RBC Global Asset Management Inc. (Re), 2011 CanLII 85758

Headnote

National Policy 11-203 – Process for Exemptive Relief applications in Multiple Jurisdictions – Relief granted from multi-layering prohibition in paragraph 2.5(2)(b) of NI 81-102 to permit mutual funds to invest in underlying mutual funds which in turn obtain exposure to reference mutual funds through a forward agreement – All funds managed by a common manager – Underlying funds, which track reference funds on a one-to-one basis, aim to provide exposure to a portfolio of fixed-income securities – Three-tier structure is transparent and intended to provide top mutual funds with exposure to fixed income on tax efficient basis – Underlying funds and reference funds not intending to renew simplified prospectus after first prospectus lapses – Underlying funds and reference funds will remain reporting issuers in the same jurisdictions as the top mutual funds after their respective prospectus lapses and continue to be subject to the requirements of NI 81-102, NI 81-106 and NI 81-107 – Top mutual funds and underlying funds granted relief from requirements of paragraphs 2.5(2)(a) and (c) of NI 81-102 to permit their respective continued investment in the underlying funds and reference funds – Underlying funds granted relief from seed capital requirements in subsection 3.1(1) of NI 81-102– Mutual funds granted relief from certain restrictions in National Instrument 81-102 Mutual Funds on securities lending transactions, including (i) the 50% limit on lending; (ii) the requirement to use the fund’s custodian or sub-custodian as lending agent; and (iii) the requirement to hold the collateral during the course of the transaction – Mutual funds invest their assets in a basket of Canadian equity securities that are pledged to a Counterparty for performance of the funds’ obligations under forward contracts giving the funds exposure to underlying interests – Mutual funds wanting to lend 100% of the basket of Canadian equity securities – not practical for custodian to act as securities lending agent as it does not have control over the Canadian equity securities – counterparties must release its security interest in the Canadian equity securities in order to allow the funds to lend such securities, provided the funds grant the Counterparties a securities interest in the collateral held by the fund for the loaned securities – National Instrument 81-102 Mutual Funds

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 2.2(1)(a), 2.5(2)(a), 2.5(2)(b), 2.5(2)(c), 2.12(1)1, 2.12(1)2, 2.12(1)12, 2.12(3), 2.15, 2.16, 3.1(1), 6.8(5), and section 19.1.

December 21, 2011

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 RBC GLOBAL ASSET MANAGEMENT INC. (the Filer)

AND

IN THE MATTER OF PHILLIPS, HAGER & NORTH TOTAL RETURN BOND CAPITAL CLASS (the Total Return Fund)

AND

IN THE MATTER OF RBC HIGH YIELD BOND CAPITAL CLASS (the High Yield Fund and, together with the Total Return Fund, the Capital Class Funds)

AND

IN THE MATTER OF TOTAL RETURN BOND LP (the Total Return Underlying Fund)

AND

IN THE MATTER OF HIGH YIELD BOND LP (the High Yield Underlying Fund)

Decision

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction (the Legislation) exempting:

(a) the Capital Class Funds and such other similar open-end fixed income investment classes of RBC Corporate Class Inc. (the Corporation) of which the Filer or an affiliate thereof will be the investment fund manager in the future (the Future Funds and, together with the Capital Class Funds, the Funds) from paragraph 2.5(2)(b) of National Instrument 81-102 - Mutual Funds (NI 81-102) (the Three-Tier Relief), to permit each Fund to invest in units of an Underlying Fund (as defined below);

(b) the Funds and the Total Return Underlying Fund, the High Yield Underlying Fund and any such other similar limited partnerships of which the Filer or an affiliate thereof will be the investment fund manager in the future (the Future Underlying Funds and, together with the Total Return Underlying Fund and the High Yield Underlying Fund, the Underlying Funds) from subsection 2.1(1) and paragraphs 2.2(1)(a), 2.5(2)(a) and 2.5(2)(c) of NI 81-102 (collectively, the Non-Prospectused Investing Relief) to permit:

(i) each Fund to invest in units of an Underlying Fund;

(ii) the Total Return Underlying Fund to enter into specified derivatives that provide exposure to the return of units of Phillips, Hager & North Total Return Bond Trust (the Total Return Reference Fund);

(iii) the High Yield Underlying Fund to enter into specified derivatives that provide exposure to the return of units of RBC High Yield Bond Trust (the High Yield Reference Fund); and

