Nexus Investment Management Inc. -- ss. 74(1), 144(1)

Headnote

Relief from the prospectus requirement of the Act to permit the distribution of pooled fund securities to managed accounts held by non-accredited investors on an exempt basis -- NI 45-106 containing carve-out for managed accounts in Ontario prohibiting portfolio manager from making exempt distributions of securities of its proprietary pooled funds to its managed account clients in Ontario unless managed account client qualifies as accredited investor or invests $150,000 -- portfolio manager providing bona fide portfolio management services to high net worth clients -- Not all managed account clients are accredited investors -- portfolio manager permitted to make exempt distributions of proprietary pooled funds to its managed accounts provided written notice is delivered to clients advising them of the relief granted -- portfolio manager is restricted from distributing proprietary pooled fund securities to parties other than its managed account clients.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1), 144(1).

Rules Cited

National Instrument 45-106 Prospectus and Registration Exemptions.

National Instrument 31-103 Registration Requirements and Exemptions.

February 9, 2010

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

NEXUS INVESTMENT MANAGEMENT INC.

(the "Filer")

RULING

(Subsections 74(1) and 144(1) of the Act)

Background

The Ontario Securities Commission (the "Commission") has received an application from the Filer, on behalf of itself and any open-ended investment fund that is not a reporting issuer and for which the Filer acts or will act as manager and portfolio manager (the "Nexus Funds") for a ruling:

(i) pursuant to subsection 74(1) of the Act, that distributions of securities of the Nexus Funds to managed accounts of Clients (as defined below) for which the Filer provides discretionary investment management services will not be subject to the prospectus requirement under section 53 of the Act (the "Prospectus Requirement"); and

(ii) pursuant to subsection 144(1) of the Act, to revoke and replace the Current Relief (as defined below)

(collectively, the Requested Relief).

Interpretation

Defined terms contained in the Act and in National Instrument 14-101 Definitions have the same meaning in this ruling unless they are defined in this ruling.

Representations

This ruling is based on the following facts represented by the Filer:

1. The Filer is incorporated under the laws of Ontario. Its head office is in Toronto, Ontario.

2. The Filer is registered as an adviser in the categories of investment counsel and portfolio manager and as a limited market dealer with the Commission. The Filer is also registered as an adviser in British Columbia, Alberta, Quebec and New Brunswick.

3. The Filer is or will be the manager and portfolio manager of the Nexus Funds. RBC Dexia Investor Services Trust is the trustee of the currently existing Nexus Funds.

4. The Filer offers investment management and financial counselling services, primarily to high net worth individuals (each, a "Client") through a managed account ("Managed Account").

5. The Filer generally acts as portfolio manager to 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, the Filer may agree to provide services to Clients who are not "accredited investors".

6. The Filer's normal minimum aggregate balance for all the Managed Accounts of a Client is $250,000. This minimum may be waived at the Filer's discretion. From time to time, the Filer may accept certain Clients with less than $250,000 under management.

7. A significant majority of the Filer's Clients are accredited investors. Any Client that is not an "accredited investor" will typically have a close relationship with a Client that is an accredited investor or met the Filer's minimum account balance at the time of opening the Managed Account.

8. The vast majority of non-accredited investor Clients are "Secondary Clients" as that term is defined under exemptive relief granted to the Filer by the Commission on August 28, 2007 (the "Current Relief"). The Current Relief grants the Filer relief from the Prospectus Requirement to distribute securities of the Nexus Funds to such Secondary Clients in amounts that are less than $150,000. A condition of the Current Relief is that the Secondary Clients meet that definition at all times.

9. From time to time, the Filer may also have Managed Accounts that are held by Clients who are not accredited investors or Secondary Clients ("Non-Exempt Clients"). These Non-Exempt Clients are typically Clients (i) who meet the Filer's minimum account balance (or met the Filer's minimum account balance at the time of opening the Managed Account), or (ii) who, due to a change in circumstances, are no longer accredited investors or Secondary Clients, or (iii) who may otherwise have a relationship with a current Client but the relationship does not meet the definition of a Secondary Client under the Current Relief.

10. The Filer cannot rely on the accredited investor exemption in NI 45-106 or on the Current Relief to provide its services to Managed Accounts held by Non-Exempt Clients.

11. All of the Managed Accounts are serviced by individual portfolio managers of the Filer who meet the proficiency requirements of an advising officer or advising representative (or associate advising officer or associate advising representative) under Ontario securities law.

12. Each Client who wishes to receive the investment management services of the Filer executes a written agreement (the "Investment Counsel Agreement") whereby the Client appoints the Filer to act as portfolio manager in connection with an investment portfolio of the Client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the Client to the trade. The Investment Counsel Agreement further sets out how the Managed Account operates and informs the Client of the Filer's various rules, procedures and policies.

