National Bank Securities Inc., National Bank of Canada and National Bank Global Equity RSP Fund

Headnote

Investment by mutual fund in securities issued by a related party as well as in units ofanother mutual fund under common management for specified purpose exempted fromthe requirements of section 101, clauses 111(2)(a), subsection 111(3) and clauses117(1)(a) and (d) of the Act, subject to specified conditions.

Statutes Cited

Securities Act (Ontario), 1990 c. S.5, as am., ss. 101, 104(2)(c), 111(2)(a) and (b),111(3), 113, 117(1)(a) and (d), and 117(2)

UPON the application of National Bank Securities Inc (the "Manager") on its ownbehalf, and on behalf of the National Bank Global Equity RSP Fund (the "RSP Fund") andthe National Bank Global Equity Fund (the "Underlying Fund"), to the Ontario SecuritiesCommission (the "Commission") for an order pursuant to clause 104(2)(c), section 113 andsubsection 117(2) of the Act that

(i) the early-warning reporting requirements of section 101,

(ii) the self-dealing prohibitions of clauses 111(2) (a) and (b) and subsection 111(3),and

(iii) the reporting requirements of clauses 117(1)(a) and (d),

respectively, of the Act do not apply to the RSP Fund, the Manager, as the case maybe, in respect of certain proposed investments to be made by the RSP Fund;

AND UPON considering the Application and the recommendations of staff of theCommission;

AND UPON the Manager having represented to the Commission as follows:

1. The Manager is a company incorporated under the laws of Canada, and is awholly-owned subsidiary of the National Bank of Canada (the "Bank"). It is theManager and promoter of the RSP Fund and also of the Underlying Fund.

2. The RSP Fund and the Underlying Fund are among a group of mutual fundsassociated with the Bank (collectively, the "National Bank Funds").

3. The Manager is registered under the Act as a mutual fund dealer.

4. The RSP Fund and the Underlying Fund will be open-ended unincorporatedmutual fund trusts that will be established under the laws of Ontario by way of adeclaration of trust, with the General Trust of Canada as trustee.

5. The Manager will be the principal security holder of the RSP Fund.

6. The Manager has filed with the Commission a preliminary simplified prospectus(the "PSP") and preliminary annual information form dated December 15, 1999for the purpose of qualifying the units of the RSP Fund and the Underlying Fundfor distribution in Ontario. It is expected that a receipt for the simplifiedprospectus of the RSP Fund and the Underlying Fund will be issued shortly bythe Director under the Act so that the RSP Fund and the Underlying Fund willbecome reporting issuers under the Act.

7. It is disclosed in the PSP that the investment objective of the RSP Fund is toensure superior long-term capital growth by investing its net assets primarily inforward contracts, the value of which would be directly linked to the return of theUnderlying Fund. By investing primarily in forward contracts based on the valueof the Underlying Fund, the RSP Fund will obtain exposure to the UnderlyingFund. The RSP Fund will also invest directly in units of the Underlying Fund upto the foreign property limit (currently 20% of assets) prescribed by the IncomeTax Act (Canada) (the "Tax Act"). The units of the Underlying Fund areconsidered "foreign property", as such term is defined in the Tax Act forinvestment purposes by registered tax deferral plans (the "Registered Plans").

8. The combination of investing in forward contracts linked to, and directinvestment in units of the Underlying Fund will enable the RSP Fund to obtainmaximum direct exposure to the Underlying Fund, and also indirect exposure tothe foreign securities comprising the investment portfolios of the UnderlyingFund, without the RSP Fund exceeding the foreign property limit of the Tax Act,thus making the units of the RSP Fund eligible for inclusion in the investmentportfolio of Registered Plans.

9. The forward contracts that the RSP Fund proposes to invest in will be issued bythe Bank as counterparty, and will require payments between the parties basedon the price of the Underlying Fund. If the price of the units of the UnderlyingFund rises more than the cost of such units under the forward contract, the Bankmust pay the difference to the RSP Fund. If the price of the units of theUnderlying Fund declines more than the cost of such units under the forwardcontract, the RSP Fund must pay the difference to the Bank.