(iv) the Future Underlying Funds to enter into specified derivatives that provide exposure to the return of units of another RBC mutual fund established as a trust and, together with the Total Return Reference Fund and the High Yield Reference Fund, the Reference Funds);

(c) the Filer from subsection 3.1(1) of NI 81-102 (the Seed Capital Relief) to permit the filing of a simplified prospectus for an Underlying Fund notwithstanding that the investment required under paragraph 3.1(a) of NI 81-102 will be provided, and the securities beneficially owned, by a fund and not by one of, or a combination of, the persons named in paragraph 3.1(1)(a);

(d) the Underlying Funds, together with all other mutual funds now or in the future managed by the Filer in respect of which the representations set out below under “Facts – Securities Lending Funds” are applicable (collectively, the Securities Lending Funds), from:

(i) paragraph 2.12(1)1 of NI 81-102 to permit each Securities Lending Fund to enter into securities lending transactions that will not be administered in compliance with all the requirements of sections 2.15 and 2.16 of NI 81-102;

(ii) paragraph 2.12(1)2 of NI 81-102 to permit each Securities Lending Fund to enter into written agreements pertaining to its securities lending transactions that implement the requirements of section 2.12 of NI 81-102, except as set out herein;

(iii) paragraph 2.12(1)12 of NI 81-102 to permit each Securities Lending Fund to enter into securities lending transactions in which the aggregate market value of all securities loaned by the Securities Lending Fund exceeds 50 percent of the total assets of the Securities Lending Fund;

(iv) subsection 2.12(3) of NI 81-102 to permit each Securities Lending Fund, during the term of a securities lending transaction, to not hold or to dispose of any non-cash collateral delivered to it as a collateral in the transaction;

(v) section 2.15 of NI 81-102 to permit each Securities Lending Fund to appoint an agent (the Agent), other than the custodian or sub-custodian of the Securities Lending Fund, as agent for administering the securities lending transactions entered into by the Securities Lending Fund;

(vi) section 2.16 of NI 81-102 to the extent this section contemplates that securities lending transactions be entered into through an agent appointed under section 2.15 of NI 81-102; and

(vii) subsection 6.8(5) of NI 81-102 to permit the collateral delivered to each Securities Lending Fund in connection with a securities lending transaction to not be held under the custodianship of the custodian or a sub-custodian of the Securities Lending Fund

(collectively, the Securities Lending Relief).

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) 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, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (collectively, the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 - Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer.

A. Filer

1. The Filer is a corporation amalgamated under the Canada Business Corporations Act. The head office of the Filer is located in Toronto, Ontario.

2. The Filer is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the securities legislation of Ontario (the Jurisdiction) and each Passport Jurisdiction and is registered under the Securities Act (Ontario) as an investment fund manager.

3. The Filer or an affiliate thereof is or will be the investment fund manager of the Funds, the Reference Funds, the Underlying Funds and the Securities Lending Funds.

4. None of the Filer, the Funds, the Underlying Funds or the Securities Lending Funds is in default of any of its obligations under the securities legislation of the Jurisdiction or any Passport Jurisdiction.

B. Funds

5. Each Capital Class Fund is, and each Future Fund will be, an open-end fixed income investment class of the Corporation, a mutual fund corporation incorporated under the laws of Canada.

6. Each Fund will be a reporting issuer under the securities legislation of the Jurisdiction and each Passport Jurisdiction.

7. Each Fund is or will be subject to all of the requirements of National Instrument 81-101 - Mutual Fund Prospectus Disclosure (NI 81-101), NI 81-102, National Instrument 81-106 - Investment Fund Continuous Disclosure (NI 81-106) and National Instrument 81-107 - Independent Review Committee for Investment Funds (NI 81-107 and, together with NI 81-102 and NI 81-106, the Mutual Fund Instruments), subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities.

8. Each Fund’s investment objectives will permit the Fund to invest, directly or indirectly, in securities that are fixed income in nature. Each Fund’s investment objectives will also permit the Fund to make such investments either:

(a) directly, by purchasing and holding such securities; or

(b) indirectly, through investments in other mutual funds.

C. Underlying Funds

9. Each Underlying Fund will be a newly-created mutual fund established as a limited partnership under the laws of the Jurisdiction to which NI 81-101 and the Mutual Fund Instruments apply, subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities. Each Underlying Fund will be a reporting issuer under the securities legislation of the Jurisdiction and each Passport Jurisdiction.

10. Each Underlying Fund will be organized as a limited partnership (and not as a trust) because there is no intention to distribute securities of an Underlying Fund to investors other than to the Corporation in respect of one or more classes of mutual fund shares of the Corporation. An Underlying Fund organized as a trust is not tax efficient in these circumstances because to obtain flow-through treatment of income for tax purposes, a trust must have at least 150 unitholders. A limited partnership, however, can provide flow-through tax treatment, without the necessity of having 150 holders of its securities.

11. The Filer is of the view that organizing an Underlying Fund as a limited partnership (as opposed to a trust) does not pose any significant, incremental risks to the shareholders of the Corporation.

12. Pursuant to applicable partnership law, a limited partner may lose its limited liability by taking part in the control of the business of a limited partnership. However, the Filer will act as the investment fund manager and portfolio manager of both the Corporation and each Underlying Fund and as such will direct the business, operations and affairs of each entity. The Filer will clarify in its relationships on behalf of an Underlying Fund that it is not acting on behalf of any limited partner when acting as investment fund manager or portfolio manager of the Underlying Fund. Since the Corporation will not take part in the control of the business of the Underlying Funds, then there should not be a risk of the Corporation losing its limited liability on this basis.

13. It is also the case that, where a limited partner has received the return of all or part of its contribution to a limited partnership, the limited partner will be liable to the limited partnership or, where the limited partnership is dissolved, to its creditors for any amount, not in excess of the amount returned with interest, necessary to discharge the liabilities of the limited partnership to creditors who extended credit or whose claims otherwise arose before the return of the contribution. Given the proposed activities of the Underlying Funds, however, all of which will be subject to the Mutual Fund Instruments (subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities), it is difficult to envisage circumstances in which an Underlying Fund will not have the assets necessary to discharge its liabilities. Further, the Filer does not intend to return contributions that would lead to the foregoing type of liability. Moreover, any contracts that an Underlying Fund enters will contain a limitation of liability, pursuant to which the counterparty to the contract will agree that its only recourse will be to the assets of the Underlying Fund. While this limitation will not apply in the circumstances described above, for the foregoing reasons the Filer does not consider this to be a significant risk. In any event, as the Corporation is a corporation, the liability of its shareholders will be limited to the amount of their investment in the Corporation.

14. The investment objectives of the Total Return Underlying Fund are to generate income and provide stability of capital through exposure primarily to a well-diversified portfolio of fixed-income securities issued by Canadian governments and corporations. The Total Return Underlying Fund will obtain such exposure by (a) entering into one or more specified derivatives (collectively, the Total Return Forward Agreement) with one or more financial institutions or affiliates thereof (each, a Counterparty) to gain exposure to the Total Return Reference Fund or (b) by investing directly in fixed-income securities or units of the Total Return Reference Fund. All aspects of the Total Return Forward Agreement will comply with the requirements of NI 81-102 relating to the use of specified derivatives by mutual funds, subject to any exemptions therefrom that may be granted by the securities regulatory authorities.

15. The investment objectives of the High Yield Underlying Fund are to provide a high level of income with the potential for modest capital growth through exposure primarily to higher yielding corporate debt securities issued by Canadian and U.S. corporations. The High Yield Underlying Fund will obtain such exposure by (a) entering into one or more specified derivatives (collectively, the High Yield Forward Agreement) with one or more Counterparties to gain exposure to the High Yield Reference Fund or (b) by investing directly in fixed-income securities or units of the High Yield Reference Fund. All aspects of the High Yield Forward Agreement will comply with the requirements of NI 81-102 relating to the use of specified derivatives by mutual funds, subject to any exemptions therefrom that may be granted by the securities regulatory authorities.

16. The terms of each Underlying Fund Forward Agreement will provide that a forward transaction thereunder may be partially settled at the request of the Underlying Fund to fund distributions, redemptions of units and expenses and other liabilities of the Underlying Fund. The Underlying Fund will use the proceeds from such a partial pre-settlement to fund distributions, redemptions or other liabilities.

17. The investment objectives of each Future Underlying Fund will be determined in the future and will be consistent with the investment objectives of the related Reference Fund and Fund. The investment strategy of each Future Underlying Fund will contemplate the use of specified derivatives substantially on the same basis and the terms of the derivative contracts and arrangements with respect to credit ratings and termination will be substantially the same, as is described above for the Total Return Underlying Fund and the High Yield Underlying Fund.

