CIBC Asset Management Inc. et al.

Decision

Headnote

National Policy 11-203 Process for Exemption Relief Applications in Multiple Jurisdictions -- relief from section 4.1 of NI 81-102 for dealer-managed mutual funds to invest in distributions of debt securities for which dealer-manager acts as underwriter during distribution period or 60 day period following distribution -- debt securities will not have "approved rating" by "credit rating organization" as required by subsection 4.1(4) -- limited supply of new debt offerings have approved ratings, and trend is expected to continue -- dominant position of related dealers in debt underwriting limits funds' ability to acquire debt securities for the funds -- all purchases must be consistent with fund investment objectives and subject to approval of independent review committee -- debt offerings must have at least one underwriter in addition to related dealer, at least one arm's length purchaser purchasing at least 5% of the offerings -- related funds can collectively purchase no more than 20% of offering and must pay no more than lowest price paid by arm's length purchaser(s) -- funds must not be money market fund funds and cannot purchase asset backed commercial paper pursuant to relief.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.1, 19.1.

July 30, 2010

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

CIBC ASSET MANAGEMENT INC.,

CIBC GLOBAL ASSET MANAGEMENT INC.,

NATIONAL BANK SECURITIES INC.,

PHILLIPS, HAGER & NORTH INVESTMENT

MANAGEMENT LTD., RBC ASSET MANAGEMENT

INC. AND TD ASSET MANAGEMENT INC.

(collectively, the Filers)

AND

IN THE MATTER OF

THE MUTUAL FUNDS TO WHICH

NATIONAL INSTRUMENT 81-102 (NI 81-102)

APPLIES AND OF WHICH ONE OF THE FILERS

OR AN AFFILIATE OR ASSOCIATE OF ONE OF

THE FILERS IS NOW OR IN THE FUTURE

THE MANAGER AND/OR A PORTFOLIO ADVISER

(each, a Fund and, collectively, the Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers, in respect of the Filers, any associate or affiliate of the Filers, and each Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief (the Requested Relief) from the prohibition in section 4.1(1) of NI 81-102 (the Investment Prohibition) to permit the investment by the Funds in debt securities of an issuer during the period of the distribution (the Distribution) or during the period of 60 days after the Distribution (the 60-Day Period), notwithstanding, in respect of each of the Filers, the involvement of the Filer or one of the Filer's associates or affiliates as an underwriter in the Distribution and notwithstanding that the debt securities do not have an approved rating by an approved credit rating organization as contemplated by section 4.1(4)(b) of NI 81-102.

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

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

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied on in Alberta, British Columbia, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, Yukon Territory, Northwest Territories and Nunavut Territory (collectively, the Non-Principal Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 81-102 and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meaning if used in this decision, unless otherwise defined. For greater certainty, the term "approved rating", as used in section 4.1(4)(b) of NI 81-102, has the meaning given to such term in National Instrument 44-101 Short Form Prospectus Distributions. In addition, in this decision the following terms have the following meanings:

(a) "Advised Funds" means, collectively, the Funds which are advised but not managed by one of the Filers or any of their affiliates or associates, and to which NI 81-102 applies;

(b) "Managed Funds" means, collectively, the Funds which are managed, and may be advised, by one of the Filers or any of their affiliates or associates, and to which NI 81-102 applies.

Representations

This decision is based on the following facts represented by the Filers in respect of the Filers and the Funds:

1. Each of the Funds is or will be a mutual fund established under the laws of one of the Jurisdiction or one of the Non-Principal Jurisdictions.

2. None of the Funds are or will be a "money market fund" as defined in NI 81-102.

3. The securities of the Funds, other than National Bank Protected Canadian Bond Fund, National Bank Protected Retirement Balanced Fund, National Bank Protected Growth Balanced Fund, National Bank Protected Canadian Equity Fund and National Bank Protected Global Fund (collectively, the Protected Funds), are or will be offered for sale pursuant to a prospectus filed in one or more of the Jurisdiction and the Non-Principal Jurisdictions. The Protected Funds are required to file an annual information form pursuant to Section 9.2 of National Instrument 81-106 Investment Fund Continuous Disclosure but whose securities are not currently qualified for distribution. Each of the Funds is or will be a dealer managed mutual fund that is or will be a reporting issuer in one or more of the Jurisdiction and the Non-Principal Jurisdictions.

