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Pimco Canada Corp
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the self-dealing provision in s. 4.2(1) of NI 81-102 Investment Funds to permit inter-fund trades in debt securities between mutual funds, closed-end funds and pooled funds managed by the same manager -- Inter-fund trades will comply with the conditions in subsection 6.1(2) of NI 81-107 Independent Review Committee for Investment Funds, including the requirement for independent review committee approval.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from s.13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit inter-fund trades and in specie transfers between mutual funds, closed-end funds, pooled funds and managed accounts managed by the same manager -- Inter-fund trades subject to conditions, including IRC approval and pricing requirements -- Trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules -- Relief permitting in specie subscriptions and redemptions by managed accounts and pooled funds in mutual funds, closed-end funds and pooled funds subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 4.2(1), 4.3(1), 4.3(2), 19.2.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b)(ii) and (iii), 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).
October 7, 2014
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 PIMCO CANADA CORP. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
a) for an exemption from the prohibition in section 4.2(1) of National Instrument 81-102 -- Investment Funds (NI 81-102) to permit the Mutual Funds (as defined below) and Closed-End Funds (as defined below) to purchase debt securities from or sell debt securities to a Pooled Fund (as defined below) (the Section 4.2(1) Relief); and
b) for an exemption from the prohibitions in sections 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) which prohibit a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, in order to permit:
(i) a Pooled Fund to purchase securities from or sell securities to a Fund (as defined below);
(ii) a Managed Account (as defined below) to purchase securities from or sell securities to a Fund;
(iii) a Closed-End Fund to purchase securities from or sell securities to a Fund;
(iv) a Mutual Fund to purchase securities from or sell securities to a Fund;
(v) the transactions listed in (i) to (iv) (each an "Inter-Fund Trade") to be executed at the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the "Last Sale Price") in lieu of the closing sale price (the "Closing Sale Price") contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of National Instrument 81-107 -- Independent Review Committee for Investment Funds ("NI 81-107") on that trading day, where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities) ((i), (ii), (iii), (iv) and (v) are, collectively, the "Inter-Fund Trading Relief"); and
(vi) In specie subscriptions and redemptions by:
i. Managed Accounts in Funds; and
ii. Pooled Funds in Funds (together with i., the "In Specie Transfer Relief")
(the Section 4.2(1) Relief, Inter-Fund Trading Relief and In Specie Transfer Relief are, collectively, the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(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 Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 81-102 and NI 81-107 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following terms have the following meanings:
"Closed-End Funds" means collectively, the Existing Closed-End Funds and the Future Closed-End Funds;
"Existing Mutual Funds" means each existing mutual fund, as defined in the Legislation, that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;
"Existing Closed-End Funds" means each existing non-redeemable investment fund as defined in the Legislation that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;
"Existing Pooled Funds" means each existing investment fund that is not a reporting issuer, of which the Filer or an affiliate of the Filer acts as manager and/or portfolio adviser;
"Funds" means the Mutual Funds, the Closed-End Funds and the Pooled Funds;
"Future Closed-End Funds" means each non-redeemable investment fund, as defined in the Legislation, that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer may act as manager and/or portfolio adviser in the future;
"Future Mutual Funds" means each mutual fund, as defined in the Legislation, that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer may act as manager and/or portfolio adviser in the future;
"Future Pooled Funds" means each investment fund that is not a reporting issuer, of which the Filer or an affiliate of the Filer may act as manager and/or portfolio adviser in the future;
"In Specie Transfer" means causing a Managed Account or a Pooled Fund to deliver securities to a Fund, in respect of the purchase of securities of the Fund by the Managed Account or Pooled Fund, or to receive securities from the investment portfolio of a Fund in respect of a redemption of securities of the Fund by the Managed Account or Pooled Fund;
"Managed Account" means an account managed by the Filer for a client that is not a responsible person and over which the Filer has discretionary authority;
"Mutual Funds" means collectively, the Existing Mutual Funds and the Future Mutual Funds; and
"Pooled Funds" means collectively, the Existing Pooled Funds and the Future Pooled Funds.
Representations
This decision is based on the following facts represented by the Filer:
1. The head office of the Filer is located in Toronto, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Québec and Newfoundland and Labrador and is registered as a portfolio manager and exempt market dealer in Ontario, Alberta, British Columbia, Manitoba, Nova Scotia, Québec and Saskatchewan. The Filer is also registered as a commodity trading manager in Ontario, as a derivatives portfolio manager in Québec and as an adviser in Manitoba.