18. Each Underlying Fund will be a mutual fund that has adopted a fundamental investment objective to link its performance to its related Reference Fund.

D. Reference Funds

19. Each Reference Fund will be a newly-created mutual fund established as a trust under the laws of the Jurisdiction to which NI 81-101 and the Mutual Fund Instruments apply, subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities. Each Reference Fund will be a reporting issuer under the securities legislation of the Jurisdiction and each Passport Jurisdiction. The Filer will be the trustee of each Reference Fund.

20. The investment objectives of the Total Return Reference Fund are to generate income and provide stability of capital. The Total Return Reference Fund invests in a well diversified portfolio of fixed income securities issued by Canadian governments and corporations.

21. The investment objectives of the High Yield Reference Fund are to provide a high level of income with the potential for modest capital growth. The High Yield Reference Fund invests primarily in higher yielding corporate debt securities issued by Canadian and U.S. corporations.

22. The investment objectives of each Future Reference Fund will be determined in the future and will be consistent with the investment objectives of the related Underlying Fund and Fund.

E. Seed Capital of the Underlying Funds

23. The Filer or an affiliate will acquire mutual fund shares of each Fund that intends to make an investment in an Underlying Fund in an amount of not less than $300,000 (the Fund Seed Capital). The Fund will then make an investment in units of the Underlying Fund in an amount of not less than $150,000 (the Underlying Fund Seed Capital). The Fund will not redeem any of the mutual fund shares of the Fund that relate to the Fund Seed Capital and an Underlying Fund will not redeem any of the units of the Underlying Fund that relate to the Underlying Fund Seed Capital until at least $500,000 has been received by the Fund from investors other than the Filer or an affiliate.

F. Distribution of Units of the Reference Funds and the Underlying Funds

24. Notwithstanding that the Reference Funds and the Underlying Funds will be reporting issuers, units of the Reference Funds and the Underlying Funds will not be available for purchase by retail investors in Canada. Units of the Underlying Funds will be available for purchase only by the Funds and units of the Reference Funds will be available for purchase only by “accredited investors” (as defined in National Instrument 45-106 - Prospectus and Registration Exemptions).

25. None of the Reference Funds or the Underlying Funds intends to renew its prospectus after the first lapse date thereof. After the initial prospectus lapses, each Reference Fund and Underlying Fund intends to continue distributing its units only on a basis that is exempt from the prospectus requirements in Canadian securities legislation (in the case of an Underlying Fund, by distributing its units only to the Funds and in the case of a Reference Fund, by distributing its units only to accredited investors). At that time, each Reference Fund and Underlying Fund will cease to be subject to the requirements of NI 81-101.

26. After the initial prospectus of each Reference Fund and related Underlying Fund lapses, such Reference Fund and Underlying Fund will remain reporting issuers in each jurisdiction in which a Fund investing in such Underlying Fund is a reporting issuer, and will accordingly remain subject to all of the requirements of the Mutual Fund Instruments, except as permitted by the Exemption Sought or to the extent that it may have been granted or will be granted any additional discretionary relief from any such requirements. A Fund will not purchase or hold units of an Underlying Fund if the Underlying Fund or the Reference Fund related thereto ceases to be a reporting issuer in each of the jurisdictions in which the Fund is a reporting issuer and an Underlying Fund will not purchase or hold units of, or enter into a Total Return Forward Agreement in respect of units of, a Reference Fund if the Reference Fund ceases to be a reporting issuer in each of the Jurisdictions in which the Underlying Fund is a reporting issuer.

G. Investments by the Funds and the Underlying Funds

27. The Filer believes that it would be advantageous to each Fund and its shareholders to be able to obtain exposure on a tax-efficient basis to the portfolio of fixed income securities owned by the Reference Funds by investing in units of one or more of the Underlying Funds.

28. A Fund will invest in units of an Underlying Fund only if such investment is permitted by, and consistent with, the investment objectives of the Fund.

29. The investment by a Fund in units of an Underlying Fund, and the exposure of the Underlying Fund (and, indirectly, the Fund) to changes in the value of units of the applicable Reference Fund:

(a) will be made in accordance with the requirements of section 2.5 of NI 81-102, except as otherwise permitted by the Exemption Sought; and

(b) will represent the business judgment of “responsible persons” (as defined in subsection 13.5(1) of National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations) uninfluenced by considerations other than the best interests of the Fund (including the Underlying Fund).

