Subsection 74(1) -- Exemption from sections 25 and 53 of the Act in connection with the writing of over-the-counter covered call options by the issuer and cash covered put options, subject to certain conditions.
Securities Act, R.S.O. 1990, c. S.5, as am. 25, 53 and 74(1).
IN THE MATTER OF
THE SECURITIES ACT (THE "ACT")
IN THE MATTER OF
R.R.O. 1990, REGULATION 1015, AS AMENDED
IN THE MATTER OF
PRO-VEST GROWTH & INCOME FUND
RULING AND EXEMPTION
(Subsection 74(1) of the Regulation)
UPON the application (the "Application") of Pro-Vest Growth & Income Fund (the "Trust") to the Ontario Securities Commission (the "Commission") for a ruling, pursuant to subsection 74(1) of the Act, that the writing of certain over-the-counter covered call options and cash covered put options (collectively, the "OTC Options") by the Trust shall not be subject to section 25 or 53 of the Act;
AND UPON considering the Application and the recommendation of staff of the Commission;
AND UPON the Trust having represented to the Commission that:
1. The Trust is a closed-end investment trust pursuant to a declaration of trust established under the laws of the Province of Ontario.
2. The trustee and manager of the Trust is Sentry Select Capital Corp. (the "Manager"). As manager, the Manager is responsible for making all investment decisions of the Trust in accordance with the investment objectives, strategy and criteria of the Trust and for arranging for the execution of all portfolio transactions.
3. In connection with an offering (the "Offering") of transferable, redeemable units (the "Units") of the Trust, the Trust filed a preliminary prospectus dated December 17, 2003 with the Commission and with the securities regulatory authority in each of the other provinces and territories of Canada under SEDAR Project No. 600349. The final prospectus (the "Prospectus") was receipted on January 29, 2004.
4. Sentry Select is registered under the Act as an adviser in the categories of "investment counsel" and "portfolio manager" and as a dealer in the category of "mutual fund dealer".
5. The Trust's investment objectives are: (i) to provide the holders of Units (the "Unitholders") with a stable stream of monthly distributions targeted to be $0.0667 per Unit ($0.80 per annum or 8% of the original issue price); and (ii) to preserve and potentially enhance the value of the Portfolio (defined below) in order to return at least the original issue price ($10.00 per Unit) to Unitholders upon termination of the Trust. The Trust will terminate on December 31, 2009 unless Unitholders determine to continue the Trust by a majority of votes cast at a meeting of Unitholders called for such purpose.
6. The net proceeds of the Offering, together with any borrowings under the Trust's loan facility, will be invested in a diversified portfolio of securities (the "Portfolio"), which will consist primarily of:
(i) units of income funds,
(ii) common shares, and
(iii) closed-end investment funds,
listed on a North American stock exchange or market.
7. To generate additional returns above the net capital gains, dividends and interest income earned on the Portfolio and to reduce risk, the Trust will from time to time write covered call options in respect of some or all of the common shares in the Portfolio. The investment restrictions of the Trust prohibit the sale of securities that are subject to an outstanding call option, and therefore the call options will be covered at all times.
8. The Trust may, from time to time, hold a portion of its assets in "cash equivalents" (as that term is defined in the Prospectus). The Trust may utilize such cash equivalents to provide cover in respect of the writing of cash covered put options. Such cash covered put options will only be written in respect of securities in which the Trust is permitted to invest.
9. The Trust has disclosed in the Prospectus that it intends to use a strategy of writing OTC Options.
10. The writing of covered call options and cash covered put options by the Trust will be managed by the Manager in a manner consistent with the investment objectives of the Trust. The individual securities which are subject to the call options and put options and the terms of such options will vary from time to time based on the Manager's assessment of market conditions.
11. The purchasers of OTC Options written by the Trust will generally be major Canadian financial institutions and all purchasers of OTC Options will be persons or entities described in Appendix A attached hereto.
12. The writing of OTC Options by the Trust will only be used for the purpose of meeting the Trust's investment objectives and will not be done with the intent to raise new capital.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS RULED, pursuant to subsection 74(1) of the Act, that the writing of OTC Options by the Trust, as contemplated by this Ruling, shall not be subject to section 25 or 53 of the Act, provided that:
a) the portfolio adviser advising the Trust with respect to such activities is registered as an adviser under the Act and meets the proficiency requirements for advising with respect to options;
b) each purchaser of an OTC Option written by the Trust is a person or entity described in Appendix A to this ruling; and
c) a receipt for the (final) prospectus has been issued by the Director under the Act in the principal jurisdiction in Canada in which the portfolio adviser carries on its business.
d) The Trust will only write an over-the-counter call option if the Trust holds:
i) an equivalent quantity of the underlying interest of the option, or
ii) a right or obligation, exercisable at any time that the option is exercisable, to acquire an equivalent quantity of the underlying interest of the option, and cash cover that, together with margin on account for the position, is not less than the amount, if any, by which the strike price of the right or obligation to acquire the underlying interest exceeds the strike price of the option.
March 4, 2004.
"Paul M. Moore"
(1) The terms "subsidiary" and "holding body corporate" used in paragraphs (w), (x) and (y) of subsection (3) of this Appendix have the same meaning as they have in the Business Corporations Act.
