CI Private Counsel LP and CI Managed Funds

Headnote

Relief from the prospectus requirement in the Act to permit the distribution of prospectus-qualified mutual funds to managed accounts held by non-accredited investors, without a prospectus delivery obligation -- NI 45-106 contains a carve-out for managed accounts in Ontario which prohibits a portfolio manager from making exempt distributions of investment fund securities to its managed account clients in Ontario unless the managed account client qualifies as accredited investor or invests $150,000.

Applicable Legislative Provisions

Securities Act (Ontario), ss 53, 74(1).

Rules Cited

National Instrument 45-106 Prospectus and Registration Exemptions.

National Instrument 31-103 Registration Requirements and Exemptions.

April 25, 2014

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (THE ACT) AND IN THE MATTER OF CI PRIVATE COUNSEL LP (THE FILER OR CIPC) AND IN THE MATTER OF CI MANAGED FUNDS (AS DEFINED BELOW)

RULING

Background

The Ontario Securities Commission (the Commission) has received an application (the Application) from the Filer on its own behalf, and on behalf of the CI Managed Funds (as defined below), for a Ruling pursuant to subsection 74(1) of the Act, (the Ruling) that distributions of securities of the CI Managed Funds to the managed accounts of Non-Accredited Investor Managed Accounts (as defined below) for which the Filer provides discretionary investment management services, will not be subject to the prospectus requirement under section 53 of the Act (the Ontario Prospectus Requirement) (collectively, the Prospectus Relief).

Interpretation

Terms defined in the Act and in National Instrument 14-101 Definitions have the same meaning in this Ruling unless otherwise defined.

Representations

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

1. The Filer is a limited partnership organized under the laws of the Province of Manitoba.

2. The Filer is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the Act and holds equivalent registrations under the securities legislation of each other province and territory of Canada.

3. Subject to the activities described in Paragraphs 12 and 13 below which the Filer has engaged in since 2010, neither the Filer, nor any of the CI Managed Funds are in default of the securities legislation in Ontario.

4. The general partner of the Filer is a wholly-owned subsidiary of CI Investments Inc. (CII). CII is registered as an investment fund manager and a portfolio manager under the Act and holds equivalent registrations under the securities legislation of each other province and territory of Canada.

5. CII and affiliates are the investment fund managers of one or more mutual funds and may, in the future, become investment fund managers of additional mutual funds (these existing and future mutual funds are collectively, the CI Managed Funds).

6. The CI Managed Funds are 'mutual funds', as defined in section 1 of the Act, qualified by simplified prospectus pursuant to the requirements of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and are subject to National Instrument 81-102 Mutual Funds (NI 81-102).

7. United Funds are a subset fund family of the CI Managed Funds distributed by CIPC and are included in all references to "CI Managed Funds" in this Decision.

8. 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" as defined in section 1.1 of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103).

9. The Filer enters into a written agreement (a Managed Account Agreement) with each Client in respect of the managed account of that Client. The Managed Services are provided to Clients of the Filer by employees or agents of the Filer who meet the proficiency requirements of an advising representative or an associate advising representative under NI 31-103.

10. The Managed Services provided by the Filer to its Clients include the following:

(a) Each Client authorizes the Filer to supervise, manage and direct purchases and sales of securities in the Client's account on a continuing basis;

(b) The Filer's qualified employees perform investment research, securities selection and management functions with respect to all securities, investments, cash equivalents or other assets in the Client's account;

(c) The Client's account holds securities as selected by the Filer; and

(d) The Filer retains overall responsibility for the Managed Services provided to its Clients and has designated a senior officer to oversee and supervise the Managed Services.

11. The Filer offers discretionary portfolio management services to high net worth clients who are accredited investors and whose portfolios are invested mostly, but not entirely, in United Funds (Accredited Investor Managed Accounts). The Filer's minimum aggregate balance for the managed accounts of a Client is usually $1,000,000. The minimum balance requirement may be waived by the Filer in rare or limited circumstances.

12. The Filer also has a small number of clients which it inherited following the amalgamation of United Financial Corporation (UFC) and CII, on January 1, 2010. Prior to the amalgamation with CII, UFC was registered as a limited market dealer in Ontario and acted as both the investment fund manager and adviser to the United Funds. After the amalgamation, in order to take advantage of economies of scale and reduce duplicative services, CII took on the role of investment fund manager and adviser of the United Funds, while UFC's discretionary account management division and its clients (Legacy Clients) were transferred to the Filer. Some of the Legacy Clients are not accredited investors but wish for the Filer to continue managing their accounts.

