Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Investment funds, and their manager, exempted from the dealer registration requirement for certain trading activities to be carried out in connection with a warrant offering by the investment funds -- Trading activities to consist of the distribution of a short form (final) prospectus to existing holders of securities of the funds, and the distribution of units of the funds to holders of the warrants, upon their exercise, through an appropriately registered dealer.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).
Multilateral Instrument 11-102 Passport System.
National Instrument 81-102 Mutual Funds.
National Instrument 81-106 Investment Fund Continuous Disclosure.
National Instrument 45-106 Prospectus and Registration Exemptions, ss. 3.1, 3.42, 8.5.

June 18, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

BROMPTON SPLIT BANC CORP. (the SB Fund),

LIFE & BANC SPLIT CORP. (the LB Fund) AND

BROMPTON FUNDS MANAGEMENT LIMITED

(the Manager) (collectively, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filers from the dealer registration requirement in the Legislation in respect of the following:

i. certain trades (the SB Warrant Offering Activities) to be carried out by the Manager, on behalf of the SB Fund, in connection with a proposed offering (the SB Warrant Offering) of warrants (the SB Warrants) to acquire units (the SB Units) of the SB Fund, to be made pursuant to a short-form (final) prospectus (the SB Warrant Prospectus); and

ii. certain trades (the LB Warrant Offering Activities) to be carried out by the Manager, on behalf of the LB Fund, in connection with a proposed offering (the LB Warrant Offering) of warrants (the LB Warrants) to acquire units (the LB Units) of the LB Fund, to be made pursuant to a short-form (final) prospectus (the LB Warrant Prospectus).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

1. the Ontario Securities Commission is the principal regulator for this application; and

2. each Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (collectively, the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1. Each of the SB Fund and the LB Fund (collectively, the Funds) is a corporation incorporated under the laws of Ontario. The SB Fund and the LB Fund are reporting issuers in each of the provinces and territories of Canada, and are not in default of the securities legislation in any jurisdiction.

2. The Manager acts as the investment fund manager for each of the Funds.

3. The head office of each of the Filers is located in Toronto, Ontario

4. While each of the Funds is technically considered to be a mutual fund under the applicable securities legislation of the provinces and territories of Canada, they are not conventional mutual funds and have obtained exemptions from certain requirements of National Instrument 81-102 Mutual Funds and National Instrument 81-106 Investment Fund Continuous Disclosure.

5. The authorized share capital of the SB Fund consists of an unlimited number of preferred shares (the SB Preferred Shares), an unlimited number of Class A shares (the SB Class A Shares) and an unlimited number of Class J shares (the SB Class J Shares). The SB Preferred Shares and the SB Class A Shares are listed and posted for trading on the Toronto Stock Exchange (the TSX).

6. The authorized share capital of LB Fund consists of an unlimited number of preferred shares (the LB Preferred Shares), an unlimited number of Class A shares (the LB Class A Shares) and an unlimited number of Class J shares (the LB Class J Shares). The LB Preferred Shares and the LB Class A Shares are listed and posted for trading on the TSX.

7. Each of the Funds is subject to certain investment restrictions that, among other things, limit the equity securities and other securities that the Fund may acquire for its investment portfolio. Each of the Funds may write call options and put options in accordance with the investment objectives, investment guidelines and investment restrictions for the Fund.

8. The investment objectives of the SB Fund are to: (i) provide holders of SB Preferred Shares with a specific fixed cumulative preferential quarterly cash distributions, (ii) provide holders of SB Class A Shares with regular monthly cash distributions in a targeted amount, (iii) return the original issue price to holders of SB Preferred Shares on a specified maturity date, and (iv) provide holders of SB Class A Shares with the opportunity for growth in the net asset value per SB Class A Share.

9. The investment objectives of the LB Fund are to: (i) provide holders of LB Preferred Shares with a specific fixed cumulative preferential quarterly cash distributions, (ii) provide holders of LB Class A Shares with regular monthly cash distributions in a targeted amount, (iii) return the original issue price to holders of LB Preferred Shares on a specified maturity date, and (iv) provide holders of LB Class A Shares with the opportunity for growth in the net asset value per LB Class A Share.

10. The investment portfolio of the SB Fund consists of common shares of Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank. The SB Fund from time to time also hold cash and cash equivalents.

11. The investment portfolio of the LB Fund consists of common shares of Bank of Montreal, Canadian Imperial Bank of Commerce, Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., The Bank of Nova Scotia and The Toronto-Dominion Bank. The LB Fund from time to time also hold cash and cash equivalents.