10. The simplified prospectus of the RSP Fund and the Underlying Fund willdisclose that the Bank may, from time to time, hedge its exposure under theforward contracts issued to the RSP Fund by directly investing in units of theUnderlying Fund.

11. The relationship between the Manager, the RSP Fund and the Bank is disclosedin the PSP, and will be disclosed in the simplified prospectus of the RSP Fundand the Underlying Fund.

12. The auditors of the RSP Fund will review the terms of the forward contracts to beentered into between the RSP Fund and the Bank, and provide a report to theboard of directors of the Manager establishing whether or not the pricing termsof such forward contracts are comparable to the pricing terms of forwardcontracts entered into by similar mutual funds with unrelated counterparties.

13. Except to the extent permitted by this Order, and specific approval granted bycertain Canadian securities administrators, to the RSP Fund pursuant toNational Policy Statement No 39 ("NP 39"), the investments of the RSP Fund inforward contracts linked to, and in units of, the Underlying Fund have beenstructured to comply with the Act and the regulations, including NP 39.

14. Unless the requested order is granted,

(a) the RSP Fund would be subject to the early-warning reportingrequirements of section 101 of the Act to the extent that the RSP Fund'sproposed investment in units of the Underlying Fund would constitute10% or more of the outstanding units of the Underlying Fund;

(b) the RSP Fund is prohibited by clause 111(2)(a) and subsection 111(3) ofthe Act from knowingly making an investment and knowingly holding aninvestment in forward contracts issued by the Bank, which is a substantialsecurity holder of the RSP Fund and the Manager;

(c) the RSP Fund is prohibited by clause 111(2)(b) and subsection 111(3) ofthe Act from knowingly making an investment and knowingly holding aninvestment in units of the Underlying Fund to the extent that the RSPFund, either alone or in combination with other National Bank Funds, is asubstantial security holder of the Underlying Fund; and

(d) the Manager would be subject to the reporting requirements of clauses117(1)(a) and (d) of the Act for every investment made by the RSP Fundin forward contracts issued by the Bank and in units of the UnderlyingFund.

AND UPON the Commission being satisfied that the tests contained in theapplicable provisions of the Act have been met for the purpose of issuing the orderrequested;

IT IS ORDERED that:

(i) the RSP Fund be exempt, pursuant to clause 104(2)(c) of the Act, from thereporting requirements of section 101 of the Act in respect of the proposedinvestment in units of the Underlying Fund;

(ii) the RSP Fund be exempt, pursuant to section 113 of the Act from theself-dealing prohibitions of clause 111(2)(a) and subsection 111(3) of the Act inrespect of their proposed investment in forward contracts issued by the Bank;

(iii) the RSP Fund be exempt, pursuant to section 113 of the Act, from theself-dealing prohibitions of clause 111(2)(b) and subsection 111(3) of the Act inrespect of the RSP Fund's proposed investment in units of the Underlying Fund;and

(iv) the Manager be exempt, pursuant to subsection 117(2) of the Act, from thereporting requirement of clauses 117(1)(a) and (d) of the Act in respect of theproposed investments by the RSP Fund in forward contracts issued by the Bankand in units of the Underlying Fund,

PROVIDED THAT

1. this Order will terminate one year after the publication in final form of anylegislation or rule dealing with the matters in clause 2.04(4)(b) of NP 39;

2. the foregoing Order shall only apply in respect of investments in, or transactionswith, the Underlying Fund that are made by the RSP Fund in compliance with thefollowing conditions:

(a) the RSP Fund and the Underlying Fund are under common managementand the units of both mutual funds are offered, and will continue to beoffered, for distribution in Ontario pursuant to a simplified prospectus thathas been filed and accepted by the Director;

(b) the investment of the RSP Fund in units of the Underlying Fund iscompatible with the fundamental investment objective of the RSP Fund;

