High Income Principal Assured Yield Securities Corporation - ss. 74(1) and ss. 59(1)

le 18 janvier 2002

Ruling

INTHE MATTER OF

THESECURITIES ACT

R.S.O.1990, CHAPTER S.5, AS AMENDED (the "Act")

AND

INTHE MATTER OF R.R.O. 1990, REGULATION 1015, AS AMENDED

(the"Regulation")

AND

INTHE MATTER OF

HIGHINCOME PRINCIPAL ASSURED YIELD SECURITIES CORPORATION

RULINGAND EXEMPTION

(Subsection74(1) of the Act and Subsection 59(1) of Schedule I of the Regulation)

UPONthe application of High Income Principal Assured Yield SecuritiesCorporation (the "Company") to the Ontario Securities Commission(the "Commission") for

(i) a ruling, pursuant to subsection 74(1) of the Act, thatthe writing of certain over-the-counter covered call optionsand cash covered put options (collectively, the "OTC Options")by the Company is not subject to section 25 and 53 of the Act;and

(ii) an exemption, pursuant to subsection 59(1) of ScheduleI of the Regulation ("Schedule I"), from the requirement topay the fees required by subsection 28(2) of Schedule I in respectof any OTC Option written by the Company pursuant to this ruling;

ANDUPON considering the application and the recommendationof staff of the Commission;

ANDUPON the Company having represented to the Commissionas follows:

1.The Company is a mutual fund corporation incorporated underthe Business Corporations Act (Ontario) on December 7, 2001.Lawrence Asset Management Inc. is the Company's manager (the"Manager"), as such term is defined in subsection 1.1 of NationalInstrument 81-102 Mutual Funds ("NI 81-102").

2.The Company is a "mutual fund" as such term is defined in subsection1(1) of the Act.

3.The Company filed a preliminary prospectus (the "PreliminaryProspectus") with respect to the initial public offering ofits Preferred Shares and Equity Shares (the "Offering") datedDecember 20, 2001 with the Commission and with the securitiesregulatory authorities in each of the other provinces of Canadaunder SEDAR Project No. 411240. A decision document for thePreliminary Prospectus was issued under Part XV of the Act bythe Director on December 21, 2001.

4.Simultaneously with the closing of the Offering, the Companywill also complete a private placement of Subordinate Sharesto the Manager. The proceeds from the sale of the SubordinateShares will be invested in the Managed Equity Portfolio (asdefined below) of the Company.

5.Lawrence Decter Investment Counsel Inc. (the "Investment Manager")will act as the Company's "portfolio adviser" as such term isdefined in subsection 1(1) of NI 81-102. The Investment Manageris registered under the Act as an advisor in the categoriesof "investment counsel" and "portfolio manager".

6.The Company's investment objectives are:

(a) to provide holders of the Preferred Shares with (i) fixed,preferential, cumulative monthly cash dividends in the amountof 1/12 of $1.3375 per Preferred Share or 5.35% of the originalinvestment amount of $25.00 per Preferred Share, per annum,and, to the extent possible, to pay such dividends as capitalgains dividends; and (ii) on or about July 31, 2008 (the "TerminationDate"), to pay such holders, in priority to the holders of theEquity Shares and Subordinate Shares, $25.00 for each PreferredShare held on the Termination Date;

