Cranston, Gaskin, O’Reilly & Vernon - s. 74(1)

Headnote

Relief from the dealer registration and prospectus requirements of the Act to permit the distribution on an exempt basis of pooled fund securities to managed accounts held by non-accredited investors -- Non-accredited investors are specified family members of core managed account clients that are accredited investors -- ss. 25, 53 and 74(1) of Securities Act (Ontario).

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).

Rules Cited

National Instrument 45-106 Prospectus and Registration Exemptions.

May 1, 2007

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the Act)

AND

IN THE MATTER OF

CRANSTON, GASKIN, O'REILLY & VERNON

(the Filer)

AND

CGO&V BALANCED FUND

CGO&V CUMBERLAND FUND

CGO&V ENHANCED YIELD FUND

CGO&V EQUITY INCOME FUND

CGO&V FIXED INCOME FUND

CGO&V BEDFORD FUND

CGO&V PRIVATE EQUITY FUND

CGO&V CANADIAN EQUITY FUND

(the Existing Funds)

RULING

(Subsection 74(1) of the Act)

Background

The Ontario Securities Commission (the "Commission") has received an application from the Filer, on behalf of itself, the Existing Funds and any pooled funds established and managed by the Filer after the date hereof ("Future Funds", and together with the Existing Funds, the "Funds", individually, a "Fund") for a ruling pursuant to subsection 74(1) of the Act that distributions of units of the Fund to Secondary Managed Accounts (as defined below) will not be subject to the dealer registration and prospectus requirements under sections 25 and 53 of the Act (the "Dealer Registration and Prospectus Requirements").

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

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

1. The Filer is a general partnership organized under the Partnerships Act (Ontario). Its head office is in Toronto.

2. The Filer is registered with the Commission as an Investment Counsel, Portfolio Manager and Limited Market Dealer and is registered in the appropriate categories to provide discretionary investment management in British Columbia, Alberta, Quebec and Nova Scotia.

3. The Filer is the manager and portfolio advisor of the Existing Funds and will act in such capacity for each Future Fund.

4. Each of the Funds is or will be an open-end mutual fund trust or limited partnership established under the laws of the Province of Ontario. Each of the Funds is or will be a "mutual fund" under the Act. The Funds are not or will not be reporting issuers in any province or territory of Canada and are, or will be, sold in Ontario under applicable exemptions from the Dealer Registration and Prospectus Requirements.

5. The Filer provides discretionary investment management services ("Managed Services") to clients pursuant to investment management agreements between the clients and the Filer ("Managed Account Agreements"). Based on the size of the assets of the clients and depending on the allocation of a client's assets to a particular asset class, the Filer either manages the client's assets on a segregated account basis or on a pooled basis.

6. Pursuant to its Managed Account Agreements with its clients, the Filer has full authority to provide its investment management services, including investing clients in mutual funds for which the Filer is the portfolio advisor and changing those funds as the Filer determines in accordance with the mandate of the clients

7. The Managed Services are provided by employees of the Filer who meet the proficiency requirements of a portfolio manager under the Ontario securities law.

8. The Managed Services consist of the following:

(a) each client who accepts Managed Services executes a Managed Account Agreement whereby the client authorizes the Filer to supervise, manage and direct purchases and sales, at the Filer's full discretion 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 managed account;

(c) each managed 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.

9. The Filer's Managed Services clients consist primarily of persons who qualify as accredited investors under National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"), hereinafter referred to in this Ruling as "Primary Managed Account" clients. The minimum aggregate account balance for a Primary Managed Account is $1,000,000.

10. The Filer may however, from time to time, agree to provide Managed Services to clients who are not accredited investors under NI 45-106. Such clients would consist primarily of family members of Primary Managed Account clients, but may also include persons who have another relationship with the holder of a Primary Managed Account where there are exceptional factors that have persuaded the Filer for business reasons to accept such persons as clients. Assets managed by the Filer for the family members and other persons described above would be incidental to the assets it manages for holders of Primary Managed Accounts. Managed Services clients who do not or will not qualify as accredited investors under NI 45-106 are hereinafter referred to in this Ruling as "Secondary Managed Account" clients. Together, the Primary Managed Accounts and the Secondary Managed Accounts are hereinafter referred to as the "Managed Accounts".

11. The Filer would service these Secondary Managed Account clients as a courtesy to its Primary Managed Account clients, or with the expectation that a Secondary Managed Account client will satisfy the requirements of NI 45-106 in the future.

12. Investments in individual securities may not be ideal for the Secondary Managed Account clients since they may not receive the same asset diversification benefits and may incur disproportionately higher brokerage commissions relative to the Primary Managed Account clients due to minimum commission charges.

13. To improve the diversification and cost benefits to Secondary Managed Account clients, the Filer wishes to distribute securities of the Funds to Secondary Managed Accounts. A Secondary Managed Account client would thereby be able to receive the benefit of the Filer's investment management expertise, regarding both asset allocation and individual stock selection, as well as receive the benefits of lower costs and broader asset diversification associated with pooled investments relative to direct holdings of individual securities.

14. NI 45-106 currently does not recognize a portfolio manager acting on behalf of a managed account in Ontario as being an accredited investor if that account is acquiring a security of an investment fund. Accordingly, in the absence of relief from the Dealer Registration and Prospectus Requirements, the Filer is prohibited from selling units of the Funds to a Managed Account in Ontario on an exempt basis unless the holder of that account personally qualifies as an accredited investor in his or her own right or is otherwise able to make a minimum investment of $150,000 in the Fund in accordance with the requirements of NI 45-106. These requirements either act as a barrier to Secondary Managed Account clients investing in the Funds, or may cause the Filer to invest more of a Secondary Managed Account client's portfolio in a Fund than it might otherwise prefer to allocate.

15. There will be no commission payable by a Managed Services client on the sale of units of the Funds to a Managed Account. Nor will referral fees be paid by the Filer to a person or company in connection with the referral to the Filer of Secondary Managed Account clients that invest in units of a Fund.

Ruling

The Commission being satisfied that the relevant test contained in subsection 74(1) of the Act has been met, the Commission rules pursuant to subsection 74(1) of the Act that relief from the Dealer Registration and Prospectus Requirements is granted in connection with the distribution of units of the Funds to Secondary Managed Accounts provided that,

(a) this Ruling will terminate upon the coming into force of any legislation or rule of the Commission exempting a trade by a fully managed account in securities of investment funds from the Dealer Registration and Prospectus Requirements in the Act;

(b) this Ruling shall only apply where the holder of the Secondary Managed Account is, and in the case of clauses (iii) to (vi) below remains,

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

(ii) a parent, grandparent, child or sibling of either the holder of a Primary 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 a Primary Managed Account provided that:

(A) there are factors that have persuaded the Filer for business reasons to accept such close business associate, employee or professional adviser as a Secondary Managed Account client, and a record is kept and maintained of the exceptional factors considered; and

(B) the Secondary Managed Account clients acquired through such relationships to a holder of a Primary Managed Account shall not at any time represent more than five percent of the Filer 's total Managed Account assets under management; and

(c) the Filer does not receive any compensation in respect of a sale or redemption of units of the Funds (other than redemption fees disclosed in the offering documents of the Funds) and the Filer does not pay a referral fee to any person or company who refers Secondary Managed Account clients who invest in units of the Funds.