Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Relief granted to portfolio manager to engage the funds it manages in purchases of debt securities of related entities in the primary market -- relief conditional on IRC approval and compliance with pricing requirements.

Applicable Legislative Provisions

Securities Act (Ontario), ss. 111(2)(a), 111(2)(c)(ii), 111(3)

National Instrument 31-103 Registration Requirements, s. 13.5(2)(a).

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.2.

October 28, 2009

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

SCOTIA ASSET MANAGEMENT L.P.

(the Filer)

AND

IN THE MATTER OF

MUTUAL FUNDS subject to NI 81-102 Mutual Funds

(NI 81-102) for which the Filer acts as portfolio advisor

and/or manager and any mutual funds subject to

NI 81-102 that may be established in the future for

which the Filer acts as portfolio advisor and/or

manager (the Filer Funds)

DECISION

Background

The principal regulator in the Jurisdiction received an application (the Application) from the Filer on behalf of each Filer Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief from:

(a) the prohibition in the Legislation of the Jurisdiction (the Related Shareholder Relief) that prohibits a mutual fund from making or holding an investment in any person or company who is a substantial security holder of the mutual fund, its management company or distribution company (each a Related Shareholder);

(b) the prohibition in the Legislation of the Jurisdiction (the Related Party Relief) that prohibits a mutual fund from making or holding an investment in an issuer in which a Related Shareholder has a significant interest (each, a Related Party); and

(c) the prohibition in the Legislation of the Jurisdiction (the Related Issuer Relief) 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 a security of an issuer (each, a Related Issuer) in which a responsible person or an associate of a responsible person is a partner, officer or director unless this fact is disclosed to the client, and the written consent of the client to the purchase is obtained before the purchase.

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

(i) the Ontario Securities Commission (the OSC) is the principal regulator for the Application;

(ii) in respect of the Related Shareholder Relief and the Related Party Relief, the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Québec, New Brunswick, Nova Scotia and Newfoundland and Labrador (the Non-principal Jurisdictions); and

(iii) in respect of the Related Issuer Relief, the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions, in M1 11-102, in NI 81-102 and in National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meaning in this decision unless otherwise defined.

In this decision the term Related Person will be used to refer to a Related Shareholder, a Related Party or a Related Issuer depending on the provision that is being considered and the term Requested Related Person Securities Relief will be used to refer to the Related Shareholder Relief, the Related Party Relief and the Related Issuer Relief, together, requested by the Filer on behalf of the Filer Funds.

Representations

This decision is based on the following facts represented by the Filer in respect of the Filer and the Filer Funds.

1. The Filer is or will be the portfolio adviser and/or the manager of the Filer Funds of the Filer.

2. The Filer and the Filer Funds are or will be compliant with the requirements of NI 81-107. Accordingly, each Filer Fund has or will have an independent review committee (IRC) established in accordance with NI 81-107.

3. The investment strategies of each of the Filer Funds that relies on the Requested Related Person Securities Relief permit or will permit it to invest in the securities purchased.

4. Related Persons of the Filer are significant issuers of securities.

5. Section 6.2 of NI 81-107 provides an exemption from the prohibitions in the Related Shareholder Relief, Related Party Relief and Related Issue Relief for exchange-traded securities, such as common shares. It does not permit a Filer Fund, or the Filer on behalf of a Filer Fund, to purchase non-exchange-traded securities issued by Related Persons. Some securities of Related Persons, such as debt securities, of the Filer are not listed and traded.

6. Related Persons (in particular those that are Canadian banks) are issuers of highly rated commercial paper and other debt instruments. The Filer considers that the Filer Funds should have access to such securities for the following reasons:

(a) There is currently and has been for several years a very limited supply of highly rated corporate debt.

(b) Diversification is reduced to the extent that a Filer Fund is limited with respect to investment opportunities.

(c) To the extent that a Filer Fund is trying to track or outperform a benchmark it is important for the Filer Fund to be able to purchase any securities included in the benchmark. Debt securities of Related Persons of the Filer are included in most of the Canadian debt indices.

7. The Filer is seeking the Related Shareholder Relief, Related Party Relief and Related Issuer Relief to permit the Filer Funds of the Filer to purchase and hold non-exchange traded securities that are debt securities, other than asset backed commercial paper securities, with a term to maturity of 365 days or more, issued by a Related Person in a Primary Offering.

