Standard exemption from subsection 4.1(1) of National Instrument 81-102 Mutual Funds (NI 81-102) to enable certain Dealer Managed Funds, as defined in section 1.1 of NI 81-102, to invest in the units of an issuer during the 60 days after the period in which affiliates of the Dealer Managers, as defined in section 1.1 of NI 81-102, have acted as underwriters in connection with the public offering of units of the issuer pursuant to a final short form prospectus.
National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.
July 25, 2005
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NEW BRUNSWICK, NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
AND THE NORTHWEST TERRITORIES, NUNAVUT AND THE YUKON
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
TD ASSET MANAGEMENT INC.
and CIBC ASSET MANAGEMENT INC.
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Applicants (or "Dealer Managers"), the portfolio advisers of the mutual funds named in Appendix A (the "Funds" or "Dealer Managed Funds") for a decision under section 19.1 of National Instrument 81-102 Mutual Funds ("NI 81-102") (the "Legislation") for:
• an exemption from subsection 4.1(1) of NI 81-102 to enable the Dealer Managed Funds to invest in the units (the "Units") of Sunrise Senior Living™ Real Estate Investment Trust (the "Issuer") on the Toronto Stock Exchange (the "TSX") during the 60 days (the "Prohibition Period") after the period in which an affiliate of the Dealer Manager has acted as an underwriter in connection with the public offering (the "Offering") of Units of the Issuer pursuant to a preliminary short form prospectus filed by the Issuer and a final short form prospectus that the Issuer will file in accordance with the securities legislation of each of the Jurisdictions (the "Requested Relief").
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
It is the responsibility of each of the Decision Makers to make a global assessment of the risks involved in granting exemptive relief from subsection 4.1 of NI 81-102 in relation to the specific facts of each application.
Defined terms contained in National Instrument 14-101 Definitions have the same meanings in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Applicants:
1. The Applicants are "dealer managers" with respect to the Funds, and each Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.
2. The head offices of the Dealer Managers are in Toronto, Ontario.
3. The investment objective of each Dealer Managed Fund permits it to invest in equity securities.
4. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses and annual information forms that have been prepared and filed in accordance with their respective securities legislation.
5. In connection with the Offering, the Issuer filed a preliminary short form prospectus dated July 18, 2005 (the "Preliminary Prospectus") with the securities regulatory authorities of each of the provinces and territories of Canada. A final short form prospectus is expected to subsequently be filed with such securities regulatory authorities on or about July 25, 2005.
6. Based upon information provided in the Issuer's press release dated July 14, 2005 (the "Press Release") announcing the Offering, the Issuer intends to use a portion of the net proceeds of the Offering to finance, in part, an acquisition of a majority interest in a portfolio of 13 assisted living communities. According to the Press Release, the balance of the net proceeds of the Offering will be used to pay down the Issuer's Canadian operating line of credit.
7. Gross proceeds of the Offering are expected to be approximately $160 million. According to the Press Release, it is expected that the Issuer will grant the Underwriters an over-allotment option equal to 10% of the Offering, exercisable, in whole or in part within 30 days of the closing (the "Closing"). If exercised in full, the Offering is expected to result in gross proceeds of approximately $176 million. The Closing of the Offering is expected to occur on August 5, 2005 subject to regulatory approval.
8. The underwriting syndicate includes TD Securities Inc. and CIBC World Markets Inc. (the "Related Underwriters", and together with the rest of the syndicate, the "Underwriters").
9. The Underwriters will enter into an underwriting agreement (the "Underwriting Agreement") with the Issuer for the purpose of the Offering. Based upon information provided in the Press Release, the Underwriting Agreement provides for the Offering to be undertaken on a bought deal basis, with the Underwriters having agreed to purchase 12,850,000 Units of the Issuer at a price of $12.45 per unit.
10. The outstanding Units of the Issuer are listed and posted for trading on the TSX under the symbol "SZR.UN".
11. The Issuer is not a "related issuer" of either of the Related Underwriters, as defined in National Instrument 33-105 Underwriting Conflicts ("NI 33-105").
12. The Issuer may be considered to be a "connected issuer", as defined in NI 33-105, of one of the Related Underwriters (namely, TD Securities Inc.) for the reasons set forth in the Preliminary Prospectus. As disclosed in the Preliminary Prospectus, the Issuer is a party to a Canadian operating credit facility (the "Credit Facility") with the Canadian chartered bank affiliate of TD Securities Inc. (a "Lender", and together with a Canadian charted bank affiliate of Scotia Capital Inc., the "Lenders"), of which approximately $51.6 million is outstanding as at July 14, 2005. The Credit Facility is secured by, among other things, mortgage financing against certain of the Issuer's properties and a general security interest in ancillary personal property. The Lenders have also provided mortgages for certain of the Issuer's Canadian properties. A portion of the proceeds from the Offering will be used to pay down approximately $44.4 million of the outstanding amount under the Credit Facility to the Lenders. Accordingly, the Offering does not represent elimination of the Lenders' exposure to the Issuer. Furthermore, the decision to distribute the Units and the determination of the terms of the Offering were made through negotiations between, among others, TD Securities Inc. and the Issuer, without the involvement of TD Securities Inc.'s affiliated bank. TD Securities Inc. and/or its affiliated bank will derive no benefit from the Offering other than the remuneration described in the Preliminary Prospectus payable by the Issuer.
