BNS Split Corp. and Scotia Capital Inc. - MRRS Decision

Headnote

Mutual Reliance Review Systemfor Exemptive Relief Applications - subdivided offering - theprohibitions contained in the Legislation prohibiting tradingin portfolio shares by persons or companies having informationconcerning the trading programs of mutual funds shall not applyto the promoter/agent with respect to certain principal tradeswith the issuer in securities comprising the issuer's portfolio- issuer's portfolio consisting of common shares of the Bankof Nova Scotia.

Issuer, a mutual fund, exemptedfrom restriction against making an investment in any personor company who is a substantial security holder of the mutualfund, its management company or distribution company.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990,c. S.5, as amended, ss. 111(2)(a), 113, 119, 121(2)(a)(ii).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ONTARIO, BRITISH COLUMBIA,ALBERTA, SASKATCHEWAN,

NEWFOUNDLAND AND LABRADORAND NOVA SCOTIA

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BNS SPLIT CORP.

AND

IN THE MATTER OF

SCOTIA CAPITAL INC.

MRRS DECISION DOCUMENT

WHEREAS the local securitiesregulatory authority or regulator (the "Decision Maker")in each of Ontario, British Columbia, Alberta, Saskatchewan,Newfoundland and Labrador and Nova Scotia (the "Jurisdictions")has received an application from BNS Split Corp. (the "Issuer")and Scotia Capital Inc. ("Scotia Capital") for decisionsunder the securities legislation (the "Legislation")of the Jurisdictions that the following requirements containedin the applicable Legislation shall not apply to the Issuerand/or Scotia Capital, as applicable, in connection with theinitial public offering (the "Offering") of classA capital shares (the "Capital Shares") and classA preferred shares (the "Preferred Shares") of theIssuer:

(a) in the case of the Legislationof each of the Jurisdictions, the prohibitions contained thereinprohibiting trading in portfolio shares by persons or companieshaving information concerning the trading programs of mutualfunds (the "Principal Trading Prohibitions") shallnot apply to Scotia Capital in connection with the PrincipalSales and Principal Purchases (both as hereinafter defined);and

(b) in the case of the Legislationof each of the Jurisdictions, the restrictions contained thereinprohibiting the Issuer from making investments in the commonshares of The Bank of Nova Scotia, which bank is a substantialsecurity holder of a distribution company of the Issuer (the"Investment Restrictions") shall not apply to theIssuer in connection with the Offering;

subject to certain restrictions;

AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this application;

AND WHEREAS the Issuerand Scotia Capital have represented to the Decision Makers that:

1. Scotia Capital was incorporatedunder the laws of the Province of Ontario and is a direct,wholly-owned subsidiary of The Bank of Nova Scotia ("Scotiabank")and is registered under the Legislation as a dealer in thecategories of "broker" and "investment dealer"and is a member of the Investment Dealers Association of Canadaand The Toronto Stock Exchange (the "TSX").

2. Scotia Capital is the promoterof the Issuer and will be establishing a credit facility infavour of the Issuer in order to facilitate the acquisitionof the Scotiabank Shares (as defined below) by the Issuer.

3. The Issuer was incorporatedon June 14, 2002 under the laws of the Province of Ontarioand is authorized to issue an unlimited number of Class JShares and an unlimited number of Class K Shares.

4. The Issuer has filed withthe securities regulatory authorities of each Province ofCanada a preliminary prospectus dated June 14, 2002 (the "PreliminaryProspectus") in respect of the proposed offering (the"Offering") of Capital Shares and Preferred Sharesto the public.

5. The Issuer intends to becomea reporting issuer under the Legislation by filing a finalprospectus (the "Final Prospectus") relating tothe Offering. Prior to the filing of the Final Prospectus,the Articles of Incorporation of the Issuer will be amendedso that the authorized capital of the Issuer will consistof an unlimited number of Capital Shares, an unlimited numberof Preferred Shares, an unlimited number of Class B, ClassC, Class D and Class E capital shares, issuable in series,an unlimited number of Class B, Class C, Class D and ClassE preferred shares, issuable in series, and an unlimited numberof Class J Shares, having the attributes set forth under theheadings "Description of Share Capital" and "Detailsof the Offerings" commencing on page 16 of the PreliminaryProspectus.

6. The Capital Shares andPreferred Shares may be surrendered for retraction at anytime in the manner described in the Preliminary Prospectus.

7. Application will be madeto list the Capital Shares and Preferred Shares on the TSX.

8. The Capital Shares andthe Class J Shares will be the only voting shares in the capitalof the Issuer. At the time of filing the Final Prospectus,there will be 100 Class J Shares issued and outstanding. ScotiaCapital will own all of the issued and outstanding Class JShares of the Issuer.

