December 28, 2007
IN THE MATTER OF ONTARIO (the Jurisdiction)
IN THE MATTER OF LEGG MASON CANADA INC. (the
IN THE MATTER OF LEGG MASON WESTERN ASSET CANADIAN MONEY MARKET FUND (the Fund)
The local securities regulatory authority or regulator (the Decision Maker) in the Jurisdiction has received an application (the Application) from the Filer for a decision pursuant to Section 121(2)(a)(ii) of the Jurisdiction (the Legislation) for relief in the Jurisdiction from the prohibition in Section 118(2)(b) (the Requested Relief) in order to permit the sale, through a redemption in kind, of asset-backed commercial paper issued by the issuers listed in Schedule A (hereinafter ABCP) held by the Fund on the date hereof, to the associate of a responsible person of the Filer (each as defined in the Legislation).
Defined terms contained in Ontario Securities Commission Rule 14-501 - Definitions have the same meaning in this decision document unless they are otherwise defined in this decision.
This decision is based on the following facts represented by the Filer:
- The Filer is a corporation organized under the laws of Canada.
- The Filer is registered as an adviser in the categories of investment counsel and portfolio manager in Ontario.
- The Filer is the manager, portfolio advisor and trustee of the Fund.
- The Filer retained Western Asset Management Company (Western) as a sub-adviser to the Fund. The Filer and Western are affiliates within the meaning of the Legislation.
- Western is registered as an international adviser in the categories of investment counsel and portfolio manager in Ontario.
- The Fund is a mutual fund in Ontario and is not a reporting issuer. The investors in the Fund are clients of the Filer and are accredited investors.
- The Fund is a money market fund and as such, the net asset value of the Fund is maintained at $10 per unit due to the fact that assets are valued at amortized cost (i.e., cost plus accrued interest is credited daily to unitholders).
- The ABCP is short-term commercial paper with terms to maturity of up to 365 days and is typically rated by a recognized credit rating agency. Commercial paper investments held by the Fund are valued at amortized cost.
- In October 2007, when questions surrounding the appropriate method to value the ABCP owned by the Fund arose, the Filer determined to support the Fund and its investors and did so by having an associate of a responsible person of the Filer invest in units of the Fund at $10 per unit in an aggregate amount equal to the amortized cost of the ABCP owned by the Fund and undertook not to redeem such amount until the value of the ABCP was known. On that basis, the independent valuation committee of the Filer and its affiliates determined to continue to value the ABCP on the basis of amortized cost.
- The Filer also discussed its support of the ABCP with the institutional investors in the Fund.
- Due to the Filer’s support of the Fund and its investors in relation to the ABCP, all units of the Fund have continued to be issued and redeemed at $10 per unit.
- There continues to be no clarity as to the value of the ABCP and there is no guarantee when that will occur. The Filer wishes to clarify its support of the Fund and its investors by redeeming units of the Fund held by an associate of a responsible person of the Filer.
- The redemption will be at a price of $10 per unit and will be paid in the form of a redemption in kind. The redemption proceeds will be satisfied by the Fund transferring the ABCP to the associate of a responsible person of the Filer at a value equal to its amortized cost on the date of transfer, being a date on or prior to December 31, 2007.
- The December 31, 2007 financial statements of the Fund will describe the redemption in kind by the associate of a responsible person of the Filer.
- The Filer has determined that the redemption in kind of the ABCP held by the Fund, at a price equal to its amortized cost (the Sale), to the associate of a responsible person of the Filer, is in the best interests of the Fund and unitholders of the Fund.
- In the absence of the relief requested, the Filer would be prohibited from effectively selling the ABCP held by the Fund through a redemption in kind to the associate of a responsible person of the Filer.
The Decision Maker 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 Maker under the Legislation is that the Requested Relief is granted in respect of the Fund on the condition that:
(a) the Filer determines that the Sale is in the best interests of the Fund;
(b) the Sale occurs during the period between the date hereof and December 31, 2007; and
(c) the value of the ABCP used in connection with the redemption in kind is equal to the amortized cost of the ABCP.
|Harold P. Hands
Ontario Securities Commission
|Wendell S. Wigle