Section 147 - Issuer exemptfrom the filing and fee requirements of sections 7.1, 7.3 and7.5 of OSC Rule 45-501 - Exempt Distributions in connectionwith the writing of over-the-counter call and put options -Purchasers of over-the-counter options accredited investors.
Ontario Securities CommissionRule 45-501 [Revised] - Exempt Distributions, sections 7.1,7.3 and 7.5.
UPON the applicationof High Income Preferred Shares Corporation (the "Company"),to the Ontario Securities Commission (the "Commission")for an order pursuant to section 147 of the Act that the Company,when relying on section 2.3 (the "Accredited InvestorExemption") of OSC Rule 45-501 - Exempt Distributions("Rule 45-501"), be exempted from the requirementsin: (i) sections 7.1 and 7.5 of Rule 45-501 to file a Form 45-501F1in connection with the writing of certain over-the-counter coveredcall options and cash covered put options (collectively, the"OTC Options"); and (ii) section 7.3 of Rule45-501 to pay the prescribed fee in connection with the filingof Form 45-501F1;
AND UPON consideringthe application and the recommendation of the staff of the Commission;
AND UPON the Companyhaving represented to the Commission as follows:
1. The Company is a mutualfund corporation incorporated under the Canada BusinessCorporations Act on April 26, 2002.
2. The principal office ofthe Company is 70 York Street, Suite 1500, Toronto, OntarioM5J 1S9.
3. The Company is a reportingissuer under the Act as it filed a (final) prospectus datedMay 31, 2002 (the "Prospectus") with respectto the initial public offering of Series 1 Shares, Series2 Shares and Equity Shares (collectively referred to as the"Offering") with the Commission and withthe securities regulatory authorities in each of the otherprovinces of Canada for which a receipt was issued on May31, 2002.
4. The Company is considereda "mutual fund" within the meaning of the Act andother applicable securities legislation of certain provincesof Canada (excluding the province of Québec).
5. Lawrence Asset ManagementInc. ("LAMI") will act as the manager ofthe Company pursuant to a management agreement entered intobetween LAMI and the Company on May 31, 2002. LAMI is consideredto be the promoter of the Company.
6. Lawrence Decter InvestmentCounsel Inc. ("LDIC") will act as the investmentmanager of the Company pursuant to an investment managementagreement entered into between LDIC and LAMI on May 31, 2002.
7. LDIC is registered underthe Act as an advisor in the categories of investment counseland portfolio manager, and registered counselling officersof LDIC meet the proficiency requirements for advising withrespect to options in Ontario, being the principal jurisdictionin Canada in which LDIC carries on its business.
8. The Company's investmentobjectives are:
(a) to provide holders ofSeries 1 Shares with fixed, preferential, cumulative monthlycash dividends in the amount of $1.4625 per Series 1 Shareor 5.85% of the original investment amount per Series 1Share, per annum, which shall rank equally with the dividendspayable on the Series 2 Shares, and, to the extent possible,to pay such dividends as capital gains dividends, and paysuch holders, on or about June 29, 2012 (the "TerminationDate"), in priority to the holders of the Series2 Shares and Equity Shares, $25.00, for each Series 1 Shareheld on the Termination Date;
(b) to provide holders ofSeries 2 Shares with fixed, preferential, cumulative monthlycash dividends in the amount of $1.06575 per Series 2 Shareor 7.25% of the original investment amount per Series 2Share, per annum which shall rank equally with the dividendspayable on the Series 1 Shares, and, to the extent possible,to pay such dividends as capital gains dividends, and paysuch holders, on or about the Termination Date, in priorityto the holders of the Equity Shares but after returning$25.00 per Series 1 Share to the holders thereof and $14.70per Series 2 Share held on the Termination Date; and
(c) to provide holders ofEquity Shares with annual cash dividends equal to the amount,if any, by which the value of the Managed Portfolio (definedbelow), less the Company's Liabilities (as defined in theProspectus), as at June 30 in each year, commencing on June30, 2003, exceeds 1.8 times the product of $14.70 and thenumber of Series 2 Shares then outstanding and, to the extentpossible, to pay such dividends as capital gains dividends,and pay such holders, on or about the Termination Date,after returning $25.00 per Series 1 Share and $14.70 perSeries 2 Share and making provision for the Company's Liabilities,any remaining assets of the Company.
9. To provide the Companywith the means to return $25.00 per Series 1 Share, the Companywill enter into a forward purchase and sale agreement pursuantto which the counterparty will agree to pay to the Company,on the Termination Date, $25.00 for each Series 1 Share outstandingon the Termination Date in exchange for the Company agreeingto deliver to the counterparty on the Termination Date, certainCanadian equity securities (the "Series 1 RepaymentPortfolio").
10. To provide the Companywith the means to meet its investment objectives with respectto the Series 2 Shares and the Equity Shares, the Companywill invest the proceeds of the Offering, net of Offeringexpenses and the amount used to acquire the Series 1 RepaymentPortfolio, in a diversified portfolio (the "ManagedPortfolio") consisting of securities of Americancompanies that have a market capitalization of greater thanU.S. $2 billion or companies which form part of the Standard& Poor's 500 Composite Stock Price Index, and securitiesof Canadian public companies which form part of the S&P/TSX60 Index. Up to 25% of the Managed Portfolio may be investedin units or similar equity securities of ongoing businessincome funds, pipeline/energy income funds, power generationincome funds and real estate investment trusts. In addition,up to 15% of the Managed Portfolio may be invested in debtsecurities that are rated to be at least investment grade.
11. To generate additionalreturns above the net capital gains, dividends, and interestincome earned on the Managed Portfolio and to reduce risk,the Company will from time to time (i) write covered calloptions in respect of all or part of the securities held inthe Managed Portfolio or forward contracts linked to securitiesin the Managed Portfolio, and (ii) write cash covered putoptions on securities in which the Company is permitted toinvest.
12. As OTC Options will bewritten only in respect of securities that are in the ManagedPortfolio and as the investment criteria of the Company willprohibit the sale of securities subject to an outstandingoption, the OTC Options will be "covered call options"at all times.
13. The purchasers of OTCOptions written by the Company will generally be major Canadianfinancial institutions and all purchasers of OTC Options willbe "accredited investors" as defined in Rule 45-501.
14. The writing of OTC Optionsby the Company will not be used as a means for the Companyto raise new capital.
15. The writing of OTC Optionswill be managed by LDIC in a manner consistent with the investmentobjectives of the Company. The individual securities in theManaged Portfolio which are subject to OTC Options and theterms of such OTC Options will vary from time to time basedon LDIC's assessment of the market.
AND UPON the Commissionbeing satisfied that to do so would not be prejudicial to thepublic interest;
IT IS ORDERED by theCommission, pursuant to section 147 of the Act, that the writingof OTC Options by the Company, as contemplated by paragraphs13 and 14 of this order, when relying on the Accredited InvestorExemption, shall be exempt from the requirements in sections7.1, 7.3 and 7.5 of Rule 45-501.
June 14, 2002.
"Robert W. Korthals" "HaroldP. Hands"