(c) except as permitted in paragraph (f) below, the percentage of the RSPFund's asset that is invested in units of its Underlying Fund (the"Permitted Percentage Investment") will remain at or below the foreignproperty limit prescribed by the Tax Act;

(d) the simplified prospectus of the RSP Fund discloses its intent to invest inunits of the Underlying Fund;

(e) the RSP Fund may change the Permitted Percentage Investment if theRSP Fund changes its fundamental investment objective in accordancewith NP 39 or any rule that replaces NP 39;

(f) the arrangement between or in respect of the RSP Fund and theUnderlying Fund is such as to avoid duplication of management fees;\

(g) investments in and redemptions of units of the Underlying Fund by theRSP Fund will represent the business judgement of responsible personsuninfluenced by considerations other than the best interests of the RSPFund;

(h) no sales or redemption charges are payable by the RSP Fund in relationto the purchase or redemption of units of the Underlying Fund;

(i) no fees and charges of any sort are paid by the RSP Fund or theUnderlying Fund, or by the Manager or principal distributor of the RSPFund or the Underlying Fund, or by any affiliate or associate of any of theforegoing entities, to anyone in respect of the RSP Fund's investment in,or redemption of, units of the Underlying Fund;

(j) in the event of the provision of any notice to the unitholders of theUnderlying Fund, as required by the constating documents of theUnderlying Fund, the notice will also be delivered to the unitholders of theRSP Fund. All voting rights attached to the units of the Underlying Fundthat are owned by the RSP Fund will be passed through to the unitholdersof such RSP Fund. In the event that a meeting of the unitholders of anUnderlying Fund is called, all of the disclosure and notice materialprepared in connection with such meeting will be provided to theunitholders of the RSP Fund, and such unitholder will be entitled to directa representative of the RSP Fund to vote the RSP Fund's unitholdings inthe Underlying Fund in accordance with the unitholder's direction. Therepresentatives of the RSP Fund will not be permitted to vote the RSPFund's unitholdings in the Underlying Fund except as directed by theunitholders of the RSP Fund;

(k) there are compatible dates for the calculation of the net asset value of theRSP Fund and the Underlying Fund, for the purpose of the issue andredemption of the units of both mutual funds;

(l) to the extent that the RSP Fund and the Underlying Fund do not use acombined report containing the financial statements of both the RSP Fundand the Underlying Fund, the unitholders of the RSP Fund will, in additionto the annual and (upon request) the semi-annual financial statements ofthe RSP Fund, also receive the annual and (upon request) semi-annualfinancial statements of the Underlying Fund; and

(m) to the extent that the RSP Fund and the Underlying Fund do not use acombined simplified prospectus and annual information form ("AIF")containing disclosure about the RSP Fund and the Underlying Fund,copies of the Prospectus and AIF of the Underlying Fund will be deliveredupon request of the unitholders of the RSP Fund,

AND PROVIDED FURTHER THAT with respect to the proposed investment by theRSP Fund in forward contracts, this order applies only to the investments in forwardcontracts that are issued by the Bank as counterparty and are made under the followingconditions:

(n) the pricing terms offered by the Bank to the RSP Fund under the forwardcontacts are comparable to other similar forward contracts in themarketplace offered by other unrelated counterparties;

(o) a major Canadian audit firm (the "Reviewing Auditors') will review the pricingof the forward contracts to ensure compliance with paragraph (o) above;

(p) this review will be undertaken on the inception of each forward contract andon each renewal thereof or pricing amendment during the term of the forwardcontract;

(q) there is disclosure in the Prospectus of the role of, and review of the forwardcontracts by the Reviewing Auditor and also of the involvement of the Bankin acting as counterparty; and

(r) the board of directors of the Manager, on behalf of the RSP Fund, willconsider the forward contracts to be entered into with the Bank and approvethem only once confirmation by the Reviewing Auditor as set out above isreceived.

January 28^th, 2000.

"Howard I. Weston"     "Theresa McLeod"