Relief from the dealer registration and prospectus requirements in the Securities Act (Ontario) to permit the distribution of related pooled fund units to fully managed accounts on an exempt basis subject to certain conditions. Mutual fund deemed to have ceased to be a reporting issuer. Approval under the Loan and Trust Corporations Act (Ontario) for the mutual fund manager to act as trustee for its pooled funds.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1), 83, 144.
Loan and Trust Corporations Act, R.S.O. 1990, c. L.25, as am., s. 213(3)(b).
OSC Rule 45-501 -- Exempt Distributions.
National Instrument 45-106 -- Prospectus and Registration Exemptions.
National Instrument 81-102 - Mutual Funds.
October 6, 2005
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
CHAPTER S.5, AS AMENDED (the "Act")
IN THE MATTER OF
THE LOAN AND TRUST CORPORATIONS ACT,
R.S.O. 1990, c.L25, AS AMENDED (the "LTCA")
IN THE MATTER OF
JONES COLLOMBIN INVESTMENT COUNSEL INC. ("JCIC")
RULING AND ORDER
(Subsections 74(1) and 144(1), Section 83
of the Act and Paragraph 213(3)(b) of the LTCA)
WHEREAS on July 5, 2005, the Ontario Securities Commission ("Commission") made a ruling pursuant to subsection 74(1) of the Act ("Original Ruling") in the form of a Mutual Reliance Review System Decision Document that the requirements of section 25 should not apply in respect of any trades in shares or units of a mutual fund ("JCIC Fund") that is managed by JCIC that are made by JCIC to a Managed Account (as defined below);
AND WHEREAS the Original Ruling also granted relief from the registration requirements under the Securities Act (Alberta) (the "Alberta Act");
AND WHEREAS JCIC wishes to vary the Original Ruling to:
(a) grant relief from the prospectus requirements of section 53 of the Act with respect to the distribution of units or shares of JCIC Funds to Managed Accounts;
(b) delete references to the Alberta Act;
(c) grant relief to permit Jones Collombin Balanced Fund to be deemed to have ceased to be a reporting issuer for the purposes of the Act with effect as of and from October 8, 2005; and
(d) approve, pursuant to the authority conferred by clause 213(3)(b) of the LTCA that JCIC act as trustee of JCIC Funds.
(e) AND WHEREAS in order to so vary the Original Ruling, JCIC has made an application to the Commission ("Application") pursuant to subsections 144(1), 74(1) and 83 of the Act and paragraph 213(3)(b) of the Loan and Trust Corporations Act (Ontario) ("LTCA") for an order revoking the Original Ruling and restating the Original Ruling as set out below;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON JCIC having represented to the Commission as follows:
1. JCIC is a corporation incorporated under the Business Corporations Act (Ontario) which conducts active portfolio management operations (the "Portfolio Management Operations") offering services to a large and diversified client base.
2. JCIC currently has assets under management of approximately $627 million.
3. JCIC's Portfolio Management Operations are designed to provide services to the following distinct business segments:
(a) Private clients -- high net worth individuals who access JCIC's portfolio management services by establishing and maintaining segregated individually managed accounts.
(b) Institutional clients -- corporations, institutions, endowments and foundations which have their assets managed in segregated individually managed accounts.
4. JCIC conducts its Portfolio Management Operations in accordance with adviser registrations which it maintains with each of the securities regulatory authorities in Ontario, British Columbia, Alberta and Quebec.
5. In Ontario, JCIC is 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.
6. JCIC's Portfolio Management Operations are devoted to providing discretionary portfolio management services to investment portfolio accounts ("Managed Accounts") of clients, under which JCIC, pursuant to a written agreement made between JCIC and each client, makes investment decisions for the client's Managed Account and has full discretionary authority to trade in securities for the Managed Account without obtaining the specified consent of the client to the trade.
7. In order to afford Managed Account access to individuals who would not generally be considered to have sufficient assets to warrant the establishment of a Managed Account due to related cost and asset diversification considerations ("Smaller Accounts"), JCIC sought and obtained the Original Ruling which was an exemption from the dealer registration requirements of the Act and the Alberta Act to permit it to distribute units of prospectus qualified mutual funds managed by JCIC ("JCIC Funds") to Managed Accounts.