8. Each non-exchange traded security purchased by a Filer Fund pursuant to the Related Shareholder Relief, Related Party Relief and Related Issuer Relief will be a debt security, other than an asset backed commercial paper security, with a term to maturity of 365 days or more, issued by a Related Person that has been given and continues to have, at the time of purchase, an "approved credit rating" by an approved credit rating organization.

9. Each non-exchange traded debt security purchased by a Filer Fund pursuant to the Related Shareholder Relief, Related Party Relief and Related Issuer Relief will be purchased in a Primary Offering where the terms of the Primary Offering, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.

10. The predecessor to the Filer, Scotia Cassels Investment Counsel Limited (SCICL), and Scotia Securities Inc.(SSI) and Scotia Capital Inc. (SCI) were granted identical relief in the Jurisdiction and the Non-principal Jurisdictions, under an MRRS Decision Document dated December 23, 2008, by the Ontario Securities Commission as principal regulator for the decision (the Original Decision).

11. Pursuant to an internal reorganization effective November 1, 2009 involving SCICL, the Filer and certain of their affiliates, the portfolio management and investment fund management activities carried on by SCICL, SSI and/or SCI (except for the portfolio management activities SCI carries on as an IIROC member) prior to November 1, 2009 will be transferred to and carried on by the Filer as of November 1, 2009. As a result of this reorganization, neither SCICL, SSI nor SCI will, as of November 1, 2009, be relying on the relief granted under the Original Decision and the Filer requires the Requested Related Person Purchase Relief as the Original Decision is not available to the Filer.

12. The Filer is, to the best of its knowledge, not in default of the securities legislation of any jurisdiction of Canada.

Decision

Related Shareholder Relief and Related Party Relief

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 is that the Related Shareholder Relief and Related Party Relief is granted to permit the Filer to purchase and hold non-exchange traded debt securities, other than asset backed commercial paper securities, with a term to maturity of 365 days or more, issued by a Related Person in a Primary Offering on behalf of the Filer Funds on the conditions that:

(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Filer Fund;

(b) at the time of the purchase the IRC of the Filer Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;

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

(d) the size of the Primary Offering is at least $100 million;

(e) at least 2 purchasers who are independent arm's-length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 -- Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;

(f) no Filer Fund shall participate in the Primary Offering if following its purchase the Filer Fund would have more than 5% of its net assets invested in non-exchange traded debt securities of the Related Person;

(g) no Filer Fund shall participate in the Primary Offering if following its purchase the Filer Fund together with related Filer Funds will hold more than 20% of the securities issued in the Primary Offering;

(h) the price paid for the securities by a Filer Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's length purchasers who participate in the Primary Offering; and

(i) no later than the time the Filer Fund files its annual financial statements, the Filer files with the securities regulatory authority or regulator the particulars of any such investments.

This decision will expire on the coming into force of any securities legislation relating to fund purchases of Related Person debt securities in a Primary Offering.

This decision is effective November 1, 2009.

"David L. Knight"
Commissioner
Ontario Securities Commission
 
"Mary G. Condon"
Commissioner
Ontario Securities Commission

Related Issuer Relief

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 is that the Related Issuer Relief is granted to permit the Filer to purchase and hold non-exchange traded debt securities, other than asset backed commercial paper securities, with a term to maturity of 365 days or more, issued by a Related Person in a Primary Offering on behalf of the Filer Funds on the conditions that:

(j) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Filer Fund;

(k) at the time of the purchase the IRC of the Filer Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;

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

(m) the size of the Primary Offering is at least $100 million;

(n) at least 2 purchasers who are independent arm's-length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 -- Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;

(o) no Filer Fund shall participate in the Primary Offering if following its purchase the Filer Fund would have more than 5% of its net assets invested in non-exchange traded debt securities of the Related Person;

(p) no Filer Fund shall participate in the Primary Offering if following its purchase the Filer Fund together with related Filer Funds will hold more than 20% of the securities issued in the Primary Offering;

(q) the price paid for the securities by a Filer Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's length purchasers who participate in the Primary Offering; and

(r) no later than the time the Filer Fund files its annual financial statements, the Filer files with the securities regulatory authority or regulator the particulars of any such investments.

This decision will expire on the coming into force of any securities legislation relating to fund purchases of Related Person debt securities in a Primary Offering.

This decision is effective November 1, 2009.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission