Briefly:

(July 22, 2005) The Investment Dealers Association of Canada (IDA) has banned John William Stewart of Edmonton for failing cooperate with an Association investigation.

The hearing panel also fined Stewart $50,000 and ordered him to pay $11,165 in Association costs.

Following a disciplinary hearing in March, the panel found the Union Securities broker violated IDA by-laws when he did not file a response and did not appear at the hearing as requested.

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BMO renames funds, discontinues foreign content rebalancing

(July 22, 2005) BMO Investments unitholders recently approved changes that will allow the BMO International Bond Fund to invest in bonds and debentures issued by governments and corporations around the world, including Canada and the U.S. Previously the fund could only invest in bonds and debentures issued by governments and corporations outside of North America. The company has renamed the fund, calling it the BMO World Bond Fund to reflect changes to the fund’s investment objectives.

The company has also renamed the BMO U.S. Value Fund, calling it the BMO U.S. Equity Fund to better reflect the composition of U.S. securities within the fund’s portfolio. The fund invests in equities of well-established U.S. companies that may be undervalued by the marketplace. The U.S. Equity fund will still be offered in both Canadian and U.S. dollars.

Along with the announcement, BMO says it has discontinued foreign content rebalanced for RRSPs and RRIFS, as of July 1.

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Statistics Canada reports rising costs, reduced consumer spending

(July 22, 2005) Consumers paid 1.7% more this last month compared to June 2004 for goods and services included in the Consumer Price Index (CPI) basket.

Gasoline prices were the primary reason for the increase in the 12-month change in the “all-items” index between May and June. Excluding energy, the index increased 1.5% between June 2004 and June 2005. After a 1.6% decrease in May, gasoline prices returned to their upward trend, rising 4.2% during the year. Along with higher prices for gasoline, fuel oil (up 27.2 %) and electricity costs (up 3.1%) all contributed to pushing the energy index 3.9% higher during the year.

Homeowners’ replacement costs posted the most moderate increase since May 2002. Statistics Canada estimates new housing prices, excluding land, rose by 4.9% over June 2004. The 4.3% increase in property taxes meanwhile, continued to be an important contributor to the 12-month rise in the All-items index. Seasonally adjusted, the CPI was up 0.2% between May and June 2005.

Retail trade numbers released this morning also show consumers reduced their spending in May for the first time in five months. Although retailers in Saskatchewan and Alberta have enjoyed five consecutive months of growth, overall retail sales fell 1.3% in May. Five out of the eight retail sectors posted sales declines during the month, but weak auto sales were responsible for the bulk of May’s setback. Sales in the automotive sector fell 3.5% in May, completely offsetting April’s 3.2% gain.

Retailers in Saskatchewan and Alberta on the other hand have seen their sales jump by slightly more than 10% since the end of 2004.

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Primerica switches out of AGF RSP funds

(July 22, 2005) PFSL Investments Canada announced it will reinvest portfolio fund assets directly in the underlying funds that AGF RSP funds are designed to clone. AGF announced at the beginning of July that it would terminate its RSP clone fund lineup as a result of Bill C-43 approval which allows unlimited foreign exposure in RSPs and other tax-deferred plans.

AGF plans to terminate its clone funds, effective August 12, 2005.

The Primerica International RSP Aggressive Growth Portfolio Fund invests its assets according to fixed percentages among five different AGF RSP international funds. Going forward, the portfolio will invest according to the same fixed percentages, directly in the underlying funds.

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RCMP confirms Portus investigation

(July 21, 2005) The RCMP has confirmed published reports that it will launch a criminal investigation into Portus, the collapsed hedge fund whose assets were frozen by regulators earlier this year.

“There is nothing further that we can say at this time as it is an ongoing investigation,” says RCMP spokesperson Michele Paradis.

Reports suggest the force’s Commercial Crime division will handle the probe, rather than the RCMP’s Integrated Market Enforcement Team, since Portus was not a publicly-traded company.

In its latest report released this week, receiver KPMG revealed that Portus maintained numerous offshore accounts in financial institutions in tax havens such as the Cayman Islands, the Turks and Caicos Islands, the Bahamas, Bermuda and the Jersey Islands. The offshore funds total more than $35 million US, KPMG says.

