IN THE MATTER
OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, Qu�bec, NOVA SCOTIA, NEW
BRUNSWICK, PRINCE EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR, YUKON, NUNAVUT AND
NORTHWEST
TERRITORIES
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF BROMPTON STABLE INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or
regulator (the "Decision Maker") in each of British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario, Qu�bec, Nova Scotia, New Brunswick, Prince Edward
Island, Newfoundland and Labrador, Yukon, Nunavut and Northwest Territories (the
"Jurisdictions") has received an application from Brompton STABLE Income Fund
(the "Fund") for a decision, pursuant to the securities legislation of the
Jurisdictions (the "Legislation"), that the requirement contained in the
Legislation to be registered to trade in a security and to file and obtain a receipt for a
preliminary prospectus and a final prospectus (the "Registration and Prospectus
Requirements") shall not apply to certain trades in units of the Fund pursuant to a
distribution reinvestment plan (the "Plan");
AND WHEREAS under the Mutual Reliance Review System
for Exemptive Relief Applications ("System"), the Ontario Securities
Commission
is the principal regulator for this application;
AND WHEREAS, unless otherwise defined, the terms
herein have the meaning set out in National Instrument 14-101 Definitions or
in Qu�bec
Commission Notice 14-101;
AND WHEREAS the Fund has represented to the Decision
Makers that:
1. The Fund is an unincorporated closed-end investment trust established under the laws of
the Province of Ontario by an amended and restated declaration of trust dated November 21,
2002.
2. The beneficial interests in the Fund are divided into a single class of limited
voting
units (the "Units"). The Fund is authorized to issue an unlimited number
of Units. Each Unit represents a Unitholder's proportionate undivided beneficial
interest in
the Fund.
3. The Fund has filed a final long form prospectus dated November 21, 2002 (the "Prospectus")
and has become a reporting issuer in each province and territory in Canada upon
obtaining a receipt for its Prospectus dated November 22, 2002.
4. The Fund is not a "mutual fund" as defined in the Legislation because the
holders of Units ("Unitholders") are not entitled to receive on demand an amount
computed by reference to the value of a proportionate interest in the whole or in part of
the net assets of the Fund as contemplated in the definition of "mutual fund" contained
in the Legislation.
5. Application has been made to list the Units for trading on the Toronto Stock Exchange.
6. The investment objectives of the Fund are to:
(a) provide Unitholders with monthly Distributions initially targeted to yield approximately 7.5% per annum based on the offering price of the Units;
(b) maintain a Standard & Poor's SR-1 stability rating; and
(c) preserve the Net Asset Value per Trust Unit.
7. The Fund currently intends
to make cash distributions of
distributable income ("Distributions") on the tenth business day of each month
(each a "Distribution Date") to Unitholders of record on the last business
day of the immediately preceding calendar month with the first Distribution to
be made in the
second month following the month in which the closing of the initial public offering
of
Units occurs.
8. The Fund intends to establish the Plan pursuant to which Unitholders may,
at their option, invest cash Distributions paid on their Units in additional
Units ("Plan
Units"). The Plan will not be available to Unitholders who are not Canadian
residents.
9. Distributions due to participants who opt to participate in the Plan ("Plan
Participants") will be paid to Computershare Trust Company of Canada in its capacity
as agent under the Plan (in such capacity, the "Plan Agent") and applied
to purchase Plan Units. Plan Units purchased under the Plan will be purchased
by the Plan
Agent directly from the Fund or in the market in the following manner:
(a) if the weighted average trading price on the TSX (or such other stock exchange on which the Units are listed, if the Units are no longer listed on the TSX) for the 10 trading days immediately preceding the relevant Distribution Date, plus applicable commissions and brokerage charges, (the "Market Price") is less than the Net Asset Value per Fund Unit (as determined in accordance with the Plan Agreement) on the Distribution Date, the Plan Agent shall apply the Distribution either to purchase Plan Units in the market or from treasury in accordance with subparagraph (c) below;
(b) if the Market Price is equal to or greater than the Net Asset Value per Unit on the relevant Distribution Date, the Plan Agent shall apply the Distribution to purchase Plan Units from the Fund through the issue of new Units at a purchase price equal to the higher of (i) the Net Asset Value per Unit on the relevant Distribution Date and (ii) 95% of the Market Price on the relevant Distribution Date;
(c) purchases of Plan Units made by the Fund in the market pursuant to subparagraph (a) above will be made by the Plan Agent on an orderly basis during the 10 trading day period following the Distribution Date and the price paid for those Plan Units will not exceed 115% of the Market Price of the Units on the relevant Distribution Date. On the expiry of such 10 day period, the unused part, if any, of the Distributions attributable to the Plan Participants will be used to purchase Plan Units from the Fund at a purchase price equal to the higher of (i) the Net Asset Value per Trust Unit on the relevant Distribution Date and (ii) 95% of the Market Price on the relevant Distribution Date.
10. The Plan Agent will be purchasing Plan Units only in
accordance with the mechanisms described in the Plan and, accordingly, there is no
opportunity for a Plan Participant or the Plan Agent to speculate on changes in the Net
Asset Value per Unit.
11. The Fund will invest in the assets with the objective of maintaining a Standard &
Poor's SR-1 stability rating which rating will be based on the composition of the Fund's
portfolio of income securities, investment objectives, investment restrictions and
investment strategy. An SR-1 stability rating represents S&P's current opinion
that the Units have the highest level of expected sustainability and lowest level
of expected
variability in the distributions of the Fund relative to the distributions of
other rated Canadian income funds. Accordingly, the Net Asset Value per Unit
should be less volatile
than that of a typical equity fund, and the potential for significant changes
in the Net
Asset Value per Unit over short periods of time is moderate.
12. The amount of Distributions that may be reinvested in Plan Units issued from treasury
is small relative to the Unitholders' equity in the Fund. The potential for dilution
arising from the issuance of Units by the Fund at the Net Asset Value per Unit on a
Distribution Date is not significant.
13. The Plan is open to participation by all Unitholders other than Unitholders who are
non-residents of Canada, so that any Unitholder can ensure protection against potential
dilution, albeit insignificant, by electing to participate in the Plan.
14. No commissions, service charges or brokerage fees will be payable by Plan Participants
in connection with the Plan.
15. Pursuant to the Plan, Plan Participants may also make cash payments ("Optional
Cash Payments") which will be invested in Units by the Plan Agent. Any Plan
Participant may invest a minimum of $100 per Optional Cash Payment with a maximum
$20,000 per calendar year per Plan Participant. Optional Cash Payments will be
invested on the
same basis as Distributions. Optional Cash Payments must be received by the Plan
Agent at least five business days prior to a Distribution Date. Optional Cash
Payments received
less than five business days prior to a Distribution Date will be held by the
Plan Agent
until the next Distribution Date.
16. Plan Units purchased under the Plan will be registered in the name of the
Canadian
Depository for Securities Limited ("CDS") and credited to the account of the
participant in the CDS depository service (the "CDS Participant") through
whom a
Unitholder holds Units.
17. Each Unitholder must elect to participate in the Plan on a monthly basis through the
applicable CDS Participant and will not be required to participate in the Plan in respect
of any particular Distribution unless a Unitholder has specifically elected to do so. The
Fund has the right to amend, suspend or terminate the Plan at any time, provided that such
action shall not have a retroactive effect which would prejudice the interests of the Plan
Participants. All Plan Participants will be sent notice of any such amendment, suspension
or termination via the applicable CDS Participant.
18. The distribution of the Plan Units by the Fund pursuant to the Plan cannot be made in
reliance on certain registration and prospectus exemptions contained in the Legislation as
the Plan involves the reinvestment of income distributed by the Fund and not the
reinvestment of dividends, interest, capital gains or distributions out of earnings or
surplus of the Fund.
19. The distribution of the Plan Units by the Fund pursuant to the Plan cannot
be made in reliance on registration and prospectus exemptions contained in the
Legislation for
distribution reinvestment plans of mutual funds, as the Fund is not a "mutual
fund" as defined in the Legislation.
AND WHEREAS under
the System, this MRRS Decision Document evidences the decision of each
of the Decision Makers
(collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied
that the test contained in the Legislation that provides the Decision Makers with the
jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the
Legislation is that the trades in Plan Units by the Fund to the Plan Participants pursuant
to the Plan shall not be subject to the Registration and Prospectus Requirements of the
Legislation provided that:
(a) at the time of the trade the Fund is a reporting issuer or the equivalent under the Legislation and is not in default of any requirements of the Legislation;
(b) no sales charge is payable in respect of the distributions;
(c) the Fund has caused to be sent to the person or company to whom the Plan Units are traded, not more than 12 months before the trade, a statement describing:(i) their right to elect to participate in the Plan on a monthly basis to receive Plan Units instead of cash on the making of a distribution of income by the Fund; and
(ii) instructions on how to exercise the election referred to in (i);
(d) in the financial year during which the trade takes place, the aggregate number of Plan Units issued pursuant to the Cash Payment Option of the Plan before the trade plus the aggregate number of Plan Units issued in the trade, shall not exceed 2% of the aggregate number of Units outstanding at the commencement of that financial year;
(e) except in Qu�bec, the first trade in Plan Units acquired pursuant to this Decision in a Jurisdiction shall be deemed a distribution or primary distribution to the public under the Legislation unless the conditions set out in paragraphs 2 through 5 of subsection 2.6(4) of Multilateral Instrument 45-102 0- Resale of Securities are satisfied;
(f) in Qu�bec, the first trade (alienation) in Plan Units acquired pursuant to this Decision will be a distribution unless:(i) no unusual effort is made to prepare the market or to create a demand for the securities that are the subject of the alienation;
(ii) no extraordinary commission or other consideration is paid in respect of the alienation;
(iii) if the seller of the securities is an insider of the Fund, the seller has no reasonable grounds to believe that the Fund is in default of any requirement of securities legislation; and(g) disclosure of the distribution of the Plan Units to Plan Participants is made to the relevant Jurisdictions by providing the particulars of the date of the distribution of such Plan Units, the number of such Plan Units and the purchase price paid or to be paid for such Plan Units in:
(i) an information circular or take-over bid circular filed in accordance with the Legislation; or
(ii) a letter with the Decision Maker in the relevant Jurisdiction by a person or company certifying that the person or company has knowledge of the facts contained in the letter,when the Fund distributes such Plan Units for the first time and thereafter, not less frequently than annually, unless the aggregate number of Plan Units so traded in any month exceeds 1% of the Units outstanding at the beginning of a month in which the Plan Units were traded, in which case a separate report shall be filed in each relevant Jurisdiction in respect of that month within ten days of the end of such month.
DATED December 11, 2002
| Howard I. Weston | Theresa McLeod |
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - closed-end investment
trust exempt from prospectus and registration requirements in connection with issuance of
units to existing unit holders pursuant to distribution reinvestment plan whereby
distributions of income are reinvested in additional units of the trust, subject to
certain conditions - first trade in additional units deemed a distribution unless made in
compliance with paragraphs 2 through 5 of subsection 2.6(4) of MI 45-102
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 48 and 76