Headnote

NP 11-203 - Exemption from dealer registration requirement and prospectus requirement with respect to certain trades in, and distributions of, units of proprietary pooled mutual funds, made by employer to or for the benefit of members of its defined contribution pension and savings plans - Relief granted on standard terms and conditions of CAP Exemption, although certain of the employer’s savings plans, including unregistered savings plans and RRIFs, are not CAPs - Some of the investment options will not fully complying with Part 2 of NI 81-102 because of their fund-of-fund structure.

Statutes Cited

Securities Act, R.S.O. 1990, c.S.5, as amended, sections 25(1)(a), 53, 74(1).

Rules Cited

National Instrument 81-102 – Mutual Funds

National Instrument 45-106 – Prospectus and Registration Exemptions

Published Documents Cited

Amendments to National Instrument 45-106 – Registration and Prospectus Exemption for Certain Capital Accumulation Plans, October 21, 2005 (2005), 25 OSCB 8681.

Joint Forum of Financial Market Regulators, Guidelines for Capital Accumulation Plans, May 28, 2004.

August 12, 2008

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 Nortel Networks Limited (“Nortel”)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Nortel for a decision under the securities legislation of the Jurisdiction (“the Legislation”) of the principal regulator for an exemption from the dealer registration requirement in paragraph 25(1)(a) of the Securities Act (Ontario) (the “Act”) (the “Dealer Registration Requirement”) and the prospectus requirement in section 53 of the Act (the “Prospectus Requirement”) with respect to certain trades in, and distributions of, units of investment funds (the “Funds”, as set out in paragraph 10 below), made by Nortel, or officers or employees of Nortel acting on its behalf, to or for the benefit of Plan Members (as defined below) in respect of assets held in the DC Plans (as defined below) (the “Exemption Sought”).

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

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

(b) Nortel 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 each of the provinces and territories of Canada (the “Passport Jurisdictions”).

Interpretation

Defined terms contained in National Instrument 14-101 – Definitions and MI 11-102 have the same meanings in this decision (“Decision”) unless they are otherwise defined in this Decision.

Representations

This Decision is based on the following facts represented by Nortel:

1. Nortel is a corporation incorporated under the Canada Business Corporations Act. Its executive head office is located in Toronto, Ontario. Nortel and its affiliates have approximately 6793 employees (as of December 31, 2007) across Canada. Nortel sponsors both defined benefit and defined contribution retirement and savings plans for its employees, employees of its affiliates and former employees of Nortel and its affiliates.

2. Nortel is not in default of the securities legislation in any of the Passport Jurisdictions.

3. Nortel’s retirement and savings plans include the following:

(a) The NNL Managerial and Non-Negotiated Pension Plan (combination defined benefit/defined contribution), the NNL Money Purchase Pension Plan (defined contribution) and the NNL Negotiated Pension Plan (combination defined benefit/defined contribution), which are registered pension plans under the Pension Benefits Act (Ontario) and the Income Tax Act (Canada) (the “Registered Pension Plans”).

(b) The Nortel Networks Non-Negotiated Deferred Profit Sharing Plan, the Negotiated Deferred Profit Sharing Plan, the Non-Negotiated Group Retirement Savings Plan, the Negotiated Group Retirement Savings Plan, the Sun Life Financial Trust RRSPs, the Locked-in RRSPs and the Sun Life Financial Sponsored Group Choices RRSP and Locked-in RRSP (the “Registered Savings Plans”), which are registered plans under the Income Tax Act (Canada). The Registered Savings Plans operate under the umbrella of the Nortel Networks Investment Plan for Employees – Canada (the “Investment Plan”) and the Nortel Networks Savings Plan for Employees – Canada (the “Savings Plan”) for the non-unionized and unionized employees respectively.

(c) The Nortel Networks After Tax Savings Vehicle and the Nortel Networks After Tax Savings Plan are both after-tax savings vehicles which operate under the umbrella of the Investment Plan (for non-unionized employees) or the Savings Plan (for unionized employees) (the “Unregistered Savings Plans”).

(d) The Nortel Group Sponsored LIF/RIFs are registered retirement income funds under the Income Tax Act (Canada) (the “RRIFs”).

