Process for Exemptive Relief Applications in Multiple Jurisdictions -- Fund manager and administrator exempted from the dealer and adviser registration requirements in the Legislation in respect of trades in units of mutual funds it manages in connection with an automatic rebalancing program where portfolio holdings are proportionately adjusted quarterly based upon standing instructions from the unitholders and where no discretion is applied by the administrator, subject to terms and conditions.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 74(1).
Multilateral Instrument 11-102 Passport System.
National Instrument 14-101 Definitions.
National Instrument 81-102 Mutual Funds.
December 30, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
JOVFUNDS MANAGEMENT INC.
The principal regulator in the Jurisdiction has received an application from JovFunds Management Inc. (the Applicant) with respect to the Funds (as defined below) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Applicant from the adviser and dealer registration requirements of the Legislation in respect of trades that facilitate the rebalancing of units of one or more Funds as part of the administration of an automatic rebalancing program (the ARP) (the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(i) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and
(ii) the Manager and the Funds have provided notice that subsection 4.7(2) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other Provinces and Territories of Canada (together with Ontario, the Jurisdictions, and individually a Jurisdiction).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Applicant:
1. The Applicant is a mutual fund manager based in Toronto, Ontario and is the manager of several funds including the Jov Canadian Equity Class of Jov Corporate Funds Inc., Jov Talisman Fund, Jov North American Momentum Fund, Jov Leon Frazer Dividend Fund, Jov Bond Fund, Jov Winslow Global Green Growth Fund, Jov Fiera Conservative Tactical Portfolio, Jov Fiera Balanced Tactical Portfolio, and Jov Fiera Growth Tactical Portfolio (the JovFunds);
2. As of the date of this application, T.E. Investment Counsel Inc. (TEIC) is the manager and portfolio manager of Jov Prosperity Canadian Fixed Income Fund, Jov Prosperity Canadian Equity Fund, Jov Prosperity U.S. Equity Fund, Jov Prosperity International Equity Fund (the Prosperity Funds) (together, the JovFunds and the Prosperity Funds are the Existing Funds) and the Applicant is the administrator of the Prosperity Funds;
3. The Applicant or an affiliate may establish in the future and/or become the manager of other funds (each a Future Fund and together with the JovFunds and the Prosperity Funds, individually, a Fund and, collectively, the Funds);
4. The JovFunds and Prosperity Funds are, and any Future Fund will be, managed and offered subject to the requirements of National Instrument 81-102 Mutual Funds;
5. The Prosperity Funds are part of an ARP which is a service that can be applied to any account and monitors when the respective values of a unitholders investments within the Prosperity Funds in the ARP deviates by more than the established variance percentage from the unitholder's target allocation (the Target Allocation);
6. Currently, if at the end of a calendar quarter, a Prosperity Fund has deviated more than 5% from the target allocation, TEIC will ensure that the Prosperity Fund and all other Prosperity Funds in the ARP are rebalanced to the Target Allocation through a series of switches;
7. TEIC exercises no discretion in respect of the rebalancing as it is relying on a standing instruction from each investor that participates in the ARP;
8. The Target Allocations for each unitholder are determined by the unitholder with their dealer or adviser and the Target Allocation is then passed to the Applicant as a standing instruction under an ARP;
9. TEIC is registered as an investment counsel and portfolio manager in Ontario;
10. The Applicant is not registered under the securities laws of Ontario;
11. The Applicant and TEIC are each wholly-owned subsidiaries of Jovian Capital Corporation.
12. Effective November 1, 2008, the Applicant will assume the role of administrator of the Prosperity Funds from TEIC and TEIC will continue to be the portfolio manager of the Prosperity Funds;
13. In order to allow the Applicant to take over the administration of the ARP with respect to the Prosperity Funds or initiate an ARP with respect to the JovFunds, the Applicant must either become registered as an adviser or a dealer, or be exempt from the registration requirement in those limited circumstances.
14. In the future, the Applicant may wish to administer an ARP for the JovFunds.
15. The Applicant in administering an ARP will only carry out the standing instructions it has received from the unitholder to maintain certain proportions with respect to investments in the Funds, and will continue to carry out those instructions do so until such time as the unitholder withdraws or amends such instructions.
16. The Applicant will not exercise any discretion regarding the investment.
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 Requested Relief is granted and the Applicant shall not be subject to the adviser and dealer registration requirement in respect of any trade that facilitates the rebalancing of units of one or more Funds pursuant to an ARP in those Jurisdictions in which that Fund is a reporting issuer.
December 30, 2008.