an affiliated entity of the Registrant; or(B) a mutual fund managed by the Registrant or an affiliatedentity of the Registrant;
(h)"Employee Rule" means Ontario Securities Commission Rule 45-503Trades To Employees, Executives and Consultants; (i)"Executive", for the Registrant, means a director, officer orpartner of the Registrant or of an affiliated entity of the Registrant; (j)"Executive", for a Service Provider, means a director, officeror partner of the Service Provider or of an affiliated entityof the Service Provider; (k)"Exempt Trade", for the Registrant, means: (i)a trade in securities of a mutual fund that is made between aperson or company and an underwriter acting as purchaser or betweenor among underwriters; or (ii)a trade in securities of a mutual fund for which the Registrantwould have available to it an exemption from the registrationrequirements of clause 25(1)(a) of the Act if the Registrant werenot a "market intermediary" as such term is defined in section204 of the Regulation;(l) "Fund-on-FundTrade", for the Registrant, means a trade that consists of:
(i)a purchase, through the Registrant, of securities of a mutualfund that is made by another mutual fund; (ii)a purchase, through the Registrant, of securities of a mutualfund that is made by a counterparty, an affiliated entity of thecounterparty or an other person or company, pursuant to an agreementto purchase the securities to effect a hedge of a liability relatingto a contract for a specified derivative or swap made betweenthe counterparty and another mutual fund; or (iii)a sale, through the Registrant, of securities of a mutual fundthat is made by another mutual fund where the party purchasingthe securities is: (A)a mutual fund managed by the Registrant or an affiliated entityof the Registrant; or (B)a counterparty, affiliated entity or other person or company thatacquiredthe securities pursuant to an agreement to purchase the securitiesto effect a hedge of a liability relating to a contract for aspecified derivative or swap made between the counterparty andanother mutual fund; and where,in each case, at least one of the referenced mutual funds is amutual fund that is managed by either the Registrant or an affiliatedentity of the Registrant; (m)an "In Furtherance Trade" means, for the Registrant, a trade bythe Registrant that consists of any act, advertisement, or solicitation,directly or indirectly in furtherance of an other trade in securitiesof a mutual fund, where the other trade consists of: (i)a purchase or sale of securities of a mutual fund that is managedby the Registrant or an affiliated entity of the Registrant; or (ii)a purchase or sale of securities of a mutual fund where the Registrantactsas the principal distributor of the mutual fund; and where,in each case, the purchase or sale is made by or through an otherregistered dealer if the Registrant is not otherwise permittedto make the purchase or sale pursuant to these terms and conditions;(n) "Managed Account"means, for the Registrant, an investment portfolio account ofa client under which the Registrant, pursuant to a written agreementmade between the Registrant and the client, makes investmentdecisions for the account and has full discretionary authorityto trade in securities for the account without obtaining theclient's specific consent to the trade;
(o)"Managed Account Trade" means, for the Registrant, a trade to,or on behalf of a Managed Account of the Registrant, where thetrade consists of a purchase or redemption, through the Registrantof securities of a mutual fund, that is made on behalf of theManaged Account; where, in each case, (i)the Registrant is the portfolio adviser to the mutual fund; (ii)the mutual fund is managed by the Registrant or an affiliate ofthe Registrant; and (iii)either of: (A)the mutual fund is prospectus-qualified in Ontario; or (B)the trade is not subject to sections 25 and 53 of the Act; (p)"Mutual Fund Instrument" means National Instrument 81-102 MutualFunds, as amended; (q)"Permitted Client", for the Registrant, means a person or companythat is a client of the Registrant, and that is, or was at thetime the person or company became a client of the Registrant: (i)an Executive or Employee of the Registrant; (ii)a Related Party of an Executive or Employee of the Registrant; (iii)a Service Provider of the Registrant or an affiliated entity ofa ServiceProvider of the Registrant; (iv)an Executive or Employee of a Service Provider of the Registrant;or (v)a Related Party of an Executive or Employee of a Service Providerof the Registrant; (r)"Permitted Client Trade" means, for the Registrant, a trade toa person who is a Permitted Client or who represents to the Registrantthat he or she