Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted from section 13.5(2)(b) of NI 31-103 to permit inter-fund trading between mutual funds, pooled funds, closed-end funds and managed accounts managed by the same manager or its affiliate – Relief subject to conditions, including IRC approval and pricing requirements – certain trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules – Exemption also granted from conflict of interest trading prohibition in paragraph 13.5(2)(b) to permit in-specie subscriptions and redemptions by separately managed accounts, closed-end funds, and pooled funds – relief subject to conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5, 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1(2), 6.1(4).

December 14, 2016

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
MANULIFE ASSET MANAGEMENT LIMITED
(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) exempting the Filer, or an affiliate of the Filer (each, an Investment Portfolio Manager), that is the registered adviser to a Fund (as defined below) or an account over which the Investment Portfolio Manager has discretionary authority for a client that is not a “responsible person” within the meaning of the applicable provisions of the Legislation (a Managed Account) from the prohibition in section 13.5(2)(b) of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (the Trading Prohibition) which prohibits 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 the securities of any issuer from or to the investment portfolio of an associate of a responsible person or any investment fund for which a responsible person acts as an adviser, to permit (the Exemption Sought):

(a)           an NI 81-102 Fund (as defined below) to purchase securities from or sell securities to:

(i)            another NI 81-102 Fund where the second NI 81-102 Fund is:

(A)           an associate of the Investment Portfolio Responsible Person (as defined below) of the first NI 81-102 Fund; or

(B)           an investment fund for which an Investment Portfolio Responsible Person of the first NI 81-102 Fund acts as an adviser;

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price (as defined below) 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 NI 81-107 on that trading day;

(ii)           a Closed End Fund (as defined below) that is:

(A)           an associate of the Investment Portfolio Responsible Person of the NI 81-102 Fund; or

(B)           an investment fund for which an Investment Portfolio Responsible Person of the NI 81-102 Fund acts as an adviser;

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day;

(iii)          a Pooled Fund (as defined below) that is:

(A)           an associate of the Investment Portfolio Responsible Person of the NI 81-102 Fund; or

(B)           an investment fund for which an Investment Portfolio Responsible Person of the NI 81-102 Fund acts as an adviser;

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day;

(b)           a Pooled Fund to purchase securities from, or sell securities to, another Fund that is:

(i)            an associate of an Investment Portfolio Responsible Person of the Pooled Fund; or

(ii)           an investment fund for which an Investment Portfolio Responsible Person of the Pooled Fund acts as an adviser;

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day; and

(c)           a Closed-End Fund to purchase securities from, or sell securities to:

(i)            another Closed-End Fund where the second Closed-End Fund is:

(A)           an associate of an Investment Portfolio Responsible Person of the first Closed-End Fund; or

(B)           an investment fund for which an Investment Portfolio Responsible Person of the first Closed-End Fund acts as an adviser,

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day;

(ii)           an NI 81-102 Fund where the NI 81-102 Fund is:

(A)           an associate of an Investment Portfolio Responsible Person of the Closed-End Fund; or

(B)           an investment fund for which an Investment Portfolio Responsible Person of the Closed-End Fund acts as an adviser,

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day;

(iii)          a Pooled Fund that is:

(A)           an associate of an Investment Portfolio Responsible Person of the Closed-End Fund; or

(B)           an investment fund for which an Investment Portfolio Responsible Person of the Closed-End Fund acts as an adviser;

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day;

(d)           a Managed Account to purchase securities from, or sell securities to, a Fund (as defined below) where the Fund is:

(i)            an associate of an Investment Portfolio Responsible Person of the Managed Account;

(ii)           an investment fund for which an Investment Portfolio Responsible Person of the Managed Account acts as an adviser;

and for the purchase and sale of exchange-traded securities to occur at the Last Sale Price in lieu of the Closing Sale Price contemplated by the definition of “current market price of the security” in section 6.1(1)(a)(i) of NI 81-107 on that trading day;

(collectively, the Inter-Fund Trades);

(e)           the purchase by a Managed Account of securities of a Fund, and the redemption of securities of a Fund held by a Managed Account, and as payment:

(i)            for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the Fund; and

(ii)           for such redemption, in whole or in part, by the Managed Account receiving good delivery of portfolio securities from the Fund; and

(f)            the purchase by a Fund of securities of another Fund (other than purchases by an NI 81-102 Fund of another NI 81-102 Fund), and the redemption of securities held by a Fund in another Fund (other than redemptions of securities held by an NI 81-102 Fund of another NI 81-102 Fund), and as payment:

(i)            for such purchase, in whole or in part, by the Fund making good delivery of portfolio securities to the other Fund; and

(ii)           for such redemption, in whole or in part, by the Fund receiving good delivery of portfolio securities from the other Fund;

(a purchase or redemption described in (e) and (f) above is referred to herein as an In Specie Transaction);

The Filer is also requesting that the Original Decision (as defined below) be revoked and replaced with the Exemption Sought (the Revocation).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

(b)           the Filer has provided notice that subsection 4.7(2) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in respect of the Exemption Sought in each of the other Provinces and Territories of Canada (together with Ontario, the Passport Jurisdictions).

Interpretation

Terms defined in the Legislation, MI 11-102, National Instrument 14-101 – Definitions, National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations, National Instrument 81-102 – Investment Funds (NI 81-102) or National Instrument 81-107 – Independent Review Committee for Investment Funds (NI 81-107) have the same meanings in this decision, unless otherwise defined.

Funds means the following existing or future investment funds of which the Filer or an affiliate of the Filer is the manager: existing or future mutual funds to which NI 81-102 and NI 81-107 apply (the NI 81-102 Funds); existing or future mutual funds to which NI 81-102 and NI 81-107 do not apply (the Pooled Funds and, together with the NI 81-102 Funds, the Mutual Funds); and existing or future investment funds to which NI 81-107 applies but to which NI 81-102 does not apply (the Closed-End Funds).

Investment Portfolio Responsible Person for a Fund or a Managed Account, means either the Investment Portfolio Manager as the registered adviser of the Fund or the Managed Account or an affiliate of such Investment Portfolio Manager that has access to, or participates in formulating, an investment decision made on behalf of the Fund or the Managed Account.

Last Sale Price means the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade 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).

Representations

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

The Investment Portfolio Managers

1.             The Filer is a corporation amalgamated under the laws of Canada, with its registered head office located in Toronto, Ontario. The Filer is an indirect wholly-owned subsidiary of The Manufacturers Life Insurance Company, which in turn is a wholly-owned subsidiary of Manulife Financial Corporation.

2.             The Filer is currently registered in the categories of commodity trading manager, portfolio manager, derivatives portfolio manager and investment fund manager.

3.             An Investment Portfolio Manager acts, or will act, as the investment fund manager of the Funds. An Investment Portfolio Manager acts, or will act, as the portfolio advisor of the Funds. An Investment Portfolio Manager may also act as the trustee of a Fund constituted as a trust. An Investment Portfolio Manager is, or will be, the adviser to each Managed Account.

4.             The Filer and each of the existing Funds are not in default of securities legislation.

The Funds

5.             Each Fund is, or will be, an investment fund that is a trust, a corporation or a limited partnership that is established under the laws of Ontario, Canada or other jurisdiction of Canada.

6.             A Fund’s reliance on the Exemption Sought will be compatible with its investment objective and strategies.

7.             Each NI 81-102 Fund is, or will be, a reporting issuer in one or more Passport Jurisdictions whose securities are, or will be, qualified for distribution pursuant to prospectuses and, if applicable, annual information forms that have been, or will be, prepared and filed in accordance with the securities legislation of those Passport Jurisdictions.

8.             Each Closed-End Fund is, or will be, a reporting issuer in Ontario and one or more of the other Passport Jurisdictions whose securities are, or will be, qualified for distribution pursuant to prospectuses that have been, or will be, prepared and filed in accordance with the securities legislation of Ontario and those other Passport Jurisdictions.

9.             The securities of each of the Pooled Funds are, or will be, distributed on a private placement basis pursuant to the Legislation and the Pooled Funds will not be reporting issuers.

