ScotiaMcLeod & Pinnacle RSP American Large Cap Growth Equity Fund - MRRS Decision

MRRS Decision

Headnote

Investment for specified purpose by mutual funds in securities of another mutual fund that is under commonmanagement exempted from the requirements of clauses 111(2)(b) and 111(2)(c), subsection 111(3), clauses 117(1)(a),and 117(1)(d) subject to certain specified conditions.

Investment by mutual funds in forward contracts issued by related counterparty exempted from the requirements ofclause 111(2)(a) and 118(2)(a), subject to specified conditions.

Statutes Cited

Securities Act (Ontario), R.S.O. 1990 c.S.5, as am. ss. 111(2)(a), 111(2)(b), 111(3), 113, 117(1)(a), 117(1)(d), 117(2),118(2)(a) and 121(2)(a)(ii).

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

ONTARIO, NOVA SCOTIA and NEWFOUNDLAND

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SCOTIAMCLEOD

AND

PINNACLE RSP AMERICAN LARGE CAP GROWTH EQUITY FUND

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provincesof British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") has receivedan application (the "Application") from Scotia Capital Inc. ("ScotiaMcLeod"), Pinnacle RSP American Large Cap GrowthEquity Fund and other mutual funds managed by ScotiaMcLeod on or after the date of this Decision (defined herein)having an investment objective that is linked to the returns or portfolio of another specified ScotiaMcLeod managedmutual fund (collectively referred to as the "Top Funds"), for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that the following provisions in the Legislation (the "Applicable Requirements") shall notapply in connection with: (a) certain investments to be made by the Top Funds in their applicable correspondingScotiaMcLeod managed mutual funds from time to time (the funds in which such investments are to be made beingcollectively referred to as the "Underlying Funds") and (b) certain investments to be made by the Top Funds in forwardcontracts or other specified derivatives with one or more institutions, including The Bank of Nova Scotia ("Scotiabank"),(collectively the "Related Counterparties"):

1. the provisions contained in the Legislation prohibiting a mutual fund from knowingly making or holding aninvestment in a person or company in which the mutual fund, alone or together with one or more related mutualfunds, is a substantial security holder;

2. the provisions contained in the Legislation requiring a management company (or in British Columbia, a mutualfund manager) to file a report relating to a purchase or sale of securities between the mutual fund and anyrelated person or company, or any transaction in which, by arrangement other than an arrangement relatingto insider trading in portfolio securities, the mutual fund is a joint participant with one or more of its relatedpersons or companies;

3. the provisions contained in the Legislation prohibiting a mutual fund from knowingly making an investment inan issuer in which any person or company who is a substantial security holder of the mutual fund, itsmanagement company or its distribution company, has a significant interest;

4. the provision contained in the Legislation prohibiting a mutual fund from knowingly making an investment inany person or company who is a substantial security holder of the mutual fund, its management company ordistribution company; and

5. the provision contained in the Legislation prohibiting a portfolio manager from knowingly causing anyinvestment portfolio managed by it to invest in any issuer in which a "responsible person" (as that term isdefined in the Legislation) or an associate of a responsible person is an officer or director.

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS it has been represented by ScotiaMcLeod to the Decision Makers that:

1. ScotiaMcLeod is a corporation incorporated under the laws of Ontario and its head office is located in Ontario.ScotiaMcLeod is or will be the manager, trustee and promoter of the Top Funds and the Underlying Funds(collectively, the "Funds").

2. Each of the Funds will be an open-ended mutual fund trust established under the laws of Ontario. The Unitsof the Funds are or will be qualified for distribution in all of the provinces and territories of Canada (the"Prospectus Jurisdictions") pursuant to simplified prospectuses and annual information forms.

3. Each of the Funds will be a reporting issuer under the Legislation of each of the Prospectus Jurisdictions.

4. Upon the creation of a Top Fund and an Underlying Fund, ScotiaMcLeod will invest seed money so that for ashort period of time ScotiaMcLeod will have a significant interest in, and be a substantial securityholder of, boththe Top Fund and the Underlying Fund.

5. The simplified prospectuses will disclose the investment objectives, investment strategies, risks and restrictionsof the Top Funds and the Underlying Funds. The investment objective of the Top Funds will include disclosureof the names of the Underlying Funds and the Top Funds' total aggregate derivative exposure to, and directinvestment in the Underlying Funds.

