Mulvihill Pro-AMS RSP Split Share Corp. - Ruling and Exemption

Ruling

Headnote

Subsection74(1) - Issuer exempt from sections 25 and 53 of the Act in connectionwith the writing of over-the-counter covered call options, subjectto certain conditions. Subsection59(2), Schedule 1 - Issuer exempt from the fees prescribed bysubsection 28(2) of Schedule 1 of the Regulation in connectionwith the writing of over-the-counter covered call options.

StatutesCited

SecuritiesAct, R.S.O. 1990, c. S.5, as am., ss. 25, 53 and 74(1)

RegulationsCited

Regulationmade under the Securities Act, R.R.O. 1990, Reg. 1015, as am.,ss. 28(2) and 59(1) of Schedule 1.

INTHE MATTER OF

THESECURITIES ACT

R.S.O.1990, CHAPTER S.5, AS AMENDED (the "Act")

AND

INTHE MATTER OF

R.R.O.1990, REGULATION 1015, AS AMENDED

(the"Regulation")

AND

INTHE MATTER OF

MULVIHILLPRO-AMS RSP SPLIT SHARE CORP.

RULINGAND EXEMPTION

(Subsection74(1) of the Act and Subsection 59(1) of Schedule 1 of the Regulation)


UPONthe application of Mulvihill Fund Services Inc. ("Mulvihill"),as manager of Mulvihill Pro-AMS RSP Split Share Corp. (the "Company"),to the Ontario Securities Commission (the "Commission") fora ruling: (i)pursuant to subsection 74(1) of the Act that the writing ofcertain over-the-counter covered call options and cash coveredput options (collectively, the "OTC Options") by the Companyis not subject to sections 25 and 53 of the Act; and (ii)pursuant to subsection 59(1) of Schedule 1 of the Regulationfor an exemption from the fees required to be paid under section28 of Schedule 1 of the Regulation in connection with the writingof certain OTC Options by the Company; ANDUPON considering the application and the recommendationof the staff of the Commission; ANDUPON Mulvihill having represented to the Commissionas follows: 1.The Company is a mutual fund corporation established under thelaws of the Province of Ontario. 2.The authorized capital of the Company will consist of an unlimitednumber of class A shares (the "Class A Shares"), class B shares(the "Class B Shares") and class J shares; 3.The Company is considered a "mutual fund" within the meaningof the Act and other applicable securities legislation. 4.The Company is not a reporting issuer under the Act but hasfiled a preliminary prospectus dated January 8, 2002 and willfile a (final) prospectus (the "Prospectus") with the Commissionand with the securities regulatory authority in each of theother Provinces of Canada under Sedar Project No. 413988 withrespect to proposed offering of Class A Shares and the ClassB Shares. 5.Mulvihill Capital Management Inc. ("MCM") will act as investmentmanager of the Company. 6.MCM is registered under the Act in the categories of investmentcounsel and portfolio manager, mutual fund dealer and limitedmarket dealer. 7.The Company's investment objectives for the Class A Shares are:(i) to provide holders of Class A Shares with fixed cumulativepreferential monthly cash distributions; and (ii) to pay suchholders $10.00 for each Class A Share held on redemption ofthe Class A Shares on December 31, 2013 (the "Termination Date")(to be paid in priority out of the Managed Portfolio (as definedbelow)). 8.The Company's investment objectives for the Class B Shares are:(i) to provide holders of Class B Shares with regular monthlycash distributions; (ii) to pay such holders $20.00 for eachClass B Share held on the redemption of the Class B Shares onthe Termination Date; and (iii) on the Termination Date, toprovide holders of Class B Shares with the balance of the valueof the Managed Portfolio after paying holders of the Class AShares $10.00 per Class A Share. 9.To enhance the Company's ability to return the original issueprice of the Class A Shares on termination, the Company intendsto contribute, every six months (commencing on September 30,2002) an amount per Class A Share outstanding targeted to bea minimum of 1/23rd of the issue price of a Class A Share, toan account (the "Class A Share Forward Account") which willbe used to acquire Canadian equity securities. The Company willat each such time enter into a forward purchase and sale agreement(each a "Class A Share Forward Agreement") with Royal Bank ofCanada ("RBC") and pursuant to the terms thereof will agreeto deliver the equity securities so acquired for a cash amounton termination which will be negotiated at the time such forwardagreement is entered into. The Company will not enter into additionalClass A Share Forward Agreements at such time as the forwardvalue payable to the Company under the Class A Share ForwardAgreements on the Termination Date equals the Class A Shareissue price ($10.00) multiplied by the number of Class A Sharesoutstanding. 10.To provide the Company with the means to return the originalissue price of the Class B Shares on termination, the Companywill enter into a forward purchase and sale agreement (the ''ClassB Share Forward Agreement'') with RBC upon or within 30 daysof the closing of the offering. Pursuant to the Class B ShareForward Agreement, RBC will agree to pay to the Company an amountequal to $20.00 in respect of each Class B Share outstandingon the Termination Date in exchange for the Company agreeingto deliver to RBC equity securities which the Company will acquirewith a portion of the gross proceeds of the offering (the ''FixedPortfolio''). 11.The balance of the net proceeds of the offering: (i) will beinvested by the Company in a diversified portfolio consistingprincipally of Canadian and U.S. equity securities that arelisted on a major North American stock exchange or market whoseissuers have a market capitalization in excess of U.S.$5.0 billionif listed solely in the United States or a market capitalizationin excess of Cdn.$1.0 billion if listed in Canada, and (ii)will also be used to enter into the Class A Share Forward Agreements(collectively, the "Managed Portfolio"). 12.The Company will, from time to time, write covered call optionsin respect of all or part of the securities in its Managed Portfolio(other than Managed Portfolio securities pledged as a resultof entering into the Class A Share Forward Agreements). Theinvestment criteria of the Company prohibits the sale of equitysecurities subject to an outstanding call option, and thereforethe call options will be covered at all times. 13.The Company may, from time to time, hold a portion of its assetsin "cash equivalents" (as that term is defined in the Prospectus).The Company may utilize such cash equivalents to provide coverin respect of the writing of cash covered put options. Suchcash covered put options will only be written in respect ofsecurities in which the Company is permitted to invest. 14.The purchasers of OTC Options written by the Company will generallybe major Canadian financial institutions and all purchasersof OTC Options will be persons or entities described in Schedule1 to this ruling. 15.The writing of OTC Options by the Company will not be used asa means for the Company to raise new capital. ANDUPON the Commission being satisfied that to do so wouldnot be prejudicial to the public interest; ITIS RULED, pursuant to subsection 74(1) of the Act,that the writing of OTC Options by the Company, as contemplatedby paragraphs 12 and 13 of this ruling, shall not be subjectto sections 25 and 53 of the Act provided that: (a)the portfolio adviser advising the Company with respect to suchactivities is registered as an adviser under the Act and meetsthe proficiency requirements in Ontario for advising with respectto options; (b)each purchaser of an OTC Option written by the Company is aperson or entity described in Schedule 1 to this ruling; and (c)a receipt for the Prospectus has been issued by the Directorunder the Act; ANDPURSUANT to section 59 of Schedule 1 to the Regulationthe Company is hereby exempted from the fees which would otherwisebe payable pursuant to Section 28 of Schedule 1 to the Regulationin connection with any OTC Options written by the Company inreliance on the above ruling. February15, 2002. "PaulM. Moore"       "R. Stephen Paddon"

