Jones Collombin Balanced Fund -- 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 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 sent to new 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).

Rules Cited

National Instrument 45-106 Prospectus and Registration Exemptions.

National Instrument 31-103 Registration Requirements and Exemptions.

September 28, 2010

IN THE MATTER OF

THE SECURITIES ACT,

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

(the Act)

AND

IN THE MATTER OF

JONES COLLOMBIN INVESTMENT COUNSEL INC.

(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, the Jones Collombin Balanced Fund (the Balanced Fund) and any other open-ended investment fund that is not a reporting issuer and that is established and managed by the Filer from time to time (a Future Fund) for a ruling, pursuant to subsection 74(1) of the Act, that distributions of securities of the Balanced Fund and any Future Funds to Managed Accounts of Clients, as these terms are 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 14-101 Definitions have the same meaning in this ruling unless they are otherwise defined in this ruling.

Representations

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

(a) The Filer is a corporation incorporated under the Business Corporations Act (Ontario). Its head office is located in Toronto, Ontario.

(b) The Filer conducts active portfolio management operations (the Portfolio Management Operations) offering services to a large and diversified client base in accordance with adviser registrations that it maintains with each of the securities regulatory authorities in Ontario, British Columbia, Alberta and Quebec. In Ontario, the Filer is currently registered under the Act as a portfolio manager and an exempt market dealer and is in the process of becoming registered as an investment fund manager.

(c) The Filer's Portfolio Management Operations are designed to provide services to the following distinct business segments:

(i) Private clients -- high net worth individuals who access the Filer's portfolio management services by establishing and maintaining segregated individually managed accounts.

(ii) Institutional clients -- corporations, institutions, endowments and foundations which have their assets managed in segregated individually managed accounts.

(d) The Filer's Portfolio Management Operations are devoted to providing discretionary portfolio management services to private clients and institutional clients (the Clients) who have entered into a written agreement with the Filer (the Managed Account Agreement) that authorizes the Filer to exercise its discretion to invest and reinvest the assets that are held in the Client's account with the Filer (the Managed Account) from time to time without having to obtain the prior consent of the Client for each trade made by the Filer on behalf of the Client.

(e) The Filer currently has three portfolio managers that manage Client accounts on a team basis. Prior to entering into a Managed Account Agreement, one or more or the Filer's portfolio managers meets with each Client to establish the Client's general investment goals and objectives which form part of the Managed Account Agreement. An Investment Management Philosophy and Processes statement (the IMPP) is provided to each Client setting out the strategies that the Filer will employ to meet the Client's investment goals and objectives. The Statement is incorporated by reference into the Managed Account Agreement.

(f) After the initial meeting, the Filer offers to meet at least once per year with each Client (or more frequently as required) to review the performance of their Managed Account and their investment goals and objectives.

(g) The Filer is currently the manager and sole distributor of the Balanced Fund, the securities of which are distributed to Managed Accounts pursuant to the Current Ruling, as that term is defined below. The Filer may, in the future, be the manager and sole distributor of Future Funds.

(h) The Balanced Fund is, and any Future Fund will be, an open-end investment fund that is not a reporting issuer.

(i) The Filer's minimum aggregate account size, which it may waive in appropriate circumstances, is within the range of $750,000 to $1,000,000. The Filer will accept Clients who do not meet this minimum threshold if there are exceptional factors that have persuaded the Filer for business reasons to accept such persons as Clients and waive the minimum aggregate account size. This would include the following circumstances:

(i) the investor is a member of an existing Client's family;

(ii) an existing Client requests the Applicant to manage the investor's assets;

(iii) the investor has significant future earning and/or inheritance potential; and the investor has assets in excess of the minimum threshold that the investor is managing or are under management elsewhere that the Applicant may be asked to manage at a future date.

(j) The Filer may determine that to best fulfill its fiduciary duty to its Clients, all or a portion of the asset mix in a Client's portfolios should be invested in the Balanced Fund or a Future Fund.

(k) The Balanced Fund has been, and any Future Funds will be, established and maintained primarily for the purpose of affording Managed Account access to individuals and individual accounts that would not generally be considered to have sufficient assets to warrant the establishment of a Managed Account due to asset diversification and cost considerations.