13. In addition, from time to time, the Filer may be asked to accept certain Clients for managed accounts who are not accredited investors, due to their relationship with Clients who are accredited investors (together with the non-accredited investor Legacy Clients, Non-Accredited Investor Managed Accounts). Accredited Investor Managed Accounts together with Non-Accredited Investor Managed Accounts are Managed Accounts.

14. Non-Accredited Investor Managed Accounts fall into one of the following categories:

(a) an individual who is or has been married to the holder of an Accredited Investor Managed Account, or is living or has lived with the holder of an Accredited Investor Managed Account in a conjugal relationship outside of marriage;

(b) a parent, grandparent, child or sibling of either the holder of an Accredited Investor Managed Account or the individual referred to in clause (a) above;

(c) a personal holding company controlled by an individual referred to in clause (a) or (b) above;

(d) a trust, other than a commercial trust, of which an individual referred to in clause (a) or (b) above is a beneficiary;

(e) a private foundation controlled by an individual referred to in clause (a) or (b) above; or

(f) a close business associate, employee or professional adviser to a holder of an Accredited Investor Managed Account.

15. The Non-Accredited Investor Managed Accounts currently only invest in United Funds, but the Filer may wish to invest the accounts in CI Managed Funds in the future.

16. While the Accredited Investor Managed Accounts each qualify as accredited investors under Ontario securities law, the holders of the Non-Accredited Investor Managed Accounts do not themselves qualify as accredited investors under Ontario securities law, nor do their investments meet the minimum investment threshold set out in Section 2.10 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). The Filer typically provides Managed Services to Non-Accredited Investor Managed Accounts as a courtesy to its Accredited Investor Managed Accounts.

17. Investments in individual securities may not be ideal for the Non-Accredited Investor Managed Accounts since they may not receive the same asset diversification benefits and may incur disproportionately higher brokerage commissions relative to the Accredited Investor Managed Accounts due to minimum commission charges.

18. To give its Clients the benefit of asset diversification, access to investment products with high minimum investment thresholds and economies of scale on minimum brokerage commission charges in contrast to individual trades in each Managed Account, the Filer may decide to invest a portion of the assets of its Clients in securities of the United Funds.

19. The Filer may, in the future, wish to invest its Non-Accredited Investor Managed Accounts in securities of CI Managed Funds.

20. The Filer is seeking relief in Ontario from the Ontario Prospectus Requirement because it wishes to invest some or all of the assets of its Non-Accredited Investor Managed Accounts in securities of CI Managed Funds, without having to provide each Non-Accredited Investor Managed Account with a prospectus for the applicable CI Managed Fund. When it decides to make such an investment currently, however, there is no exemption from the Ontario Prospectus Requirement to permit Non-Accredited Investor Managed Accounts of the Filer in Ontario to purchase securities of the CI Managed Funds without a prospectus.

21. NI 45-106 does not currently recognize a portfolio manager acting on behalf of a managed account in Ontario as an 'accredited investor' if that account is acquiring a security of an investment fund. Accordingly, in the absence of the Ruling, the Filer would be required to deliver the simplified prospectus of a CI Managed Fund to a Non-Accredited Investor Managed Account, unless the Non-Accredited Investor Managed Account invests a minimum of $150,000 in the CI Managed Fund or otherwise becomes an 'accredited investor'.

22. In delivering Managed Services to Non-Accredited Investor Managed Accounts, the Filer considers the provision of a prospectus for CI Managed Funds to Non-Accredited Investor Managed Accounts to be unnecessary for the following reasons:

(a) Duty to Clients: The Filer views its obligation to act in the best interests of its Clients to exist whether or not the Client receives a prospectus for a purchase of a security made in a Managed Account. The Filer considers the purpose of delivering a prospectus to a Client to be the provision of detailed disclosure and fee information on the funds held in the Client's account to inform the Client's right of rescission if the information in the prospectus is found to be untrue or misleading. This right of rescission is not of practical use to the Client in the context of Managed Services provided by the Filer under its discretionary authority. Clients also currently receive detailed disclosure of management fees associated with the purchase of the United Funds in the Filer's Managed Account Agreement, and the same will be true for CI Managed Funds. The purchase of a security in a Managed Account, which must be consistent with an investment policy, is fundamentally different than a sale of a security made by other types of dealers. The Filer receives no commission or monetary incentive in selecting one security over another; and the different classes of CI Managed Funds and management fee options sold by dealers, and described in the prospectus, are not applicable to the class of CI Managed Funds units that the Filer purchases for its Managed Accounts.

