Heathbridge Capital Management Inc. and Heathbridge U.S. Pooled Fund - s. 74(1)

Headnote

Relief from the prospectus and registration requirements of the Act to permit the distribution of pooled fund units to certain fully managed accounts on an exempt basis -- ss. 25, 53 and 74(1) of Securities Act, R.S.O. 1990, c. S.5, as am.

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.

IN THE MATTER OF

THE SECURITIES ACT R.S.O. 1990, c. S. 5,

AS AMENDED (the "Act")

AND

IN THE MATTER OF

HEATHBRIDGE CAPITAL MANAGEMENT INC.

("Heathbridge")

AND HEATHBRIDGE U.S. POOLED FUND

(the "Existing Fund")

RULING

(Subsection 74(1) of the Act)

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

AND WHEREAS Heathbridge has represented to the Commission that:

1. Heathbridge was incorporated under the laws of Ontario and its head office is in Ontario. Heathbridge has no other office in Canada.

2. Heathbridge is registered under the Act as an adviser, in the category of investment counsel and portfolio manager, and as a dealer, in the category of limited market dealer. Heathbridge is also registered or is in the process of registering as an adviser (or the equivalent) in a similar category in Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia and Prince Edward Island (the "Other Jurisdictions").

3. Heathbridge is the trustee, manager, primary portfolio advisor and principal distributor of the Existing Fund and will act in a similar capacity for each Future Fund. Heathbridge has not currently retained, but may retain, a sub-advisor in respect of a Fund.

4. The Existing Fund is, and each Future Fund will be, an open-end mutual fund.

5. Heathbridge provides discretionary investment management services to individuals (including tax deferred plans for which such individuals or their spouses or children are the beneficiaries), corporations, charitable foundations and other entities (each, a "Client") seeking such services ("Managed Services") through a managed account (a "Managed Account").

6. The Managed Services are provided pursuant to an investment management agreement (the "IMA") between Heathbridge and the Client which provides full discretionary authority for Heathbridge to trade in securities for the Managed Account without obtaining the consent of the Client to any specific trade. A Client for whom Heathbridge makes, or may make, investments in the Existing Fund or a Future Fund specifically authorizes Heathbridge to make such investments in the IMA.

7. Heathbridge generally provides Managed Services to Clients ("Primary Clients") who are "accredited investors" within the meaning of National Instrument 45-106 ("NI 45-106"). However, from time to time, Heathbridge may agree to provide services to Clients who are not accredited investors ("Secondary Clients"). For purposes of this decision, the Secondary Clients are Clients who are accepted by Heathbridge because of a relationship between the Secondary Client and a Primary Client.

8. Primary Clients constitute the main source of business for Heathbridge and the business of Secondary Clients is incidental to the business of Primary Clients. The business of a Secondary Client is generally accepted by Heathbridge as a courtesy to the Primary Client.

9. Investments in individual securities may not be appropriate for Primary Clients in certain circumstances or for Secondary Clients. In the case of Secondary Clients the amount they have available for investment may not be sufficient for appropriate asset diversification and, due to the size of an investment, they may incur disproportionately higher brokerage commissions than Primary Clients.

10. Heathbridge has created the Existing Fund to provide Primary Clients with access to U.S. investments through a pooled investment vehicle.

11. The Existing Fund is currently sold by Heathbridge only to Managed Accounts of Clients who are accredited investors, although it could also be sold to investors who are not accredited investors if they invest at least $150,000.

12. Heathbridge wishes to be able to offer the Existing Fund and each Future Fund to Managed Accounts that it manages on behalf of Secondary Clients, as well as to Managed Accounts of Primary Clients, without being required to invest $150,000 in each Fund on behalf of a Secondary Client.

13. Heathbridge may, but does not currently intend to, distribute units of the Funds to investors who do not have a Managed Account with Heathbridge pursuant to available exemptions from the Dealer Registration and Prospectus Requirements in NI 45-106 or in other provisions of applicable securities laws.

14. The IMA provides that the Client will pay to Heathbridge a base management fee and a performance incentive bonus (the "Compensation") and the Client acknowledges that there may be a management fee payable by a Fund and that such fee will be in addition to the Compensation. Further, the Client acknowledges that the assets invested in a Fund will be included in calculating the Compensation.

15. While the Compensation is in addition to the management fee payable by a Fund, Heathbridge negotiates the Compensation and acquires units of a Fund on a basis such that there is no duplication of fees paid.

16. There will be no commission paid by a Client in respect of the purchase of units of a Fund.

17. All Clients that authorize investment of their assets in Funds receive an offering memorandum in respect of the Funds.

18. The Funds fit, or will fit, within the definition of either "mutual fund" or "non-redeemable investment fund" under the Act. The Funds are not, and likely will not be, reporting issuers under the Act, and are, or will be, sold in Ontario under applicable statutory exemptions from the Dealer Registration Requirement or by Heathbridge acting in its capacity as a limited market dealer and under applicable exemptions from the Prospectus Requirement or under this relief from the Dealer Registration and Prospectus Requirement.

19. Unless the relief is granted from the Dealer Registration and Prospectus Requirements, Heathbridge will be prohibited from selling units of the Funds to the Managed Accounts of Secondary Clients where the Client resides in Ontario and is not an accredited investor or does not invest a minimum of $150,000 in each Fund. National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") excludes from the definition of "accredited investor" a managed account if it is acquiring a security of a mutual fund or a non-redeemable investment fund in Ontario. Under NI 45-106, there is no restriction on the ability of Managed Accounts of Secondary Clients to purchase investment fund securities on an exempt basis in the Other Jurisdicitons.

20. Under the exempt distribution rule applicable in the Other Jurisdictions, there is no restriction on the ability of Managed Accounts to purchase investment fund securities on an exempt basis. Under Multilateral Instrument 45-103 Capital Raising Exemptions, a Managed Account can acquire securities of the Funds as an accredited investor.

AND WHEREAS the Commission is satisfied that the test contained in subsection 74(1) of the Act have been met;

IT IS HEREBY RULED, pursuant to subsection 74(1) of the Act, is that the distribution of units of the Funds to Managed Accounts of Secondary Clients shall not be subject to the Dealer Registration and Prospectus Requirements,

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 mutual funds from the Dealer Registration and Prospectus Requirements;

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

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

(ii) a parent, grandparent, child or sibling of either a Primary Client 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 Primary Client:

(A) in each instance, there are exceptional factors that have persuaded Heathbridge for business reasons to accept such person as a Secondary Client and a record is kept and maintained of the factors considered; and

(B) the Secondary Clients acquired through such relationships to a Primary Client shall not at any time represent more than five percent of Heathbridge's total Managed Account assets under management.

(c) Heathbridge and the Funds do not pay any fees or commissions to any person in connection with the distribution of Fund units, and neither Heathbridge nor the Funds pay referral fees to any person in connection with the referral of Secondary Clients that invest in units of the Funds.

May 5, 2006

"Paul M. Moore"

"Robert W. Davis"