(l) Investments in individual securities may not be appropriate for Clients with smaller Managed Accounts because they may be unable to obtain the asset diversification that can be obtained through an investment in the Balanced Fund and/or any Future Fund.

(m) Investments in individual securities may also be inappropriate for Client's with smaller Managed Accounts because minimum commission charges can result in smaller Managed Accounts paying disproportionately higher brokerage commissions relative to Clients with larger Managed Accounts.

(n) The only costs that are, or will be, incurred by the Balanced Fund or any Future Fund (collectively, the JCIC Funds) are expenses associated with its ongoing administration. JCIC Funds do not, and will not, pay any management fee or any fee or commission in relation to the distribution of their securities.

(o) The only management fee that is, or will be, paid by a Managed Account that holds the securities of a JCIC Fund is, or will be, paid directly to the Filer pursuant to the terms and conditions of the Managed Account Agreement that is entered into between the Filer and the relevant Client.

(p) The Filer does not, and will not, distribute the securities of the JCIC Funds through any third parties. Accordingly, neither the Filer nor any JCIC Fund pays, or will pay, any fees or commissions for the sale of the securities of a JCIC Fund.

(q) The Filer addresses its know-your-client and suitability obligations at the time that it opens a Managed Account for a Client and on an ongoing basis. The Filer will only invest a Client's Managed Account in a JCIC Fund if the client has previously provided the Filer with the Client's express written consent to allow the Applicant to exercise its discretion to acquire securities of the JCIC Fund. If an investment in one or more JCIC Funds is both suitable and appropriate for a prospective Client, this express consent is obtained by the Filer at the time that it opens the Client's Managed Account.

(r) The Filer has prepared an offering memorandum for the Balanced Fund, and it will prepare an offering memorandum for any Future Funds, and it delivers, or will deliver, a copy of the offering memorandum to each prospective Client or Client for whom the JCIC Funds may be a suitable and appropriate investment before acquiring any securities of a JCIC Fund on behalf of the Client to assist the Client in deciding whether to provide the Filer with the Client's written consent to allow the Filer to exercise its investment discretion to purchase the securities of one or more JCIC Funds on behalf of the Client.

(s) The Filer provides each Client whose Managed Account is invested in securities other than JCIC with a monthly asset and transaction statement and a quarterly Managed Account performance report.

(t) Each Client whose Managed Account is invested in a JCIC Fund receives a quarterly JCIC Fund performance report and a quarterly report of unit transactions that includes a quarter end unit balance and unit net asset value.

(u) While a Managed Account qualifies as an "accredited investor" in each province and territory other than Ontario, Section 1.1 of National Instrument 45-106 Prospectus and Registration Exemptions contains a carve-out for Managed Accounts in Ontario when the securities being purchased by the Managed Account are those of an investment fund.

(v) Although it may be possible to make the Balanced Fund, or any Future Fund, available only to Clients in Ontario who are "accredited investors" or to those Clients in Ontario who are able to invest a minimum of $150,000 in a JCIC Fund, these constraints would act as a barrier to investments in the JCIC Funds on behalf of smaller Managed Accounts.

(w) The Filer has previously obtained two exemption decisions to accommodate the exempt distribution of the Balanced Fund and any Future Funds to its Managed Accounts. That part of the current ruling and order of the Commission dated October 6, 2005 (the Current Ruling) that grants the Filer a prospectus exemption for distributions of securities of a JCIC Fund to a Managed Account stipulates that it "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 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 securities to the account, without obtaining the specific consent of the client to the trades but does not include any rule or regulation that is specifically identified by the Commission as not applicable for these purposes."

(x) The implementation of National Instrument 31-103 Registration Requirements and Exemptions has triggered the one year termination period for the Current Ruling.

(y) Neither the Filer nor the Balanced Fund are in default of the securities legislation of any Jurisdiction.

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 Balanced Fund and any Future Funds to Clients provided that:

(a) securities of the Balanced Fund, or any Future 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 the Balanced Fund or any Future Fund through a Managed Account pursuant to this ruling, the Filer shall deliver to such Client prior to effecting a trade in securities of a the Balanced Fund or any Future 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 in Ontario; 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.