Securities Law & Instruments

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- subdivided offering -- the prohibitions contained in the Legislation against trading in portfolio shares by persons or companies having information concerning the trading programs of mutual funds shall not apply to administrator with respect to certain principal trades with the issuer in securities comprising the Issuer's portfolio -- Issuer's portfolio consisting of shares of five Canadian banks and three Canadian insurance companies.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 119, 121(2)(a)(ii).

December 12, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO, ALBERTA, SASKATCHEWAN,

NOVA SCOTIA AND NEWFOUNDLAND

AND LABRADOR

(the "Jurisdictions")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

BIG 8 SPLIT INC.

(the "Filer")

AND

TD SECURITIES INC.

("TD Securities")

 

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the "Decision Maker") has received an application from the Filer under the securities legislation of the Jurisdictions (the "Legislation") under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions ("NP 11-203") for a decision that the prohibitions contained in Section 119 of the Securities Act (Ontario) (the "OSA") and the corresponding provisions in the provincial securities legislation of each of the Provinces of Alberta, Saskatchewan, Newfoundland and Labrador, and Nova Scotia prohibiting trading in portfolio shares by persons or companies having information concerning the trading programs of mutual funds (the "Principal Trading Prohibitions") shall not apply to TD Securities in connection with Principal Sales and Principal Purchases (each defined below) with respect to the public offering (the "Offering") of class B preferred shares (the "Class B Preferred Shares") of the Filer (the "Exemption Sought").

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

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

(b) the decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning if used in this decision unless otherwise defined.

Representations

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

The Filer

1. The Filer was incorporated under the Business Corporations Act (Ontario) on June 26, 2003 and became a reporting issuer under the OSA by filing a final prospectus dated August 28, 2003 relating to an initial public offering of class A capital shares (the "Capital Shares") and class A preferred shares (the "Class A Preferred Shares") completed on September 3, 2003.

2. The authorized capital of the Filer consists of an unlimited number of Capital Shares, an unlimited number of Class A Preferred Shares, an unlimited number of Class B, Class C and Class D preferred shares issuable in series, an unlimited number of Class B, Class C and Class D capital shares issuable in series, and an unlimited number of class E voting shares ("Class E Shares").

3. On November 21, 2008, the holders of the Capital Shares of the Filer approved a share capital reorganization (the "Reorganization") which permits holders of Capital Shares to extend their investment in the Filer beyond the redemption date of December 15, 2008 for up to an additional 5 years. The Reorganization also provides holders of Capital Shares with a special right of retraction (the "Special Retraction Right") to replace the originally scheduled final redemption. Under the Reorganization, holders of Capital Shares who do not wish to extend their investment may choose to have their shares redeemed on December 15, 2008.

4. As of the date hereof, there are 2,257,314 Capital Shares, 2,257,314 Class A Preferred Shares and 100 Class E Shares issued and outstanding. All of the Class A Preferred Shares will be redeemed by the Filer on December 15, 2008 in accordance with their terms and the Capital Shares whose holders have elected to exercise the Special Retraction Right will also be redeemed.

5. The Class B Preferred Shares are being offered in order to maintain the leveraged "split share" structure of the Filer and will be issued on or about December 15, 2008 such that there will be an equal number of Capital Shares and Class B Preferred Shares outstanding on and after the expected closing date of December 15, 2008.

6. The Filer filed the Preliminary Prospectus in each of the provinces of Canada on October 31, 2008 (SEDAR Project No. 1337085).

7. The Filer will make the Offering to the public pursuant to a final prospectus (the "Final Prospectus").

8. The Capital Shares will continue to be listed and posted for trading on The Toronto Stock Exchange (the "TSX") and it is expected that the Class B Preferred Shares will be listed and posted for trading on the TSX. An application requesting conditional listing approval has been made by the Filer to the TSX.

9. The Class E Shares are the only voting shares in the capital of the Filer. There are currently, and will be at the time of filing the Final Prospectus relating to the Offering, 100 Class E Shares issued and outstanding. All of the issued and outstanding Class E Shares are owned by Big 8 Split Trust, a trust established for holders from time to time of preferred shares and Capital Shares of the Filer.

