National Bank Securities Inc. et al. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Conflict relief for portfolio manager of mutual funds to purchase units of related mutual funds on behalf of insurance affiliates of portfolio manager whereby the payment of the purchase price of units of the mutual funds may be satisfied by making good delivery of securities held by the affiliates of the portfolio manager and the payment of the redemption price of units of the mutual funds to the managed accounts may be satisfied by making good delivery of securities held in the investment portfolio of the mutual funds - portfolio manager at arm's length to fund manager - details disclosed in funds' prospectus - relief subject to IRC approval and pricing conditions.

Applicable Ontario Statutory Provisions

National Instrument 81-102 Mutual Funds, sections 4.2 and 19.1.

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

July 7, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, YUKON,

THE NORTHWEST TERRITORIES

AND NUNAVUT (the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

("MRRS")

AND

IN THE MATTER OF

NATIONAL BANK SECURITIES INC.

(the "Applicant")

AND

IN THE MATTER OF

THE OMEGA HIGH DIVIDEND FUND AND

THE OMEGA PREFERRED EQUITY FUND

(each, a "Fund" and collectively, the "Funds")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from the Applicant on behalf of each of the Funds for a decision under the securities legislation (the "Legislation") of the Jurisdictions that the Funds, be exempt, in all of the Jurisdictions, under section 19.1 of National Instrument 81-102 respecting Mutual Funds ("NI 81-102"), from the restriction in section 4.2 of NI 81-102 in order to allow the Funds to (i) purchase securities from ING Investment Management, Inc. ("ING Investment Management"), as portfolio manager of the Funds, or one or more affiliates of ING Investment Management (each, an "ING Affiliate"), in payment of the purchase price for the issuance of the Fund units to ING Investment Management or an ING Affiliate (ING Investment Management and the ING Affiliates are referred to collectively as "ING"), and (ii) transferring securities to ING in satisfaction of the redemption price for the redemption of units of a Fund by ING (the transactions defined in (i) and (ii) above each being an "In-Species Transfer") (the "Requested Relief").

Under the MRRS:

(i) the principal regulator for the Application is the Autorité des marchés financiers (the "Autorité"); and

(ii) this MRRS Decision Document evidences the decision of each of the Decision Makers.

Interpretation

Defined terms contained in National Instrument 14-101 respecting Definitions and NI 81-102 have the same meaning in this MRRS Decision Document unless they are otherwise defined in this MRRS Decision Document.

Representations

This decision is based on the following facts represented by the Applicant:

1. The Applicant is the manager of the Funds. ING Investment Management is the portfolio manager of the Funds. Each of the Funds is an open-ended mutual fund trust established under the laws of Ontario. Each of the Funds is a reporting issuer in the Jurisdictions.

2. Each of the Funds is qualified for distribution in each of the provinces and territories of Canada under a simplified prospectus and annual information form dated May 16, 2008.

3. ING has made initial investments in the Funds. It is expected that ING will make further investments, which may be significant, in each of the Funds and may purchase or redeem units of each Fund from time to time. It is proposed that payment for any future purchase or redemption of units of the Funds by ING may be satisfied by an In-Species Transfer.

4. In-Species Transfers in connection with the purchase of units of a Fund are in the best interests of both existing unitholders of a Fund and ING because brokerage fees are eliminated on both sides of the transfer. ING is spared the cost of brokerage fees to liquidate its existing portfolio of securities to free up cash to buy the units of a Fund and is also spared the cost of its pro rata share of brokerage fees paid by the Fund to purchase the same securities with the cash received from the new investor. The existing unitholders of a Fund are spared the cost of their pro rata share of brokerage commissions paid by the Fund to purchase the same securities with the cash investment.

5. In-Species Transfers in connection with the redemption of units of a Fund spare the Fund (and thus the continuing unitholders) significant brokerage fees that would be associated with liquidating securities in order to fund the redemption proceeds. ING may receive payment for a redemption of units in a Fund in the form of an In-Species Transfer or in cash.

6. ING will not receive any compensation in respect of an In-Species Transfer.

7. The price at which In-Species Transfers occur is determined on the same basis as NI 81-102 requires in respect of such transactions. The In-Species Transfers will be completed in accordance with the applicable requirements of subsections 9.4(2) and 10.4(3) of NI 81-102.

8. An independent review committee ("IRC") was established for the Funds and is fully operational. The IRC complies with applicable securities legislation, including National Instrument 81-107 respecting Independent Review Committee for Investment Funds ("NI 81-107").

9. The Applicant and ING have established and follow written policies and procedures with respect to In-Species Transfers to or from a Fund in payment of the purchase price or redemption price for the issuance or redemption of units of the Fund. The written policies and procedures have been reviewed and approved by the IRC and will include, among other requirements, that ING prepare a proposed list of securities to be included in the In-Species Transfer for review and approval by the Applicant as manager of the Fund.

10. The IRC has globally reviewed and approved the relationship between the Applicant and ING Investment Management and their respective roles in respect of the Funds, including the following matters: (i) the entering into of an O Series account agreement between the manager and ING Investment Management, (ii) the fact that In-Species Transfers will consist of ING Investment Management's own assets or assets of ING Affiliates that it manages.

11. The IRC will review and approve, by way of standing instruction, the In-Species Transfers to be completed in connection with the purchase or redemption of units of the Funds by ING in accordance with subsection 5.2(2) of NI 81-107 and, if applicable, section 5.4 of NI 81-107.

12. The proposed investment by ING and the possible In-Species Transfers have been disclosed in the simplified prospectus and the annual information form of the Funds, and will continue to be so disclosed for as long as In-Species Transfers may be effected.

13. Section 4.3 of NI 81-102 provides an exemption from the requirements of section 4.2 of the same regulation if the price payable for the security is (a) not more than the ask price of the security as reported by any available public quotation in common use, in the case of a purchase by the mutual fund, or (b) not less than the bid price of the security as reported by any available public quotation in common use, in the case of a sale by the mutual fund.

14. The exemption in section 4.3 of NI 81-102 may not be available for In-Species Transfers in certain limited circumstances, for example if the closing sale price of a listed security is higher than the closing ask price or lower than the closing bid price, as reported by any available public quotation in common use, or in the case of illiquid securities that have not traded on a particular trading day where the valuator of the Funds has determined that it would be appropriate in the circumstances to use fair value pricing procedures to determine a price for the security.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Makers with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted on the conditions that:

(a) the provisions of sections 5.2 and 5.4 of NI 81-107 dealing with matters that require the approval of the IRC apply to the In-Species Transfers;

(b) the In-Species Transfers are consistent with, or are necessary to meet, the investment objective of the Fund;

(c) the Applicant, as manager of the Fund, complies with section 5.1 of NI 81-107;

(d) the IRC of the Fund has approved the In-Species Transfers in accordance with subsection 5.2(2) of NI 81-107;

(e) the Applicant, as manager of the Fund, and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions provided by the IRC in connection with the In-Species Transfers;

(f) the bid and ask price of the security included in an In-Species Transfer is readily available;

(g) the Fund receives no consideration and the only cost for the trade is the nominal cost incurred by the Fund to print or otherwise display the trade;

(h) the transaction is subject to market integrity requirements, as defined in NI 81-107;

(i) the Fund keeps the written records required by sub paragraph 6.1(2)(g) of NI 81-107; and

(j) in case of an In-Species Transfer from ING to the Fund, securities representing not less than 95% of the value of the securities included in the In-Species Transfer are transferred at the current market price of the security, as defined in NI 81-107.

SEDAR PROJECT # 1174959