In addition to the defined contribution components of the Registered Pension Plans, the Registered Savings Plans, the Unregistered Savings Plans and the RRIFs described above (collectively, the “DC Plans” or the “Plans”), Nortel sponsors the defined benefit components of the Registered Pension Plans, and a Health and Welfare Trust which funds health care benefits provided to certain employees of Nortel and its affiliates.

4. The assets in the DC Plans all stem from contributions and investment returns earned on contributions made to the Plans by Nortel, its affiliates, or Plan Members as permitted by the Plans.

5. Although the level of employer and employee contributions vary from Plan to Plan, Nortel and its affiliates and their employees each make contributions toward retirement and savings as follows:

(a) Under the defined contribution components of the Registered Pension Plans, the “Employer”, being Nortel or an affiliate, makes a minimum contribution of 2% of an employee’s earnings for its employees who are members of those Plans. Employees may make additional contributions which attract further matching contributions by Nortel (up to certain limits).

(b) Under the Investment Plan and the Savings Plan, employees may elect to make basic contributions of between 2% and 6% of their earnings as well as additional contributions. The Employer makes contributions equal to 50% of the employee’s basic contributions. Generally, employee contributions are directed to the RRSP or the SunLife Financial Trust RRSP and the Employer’s contributions are directed to the DPSP. Any contributions that exceed Income Tax Act (Canada) maximums are directed to the Unregistered Savings Plans.

(c) The RRIFs are established for former employees of the Employers to hold any assets that they, at their option, elect to transfer from the Registered Pension Plans, the Registered Savings Plans or other registered arrangements. No other contributions are permitted to be made to the RRIFs.

6. Members of the DC Plans (“Plan Members”) include current or former employees of Nortel or its affiliates who participate in one or more of the Plans in accordance with their terms, and may also include

(a) a spouse of a current or former employee, or former spouse in the case of a marriage breakdown; or

(b) a trustee, custodian or administrator who is acting on behalf of the Plan Member, or for the Plan Member’s benefit, or on behalf of or for the benefit of the Plan Member,

that has assets in a DC Plan, and includes a person that is eligible to participate in one or more of the DC Plans. Apart from the individuals noted above, no individual who is not a current or former employee of Nortel or an affiliate, may participate in any of the DC Plans.

7. The management and administration of the DC Plans are the responsibility of Nortel. These responsibilities are discharged by the Board of Directors of Nortel acting through the Pension Fund Policy Committee, Pension Investment Committee, Retirement Plan Committee and Nortel’s Treasury Department.

8. Except as specified below, each of the DC Plans is a “capital accumulation plan” (“CAP” or “CAP Plan”), as that term is defined under the proposed amendments to National Instrument 45-106, Prospectus and Registration Exemptions (the “Proposed CAP Exemption”), which were published by the Canadian Securities Administrators on October 21, 2005 and adopted in the form of a blanket exemption (the “Blanket Orders”) in each of the Jurisdictions other than Ontario, Québec, Newfoundland and Labrador, the Yukon and Nunavut:

(a) The Unregistered Savings Plans do not qualify as CAP Plans only on account of the fact that they are not tax-assisted vehicles. As set out above, the Unregistered Savings Plans are a component of Nortel’s Investment Plan and Savings Plan which allow Plan Members to accumulate monies that they would otherwise contribute to one or more of the Plans that are CAP Plans but for the maximum retirement savings limits imposed by the Income Tax Act (Canada). All Plan Members of the Unregistered Savings Plans are or were at one time also Plan Members of the Registered Savings Plans or the Registered Pension Plans.

(b) The RRIFs are comprised of monies originally invested in Plans that are CAP Plans or other registered plans earned from such monies but which are subsequently transferred to RRIFs in order to generate a retirement income after cessation of employment. All Plan Members of the RRIFs are former employees of Nortel or one of its affiliates and were at one time Plan Members of one or more of the other DC Plans or the defined benefit components of the Registered Pension Plans.

The assets of the Unregistered Savings Plans and RRIFs will be invested in the same manner as the other Plans (the Registered Pension Plans and the Registered Savings Plans) which do qualify as CAP Plans.

