Headnote
NP 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption to allow a portfolio manager to provide performance information for the period preceding the date when funds became reporting issuers in a financial report to its private managed account holders who have purchased managed account units of the funds pursuant to a prospectus exemption – portfolio manager exempted from filing financial report to private managed account holders on SEDAR – the financial report will contain standard performance information that includes references to all elements of return and clearly identifies the periods for which the performance information is calculated – portfolio manager will continue to file annual and interim management reports of fund performance and financial statements for all series of securities issued by funds including managed account units.
Applicable Legislative Provisions
National Instrument 81-102 – Mutual Funds, ss. 15.3(2), 15.3(4)(c), 15.6 and 15.8.
National Instrument 81-106 – Investment Fund Continuous Disclosure, s. 16.2.
December 10, 2008
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO
(the Ontario Jurisdiction)
and
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
and
IN THE MATTER OF
T.E. INVESTMENT COUNSEL INC.
(the Filer)
and
IN THE MATTER OF
JOV PROSPERITY CANADIAN FIXED INCOME FUND
JOV PROSPERITY CANADIAN EQUITY FUND
JOV PROSPERITY U.S. EQUITY FUND
JOV PROSPERITY INTERNATIONAL EQUITY FUND
(the Funds)
Decision
Background
The principal regulator in the Ontario Jurisdiction has received an application from the Filer, on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirements in subsections 15.3(2), 15.3(4)(c), 15.6, and 15.8 of National Instrument 81-102 Mutual Funds (NI 81-102) that prohibits the sending of past performance information to managed account clients of the Filer for periods commencing before the Funds were reporting issuers in a Jurisdiction, and from subsection 16.2 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that requires the filing of all documents that are sent to securityholders of an investment fund on SEDAR (collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the provinces and territories of Canada (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Funds are open-end mutual fund trusts created under the laws of Ontario pursuant to a Trust Agreement dated February 12, 2004, as amended, with the Filer, as manager of the Funds and The Royal Trust Company;
The Filer is the manager and portfolio manager of the Funds and is the portfolio manager of the accounts of clients that have entered into managed account agreements with the Filer (the Clients);
Since February 12, 2004, units of the Funds, currently designated as Series O, have been distributed to Clients of the Filer pursuant to managed account agreements each has with the Filer. Since March 1, 2005, units of the Funds currently designated as Series B, have been distributed to Clients of the Filer pursuant to managed account agreements each has with the Filer;
The distribution of Series B units and Series O units (the Managed Account Units) of the Funds to Clients is done on a private placement basis in accordance with National Instrument 45-106 Prospectus and Registration Exemptions, and its predecessors as applicable in each Jurisdiction (the Private Placement Rule);
All holders of Managed Account Units are Clients who have received Managed Account Units in accordance with the portfolio management agreement between the Filer and that Client;
Series A Units, Series F Units, and Series I Units of the Funds (the Public Units) are sold and distributed in all of the Jurisdictions pursuant to a prospectus dated January 14, 2008, amended and restated August 19, 2008 (the Prospectus);
Effective January 18, 2008, the Funds became reporting issuers in each of the Jurisdictions. Any purchaser may purchase Public Units in a Jurisdiction through their registered dealer. Managed Account Units continue to be only sold to Clients on a private placement basis pursuant to the Private Placement Rule;
Investment funds that are not reporting issuers are exempt from the requirement to prepare and file a MRFP pursuant to NI 81-106 and are exempt from the application of NI 81-102.
Since inception in January of 2004, on an annual and interim basis, Clients who hold Managed Account Units receive annual audited financial statements and interim unaudited financial statements (the Financial Statements), respectively, which include a financial report that includes performance data;
NI 81-102 does not permit the Funds to include performance data in sales communications for periods occurring before the Funds became reporting issuers, including in respect of the performance of the Managed Account Units;
NI 81-102 defines a sales communication as being any document that is sent to securityholders of the Funds, does not distinguish between the different distribution methods the Funds may employ for each class of securities and does not permit the inclusion of performance data in a sales communication that includes information for periods occurring before the Funds became reporting issuers, including in respect of the Managed Account Units;
NI 81-106 requires the filing of any disclosure document sent to securityholders of the Funds including communications from the Filer that are intended solely for the use of Clients who hold Managed Account Units;
Without the Exemption Sought, the Filer would be unable to continue to communicate with its Clients in respect of the Managed Account Units they hold in the manner that they expect and that the Filer has used since the inception of the Managed Account Units;
The Funds will distribute interim and annual Management Reports of Fund Performance and Financial Statements to all securityholders in accordance with Part 5 of NI 81-106 and file each on SEDAR;
The Filer will distribute with the annual and interim Financial Statements of the Funds, an annual and interim financial report (the Financial Report) to its Clients who hold Managed Account Units, and will not file the Financial Report on SEDAR;
The Financial Report will include performance information for the Managed Account Units that dates back to the inception of the Series O units in 2004 and the Series B units in 2005, rather than the date each Fund became a reporting issuer in 2008;
The Financial Report will include performance information that has been calculated as if it is “standard performance data” as that term is defined in NI 81-102 based on the Fund’s total return during the measurement periods (the Standard Performance Information).
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) neither the Filer nor the Funds shall distribute the Financial Report to a person that is not, at the time of distribution, a Client of the Filer;
(b) the Financial Report:
(i) contains Standard Performance Information of the Funds that is presented in a type size that is equal to or larger than that used to present the other performance information;
(ii) discloses Standard Performance Information that reflects or includes references to all elements of return; and
(iii) clearly identifies the periods for which the performance information is calculated.
The Exemption Sought shall terminate upon the coming into force of any legislation or rule of the principal regulator dealing with the matters referred to in subsections 15.3(2), 15.3(4)(c), 15.6, and 15.8 of NI 81-102, and subsection 16.2 of NI 81-106
“Vera Nunes”
Vera Nunes
Assistant Manager, Investment Funds
Ontario Securities Commission
SEDAR Project No. 1321321