4. Each of the Funds has or will have an independent review committee (IRC) appointed under NI 81-107.

5. One of the Filers or an associate or affiliate of one of the Filers is or will be the manager of the Managed Funds. One of the Filers or an associate or affiliate of one of the Filers may be a portfolio adviser of the Managed Funds.

6. One of the Filers or an associate or affiliate of one of the Filers is or will be a portfolio adviser of the Advised Funds. None of the Filers or any associate or affiliate of the Filers is or will be the manager of an Advised Fund.

7. None of the Filers and the Managed Funds are in default of securities legislation in the Jurisdiction or any of the Non-Principal Jurisdictions. To the best of the knowledge of the Filers, the Advised Funds are not in default of securities legislation in the Jurisdiction or any of the Non-Principal Jurisdictions.

8. Each of the Filers is an affiliate of one or more dealers and each Filer may become an affiliate or associate of additional dealers in the future (each, a Related Dealer and, collectively, the Related Dealers), any of which may act as an underwriter in a Distribution.

9. The Funds need the Requested Relief from the Investment Prohibition because:

(a) there is a limited supply of debt securities issued by an issuer other than the federal or a provincial government (Non-Government Debt Securities);

(b) frequently, the only source of new issues of Non-Government Debt Securities will be offerings that are, in whole or in part, underwritten by a Related Dealer; and

(c) frequently, Non-Government Debt Securities that the Filers wish to purchase for the Funds do not have an "approved rating" by an "approved credit rating organization".

10. The Filers consider that a Fund may be prejudiced if it cannot purchase during a Distribution, or in the 60-Day Period, debt securities that are consistent with its investment objective. Forgoing participation in these investment opportunities is a significant opportunity cost for the relevant Funds as they are being denied access to these securities purely as a result of the coincidental participation of a Related Dealer in the transaction and the credit rating of the security.

11. The Filers make investment decisions independently of their Related Dealers concerning Distributions in which Related Dealers act as underwriters, and this is reflected in policies and procedures approved by the IRCs of the Funds.

12. As a result, in almost all Distributions in respect of which the Requested Relief is required, the details of the Distribution and a Related Dealer's involvement as an underwriter in the particular Distribution will not be known by the Filers sufficiently long enough in advance to make an application for relief on a case-by-case basis.

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 from the Investment Prohibition is granted in respect of purchases of Non-Government Debt Securities by each Fund, provided that:

(a) at the time of each investment, the purchase is consistent with, or is necessary to meet, the investment objective of the Fund and represents the business judgment of the portfolio adviser of the Fund uninfluenced by considerations other than the best interests of the Fund or in fact is in the best interests of the Fund;

(b) the manager of the Fund complies with section 5.1 of NI 81-107 and the manager and IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the investment in the securities;

(c) at the time of the investment, the IRC of the Fund has approved the transaction in accordance with section 5.2(2) of NI 81-107;

(d) if the securities are acquired in the Distribution,

(i) at least one underwriter acting as underwriter in the Distribution is not a Related Dealer,

(ii) at least one purchaser who is independent and arm's length to the Fund(s) and the Related Dealers must purchase at least 5% of the securities distributed under the Distribution,

(iii) the price paid for the securities by a Fund in the Distribution shall be no higher than the lowest price paid by any of the arm's length purchasers who participate in the Distribution, and

(iv) a Fund and any related Funds for which a Filer or its affiliate or associate acts as manager and/or portfolio adviser can collectively acquire no more than 20% of the securities distributed under the Distribution in which a Related Dealer acts as underwriter;

(e) if the securities are acquired in the 60-Day Period,

(i) the ask price of the securities is readily available as provided in Commentary 7 to section 6.1 of NI 81-107,

(ii) the price paid for the securities by a Fund is not higher than the available ask price of the security, and

(iii) the purchase is subject to market integrity requirements as defined in NI 81-107;

(f) the securities acquired by the Funds pursuant to the Requested Relief cannot be asset backed commercial paper; and

(g) no later than the time a Fund files its annual financial statements, the manager of the Fund will file the particulars of each investment made by the Fund pursuant to the Requested Relief during its most recently completed financial year.

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