BCSC

Exemption Orders (Discretionary)

NEWPORT PARTNERS INC.

2001 BCSECCOM 816

Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from the mutual fund dealer registration requirements in connection with trades by the registrant, to clients for whom the registrant has fully managed accounts governed by an investment management agreement, in units of open-ended pooled fund trusts managed by the registrant – trades by registrant in pooled funds is an incidental part of the business of the registrant, and no pooled funds will be sold by registrant to the public.

Applicable British Columbia Provisions

Securities Act, R.S.B.C. 1996, c. 418, s. 48
Securities Rules, B.C. Reg 194/97, s. 6(4)

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, ONTARIO AND NEW BRUNSWICK

AND

IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF NEWPORT PARTNERS INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of the provinces of British Columbia, Alberta, Ontario and New Brunswick (collectively, the “Jurisdictions”) has received an application from Newport Partners Inc. (the “Filer”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the dealer registration requirements of the Legislation requiring the Filer and its representatives to register as a dealer (the “Dealer Registration Requirements”) do not apply to the Filer and its representatives in connection with trades by the Filer of units of mutual funds managed and promoted by the Filer (the “Pooled Funds”) to clients for whom the Filer has fully managed accounts governed by the terms of an investment management agreement;

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS the Filer has represented to the Decision Makers that:

1. The Filer was incorporated under the laws of the Province of Ontario on November 8, 2000 and the Filer's head office is located in Toronto, Ontario;

2. The Filer is registered in Ontario and New Brunswick as an adviser in the categories of investment counsel and portfolio manager and expects to be registered as an adviser in the categories of investment counsel and portfolio manager in the other Jurisdictions. The Filer is also registered as a limited market dealer in Ontario;

3. The Filer provides discretionary investment management services to its clients pursuant to the terms of an investment management agreement entered into with each client (the “Managed Account Agreement”). The Managed Account Agreement provides that the Filer may manage the client’s account on a fully discretionary basis. This discretionary investment management may be carried out by the Filer through the investment of its clients’ assets in one or more of the Pooled Funds;

4. The Filer intends to distribute units of the Pooled Funds only to its clients pursuant to the Filer’s Managed Account Agreement with such clients;

5. The Pooled Funds enable the Filer to pool client funds to take advantage of declining scales in brokerage commissions, to allow greater diversity of investments than would otherwise be the case with individually managed accounts and to facilitate the allocation of investment opportunities among clients. By investing in the Pooled Funds, the Filer’s clients benefit from access to the Filer’s expertise as an investment counsel, savings on brokerage commissions and the potential for greater diversification of investments;

6. The Filer is the manager, promoter and trustee of each of the Pooled Funds and each of the Pooled Funds which is prospectus qualified is subject to the provisions of National Instrument 81-102 Mutual Funds;

7. Each Pooled Fund is or will be established pursuant to a Master Declaration of Trust and a separate Fund Regulation thereto. Units of the Pooled Funds will not be distributed to clients resident in the provinces of British Columbia or Alberta until such time as the Filer is registered as an adviser in British Columbia and Alberta, respectively;

8. The Filer intends to qualify the distribution of units of some of the Pooled Funds under a simplified prospectus and annual information form in each of the Jurisdictions;

9. The distribution of assets of the Pooled Funds is an incidental part of the business of the Filer. Its primary business, discretionary financial management, is carried on through the investment of its clients’ assets in various investment products which may include one or more Pooled Funds pursuant to its registration as an adviser in the category of investment counsel and portfolio manager; and

10. Absent the relief requested, under the Legislation, the Filer would be required to register as a mutual fund dealer in order to distribute units of the Pooled Funds once the Pooled Funds are qualified by prospectus, and to become a member of the Mutual Fund Dealers’ Association of Canada (the “MFDA”). Certain of the rules of the MFDA would conflict with the nature of the Filer's primary business, including the provision of financial advisory services to its clients on a fully discretionary basis;

AND WHEREAS under the System this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is that the Dealer Registration Requirements shall not apply in connection with trades by the Filer and its representatives of units of the Pooled Funds to clients for whom the Filer has fully managed accounts governed by the terms of a Managed Account Agreement so long as:

1. The Filer maintains its registration status as a registered adviser in the category or categories of investment counsel and portfolio manager in Ontario and New Brunswick and the Filer maintains its registration status in Ontario as a registered dealer in the category of limited market dealer with respect to distributions of non-prospectus qualified Pooled Funds in Ontario;

2. Units of the Pooled Funds are not distributed to clients resident in British Columbia or Alberta until such time as registration as an adviser in the categories of investment counsel and portfolio manager is received in British Columbia and Alberta, respectively, and once received, the Filer maintains such registration status; and

3. This Decision shall terminate one year after the coming into force of any Pooled Fund Rule and for the purposes of this Decision, “Pooled Fund Rule” shall mean a rule or other regulation of the Decision Makers that relates, in whole or in part, to the distribution of securities of a mutual fund or non-redeemable investment fund, other than pursuant to a prospectus for which a receipt has been issued by the Decision Makers, made by a portfolio manager to a client account of the portfolio manager pursuant to discretionary authority granted by the client, but, in Ontario, does not include Rule 45-501 Exempt Distributions.

July 20, 2001

Paul M. Moore R.Stephen Paddon