Briefly:

(October 28, 2005) It’s been a tough quarter for active fund managers. Large-cap managers trailed the S&P/TSX Composite Index, posting median returns of 11% compared to the index return of 11.6%, thanks largely to their underweight in the soaring energy sector.

The third-quarter Russell Canadian Active Manager Report found that for the first time in six quarters, growth managers outperformed value managers, but managers on both sides had difficulties beating the index. Struggling small cap stocks gave small cap managers a leg up, helping 78% of those surveyed to beat the index.

Overall, only 38% of large cap managers outperformed their index during the quarter, compared to 43% in the last quarter.

“Since most active managers were underweight the energy sector at the start of the quarter, their benchmark relative performance suffered,” says Kathleen Wylie, senior research analyst at Russell Investment Group. “However not all managers that were underweight energy were hurt by this positioning. Many managers were able to add value through superior stock selection within the sector. The only other sector that beat the TSX was utilities. This is another sector that large cap managers tend to be underweight.

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Industrial Alliance introduces rebalancing service

(October 28, 2005) Industrial Alliance Insurance and Financial Services group pensions division today introduced a new method of automatic rebalancing for group retirement plan members.

The service allows plan members to rebalance the allocation of assets and gives group retirement plan sponsors the possibility of creating tailored investments specifically designed to meet the needs of their group.

“The purpose of an investment rebalancing service is to counter the effects of deviation that eventually occur in investment portfolios,” says Lucie Lachance, the firm’s director of actuarial services and marketing.

She says plan sponsors can choose to have their personalized portfolios rebalanced automatically at the end of each month according to established criteria or by the Industrial Alliance investment management team.

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Stock tipper hit with jail sentence

(October 27, 2005) Andrew Rankin, a former investment banker with RBC Dominion Securities, has been sentenced to six months in jail for illegally giving stock tips to a friend.

Earlier this year, Rankin was found guilty of leaking information to Daniel Duic about corporate deals involving RBC-DS clients between 1999 and 2001. However, he was acquitted of insider trading charges.

The 10 transactions earned Duic an estimated $4.5 million. He testified against Rankin and agreed to pay a $1.9 million fine under the terms of a settlement agreement with the Ontario Securities Commission.

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Alberta regulator must shape up, auditor says

(October 27, 2005) Alberta’s auditor-general says the province’s securities commission must improve its enforcement system and better manage conflicts of interest.

In a report released Thursday, Fred Dunn makes 10 recommendations for change, concluding that the commission’s enforcement system needs more discipline, that conflict of interest policies are not adequate and that governance at the regulator needs to be improved.

Dunn noted prior to being asked to write the report, he was aware of allegations that the commission was not consistently enforcing Alberta’s securities laws. “Following an examination of numerous case files and interviews with many current and former employees of the commission, the auditor general concluded there is not sufficient evidence to recommend to management that any case file examined be re-opened,” he said.

“We are pleased that, while the auditor general identifies a number of areas where the systems of the ASC can be improved, the report confirms that there are no apparent or significant flaws identified in the existing systems that support a questioning,” said ASC chair Bill Rice in his response to the report. “We also appreciate his stated conclusion that the involvement of the former chair and the executive director in the case files examined was appropriate.”

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Crocus assets to be sold off

(October 27, 2005) A Manitoba judge has approved receiver Deloitte & Touche’s plan to sell off the assets of the Crocus Investment Fund over a five-year period.

The labour fund halted trading last December and announced a portfolio review. The Manitoba Securities Commission later alleged that the Crocus board “routinely and consistently” failed to determine the fair value of the common shares of the fund.

Crocus shares peaked at $15 in 2000, but had plunged to around the $7 mark when trading was halted. Approximately 33,000 investors sank nearly $200 million into the fund. Deloitte & Touche was appointed receiver in June.

The RCMP has launched a criminal investigation into the case.

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Investors Group announces changes to fixed income pool

(October 27, 2005) Investors Group is changing the composition of its iProfile fixed income pool, adding the Investors Real Property Fund to the mix.

Under the proposals, subject to unitholder and regulatory approval, the pool will be comprised of 43% Canadian Bond, 24% High Yield, 23% Global Bond and 10% Investors Real Property.

The introduction of Investors Real Property Fund is expected to provide additional diversification benefits and improve the pool’s overall risk and return characteristics, IG said in a release.

