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 secondary 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

THE MUTUAL FUNDS

listed in Schedule A and any mutual funds subject

to National Instrument 81-102 Mutual Funds

(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 of the principal regulator (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, from purchasing a security of any 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:

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

(ii) in respect of the Related Shareholder Relief and Related Party Relief, the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (M1 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 M1 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 Territory.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions (NI 14-101), 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 File 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, either as a principal strategy in achieving its investment objective or as a temporary strategy pending the purchase of other securities.

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

5. The Filers previously obtained Related Shareholder Relief, Related Party Relief and Related Issuer Relief (the Existing Related Person Relief) so that a Filer Fund of the Filer could invest in common shares of Related Persons of the Filer.

6. Section 6.2 of NI 81-107 provides an exemption from the prohibitions comprising the Requested Related Person Securities 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 Filers are not listed and traded.

7. The Filer is restricted from purchasing and holding non-exchange-traded securities of Related Persons on behalf of the Filer Funds. Such Related Persons (in particular those that are Canadian banks) are issues 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.

8. 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 issued by a Related Person.

9. Each purchase of non-exchange traded securities of a Related Person will occur in the secondary market and not under primary distributions or treasury offerings of a Related Person.

10. Each non-exchange traded security purchased by a Filer Fund pursuant to the Requested Related Person Securities Relief will be a debt security 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.

11. If a Filer Fund's purchase of non-exchange traded securities issued by a Related Person involves an interfund trade with another fund to which NI 81-107 applies, the provisions of section 6.1(2) of NI 81-107 will apply to such transaction.

12. 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 May 22, 2008, by the Ontario Securities Commission as principal regulator for the decision (the Original Decision).

13. Pursuant to an internal reorganization effective November 1, 2009 involving SCICL, the Filer and certain of their affiliates, the portfolio management and investment fund manager 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 Securities Relief as the Original Decision is not available to the Filer.

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

Decision

Related Shareholder 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 Related Person debt securities in the secondary market on behalf of the Filer Funds on the condition that:

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

(b) 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 price payable for the security is not more than the ask price of the security;

(e) the ask price of the security is determined as follows:

(i) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or

(ii) if the purchase does not occur on a marketplace,

(A) the Filer Fund may pay the price for the security at which an independent, arm's length seller is willing to sell the security, or

(B) if the Filer Fund does not purchase the security from an independent, arm's length seller, the Filer Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm's length purchaser or seller and not pay more than that quote;

(f) the transaction complies with any applicable "market integrity requirements"; and

(g) 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 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 Related Person debt securities in the secondary market on behalf of the Filer Funds on the condition that:

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

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

(j) 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;

(k) the price payable for the security is not more than the ask price of the security;

(l) the ask price of the security is determined as follows:

(i) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or

(ii) if the purchase does not occur on a marketplace,

(A) the Filer Fund may pay the price for the security at which an independent, arm's length seller is willing to sell the security, or

(B) if the Filer Fund does not purchase the security from an independent, arm's length seller, the Filer Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm's length purchaser or seller and not pay more than that quote.

(m) the transaction complies with any applicable "market integrity requirements"; and

(n) 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 is effective November 1, 2009

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

 

SCHEDULE A

Scotia T-Bill Fund
Scotia Premium T-Bill Fund
Scotia Money Market Fund
Scotia U.S. $ Money Market Fund
Scotia Mortgage Income Fund
Scotia Canadian Income Fund
Scotia Cassels Short-Mid Government Bond Fund
Scotia Cassels Canadian Corporate Bond Fund
Scotia U.S. $ Bond Fund
Scotia Global Bond Fund
Scotia Diversified Monthly Income Fund
Scotia Canadian Balanced Fund
Scotia Cassels Advantaged Income Fund
Scotia Canadian Tactical Asset Allocation Fund
Scotia Canadian Dividend Fund
Scotia Cassels Canadian Equity Fund
Scotia Canadian Blue Chip Fund
Scotia Canadian Growth Fund
Scotia Canadian Small Cap Fund
Scotia Resource Fund
Scotia Cassels North American Equity Fund
Scotia Cassels U.S. Equity Fund
Scotia U.S. Growth Fund
Scotia U.S. Value Fund
Scotia International Value Fund
Scotia Cassels International Equity Fund
Scotia European Fund
Scotia Pacific Rim Fund
Scotia Latin American Fund
Scotia Global Growth Fund
Scotia Global Small Cap Fund
Scotia Global Opportunities Fund
Scotia Global Climate Change Fund
Scotia Canadian Bond Index Fund
Scotia Canadian Index Fund
Scotia U.S. Index Fund
Scotia CanAm® Index Fund
Scotia Nasdaq Index Fund
Scotia International Index Fund
Scotia Selected Income & Modest Growth Portfolio
Scotia Selected Balanced Income Growth Portfolio
Scotia Selected Moderate Growth Portfolio
Scotia Selected Aggressive Growth Portfolio
Scotia Partners™ Income & Modest Growth Portfolio
Scotia Partners Balanced Income & Growth Portfolio
Scotia Partners Moderate Growth Portfolio
Scotia Partners Aggressive Growth Portfolio
Scotia Vision Conservative 2010 Portfolio
Scotia Vision Aggressive 2010 Portfolio
Scotia Vision Conservative 2015 Portfolio
Scotia Vision Aggressive 2015 Portfolio
Scotia Vision Conservative 2020 Portfolio
Scotia Vision Aggressive 2020 Portfolio
Scotia Vision Conservative 2030 Portfolio
Scotia Vision Aggressive 2030 Portfolio
Scotia Bond Fund
Scotia INNOVA Income Portfolio
Scotia INNOVA Balanced Income Portfolio
Scotia INNOVA Balanced Growth Portfolio
Scotia INNOVA Growth Portfolio
Scotia INNOVA Maximum Growth Portfolio
Pinnacle Short Term Income Fund
Pinnacle Income Fund
Pinnacle High Yield Income Fund
Pinnacle American Core-Plus Bond Fund
Pinnacle Global Real Estate Securities Fund
Pinnacle Strategic Balanced Fund
Pinnacle Canadian Value Equity Fund
Pinnacle Canadian Mid Cap Value Equity Fund
Pinnacle Canadian Growth Equity Fund
Pinnacle Canadian Small Cap Equity Fund
Pinnacle American Value Equity Fund
Pinnacle American Mid Cap Value Equity Fund
Pinnacle American Large Cap Growth Equity Fund
Pinnacle American Mid Cap Growth Equity Fund
Pinnacle International Equity Fund
Pinnacle International Small to Mid Cap Value Equity Fund
Pinnacle Global Equity Fund
Pinnacle Balanced Income Portfolio
Pinnacle Conservative Balanced Growth Portfolio
Pinnacle Balanced Growth Portfolio
Pinnacle Conservative Growth Portfolio
Pinnacle Growth Portfolio