10.          A Fund may be an associate of an Investment Portfolio Responsible Person.

The Managed Accounts

11.          An Investment Portfolio Responsible Person is or will be the registered adviser of each Managed Account.

12.          The Managed Accounts are or will be managed pursuant to investment management agreements or other documentation which are or will be executed by each client who wishes to receive the portfolio management services of an Investment Portfolio Manager and which provide the Investment Portfolio Manager full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute the trade.

13.          The investment management agreements or other documentation in respect of each Managed Account will contain authorization from the client for the Investment Portfolio Manager of the Managed Account to make Inter-Fund Trades and/or enter into In Specie Transactions.

Independent Review Committee

14.          Each NI 81-102 Fund and Closed-End Fund has, or will have, an independent review committee (an IRC) in accordance with the requirements of NI 81-107. Each Inter-Fund Trade by either an NI 81-102 Fund or a Closed-End Fund with a Managed Account will be authorized by the relevant IRC of the NI 81-102 Fund or Closed-End Fund under section 5.2 of NI 81-107 and the manager of the NI 81-102 Fund or the Closed-End Fund, as applicable, will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade.

15.          Though the Pooled Funds are not, or will not be, subject to the requirements of NI 81-107, each Pooled Fund has, or will have, an IRC at the time the Pooled Fund makes an Inter-Fund Trade. All Existing Pooled Funds have already established an IRC in order to comply with conditions attached to previously granted relief. The mandate of the IRC of each Pooled Fund will include approving Inter-Fund Trades.

16.          If the IRC of a Pooled Fund becomes aware of an instance where the Filer or an affiliate of the Filer, as manager of the Pooled Fund, did not comply with the terms of this decision or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Pooled Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Pooled Fund is organized.

Inter-Fund Trades

17.          When an Investment Portfolio Manager engages in an Inter-Fund Trade it will follow the following procedures:

(a)           in respect of a purchase or a sale of a security by a Fund or Managed Account, as applicable (Portfolio A), the portfolio manager of the Investment Portfolio Manager will either place the trade directly or will deliver the trade instructions to a trader on a trading desk of the Investment Portfolio Manager;

(b)           in respect of a sale or a purchase of a security by another Fund or Managed Account, as applicable (Portfolio B) the portfolio manager of the Investment Portfolio Manager will either place the trade directly or will deliver the trade instructions to a trader on a trading desk of the Investment Portfolio Manager;

(c)           each portfolio manager of the Investment Portfolio Manager will request the approval of the chief compliance officer of the Investment Portfolio Manager (or his or her designated alternate during periods when it is not practicable for the chief compliance officer to address the matter) (the CO) to execute the trade as an Inter-Fund Trade;

(d)           once the portfolio manager or trader on the trading desk has confirmed the approval of the CO, the portfolio manager or the trader on the trading desk will have the discretion to execute the trade as an Inter-Fund Trade between Portfolio A and Portfolio B in accordance with the requirements of 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 trade may be executed at the Last Sale Price;

(e)           the policies applicable to the portfolio manager and the trading desk of the Investment Portfolio Manager will require that all Inter-Fund Trade orders are to be executed on a timely basis and will remain open only for 30 days unless the portfolio manager cancels the order sooner; and

(f)            the portfolio manager or the trader on a trading desk will advise the Investment Portfolio Manager of the price at which the Inter-Fund Trade occurred.

18.          Pursuant to the Trading Prohibition, a Fund or a Managed Account, as applicable, may be restricted from making Inter-Fund Trades with another Fund if: (i) the second Fund is an associate of an Investment Portfolio Responsible Person of the first Fund or the Managed Account, as applicable or (ii) an Investment Portfolio Responsible Person of the first Fund or the Managed Account, as applicable, is an adviser to the second Fund.