6. The investment objectives of each Top Fund will be similar to that of the applicable Underlying Fund. Each TopFund will seek to achieve its investment objective primarily through the implementation of a derivative strategythat provides a return linked to the return of the applicable Underlying Fund. Each Top Fund will also investdirectly in the applicable Underlying Fund up to the amount prescribed from time to time as the maximumpermitted amount which may be invested in foreign property under the Income Tax Act (Canada) (the "Tax Act")without the imposition of tax under Part XI of the Tax Act (the Foreign Property Maximum").

7. All purchases by a Top Fund of units of the applicable Underlying Fund will be made through ScotiaMcLeod(or an affiliate).

8. Each Top Fund will make investments such that its units will, in the opinion of tax counsel to the Top Fund,be "qualified investments" for registered retirement savings plans, registered retirement income funds, deferredprofit sharing plans and similar plans (collectively, the "Registered Plans") under the Tax Act and will notconstitute foreign property in a Registered Plan.

9. The investment objectives of the Underlying Funds will be achieved through investment primarily in foreignsecurities.

10. The direct investment by each Top Fund in its Underlying Fund will be within the Foreign Property Maximum(the "Permitted Limit"). The amount of direct investment by each Top Fund in its Underlying Fund will beadjusted from time to time so that, except for transitional cash, the aggregate of derivative exposure to, anddirect investment in, the Underlying Fund (or its portfolio securities) will equal 100% of the net assets of thatTop Fund.

11. The Top Funds will enter into forward contracts with one or more financial institutions, including TheScotiabank, an affiliate of ScotiaMcLeod ("Related Counterparty") (each, a "Counterparty"). Scotiabank hasa substantial interest in ScotiaMcLeod.

12. In order to hedge their obligations under the forward contracts, the Counterparties (or their affiliates) will likely,but are not required to, purchase Units of the applicable Underlying Funds.

13. Scotiabank may have a significant interest in an Underlying Fund due to its hedging activities.

14. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securitiesadministrators pursuant to National Instrument 81-102 Mutual Funds ("NI 81-102"), the investments by the TopFunds in the Underlying Funds have been, or will be, structured to comply with the investment restrictions ofthe Legislation and NI 81-102.

15. In the absence of this Decision, pursuant to the Legislation, the Top Funds are prohibited from (a) knowinglymaking an investment in a person or company in which the mutual fund, alone or together with one or morerelated mutual funds, is a substantial unitholder; and (b) knowingly making an investment in an issuer in whichany person or company who is a substantial security holder of the mutual fund, its management company orits distribution company, has a significant interest; and (c) knowingly holding an investment referred to in clause(a) or (b) hereof. As a result, in the absence of this Decision the Top Funds would be required to divestthemselves of any such investments.

16. In the absence of this Decision, the Legislation requires ScotiaMcLeod to file a report on every purchase or saleof securities of the Underlying Funds by the Top Funds.

17. In the absence of this Decision, the Legislation prohibits ScotiaMcLeod from knowingly causing a Top Fundto invest in any person or company in which a director, officer or employee of ScotiaMcLeod is an officer ordirector.

18. In the absence of this Decision, pursuant to the Legislation, the Top Fund is prohibited from knowingly makingand investment in a person or company, namely the forward contract of Scotiabank, which is a substantialsecurity holder of ScotiaMcLeod, the management company of the Top Fund; and (b) knowingly holding aninvestment referred to in clause (a) hereof. As a result, in the absence of this Decision, the Top Funds wouldbe required to divest themselves of any such investments.

19. The Top Funds' investment in or redemption of units of their corresponding Underlying Funds will representthe business judgment of responsible persons, uninfluenced by considerations other than the best interest ofthe Top Funds.

AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that the Applicable Requirements shallnot apply so as to prevent a Top Fund from making or holding an investment in securities of an Underlying Fund,

PROVIDED IN EACH CASE THAT:

1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that Decision Maker dealing with the matters in section 2.5 of NI 81-102;and

2. the Decision shall only apply if, at the time a Top Fund makes or holds an investment in an Underlying Fund,the following conditions are satisfied:

a. the securities of both the Top Fund and the Underlying Fund are being offered for sale in thejurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information formwhich has been filed with and accepted by the Decision Maker;

b. the investment by the Top Fund in the Underlying Fund is compatible with the fundamental investmentobjectives of the Top Fund;

c. the investment objective of the Top Fund discloses that the Top Fund invests directly and indirectly(through derivative exposure) in the Underlying Fund and the name of the Underlying Fund;

d. the investment objective of the Top Fund discloses the name of the Underlying Fund;

e. the Underlying Fund is not a mutual fund whose investment objective includes investing directly orindirectly in other mutual funds;

f. the Top Fund restricts its direct investment in the Underlying Fund to a percentage of its assets thatis within the Permitted Limit;

g. there are compatible dates for the calculation of the net asset value of the Top Fund and theUnderlying Fund for the purpose of the issue and redemption of securities of such mutual funds;

h. no sales charges are payable by the Top Fund in relation to its purchases of securities of theUnderlying Fund;

i. no redemption fees or other charges are charged by the Underlying Fund in respect of the redemptionby the Top Fund of securities of the Underlying Fund owned by the Top Fund;

j. no fees and charges of any sort are paid by the Top Fund and the Underlying Fund, by theirrespective managers or principal distributors, or by any affiliate or associate of any of the foregoingentities to anyone in respect of the Top Fund's purchase, holding or redemption of the securities ofthe Underlying Fund;

k. the arrangements between or in respect of the Top Fund and the Underlying Fund are such as toavoid the duplication of management fees;

l. any notice provided to securityholders of the Underlying Fund, as required by applicable laws or theconstating documents of the Underlying Fund, has been delivered by the Top Fund to itssecurityholders along with all voting rights attached to the securities of the Underlying Fund which aredirectly owned by the Top Fund.

m. all of the disclosure and notice material prepared in connection with a meeting of securityholders ofthe Underlying Fund and received by the Top Fund has been provided to its securityholders, thesecurityholders have been permitted to direct a representative of the Top Fund to vote its holdings inthe Underlying Fund in accordance with their direction, and the representative of the Top Fund hasnot voted its holdings in the Underlying Funds except to the extent the securityholders of the Top Fundhave directed;

n. in addition to receiving the annual and, upon request, the semi-annual financial statements of the TopFund, securityholders of the Top Fund have received the annual and, upon request, the semi-annualfinancial statements, of the Underlying Fund in either a combined report, containing financialstatements of the Top Fund and the Underlying Fund, or in a separate report containing the financialstatements of the Underlying Fund; and

o. to the extent that the Top Fund and the Underlying Fund do not use a combined simplified prospectusand annual information form containing disclosure about the Top Fund and the Underlying Fund,copies of the simplified prospectus and annual information form of the Underlying Fund have beenprovided upon request to securityholders of the Top Fund and this right is disclosed in the simplifiedprospectus of the Top Fund.

THE DECISION of the Decision Makers pursuant to the Legislation is that the Applicable Requirements shallnot apply so as to prevent a Top Fund from entering into forward contracts with a Related Counterparty,

PROVIDED THAT IN EACH CASE THAT:

1. the Decision shall only apply if, at the time a Top Fund enters into a forward contract with a RelatedCounterparty, the following conditions are satisfied:

a. pricing terms offered by the Related Counterparty to the Funds under the forward contracts are atleast as favourable as the terms committed by the Related Counterparty to other third parties whichare of similar size as the Funds;

b. the independent auditors of the Funds, have reviewed the pricing of the forward contract offered bythe Related Counterparty to the Funds against the pricing offered by the Related Counterparty to otherfund groups offering RSP clone funds of similar size to ensure the pricing is as favourable;

c. this review by the independent auditors is undertaken on each renewal or pricing amendment to theforward contract during the term of such contract;

d. disclosure of the independent auditor's role and review of the forward contract is outlined in theprospectus, as is the involvement of the Related Counterparty as counterparty; and

e. ScotiaMcLeod, on behalf of the Funds, has considered the forward contracts to be entered into withthe Related Counterparty and has approved them only once such confirmation of as favourable pricinghas been received from the independent auditors.

January 26, 2001.

"J.A. Geller"       "R. Stephen Paddon"