In the Matter of Scotia Asset Management LP, 2009 CanLII 66626

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), s. 111(2)(a), 111(2)(c)(ii) and 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

(the Jurisdiction)

AND

(the Filer)

AND

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)

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.

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

2The 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.

3The 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.

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

5The 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.

6Section 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.

7The 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.

8The 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.

9Each 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.

10Each 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.

11If 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.

12The 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).

13Pursuant 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.

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

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 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"

David L. Knight

Commissioner

Ontario Securities Commission

"Mary G. Condon"

Mary G. Condon

Commissioner

Ontario Securities Commission

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

(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"

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(r) 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(tm) 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

Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Relief from s. 111 and 118(2)(a) of the Act granted to permit applicants to purchase debt securities of related entities in the secondary market on behalf of mutual funds they manage – relief conditional on IRC approval and compliance with pricing requirements.

Applicable Legislative Provisions

Securities Act (Ontario), section 111(2)(a), 111(2)(c)(ii), 113, 118(2)(a), and 121.

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

Background

Interpretation

Representations

Decision

Related Shareholder and Related Party Relief

Related Issuer Relief

SCHEDULE A

Headnote