19.          The Trading Prohibition is similar to the restriction applicable to NI 81-102 Funds contained in section 4.2(1) of NI 81-102. However, there is no statutory relief from the Trading Prohibition equivalent to section 4.3(1) of NI 81-102 for purchases and sales of securities with available public quotations. Section 6.1(4) of NI 81-107 provides relief from the Trading Prohibition but only if, among other conditions, the trade involves two investment funds to which NI 81-107 applies (which is not the case when a Managed Account or Pooled Fund is one of the parties to the Inter-Fund Trade) and the Inter-Fund Trade occurs at the closing market price which, in the case of exchange traded securities, does not include the Last Sale Price.

20.          The Investment Portfolio Managers of the Pooled Funds cannot rely upon the exemption from section 13.5(2)(b) of NI 31-103 codified in section 6.1(4) of NI 81-107 because such codified relief is not available to the Pooled Funds.

In Specie Transactions

21.          When acting for a Managed Account of a client, an Investment Portfolio Manager wishes to be able, in accordance with the investment objectives and investment restrictions of the client, to cause the client’s Managed Account to either invest in securities of a Fund, or to redeem such securities, pursuant to an In Specie Transaction.

22.          In acting on behalf of a Fund, an Investment Portfolio Manager wishes to be able, in accordance with the investment objectives and investment restrictions of the Fund, to cause the Fund to either invest in securities of another Fund, or to redeem such securities, pursuant to an In Specie Transaction.

23.          The only cost which will be incurred by a Fund or a Managed Account for an In Specie Transaction is a nominal administrative charge levied by the custodian of the Fund in recording the trades and/or any commission charged by the dealer executing the trade.

24.          At the time of each In Specie Transaction, the applicable Investment Portfolio Manager will have in place policies and procedures governing such transactions, including the following:

(a)           each In Specie Transaction involving an NI 81-102 Fund or a Closed End Fund will be referred to the applicable IRC for approval in accordance with the requirements of subsection 5.2(2) of NI 81-107;

(b)           the Investment Portfolio Manager has obtained, or will obtain, the written consent of the relevant client before it engages in any In Specie Transaction in connection with the purchase or redemption of securities of the Funds for the Managed Account;

(c)           the portfolio securities transferred in an In Specie Transaction will be consistent with the investment criteria of the Fund or Managed Account, as the case may be, acquiring the portfolio securities;

(d)           the portfolio securities transferred in In Species Transactions will be valued on the same valuation day using the same valuation principles as are used to calculate the net asset value for the purpose of the issue price or redemption price of securities of the Fund;

(e)           with respect to the purchase of securities of a Fund, the portfolio securities transferred to the Fund in an In Specie Transaction as purchase consideration for those securities will be valued as if the portfolio securities were assets of the Fund and in accordance with subsection 9.4(2)(b)(iii) of NI 81-102. With respect to the redemption of securities, the portfolio securities transferred in consideration for the redemption price of those securities will have a value at least equal to the amount at which those portfolio securities were valued in calculating the net asset value per security used to establish the redemption price of the securities in accordance with subsection of 10.4(3)(b) of NI 81-102;

(f)            the valuation of any illiquid securities which would be the subject of an In Specie Transaction will be carried out according to the Investment Portfolio Manager’s policies and procedures for the fair valuation of portfolio securities, including illiquid securities. Should any In Specie Transaction involve the transfer of an "illiquid asset" (as defined in NI 81-102), the Investment Portfolio Manager will obtain at least one quote for the asset from an independent arm’s length purchaser or seller, immediately before effecting the In Specie Transaction;

(g)           if any illiquid securities are the subject of an In Specie Transaction, the illiquid securities would be transferred on a pro rata basis. The Funds generally invest in liquid securities. The Investment Portfolio Manager will not cause any Fund to engage in an In Specie Transaction if the applicable Fund or Managed Account is not in compliance with the portfolio restrictions on the holding of illiquid securities described in section 2.4 of NI 81-102;

(h)           the Funds will keep written records of each In Specie Transaction, including records of each purchase and redemption of portfolio securities and the terms thereof for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place.

25.          The Filer has determined that it would be in the interests of the Funds and the Managed Accounts to engage in In Species Transactions.