KPMG filed a criminal complaint against Portus with the RCMP in April and met with police investigators last month.

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Franklin Templeton to offer new emerging markets fund

(July 21, 2005) Franklin Templeton Investments today announced the launch of the Templeton BRIC Fund, an emerging markets product focused on investments exposed to growth in Brazil, Russia, India and China.

“These countries are the new engines of economic growth. They have large populations, strong GDP growth, per capita income growth, and strong market performance,” said Dr. Mark Mobius, who will be the lead manager of the fund. “More importantly, they offer investment value, with stock valuations roughly 50% cheaper than U.S. equity markets.”

Introduced at the company’s annual “Outlook and Opportunities” forum in Toronto on Thursday morning, the fund will take a bottom-up approach to stock selection, with no set weighting for each country. It was suggested that the Franklin Templeton’s China Fund may be merged into the BRIC Fund, due to the obvious overlap.

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MFDA fines former sales rep $3.5 million

(July 21, 2005) Former salesperson Earl Crackower has been fined $3.5 million, the largest ever penalty the MFDA has issued against an individual mutual fund registrant.

Crackower was also ordered to pay $7,500 and permanently banned from the securities industry.

The MFDA says Crackower solicited and accepted about $3.4 million in funds from clients, which he failed to return or account for. He also worked in another industry for nearly 10 years, contrary to MFDA bylaws.

In addition, he falsely told the MFDA that he only solicited funds from a single client and refused to cooperate in the investigation.

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Pooled fund performance good, but not good enough, says Mercer

(July 21, 2005) Pooled pension funds posted a median return of 5.3% in the first half of the year, according to Mercer Investing Consulting. However, those numbers weren’t enough to improve the overall state of Canadian pension funds.

“While pension funds like to see strong returns, they don’t want them to be driven by returns from the Canadian long bond segment as we saw in the second quarter, since this will result in an offsetting increase in the liabilities,” said Mercer principal Peter Muldowney.

Canadian long bonds was the best performing asset class for the first six months of 2005, as shown by the Scotia Capital Long Term bond index which returned 10.1%, Mercer says. Canadian equities returned 8.1% while U.S. and international equities were weak, each returning about 1.4%.

Mercer’s Canadian Pension Health Index — an indicator of the impact of capital markets on the financial position of Canadian pension plans — now stands at 77%, its lowest level since June 2003.

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CIBC reaches market timing settlement in U.S.

(July 20, 2005) CIBC has reached an agreement with the U.S. Securities and Exchange Commission and the New York Attorney General’s Office, agreeing to pay $25 million US in penalties and another $100 million US in disgorgements related to financing and brokerage services it provided to hedge funds engaged in improper market timing activities. CIBC has established an accrual fund to cover the settlements.

The company says it has since discontinued financing for hedge funds engaged in market timing, dismissed several employees and established policies and procedures to monitor and recognize market timing activities in the future.

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Portfolio manager fined for wash trading

(July 20, 2005) Scott Leckie, portfolio manager and senior vice president at Aquilon Capital, has been fined $100,000 and must pay RS $20,000 in costs after settling with the stock market regulator for wash trading Air Canada shares two years ago.

Wash trading transactions make it appear that purchases and sales have been made, without actually changing the trader’s market position. “Wash trading creates a false impression of trading activity,” says RS vice-president Maureen Jensen. “It sends a signal that trading is taking place when in fact no transaction has been executed.”

In the settlement, Leckie admitted to effecting trades in two separate dealer accounts in order to preserve his client’s short position in Air Canada shares. He also admitted that he spent considerable time reviewing regulatory policies related to buy-in rules, but did not consider the fact that his actions would be a violation of the wash trading rule. RS noted that “Leckie’s trading activity was not carried out with the intent to manipulate the price of Air Canada shares or to deceive the market” and that “Leckie’s client received no benefit”.

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Arrow offers stand-alone distressed securities fund

(July 20, 2005) Arrow Hedge Partners’ Distressed Securities Fund is now available for accredited investors. The fund, first launched in July 2003, was originally offered for investment only as part of the company’s Multi-Strategy fund.

