Gryphon Investment Counsel Inc. and Gryphon International Investment Corporation

Decision

Headnote

Exemption granted from conflict of interest trading prohibition in paragraph 13.5(2)(b) of NI 31-103 to permit in specie subscriptions and redemptions by separately managed accounts and pooled funds in pooled funds -- Portfolio manager of managed accounts is also portfolio manager of pooled funds and is therefore a "responsible person" -- Relief subject to certain conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions, s. 13.5.

December 28, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

GRYPHON INVESTMENT COUNSEL INC.

(Gryphon) AND GRYPHON INTERNATIONAL

INVESTMENT CORPORATION (Gryphon International)

(collectively, the Filers)

DECISION

Background

The principal regulator in the jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) providing an exemption (the Requested Relief) from Paragraph 13.5(2)(b) of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) (the Trading Prohibition) that prohibits a registered adviser from knowingly causing an investment portfolio managed by it (including an investment fund for which it acts as an adviser) to purchase or sell the securities of any issuer from or to the investment portfolio of an associate of a responsible person, or any investment fund for which a responsible person acts as an adviser.

(a) to permit the following purchases and redemptions (each purchase and redemption, an In-Specie Transaction):

(i) the purchase by a fully managed account managed by the Filers (each, a Managed Account) of securities of the Pooled Funds (defined below) and the redemption of securities held by a Managed Account in the Pooled Funds, and as payment:

(A) for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the Pooled Fund; and

(B) for such redemption, in whole or in part, by the Pooled Fund making good delivery of portfolio securities to the Managed Account;

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application,

(b) the Filer has provided notice that Subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 31-103 have the same meanings if used in this decision unless otherwise defined.

Representations

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

1. Each of the Filers is a corporation incorporated under the laws of Canada, with its head office located in Toronto, Ontario.

2. Gryphon is registered as an adviser in the appropriate categories to provide discretionary advisory services, in each case in Ontario, British Columbia, Alberta, Quebec, New Brunswick, Nova Scotia, Price Edward Island and Newfoundland and Labrador. Gryphon may in the future apply for registration as an adviser in the territories if it is requested to promote advice to persons in such territories. Gryphon is also registered as an investment fund manager in Ontario.

3. Gryphon International is registered as an adviser in the appropriate categories to provide discretionary advisory services, in each case in Ontario, British Columbia, Alberta, Quebec, New Brunswick and Nova Scotia. Gryphon International may in the future apply for registration as an adviser in other provinces or the territories if it is requested to promote advice to persons in such provinces or territories. Gryphon International is also registered as an investment fund manager in Ontario.

4. Gryphon currently acts as investment fund manager and portfolio adviser of Gryphon Balanced Fund, Gryphon EAFE Fund, Gryphon Canadian Equity Fund and Gryphon Balanced Trust (collectively, the Gryphon Funds). Gryphon International currently acts as investment fund manager and portfolio adviser of Gryphon EuroPac Fund and GIIC Global Fund (collectively, the Gryphon International Funds) (the Gryphon Funds and the Gryphon International Funds being, collectively, the Existing Funds). In addition, Gryphon International acts as sub-adviser to Gryphon in respect of the Gryphon EAFE Fund and in respect of international securities for clients of Gryphon with segregated accounts. The Existing Funds, together with any other pooled funds established by the Filers in the future are associates of such Filers and for which such Filers are a portfolio adviser from time to time, are collectively referred to hereafter as the Pooled Funds.

5. Each of the Pooled Funds is, or will be, an investment fund established as a trust, under the laws of Canada or a jurisdiction of Canada.

6. The Pooled Funds are not, and will not be, reporting issuers in any province or territory of Canada.

7. The Pooled Funds are, or will be, qualified for distribution pursuant to exemptions from the prospectus requirements in the Jurisdiction.

8. The Filer, or an affiliate of the Filer, is, or will be, the manager and/or portfolio manager for each of the Pooled Funds. The Pooled Funds are, and will be, specifically designed by the Filers to meet the needs of clients of the Filers and are, and will be, used exclusively for such clients.

9. The Filers, affiliates of the Filers seeking to rely upon this decision and each of the Funds are not, or will not be, in default of securities legislation in any jurisdiction.

10. Each of the Filers offers discretionary investment management services to clients (Clients, each a Client) pursuant to investment management agreements between the clients and the Filers. Based on the size of the assets of a client and depending on the allocation of such client's assets to a particular asset class, the Filers either manage such client's assets on a segregated accounts basis (Separately Managed Accounts) or on a pooled basis.