9. The Issuer has a boardof directors which currently consists of three directors.All of the directors are employees of Scotia Capital. Also,the offices of President/Chief Executive Officer and ChiefFinancial Officer/Secretary of the Issuer are held by employeesof Scotia Capital. Prior to filing the Final Prospectus, itis contemplated that three additional directors, independentof Scotia Capital, will be appointed to the board of directorsof the Issuer.

10. Pursuant to an agreement(the "Agency Agreement") to be made between theIssuer and Scotia Capital and such other agents as may beappointed after the date of this application (collectively,the "Agents" and individually, an "Agent"),the Issuer will appoint the Agents, as its agents, to offerthe Capital Shares and Preferred Shares of the Issuer on abest efforts basis and the Final Prospectus qualifying theOffering will contain a certificate signed by each of theAgents in accordance with the Legislation.

11. The Issuer is consideredto be a mutual fund as defined in the Legislation. Since theIssuer does not operate as a conventional mutual fund, ithas made application for a waiver from certain requirementsof National Instrument 81-102.

12. The Issuer is a passiveinvestment company whose principal undertaking will be toinvest the net proceeds of the Offering in a portfolio (the"Portfolio") of common shares (the "ScotiabankShares") of Scotiabank in order to generate fixed cumulativepreferential distributions for the holders of the PreferredShares and to enable the holders of Capital Shares to participatein any capital appreciation in the Scotiabank Shares afterpayment of administrative and operating expenses.

13. The Final Prospectus willdisclose the acquisition cost to the Issuer of the ScotiabankShares and selected financial information and dividend andtrading history of the Scotiabank Shares.

14. The Scotiabank Sharesare listed and traded on the TSX.

15. The Issuer is not, andwill not upon the completion of the Offering, be an insiderof Scotiabank within the meaning of the Legislation.

16. Scotia Capital does nothave knowledge of a material fact or material change withrespect to Scotiabank that has not been generally disclosed.

17. Scotia Capital's economicinterest in the Issuer and in the material transactions involvingthe Issuer are disclosed in the Preliminary Prospectus andwill be disclosed in the Final Prospectus under the heading"Interest of Management and Others in Material Transactions"and include the following:

(a) agency fees with respectto the Offering;

(b) an administration feeunder the Administration Agreement;

(c) commissions in respectof the acquisition of Scotiabank Shares, the dispositionof Scotiabank Shares to fund a redemption or retraction,or the purchase for cancellation, of the Capital Sharesand Preferred Shares or if necessary, to fund a portionof the fixed distribution on the Preferred Shares;

(d) interest and reimbursementof expenses, in connection with the acquisition of ScotiabankShares; and

(e) amounts in connectionwith Principal Sales and Principal Purchases (as describedin paragraphs 21 and 28 below).

18. The net proceeds fromthe sale of the Capital Shares and Preferred Shares underthe Final Prospectus, after payment of commissions to theAgents, expenses of issue and carrying costs relating to theacquisition of the Scotiabank Shares, will be used by theIssuer to:

(a) pay the acquisitioncost (including any related costs or expenses) of the ScotiabankShares; and

(b) pay the initial feepayable to Scotia Capital for its services under the AdministrationAgreement (as defined below).

19. All Capital Shares andPreferred Shares outstanding on a date approximately fiveyears from the closing of the Offering will be redeemed bythe Issuer on such date. Capital Shares and Preferred Shareswill be retractable at the option of the holder and redeemableat the option of the Issuer as described in the PreliminaryProspectus.

20. Pursuant to an agreement(the "Securities Purchase Agreement") to be enteredinto between the Issuer and Scotia Capital, Scotia Capitalwill purchase, as agent for the benefit of the Issuer, ScotiabankShares in the market on commercial terms or from non-relatedparties with whom Scotia Capital and the Issuer deal at arm'slength. Subject to receipt of all necessary regulatory approvals,Scotia Capital may, as principal, sell Scotiabank Shares tothe Issuer (the "Principal Sales"). The aggregatepurchase price to be paid by the Issuer for the ScotiabankShares (together with carrying costs and other expenses incurredin connection with the purchase of Scotiabank Shares) willnot exceed the net proceeds from the Offering.

21. Under the Securities PurchaseAgreement, Scotia Capital may receive commissions at normalmarket rates in respect of its purchase of Scotiabank Shares,as agent on behalf of the Issuer, and the Issuer will payany carrying costs or other expenses incurred by Scotia Capital,on behalf of the Issuer, in connection with its purchase ofScotiabank Shares as agent on behalf of the Issuer. In respectof any Principal Sales made to the Issuer by Scotia Capitalas principal, Scotia Capital may realize a financial benefitto the extent that the proceeds received from the Issuer exceedthe aggregate cost to Scotia Capital of such Scotiabank Shares.Similarly, the proceeds received from the Issuer may be lessthan the aggregate cost to Scotia Capital of the ScotiabankShares and Scotia Capital may realize a financial loss, allof which is described in the Preliminary Prospectus and willbe described in the Final Prospectus.

