Perennial Asset Management Corp. -- s. 74(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 contains a carve-out for managed accounts in Ontario which prohibits 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 provides 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 sent 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 and 74(1).

Rules Cited

National Instrument 45-106 Prospectus and Registration Exemptions.

National Instrument 31-103 Registration Requirements and Exemptions.

February 12, 2010

IN THE MATTER OF

THE SECURITIES ACT,

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

(the "Act")

AND

IN THE MATTER OF

PERENNIAL ASSET MANAGEMENT CORP.

(the "Filer")

RULING

(Subsection 74(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 is currently, or will be after the date of this ruling, established and managed by the Filer (together 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) to 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").

Interpretation

Defined terms contained in the Act and in National Instrument 14-101Definitions 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 federally incorporated under the laws of Canada. Its head office is in Toronto, Ontario.

2. The Filer is registered with the Commission as a portfolio manager and as an exempt market dealer and is also registered with the applicable securities regulatory authorities in British Columbia and Alberta.

3. The Filer is the manager, portfolio advisor and principal distributor of the Funds. The Funds are not, and will not be, reporting issuers under the Act, and are, or will be, distributed in Ontario, British Columbia and Alberta under applicable statutory exemptions from dealer registration and prospectus requirements.

4. The Filer 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").

5. The Filer's minimum aggregate balance for the Managed Accounts of a Client is $500,000. This minimum may be waived at the Filer's discretion. From time to time, the Filer may accept certain Clients with less than $500,000 under management.

6. The Filer provides Managed Services to Clients who are predominantly "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".

7. The Managed Accounts are serviced by portfolio managers of the Filer who meet the proficiency requirements of an advising representative (or associate advising representative) under National Instrument 31-103 Registration Requirements and Exemptions.

8. The Filer ensures that each Client completes an investment management agreement ("Investment Management Agreement"). The Investment Management Agreement authorizes the Filer to 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. The Investment Management Agreement further sets out how the Managed Account operates and informs the Client of the Filer's various rules.

9. Each Client also completes an investment policy statement and a client information form which set out the Client's investment objectives, asset allocation, risk tolerance and investment time horizon.

10. The Filer meets 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.

11. The Filer sends the Client a quarterly statement showing current holdings and a summary of all transactions carried out in their Managed Account during the quarter. The portfolio manager is available to review and discuss with Clients all account statements.

12. The Filer has determined that to best fulfill its fiduciary duty to its Clients, all or a portion of the asset mix in many Clients' portfolios should be invested in the Funds. The Filer's clients have expressed an interest in having their accounts invested in such investment funds.

13. The 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 Funds' securities to the Managed Accounts.

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

15. 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 certain of its Clients, including those that do not qualify as "accredited investors", to invest in securities of the Funds, without the Client needing to invest a minimum of $150,000 in each Fund, subject to each Client's risk tolerance.

16. Currently, none of the Funds charge a commission or a management fee directly to investors. Instead, under the Investment Management Agreement 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 Management Agreement.

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

18. 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 requested relief, the Funds are prohibited in Ontario from distributing, and the Filer is effectively prohibited from investing in, securities of the 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 single Fund.

19. 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 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 Funds to Clients provided that:

(a) securities of the Funds distributed pursuant to 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 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 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.