Scheduled outage for OSC Electronic Filing Portal on Thursday, April 25, 2024 from 6:00 to 11:00 pm (EST)
Triax CaRTS III Trust. - ss. 74(1)
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, CHAPTER S. 5, AS AMENDED (the "Act")
AND
IN THE MATTER OF
R. R. O. 1990, REGULATION 1015, AS AMENDED (the "Regulation")
AND
IN THE MATTER OF
TRIAX CaRTS III TRUST
RULING AND EXEMPTION
(Subsection 74(1) of the Act and Subsection 59(1) of Schedule 1 of the Regulation)
UPON the application of Triax Investment Management Inc. ("TIMI"), as manager of Triax CaRTS III Trust (the "Trust"), to the Ontario Securities Commission (the "Commission") for a ruling:
(i) pursuant to subsection 74(l)of the Act that the writing of certain over-the-counter covered call options and cash covered put options (collectively, the "OTC Options") by the Trust is not subject to sections 25 and 53 of the Act; and
(ii) pursuant to subsection 59(l) of Schedule 1 of the Regulation for an exemption from the fees required to be paid under section 28 of Schedule 1 of the Regulation in connection with the writing of certain OTC Options by the Trust;
AND UPON considering the application and the recommendation of the staff of the Commission;
AND UPON TIMI having represented to the Commission as follows:
1. The Trust is an investment trust that will be established under the laws of the Province of Ontario pursuant to a trust agreement (the "Trust Agreement") to be entered into between TIMI, in its capacity as manager, and in its capacity as trustee of the Trust.
2. The Trust will be authorized to issue an unlimited number of transferable, redeemable trust units (the "Units").
3. The Trust is not a reporting issuer under the Act but has filed a preliminary prospectus (the "Preliminary Prospectus") dated March 9, 2001 with the Commission and with the securities regulatory authority in each of the other provinces of Canada with respect to a proposed offering of Units.
4. It is expected that the Units will be listed on The Toronto Stock Exchange.
5. By virtue of the redemption features attaching to the Units, the Trust is considered a "mutual fund" within the meaning of the Act and other applicable legislation.
6. TIMI is a corporation incorporated under the laws of the Province of Ontario on May 29, 1998. TIMI will act as investment manager of the Trust pursuant to the Trust Agreement.
7. TIMI is registered under the Act in the categories of investment counsel and portfolio manager.
8. The Trust's investment objectives are:
(i) Distributions: to provide unitholders with a stable stream of quarterly distributions of at least $0.5625 per unit ($2.25 per annum to yield 9.0% on the subscription price of $25.00 per CaRTS);
(ii) Capital Repayment: to pay to unitholders, on or about December 31, 2012, an amount per unit equal to the subscription price of $25.00; and
(iii) Capital Appreciation: to pay to unitholders on December 31, 2012, in addition to the subscription price of $25.00, an amount representing the approximate initial value per unit of the active portfolio.
9. To achieve the capital repayment objective, the Trust will enter into a forward purchase and sale agreement with TD Global Finance ("TDGF"), a member of the TD Bank Financial Group, and such other Canadian financial institution or its affiliate (collectively, the "Counterparty") as the Trust may approve, pursuant to which the Counterparty will agree to pay to the Trust the subscription price of $25.00 per unit outstanding on December 31, 2012, the termination date, in exchange for the Trust agreeing to deliver to the Counterparty equity securities which the Trust will acquire with a portion of the gross proceeds of the Offering. In order to achieve the Trust's distribution and capital appreciation objectives, the balance of the net proceeds of the Offering will be invested in a diversified portfolio (the "Active Portfolio") consisting principally of equity securities issued primarily by leading U.S. and Canadian based companies with a market capitalization in excess of U.S.$1 billion and listed on a major North American stock exchange or quoted on the Nasdaq National Market.
10. To generate additional returns above the dividend income generated by the Active Portfolio, the Trust will, from time to time, write covered call options in respect of all or part of the equity securities in such portfolio. The investment criteria of the Trust prohibits the sale of equity securities subject to an outstanding call option, and therefore the call options will be covered at all times.
11. The Trust may, from time to time, hold a portion of its assets in "cash equivalents" (as that term is defined in the Preliminary Prospectus). The Trust may utilize such cash equivalents to provide cover in respect of the writing of cash covered put options, which is intended to generate additional returns and to reduce the net cost of acquiring the securities subject to the put options. Such cash covered put options will only be written in respect of securities in which such Trust is permitted to invest.
12. The purchasers of OTC Options written by the Trust will generally be major Canadian financial institutions and all purchasers of OTC Options will be persons or entities described in Schedule 1 to this ruling.
13. The writing of OTC Options by the Trust will not be used as a means for the Trust to raise new capital.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS RULED, pursuant to subsection 74(l)of the Act, that the writing of OTC Options by the Trust, as contemplated by paragraphs 10 and 11 of this ruling, shall not be subject to sections 25 and 53 of the Act provided that:
(a) the portfolio adviser advising the Trust with respect to such activities is registered as an adviser under the Act and meets the proficiency requirements in Ontario for advising with respect to options;
(b) each purchaser of an OTC Option written by the Trust is a person or entity described in Schedule 1 to this ruling; and
(c) a receipt for the (final) prospectus has been issued by the Director under the Act;
AND PURSUANT to section 59 of Schedule 1 to the Regulation the Trust is hereby exempted from the fees which would otherwise be payable pursuant to Section 28 of Schedule 1 to the Regulation in connection with any OTC Options written by the Trust in reliance on the above ruling.