9. At present, the Plan Members, through a series of group annuity policies issued by a licensed insurer to Nortel or the trustee of the assets of the Registered Pension Plans or the Registered Savings Plans, have access to a variety of single-manager investment options that are managed (with the exception of GICs and the Nortel Stock Fund) by external investment managers using a segregated fund platform. Plan Members determine from this menu of investment options how their account(s) within each of the DC Plans will be invested. The approximately $3.2 billion in assets relating to the defined benefit components of the Registered Pension Plans are invested separately in a pension master trust under different investment mandates and using different investment managers.

10. Nortel proposes to restructure the investments made available under the Plans. Under the proposed structure (the “Proposed Structure”), Nortel would create common investment pools (the “Funds”). The Funds would consist of a series of target retirement date funds (“Target Date Funds”) plus a series of investment pools including active pools (“Active Pools”), each of which would be specific to a particular asset class (i.e., Canadian equity), and passive pools (“Passive Pools” , and collectively with the Target Date Funds and the Active Pools, the “Asset Pools”). The purpose of the Proposed Structure is to make a diversified range of investment alternatives available to all Plans, which would allow Plan Members to have access to the traditionally higher rates of returns, lower investment manager fees and flexibility regarding external investment manager replacement and investment expertise that are currently available in respect of the defined benefit components of the Registered Pension Plans. The Funds would be created for the investment of the assets of the Plans, defined benefit components of the Registered Pension Plans and the Health and Welfare Trust and not available to the public for investment.

11. Each Fund would be created pursuant to a declaration of trust and would be a mutual fund as defined under the Act. The Funds will not be prospectus qualified. A federally incorporated trust corporation registered under the Loan and Trust Corporations Act (Ontario) and which complies with the requirements in Part 6 of National Instrument 81-102 Mutual Funds (“NI 81-102”) would act as trustee and custodian of the Funds (the “Trustee”). Nortel would administer the Funds and, as administrator, would appoint registered portfolio advisers to manage the portfolios of the Asset Pools according to investment mandates determined by Nortel and set out in a statement of investment policies and procedures. Each portfolio adviser of the Asset Pools will be registered under the Act as an advisor in the subcategories of investment counsel and portfolio manager or will comply with section 7.3 of Ontario Securities Commission Rule 35-502 – Non-Resident Advisers. All trades in connection with the securities owned by each of the Funds would be effected through the Trustee.

12. The Plans will be managed and administered in accordance with the CAP Guidelines issued by the Joint Forum of Financial Market Regulators (the “CAP Guidelines”).

13. In respect of their account(s) under the DC Plans, Plan Members would have a well-diversified array of investment options made available to them. Specifically, Plan Members would be entitled to invest their account(s) in units of (i) one or more of the relevant Target Date Funds (as described below), and/or (ii) one or more of the Active Pools and/or Passive Pools. Accordingly, the only investment options available to Plan Members under the Proposed Structure will be the Funds. Plan members will however be allowed to continue to hold units in the Nortel Stock Fund and GICs (until the scheduled maturity dates) that were acquired prior to the implementation of the Proposed Structure.

14. The portfolio management for the Asset Pools would be delegated by Nortel to one or more external investment managers. All Funds would be valued on a daily basis and redemptions and transfers between Funds would be permitted daily, except that restrictions would be placed on trades within a single Fund occurring within the same month. Plan Members would not interact directly with the Trustee or the external investment managers for the Funds and would not be able to invest in the assets held in the Funds.

15. Each of the Target Date Funds will invest only in units of two or more of the Active and/or Passive Pools, with the particular asset mix for each Target Date Fund geared toward Plan Members with a particular expected retirement date.

16. Each of the Asset Pools will comply with Part 2 of NI 81-102 except that none of the Target Date Funds will comply with sections 2.1, 2.2(1)(a) and 2.5(2)(a) with respect to purchases by the Target Date Funds of securities issued by Active Pools and/or Passive Pools.

17. A Plan Member wishing to invest in a Target Date Fund would be expected to choose the Target Date Fund closest to his or her expected retirement date. If no investment choice is made by a Plan Member, then the Plan Member’s interest in the Plans will be invested in the Target Date Fund closest to his or her expected retirement date as the default.