Managed by New York based Schultze Asset Management, the hedge fund invests primarily in U.S. distressed debt and equity securities. Managers identify grossly undervalued securities from distressed firms and invest when they believe a catalyst exists for value realization. The fund may invest at any point in the reorganization process.

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State Street appoints new Canadian head of business

(July 20, 2005) State Street Global Advisors has appointed Carl Bang, currently in charge of fixed income and asset allocation, to lead its Canadian business operations.

Bang will report to State Street’s chief administration officer, Otello Sturino, and Jean-Francois Courville, country head for the investment management firm in Canada.

“We’re delighted to appoint Carl to this position,” said Sturino. “With his extensive investment experience and leadership abilities demonstrated over the course of his 18-year career, we are confident that he will apply the same passion and vision to his new role as head of our business in Canada. I have no doubt that he will help advance our position as a leader in Canadian fund management.”

State Street also announced the appointment of Gregory Chrispin as Canadian chief investment officer. Chrispin had served head of equity strategies in Canada.

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Sentry Select’s new income trust raises $170 million

(July 19, 2005) Sentry Select Capital has closed the initial public offering of the new Sentry Select Commodities Income Trust, selling $17 million units for gross proceeds of $170 million.

The trust units began trading on the TSX today. The portfolio provides 25% exposure to the Rogers International Commodity Index and 75% exposure to a group of commodity-related income funds.

Sentry Select also markets numerous other income trusts, as well as mutual funds, principal-protected notes and limited partnerships.

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Regulator orders supervision for First Associates advisor

(July 19, 2005) A First Associates Investments advisor in Vancouver has been placed on close supervision for at least a year and ordered to pay $25,000 as part of a settlement agreement with the British Columbia Securities Commission.

Nelson Kenfung Siu admitted he breached securities rules and neglected his “gatekeeper” duties when he failed to find out essential information about his client and allowed unauthorized people to trade using a nominee account without proper documentation.

Siu opened a brokerage account for an employee of Paula Poe, former director and senior officer of China Diamond Corp when Poe was the subject of a BCSC cease-trade order, barring her from trading securities of China Diamond. Between April and August 2003, over one million shares of the company were deposited into the account and later sold by an individual who was not properly authorized to trade in the account.

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Fund managers optimistic on economic growth

(July 19, 2005) Only 6% of nearly 300 fund managers surveyed by Merrill Lynch expect global growth to weaken over the next 12 months. Managers also expect corporate profits to improve. Only 19% believe corporate profits will deteriorate over the next year.

Despite this generally optimistic outlook, 19% of managers say their portfolios remain overweight in cash. “This is surprising in light of the more confident growth projections expressed in this month’s survey,” Merrill Lynch says.

Fears that growth will reignite inflation could explain some of this reticence, the investment management firm notes. Nearly 40% of respondents expect global core inflation to be higher a year from now, compared to 22% who took the survey last month.

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Mullins to head Fraser Institute

(July 19, 2005) Vancouver based think tank The Fraser Institute has appointed Dr. Mark Mullins as its new executive director, effective September 1. He replaces Dr. Michael Walker, who will become president of the newly-established Fraser Institute Foundation.

Mullins will be responsible for managing a staff of 50, as well as 23 senior research fellows in Vancouver, Calgary, and Toronto.

“The board welcomes Mark to his new position with the institute,” said Fraser Institute board of trustees chair R. J. Addington. “We have been in very good hands indeed with Michael Walker for the past thirty-one years and we are certain the institute will achieve even greater successes in the years ahead.”

Mullins has been director of Ontario policy studies in the Ontario office of the Fraser Institute since 2003.

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BluMont hires Orchard

(July 19, 2005) BluMont Capital has named Orchard Asset Management as investment advisor to its Canadian Opportunities Fund, giving BluMont clients access to Orchard Managed Risk and Orchard Relative Value strategies.

“Orchard’s inclusion in the BluMont fund represents the first opportunity for most Canadians to invest in the type of sophisticated, quantitative-based portfolios usually only available to large institutional investors. We are very excited to be opening these strategies up to the national market through BluMont,” said Randy Cass, President of Orchard Asset Management.

The BluMont Canadian Opportunities Fund aims to deliver positive returns independent of the performance of the TSX by investing in multiple investment styles with a low correlation to each other which mitigate the overall risk of the portfolio through various hedging strategies.