26.          In Specie Transactions will be subject to (i) compliance with the written policies and procedures of the Filer respecting In Specie Transactions that are consistent with applicable securities legislation and this decision and (ii) the oversight of the Filer to ensure that the In Specie Transactions represent the business judgment of the Filer acting in its discretionary capacity with respect to the Funds and the Managed Accounts, uninfluenced by considerations other than the best interests of the Funds and Managed Accounts. The results of the oversight and review by the Filer will be submitted in the form of a report to the Filer’s board of directors on a semi-annual basis.

27.          The Filer has determined that effecting the In Specie Transactions of securities between a Fund and a Managed Account or between a Fund and another Fund will allow the Filer to manage each asset class more effectively and reduce transaction costs for the client, as applicable, and the Funds. For example, In Specie Transactions may:

(a)           reduce market impact costs, which can be detrimental to clients and/or the Funds;

(b)           also allow a portfolio adviser to retain within its control institutional-size blocks of securities that otherwise would need to be broken and re-assembled.

28.          The Investment Portfolio Manager will be the portfolio adviser of the Fund and is, or may be, the trustee of a Fund. As such, the Investment Portfolio Manager is, or may be, a “responsible person” within the meaning of the applicable provisions of the Legislation. Accordingly, a Fund may be considered to be an “associate of a responsible person” within the meaning of the applicable provisions of the Legislation.

29.          Accordingly, absent the granting of the Exemption Sought, the Investment Portfolio Managers would be prohibited from engaging in the In Specie Transactions due to the Trading Prohibitions.

The Original Decision – Inter-Fund Trades

30.          Pursuant to a decision dated July 5, 2013 (the Original Decision), relief was previously granted to the Filer, the Funds and the Managed Accounts from the Trading Prohibition.

31.          Subject to the terms and conditions described therein, the Original Decision permits Funds and Managed Accounts to engage in various inter-fund trades with other Funds and Managed Accounts.

32.          Under the Original Decision, Inter-Fund Trades were required to occur at the Last Sale Price.

33.          The Exemption Sought will revoke and replace the Original Decision and will clarify that Inter-Fund Trades may occur at the Last Sale Price in lieu of the Closing Sale Price.

34.          As of the date of this decision, the Original Decision will no longer be relied upon by the Filer, the Funds and the Managed Accounts.

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 the Revocation is granted and the Exemption Sought is granted provided that:

Inter-Fund Trades

1.             In connection with Inter-Fund Trades:

(a)           the Inter-Fund Trade is consistent with the investment objective of the Fund or the Managed Account, as applicable;

(b)           the Filer, or affiliate of the Filer, as manager of the Funds, refers the Inter-Fund Trade to the IRC of the Fund involved in the manner contemplated by section 5.1 of NI 81-107 and the Filer, or affiliate of the Filer, as manager of the Funds, and the applicable IRC complies with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;

(c)           the IRC of each Fund has approved the Inter-Fund Trade in respect of that Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;

(d)           if the transaction is with a Managed Account, the investment management agreement or other documentation in respect of the Managed Account contains or will contain the authorization of the client to engage in Inter-Fund Trades and such authorization has not been revoked; and

(e)           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 trade may be executed at the Last Sale Price.

In Specie Transactions

2.             In connection with an In Specie Transaction where a Managed Account acquires securities of a Fund:

(a)           if the transaction involves the purchase of securities in an NI 81-102 Fund or a Closed-End Fund, the IRC of the NI 81-102 Fund or Closed-End Fund, as applicable, has approved the In Specie Transaction on behalf of the NI 81-102 Fund or Closed-End Fund, as applicable, in accordance with the terms of subsection 5.2(2) of NI 81-107;

(b)           the Filer and the applicable IRC complies with section 5.4 of NI 81-107 in respect of any standing instructions the applicable IRC provides in connection with the In Specie Transaction;

(c)           the Filer obtains the prior written consent of the client of the Managed Account before it engages in any In Specie Transaction;

(d)           the Fund would, at the time of payment, be permitted to purchase the portfolio securities;

(e)           the portfolio securities are acceptable to the portfolio manager of the Fund and meet the investment criteria of the Fund;

(f)            the value of the portfolio securities is at least equal to the issue price of the securities of the Fund for which they are used as payment, valued as if the portfolio securities were portfolio assets of that Fund;

(g)           the account statement next prepared for the Managed Account will describe the portfolio securities delivered to the Fund and the value assigned to such portfolio securities; and

(h)           the Fund will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the portfolio securities delivered to the Fund and the value assigned to such portfolio securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place.