(b) Level Playing Field: The difference between the Filer's portfolio management business model and that of most other portfolio managers is that other portfolio managers manage and distribute their own funds to their client accounts whereas the Filer's fund management has been delegated to its parent company and investment fund manager, CII, for business and practical reasons. CII's scale, expertise, systems infrastructure, as well as its registration as an investment fund manager ensures the Filer's Clients benefit from efficiencies that lower investment management costs while providing significant breadth of investment mandates. Requiring the Filer to deliver a prospectus to its Non-Accredited Investor Managed Accounts in Ontario while not having to deliver a prospectus to its Accredited Investor Managed Account, results in complex operational challenges and an added monetary burden on the Filer that other portfolio managers, who act as investment fund manager and portfolio manager, do not have since they can rely on the exemption that Section 8.6 of NI 31-103 provides.

(c) Inconsistent Client Experience: The Filer considers that the delivery of a prospectus to some and not all Clients will result in inconsistency that will cause confusion among Clients. For example, in a family group, an Accredited Investor Managed Account that is invested in United Funds would not receive a prospectus, whereas a son or daughter that is a Non-Accredited Investor Managed Account would receive a prospectus. The Filer's view is that the inconsistency in client experience may result in the appearance of different levels of service and confusion. When a Client has given the Filer discretionary authority of their account, there is an expectation that all investment decisions will be made by the Filer and they will not receive a prospectus for such investments, similar to the expectation that they will not receive trade confirmations.

23. Managed Services provided by the Filer in respect of a Managed Account are covered by a base management fee (the "Management Fee") calculated as a fixed percentage of the assets under management in the Managed Account. The Management Fee includes investment research, portfolio selection and management with respect to all securities or other assets in the Managed Account. The Management Fee does not cover brokerage commissions and other transaction charges in respect of each transaction which occurs in a Managed Account, nor does it cover interest charges on funds borrowed or charges for standard administrative services provided in connection with the operation of the Managed Account, such as account transfers, withdrawals, safekeeping charges, service charges, wire transfer requests and recordkeeping. The Management Fee is detailed in each Client's Managed Account Agreement.

24. Where the Filer invests on behalf of a Client in securities of a CI Managed Fund that otherwise would pay a management fee to CII, the Client's Managed Account will purchase securities of a class without such management fees. None of the CI Managed Funds will charge a management fee directly to Clients for their holdings in Managed Accounts. Accordingly, there will be no duplication of fees between a Managed Account and the CI Managed Funds.

25. There will be no commission payable by a Client to any person on the sale or redemption of securities of a CI Managed Fund in the Client's Managed Account. The Filer may, from time to time, pay a portion of its Management Fee to registered dealers and advisers that refer Clients, including Non-Accredited Investor Managed Accounts, to the Filer for Managed Services. Any such referral fees are or will be disclosed to the Client at the time or before the referral to the Filer is made. Referral fees are not paid out of the assets of the CI Managed Funds.

Decision

The Commission being satisfied that the relevant test contained in Section 147 of the Act has been met, the Commission rules that relief from the Ontario Prospectus Requirement is granted provided that:

a) this Ruling only applies to the distribution of securities of the CI Managed Funds to Non-Accredited Investor Managed Accounts;

b) a Non-Accredited Investor Managed Account will be held by an individual who is, and in the case of clauses (iii) to (vi), remains:

(i) an individual who is or has been married to the holder of an Accredited Investor Managed Account, or is living or has lived with the holder of an Accredited Investor Managed Account in a conjugal relationship outside of marriage;

(ii) a parent, grandparent, child or sibling of either the holder of an Accredited Investor Managed Account or the individual referred to in clause (i) above;

(iii) a personal holding company controlled by an individual referred to in clause (i) or (ii) above;

(iv) a trust, other than a commercial trust, of which an individual referred to in clause (i) or (ii) above is a beneficiary;

(v) a private foundation controlled by an individual referred to in clause (i) or (ii) above; or

(vi) a close business associate, employee or professional adviser to a holder of an Accredited Investor Managed Account;

c) this Ruling will terminate upon the coming into force of any legislation or rule of the Commission exempting a trade in a security of a mutual fund to a fully managed account from the Ontario Prospectus Requirement; and

d) the Filer and each of its affiliates that acts as the investment fund manager of the CI Managed Funds do not receive any compensation in respect of a sale or redemption of securities of the CI Managed Funds.

"Vern Krishna"	"Judith N. Robertson"
Commissioner	Commissioner
Ontario Securities Commission	Ontario Securities Commission