April 19, 200l.
Paul Moore, R. Stephen Paddon
SCHEDULE 1
QUALIFIED PARTIES
Interpretation
1. The terms "subsidiary" and "holding body corporate" used in paragraphs (w), (x) and (y) of paragraph 3 of this Schedule have the same meaning as they have in the Business Corporations Act (Ontario).
2. All requirements contained in this Schedule that are based on the amounts shown on the balance sheet of an entity apply to the consolidated balance sheet of the entity.
Qualified Parties 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 the Business Development Bank of Canada Act (Canada).
(c) A bank subject to the regulatory regime of a country that is a member of the Basel Accord or that has adopted the banking and supervisory rules set out in the Basel Accord, if the bank has a minimum paid up capital and surplus, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency.
Credit Unions and Caisses Populaires
(a) A credit union central, federation of caisses populaires, credit union or regional caisse populaire, located, in each case, in Canada.
Loan and Trust Companies
(b) A loan corporation or trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other province or territory of Canada.
(c) A loan company or trust company subject to the regulatory regime of a country that is a member of the Basel Accord or that has adopted the banking and supervisory rules set out in the Basel Accord, if the loan company or trust company has a minimum paid up capital and surplus, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency.
Insurance Companies
(d) An insurance company licensed to do business in Canada or a province or territory of Canada.
(e) An insurance company subject to the regulatory regime of a country that is a member of the Basel Accord or that has adopted the banking and supervisory rules set out in the Basel Accord, if the insurance company has a minimum paid up capital and surplus, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency.
Sophisticated Entities
(f) A person or company that, together with its affiliates,
(i) has entered into one or more transactions involving OTC derivatives with counterparties that are not its affiliates, if
(A) the transactions had a total gross dollar value of or equivalent to at least $1 billion in notional principal amount: and
(B) any of the contracts relating to one of these transactions was outstanding on any day during the previous 15-month period, or
(ii) had total gross marked-to-market positions of or equivalent to at least $100 million aggregated across counterparties, with counterparties that are not its affiliates in one or more transactions involving OTC derivatives on any day during the previous l5-month period.
Individuals
(g) An individual who, either alone or jointly with the individual's spouse, has a net worth of at least $5 million, or its equivalent in another currency, excluding the value of his or her principal residence.
Governments/Agencies
(h) Her Majesty in right of Canada or any province or territory of Canada and each crown corporation, instrumentality and agency of a Canadian federal, provincial or territorial government.
(i) A national government of a country that is a member of the Basel Accord, or that has adopted the banking and supervisory rules of the Basel Accord, and each instrumentality and agency of that government or corporation wholly-owned by that government.
Municipalities
(j) Any Canadian municipality with a population in excess of 50,000 and any Canadian provincial or territorial capital city.
Corporations and other Entities
(k) A company, partnership, unincorporated association or organization or trust, other than an entity referred to in paragraph (a), (b), (c), (d), (e), (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 if otherwise required.
Pension Plan or Fund
(l) A pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission, if the pension fund has total net assets, as shown on its last audited balance sheet, in excess of $25 million, provided that, in determining net assets, the liability of a fund for future pension payments shall not be included.
Mutual Funds and investment Funds
(m) A mutual fund or non-redeemable investment fund if each investor in the fund is a qualified party.
(n) A mutual fund that distributes its securities in Ontario, if the portfolio manager of the fund is registered as an adviser, other than a securities adviser, under the Act or securities legislation elsewhere in Canada.
(o) A non-redeemable investment fund that distributes its securities in Ontario, if the portfolio manager of the fund is registered as an adviser, other than a securities adviser, under the Act or securities legislation elsewhere in Canada.
Brokers/Investment Dealers
(p) A person or company registered under the Act or securities legislation elsewhere in Canada as a broker or an investment dealer or both.
(q) A person or company registered under the Act as an international dealer if the person or company has total assets, as shown on its last audited balance sheet, in excess of $25 million or its equivalent in another currency.
Futures Commission Merchants
(r) A person or company registered under the CFA as a dealer in the category of futures commission merchant, or in an equivalent capacity elsewhere in Canada.
Charities
(s) 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 million or its equivalent in another currency.
Affiliates
(t) A wholly-owned subsidiary of any of the organizations described in paragraph (a), (b), (c), (d), (e), (f), (g), (h), (j), (n), (o), (s), (t) or (u).
(u) A holding body corporate of which any of the organizations described in paragraph (w) is a wholly-owned subsidiary.
(v) A wholly-owned subsidiary of a holding body corporate described in paragraph (x).
(w) A firm, partnership, joint venture or other form of unincorporated association in which one or more of the organizations described in paragraph (w), (x) or (y) have a direct or indirect controlling interest.
Guaranteed Party
(x) A party whose obligations in respect of the OTC derivatives transaction for which the determination is made is fully guaranteed by another qualified party.
Qualified Party Not Acting as Principal
4. The following are qualified parties, in respect of all OTC derivative transactions:
Managed Accounts
(a) Accounts of a person, company, pension fund or pooled fund trust that are fully managed by a portfolio manager or financial intermediary referred to in paragraphs (a), (d), (e), (g), (s), (t), (u) or (w) of paragraph 3 or a broker or investment dealer acting as a trustee or agent for the person, company, pension fund or pooled fund trust under section 148 of the Regulation.
Subsequent Failure to Qualify
5. A party is a qualified party for the purpose of any OTC derivatives transaction if it, he or she is a qualified party at the time it, he or she enters into the transaction.