11. Pursuant to the investment management agreement with Clients, the Filers have full discretion and authority to provide portfolio management services to clients, including investing clients in Pooled Funds for which the Filers are the portfolio advisers and for changing those funds as the Filers determine in accordance with the mandate of the Clients. To the extent a Filer either currently does not have such discretion or authority or enters into an agreement with a new client, such Filer will obtain the prior specific written consent of the relevant Separately Managed Account client before such Filer engages in any In Specie Transfer, in connection with the purchase or redemption of units of the Funds for its Separately Managed Accounts.

12. A Filer may determine that in lieu of holding securities in a Separately Managed Account, a client would be better served to be invested in one or more of the Pooled Funds. To the extent a Client holds directly an existing portfolio of securities, the Filer may determine to have such Client subscribe in specie for units of the relevant Pooled Funds. Further, future Clients of a Filer may have an existing portfolio of securities when they retain such Filer such that the Filer may similarly desire to have such Clients subscribe in specie for units of the Pooled Funds, provided these securities are appropriate for the relevant Pooled Fund.

13. In addition, due to portfolio changes for a Client, a Filer may determine, in connection with a redemption, to redeem in specie, certain portfolio securities held by a Pooled Fund, and to reinvest the Client by subscribing in specie for Fund Securities of another Pooled Fund or simply hold the portfolio securities on behalf of such Client in a Separately Managed Account. Alternatively, the Client may determine to change the Client's mandate which may require a redemption in specie of Fund Securities in connection therewith.

14. Effecting such In Specie Transactions will allow the Filers to manage each asset class more effectively and reduce transactions costs for Clients and the Pooled Funds.

15. The only cost which will be incurred by a Separately Managed Account of by a Pooled Fund for an In Specie Transaction is a nominal administrative charge levied by the custodian of such Separately Managed Account or Pooled Fund in recording the trades.

16. Each agreement in respect of a Managed Account or other documentation contains or will contain the authorization of the Client for the relevant Filer to engage in In Specie Transactions on behalf of the Managed Account.

17. The Filer will value portfolio securities under an In Specie Transaction using the same values to be used on that day to calculate the net asset value for the purpose of the issue price or redemption price of Fund Securities.

18. None of the securities which are the subject of In Specie Transfers are or will be securities of related issuers of a Filer

19. Each Pooled Fund will keep written records of the In Specie Transactions, including records of each purchase and sale of portfolio securities and the terms thereof, for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place.

20. Since the Filers are the portfolio managers of the Managed Accounts and the Pooled Funds, the Filers would be considered a "responsible person" within the meaning of NI 31-103.

21. Prior to entering into an In Specie Transaction involving a Pooled Fund and a Managed Account, the proposed transaction will be reviewed to determine that the transaction represents the business judgment of the relevant Filer, uninfluenced by considerations other than the best interests of the Pooled Fund and the Managed Account.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Requested Relief is granted, provided that:

(a) in connection with an In Specie Transaction where a Managed Account acquires Fund Securities:

(i) the relevant Filer obtains the prior written consent of the Client of the Managed Account before it engages in any In Specie Transaction;

(ii) the Pooled Fund would, at the time of payment, be permitted to purchase the securities;

(iii) the securities are acceptable to the relevant Filer as portfolio manager of the Pooled Fund and consistent with the Pooled Fund's investment objective;

(iv) the value of the securities is at least equal to the issue price of the Fund Securities of the Pooled Fund for which they are used as payment, valued as if the securities were portfolio assets of that Pooled Fund;

(v) the account statement next prepared for the Managed Account describes the securities delivered to the Pooled Fund and the value assigned to such securities; and

(vi) the Pooled Fund will keep written records of each In Specie Transaction in a financial year of the Pooled Fund, reflecting details of the securities delivered to the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(b) in connection with an In Specie Transaction where a Managed Account redeems Fund Securities:

(i) the relevant Filer obtains the prior written consent of the Client of the Managed Account before it engages in an In Specie Transaction and such consent has not been revoked;

(ii) the securities are acceptable to the relevant Filer as portfolio manager of the Managed Account and consistent with the Managed Account's investment objective;

(iii) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price;

(iv) the account statement next prepared for the Managed Account describes the securities delivered to the Managed Account and the value assigned to such securities; and

(v) the Pooled Fund will keep written records of each In Specie Transaction in a financial year of the Pooled Fund, reflecting details of the securities delivered by the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(c) each of the Filers does not receive any compensation in respect of any In Specie Transaction and, in respect of any delivery of securities further to an In Specie Transaction, the only charges paid by the Managed Account or the applicable Pooled Fund is any administrative charges levied by the custodian.

"Darren McKall"
Manager, Investment Funds Branch
Ontario Securities Commission