18. Each Target Date Fund would be structured, in essence, as an asset allocation model, and the disclosure to Plan Members would outline the initial asset allocation for a Target Date Fund among the Active Pools and/or Passive Pools, as determined by a registered adviser, with the asset allocation varied (with the advice of the registered adviser) from time to time with particular regard to the proximity of the target/retirement date.

19. No management fees or incentive fees will be payable by a Target Date Fund that would duplicate a fee payable by an Active Pool and/or Passive Pool for the same service. No sales fees or redemption fees are payable by a Target Date Fund in relation to its purchases or redemptions of the securities of an Active Pool and/or Passive Pool.

20. In directing the investment of their account(s) amongst the Funds, the Plan Members would deal exclusively with, employees of Nortel, a record keeper (“Record Keeper”), and, should they wish, their own investment advisers. The Record Keeper, which is a “service provider” as defined in the Proposed CAP Exemption, would act as the registrar for the Plans, maintaining records of investment directions, net redemptions and acquisitions of interests in the Funds as they relate to the Plans, interfund transfers and benefit payments. The Record Keeper would also distribute Fund performance information and general educational principles governing the selection of Funds to Plan Members once Nortel has approved the communications.

21. A prospectus would not be issued in respect of the Funds. Plan Members however would receive information materials relevant to investment considerations as required by the Proposed CAP Exemption, including a written explanation of the terms and conditions of the Plans and Plan Members’ rights and duties under the Plans, an information statement regarding each of the Funds that describes at minimum a Fund’s name, investment objective, investment strategies or composition, risks associated with investing in the Funds, fees disclosure, performance information, current portfolio manager(s), information as to how a Plan Member can obtain more information about the Funds’ holdings and other information, semi-annual written account statements as well as access to electronic account statements at any time.

22. At least 60 days prior to the implementation of the Proposed Structure, Nortel will inform Plan Members about the Proposed Structure and provide to each Plan Member the information set out in paragraph 21 in connection with investment decisions the Plan Member will be required to make in respect of investments in the Funds.

23. All of the assets in the Funds would originate from the DC Plans except that assets of the defined benefit components of the Registered Pension Plans and the Health and Welfare Trust will also be invested in some or all of the Funds.

24. Under the Proposed Structure, the DC Plans themselves will remain in place but, instead of the current investment options, the Funds would become the only investment options available. The Plans would otherwise remain managed and administered by Nortel in accordance with the CAP Guidelines issued by the Joint Forum of Financial Market Regulators.

25. Under the Proposed Structure, units of the Funds would be issued pursuant to the Plans for the benefit of Plan Members and, accordingly, each such issue would be a distribution to which the dealer registration requirements and the prospectus requirements apply.

26. The issuance of units of the Funds would not technically comply with the registration and prospectus exemptions for CAP Plans under the Proposed CAP Exemption or the Blanket Orders in two respects: (i) the Unregistered Savings Plans and the RRIFs are not CAP Plans; and (ii) given the fund of fund structure, with Target Date Funds investing all of their portfolios in Active and/or Passive Pools, the Target Date Funds would not comply with Part 2 of NI 81-102 (a condition of the Proposed CAP Exemption) since the Asset Pools would not be prospectus qualified funds.

27. The oversight of the external investment managers, the Trustee, and the Record Keeper would be undertaken by Nortel for the Unregistered Savings Plans and RRIFs in the same manner as the oversight of these parties for purposes of the Registered Pension Plans and Registered Savings Plans. The same rigour, standards, and practices in overseeing the administration of the Funds and the Plans will therefore apply to the RRIFs and Unregistered Savings Plans.

28. In respect of the fund of fund structure, whereby Target Date Funds invest in Active and/or Passive Pools, the Target Date Funds would not technically meet several of the investment tests, including concentration restrictions and restrictions on the ownership of private mutual funds, contained in Part 2 of NI 81-102. However, as stated above, each of the Target Date Funds would only be investing in the Active Pools and/or Passive Pools, and the Active and Passive Pools would comply with Part 2 of NI 81‑102.

29. To the extent that the operation of the Plans does not comply technically with the Proposed CAP Exemption and the Blanket Orders, such as described above, it will comply with the spirit and intent: the Unregistered Savings Plans and RRIFs would be operated in the same manner as CAP Plans, and the Target Date Funds would be investing in the Active and/or Passive Pools which would in turn comply with the investment restrictions in Part 2 of NI 81‑102.

