Relief from the dealer registration and prospectus requirements of the Act to permit the distribution on an exempt basis of pooled fund securities to managed accounts held by non-accredited investors - Non-accredited investors are specified family members of core managed account clients that are accredited investors - ss. 25, 53 and 74(1) of Securities Act (Ontario).
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).
National Instrument 45-106 Prospectus and Registration Exemptions.
February 23, 2007
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
MANITOU INVESTMENTS MANAGEMENT LTD.
MANITOU PARTNERS REGISTERED FUND
(the "Existing Fund")
(Subsection 74(1) of the Act)
The Ontario Securities Commission (the "Commission") has received an application from Manitou on behalf of itself, the Existing Fund and any pooled fund established and managed by Manitou after the date hereof (a "Future Fund", and together with the Existing Fund, the "Funds", individually, a "Fund") for a ruling pursuant to subsection 74(1) of the Act that distributions of units of the Funds to Managed Accounts (as defined below) will not be subject to the dealer registration and prospectus requirements under sections 25 and 53 of the Act (the "Dealer Registration and Prospectus Requirements").
This Ruling is based on the following facts represented by Manitou:
1. Manitou is incorporated under the laws of the province of Ontario. Its head office is in Toronto.
2. Manitou is registered with the Commission as an Investment Counsel, Portfolio Manager, Limited Market Dealer and is registered with the relevant provincial securities administrator in the Provinces of British Columbia, Alberta, Manitoba, Quebec and Nova Scotia.
3. Manitou is the manager, portfolio advisor and principal distributor of the Existing Fund and will act in such capacity for each Future Fund. A company that is not an affiliate of Manitou acts as trustee of the Existing Fund and will act in such capacity for each Future Fund.
4. The Existing Fund is, and each Future Fund will be, an open-end mutual fund.
5. Manitou offers discretionary portfolio management services to individuals, corporations and other entities (each, a "Client") seeking wealth management or related services ("Managed Services") through a managed account ("Managed Account"). It is proposed that pursuant to a written agreement ("Master Client Agreement") between Manitou and the Client, Manitou will make 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 to the trade.
6. The Managed Services are provided by employees of Manitou who meet the proficiency requirements of an advising officer or advising representative (or associate advising officer or associate advising representative) under Ontario securities law.
7. The Managed Services consist of the following:
(a) each Client who accepts Managed Services executes a Master Client Agreement whereby the Client authorizes Manitou to supervise, manage and direct purchases and sales, at Manitou's full discretion on a continuing basis;
(b) Manitou's qualified employees perform investment research, securities selection and management functions with respect to all securities, investments, cash equivalents or other assets in the Managed Account;
(c) each Managed Account holds securities as selected by Manitou; and
(d) Manitou retains overall responsibility for the Managed Services provided to its Clients and has designated a senior officer to oversee and supervise the Managed Services.
8. Manitou's minimum aggregate balance for all the accounts of a Client is $1,000,000. This minimum may be waived at Manitou's discretion. From time to time, Manitou may accept certain Clients for Managed Accounts with less than $1,000,000 under management.
9. Manitou generally provides Managed Services to Clients ("Primary Clients") who are "accredited investors" within the meaning of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"). However, from time to time, Manitou may agree to provide services to Clients who are not accredited investors ("Secondary Clients"). For purposes of this Ruling, the Secondary Clients are Clients who are accepted by Manitou because of a relationship between the Secondary Client and a Primary Client, typically family members, including a spouse, parent, grandparent, child, or sibling of a Primary Client.
10. Primary Clients constitute the main source of business for Manitou and the business of Secondary Clients is incidental to the business of Primary Clients. The business of a Secondary Client is generally accepted by Manitou as a courtesy to the Primary Client.
11. Investments in individual securities may not be appropriate for Primary Clients in certain circumstances or for Secondary Clients. In the case of Secondary Clients the amount they have available for investment may not be sufficient for appropriate asset diversification and, due to the size of an investment, they may incur disproportionately higher brokerage commissions than Primary Clients.
12. Manitou has created the Existing Fund to provide Primary Clients with access to investments through a pooled investment vehicle.
13. The Existing Fund is currently sold by Manitou only to Clients who are accredited investors or if they invest at least $150,000.
14. Manitou wishes to be able to offer the Existing Fund and each Future Fund to Managed Accounts that it manages on behalf of Secondary Clients, as well as to Managed Accounts of Primary Clients, without being required to invest $150,000 in each Fund on behalf of a Secondary Client.
15. Manitou may distribute units of the Fund to investors who do not have a Managed Account with Manitou pursuant to available exemptions from the dealer registration and prospectus requirements in NI 45-106 or in other provisions of applicable securities laws.
16. Managed Services provided by Manitou under a Managed Account are covered by a base management fee (the "Base Management Fee"). The Base Management Fee is charged to the Managed Account and calculated as a fixed percentage of the assets under management in the Managed Account or, where the Managed Account is invested in units of a Fund, it is charged to the Fund and calculated as a fixed percentage of the net asset value of the units of the Fund. The Base Management Fee includes investment research, portfolio selection and management with respect to all securities or other assets in the Managed Account. The Base Management Fee is not intended to cover brokerage commissions and other transaction charges in respect of each transaction which occurs in a Managed Account, nor does it cover interest charges on funds borrowed or charges for standard administrative services provided in connection with the operation of the Managed Account, such as account transfers, withdrawals, safekeeping charges, service charges, wire transfer requests and record-keeping. Terms of the Base Management Fee are detailed in either the Master Client Agreement or the Offering Memorandum of the Fund.
17. Where Manitou invests on behalf of a Managed Account in Funds which would otherwise pay a management fee to Manitou, there will be no duplication of management fees between a Managed Account and the Fund.
18. There will be no commission payable by a Client on the sale of units of the Funds to a Managed Account. Nor will referral fees be paid to a person or company in connection with the referral to Manitou of Secondary Clients that invest in units of a Fund through Managed Accounts.
19. Certain of the Funds fit, or will fit, within the definition of either "mutual fund" or "non-redeemable investment fund" under the Act. The Funds are not, and likely will not be, reporting issuers under the Act, and are, or will be, sold in Ontario under applicable statutory exemptions from the Dealer Registration and Prospectus Requirements.
20. NI 45-106 currently does not recognize a portfolio manager acting on behalf of a managed account in Ontario as being an "accredited investor" if that account is acquiring a security of an investment fund. Accordingly, unless relief from the Dealer Registration and Prospectus Requirements is granted, Manitou will be prohibited from selling units of the Funds to Managed Accounts where the client resides in Ontario and is not an accredited investor or does not invest a minimum of $150,000 in each Fund.
21. Manitou will permit payment, in whole or in part, for Fund units purchased by a Managed Account to be made by making good delivery of securities, held by such Managed Account, to the Fund, provided those securities meet the investment criteria of the Fund. Similarly, after a redemption of units of a Fund by a Managed Account, Manitou may permit payment, in whole or in part, of redemption proceeds to be satisfied by making good delivery of securities held in the investment portfolio of the Fund to such Managed Account, if those securities meet the investment criteria of the Managed Account.
The Commission being satisfied that the relevant test contained in subsection 74(1) has been met, the Commission rules pursuant to subsection 74(1) of the Act that relief from the Dealer Registration and Prospectus Requirements is granted in connection with the distribution of units of the Funds to Managed Accounts provided that,
(a) this Ruling will terminate upon the coming into force of any legislation or rule of the Commission exempting a trade by a fully managed account in securities of investment funds from the Dealer Registration and Prospectus Requirements in the Act;
(b) this Ruling shall only apply where the Secondary Client is, and in the case of clauses (iii) to (vi) below remains,
(i) an individual (of the opposite or same sex) who is or has been married to a Primary Client, or is living or has lived with a Primary Client in a conjugal relationship outside of marriage;
(ii) a parent, grandparent, child or sibling of either a Primary Client or the individual referred to in clause (i) above;
(iii) a personal holding company controlled by an individual referred to in clause (i) or (ii) above;
(iv) a trust, other than a commercial trust, of which an individual referred to in clause (i) or (ii) above is a beneficiary;
(v) a private foundation controlled by an individual referred to in clause (i) or (ii) above; or
(vi) a close associate, employee or professional adviser to a Primary Client provided that
A. there are factors that have persuaded Manitou for business reasons to accept such close associate, employee or professional adviser as a Secondary Client and a record is kept and maintained of the factors considered; and
B. the Secondary Clients acquired through such relationships to a Primary Client shall not at any time represent more than five percent of Manitou's total Managed Account assets under management; and
(c) Manitou does not receive any compensation in respect of a sale or redemption of units of the Funds (other than redemption fees disclosed in the offering documents of the Funds), and Manitou does not pay a referral fee to any person or company who refers Secondary Clients who invest in units of the Funds through Managed Accounts managed by Manitou.