If approved, the changes will take effect in early December.

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RRSP contributions on the rise

(October 26, 2005) Canadian tax filers increased their contributions to RRSPs in 2004 for the second year in a row, but Statistics Canada says only about one-third of those eligible actually made contributions during the year.

Contributions totaled nearly $28.8 billion, up 4.5% from 2003, following a 1.8% increase in 2003 and two years of declining contributions in 2002 and 2001. A total of 6,002,350 tax filers contributed to an RRSP in 2004, up 0.9% from 2003.

Similar to recent years, almost 80% of tax filers were eligible to contribute in the 2004 tax year, but only 33% actually made contributions. The total contribution of $28.8 billion represented only about 8% of the total RRSP room available to eligible tax filers.

Alberta and Newfoundland and Labrador recorded the largest percentage increase in contributions at 6.2%, followed by those in Northwest Territories, whose contributions rose 5.4%. The number of people making contributions in Alberta rose 1.9%, the largest percentage increase for the year, while the number of contributors fell slightly in Prince Edward Island and Manitoba. The remaining provinces and territories posted relatively small increases.

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Ethical introduces lifecycle funds

(October 26, 2005) Vancouver-based Ethical Funds today launched the Ethical Advantage Series, billed as the first socially responsible investment (SRI) lifecycle series of mutual funds in North America.

The Ethical Advantage Series contains five new SRI funds designed to grow with the investor, the company said in a release, automatically changing asset allocation over time to become more conservative as the target withdrawal date approaches.

“Investing in the Ethical Advantage Series is a one-stop solution that gives investors the benefits of lifecycle funds, while providing the sustainable investing portion of their portfolio,” says Elaine McHarg, Ethical’s senior vice president of marketing. “This innovative investment series offers Canadians the ability to invest according to their financial, social and environmental goals.”

The funds mature in 2010, 2015, 2020, 2030 and 2040. Life goals are used to determine the target dates include retirement and education savings, as well as other savings goals. “For example, if someone was planning for their child’s education, they might choose the Ethical Advantage 2020, or if a dream cottage was in the five-year plan, the Ethical Advantage 2010 would be the right choice,” the company says.

The funds are RRSP eligible and available through advisors with a minimum investment of $500.

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IDA fines PEI advisor $25,000

(October 26, 2005) An IDA hearing panel has fined former TD Securities broker Michael Andrew Sullivan $25,000 plus $10,000 in hearing costs, for “unbecoming conduct” contrary to IDA by-laws.

Between 2001 and 2003, Sullivan, who was based in Summerside, PEI, admitted he facilitated loans between clients and his son’s company without disclosing that information to his firm, failed to report client complains to TD Securities and told clients that he would make up the difference if the client accounts suffered any losses.

In addition to the fine, Sullivan will be subject to a period of “close supervision” for six months if he re-registers with the IDA and must rewrite and pass the IDA Conduct and Practices Handbook examination. He has been out of the industry since February 2004.

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CanDeal and TradeWeb announce trading milestone

(October 26, 2005) A strategic alliance between CanDeal and Thomson TradeWeb has led to expanded international access for Canadian fixed income traders.

Earlier this month, a Canadian institutional investor initiated electronic trading for non-Canadian securities in Canada, when it executed a U.S. Treasury trade over TradeWeb.

Canadian institutional investors will also have access to U.S. Agencies, TBA-MBS, Corporate bonds, Interest-rate swaps, U.S. Repo, European government bonds and U.S. Commercial paper, CanDeal says.

“We believe that in order for the Canadian marketplace and its participants to remain globally competitive, a strong electronic trading and straight through processing infrastructure must exist in this country,” says CanDeal president and CEO Jayson Horner. “Markets are increasingly being defined by their integrity and the immediacy of access to liquidity they can provide. It is a clear preference of globally invested clients to participate in markets that offer a high degree of efficiency and certainty.”

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Pension fund managers pulling out of energy sector

(October 26, 2005) Pooled pension funds posted a median return of 4.1% in the third quarter of 2005, says Morneau Sobeco. Median returns since the beginning of the year came in at 9.8%, according to a survey of 350 pooled funds managed by more than 60 investment management firms.