13. The Dealer Managed Funds are not required or obliged to purchase any Units during the Prohibition Period.
14. Despite the affiliation between the Dealer Managers and their Related Underwriters, they operate independently of each other. In particular, the investment banking and related dealer activities of the Related Underwriters and the investment portfolio management activities of the Dealer Managers are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:
(a) in respect of compliance matters (for example, a Dealer Manager and its Related Underwriter may communicate to enable the Dealer Manager to maintain an up to date restricted-issuer list to ensure that the Dealer Manager complies with applicable securities laws); and
(b) a Dealer Manager and its Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.
15. The Dealer Managers may cause the Dealer Managed Funds to invest in the Units during the Prohibition Period. Any purchase of Units will be consistent with the investment objectives of the Dealer Managed Fund and represent the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or in fact be in the best interests of the Dealer Managed Fund.
16. To the extent that the same portfolio manager or team of portfolio managers of a Dealer Manager manages two or more Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), the Units purchased for them will be allocated:
(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for its Dealer Managed Funds and Managed Accounts; and
(b) taking into account the amount of cash available to each Dealer Managed Fund for investment.
17. There will be an independent committee (the "Independent Committee") appointed in respect of each Dealer Managed Fund to review each Dealer Managed Fund's investments in the Units during the Prohibition Period.
18. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with its Dealer Manager, the Dealer Managed Fund, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgement regarding conflicts of interest facing the Dealer Manager.
19. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in its Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
20. Each Applicant, in respect of its Dealer Managed Funds, will notify a member of staff in the Investment Funds Branch of the Decision Maker in Ontario, in writing of any SEDAR Report (as defined in paragraph IX below) filed on SEDAR, as soon as practicable after the filing of such a report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.
Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from subsection 4.1(1) of NI 81-102 and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated.
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The Decision of the Decision Makers under the Legislation is that the Requested Relief is granted, notwithstanding that either of the Related Underwriters acts or has acted as underwriter in the Offering provided that, in respect of each Dealer Manager and its Dealer Managed Funds, independent of any of the other Applicants and their Dealer Managed Funds, the following conditions are satisfied:
I. At the time of each purchase (the "Purchase") of Units by a Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:
(a) the Purchase
(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(ii) is, in fact, in the best interests of the Dealer Managed Fund;
(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and
(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with its Related Underwriter;
II. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,
(a) there is compliance with the conditions of this Decision; and
(b) in connection with any Purchase,
(i) there are stated factors or criteria for allocating the Units purchased for two or more Dealer Managed Funds and other Managed Accounts; and
(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria;
III. Each Dealer Managed Fund has an Independent Committee to review the Dealer Managed Fund's investments in the Units during the Prohibition Period;
IV. The Independent Committee has a written mandate describing its duties and standard of care which, as a minimum, sets out the conditions of this Decision;
V. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Fund and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;
VI. The Dealer Managed Fund does not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph V above;
VII. The Dealer Managed Fund does not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph V above;
VIII. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Fund, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Fund to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph V above is not paid either directly or indirectly by the Dealer Managed Fund;
IX. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of each Dealer Managed Fund, no later than 30 days after the end of the Prohibition Period that contains a certification by the Dealer Manager that contains:
(a) the following particulars of each Purchase:
(i) the number of Units purchased by the Dealer Managed Fund;
(ii) the date of the Purchase and purchase price;
(iii) whether it is known whether any underwriter or syndicate member has engaged in market stabilization activities in respect of the Units;
(iv) if the Units were purchased for two or more Dealer Managed Funds and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and
(v) the dealer from whom the Dealer Managed Fund purchased the Units and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;
(b) a certification by the Dealer Manager that the Purchase:
(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Fund, or
(iii) was, in fact, in the best interests of the Dealer Managed Fund;
(c) confirmation of the existence of the Independent Committee to review the Purchase of the Units by the Dealer Managed Fund, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review;
(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Units for the Dealer Managed Fund and each Purchase by the Dealer Managed Fund:
(i) was made in compliance with the conditions of this Decision;
(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(iv) was, in fact, in the best interests of the Dealer Managed Fund.
X. The Independent Committee advises the Decision Makers in writing of:
(a) any determination by it that the condition set out in paragraph IX(d) has not been satisfied with respect to any Purchase of the Units by a Dealer Managed Fund;
(b) any determination by it that any other condition of this Decision has not been satisfied;
(c) any action it has taken or proposes to take following the determinations referred to above; and
(d) any action taken, or proposed to be taken, by the Dealer Manager or a portfolio manager of a Dealer Managed Fund, in response to the determinations referred to above.
XI. Each Purchase of Units during the Prohibition Period is made on the TSX; and
XII. An underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in Ontario Securities Commission Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.
TD MUTUAL FUNDS
TD Monthly Income Fund
TD Balanced Fund
TD Balanced Income Fund
TD Balanced Growth Fund
TD Canadian Equity Fund
TD Canadian Blue Chip Equity Fund
TD Canadian Value Fund
TD Global Select Fund
TD Dividend Growth Fund
TD Dividend Income Fund
TD PRIVATE FUNDS
TD Private Income Trust Fund
TD Private Canadian Dividend Fund
THE TALVEST FUNDS
Talvest Canadian Equity Value Fund
Talvest Millennium High Income Fund
Talvest Millennium Next Generation Fund
CIBC MUTUAL FUNDS
CIBC Canadian Real Estate Fund
Frontiers Canadian Equity Pool
RENAISSANCE MUTUAL FUNDS
Renaissance Canadian Balanced Fund
Renaissance Canadian Growth Fund