Securities Law & Instruments

Headnote

Investment Counsel and Portfolio Manager registrant (the Registrant) exempted (subject to conditions) from the dealer registration requirement, in clause 25(1)(a) of the Act, for trades in units of mutual funds, where the mutual fund is managed by the registrant, the registrant is the portfolio adviser of the mutual fund, and the trade is made to an account that is fully managed by the registrant, or an affiliate of the registrant -- Portfolio manager registrant also exempt (subject to conditions) from the dealer registration requirement, in clause 25(1)(a) of the Act, for trades that consist of any act, advertisement or solicitation, directly or indirectly, in furtherance of another trade in units of such mutual funds, where the other trade is a purchase or sale that is made by or through another dealer that is registered under the Act in the appropriate category of registration.

Relief from certain conflict provisions in connection with the distribution by the Registrant of units of mutual funds which it manages -- relief subject to certain conditions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 74(1).

Applicable Ontario Regulatory Provisions

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss. 233.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, C.S.5, AS AMENDED (the Act)

AND

IN THE MATTER OF

REGULATION 1015

R.R.O. 1990, AS AMENDED (the Regulation),

MADE UNDER THE ACT

AND

IN THE MATTER OF

NIGEL STEPHENS COUNSEL INC.

 

ORDER

(Subsection 74(1) of the Act and Section 233 of the Regulation)

UPON the application (the Application) of Nigel Stephens Counsel Inc. (the Applicant) for an order, pursuant to:

(a) subsection 74(1) of the Act that the requirements of section 25 of the Act to be registered as a dealer shall not apply to the Applicant or to the officers and employees of the Applicant acting on its behalf in respect of certain activities relating to mutual funds of which the Applicant or an affiliate of the Applicant is the manager (the Mutual Funds); and

(b) section 233 of the Regulation that the following conflict provisions contained in sections 223 and 226 to 228 of the Regulation shall not apply to the Applicant in connection with distributing units of the Mutual Funds to the Managed Accounts (as hereinafter defined);

(i) the requirements that a registrant prepare a conflict of interest rules statement in the required form, revise the conflict statement in the event of any significant change in the information, file the statements with the Commission, and provide its customers and clients with copies of the statements (the Conflicts Statement Requirement);

(ii) the requirement that a registrant send or deliver to its clients a written confirmation of a securities transaction that contains certain disclosure if the security was a security of a related issuer, or in the course of a distribution, a security of a connected issuer, of the registrant (the Trade Confirmation Requirement);

(iii) the requirement that a registrant make certain disclosure to its client if the registrant acts as an adviser in respect of securities of a related issuer, or in the course of a distribution, securities of a connected issuer (the Adviser Disclosure Requirement); and

(iv) the requirement that a registrant make certain disclosure to its client and obtain the requisite specific and informed written consent of its client if a registrant acts as an adviser, exercising discretionary authority with respect to the investment portfolio or account of its client, to purchase or sell securities of a related issuer, or in the course of a distribution, securities of a connected issuer, of the registrant (the Discretionary Management Disclosure Requirement);

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Applicant having represented to the Commission that:

1. The Applicant is a corporation governed by the Business Corporations Act (Ontario).

2. The Applicant is registered as an adviser in the categories of investment counsel and portfolio manager and as a dealer in the category of limited market dealer in Ontario.

3. The Applicant is the manager and portfolio manager of three mutual funds: the NSC Canadian Balanced Income Fund, NSC Canadian Equity Fund and NSC Global Balanced Fund (the Current Funds).

4. The Current Funds are distributed in Ontario with a simplified prospectus and annual information form dated November 21, 2003.

5. The Applicant may in the future be the manager and portfolio manger of additional mutual funds (together with the Current Funds, the Mutual Funds).

6. Each of the Mutual Funds is or will be an open-end mutual fund trust established under the laws of the Ontario and "NSC" or "Nigel Stephens" is or will be part of the name of each Mutual Fund.

7. The Applicant carries on business primarily as an investment counsel and portfolio manager. As part of its portfolio management operations, the Applicant provides discretionary portfolio management services to investment portfolio accounts of clients (each a Managed Account), under which the Applicant, pursuant to a written agreement (discretionary management agreement) made between the Applicant and each client, makes investment decisions for the Managed Account and has full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client for each trade.

8. The Applicant manages most of its client's assets on a discretionary basis utilizing segregated, custodial portfolios of securities or Mutual Funds for its clients.

9. Under the discretionary management agreements, the Applicant's clients specifically authorize the Applicant to invest in the Mutual Funds.

10. All of the Applicant's clients receive written specific disclosure of the relationship between the Applicant and the Mutual Funds.

11. The Applicant does not and will not act as an adviser, dealer or underwriter in respect of securities of the Applicant or of a related issuer of the Applicant, or in the course of a distribution, in respect of securities of connected issuers of the Applicant other than in connection with the distribution of units of the Mutual Funds, and the Mutual Funds do not hold and will not hold securities of any related issuer of the Applicant, or in the course of a distribution, securities of a connected issuer of the Applicant, other than the securities of another Mutual Fund.

12. Incidental to its principal business of portfolio management, the Applicant wishes to distribute units of the Mutual Funds to its Managed Accounts. Except as provided for in paragraph 13 below, the Applicant will not distribute units of the Mutual Funds to persons for whom it does not have a Managed Account.

13. The Applicant also wishes to conduct marketing and wholesaling activities in respect of the Mutual Funds. "Marketing or Wholesaling Activities" means for the Applicant, a trade by the Applicant that consists of any act, advertisement or solicitation, directly or indirectly, in furtherance of another trade in securities of a Mutual Fund, where the other trade consists of:

(i) a purchase or sale of securities of a Mutual Fund; or

(ii) a purchase or sale of securities of a Mutual Fund of which the Applicant acts as the "principal distributor" of the Mutual Fund for the purposes of NI 81-102;

and where the purchase or sale is, in each case, made by or through another dealer that is registered under the Act where the trade is made in a category that permits it to act as a dealer for such trade.

14. Without the relief requested, the Applicant would require registration as a mutual fund dealer in order to (a) distribute shares or units of the Mutual Funds to investors for whom the Applicant has Managed Accounts where no registration exemption is available under the Act, and (b) conduct Marketing and Wholesaling Activities in respect of the Mutual Funds.

15. Without the relief requested, the Applicant would be subject to Rule 31-506 SRO Membership -- Mutual Fund Dealers which requires mutual fund dealers to apply for and maintain membership in the Mutual Fund Dealers Association of Canada (the MFDA).

16. The effect of the MFDA's membership rules is to preclude a mutual fund dealer from conducting its principal business of acting as an investment counsel and accepting discretionary portfolio management mandates.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS HEREBY ORDERED pursuant to section 74(1) of the Act that the requirements in section 25 of the Act shall not apply to trades in units of Mutual Funds made by the Applicant through its officers and employees acting on its behalf (each a Registrant Representative), to Managed Accounts, provided that:

(i) the Applicant is, at the time of the trade, registered under the Act as an adviser in the categories of "investment counsel" and "portfolio manager" and as a dealer in the category of "limited market dealer";

(ii) the trade is made on behalf of the Applicant by a Registered Representative who is, at the time of the trade, either (i) registered under the Act to act on behalf of the Applicant as an adviser in the categories of "investment counsel" and "portfolio manager" or (ii) acting under the direction of such a person and is himself or herself registered under the Act to trade on behalf of the Applicant pursuant to its limited market dealer registration; and

(iii) this Order shall terminate one year after the coming into force, subsequent to the date of this Order, of a rule or other regulation under the Act that relates, in whole or part, to any trading by persons or companies that are registered under the Act as portfolio managers (or the equivalent), in securities of a mutual fund, to an account of a client, in respect of which the person or company has full discretionary authority to trade in securities for the account, without obtaining the specific consent of the client to the trade, but does not include any rule or regulation that is specifically identified by the Commission as not applicable for these purposes.

AND, IT IS HEREBY ORDERED pursuant to section 74(1) of the Act that the requirements in section 25 of the Act shall not apply to trades that consists of Marketing or Wholesaling Activities in respect of shares or units of Mutual Funds made by the Applicant through Registrant Representatives, provided that, in the case of each such trade, the Applicant is, at the time of the trade, registered under the Act as a dealer in the category of "limited market dealer" and the Registrant Representative that makes the trade on behalf of the Applicant is, at the time of the trade, registered under the Act to trade on behalf of the Applicant pursuant to its limited market dealer registration.

AND, IT IS HEREBY ORDERED pursuant to section 233 of the Regulation, that:

(a) the Applicant is exempt from the Conflicts Statement Requirement;

(b) the Trade Confirmation Requirement and the Adviser Requirement does not apply to the distribution of the units of the Mutual Funds by the Applicant to the Managed Accounts; and

(c) the Applicant is exempt from the Discretionary Management Disclosure Requirement in respect of the units of the Mutual Funds provided the Applicant obtains the client's specific and informed consent to purchase or sell the units of the Mutual Funds.

November 28, 2003.

"Paul M. Moore"
"Wendell S. Wigle"