“The good performance of the Canadian equity market had allowed pension fund managers, particularly those who have favoured the energy sector, to post above expectation returns,” says Jean Bergeron, principal in the asset management consulting practice at Morneau Sobeco.

Bergeron says the energy sector explains about 60% of overall returns in the Canadian equity market since the beginning of the year. “It will be interesting to see if fund managers will be able to minimize any losses in the event of a market downturn in this sector.” Morneau Sobeco notes that several pension fund managers have already reduced their investments in the energy sector.

Overall, equity managers obtained a median return of 10.9%, trailing the 11.6% returned by the S&P/TSX Composite Index. Median returns since the beginning of the year came in at 19.5% compared to a return of 20.7% for the S&P/TSX. Large cap stocks out performed small-cap and mid-cap stocks while bond managers posted a median return of 0.3%, compared to a return of 0.1% for the Scotia Capital Universe Index.

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Ontario court fines two insurance agents

(October 26, 2005) The Ontario Court of Justice has fined two St. Catharines, Ontario insurance agents more than $60,000 for tax evasion.

Richard Garbacz and George Gadula both pleaded guilty to several counts of tax evasion after a Canada Revenue Agency (CRA) investigation revealed that the pair worked to collapse their RRSPs without the normal income tax deductions or mandatory income tax documentation.

Between 1995 and 1998 the two collapsed RRSPs, worth $268,833, by representing the withdrawals as transfers to another RRSP account. Gadula worked as an agent for the insurance company that held the RRSP accounts for both men. He completed the paperwork necessary to transfer funds from the RRSP accounts to another financial institution. Such transfers usually have no tax consequences, but in this case, the receiving financial institution was a local credit union that did not handle RRSPs.

The CRA says Gadula misled the credit union manager and used his expertise and position to control the flow of funds. The money was deposited into ordinary term deposits that were closed several months later.

Garbacz was fined $45,825 for one count of tax evasion and Gadula $12,792 for three counts of tax evasion. In both cases, the fines represent 75% of the tax evaded and must be paid within nine months.

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Norbourg slapped with $94 million suit

(October 25, 2005) Quebec’s securities regulator has filed a $94 million suit against Norbourg Asset Management founder Vincent Lacroix in an attempt to recoup lost funds.

The suit, launched by the Autorité des marches financiers (AMF), comes just two months after Norbourg’s assets were frozen. It alleges Lacroix misappropriated more than $84 million in funds from Norbourg and the Evolution fund family, with about $18 million being used for “his own personal benefit.”

The suit aims to recoup the $84 million lost to “questionable withdrawals” and seeks an additional $10 million in punitive damages. Lacroix is also currently under investigation by the Integrated Market Enforcement Team and could face criminal charges.

At the end of September, an administrator’s report revealed there was a $130 million discrepancy between financial statements and the Norbourg group’s assets under management.

In the interim, a Quebec securities tribunal recommended the finance minister order the liquidation of the remaining assets of the two funds, worth about $75 million, to partially reimburse the company’s 9,200 investors.

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Accountants ask Ottawa to eliminate tax barriers

(October 25, 2005) The Certified Management Accountants of Canada (CMA Canada) is calling on the federal government to eliminate tax barriers and fiscal red tape which it says have left Canadians much poorer than their American cousins.

In an appearing before the House of Commons Standing Committee on Finance on Tuesday, CMA Canada made a number of tax-related recommendations, such as increasing the small business tax threshold to $500,000 from $300,000 and raising the lifetime capital gains exemption to $1 million from $500,000.

“Canada has a serious soft spot — our recent record on productivity growth, or more appropriately, lack of growth,” said CMA Canada president Steve Vieweg. “This is troubling, because boosting productivity is really about prosperity and improving the standard of living enjoyed by all Canadians.”

CMA Canada claims that by last year, the standard of living of Canadians had fallen almost 20% behind Americans, representing an annual income gap of $9,242 per Canadian.

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Repeat offender booted out of IDA

(October 25, 2005) The IDA has expelled Jerry Russell Johnson, after the Alberta rep admitted to borrowing more than $1 million from his clients.

An IDA hearing panel called Johnson “ungovernable,” noting in its decision that there was an “alarming similarity between Johnson’s admitted activities and a Ponzi scheme.”