is a person included in the definition of PermittedClient, in securities of a mutual fund that is managed by theRegistrant or an affiliate of the Registrant, and the trade consistsof: (i)a purchase, by the person, through the Registrant, of securitiesof the mutual fund; or (ii)a redemption, by the person, through the Registrant, of securitiesof the mutual fund; (s)"Pooled Fund Rule" means, for the Registrant, a rule or otherregulation that relates, in whole or in part, to the distributionof securities of a mutual fund and/or non-redeemable investmentfund, other than pursuant to a prospectus for which a receipthas been obtained from the Director, made by the Registrant onor on behalf of a Managed Account, but does not include Rule 45-501Exempt Distributions; (t)"Registered Plan" means a registered pension plan, deferred profitsharing plan, registered retirement savings plan, registered retirementincome fund, registered education savings plan or other deferredincome plan registered under the Income Tax Act (Canada); (u)"Registrant" means Phillips, Hager & North Investment ManagementLtd.; (v)"Regulation" means R.R.O. 1990, Reg. 1015, as amended, made underthe Act; (w)"Related Party", for a person, means an other person who is: (i)the spouse of the person; (ii)the issue of: (A)the person, (B)the spouse of the person, or (C)the spouse of any person that is the issue of a person referredto in subparagraphs (A) or (B) above; (iii)the parent, grandparent or sibling of the person, or the spouseof any of them; (iv)the issue of any person referred to in paragraph (iii) above;or (v)a Registered Plan established by, or for the exclusive benefitof, one, some or all of the foregoing; (vi)a trust where one or more of the trustees is a person referredto above and the beneficiaries of the trust are restricted toone, some, or all of the foregoing; (vii)a corporation where all the issued and outstanding shares of thecorporation are owned by one, some, or all of the foregoing; (x)"securities", for a mutual fund, means shares or units of themutual fund; (y)"Seed Capital Trade" means a trade in securities of a mutual fundmade to a persons or company referred to in any of subparagraphs3.1(1)(a)(i) to 3.1(1)(a)(iii) of the Mutual Fund Instrument;and (z)"Service Provider", for the Registrant, means: (i)a person or company that provides or has provided professional,consulting, technical, management or other services to the Registrantor an affiliated entity of the Registrant; (ii)an Adviser to a mutual fund that is managed by the Registrantor an affiliated entity of the Registrant; or (iii)a person or company that provides or has provided professional,consulting, technical, management or other services to a mutualfund that is managed by the Registrant or an affiliated entityof the Registrant. 2.For the purposes hereof, a person or company is considered tobe an "affiliated entity" of an other person or company if theperson or company would be an affiliated entity of that otherperson or company for the purposes of the Employee Rule. 3.For the purposes hereof: (a)"issue", "niece", "nephew" and "sibling" includes any person havingsuch relationship through adoption, whether legally or in fact; (b)"parent" and "grandparent" includes a parent or grandparent throughadoption, whether legally or in fact; (c)"registered dealer" means a person or company that is registeredunder the Act as a dealer in a category that permits the personor company to act as dealer for the subject trade; and (d)"spouse", for an Employee or Executive, means a person who, atthe relevant time, is the spouse of the Employee or Executive. 4.Any terms that are not specifically defined above shall, unlessthe context otherwise requires, have the meaning: (a)specifically ascribed to such term in the Mutual Fund Instrument;or (b)if no meaning is specifically ascribed to such term in the MutualFund Instrument, the same meaning the term would have for thepurposes of the Act. RestrictedRegistration PermittedActivities 5.The registration of the Registrant as a mutual fund dealer underthe Act shall be for the purposes only of trading by the Registrantin securities of a mutual fund where the trade consists of: (a)a Client Name Trade;(b) an Exempt Trade;
(c) a Fund-on-Fund Trade;
(d) an In Furtherance Trade;
(e) a Managed Account Trade;
(f) a Permitted Client Trade; or
(g) a Seed Capital Trade;
providedthat, in the case of all trades that are only referred to inclauses (a) or (f), the trades are limited and incidental tothe principal business of the Registrant and provided also thatparagraph (e) will cease to be in effect one year after thecoming into force, subsequent to the date of this Decision,of any Pooled Fund Rule.