(2) All requirements contained in this Appendix that are based on the amounts shown on the balance sheet of an entity apply to the consolidated balance sheet of the entity.
Qualified Parties Acting as Principal
(3) The following are qualified parties for all OTC derivatives transactions, if acting as principal:
(a) a bank listed in Schedule I, II or III to the Bank Act (Canada);
(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada);
(c) a bank subject to the regulatory regime of a country that is a member of the Basel Accord, or that has adopted the banking and supervisory rules set out in the Basel Accord, if the bank has a minimum paid up capital and surplus, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency;
Credit Unions and Caisses Populaires
(d) a credit union central, federation of caisses populaires, credit union or regional caisse populaire, located, in each case, in Canada;
Loan and Trust Companies
(e) a loan corporation or trust corporation registered under the Loan and Trust Corporations Act or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other province or territory of Canada;
(f) a loan company or trust company subject to the regulatory regime of a country that is a member of the Basel Accord, or that has adopted the banking and supervisory rules set out in the Basel Accord, if the loan company or trust company has a minimum paid up capital and surplus, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency;
(g) an insurance company licensed to do business in Canada or a province or territory of Canada;
(h) an insurance company subject to the regulatory regime of a country that is a member of the Basel Accord, or that has adopted the banking and supervisory rules set out in the Basel Accord, if the insurance company has a minimum paid up capital and surplus, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency;
(i) a person or company that, together with its affiliates,
(i) has entered into one or more transactions involving OTC derivatives with counterparties that are not its affiliates, if
(A) the transactions had a total gross dollar value of or equivalent to at least $1 billion in notional principal amount; and
(B) any of the contracts relating to one of these transactions was outstanding on any day during the previous 15-month period, or
(ii) had total gross marked-to-market positions of or equivalent to at least $100 million aggregated across counterparties, with counterparties that are not its affiliates in one or more transactions involving OTC derivatives on any day during the previous 15-month period;
(j) an individual who, either alone or jointly with the individual's spouse, has a net worth of at least $5 million, or its equivalent in another currency, excluding the value of his or her principal residence;
(k) Her Majesty in right of Canada or any province or territory of Canada and each crown corporation, instrumentality and agency of a Canadian federal, provincial or territorial government;
(l) a national government of a country that is a member of the Basel Accord, or that has adopted the banking and supervisory rules of the Basel Accord, and each instrumentality and agency of that government or corporation wholly-owned by that government;
(m) any Canadian municipality with a population in excess of 50,000 and any Canadian provincial or territorial capital city;
Corporations and other Entities
(n) a company, partnership, unincorporated association or organization or trust, other than an entity referred to in paragraph (a), (b), (c), (d), (e), (f), (g) or (h), with total revenue or assets in excess of $25 million or its equivalent in another currency, as shown on its last financial statement, to be audited only if otherwise required;
Pension Plan or Fund
(o) a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission, if the pension fund has total net assets, as shown on its last audited balance sheet, in excess of $25 million, provided that, in determining net assets, the liability of a fund for future pension payments shall not be included;
Mutual Funds and Investment Funds
(p) a mutual fund or non-redeemable investment fund if each investor in the fund is a qualified party;
(q) a mutual fund that distributes its securities in Ontario, if the portfolio manager of the fund is registered as an adviser, other than a securities adviser, under the Act or securities legislation elsewhere in Canada;
(r) a non-redeemable investment fund that distributes its securities in Ontario, if the portfolio manager of the fund is registered as an adviser, other than a securities adviser, under the Act or securities legislation elsewhere in Canada;
(s) a person or company registered under the Act or securities legislation elsewhere in Canada as a broker or an investment dealer or both;
(t) a person or company registered under the Act as an international dealer if the person or company has total assets, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency;
Futures Commission Merchants
(u) a person or company registered under the CFA as a dealer in the category of futures commission merchant, or in an equivalent capacity elsewhere in Canada;
(v) a registered charity under the Income Tax Act (Canada) with assets not used directly in charitable activities or administration, as shown on its last audited balance sheet, of at least $5 million or its equivalent in another currency;
(w) a wholly-owned subsidiary of any of the organizations described in 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 described in paragraph (w) is a wholly-owned subsidiary;
(y) a wholly-owned subsidiary of a holding body corporate described in paragraph (x);
(z) a firm, partnership, joint venture or other form of unincorporated association in which one or more of the organizations described in paragraph (w), (x) or (y) have a direct or indirect controlling interest; and
(aa) a party whose obligations in respect of the OTC derivatives transaction for which the determination is made is fully guaranteed by another qualified party.
Qualified Party Not Acting as Principal
(4) The following are qualified parties, in respect of all OTC derivative transactions:
1. Accounts of a person, company, pension fund or pooled fund trust that are fully managed by a portfolio manager or financial intermediary referred to in paragraphs (a), (d), (e), (g), (s), (t), (u) or (w) of subsection (3) or a broker or investment dealer acting as a trustee or agent for the person, company, pension fund or pooled fund trust under section 148 of the Regulation.
Subsequent Failure to Qualify
(5) A party is a qualified party for the purpose of any OTC derivatives transaction if it, he or she is a qualified party at the time it, he or she enters into the transaction.