10. The Capital Shares and Class B Preferred Shares may be surrendered for retraction at any time in the manner described in the Preliminary Prospectus.

11. The Filer has a board of directors (the "Board of Directors") which currently consists of five directors, three of which are independent directors who are not employees of TD Securities. Also, the offices of President/Chief Executive Officer and Chief Financial Officer/Secretary of the Filer are held by employees of TD Securities.

12. The Filer is a passive investment company whose principal investment objective is to invest in a portfolio (the "Portfolio") of common shares (the "Portfolio Shares") of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Bank of Nova Scotia, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation and Sun Life Financial Inc. (collectively, the "Financial Institutions") in order to generate fixed cumulative preferential distributions for holders of the Filer's Class B Preferred Shares, and to allow the holders of the Filer's Capital Shares to participate in the capital appreciation of the Portfolio Shares after payment of administrative and operating expenses of the Filer. It will be the policy of the Board of Directors of the Filer to pay dividends on the Capital Shares in an amount equal to the dividends received by the Filer on the Portfolio Shares minus the distributions payable on the Class B Preferred Shares and all administrative and operating expenses of the Filer.

13. Class B Preferred Share distributions will be funded from the dividends received on the Portfolio Shares. If necessary, any shortfall in the distributions on the Class B Preferred Shares will be funded by proceeds from the sale of Portfolio Shares.

14. The record date for the payment of Class B Preferred Share distributions, Capital Share dividends or other distributions of the Filer will be set in accordance with the applicable requirements of the TSX.

15. Any Capital Shares and Class B Preferred Shares outstanding on a date approximately five years from the closing of the Offering, which date will be specified in the Final Prospectus, will be redeemed by the Filer on such date.

16. The Filer is considered to be a mutual fund, as defined in the Legislation. Since the Filer does not operate as a conventional mutual fund, it is making an application for a waiver from certain requirements of National Instrument 81-102 -- Mutual Funds.

17. It will be the policy of the Filer to hold the Portfolio Shares and to not engage in any trading of the Portfolio Shares, except:

(a) to complete the one-time rebalancing of the Portfolio as described in the Preliminary Prospectus;

(b) to fund retractions or redemptions of Capital Shares and Class B Preferred Shares;

(c) following receipt of stock dividends on the Portfolio Shares;

(d) if necessary, to fund any shortfall in the distribution on Class B Preferred Shares; and

(e) to meet obligations of the Filer in respect of liabilities including extraordinary liabilities.

18. The Portfolio Shares are listed and traded on the TSX.

19. The Filer is not, and will not upon the completion of the Offering be, an insider of the Financial Institutions within the meaning of the Legislation.

The Offering

20. The net proceeds of the Offering (after deducting the agents' fees and expenses of the issue), depending upon the number and value of Capital Shares redeemed pursuant to the Special Retraction Right, will be used by the Filer to fund the redemption of all of the issued and outstanding Class A Preferred Shares of the Filer on December 15, 2008 as well as those Capital Shares being redeemed pursuant to the Special Retraction Right together with the net proceeds from the sale of a portion of the portfolio, if necessary.

21. The Final Prospectus will disclose selected financial information and dividend and trading history of the Portfolio Shares.

22. As discussed above, application will be made to list the Class B Preferred Shares on the TSX and all of the Capital Shares and Class B Preferred Shares outstanding on a date approximately five years from the closing of the Offering will be redeemed by the Filer on such date.

TD Securities

23. TD Securities was incorporated under the laws of the Province of Ontario and is a direct, wholly-owned subsidiary of The Toronto-Dominion Bank. TD Securities is registered under the Legislation as a dealer in the categories of "broker" and "investment dealer" and is a member of the Investment Industry Regulatory Organization of Canada and a participant in the TSX.

24. Pursuant to an agreement (the "Agency Agreement") to be made between the Filer and TD Securities and other agents expected to be appointed by the Company (the "Agents"), the Filer will appoint the Agents, as its agents, to offer the Class B Preferred Shares of the Filer on a best efforts basis and the Final Prospectus qualifying the Offering will contain a certificate signed by the Agents, in accordance with the Legislation.