Johnson admitted to the panel that between September 2004 and April 2005 he borrowed approximately $400,000 from clients of a Lethbridge, Alta., sub-branch office of Union Securities where he worked. He also admitted to borrowing a total of about $1 million in this manner since 2003.

The bulk of the money Johnson borrowed was invested in an entity called “Fast Market Ltd.,” which has offices in Miami, Florida and Nassau, Bahamas and promises returns of up to 2.5% a day.

This was not Johnson’s first run in with the SRO. He was previously sanctioned by the association for borrowing more than $340,000 from clients over a five-year period starting in 1995.

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Online resource explains alternative investments

(October 25, 2005) The Investor Education Fund has launched a new Focus On Investment Products section on its website to address what it sees as growing confusion regarding alternative investments.

The new feature site attempts to explain, in plain language, such products as hedge funds, income trusts, exchange-traded funds, labour funds and exempt market securities. A section on traditional investments explains mutual funds, stocks and bonds.

“More and more investors are asking us, both online and at our recently sponsored Investor Education Month seminars, about these alternative investment products,” says Terri Williams, president of the Investor Education Fund. “They read about them in the news and hear about them from their advisors, so they are curious. Now they can turn to this new feature for objective, understandable information to help them do their homework.”

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Real Assets to launch new funds

(October 25, 2005) Real Assets Investment Management is making a series of changes to its existing funds and says it plans to offer three additional products.

Real Assets, a subsidiary of VanCity, made the announcement on Friday. Most of the changes will impact the Real Assets Social Impact Balanced Fund, which was formed in late 2003 and has a year-to-date return of 7.85%. If unitholders support the changed, the fund will be renamed the Real Assets Balanced Fund as of November 28. Real Assets is also asking shareholders to approve a change in the fund’s investment objectives.

Some of the other changes Real Assets hopes to make to its existing funds include adding Class F and Class O Units to its two existing funds, reducing management fees on Class A units, capping management expense ratios and enhancing its program that allows free redemption of units purchased on a deferred sale charge basis.

The firm, which specializes in social investing, also filed preliminary prospectuses last week for three new offerings: the Real Assets Canadian Equity Fund, Real Assets Monthly Income Fund and Real Assets Money Market Fund.

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MFDA fines, bans two advisors

(October 24, 2005) The MFDA has issued a permanent ban on Joseph Van Der Velden and Andrew Stokman and levied fines of $500,000 and $75,000 on them, respectively.

The pair were found to have directed clients of their firm to “an investment scheme that was contrary to Ontario securities law” without the knowledge of their firm. Between May 2002 and January 2003, the pair accepted investments of about $2.65 million in total, without properly accounting of the money.

Van Der Velden directed $2.15 million to “the Lech Investment” with $500,000 of that total being referred by Stokman. Stokman solicited an additional $500,000 which he did not funnel to Van Der Veldan.

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Short form prospectus rule rewritten

(October 24, 2005) The Canadian Securities Administrators (CSA), has announced the replacement of National Instrument 44-101 Short Form Prospectus Distributions and Form 44-101F3 Short Form Prospectus, replacing it with Form 44-101F1 Short Form Prospectus. The actual name of the National Instrument remains unchanged.

The new rule permits more reporting issuers to use the short form prospectus system by eliminating the minimum market capitalization requirement and the requirement that an issuer be a reporting issuer for a certain length of time before it can use the short form prospectus system. It also eliminates duplication and inconsistencies between the short form prospectus system and both NI 51-102 Continuous Disclosure Obligations and National Instrument 81-106 Investment Fund Continuous Disclosure .

The new rule has been adopted by most jurisdictions, but awaits ministerial approval in British Columbia and Ontario.

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Altamira raises rate on CashPerformer

(October 24, 2005) Altamira has raised the interest rate it pays on its High-Interest CashPerformer fund, reflecting the recent rise in interest rates at the Bank of Canada. The fund, which is essentially a savings account through FundServ, now pays 2.5%. Altamira reserves the right to adjust the interest rate without notice.

The company also announced higher trailer fees, starting October 1. The trailer on the Global Small Company Fund will increase 100 basis points to 1.25%, while the Energy Fund’s trailer will rise 25 bps to 1.25%. The Inflation-Adjusted Bond Fund, Series A trailer rises from 0.25% to 0.3%, while Series I of the same fund increases to 0.50%.

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