3. The Filer and each of the Funds are not in default of securities legislation in any of the Jurisdictions.
4. The Filer is, or will be, the manager, principal distributor and registrar of the Funds. The Filer and/or sub-advisors, including a related sub-advisor, may be the portfolio manager(s) of the Funds. The Filer may appoint sub-advisers to the Funds.
5. Each of the Mutual Funds is or will be established under the laws of Ontario or of Canada as an investment fund that is an open-ended mutual fund trust or an open-ended mutual fund corporation and is or will be a reporting issuer in each of the Jurisdictions.
6. The securities of each of the Mutual Funds are or will be qualified for distribution pursuant to simplified prospectuses and annual information forms that have been prepared or will be prepared and filed in accordance with NI 81-101 -- Mutual Fund Prospectus Disclosure. Each of the Mutual Funds are or will be subject to the provisions of NI 81-102.
7. Each of the Pooled Funds is, or will be, an investment fund established as a trust under the laws of Ontario that is an open-ended mutual fund trust, open-ended mutual fund corporation or closed-ended trust and will not be a reporting issuer in any of the Jurisdictions.
8. The securities of the Pooled Funds are or will be distributed on a private placement basis pursuant to available prospectus exemptions. Each of the Pooled Funds are not subject to NI 81-102.
9. Each of the Closed-End Funds is or will be established under the laws of Ontario or of Canada as an investment fund and is or will be a reporting issuer in each of the Jurisdictions.
10. The securities of each of the Closed-End Funds are or will be qualified for distribution pursuant to long form prospectuses that have been prepared or will be prepared and filed in accordance with the securities legislation of each of the Jurisdictions. Each of the Closed-End Funds are or will be subject to NI 81-102.
11. The Filer also offers discretionary investment management services to institutional and individual investors through the Managed Accounts.
12. Each Managed Account client wishing to receive the discretionary investment management services of the Filer has entered into, or will enter into, a written agreement (an "Investment Management Agreement") whereby the client appoints the Filer to act as portfolio manager in connection with an investment portfolio of the client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute the trade.
13. Investments in individual securities may not be appropriate in certain circumstances for a Managed Account client. Consequently, the Filer may, where authorized under the Investment Management Agreement, from time to time invest a Managed Account client's assets in securities of any one or more of the Funds in order to give such client the benefit of asset diversification and economies of scale regarding minimum commission charges on portfolio trades, and generally to facilitate portfolio management.
14. Each Investment Management Agreement or other documentation in respect of a Managed Account contains, or will contain, the authorization of the client for the Filer to engage in Inter-Fund Trades and In Specie Transfers.
15. The Filer wishes to be able to permit any Fund or Managed Account to engage in Inter-Fund Trades with a Fund. Different sections of NI 31-103, NI 81-102 and NI 81-107 impose different prohibitions and exceptions on different types of Funds with respect to Inter-Fund Trades.
16. An exception from the inter-fund trading prohibition in section 4.2(1) of NI 81-102 currently exists in section 4.3(1) of NI 81-102 which permits the Mutual Funds and Closed-End Funds to inter-fund trade listed equity securities with the Pooled Funds. The Mutual Funds and Closed-End Funds are however unable to rely on the exception in section 4.3(1) of NI 81-102 to inter-fund trade debt securities because debt securities are typically not subject to public quotations as required by section 4.3(1) of NI 81-102. The Mutual Funds and Closed-End Funds are further unable to rely on the exception in section 4.3(2) to inter-fund trade debt securities with the Pooled Funds because that exception only applies where funds on both sides of the inter-fund trade are investment funds governed by NI 81-107. The Pooled Funds are not subject to NI 81-107.
17. The Filer has submitted that because of the various investment objectives and investment strategies utilized by the Funds and Managed Accounts, it may be appropriate for different investment portfolios to acquire or dispose of the same securities through the same trading system. Authorizing the Inter-Fund Trades may result in such benefits as lower trading costs, reduced market disruption and quicker execution.
18. The Filer has determined that it would be in the best interests of the Funds and Managed Accounts to receive the Inter-Fund Trading Relief because making the Funds and the Managed Accounts subject to the same set of rules governing the execution of Inter-Fund Trades will result in:
(i) cost and timing efficiencies in respect of the execution of Inter-Fund Trades; and
(ii) simplified and more efficient monitoring thereof, for the Filer in connection with the execution of Inter-Fund Trades.