25. Pursuant to an administration agreement (the "Administration Agreement") between TD Sponsored Companies Inc. ("TD SCI"), a wholly-owned subsidiary of TD Securities, and the Filer, the Filer will retain TD SCI to administer the ongoing operations of the Filer and will pay TD SCI a monthly fee of 1/12 of 0.25% of the market value of the Portfolio Shares held by the Filer from and after December 15, 2008.

26. TD SCI and TD Securities' economic interest in the Filer and in the material transactions involving the Filer are disclosed in the Preliminary Prospectus and will be disclosed in the Final Prospectus under the heading "Interests of Management and Others in Material Transactions" and include the following:

(a) agency fees with respect to the Offering;

(b) commissions in respect of the disposition of Portfolio Shares to fund a redemption, retraction or purchase for cancellation of the Capital Shares and Class B Preferred Shares;

(c) interest and reimbursement of expenses, in connection with any acquisition of Portfolio Shares; and

(d) amounts in connection with Principal Sales and Principal Purchases (as described below).

The Principal Trades

27. Through TD Securities, the Filer may purchase Portfolio Shares in the market on commercial terms or from non-related parties with whom TD Securities and the Filer deal at arm's length. Subject to regulatory approval, certain of such Portfolio Shares may also be purchased from TD Securities, as principal (the "Principal Sales").

28. TD Securities may receive commissions not exceeding normal market rates in respect of its purchase of Portfolio Shares, as agent on behalf of the Filer, and the Filer will pay any carrying costs or other expenses incurred by TD Securities, on behalf of the Filer, in connection with its purchase of Portfolio Shares, as agent on behalf of the Filer. In respect of any Principal Sales made to the Filer by TD Securities as principal, TD Securities may realize a financial benefit to the extent that the proceeds received from the Filer exceed the aggregate cost to TD Securities of such Portfolio Shares. Similarly, the proceeds received from the Filer may be less than the aggregate cost to TD Securities of the Portfolio Shares and TD Securities may realize a financial loss.

29. The Final Prospectus will disclose that any Principal Sales will be made in accordance with the rules of the applicable stock exchange and the price paid to TD Securities (inclusive of all transaction costs, if any) will not be greater than the price which would have been paid (inclusive of all transaction costs, if any) if the acquisition had been made through the facilities of the principal stock exchange on which the Portfolio Shares are listed and posted for trading at the time of the purchase from TD Securities.

30. TD Securities will not receive any commissions from the Filer in connection with the Principal Sales and all Principal Sales will be approved by the independent directors of the Filer. In carrying out the Principal Sales, TD Securities will deal fairly, honestly and in good faith with the Filer.

31. TD Securities may sell Portfolio Shares to fund retractions of Capital Shares and Class B Preferred Shares prior to the Redemption Date and upon liquidation of the Portfolio Shares in connection with the final redemption of Capital Shares and Class B Preferred Shares on the Redemption Date. These sales will be made by TD Securities as agent on behalf of the Filer, but in certain circumstances, such as where a small number of Capital Shares and Class B Preferred Shares have been surrendered for retraction, TD Securities may purchase Portfolio Shares as principal (the "Principal Purchases") subject to receipt of all regulatory approvals.

32. In connection with any Principal Purchases, TD Securities will comply with the rules, procedures and policies of the applicable stock exchange of which they are members and in accordance with orders obtained from all applicable securities regulatory authorities. The Final Prospectus will disclose that TD Securities may realize a gain or loss on the resale of such securities.

33. TD Securities will take reasonable steps, such as soliciting bids from other market participants or such other steps as TD Securities, in its discretion, considers appropriate after taking into account prevailing market conditions and other relevant factors, to enable the Filer to obtain the best price reasonably available for the Portfolio Shares so long as the price obtained (net of all transaction costs, if any) by the Filer from TD Securities is at least as advantageous to the Filer as the price which is available (net of all transaction costs, if any) through the facilities of the applicable stock exchange at the time of the trade.

34. TD Securities will not receive any commissions from the Filer in connection with Principal Purchases and, in carrying out the Principal Purchases, TD Securities shall deal fairly, honestly and in good faith with the Filer.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.

"Paul K. Bates"
Commissioner
Ontario Securities Commission
 
"James E. A. Turner"
Vice-Chair
Ontario Securities Commission