(b) to provide holders of the Equity Shares (i) on a pro rata,per share basis with the holders of the Subordinate Shares,with regular monthly cash dividends targeted to be 1/12 of $1.70per Equity Share or 8.50% of the original investment amountof $20.00 per Equity Share, per annum, and, to the extent possible,to pay such dividends as capital gains dividends; (ii) on apro rata, per share basis with the holders of the SubordinateShares, a special cash dividend on the last day of March ineach fiscal year equal to the aggregate amount, if any, by whichthe net realized capital gains, dividends, interest income andoption premiums (other than option premiums in respect of optionsoutstanding at year-end) earned on the Managed Equity Portfolio(as defined below), net of expenses, taxes and loss carry-forwards,exceeds the amount of monthly dividends paid on the PreferredShares, Equity Shares and Subordinate Shares during such fiscalyear, less the Performance Distribution (as defined in the PreliminaryProspectus) payable to the Manager on the Subordinate Shares,and, to the extent possible, to pay such special cash dividendsas capital gains dividends; (iii) on or about the TerminationDate, to pay such holders, in priority to the holders of theSubordinate Shares but after returning the original investmentamount of $25.00 per Preferred Share to holders thereof, $20.00for each Equity Share held on the Termination Date; and (iv)on or about the Termination Date, to pay such holders, on apro rata, per share basis with the holders of the SubordinateShares, the assets of the Company remaining after making provisionfor the Company's liabilities, returning the original investmentamount per share to the holders of Preferred Shares, EquityShares and Subordinate Shares and paying the Capital AppreciationDistribution (as defined in the Preliminary Prospectus), ifany, to the Manager on the Subordinate Shares; and

(c) to provide the holders of the Subordinate Shares (i) ona pro rata, per share cash basis with the holders of the EquityShares, with regular monthly cash dividends targeted to be 1/12of $1.70 per Subordinate Share or 8.50% of the original investmentamount per Subordinate Share, per annum, and, to the extentpossible, to pay such dividends as capital gains dividends;(ii) on a pro rata, per share basis with the holders of theEquity Shares, a special cash dividend on the last day of Marchin each fiscal year equal to the aggregate amount, if any, bywhich the net realized capital gains, dividends, interest incomeand option premiums (other than option premiums in respect ofoptions outstanding at year-end) earned on the Managed EquityPortfolio (as defined below), net of expenses, taxes and losscarry-forwards, exceeds the amount of monthly dividends paidon the Preferred Shares, Equity Shares and Subordinate Sharesduring such fiscal year, less the Performance Distribution (asdefined in the Preliminary Prospectus) payable to the Manageron the Subordinate Shares, and, to the extent possible, to paysuch special cash dividends as capital gains dividends; (iii)on or about the Termination Date, to pay such holders afterreturning the original investment amount per share on the PreferredShares and the Equity Shares, $20.00 for each Subordinate Shareheld on the Termination Date; and (iv) on or about the TerminationDate, to pay such holders, on a pro rata, per share basis withthe holders of the Equity Shares, the assets of the Companyremaining after making provision for the Company's liabilities,returning the original investment amount per share to the holdersof the Preferred Shares, Equity Shares and Subordinate Sharesand paying the Capital Appreciation Distribution, if any, tothe Manager on the Subordinate Shares.

7.The Company will use a specified percentage, as will be disclosedin the final prospectus (the "Prospectus"), of the gross proceedsof the Offering and sale of the Subordinate Shares to the Manager,to acquire certain Canadian equity securities (the "PreferredRepayment Portfolio"). To provide the Company with the meansto return the original investment amount per Preferred Shareon the Preferred Shares, the Company will enter into a forwardpurchase and sale agreement pursuant to which the counterpartywill agree to pay to the Company, on the Termination Date, $25.00for each Preferred Share outstanding on the Termination Datein exchange for the Company agreeing to deliver to the counterpartyon the Termination Date, Canadian equity securities held inthe Preferred Repayment Portfolio.

8.To achieve the Company's dividend and capital appreciation objectives,the proceeds of the Offering and the sale of the SubordinateShares to the Manager, net of Offering expenses and the amountused to acquire the Preferred Repayment Portfolio, will be investedin a diversified portfolio (the "Managed Equity Portfolio")consisting principally of securities issued by companies whichform part of the S&P/TSE 60 Index or the Standard &Poor's 500 Composite Stock Price Index.

9.To generate additional returns above the net capital gains,dividends and interest income earned on the Managed Equity Portfolio,the Company will, from time to time, write covered call optionsin respect of all or part of the securities in the Managed EquityPortfolio and write cash covered put options on securities inwhich the Company is permitted to invest. Such options may beeither exchange traded options or over-the-counter options.

10.The writing of covered call options will be managed by the InvestmentManager in a manner consistent with the investment objectivesof the Company. The individual securities in the Managed EquityPortfolio that are subject to the OTC Options, and the termsof such OTC Options, will vary from time to time based on theInvestment Manager's assessment of the markets.

