Big 8 Split Inc.

Decision

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to an exchange traded fund from certain mutual fund requirements and restrictions on; investments, calculation and payment of redemptions, preparation of compliance reports, and date of record for payment of distributions -- Since investors will generally buy and sell units through the TSX, there are adequate protections and it would not be prejudicial to investors -- National Instrument 81-102 -- Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 10.3, 10.4(1), 12.1(1), 14.1, 19.1.

November 26, 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

BIG 8 SPLIT INC.

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Big 8 Split Inc. (the "Filer") for a decision under the securities legislation of the Jurisdiction (the "Jurisdiction") under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions for relief from the following sections of National Instrument 81-102 Mutual Funds ("NI 81-102") (collectively, "the NI 81-102 Requirements") with respect to the class B preferred shares (the "Class B Preferred Shares") proposed to be issued by the Filer as described in a preliminary prospectus dated October 31, 2008 (the "Preliminary Prospectus"):

(a) subsection 2.1(1), which prohibits a mutual fund from purchasing a security of an issuer if, immediately after the transaction, more than 10 percent of the net assets of the mutual fund, taken at market value at the time of the transaction, would be invested in securities of the issuer;

(b) section 10.3, which requires that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value of a security of that class, or series of class, next determined after the receipt by the mutual fund of the order;

(c) subsection 10.4(1), which requires that a mutual fund shall pay the redemption price for securities that are the subject of a redemption order within three business days after the date of calculation of the net asset value per security used in establishing the redemption price;

(d) subsection 12.1(1), which requires a mutual fund that does not have a principal distributor to complete and file a compliance report, and accompanying letter of the auditor, in the form and within the time period mandated by subsection 12.1(1); and

(e) section 14.1, which requires that the record date for determining the right of securityholders of a mutual fund to receive a dividend or distribution by the mutual fund shall be calculated in accordance with section 14.1

("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) the Filer has provided notice that section 4.7(1) of Multinational Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in the jurisdictions of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.

Interpretation

Defined terms contained 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:

The Filer

1. The Filer was incorporated under the Business Corporations Act (Ontario) on June 26, 2003 and completed an initial public offering of capital shares ("Capital Shares") and preferred shares on September 3, 2003.

2. On November 21, 2008, the holders of the Capital Shares of the Filer approved a share capital reorganization (the "Reorganization") which permits holders of Capital Shares to extend their investment in the Filer beyond the redemption date of December 15, 2008 for up to an additional 5 years. The Reorganization also provides holders of Capital Shares with a special right of retraction (the "Special Retraction Right") to replace the originally scheduled final redemption. Under the Reorganization, holders of Capital Shares who do not wish to extend their investment may choose to have their shares redeemed on December 15, 2008.

3. The Class B Preferred Shares are being offered in order to maintain the leveraged "split share" structure of the Company and will be issued on December 15, 2008 (the "Offering") such that there will be an equal number of Capital Shares and Class B Preferred Shares outstanding on and after December 15, 2008.

4. The Filer will make the Offering to the public pursuant to a final prospectus (the "Final Prospectus") in respect of which the Preliminary Prospectus has already been filed.

5. The Capital Shares will continue to be listed and posted for trading on The Toronto Stock Exchange (the "TSX") and the Class B Preferred Shares are expected to be listed and posted for trading on the TSX. An application requesting conditional listing approval has been made by the Filer to the TSX.

6. The Filer is a passive investment company whose principal investment objective is to invest in a portfolio (the "Portfolio") of common shares (the "Portfolio Shares") of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Bank of Nova Scotia, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation and Sun Life Financial Inc. in order to generate fixed cumulative preferential distributions for holders of the Filer's Class B Preferred Shares, and to allow the holders of the Filer's Capital Shares to participate in the capital appreciation of the Portfolio Shares after payment of administrative and operating expenses of the Filer. It will be the policy of the Board of Directors of the Filer to pay dividends on the Capital Shares in an amount equal to the dividends received by the Filer on the Portfolio Shares minus the distributions payable on the Class B Preferred Shares and all administrative and operating expenses of the Filer.

7. The net proceeds of the Offering (after deducting the agents' fees and expenses of the issue), depending upon the number and value of Capital Shares redeemed pursuant to the Special Retraction Right, will be used by the Filer to fund the redemption of all of the issued and outstanding Class A Preferred Shares of the Filer on December 15, 2008 as well as those Capital Shares being redeemed pursuant to the Special Retraction Right together, with the net proceeds from the sale of a portion of the portfolio, if necessary.

8. It will be the policy of the Filer to hold the Portfolio Shares and to not engage in any trading of the Portfolio Shares, except:

(i) to complete the one-time rebalancing of the Portfolio as described in the Preliminary Prospectus;

(ii) to fund retractions or redemptions of Capital Shares and Class B Preferred Shares;

(iii) following receipt of stock dividends on the Portfolio Shares;

(iv) if necessary, to fund any shortfall in the distribution on Class B Preferred Shares; and

(v) to meet obligations of the Filer in respect of liabilities including extraordinary liabilities.

9. Class B Preferred Share distributions will be funded from the dividends received on the Portfolio Shares. If necessary, any shortfall in the distributions on the Class B Preferred Shares will be funded by proceeds from the sale of Portfolio Shares.

10. The record date for the payment of Class B Preferred Share distributions, Capital Share dividends or other distributions of the Filer will be set in accordance with the applicable requirements of the TSX.

11. The Capital Shares and Class B Preferred Shares may be surrendered for retraction at any time. Retraction payments for Capital Shares and Class B Preferred Shares will be made on the Retraction Payment Date (as defined in the Preliminary Prospectus) provided the Capital Shares and the Class B Preferred Shares have been surrendered for retraction at least 10 business days prior to the Retraction Payment Date (as defined in the Preliminary Prospectus). While the Filer's Unit Value (as defined in the Preliminary Prospectus) is calculated weekly, the retraction price for the Capital Shares and the Class B Preferred Shares will be determined based on the Unit Value in effect as at the Valuation Date (as defined in the Preliminary Prospectus).

12. Any Capital Shares and Class B Preferred Shares outstanding on a date approximately five years from the closing of the Offering, which date will be specified in the Final Prospectus, will be redeemed by the Filer on such date.

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 Exemption Sought is granted as follows:

(a) subsection 2.1(1) -- to enable the Filer to invest all of its net assets in the Portfolio Shares, provided that the Filer does not become an insider of any issuer of the Portfolio Shares as a result of such investment;

(b) section 10.3 -- to permit the Filer to calculate the retraction price for the Class B Preferred Shares in the manner described in the Preliminary Prospectus and on the applicable Valuation Date as defined in the Preliminary Prospectus;

(c) subsection 10.4(1) -- to permit the Filer to pay the retraction price for the Class B Preferred Shares on the Retraction Payment Date, as defined in the Preliminary Prospectus;

(d) subsection 12.1(1) -- to relieve the Filer from the requirement to file the prescribed compliance reports; and

(e) section 14.1 -- to relieve the Filer from the requirement relating to the record date for the payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.

"Rhonda Goldberg"
Manager, Investment Funds
Ontario Securities Commission