22. The Preliminary Prospectusdiscloses and the Final Prospectus will disclose that anyPrincipal Sales will be made in accordance with the rulesof the applicable stock exchange and the price paid by ScotiaCapital (inclusive of all transaction costs, if any) willnot be greater than the price which would have been paid (inclusiveof all transaction costs, if any) if the acquisition had beenmade through the facilities of the principal stock exchangeon which the Scotiabank Shares are listed and posted for tradingat the time of the purchase from Scotia Capital.

23. Scotia Capital will notreceive any commissions from the Issuer in connection withthe Principal Sales and all Principal Sales will be approvedby the independent directors of the Issuer.

24. For the reasons set forthin paragraphs 20 and 21 above, and the fact that no commissionsare payable to Scotia Capital in connection with the PrincipalSales, in the case of the Principal Sales, the interests ofthe Issuer and the shareholders of the Issuer may be enhancedby insulating the Issuer from price increases in respect ofthe Scotiabank Shares.

25. None of the ScotiabankShares to be sold by Scotia Capital as principal to the Issuerhave been acquired, nor has Scotia Capital agreed to acquire,any Scotiabank Shares while Scotia Capital had access to informationconcerning the investment program of the Issuer, althoughcertain of the Scotiabank Shares to be held by the Issuermay be acquired or Scotia Capital may agree to acquire suchScotiabank Shares on or after the date of this Decision Document.

26. It will be the policyof the Issuer to hold the Scotiabank Shares and to not engagein any trading of the Scotiabank Shares, except:

(a) to fund retractionsor redemptions of Capital Shares and Preferred Shares; or

(b) in certain other limitedcircumstances as described in the Preliminary Prospectus.

27. Pursuant to an administrationagreement (the "Administration Agreement") to beentered into, the Issuer will retain Scotia Capital to administerthe ongoing operations of the Issuer and will pay Scotia Capital(i) a monthly fee of 1/12 of 0.15% of the market value ofthe Scotiabank Shares held in the Portfolio, and (ii) anyinterest income earned by the Issuer from time to time excludinginterest earned on any investment of surplus dividends receivedon the Scotiabank Shares.

28. In connection with theservices to be provided by Scotia Capital to the Issuer pursuantto the Administration Agreement, Scotia Capital may sell ScotiabankShares to fund retractions of Capital Shares and PreferredShares prior to the Redemption Date and upon liquidation ofthe Scotiabank Shares in connection with the final redemptionof Capital Shares and Preferred Shares on the Redemption Date.These sales will be made by Scotia Capital as agent on behalfof the Issuer, but in certain circumstances, such as wherea small number of Capital Shares and Preferred Shares havebeen surrendered for retraction, Scotia Capital may purchaseScotiabank Shares as principal (the "Principal Purchases")subject to receipt of all regulatory approvals.

29. In connection with anyPrincipal Purchases, Scotia Capital will comply with the rules,procedures and policies of the applicable stock exchange ofwhich it is a member and in accordance with orders obtainedfrom all applicable securities regulatory authorities. ThePreliminary Prospectus discloses and the Final Prospectuswill disclose that Scotia Capital may realize a gain or losson the resale of such securities.

30. The Administration Agreementwill provide that Scotia Capital must take reasonable steps,such as soliciting bids from other market participants orsuch other steps as Scotia Capital, in its discretion, considersappropriate after taking into account prevailing market conditionsand other relevant factors, to enable the Issuer to obtainthe best price reasonably available for the Scotiabank Sharesso long as the price obtained (net of all transaction costs,if any) by the Issuer from Scotia Capital is at least as advantageousto the Issuer as the price which is available (net of alltransaction costs, if any) through the facilities of the applicablestock exchange at the time of the trade.

31. Scotia Capital will notreceive any commissions from the Issuer in connection withPrincipal Purchases and, in carrying out the Principal Purchases,Scotia Capital shall deal fairly, honestly and in good faithwith the Issuer.

32. Scotiabank is a substantialsecurity holder of Scotia Capital, which is a distributioncompany of the Issuer.

AND WHEREAS under theSystem, this MRRS Decision Document evidences the decision ofeach Decision Maker (collectively, the "Decision");

AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;

THE DECISION of the DecisionMakers pursuant to the Legislation is that:

A. The Principal Trading Prohibitionsshall not apply to Scotia Capital in connection with the PrincipalSales and Principal Purchases.

B. The Investment Restrictionsshall not apply to the Issuer in connection with investmentsin Scotiabank Shares for the purposes of the Offering as describedin the Preliminary Prospectus.

July 25, 2002.

"Paul M. Moore"                    "RobertL. Shirriff"