19. Inter-Fund Trades will be consistent with the investment objective of the Fund or Managed Account, as applicable.
20. At the time of an Inter-Fund Trade, the Filer will have in place policies and procedures to enable the Funds and Managed Accounts to engage in Inter-Fund Trades.
21. The Filer has established or will establish an independent review committee (each, an "IRC") in respect of the Pooled Funds, Mutual Funds and Closed-End Funds.
22. The mandate of the IRCs, among other things, includes approving Inter-Fund Trades. The IRCs of the Funds were composed by the Filer in accordance with the requirements of section 3.7 of NI 81-107 and are expected to comply with the standard of care set out in section 3.9 of NI 81-107. Further, the IRCs will not approve Inter-Fund Trades unless the IRCs have made the determination set out in section 5.2(2) of NI 81-107.
23. Purchases and sales of securities involving Mutual Funds will be referred to and approved by the IRC of the Mutual Funds under sections 5.2(1) and 5.4 of NI 81-107 and will be subject to the requirements of section 5.2(2) of NI 81-107.
24. Inter-Fund Trades involving only Mutual Funds and Closed-End Funds will be conducted in accordance with the exemption codified under section 6.1(4) of NI 81-107. An exemption for Inter-Fund Trades involving Pooled Funds and Managed Accounts is not provided for in section 6.1(4) of NI 81-107.
25. When the Filer engages in an Inter-Fund Trade which involves the purchase and sale of securities between Funds, or between Managed Accounts and Funds, it will follow the following procedures:
(a) the portfolio manager will deliver the trade instructions in respect of a purchase or sale of a security by a Fund or Managed Account, as applicable, to a trade associate on the trading desk of the Filer;
(b) the trade associate will enter certain details regarding the trade into an inter-fund trading spreadsheet;
(c) the macro from the spreadsheet will run a search to identify any portfolios that would like to enter into the opposite side of the proposed trade;
(d) once trades have been matched for an Inter-Fund Trade, a specialist portfolio manager (who is unconnected to the trades) must review and provide approval for the proposed Inter-Fund Trade;
(e) once the specialist portfolio manager approvals are provided, the selling and purchasing portfolio managers must provide their approval of the Inter-Fund Trade;
(f) once all approvals have been granted, the order will be executed on a timely basis; and
(g) all Inter-fund Trades will be executed in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107, except that for exchange-traded securities the Inter-Fund Trade may be executed at the Last Sale Price of the security in lieu of the Closing Sale Price.
26. The Filer considers that it would be in the best interests of the Funds if an Inter-Fund Trade could be made at the Last Sale Price prior to execution of the trade in lieu of the Closing Sale Price since this will result in the trade being done at the price which is closest to the price at the time the decision to make the trade is made.
27. If the IRC of a Fund becomes aware of an instance where the Filer did not comply with the terms of any decision document issued in connection with the Inter-Fund Trading Relief, or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Fund is organized.
28. The Filer may wish to or otherwise be required to deliver securities held in a Managed Account or Pooled Fund to a Fund in respect of a purchase of units or shares of the Fund ("Fund Securities"), and may wish to or otherwise be required to receive securities from a Fund in respect of a redemption of Fund Securities by a Managed Account or Pooled Fund.
29. As the Filer may in the future be the trustee of a Fund which is organized as a trust, each such Fund could be an 'associate' of the Filer and accordingly, absent the grant of the In Specie Transfer Relief, the Filer would in the future be precluded by the provisions of section 13.5(2)(b)(ii) of NI 31-103 from effecting the In-Specie Transfers in such circumstances. As the Filer is a registered adviser which is or will be the manager and portfolio manager of the Funds and is or will be the portfolio manager of the Managed Accounts, absent the grant of the In Specie Transfer Relief, the Filer would be precluded by the provisions of section 13.5(2)(b)(iii) of NI 31-103 from effecting the In Specie Transfers.
30. Effecting In Specie Transfers of securities as described above will allow the Filer to manage each asset class more effectively and reduce transaction costs for the Managed Accounts and the Funds. For example, In Specie Transfers reduce market impact costs, which can be detrimental to the Managed Accounts and the Funds. In Specie Transfers also allow a portfolio manager to retain within its control institutional-size blocks of securities that otherwise would need to be broken and re-assembled.
31. The only cost which will be incurred by a Managed Account or a Fund for an In Specie Transfer is a nominal administrative charge levied by the custodian of the relevant Fund in recording the trades and any commission charged by the dealer executing the trade.
32. The Filer has obtained or will obtain the prior specific written consent of the relevant Managed Account client before it engages in any In Specie Transfers in connection with the purchase or redemption of securities of the Funds for the Managed Account.