8. Currently, there is one such JCIC Fund, namely, Jones Collombin Balanced Fund, which is a reporting issuer in Ontario, Alberta and British Columbia.
9. JCIC sought and obtained the Original Ruling in Ontario because JCIC was not considered to be an accredited investor as regards a JCIC Fund for purposes of the accredited investor exemption that was then available pursuant to Ontario Securities Commission ("OSC") Rule 45-501 Exempt Distributions ("OSC Rule 45-501"). In section 1.1 of OSC Rule 45-501, the term "accredited investor" was defined to include "(x) ... a fully managed account if it is acquiring a security that is not a security of a mutual fund or non-redeemable investment fund". As a result of this definition, a distribution of units or shares of a JCIC Fund to a Managed Account in Ontario was not exempt from the dealer registration and prospectus requirements of the Act because a Managed Account was not an accredited investor for purposes of OSC Rule 45-501 when it acquired such units or shares. The Original Ruling was obtained in Alberta because Alberta did not have a dealer registration or prospectus exemption for managed accounts when JCIC became registered as an adviser in Alberta and this continued to be the case until Multilateral Instrument 45-103 Capital Raising Exemptions ("MI 45-103") became effective on June 30, 2005. Implementation of MI 45-103 caused the Original Ruling to terminate on June 30, 2005 as regards the exemption that it granted from the dealer registration requirement of the Alberta Act.
10. On September 14, 2005, National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") became effective. NI 45-106 characterizes registered portfolio managers as accredited investors without qualification in all jurisdictions other than Ontario. In Ontario, a portfolio manager continues to be characterized as an accredited investor only when it is purchasing a security that is not an investment fund. Ontario continues to refrain from characterizing a portfolio manager as an accredited investor when it is purchasing the securities of an investment fund due to recent events concerning hedge funds.
11. The only costs that are incurred by a JCIC Fund are expenses associated with its ongoing administration. JCIC Funds pay no management fees and no fees or commissions in relation to the distribution of their units or shares. The only management fees that are paid by a Managed Account that holds the units or shares of a JCIC Fund are paid directly to JCIC pursuant to the discretionary investment management agreement that is entered into between JCIC and every Managed Account.
12. JCIC does not distribute the units or shares of JCIC Funds, and it does not offer its investment management services, through any third parties. Accordingly, neither JCIC nor any JCIC Fund pays any fees or commissions for the sale of JCIC's investment management services or the units or shares of a JCIC Fund.
13. The one currently existing JCIC Fund is not, and future JCIC Funds will not be, hedge funds because they are designed to provide Smaller Accounts with access to an investment portfolio that is managed in the same way in which JCIC manages its other Managed Accounts.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to subsection 144(1) of the Act, and with respect to Ontario only, that the Original Ruling is revoked in respect of future distributions of units or shares of JCIC Funds to Managed Accounts; and
IT IS RULED, pursuant to subsections 74(1) and 144(1) of the Act that sections 25 and 53 of the Act shall not apply to a distribution of the units or shares of a JCIC Fund that is made by JCIC, through its officers and employees acting on its behalf (each a "JCIC Representative"), to Managed Accounts,
(a) JCIC is at the time of the trade, registered under the Act as an advisor in the category of "portfolio manager";
(b) JCIC is, at the time of the trade, registered under the Act as a dealer in the category of "limited market dealer" and the trade is made on behalf of JCIC by a JCIC Representative who is, at the time of the trade, either (i) registered under Act to act on behalf of JCIC as an adviser in the category of "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 JCIC pursuant to its limited market dealer registration;
(c) the JCIC Fund is organized or created under the laws of Canada or the laws of a Province of Canada;
(d) the JCIC Fund meets the definition of mutual fund as defined in the Act; and
(e) the JCIC Fund is in compliance with Part 2 Investments and Part 6 Custodianship of Portfolio Assets of National Instrument 81-102 Mutual Funds;
and 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 in part, to any trading by persons or companies that are registered under the Act as portfolio managers, 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.
IT IS HEREBY ORDERED pursuant to section 83 of the Act that Jones Collombin Balanced Fund is deemed to have ceased to be a reporting issuer for the purposes of the Act with effect as of and from October 8, 2005.
IT IS HEREBY APPROVED pursuant to the authority conferred by clause 213(3)(b) of the LTCA that JCIC act as trustee of JCIC Funds.