3.             In connection with an In Specie Transaction where a Managed Account redeems securities of a Fund:

(a)           if the transaction involves the redemption of securities in an NI 81-102 Fund or a Closed-End Fund, the IRC of the NI 81-102 Fund or Closed-End Fund, as applicable, has approved the In Specie Transaction on behalf of the NI 81-102 Fund or Closed-End Fund, as applicable, in accordance with the terms of subsection 5.2(2) of NI 81-107;

(b)           the Filer and the applicable IRC complies with section 5.4 of NI 81-107 in respect of any standing instructions the applicable IRC provides in connection with the In Specie Transaction;

(c)           the Filer obtains the prior written consent of the client of the Managed Account before it engages in any In Specie Transaction, and such consent has not been revoked;

(d)           the portfolio securities meet the investment criteria of the Managed Account acquiring the portfolio securities and are acceptable to the Filer;

(e)           the value of the portfolio securities is equal to the amount at which those portfolio securities were valued by the Fund in calculating the net asset value per unit or share used to establish the redemption price;

(f)            the account statement next prepared for the Managed Account will describe the portfolio securities received from the Fund and the value assigned to such portfolio securities; and

(g)           the Fund will keep written records of each In Specie Transaction in a 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.

4.             in connection with an In Specie Transaction where a Fund acquires portfolio securities of a Fund:

(a)           if the transaction involves the purchase of securities in an NI 81-102 Fund or a Closed-End Fund, the IRC of the NI 81-102 Fund or Closed-End Fund, as applicable, has approved the In Specie Transaction on behalf of the NI 81-102 Fund or Closed-End Fund, as applicable, in accordance with the terms of subsection 5.2(2) of NI 81-107;

(b)           the Filer and the applicable IRC comply with section 5.4 of NI 81-107 in respect of any standing instructions the applicable IRC provides in connection with the In Specie Transaction;

(c)           the Fund acquiring the portfolio securities would, at the time of payment, be permitted to purchase the portfolio securities;

(d)           the portfolio securities are acceptable to the Investment Portfolio Manager of the Fund acquiring the portfolio securities and meet the investment objective of such Fund;

(e)           the value of the portfolio securities is at least equal to the issue price of the units or shares of the Fund issuing the units or shares for which they are used as payment, valued as if the portfolio securities were portfolio assets of that Fund;

(f)            each of the Funds will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered to the Fund and the value assigned to such portfolio securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place.

5.             In connection with an In Specie Transaction where a Fund redeems securities of a Fund:

(a)           if the transaction involves the redemption of securities in an NI 81-102 Fund or a Closed-End Fund, the IRC of the NI 81-102 Fund or Closed-End Fund, as applicable, has approved the In Specie Transaction on behalf of the NI 81-102 Fund or Closed-End Fund, as applicable, in accordance with the terms of subsection 5.2(2) of NI 81-107;

(b)           the Filer and the applicable IRC comply with section 5.4 of NI 81-107 in respect of any standing instructions the applicable IRC provides in connection with the In Specie Transaction;

(c)           the portfolio securities are acceptable to the Investment Portfolio Manager of the Fund and are consistent with the investment objective of the Fund acquiring the portfolio securities;

(d)           the value of the portfolio securities is equal to the amount at which those securities were valued by the Fund in calculating the net asset value per security used to establish the redemption price;

(e)           the Fund will keep written records of each In Specie Transaction in a financial year of the Fund, reflecting details of the portfolio 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.

6.             The Filer does not receive any compensation in respect of any In Specie Transaction and, in respect of any delivery of portfolio securities further to an In Specie Transaction, the only charges paid by the Managed Account or the applicable Fund is the commission charged by the dealer executing the trade (if any) and/or any administrative charges levied by the custodian.

“Raymond Chan”
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission