Sun Life Financial Inc. et al. - OSC Rule 13-502 Fees, s. 2.2

Order

Headnote

Special purpose trust set up 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.

Statutes Cited

Ontario Securities Commission Rule 13-502 Fees.

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION

RULE 13-502 -- FEES

AND

IN THE MATTER OF

SUN LIFE FINANCIAL INC.,

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 (SLA) and Sun Life Financial Inc. (SLF) 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 the Trust, SLA and SLF have represented to the Director that:

1. The Trust is an open-end trust established under the laws of Ontario by The Canada Trust Company, as trustee, pursuant to a declaration of trust dated as of August 9, 2001. 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.

2. The capital of the Trust consists of an unlimited number of units divided into one class of voting Special Trust Securities issuable in series and one class of non-voting Sun Life ExchangEable Capital Securities issuable in series (the SLEECS, and collectively with the Special Trust Securities, the Trust Securities). As of November 26, 2007 the outstanding Trust Securities consist of 2,000 Special Trust Securities, 9,500,000 SLEECS -- Series A, and 20,000,000 SLEECS -- Series B.

3. The outstanding Special Trust Securities are all held by SLA, which is a wholly-owned subsidiary of SLF. Both SLA and SLF are reporting issuers in Ontario and, to their knowledge, are not in default of any requirement under the securities legislation of the Province of Ontario.

4. The outstanding SLEECS -- Series A were issued pursuant to a public offering in October 2001 and are listed on the Toronto Stock Exchange. The outstanding SLEECS -- Series B were issued pursuant to a public offering in June 2002 and are not listed on any exchange.

5. The Trust is a special purpose issuer established by SLF and SLA to comply with the regulatory requirements of the Office of the Superintendent of Financial Institutions (Canada) (OSFI) relating to the issuance of innovative Tier 1 capital instruments (the OSFI Requirements). The Trust does not conduct any business activities other than acquiring and holding assets to generate income for distribution to the holders of Trust Securities.

6. OSFI maintains strict guidelines with respect to the capital adequacy of federally regulated financial institutions, including SLF and SLA, and, in particular, specifies minimum amounts of Tier 1 capital to be maintained by such institutions. When the SLEECS were issued, the OSFI Requirements were such that innovative instruments such as the SLEECS had to be issued by a special purpose vehicle such as the Trust that was a consolidated non-operating entity whose primary purpose was to raise innovative Tier 1 capital.

7. Issuing innovative instruments such as the SLEECS is a cost-effective means of raising Tier 1 capital for SLF and SLA. However, the SLEECS could not have been issued directly under the OSFI Requirements. If SLF could have issued the SLEECS directly, they would have been included in the calculation of SLF's participation fee in accordance with the Fees Rule.

8. In accordance with amendments to Canadian generally accepted accounting principles (GAAP) that SLF and SLA adopted as of January 1, 2005, the assets and liabilities of the Trust are no longer consolidated in the financial statements of SLF and SLA, and the Trust is no longer a "subsidiary" of SLF and SLA as defined under GAAP. However, OSFI has confirmed that the SLEECS continue to be treated as Tier 1 capital notwithstanding such amendments to GAAP.

9. The Trust was previously exempt from section 2.2 of the Fees Rule pursuant to an order of the Director dated April 20, 2005 (the 2005 Fee Relief). However, one of the conditions of the 2005 Fee Relief was that the Trust, SLF and SLA continue to satisfy all of the conditions in the orders that granted the Trust relief from certain continuous disclosure requirements and the Chief Executive Officer and Chief Financial Officer certification requirements. These orders were granted on March 14, 2002 and May 14, 2004, respectively, and were revoked upon the granting of substantially similar continuous disclosure and certification relief to the Trust and SLA pursuant to an MRRS Decision Document dated November 14, 2007 (the 2007 Order). Accordingly, the 2005 Fee Relief no longer applies.

10. In addition, the Trust does not qualify for the participation fee exemption contained in section 2.9 of the Fees Rule because it is not a "subsidiary entity" of SLF or SLA within the meaning of that rule, which is defined by reference to GAAP rather than by reference to a legal definition based on control.

11. Pursuant to the 2007 Order, the requirements to file and deliver, as applicable:

(a) annual financial statements under sections 78 and 79 of the Securities Act (Ontario) (the "Act") and sections 4.1 and 4.6 of National Instrument 51-102 -- Continuous Disclosure Obligations (NI 51-102);

(b) interim financial statements under sections 77 and 79 of the Act and sections 4.3 and 4.6 of NI 51-102;

(c) annual information forms under section 6.1 of NI 51-102;

(d) annual and interim management's discussion and analysis of the financial condition and results of operations under section 5.1 of NI 51-102;

(e) press releases and material change reports under section 75 of the Act and section 7.1 of NI 51-102, in the case of material changes that are also material changes in the affairs of SLF;

(f) material contracts under section 12.2 of NI 51-102;

(g) annual certificates under section 2.1 of Multilateral Instrument 52-109 -- Certification of Disclosure in Issuers' Annual and Interim Filings (MI 52-109); and

(h) interim certificates under section 3.1 of MI 52-109,

do not apply to the Trust provided that the conditions set out in the 2007 Order continue to be met.

12. No continuous disclosure documents concerning only the Trust will be filed with the OSC unless the conditions in the 2007 Order are not satisfied.

13. SLA, as a legal and factual matter, controls the Trust though its ownership of the Special Trust Securities and its role as administrative agent of the Trust.

14. SLF has paid, and will continue to pay, participation fees applicable to it under section 2.2 of the Fees Rule.

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:

(a) the Trust, SLA and SLF continue to satisfy all of the conditions contained in the 2007 Order; and

(b) the capitalization of the Trust represented by the SLEECS and any additional securities that may be issued, from time to time, by the Trust is included in the participation fee calculation applicable to SLF and SLF has paid the participation fee calculated on this basis.

DATED at Toronto this 19th day of December, 2007.

"Iva Vranic"
Manager, Corporate Finance
Ontario Securities Commission