Securities Law & Instruments

Headnote

Special purpose trust set up by financial institution to issue securities that comply with regulatory requirements of Office of the Superintendent of Financial Institutions relating to the issuance of innovative Tier 1 capital instruments - exempt from requirement to pay participation fees, subject to conditions.

Ontario Rules

Ontario Securities Commission Rule 13-502 Fees.

April 20, 2005

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION

RULE 13-502 FEES

AND

IN THE MATTER OF

SUN LIFE ASSURANCE COMPANY OF CANADA AND

SUN LIFE CAPITAL TRUST

 

ORDER

WHEREAS the Director has received an application from Sun Life Capital Trust (the "Trust"), Sun Life Assurance Company of Canada ("Sun Life Assurance") and Sun Life Financial Inc. ("SLF Inc.") for an order, pursuant to Section 6.1 of Ontario Securities Commission Rule 13-502 Fees (the "Fees Rule"), that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, subject to certain terms and conditions.

AND WHEREAS as the Trust, Sun Life Assurance and SLF Inc. have represented to the Director that:

1. The Trust is an open-end trust established under the laws of the Province of Ontario by The Canada Trust Company, as trustee (the "Trustee"), pursuant to a Declaration of Trust dated August 9, 2001 (as amended and restated from time to time).

2. The Trust has a financial year-end of December 31.

3. The Trust is a reporting issuer in Ontario and, to its knowledge, is not in default of any requirement under the securities legislation of the Province of Ontario.

4. Sun Life Assurance is the administrative agent of the Trust pursuant to an administration agreement between the Trustee and Sun Life Assurance and, in that capacity, provides advice and counsel with respect to the administration of the day-to-day operations of the Trust as requested by the Trustee from time to time.

5. The outstanding securities of the Trust consist of (i) voting Special Trust Securities (the "Special Trust Securities"), (ii) non-voting Sun Life Exchangeable Securities-Series A (the "SLEECS-Series A"), and (iii) Sun Life Exchangeable Securities-Series B (the "SLEECS-Series B"). The SLEECS-Series A, the SLEECS-Series B and the Special Trust Securities are herein referred to as the "Trust Securities". All outstanding Special Trust Securities are held by Sun Life Assurance. The Trust distributed the SLEECS-Series A in a public offering pursuant to a prospectus dated July 17, 2000 and distributed the SLEECS-Series B in a public offering pursuant to a prospectus dated June 18, 2002 (collectively, the "Offerings"). The SLEECS-Series A is listed on the Toronto Stock Exchange. The SLEECS-Series B are not listed on a marketplace as defined in National Instrument 21-101 Marketplace Operation.

6. The Trust is a special purpose vehicle established solely for the purpose of effecting the Offerings in order to provide SLF Inc. and Sun Life Assurance with a cost-effective means of raising capital for Canadian financial institution regulatory purposes. The Trust does not carry on any independent business activities other than to acquire and hold assets to generate income for distribution to holders of the Trust Securities. Since it was established in 2001, the assets and liabilities of the Trust have been reported on the consolidated financial statements of SLF Inc. and Sun Life Assurance and have formed part of the Tier 1 capital of SLF Inc. and Sun Life Assurance. In accordance with recent amendments to Canadian generally accepted accounting principles ("Canadian GAAP"), that SLF Inc. and Sun Life Assurance adopted effective January 1, 2005, the assets and liabilities of the Trust will no longer be consolidated in the financial statements of SLF Inc. and Sun Life Assurance.

7. Pursuant to an MRRS Decision Document dated March 14, 2002 (the "2002 Continuous Disclosure Exemption") granted to the Trust by the Ontario Securities Commission, as principal regulator, on behalf of itself and other decision makers (collectively, the "Decision Makers"), the Decision Makers determined that the requirements contained in the securities legislation of the Province of Ontario and in other applicable jurisdictions (collectively, the "Legislation"):

(a) to file interim financial statements and audited annual financial statements (the "Financial Statements") with the Decision Makers and deliver such statements to the holders of Trust Securities;

(b) to make an annual filing, where applicable, with the Decision Makers in lieu of filing an information circular;

(c) to file an annual report and an information circular with the Decision Maker in the Province of Quebec and deliver such report or information circular to holders of Trust Securities resident in the Province of Quebec;

(d) to prepare and file an annual information form (the "AIF"), including management's discussion and analysis (the "MD&A"), with the Decision Makers and send such MD&A to holders of Trust Securities;

shall not apply to the Trust for so long as:

(i) SLF Inc. remains a reporting issuer under the Legislation;

(ii) Sun Life Assurance remains a reporting issuer under the Legislation, excluding the securities legislation of British Columbia, Manitoba and Newfoundland;

(iii) Sun Life Assurance remains eligible to use the short form prospectus system in British Columbia, Manitoba and Newfoundland under National Instrument 44-101;

(iv) SLF Inc. and Sun Life Assurance file with the Decision Makers, in electronic format under the Trust's SEDAR profile, the documents listed in clauses (a) to (c) above of this Decision, at the same time as they are required under the Legislation to be filed by SLF Inc. and Sun Life Assurance;

(v) the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the documents referred to in clauses (a) to (c) above of this Decision;

(vi) SLF Inc. and Sun Life Assurance send their Financial Statements to holders of Trust Securities, and their Annual Report to holders of Trust Securities resident in the Province of Quebec at the same time and in the same manner as if the holders of Trust Securities were holders of common shares of SLF Inc. or common shares of Sun Life Assurance;

(vii) all outstanding securities of the Trust are either SLEECS or Special Trust Securities;

(viii) the rights and obligations of holders of additional series of SLEECS are the same in all material respects as the rights and obligations of the holders of SLEECS-Series A at the date hereof; and

(ix) all issued and outstanding Special Trust Securities continue to be directly or indirectly owned by SLF Inc.;

provided that if a material adverse change occurs in the affairs of the Trust, the MRRS Decision Document dated March 14, 2002 shall expire 30 days after the date of such change.