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 Exemption Sought is granted provided that the following conditions are satisfied:

1. Nortel:

(a) selects the Funds that Plan Members will be able to invest in under the Plans;

(b) establishes a policy, and provides Plan Members with a copy of the policy and any amendments to it, describing what happens if a Plan Member does not make an investment decision;

(c) provides Plan Members, in addition to any other information that Nortel believes is reasonably necessary for Plan Members to make investment decisions within the Plans, and unless that information has previously been provided, with the following information about each Fund the Plan Members may invest in:

(i) the name of the Fund;

(ii) the name of the manager of the Fund and its portfolio advisers;

(iii) the fundamental investment objective of the Fund;

(iv) the investment strategies of the Fund or the types of investments the Fund may hold;

(v) a description of the risks associated with investing in the Fund;

(vi) where a Plan Member can obtain more information about each Fund's portfolio holdings; and

(vii) where a Plan Member can obtain more information generally about each Fund, including any continuous disclosure;

(d) provides Plan Members with a description and amount of any fees, expenses and penalties relating to the Plans that are borne by the Plan Members, including:

(i) any costs that must be paid when a Fund is bought or sold;

(ii) costs associated with accessing or using any of the investment information, decision-making tools or investment advice provided by Nortel;

(iii) Fund management fees;

(iv) Fund operating expenses;

(v) record keeping fees;

(vi) any costs of transferring among investment options, including penalties, book and market value adjustments and tax consequences;

(vii) account fees; and

(viii) fees for services provided by service providers,

provided that Nortel may disclose the fees, penalties and expenses on an aggregate basis, if Nortel discloses the nature of the fees, expenses and penalties, and the aggregated fees do not include fees that arise because of a choice that is specific to a particular Plan Member;

(e) at least annually, provides Plan Members with performance information about each Fund the Plan Members may invest in, including:

(i) the name of the Fund for which the performance is being reported;

(ii) the performance of the Fund, including historical performance for one, three, five and ten years if available;

(iii) a performance calculation that is net of investment management fees and Fund expenses;

(iv) the method used to calculate the Fund's performance return calculation, and information about where a Plan Member could obtain a more detailed explanation of that method;

(v) the name and description of a broad-based securities market index, selected in accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, for the Fund, and corresponding performance information for that index; and

(vi) a statement that past performance of the Fund is not necessarily an indication of future performance;

(f) at least annually, informs Plan Members if there were any changes in the choice of Funds that Plan Members could invest in and where there was a change, provided information about what Plan Members needed to do to change their investment decision, or make a new investment;

(g) provides Plan Members with investment decision-making tools that Nortel reasonably believes are sufficient to assist them in making an investment decision within the Plans;

(h) provides the information required by paragraphs (b), (c), (d) and (g) prior to the Plan Member making an investment decision under any of the Plans; and

(i) if Nortel makes investment advice from a registrant available to Plan Members, Nortel must provide Plan Members with information about how they can contact the registrant;

2. The Asset Pools comply with Part 2 of NI 81-102 except that none of the Target Date Funds will comply with sections 2.1, 2.2(1)(a) and 2.5(2)(a) with respect to purchases by the Target Date Funds of securities issued by Active Pools and/or Passive Pools;

3. Before the first time a Fund relies on this Decision, the Fund files a notice in the form found in Appendix C of the Proposed CAP Exemption in each jurisdiction in which the Fund expects to distribute its securities; and

4. (a) the Dealer Registration Relief will terminate upon the coming into force in NI 45‑106, proposed National Instrument 31-103 – Registration Requirements or another instrument, of a dealer registration exemption for trades in a security of a mutual fund to a CAP, or 60 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to provide such a dealer registration exemption; and

(b) the Prospectus Relief will terminate upon the coming into force in NI 45-106 or another instrument, of a prospectus exemption for trades in a security of a mutual fund to a CAP, or 60 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to provide such a prospectus exemption.

“Carol S. Perry” “David L. Knight”

Commissioner Commissioner

ONTARIO SECURITIES COMMISSION ONTARIO SECURITIES COMMISSION