12. The SB Fund filed a (final) prospectus dated October 27, 2005, under the securities legislation of Ontario and each of the Passport Jurisdictions, for the initial issuance of its SB Preferred Shares and SB Class A Shares. Pursuant to a (final) prospectus dated March 1, 2006, which was filed by the SB Fund under the securities legislation of Ontario and each of the Passport Jurisdictions, the SB Fund issued to the holders of its outstanding SB Class A Shares transferable rights to subscribe for additional SB Class A Shares and SB Preferred Shares.

13. The LB Fund filed a (final) prospectus dated September 28, 2006, under the securities legislation of Ontario and each of the Passport Jurisdictions, for the initial issuance of its LB Preferred Shares and LB Class A Shares.

14. Neither Fund engages in the continuous distribution of its securities.

15. In connection with the SB Warrant Offering, the SB Fund has filed a preliminary short form prospectus dated May 12, 2010, under the securities legislation of Ontario and each of the Passport Jurisdictions. Under the SB Warrant Offering, each holder of SB Class A Shares, as at a specified record date, will be entitled to receive, for no consideration, one-half SB Warrant for each SB Class A Share held by the holder.

16. In connection with the LB Warrant Offering, the LB Fund has filed a primary short form prospectus dated May 12, 2010, under the securities legislation of Ontario and each of the Passport Jurisdictions. Under the LB Warrant Offering, each holder of LB Class A Shares, as at a specified record date, will be entitled to receive, for no consideration, one-half LB Warrant for each LB Class A Share held by the holder.

17. Holders of the SB Warrants will be entitled, upon their exercise of the SB Warrants, to subscribe for SB Units, pursuant to subscription privileges provided for in the SB Warrants, at a subscription price to be specified in the SB Warrant Prospectus. Each SB Warrant will entitle the holder to subscribe for one SB Unit under a basic subscription privilege. Holders of SB warrants who exercise their SB Warrants under the basic subscription privilege may also subscribe, pro rata, for additional SB Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The term for the exercise of the SB Warrants (including both the basic subscription privilege and additional subscription privilege) will not exceed four months.

18. Holders of the LB Warrants will be entitled, upon their exercise of the LB Warrants, to subscribe for LB Units, pursuant to subscription privileges provided for in the LB Warrants, at a subscription price to be specified in the LB Warrant Prospectus. Each LB Warrant will entitle the holder to subscribe for one LB Unit under a basic subscription privilege. Holders of LB warrants who exercise their LB Warrants under the basic subscription privilege may also subscribe, pro rata, for additional LB Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The term for the exercise of the LB Warrants (including both the basic subscription privilege and additional subscription and privilege) will not exceed four months.

19. The SB Fund has applied to list the SB Warrants, to be distributed under the SB Warrant Prospectus, on the TSX.

20. The LB Fund has applied to list the LB Warrants, to be distributed under the LB Warrant Prospectus, on the TSX.

21. The SB Warrant Offering Activities will consist of:

(a) the distribution of the SB Warrant Prospectus and the issuance of SB Warrants to the holders of SB Class A Shares (as at the record date specified in the SB Warrant Prospectus), after the SB Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of Ontario and each of the Passport Jurisdictions; and

(b) the distribution of SB Units to holders of the SB Warrants, upon the exercise of the SB Warrant by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make this distribution.

22. The LB Warrant Offering Activities will consist of:

(a) the distribution of the LB Warrant Prospectus and the issuance of LB Warrants to the holders of LB Class A Shares (as at the record date specified in the LB Warrant Prospectus), after the LB Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of Ontario and each of the Passport Jurisdictions; and

(b) the distribution of LB Units to holders of the LB Warrants, upon the exercise of the LB Warrant by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make this distribution.

23. The SB Fund and the LB Fund are in the business of trading by virtue of their portfolio investing and trading activities. As a result, their capital raising activities, including the SB Warrant Offering Activities and the LB Warrant Offering Activities, would require the Filers to register as a dealer in the absence of this decision (or another available exemption from the dealer registration requirement).

24. Section 8.5 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides that, after March 26, 2010, the exemptions from the dealer registration requirements set out in sections 3.1 [Rights offering] and section 3.42 [Conversion, exchange, or exercise] of NI 45-106 no longer apply.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that:

A. the SB Fund, and the Manager acting on behalf of the SB Fund, are not subject to the dealer registration requirement in respect of the SB Warrant Offering Activities; and

B. the LB Fund, and the Manager acting on behalf of the LB Fund, are not subject to the dealer registration requirement in respect of the LB Warrant Offering Activities.

"Carol S. Perry"
Commissioner
Ontario Securities Commission
 
"James D Carnwath"
Commissioner
Ontario Securities Commission