11.OTC Options will be written by the Company only in respect ofsecurities held in the Managed Equity Portfolio.

12.One of the restrictions on the Company's investment activities,as disclosed in the Preliminary Prospectus and as will be disclosedin the Prospectus, prohibits the Company from selling securitiesheld in the Managed Equity Portfolio that are subject to anoutstanding OTC Option.

13.At no time will the Company write OTC Options for the purposeor as a means of raising new capital.

14.The purchasers of OTC Options written by the Company will generallybe the major Canadian financial institutions described in Appendix"A" attached to this ruling and exemption.

ANDUPON the Commission being satisfied that to do so wouldnot be prejudicial to the public interest;

ITIS RULED, pursuant to subsection 74(1) of the Act,that the writing of OTC Options by the Company, as contemplatedby this ruling, is not subject to sectinos 25 and 53 of theAct, provided that

(a) the portfolio advisor advising the Company with respectto such activities is registered as an advisor under the Actand meets the proficiency requirements in Ontario for advisingwith respect to such OTC Options,

(b) each purchaser of an OTC Option written by the Company isa person or company described in Appendix "A" to this rulingand exemption, and

ANDPURSUANT to section 59 of Schedule I, the Company ishereby exempted from the fees that would otherwise be payablepursuant to subsection 28(2) of Schedule I, in connection withthe OTC Options written by the Company in reliance upon theabove ruling.

January18, 2002.

"PaulMoore" "R. Stephen Paddon"

APPENDIX"A"

QUALIFIEDPARTIES

Interpretation

(1)The terms "subsidiary" and "holding body corporate" used inparagraphs (w), (x) and (y) of subsection (3) of this Appendixhave the same meaning as they have in the Business CorporationsAct (Ontario).

(2)All requirements contained in this Appendix that are based onthe amounts shown on the balance sheet of an entity apply tothe consolidated balance sheet of the entity.

QualifiedParties Acting as Principal

(3)The following are qualified parties for all OTC derivativestransactions, if acting as principal:

Banks

(a)A bank listed in Schedule I, II or III to the Bank Act (Canada).

(b)The Business Development Bank of Canada incorporated under theBusiness Development Bank of Canada Act (Canada).

(c)A bank subject to the regulatory regime of a country that isa member of the Basel Accord, or that had adopted the bankingand supervisory rules set out in the Basel Accord, if the bankhas a minimum paid up capital and surplus, as shown on its lastaudited balance sheet, in excess of $25 million or its equivalentin another currency.

CreditUnions and Caisses Populaires

(d)A credit union central, federation of caisses populaires, creditunion or regional caisse populaire, located, in each case, inCanada.

Loanand Trust Companies

(e)A loan corporation or trust corporation registered under theLoan and Trust Corporations Act (Ontario) or under the Trustand Loan Companies Act (Canada), or under comparable legislationin any other province or territory of Canada.

(f)A loan company or trust company subject to the regulatory regimeof a country that is a member of the Basel Accord, or that hasadopted the banking and supervisory rules set out in the BaselAccord, if the loan company or trust company has a minimum paidup capital and surplus, as shown on its last audited balancesheet, in excess of $25 million or its equivalent in anothercurrency.

InsuranceCompanies

(g)An insurance company licensed to do business in Canada or aprovince or territory of Canada.

(h)An insurance company subject to the regulatory regime of a countrythat is a member of the Basel Accord, or that has adopted thebanking and supervisory rules set out in the Basel Accord, ifthe insurance company has a minimum paid up capital and surplus,as shown on its last audited balance sheet, in excess of $25million or its equivalent in another currency.

SophisticatedEntities

(i)A person or company that, together with its affiliates,

(i) has entered into one or more transactions involving OTCderivatives with counterparties that are not its affiliates,if

(A) the transactions had a total gross dollar value of or equivalentto at least $1 billion in notional principal amount; and

(B) any of the contracts relating to one of these transactionswas outstanding on any day during the previous 15-month period,or

(ii) had total gross marked-to-market positions of or equivalentto at least $100 million aggregated across counterparties, withcounterparties that are not its affiliates in one or more transactionsinvolving OTC derivatives on any day during the previous 15-monthperiod.