13. At the initial meeting between a new Client and a portfolio manager, the portfolio manager establishes the Client's general investment goals and objectives, which are then generally documented in an investment objectives letter ("IPS") that describes the strategies that the Filer shall employ to meet these objectives and includes specific information on matters such as asset allocation, risk tolerance and liquidity requirements. To the extent that a Client's goals or circumstances have changed, a new IPS is created to reflect those changes.

14. After the initial meeting, the Filer's portfolio manager offers to meet at least once per year with his/her Clients (or more frequently as required) to review the performance of their account and their investment goals.

15. The custodian of each Client sends the Client a monthly statement showing all transactions carried out in their Managed Account during the month. On a quarterly basis, the Filer sends its Clients a statement showing all holdings in their Managed Account and providing commentary on the investments contained in their Managed Account portfolio. The portfolio manager is available to review and discuss with Clients all account statements. In addition, Clients are invited to a quarterly lunch which discusses the performance and investments of the Nexus Funds.

16. The Filer has determined that to best fulfill its fiduciary duty to its Clients, all or a portion of the asset mix in each Client's portfolio should be invested in the Nexus Funds.

17. The Nexus Funds are, or will be, established by the Filer with a view to achieving efficiencies in the delivery of portfolio management services to its Clients' Managed Accounts. The Filer will not be paid any compensation with respect to the distribution of the Nexus Funds' securities to the Managed Accounts.

18. Investments in individual securities may not be appropriate for the Clients with smaller Managed Accounts, since they may not receive the same asset diversification benefits and may, as a result of the minimum commission charges, incur disproportionately higher brokerage commissions relative to the Clients with larger Managed Accounts.

19. To give all of its Clients the benefit of asset diversification, access to investment products with a very high minimum investment threshold and economies of scale on brokerage commission charges, the Filer proposes to cause its Clients, including those that do not qualify as "accredited investors", to invest in securities of the Nexus Funds, without the Client needing to invest a minimum of $150,000 in each Nexus Fund, subject to each Client's risk tolerance.

20. Currently, none of the Nexus Funds charge a commission or a management fee directly to investors. Instead, under the Investment Counsel Agreements between each Client and the Filer, the Client agrees to pay the Filer a management fee based upon a percentage of assets under management in the Managed Account. Terms of the fees are detailed in each Client's Investment Counsel Agreement.

21. Each Nexus Fund will pay all administration fees and expenses relating to its operation. If, in the future, the Filer charges management fees or performance fees to a Nexus Fund and the Filer invests, on behalf of a Managed Account, in securities of such Nexus Fund, the necessary steps will be taken to ensure that there will be no duplication of fees between a Managed Account and the Nexus Funds.

22. While a Managed Account qualifies as an "accredited investor" in each province and territory outside Ontario, NI 45-106 contains a carve out for Managed Accounts in Ontario when the securities being purchased by the Managed Account are those of an investment fund. Absent the relief being requested, the Nexus Funds are prohibited in Ontario from distributing, and the Filer is effectively prohibited from investing in, securities of the Nexus Funds for the Managed Accounts, in reliance upon the "accredited investor" exemption in NI 45-106 in circumstances where the individual Client who is the beneficial owner of the Managed Account is not otherwise qualified as an "accredited investor". Reliance upon the $150,000 minimum investment exemption available under NI 45-106 may not be appropriate for smaller Managed Accounts as this might require a disproportionately high percentage of the account to be invested in a Nexus Fund.

23. Under the exempt distribution rule applicable in each province and territory outside Ontario, there is no restriction on the ability of Managed Accounts to purchase investment fund securities on an exempt basis. Under NI 45-106, a Managed Account in each province and territory outside Ontario can acquire securities of the Nexus Funds as an "accredited investor".

Ruling

The Commission being satisfied that the relevant test contained in subsection 74(1) of the Act has been met, the Commission rules pursuant to subsection 74(1) of the Act that relief from the Prospectus Requirement is granted in connection with the distribution of securities of the Nexus Funds to Clients provided that:

(a) securities of the Nexus Funds distributed pursuant to the relief from the Prospectus Requirement contained in this ruling shall only be distributed to Managed Accounts;

(b) for each Client that becomes a Client of the Filer after the date of this ruling that will invest in securities of one or more Nexus Funds through a Managed Account pursuant to this ruling, the Filer shall deliver to such Client, prior to effecting a trade in securities of a Nexus Fund in reliance on this ruling, written disclosure advising of:

(i) the nature of the relief granted under this ruling, and

(ii) the fact that the ruling permits the Client to invest in an investment fund product which the Client otherwise would not be allowed to invest in on an exempt basis through their Managed Account; and

(c) 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 Ontario in securities of investment funds from the Prospectus Requirement.