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Scotiabank pushes Ottawa on bank mergers

(July 18, 2005) Scotiabank president and CEO Rick Waugh has encouraged the Canadian government to expand the scope of its Bank Act review and move quickly to implement reforms that will ensure continued international competitiveness.

In presenting the bank’s submission for the 2006 Review of Financial Institutions Legislation, Waugh outlined the benefits of a strong financial system, cautioned against delaying reform until the next review in 2011, and urged the government to follow through on existing bank merger initiatives.

“We strongly believe that government needs to broaden the scope of its review. Several issues are not included in the consultation document, and we believe it would be a mistake to miss this round of reform and delay the consideration of significant issues until 2011. It is too long a wait to address what is an eroding comparative advantage for financial institutions,” says Waugh. “We must not allow ourselves to be satisfied with ‘good enough.’ The sector is too important to Canadians for this round of reform to be largely a technical review when there are real questions of international competitiveness to be addressed.”

The bank’s submission also addresses regulatory and corporate governance issues along with bank holding company regulations, foreign ownership, and the proposal to eliminate the current requirement for insurance on high ratio mortgages.

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Foreign investment in Canadian equities drops

(July 18, 2005) Statistics Canada has released its international securities transactions report for May, showing foreign investment in Canadian debt instruments grew while foreign investment in equities dropped for the first time in almost a year.

Non-residents invested $1.7 billion in securities during the month. Foreign investors bought $2.9 billion worth of Canadian bonds, but sold $2.1 billion worth of outstanding shares in May, the highest level of foreign sales since July 2002.

May also marked the third consecutive month that foreign investors divested their holdings, wiping out all net foreign investment in the secondary market since the beginning of the year.

Canadians meanwhile continued to increase their holdings of foreign securities, investing $305 million, substantially less than in the previous three months, investing in bonds and stocks, but selling foreign money market holdings.

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Standard Life launches two new funds

(July 18, 2005) Standard Life Mutual Funds has added to new funds to its lineup, and has expanded its F-series lineup, in an effort to capitalize on the company’s investment expertise and meet the needs of more conservative investors.

The company introduced the Standard Life Diversified Income and Standard Life Canadian Equity Focus funds for conservative investors and added the Standard Life branded Canadian Dividend Growth and Monthly Income funds to its lineup of F-series funds with a 1% management fee.

The Diversified Income Fund, designed for income seeking investors with a medium term investment horizon, invests in fixed income securities, equities and equity type investments that are denominated in Canadian and foreign currencies. The Canadian Equity Focus Fund, designed for investors with a moderate tolerance for risk and an investment horizon of at least three years, invests in Canadian equity instruments including common and preferred shares, convertible securities, income trusts and exchange traded funds.

Management fees for both are 2% plus operating expenses and GST. Commissions are 0-5% or 5% paid by the company for deferred sales. Redemptions charges, based on a five year schedule, range from 6% in the first year and 2% in year five. Annual trailing commissions are 1% for front end sales or 0.5% for deferred sales. Minimum investment is $1,000.

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Mackenzie switches managers on Universal Health Sciences fund

(July 18, 2005) The in-house growth investing team will take over management of the Mackenzie Universal Health Sciences Capital Class fund, one month ahead of schedule, on July 25. Wendy Chua, assistant vice president will assume lead management duties, assisted by senior vice president Ian Ainsworth and vice president Mark Grammer.

The fund, launched on October 26, 2000, invests at least 65% of its assets in equity securities of foreign companies which are principally engaged in the health sciences industries, such as pharmaceutical firms, medical supply companies and health research and development.

The fund is designed for investors with a high tolerance for risk. Minimum investment is $500.

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IDA moving to “higher standard” of board independence

(July 18, 2005) The IDA is proposing to eliminate the current requirement that at least two-thirds of its board of directors come from the investment industry in an effort to increase the percentage of public directors.

“Good corporate governance demands increased independence and transparency and for public directors to truly be effective they must constitute a sufficient proportion of the board,” the brokerage industry association says.

The IDA says it did consider a raising the number of public directors to 50%, but decided such a move was not appropriate for the association, which is subject to a significant number of checks and balances, including regulatory oversight.

The IDA is seeking comments on the proposed change.

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