Individuals

(j)An individual who, either alone or jointly with the individual'sspouse, has a net worth of at least $5 million, or its equivalentin another currency, excluding the value of his or her principalresidence.

Governments/Agencies

(k)Her Majesty in right of Canada or any province or territoryof Canada and each crown corporation, instrumentality and agencyof a Canadian federal, provincial or territorial government.

(l)A national government of a country that is a member of the BaselAccord, or that has adopted the banking and supervisory rulesof the Basel Accord, and each instrumentality and agency ofthat government or corporation wholly-owned by that government.

Municipalities

(m)Any Canadian municipality with a population in excess of 50,000and any Canadian provincial or territorial capital city.

Corporationsand other Entities

(n)A company, partnership, unincorporated association or organizationor trust, other than an entity referred to in paragraph (a),(b), (c), (d), (e), (f), (g) or (h), with total revenue or assetsin excess of $25 million or its equivalent in another currency,as shown on its last financial statement, to be audited onlyif otherwise required.

PensionPlan or Fund

(o)A pension fund that is regulated by either the Office of theSuperintendent of Financial Institutions (Canada) or a provincialpension commission, if the pension fund has total net assets,as shown on its last audited balance sheet, in excess of $25million, provided that, in determining net assets, the liabilityof a fund for future pension payments shall not be included.

MutualFunds and Investment Funds

(p)A mutual fund or non-redeemable investment fund if each investorin the fund is a qualified party.

(q)A mutual fund that distributes its securities in Ontario, ifthe portfolio manager of the fund is registered as an adviser,other than a securities adviser, under the Act or securitieslegislation elsewhere in Canada.

(r)A non-redeemable investment fund that distributes its securitiesin Ontario, if the portfolio manager of the fund is registeredas an adviser, other than a securities adviser, under the Actor securities legislation elsewhere in Canada.

Brokers/InvestmentDealers

(s)A person or company registered under the Act or securities legislationelsewhere in Canada as a broker or an investment dealer or both.

(t)A person or company registered under the Act as an internationaldealer if the person or company has total assets, as shown onits last audited balance sheet, in excess of $25 million orits equivalent in another currency.

FuturesCommission Merchants

(u)A person or company registered under the Commodity Futures Act(Ontario) as a dealer in the category of futures commissionmerchant, or in an equivalent capacity elsewhere in Canada.

Charities

(v)A registered charity under the Income Tax Act (Canada) withassets not used directly in charitable activities or administration,as shown on its last audited balance sheet, of at least $5 millionor its equivalent in another currency.

Affiliates

(w)A wholly-owned subsidiary of any of the organizations describedin paragraph (a), (b), (c), (d), (e), (f), (g), (h), (j), (n),(o), (s), (t) or (u).

(x)A holding body corporate of which any of the organizations describedin paragraph (w) is a wholly-owned subsidiary.

(y)A wholly-owned subsidiary of a holding body corporate describedin paragraph (x).

(z)A firm, partnership, joint venture or other form of unincorporatedassociation in which one or more of the organizations describedin paragraph (w), (x) or (y) have a direct or indirect controllinginterest.

GuaranteedParty

(aa)A party whose obligations in respect of the OTC derivativestransaction for which the determination is made is fully guaranteedby another qualified party.

QualifiedParty Not Acting as Principal

(4)The following are qualified parties, in respect of all OTC derivativetransactions:

ManagedAccounts

1.Accounts of a person, company, pension fund or pooled fund trustthat are fully managed by a portfolio manager or financial intermediaryreferred to in paragraphs (a), (d), (e), (g), (s), (t), (u)or (w) of subsection (3) or a broker or investment dealer actingas a trustee or agent for the person, company, pension fundor pooled fund trust under section 148 of the Regulation.

SubsequentFailure to Qualify

(5)A party is a qualified party for the purpose of any OTC derivativestransaction if it, he or she is a qualified party at the timeit, he or she enters into the transaction.