Securities Law & Instruments

Headnote

Registered portfolio manager exempted (subject to conditions) from the dealer registration requirement, in clause 25(1)(a) of the Act, for trades in shares or units of mutual funds, where: the mutual fund is managed by the registrant (or an affiliate of the registrant), the registrant is the portfolio adviser to the fund, and the trade is made to an account that is fully managed by the registrant -- Registrant also exempted (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 shares or 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.

Registrant exempted (subject to conditions) from sections 223, 226(1) and 227(1) of the Regulation which would otherwise apply as result of registrant trading securities of mutual funds, managed by the registrant or an affiliate of the registrant, to managed accounts of the registrant -- Each mutual fund will have a name that will include a part of the registrant's name -- Before registrant purchases or sells securities of the mutual funds for the managed accounts, or otherwise acts as portfolio manager for the account in respect of such securities, the registrant will have provided the portfolio managed client with a concise statement of its relationship with the fund, and secured the specific and informed written consent of the client to the purchase, sale or exercise of such discretionary authority -- Decision permits registrant to acquire securities of such funds on behalf of portfolio managed accounts without providing the portfolio managed client with a statement of policies or obtaining, on an annual basis, the subsequent specific and informed written consent of the client, following an initial specific and informed consent.

Statutes Cited

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

Regulation Cited

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss. 223, 226(1), 227(1).

Rules Cited

National Instrument 14-101 Definitions.

National Instrument 81-102 Mutual Funds.

Ontario Securities Commission Rule 31-506 SRO Membership - Mutual Fund Dealers.

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

AMI PARTNERS INC.

 

RULINGS AND ORDER

(Subsection 74(1) of the Act and section 233 of Reg. 1015)

UPON the application (the "Application") of AMI Partners Inc. ("AMI") to the Ontario Securities Commission (the "Commission") for:

(a) a ruling, under subsection 74(1) of the Act, that the dealer registration requirement (the "Dealer Registration Requirement"), as defined in National Instrument 14-101 Definition and contained in clause 25(1)(a) of the Act, shall not apply to AMI, or to any officers or employees (each, an "AMI Representative") of AMI, acting on its behalf, in respect of any trades in shares or units of a mutual fund (an "AMI Portfolio Managed Fund") that is managed by AMI, or an affiliate of AMI, and, in respect of which, AMI is the "portfolio adviser" (within the meaning ascribed to such term in National Instrument 81-102 Mutual Fund ("NI 81-102"), where:

(i) the trade is made by AMI to an AMI Portfolio Managed Account (as defined below) for an AMI Portfolio Managed Client (as defined below); or

(ii) the trade consists of Marketing or Wholesaling Activities (as defined below);

(b) an order, under section 233 of the Regulation, to exempt AMI from the following provisions of the Regulation that would otherwise apply in connection with AMI, through its Representatives, trading shares or units of AMI Portfolio Managed Funds to AMI Portfolio Managed Accounts:

(i) the requirements of section 223 (the "Statement of Policies Requirements"); and

(ii) the requirements of section 226(1) of the Regulation (the "Trade Confirmation Disclosure Requirement"); and

(c) an order, under section 233 of the Regulation, that the restriction (the "Discretionary Management Disclosure Requirement"), in section 227 of the Regulation, against a registrant acting as an adviser in respect of securities of a related issuer of the registrant or, in the course of a distribution, in respect of securities of a connected issuer of the registrant, unless certain conditions are satisfied, shall not apply to AMI, in respect of shares or units of AMI Portfolio Managed Funds, in connection with it acting as a portfolio manager to AMI Portfolio Managed Clients through their AMI Portfolio Managed Accounts;

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

AND UPON AMI having represented to the Commission that:

1. AMI is a corporation amalgamated under the laws of Canada.

2. AMI is registered under the Act: (i) as an adviser in the categories of "investment counsel" and "portfolio manager", and (ii) as a dealer, in the category of "limited market dealer".

3. AMI carries on business primarily as an investment counsel and portfolio manager

4. As part of its business, AMI offers individualized portfolio management services to persons and companies (each, an "AMI Portfolio Managed Client") through investment portfolio accounts (each, an "AMI Portfolio Managed Account") under which AMI, pursuant to a written agreement made between AMI and the AMI Portfolio Managed Client, makes investment decisions for the AMI Portfolio Managed Account and has full discretionary authority to trade in securities for the account without obtaining the specific consent of the AMI Portfolio Managed Client.

5. As part of its business, AMI acts, or may act, as manager and/or portfolio adviser to mutual funds that are sold pursuant to a prospectus or may be sold pursuant to exemptions from the prospectus requirement in section 53 of the Act.

6. Incidental to its business of portfolio management, AMI proposes to distribute shares or units of AMI Portfolio Managed Funds to AMI Portfolio Managed Accounts.

7. Incidental to its business of portfolio management, AMI also proposes to engage in Marketing and Wholesaling Activities in respect of AMI Portfolio Managed Funds. "Marketing and Wholesaling Activities" means, for AMI, a trade by AMI that consists of any act, advertisement or solicitation, directly or indirectly, in furtherance of another trade in shares or units of an AMI Portfolio Managed Fund, where the other trade consists of a purchase or sale of shares or units of the AMI Managed Fund, where the purchase or sale is, in each case, made by or through another dealer that is registered under the Act in a category that permits that other dealer to act as a dealer for such trade.

8. Each of the AMI Portfolio Managed Funds will include "AMI" as part of its name.

9. Before AMI purchases or sells securities of an AMI Portfolio Managed Mutual Fund for an AMI Portfolio Managed Account, or otherwise exercises any discretionary authority in respect of such securities, by acting as a portfolio manager to the AMI Portfolio Managed Client, AMI will provide the Portfolio Managed Client with a clear and concise statement of the relationship or connection between AMI and the AMI Portfolio Managed Fund and have secured the specific written and informed consent of the AMI Portfolio Managed Client to such purchase, sale or exercise of such discretionary authority in respect of the securities.

10. AMI does not and will not act as an adviser, dealer or underwriter in respect of securities of AMI or of a related issuer of AMI, or, in the course of a distribution, in respect of any securities of a connected issuer of AMI, other than as described herein.

11. None of the AMI Portfolio Managed Funds holds, or will hold, any securities of AMI or of any related issuer of AMI, or in the course of a distribution, any securities of a connected issuer of AMI, other than, perhaps, the securities of another AMI Portfolio Managed Fund.

12. All trades in any shares or units of an AMI Portfolio Managed Mutual Fund that are made by AMI to AMI Portfolio Managed Clients, through AMI Portfolio Managed Accounts, will be incidental to AMI's principal business of portfolio management.

13. Except for trades that consist of Marketing or Wholesaling Activities, AMI will only trade securities of an AMI Portfolio Managed Fund to an AMI Portfolio Managed Client, through their AMI Portfolio Managed Account.

14. In the absence of these rulings, AMI would require registration under the Act as an investment dealer or mutual fund dealer, in order to carry out the trading activities permitted by these rulings.

15. In order to obtain registration as a mutual fund dealer, AMI would be subject to Ontario Securities Commission 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 MFDA has rules which govern its membership which would preclude AMI from being a member of the MFDA if it continues to conduct 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 RULED, pursuant to section 74(1) of the Act, that the Dealer Registration Requirement shall not apply to any trades, in shares or units of an AMI Portfolio Managed Mutual Fund, made through an AMI Representative to an AMI Portfolio Managed Account,

PROVIDED THAT:

A. AMI is, at the time of the trade, registered under the Act as an adviser in the category of "portfolio manager" and, as a dealer, in the category of "limited market dealer";

B. the trade is made on behalf of AMI by a Registered Representative who is, at the time of the trade, either (i) registered under the Act to act on behalf of AMI 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 AMI pursuant to its limited market dealer registration; and

C. this ruling shall terminate one year after the coming into force, subsequent to the date of this ruling, 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 RULED, pursuant to section 74(1) of the Act, that the Dealer Registration Requirement shall not apply to trades made by AMI through an AMI Representative, in shares or units of an AMI Portfolio Managed Fund, where the trade consists of Marketing or Wholesaling Activities,

PROVIDED THAT:

D. in the case of each such trade, AMI is, at the time of the trade, registered under the Act as a dealer in the category of "limited market dealer" and the AMI Representative is registered under the Act to trade on behalf AMI pursuant to registration as a "limited market dealer";

AND, IT IS ORDERED, pursuant to section 233 of the Regulation, that AMI is exempt from:

(i) the Statement of Policies Requirements;

(ii) the Trade Disclosure Confirmation Requirement in connection with the purchase or sale of shares or units of an AMI Portfolio Managed Fund on behalf of an AMI Portfolio Managed Client through their AMI Portfolio Managed Account; and

(iii) the Discretionary Management Disclosure Requirement, where AMI purchases or sells any securities of an AMI Portfolio Managed Fund (or otherwise exercises any discretionary authority in respect of such securities by acting as a portfolio manager) on behalf of an AMI Portfolio Managed Client, through an AMI Portfolio Managed Account;

PROVIDED THAT:

E. in the case of each AMI Portfolio Managed Client, before AMI purchases or sells securities of an AMI Portfolio Managed Mutual Fund for their AMI Portfolio Managed Account, or otherwise exercises any discretionary authority in respect of such securities, by acting as a portfolio manager to the AMI Portfolio Managed Client, AMI has previously:

(a) provided the AMI Portfolio Managed Client with a concise statement of the relationship or connection between AMI and the AMI Portfolio Managed Fund, and

(b) secured the specific and informed written consent of the AMI Portfolio Managed Client to the purchase, sale or exercise of such discretionary authority in respect of the securities.

October 22, 2004.

"Suresh Thakrar"
"Harold P. Hands"