33. The Filer, as manager of the Funds, will value the securities transferred under an In Specie Transfer on the same valuation day on which the purchase price or redemption price of the Fund Securities of a Fund is determined. With respect to the purchase of Fund Securities of a Fund, the securities transferred to a Fund under an In Specie Transfer in satisfaction of the purchase price of those Fund Securities will be valued as if the securities were portfolio assets of the Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102. With respect to the redemption of Fund Securities of a Fund, the securities transferred to a Managed Account in satisfaction of the redemption price of those Fund Securities will have a value equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price of the Fund Securities of the Fund, as contemplated by section 10.4(3)(b) of NI 81-102.
34. In Specie Transfers will be subject to (i) compliance with the written policies and procedures of the Filer respecting In Specie Transfers that are consistent with applicable securities legislation, and (ii) the oversight of the Filer's Compliance Department, to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Fund and the Managed Account, uninfluenced by considerations other than the best interests of the Fund and Managed Account.
35. The Filer does not receive any compensation in respect of any sale or redemption of units of a Fund and, in respect of any delivery of securities further to an In-Specie Transfer, the only charge paid by the Fund is the commission charged by the dealer executing the trade.
36. The Filer has determined that it will be in the best interests of the Funds and the Managed Accounts to receive the Requested Relief.
37. The Filer has submitted that, absent receipt of the In Specie Transfer Relief, neither the Funds and Managed Accounts, nor the Filer on their behalf, will be permitted to engage in Inter-Fund Trades or In Specie Transfers on the basis described in this Application.
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 under the Legislation is that:
a) the Section 4.2(1) Relief is granted provided that the following conditions are satisfied:
(i) the transaction is consistent with the investment objective of each of the Funds involved in the trade;
(ii) the IRC of each Fund involved in the trade has approved the transaction in respect of that Fund in accordance with the terms of section 5.2 of NI 81-107; and
(iii) the transaction complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107.
b) the Inter-Fund Trading Relief is granted provided that the following conditions are satisfied:
(i) the Inter-Fund Trade is consistent with the investment objective of the Fund or the Managed Account, as applicable;
(ii) the Filer refers the Inter-Fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade; and
(iii) in the case of an Inter-Fund Trade between Funds:
a. the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of section 5.2(2) of NI 81-107;
b. the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price; and
(iv) in the case of an Inter-Fund Trade between a Managed Account and a Fund:
a. the IRC of the Fund approved the Inter-Fund Trade in respect of such Fund in accordance with the terms of section 5.2(2) of NI 81-107;
b. the investment management agreement or other documentation in respect of the Managed Account authorizes the transaction; and
c. the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price.
c) the In-Specie Transfer Relief is granted provided that:
(i) if the transaction is the purchase of Fund Securities of a Fund by a Managed Account:
a. in respect of the In-Specie Transfer Relief as it applies to purchases of a Mutual Fund or Closed-End Fund,
I. the Filer, as manager of the Mutual Fund or Closed-End Fund, obtains the approval of the applicable IRC of the Mutual Fund or Closed-End Fund in respect of an In-Specie Transfer in accordance with the terms of s.5.2 of NI 81-107; and
II. the Filer, as manager of the Mutual Fund or Closed-End Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In-Specie Transfer;
b. the Filer obtains the prior written consent of the client of the relevant Managed Account before it engages in any In Specie Transfers in connection with the purchase of Fund Securities of the Fund;
c. the Fund would at the time of payment be permitted to purchase the securities of the Managed Account;
d. the securities are acceptable to the Filer as portfolio manager of the Fund and consistent with the Fund's investment objectives;
e. the value of the securities sold to the Fund is at least equal to the issue price of the Fund Securities of the Fund for which they are payment, valued as if the securities were portfolio assets of that Fund;
f. the account statement next prepared for the Managed Account will include a note describing the securities delivered to the Fund and the value assigned to such securities; and
g. the Fund keeps written records of all In Specie Transfers during the financial year of the Fund, reflecting details of the securities delivered to the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;
(ii) if the transaction is the redemption of Fund Securities of a Fund by a Managed Account:
a. in respect of the In Specie Transfer Relief as it applies to redemptions of a Mutual Fund or Closed-End Fund,
I. the Filer, as manager of the Mutual Fund or Closed-End Fund obtains the approval of the applicable IRC of the Mutual Fund or Closed-End Fund in respect of an In-Specie Transfer in accordance with the terms of s.5.2 of NI 81-107; and
