Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Exemption from self dealing requirements in Ontario Securities Act - relief granted regarding acquisition of asset back commercial paper from a related mutual fund - asset backed commercial paper market experiencing liquidity problems - purchase of fund's asset backed commercial paper to be made with cash - transactions approved by mutual funds' independent review committee - relief in the best interest of the funds

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, ss. 118(2)(b), 121(2)(a)(ii).

October 31, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

NEW BRUNSWICK, ONTARIO, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, NUNAVUT AND YUKON

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MERITAS FINANCIAL INC.

(the "Filer")

AND

MERITAS CANADIAN BOND FUND AND

MERITAS MONEY MARKET FUND (the "Funds")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator ("Decision Maker") in each of the Jurisdictions has received an application (the "Application") from the Filer on behalf of the Funds for relief in each Jurisdiction from the following prohibition in the securities legislation of the Jurisdictions (the "Legislation") to permit a sale of asset-backed commercial paper ("ABCP") issued by the issuers listed in Schedule A that is owned by the Funds to the Filer (the "Requested Relief"):

(a) the provision that prohibits a portfolio manager or a responsible person (depending on the Jurisdiction) from causing a portfolio managed by it or a mutual fund (depending on the Jurisdiction) to purchase or sell the securities of any issuer from or to the account of a responsible person or the portfolio manager.

Under the Mutual Reliance Review System (MRRS) for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this Application; and

(b) this MRRS decision document represents the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and in National Instrument 81-102 Mutual Funds ("NI 81-102") have the same meaning in this MRRS decision document unless they are otherwise defined in this decision.

Representations

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

1. The Filer is the manager and portfolio manager of the Funds. The Filer's registered office is located in Ontario.

2. The Funds are open-ended mutual fund trusts established under the laws of the Province of Ontario, and are reporting issuers in the Jurisdictions.

3. As of September 19, 2007, the Meritas Canadian Bond Fund owned third party (non-bank) ABCP worth approximately $550,000.00 comprising approximately 1.7% of the Fund's total assets, and the Meritas Money Market Fund owned third party ABCP worth approximately $1,350,000.00 or 30% of the Fund's total assets.

4. The ABCP is short-term commercial paper with maturity dates ranging from October 10, 2007 to October 29, 2007. The ABCP had when acquired, and continues to have, an approved credit rating within the meaning of NI 81-102.

5. The Filer has determined that the appropriate method to value the ABCP owned by the Funds is cost plus accrued interest which is the valuation methodology used in respect of other commercial paper investments held by the Funds.

6. Uncertainty concerning ABCP has arisen in the context of liquidity concerns that affected investors and capital markets worldwide in August 2007, including those in Canada, originating with concerns relating to subprime mortgages in the United States. The Toronto Stock Exchange, as with other exchanges worldwide, has suffered losses and increased volatility. Considerable media reports and articles have discussed these issues, and raised concerns about the quality and safety of Canadian money market funds and other investments.

7. The Filer wishes to protect the Funds from these concerns and ensure that investor confidence is not negatively affected. In addition, the Filer wishes to prevent an unwarranted increase in redemption requests in the Funds which could arise as a result of these wider concerns.

8. To alleviate these concerns, it is proposed that the ABCP held by the Funds would be purchased by the Filer. Such purchases would be effected if the Filer considered such purchases to be in the best interests of the Funds, and would be effected at the cost amount of the ABCP plus accrued interest (the "Proposed Transactions").

9. The Filer would acquire the ABCP by cash payment in the full amount, as determined under representation 5, to the Funds. The Proposed Transactions would occur upon receiving regulatory approval and be completed no later than November 15, 2007. The Filer may carry out the Proposed Transactions in one or several transactions.

10. The Filer referred the Proposed Transactions to the independent review committee of the Funds (the "Independent Review Committee") for review and approval. The Independent Review Committee has approved the application on behalf of the Funds and the Proposed Transactions as being in the best interests of the Funds and as achieving a fair and reasonable result for the Funds.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker 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 following conditions:

(a) the Filer, as portfolio manager of the Funds, determines that the Proposed Transactions are in the best interests of the Funds;

(b) the Proposed Transactions occur during the period between the date of the decision and November 15, 2007;

(c) the price per security is equal to cost plus accrued interest; and

(d) the Filer shall have received confirmation that the Independent Review Committee of the Funds has approved the Proposed Transactions.

"Paul K. Bates"
Commissioner
Ontario Securities Commission
 
"Carol S. Perry"
Commissioner
Ontario Securities Commission

 

SCHEDULE A

THIRD PARTY ASSET-BACKED

COMMERCIAL PAPER CONDUITS

ISSUERS

Meritas Canadian Bond Fund

Apsley Trust
$100,000
Opus Trust
$150,000
Skeena Trust
$100,000
Aria Trust
$100,000
Slate Trust
$100,000
 
Total
$550,000

Meritas Money Market Fund

Apsley Trust
$200,000
Whitehall Trust
$200,000
Symphany Trust
$150,000
MMAI-I Trust
$100,000
Rocket Trust
$100,000
Aurora Trust
$200,000
Comet Trust
$200,000
Slate Trust
$200,000
 
Total
$1,350,000