H. Securities Lending Funds

30. Each Securities Lending Fund is or will be (a) an open-end mutual fund established under the laws of the Jurisdiction; (b) a reporting issuer under the securities laws of the Jurisdiction and each Passport Jurisdiction; (c) initially qualified for distribution in the Jurisdiction and each Passport Jurisdiction pursuant to a simplified prospectus and annual information form that has been prepared and filed in accordance with the securities legislation of the Jurisdiction; and (d) a mutual fund to which NI 81-102 applies.

31. As described in paragraph 24 above, a Securities Lending Fund that is an Underlying Fund may not renew its prospectus after the first lapse date thereof.

32. Each Securities Lending Fund’s investment objectives will include seeking the provision of returns similar to those of a specific type of investment. Each Securities Lending Fund’s investment objectives will state that it may use specified derivatives to achieve such investment objectives.

33. A Securities Lending Fund may pursue its investment objectives by means of specified derivatives. Generally, each Securities Lending Fund will invest its assets in a portfolio (an Equity Portfolio) consisting of securities of Canadian public issuers that are Canadian securities for the purposes of the Income Tax Act (Canada). The Equity Portfolio of a Securities Lending Fund will generally be a static portfolio that is not actively managed except in limited circumstances. Each Securities Lending Fund will also enter into one or more derivative contracts, such as an Underlying Fund Forward Agreement (any, a Forward Agreement), with one or more Counterparties to effectively replace the economic return on its Equity Portfolio with the economic return on an underlying interest (such as another mutual fund, one or more indices or a notional basket of different securities) to achieve the Securities Lending Fund’s investment objectives.

34. Each Securities Lending Fund will pledge its Equity Portfolio to its Counterparty (or the portion thereof that is subject to the relevant Forward Agreement with that Counterparty) as collateral security for performance of the Securities Lending Fund’s obligations under its Forward Agreement with that Counterparty. The Equity Portfolio (or that portion thereof that has been pledged) will be held by the Counterparty as security for the Securities Lending Fund’s obligations under the applicable Forward Agreement.

35. The Filer proposes to engage in securities lending transactions on behalf of each Securities Lending Fund that may represent up to 100 percent of the net assets of that Securities Lending Fund, in order to earn additional returns for that Securities Lending Fund. The Filer proposes to arrange for the Equity Portfolio (or a portion thereof) to be lent to one or more borrowers indirectly through one or more Agents, other than the Securities Lending Fund’s custodian or sub-custodian.

36. Each Agent shall be acceptable to the Securities Lending Fund and Counterparty and shall be either a Canadian financial institution (such as a Counterparty) or an affiliate thereof. It is not practical for a Securities Lending Fund’s custodian or sub-custodian to act as an Agent with respect to the Securities Lending Fund’s securities lending transactions as the custodian or sub-custodian will not have control over the Securities Lending Fund’s Equity Portfolio because the Equity Portfolio (or a portion thereof) will be pledged as described in paragraph 33 above. The Filer will ensure that any Agent through which a Securities Lending Fund lends securities maintains appropriate internal controls, procedures and records for securities lending transactions as prescribed in subsection 2.16(2) of NI 81-102.

37. A Counterparty must release its security interest in the securities in the Equity Portfolio of a Securities Lending Fund in order to allow the Securities Lending Fund to lend such securities, but will generally only do so provided that the Securities Lending Fund grants to it a security interest in the collateral held by the Securities Lending Fund pursuant to the securities lending transaction.

38. To facilitate the Counterparty’s release of its security interest in the securities of the Equity Portfolio of a Securities Lending Fund, securities in the Equity Portfolio will be loaned only to borrowers that are acceptable to the Securities Lending Fund and the Counterparty, and that have an approved credit rating or whose obligations to the Securities Lending Fund are fully and unconditionally guaranteed by persons or companies that have such a credit rating. A borrower may include an affiliate of the Counterparty. Whether a borrower is an affiliate or is not an affiliate of the Counterparty or an Agent will not affect the revenues from securities lending transactions received by the Securities Lending Fund. To facilitate the Counterparty’s perfection of its security interest in the collateral for the loaned securities, the Filer will ensure that such collateral is held by a registered dealer and member of the Investment Industry Regulatory Organization of Canada (IIROC) or a custodian that meets the requirements of section 6.2 of NI 81-102.