II. the Filer, as manager of the Mutual Fund or Closed-End Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In-Specie Transfer;
b. the Filer obtains the prior written consent of the client of the relevant Managed Account to the payment of redemption proceeds in the form of an In-Specie Transfer;
c. the securities are acceptable to the Filer as portfolio manager of the Managed Account and consistent with the Managed Account's investment objectives;
d. the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security of the Fund used to establish the redemption price;
e. the holder of the Managed Account has not provided notice to terminate its Managed Account Agreement with the Filer;
f. the account statement next prepared for the Managed Account will include a note describing the securities delivered to the Managed Account and the value assigned to such securities;
g. the Fund keeps written records of all In Specie Transfers during the financial year of the Fund, reflecting details of the securities delivered by the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and
h. the Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a Fund and, in respect of any delivery of securities further to an In Specie Transfer, the only charge paid by the Managed Account, if any, is the commission charged by the dealer executing the trade;
(iii) if the transaction is the purchase of Fund Securities of a Mutual Fund or Closed-End Fund by a Pooled Fund:
a. the Filer, as manager of the Mutual Fund or Closed-End Fund, obtains the approval of the IRC of the Mutual Fund or Closed-End Fund in respect of an In Specie Transfer in accordance with the terms of subsection 5.2 of NI 81-107;
b. the Filer, as manager of the Mutual Fund or Closed-End Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In Specie Transfer;
c. the Mutual Fund or Closed-End Fund would at the time of payment be permitted to purchase those securities;
d. the securities are acceptable to the Filer as portfolio manager of the Mutual Fund or Closed-End Fund, and consistent with the Mutual Fund's or Closed-End Fund's investment objectives;
e. the value of the securities is at least equal to the issue price of the Fund Securities of the Mutual Fund or Closed-End Fund for which they are payment, valued as if the securities were portfolio assets of that Mutual Fund or Closed-End Fund; and
f. each of the Funds will keep written records of an In Specie Transfer in a financial year of a Fund, reflecting details of the securities delivered by the Pooled Fund to the Mutual Fund or Closed-End Fund, and the value assigned to such securities, for five years after the end of their financial year, the most recent two years in a reasonably accessible place;
(iv) if the transaction is the redemption of Fund Securities of a Mutual Fund or Closed-End Fund by a Pooled Fund:
a. the Filer, as manager of the Mutual Fund or Closed-End Fund, obtains the approval of the IRC of the Mutual Fund or Closed-End Fund in respect of the In Specie Transfer in accordance with the terms of subsection 5.2 of NI 81-107;
b. the Filer, as manager of the Mutual Fund or Closed-End Fund, and the applicable IRC, comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In Specie Transfer;
c. the securities are acceptable to the portfolio adviser of the Pooled Fund, and consistent with the investment objective of the Pooled Fund;
d. the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Securities used to establish the redemption price of the Mutual Fund or Closed-End Fund; and
e. each of the Funds will keep written records of an In Specie Transfer in a financial year of a Fund, reflecting details of the securities delivered by the Mutual Fund or Closed-End Fund to the Pooled Fund, and the value assigned to such securities, for five years after the end of their financial year, the most recent two years in a reasonably accessible place;
(v) if the transaction is the purchase of Fund Securities of a Pooled Fund by a Pooled Fund:
a. the Pooled Fund would at the time of payment be permitted to purchase those securities;
b. the securities are acceptable to the Filer as portfolio manager of the Pooled Fund, and consistent with the Pooled Fund's investment objectives;
c. the value of the securities is at least equal to the issue price of the Fund Securities of the Pooled Fund for which they are payment, valued as if the securities were portfolio assets of that Pooled Fund; and
d. each Pooled Fund will keep written records of an In Specie Transfer in a financial year of a Pooled Fund, reflecting details of the securities delivered to the Pooled Fund, and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;
(vi) if the transaction is the redemption of Fund Securities of a Pooled Fund by a Pooled Fund:
a. the securities are acceptable to the portfolio adviser of the Pooled Fund, and consistent with the investment objective of the Pooled Fund;
b. the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Securities used to establish the redemption price of the Pooled Fund; and
c. each Pooled Fund will keep written records of an In Specie Transfer in a financial year of the Pooled Fund, reflecting details of the securities delivered by the Pooled Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and
(vii) the Filer does not receive any compensation in respect of any sale or redemption of units of a Fund and, in respect of any delivery of securities further to an In Specie Transfer, the only charge paid by the Fund is the commission charged by the dealer executing the trade.
"Vera Nunes"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission