Foyston, Gordon & Payne Inc. et al. - s. 74(1)

Headnote

Relief from the dealer registration and prospectus requirements of the Act to permit the distribution of pooled fund securities to managed accounts held by non-accredited investors on an exempt basis -- Non-accredited investors are specified family members or close business associates 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.

November 28, 2008

IN THE MATTER OF

THE SECURITIES ACT,

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

(the "Act")

AND

IN THE MATTER OF

FOYSTON, GORDON & PAYNE INC.

("Foyston")

AND

FGP SHORT TERM INVESTMENT POOLED FUND

FGP PRIVATE BOND POOLED FUND

FGP BOND POOLED FUND

FGP CANADIAN EQUITY POOLED FUND

FGP SMALL CAP CANADIAN EQUITY POOLED FUND

FGP PRIVATE U.S. EQUITY POOLED FUND

FGP U.S. EQUITY POOLED FUND

FGP PRIVATE INTERNATIONAL EQUITY POOLED FUND

FGP INTERNATIONAL EQUITY POOLED FUND

FGP PRIVATE COMBINED EQUITY POOLED FUND

FGP PRIVATE BALANCED POOLED FUND

FGP BALANCED POOLED FUND

FGP FOREIGN EQUITY POOLED FUND

FGP PRIVATE GLOBAL FOCUS EQUITY POOLED FUND

FGP GLOBAL FOCUS EQUITY POOLED FUND

(collectively the "Foyston Funds")

RULING

(Subsection 74(1) of the Act)

Background

The Ontario Securities Commission (the "Commission") has received an application from Foyston on behalf of itself, the Foyston Funds and any pooled fund established and managed by Foyston after the date hereof (a "Future Fund", and together with the Foyston Funds, the "Funds", or individually a "Fund"), for a ruling, pursuant to subsection 74(1) of the Act, that Foyston will not be subject to the requirement to be registered as a mutual fund dealer under s. 25 of the Act (the "Dealer Registration Requirement") and the requirement to file and obtain a receipt for a prospectus under s. 53 of the Act (the "Prospectus Requirement") in connection with the distribution of units of the Funds to Managed Accounts (as defined below) of Secondary Clients (as defined below).

Representations

This Ruling and Order is based on the following facts represented by Foyston:

1. Foyston is a corporation incorporated on April 1, 1989 under the laws of the Province of Ontario and continued on June 9, 2005 as a corporation under the Canada Business Corporations Act. Foyston has its principal place of business at 1 Adelaide Street East, Suite 2600, Toronto, Ontario, M5C 2V9.

2. Foyston is registered as an adviser in the categories of investment counsel and portfolio manager and as a limited market dealer with the Commission. Foyston is also registered as an adviser in the other provinces and territories of Canada. Foyston is also registered as an adviser with the Securities and Exchange Commission of the United States.

3. Foyston has established the Foyston Funds as open-end pooled fund and mutual fund trusts offered pursuant to exemptions from the prospectus requirements. Foyston is the manager and portfolio manager of the Foyston Funds. CIBC Mellon Trust is the trustee of the Foyston Funds. The Future Funds will consist of open-end pooled fund and mutual fund trusts for which Foyston will be the manager and portfolio manager.

4. Foyston offers investment management services to pension funds, institutions, charitable organizations and primarily high net worth individuals (each, a "Client").

5. Each Client who wishes to receive the investment management services of Foyston executes a written agreement (the "Investment Management Agreement") whereby the Client appoints Foyston to act as portfolio manager in connection with an investment portfolio of the Client with full discretion (a "Managed Account").

6. Foyston's normal minimum aggregate balance for all the accounts of a client is $1,000,000. This minimum may be waived at Foyston's discretion.

7. Foyston generally acts as portfolio manager to Clients ("Primary Clients") who are "accredited investors" within the meaning of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"). In addition, employees, executive officers, directors or consultants of Foyston are also Primary Clients of Foyston and purchase units of the Funds pursuant to the registration requirement contained in Section 2.24 of NI 45-106.

8. From time to time, Foyston may agree to provide services to Clients who are not accredited investors ("Secondary Clients"). For purposes of this application, the Secondary Clients are clients who are accepted by Foyston because of a relationship between the Secondary Client and a Primary Client, typically family members, including a spouse, parent, grandparent, child, or sibling of a Primary Client or, in some cases, persons who have another close relationship with a Primary Client.

9. Primary Clients constitute the main source of business for Foyston and the business of Secondary Clients is incidental to the business of Primary Clients. The business of a Secondary Client is generally accepted by Foyston as a courtesy to the Primary Client or for some other business reason.

10. Investments in individual securities or a single Fund may not be appropriate in certain circumstances for Foyston's clients, especially Secondary Clients, since they may not receive the same asset diversification benefits and may incur disproportionately higher fees, expenses and commissions relative to large Managed Accounts.

11. To improve the diversification and cost benefits to its Clients in Managed Accounts, Foyston wishes to distribute units of the Funds without a minimum investment. These Clients would thereby be able to receive the benefit of Foyston'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.

12. Foyston wishes to be able to offer a Fund to a Secondary Client without requiring the Secondary Client to invest $150,000 in that Fund.

13. Accredited investors will own a significant majority of the Funds. Foyston anticipates that Secondary Clients would represent less than 10% of the total Managed Accounts assets under management.

14. Under the Investment Management Agreements between each Client and Foyston, Clients agree to pay Foyston a management fee based upon a percentage of assets under management in the Managed Account. Terms of the fees are detailed in each Client's Investment Management Agreement. Foyston's management fees are charged directly to Clients, not the Funds. None of the Funds will charge a commission or a management fee directly to investors.

15. Unless the requested relief is granted, Foyston will be prohibited from selling units of the Funds to Managed Accounts where the Client resides in Ontario and is not an accredited investor and does not invest a minimum of $150,000 in each Fund.

Ruling

The Commission being satisfied that the relevant test contained in subsection 74(1) of the Act have been met rules, pursuant to subsection 74(1) of the Act, that relief from the Dealer Registration Requirement and the Prospectus Requirement is granted in connection with the distribution of securities of the Funds to Managed Accounts of Secondary Clients 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 will only apply where the holder of the Secondary Managed Account is, and in the case of clauses (iii) to (v) remains

i. an individual 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, grandchild or sibling of either the holder of a Primary Managed Account or the individual referred to in clause (i);

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;

vi. a close business associate, employee or professional adviser to a Primary Client provided that:

(a) in each instance, there are exceptional factors that have persuaded Foyston for business reasons to accept such close associate, employee or professional adviser as a Secondary Client and waive Foyston's minimum aggregate balance, and a record is kept and maintained of the exceptional factors considered; and

(b) the Secondary Clients acquired through such relationships to a Primary Client shall not at any time represent more than 5% of Foyston's total Managed Account assets under management;

C. Foyston does not receive any compensation in respect of a sale or redemption of securities of the Funds and Foyston does not pay a referral fee to any person or company who refers Secondary Clients who invest in securities of the Funds through Managed Accounts managed by Foyston.

D. Foyston remains registered under the Legislation as an adviser in the categories of "investment counsel" and "portfolio manager" (or the equivalent) and as a dealer in the category of "limited market dealer" (or the equivalent) and will comply with the duties and obligations of such registration in connection with any trade made to Managed Accounts of Secondary Clients.