 

 

APPENDIXA

QUALIFIEDPARTIES

Interpretation

(1)The terms "subsidiary" and "holding body corporate" used in paragraphs(w), (x) and (y) of subsection (3) of this Appendix have the samemeaning as they have in the Business Corporations Act (Ontario). (2)All requirements contained in this Appendix that are based onthe amounts shown on the balance sheet of an entity apply to theconsolidated balance sheet of the entity.

QualifiedParties Acting as Principal

(3)The following are qualified parties for all OTC derivatives transactions,if acting as principal:

Banks

(a)A bank listed in Schedule I, II or III to the Bank Act(Canada). (b)The Business Development Bank of Canada incorporated under theBusiness Development Bank of Canada Act (Canada). (c)A bank subject to the regulatory regime of a country that is amember of the Basel Accord, or that has adopted the banking andsupervisory rules set out in the Basel Accord, if the bank hasa minimum paid up capital and surplus, as shown on its last auditedbalance sheet, in excess of $25 million or its equivalent in anothercurrency.

CreditUnions and Caisses Populaires

(d)A credit union central, federation of caisses populaires, creditunion or regional caisse populaire, located, in each case, inCanada.

Loanand Trust Companies

(e)A loan corporation or trust corporation registered under the Loanand Trust Corporations Act (Ontario) or under the Trustand Loan Companies Act (Canada), or under comparable legislationin any other province or territory of Canada. (f)A loan company or trust company subject to the regulatory regimeof a country that is a member of the Basel Accord, or that hasadopted the banking and supervisory rules set out in the BaselAccord, if the loan company or trust company has a minimum paidup capital and surplus, as shown on its last audited balance sheet,in excess of $25 million or its equivalent in another currency.

InsuranceCompanies

(g)An insurance company licensed to do business in Canada or a provinceor territory of Canada. (h)An insurance company subject to the regulatory regime of a countrythat is a member of the Basel Accord, or that has adopted thebanking and supervisory rules set out in the Basel Accord, ifthe insurance company has a minimum paid up capital and surplus,as shown on its last audited balance sheet, in excess of $25 millionor its equivalent in another currency.

SophisticatedEntities

(i)A person or company that a person or company that, together withits affiliates, (i)has entered into one or more transactions involving OTC derivativeswith counterparties that are not its affiliates, if (A)the transactions had a total gross dollar value of or equivalentto at least $1 billion in notional principal amount; and (B)any of the contracts relating to one of these transactions wasoutstanding on any day during the previous 15-month period, or (ii)had total gross marked-to-market positions of or equivalent toat least $100 million aggregated across counterparties, with counterpartiesthat are not its affiliates in one or more transactions involvingOTC derivatives on any day during the previous 15-month period.

Individuals

(j)An individual who, either alone or jointly with the individual'sspouse, has a net worth of at least $5 million, or its equivalentin another currency, excluding the value of his or her principalresidence.

Governments/Agencies

(k)Her Majesty in right of Canada or any province or territory ofCanada and each crown corporation, instrumentality and agencyof a Canadian federal, provincial or territorial government. (l)A national government of a country that is a member of the BaselAccord or that has adopted the banking and supervisory rules ofthe Basel Accord, and each instrumentality and agency of thatgovernment or corporation wholly-owned by that government;

Municipalities

(m)Any Canadian municipality with a population in excess of 50,000and any Canadian provincial or territorial capital city.

Corporationsand other Entities

(n)A company, partnership, unincorporated association or organizationor 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 ifotherwise required.

Pension Plan or Fund

(o)A pension fund that is regulated by either the Office of the Superintendentof Financial Institutions (Canada) or a provincial pension commission,if the pension fund has total net assets, as shown on its lastaudited balance sheet, in excess of $25 million, provided that,in determining net assets, the liability of a fund for futurepension payments shall not be included.

MutualFunds and Investment Funds

(p)A mutual fund or non-redeemable investment fund if each investorin the fund is a qualified party. (q)A mutual fund that distributes securities in Ontario, if the portfoliomanager of the fund is registered as an adviser, other than asecurities adviser, under the Act or securities legislation elsewherein Canada. (r)A non-redeemable investment fund that distributes its securitiesin Ontario if the portfolio manager is registered as an adviser,other than a securities adviser, under the Act or securities legislationelsewhere in Canada.

Brokers/InvestmentDealers

(s)A person or company registered under the Act or securities legislationelsewhere in Canada as a broker or an investment dealer or both. (t)A person or company registered under the Act as an internationaldealer if the person or company has total assets, as shown onits last audited balance sheet, in excess of $25 million or itsequivalent in another currency.

FuturesCommission Merchants

(u)A person or company registered under the CFA as a dealer in thecategory of futures commission merchant, or in an equivalent capacityelsewhere in Canada.

Charities

(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 millionor its equivalent in another currency.

Affiliates

(w)A wholly-owned subsidiary of any of the organizations describedin 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 describedin paragraph (w) is a wholly-owned subsidiary. (y)A wholly-owned subsidiary of a holding body corporate describedin paragraph (x). (z)A firm, partnership, joint venture or other form of unincorporatedassociation in which one or more of the organizations describedin paragraph (w), (x) or (y) have a direct or indirect controllinginterest.

Guaranteed Party

(aa)A party whose obligations in respect of the OTC derivatives transactionfor which the determination is made is fully guaranteed by anotherqualified party.

QualifiedParty Not Acting as Principal

(4)The following are qualified parties, in respect of all OTC derivativetransactions:

ManagedAccounts

1. Accountsof a person, company, pension fund or pooled fund trust that arefully managed by a portfolio manager or financial intermediaryreferred to in paragraphs (a), (d), (e), (g), (s), (t), (u) or(w) of subsection (3) or a broker or investment dealer actingas a trustee or agent for the person, company, pension fund orpooled fund trust under section 148 of the Regulation.

SubsequentFailure to Qualify

(5)A party is a qualified party for the purpose of any OTC derivativestransaction if it, he or she is a qualified party at the timeit, he or she enters into the transaction.