8. An MRRS Decision Document dated May 14, 2004 (the "2004 Continuous Disclosure Exemption") granted to the Trust by the OSC, as principal regulator, on behalf of itself and other Decision Makers provided that the requirements contained in the legislation:

(a) to file annual certificates with the Decision Makers under section 2.1 of Multilateral Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim Filings ("MI 52-109"); and

(b) to file interim certificates with the Decision Makers under section 3.1 of MI 52-109;

shall not apply to the Trust for so long as:

(i) the Trust does not file its own interim financial statements and interim MD&A (collectively, the "Interim Filings") and AIF, annual financial statements and annual MD&A (collectively, the "Annual Filings") and SLF INC. and Sun Life Assurance file their Interim Filings and Annual Filings on the Trust's SEDAR profile in accordance with the Continuous Disclosure Exemption;

(ii) SLF INC. and Sun Life Assurance file with the Decision Makers, in electronic format under the Trust's SEDAR profile, the documents listed in clauses (a) and (b) above of this Decision, at the same time as they are required under the Legislation to be filed by SLF INC. and Sun Life Assurance.

(iii) Sun SLF INC. and Sun Life Assurance remain reporting issuers, or the equivalent, under the Legislation;

(iv) all outstanding securities of the Trust are either SLEECS or Special Trust Securities;

(v) the rights and obligations of holders of additional series of SLEECS are the same in all material respects as the rights and obligations of the holders of SLEECS -- Series A and SLEECS -- Series B at the date hereof;

(vi) all issued and outstanding Special Trust Securities continue to be directly or indirectly owned by SLF INC; and

(vii) the Trust pays all applicable filing fees that would otherwise be payable by the Trust in connection with the filing of the documents referred to in clauses (a) and (b) above of 2004 Decision.

and provided that if a material adverse change occurs in the affairs of the Trust, the 2004 Decision shall expire 30 days after the date of such change.

9. The Trust was established by SLF Inc. and Sun Life Assurance in order to comply with the regulatory requirements of the Office of the Superintendent of Financial Institutions ("OSFI") relating to the issuance of innovative Tier 1 capital instruments (the "OSFI Guidelines").

10. OSFI maintains strict guidelines and standards with respect to the capital adequacy requirements of federally regulated financial institutions, including SLF Inc. and Sun Life Assurance, and, in particular, specifies minimum required amounts of Tier 1 capital to be maintained by such institutions. Tier 1 capital consists of common shareholders equity, qualifying non-cumulative perpetual preferred shares, qualifying innovative instruments and qualifying non-controlling interests arising on consolidation from Tier 1 capital instruments. Innovative instruments, such as the SLEECS, must satisfy the detailed requirements of the OSFI Guidelines to be included in Tier 1 capital. Accordingly, it was required that innovative instruments (SLEECS) were issued by a special purpose vehicle (the Trust), which was a consolidated non-operating entity whose primary purpose was to raise innovative Tier 1 capital. The Trust has been included in the financial statements of SLF Inc. and Sun Life Assurance on a fully-consolidated basis since the Trust was established in 2001. OSFI has approved the inclusion of the SLEECS-Series A and SLEECS-Series B as Tier 1 capital of Sun Life Assurance and has confirmed that the SLEECS will continue to be treated as qualifying innovative Tier 1 instruments notwithstanding the implementation of the recent amendments to Canadian GAAP.

11. Issuing innovative instruments, such as the SLEECS, is a cost effective means of raising Tier 1 capital for SLF Inc. and Sun Life Assurance. However, the SLEECS could not have been issued directly under the OSFI Guidelines. If SLF Inc. could have issued the SLEECS direcetly, this capital would have been included in the calculation of the particupation fee payable by SLF Inc.

12. No continuous disclosure documents concerning only the Trust will be filed with the OSC unless the conditions in the 2002 Continuous Disclosure Exemption and the 2004 Continuous Disclosure Exemption are not satisfied.

13. The Trust would be required (but for this Order) to pay participation fees under the Fees Rule.

14. SLF Inc. and Sun Life Assurance do not currently intend to issue further securities through the Trust.

THE ORDER of the Director under the Fees Rule is that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:

(i) the Trust, SLF Inc. and Sun Life Assurance continue to satisfy all of the conditions contained in the 2002 Continuous Disclosure Exemption and the 2004 Continuous Disclosure Exemption;

(ii) SLF Inc. and Sun Life Assurance do not issue further securities through the Trust; and

(iii) the capitalization of the Trust represented by the SLEECS is included in the participation fee calculation applicable to SLF Inc.

"Iva Vranic"