39. The collateral received by a Securities Lending Fund in respect of a securities lending transaction, and in which the Counterparty will have a security interest, will be in the form of cash, qualified securities or other collateral permitted by paragraph 2.12(1)6 of NI 81-102, other than collateral described in subparagraph 2.12(1)6(d) or in paragraph (b) of the definition of “qualified security”. The non-cash collateral will be held by the Agent in the name of the Counterparty and will not be reinvested in any other types of investment products.

40. The prospectus and annual information form of each Securities Lending Fund will disclose that the Securities Lending Fund may enter into securities lending transactions. Other than as set forth herein, any securities lending transactions on behalf of a Securities Lending Fund will be conducted in accordance with the provisions 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:

(a) the Three-Tier Relief is granted to the Funds;

(b) the Non-Prospectused Investing Relief is granted

(i) to each Fund provided that the Underlying Fund and the related Reference Fund remains a reporting issuer that is subject to the Mutual Fund Instruments in all jurisdictions in which the Fund is a reporting issuer, and

(ii) to each Underlying Fund provided that the related Reference Fund remains a reporting issuer that is subject to the Mutual Fund Instruments in all jurisdictions in which the Underlying Fund is a reporting issuer;

(c) the Seed Capital Relief is granted to the Filer in respect of the Underlying Funds; and

(d) the Securities Lending Relief is granted to the Securities Lending Funds provided that:

(i) with respect to the exemption from paragraph 2.12(1)12 of NI 81-102, each Securities Lending Fund enters into a Forward Agreement with an applicable Counterparty and grants that Counterparty a security interest in the securities subject to that Forward Agreement and, in connection with a securities lending transaction relative to those securities,

A. receives the collateral that

(1) is prescribed by paragraphs 2.12(1)3 to 6 of NI 81-102 other than collateral described in subparagraph 2.12(1)6(d) or in paragraph (b) of the definition of “qualified security”; and

(2) is marked to market on each business day in accordance with paragraph 2.12(1)7 of NI 81-102;

B. has the rights set forth in paragraphs 2.12(1)8, 2.12(1)9 and 2.12(1)11 of NI 81-102;

C. complies with paragraph 2.12(1)10 of NI 81-102; and

D. lends its securities only to borrowers that are acceptable to the Securities Lending Fund and the Counterparty, and that have an approved credit rating or whose obligations to the Securities Lending Fund are fully and unconditionally guaranteed by persons or companies that have such a credit rating;

(ii) with respect to the exemption from subsection 2.12(3) of NI 81-102, each Securities Lending Fund provides a security interest to the applicable Counterparty in the collateral delivered to it as collateral pursuant to a securities lending transaction as described in representation 36;

(iii) with respect to the exemption from subsection 2.15 of NI 81-102:

A. the Filer and the Securities Lending Fund enter into a written agreement with the Agent that complies with each of the requirements set forth in subsection 2.15(4) of NI 81-102;

B. the Agent administering the securities lending transaction of each Securities Lending Fund:

(1) is in compliance with the standard of care prescribed in subsection 2.15(5) of NI 81-102; and

(2) shall be acceptable to the Securities Lending Fund and Counterparty and shall either be a bank or trust company described in paragraphs 1 or 2 of section 6.2 of NI 81-102 or an investment bank affiliate of such bank or trust company that is registered as an investment dealer or in an equivalent category of registration;

C. with respect to the exemption from section 2.16 of NI 81-102, the Filer and the Securities Lending Fund comply with the requirements of section 2.16 of NI 81-102 as if the Agent appointed by the Filer were the agent contemplated in that section; and

D. with respect to the exemption from subsection 6.8(5) of NI 81-102, each Securities Lending Fund:

(1) provides a security interest to the applicable Counterparty in the collateral delivered to it as collateral pursuant to a securities lending transaction as described in representation 36; and

(2) the collateral delivered to the Securities Lending Fund pursuant to the securities lending transaction is held by a registered dealer and member of the IIROC or a custodian that meets the requirements of section 6.2 of NI 81-102, as described in representation 37.

“Sonny Randhawa”

Sonny Randhawa Manager, Investment Funds Branch Ontario Securities Commission