HeadnoteMutualReliance Review System for Exemptive Relief Applications - open-endinvestment trust exempt from prospectus and registration requirementsin connection with issuance of units to existing unit holderspursuant to distribution reinvestment plan whereby distributionsof income are reinvested in additional units of the trust, subjectto certain conditions - first trade in additional units deemeda distribution unless made in compliance with MI 45-102.
ApplicableOntario Statutory ProvisionsSecuritiesAct, R.S.O. 1990, c. S.5, as am., ss. 25, 53 and 74(1).
MultilateralInstrument CitedMultilateralInstrument 45-102 Resale of Securities (2001), 24 OSCB5522.
INTHE MATTER OF
THESECURITIES LEGISLATION OF
BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA,ONTARIO, QUÉBEC, NOVA SCOTIA,
NEWBRUNSWICK, PRINCE EDWARD ISLAND,
NEWFOUNDLANDAND LABRADOR, YUKON,
NUNAVUTAND NORTHWEST TERRITORIES
INTHE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM FOR
INTHE MATTER OF
BROMPTONVIP INCOME TRUST
MRRSDECISION DOCUMENTWHEREASthe local securities regulatory authority or regulator (the"DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Québec, Nova Scotia, New Brunswick, Prince EdwardIsland, Newfoundland and Labrador, Yukon, Nunavut and NorthwestTerritories (the "Jurisdictions") has received an applicationfrom Brompton VIP Income Trust (the "Trust") for a decision, pursuantto the securities legislation of the Jurisdictions (the "Legislation"),that the requirement contained in the Legislation to be registeredto trade in a security and to file and obtain a receipt for apreliminary prospectus and a final prospectus (the "Registrationand Prospectus Requirements") shall not apply to certain tradesin units of the Trust pursuant to a distribution reinvestmentplan (the "Plan");
ANDWHEREAS under the Mutual Reliance Review System for ExemptiveRelief Applications ("System"), the Ontario Securities Commissionis the principal regulator for this application;
ANDWHEREAS the Trust has represented to the Decision Makersthat:
1.The Trust is an unincorporated closed-end investment trust establishedunder the laws of the Province of Ontario by an amended and restateddeclaration of trust dated January 29, 2002.
2.The beneficial interests in the Trust are divided into a singleclass of limited voting units (the "Units"). The Trust is authorizedto issue an unlimited number of Units of which 9,875,000 Unitswere issued and outstanding as of March 19, 2002. Each Unit representsa Unitholder's proportionate undivided beneficial interest inthe Trust.
3.The Trust became a reporting issuer or the equivalent thereofin each province and territory in Canada upon obtaining a receiptfor its final prospectus dated January 29, 2002 (the "Prospectus").As of the date hereof, the Trust is not in default of any requirementsunder the Legislation.
4.The Trust is not a "mutual fund" as defined in the Legislationbecause the holders of Units ("Unitholders") are not entitledto receive on demand an amount computed by reference to the valueof a proportionate interest in the whole or in part of the netassets of the Trust as contemplated in the definition of "mutualfund" contained in the Legislation.
5.The Units are listed and posted for trading on The Toronto StockExchange under the symbol "VIP.UN".
6.The investment objectives of the Trust are to:
(i)provide Unitholders with a high level of income through receiptof monthly distributions in a tax efficient manner initially targetedto yield approximately 0.8125% per month or 9.75% per annum basedon the Offering Price;
(ii)enhance performance by reducing the risk of investing in incomefunds, high yield debt and other high income yielding investments,through diversification, careful selection and active managementof the Trust's assets; and
(iii)preserve the Net Asset Value of the Trust over the life of theTrust.
7.The Trust currently intends to make cash distributions of distributableincome ("Distributions") on the tenth business day of each month(each a "Distribution Date") to Unitholders of record on the lastbusiness day of the immediately preceding calendar month withthe first Distribution to be made in May, 2003.
8.The Trust intends to establish the Plan pursuant to which Unitholdersmay, at their option, invest Distributions paid on their Unitsin additional Units ("Plan Units"). The Plan will not be availableto Unitholders who are not Canadian residents.
9.Distributions due to participants who opt to participate in thePlan ("Plan Participants") will be paid to Computershare TrustCompany of Canada in its capacity as agent under the Plan (insuch capacity, the "Plan Agent") and applied to purchase PlanUnits. Plan Units purchased under the Plan will be purchased bythe Plan Agent directly from the Trust or in the market in thefollowing manner:
(a)if the weighted average trading price on the TSE (or such otherstock exchange on which the Units are listed, if the Units areno longer listed on the TSE) for the 10 trading days immediatelypreceding the relevant Distribution Date, plus applicable commissionsand brokerage charges, (the "Market Price") is less than the NetAsset Value per Trust Unit (as determined in accordance with thePlan Agreement) on the Distribution Date, the Plan Agent shallapply the Distribution either to purchase Plan Units in the marketor from treasury in accordance with subparagraph (c) below;
(b)if the Market Price is equal to or greater than the Net AssetValue per Unit on the relevant Distribution Date, the Plan Agentshall apply the Distribution to purchase Plan Units from the Trustthrough the issue of new Trust Units at a purchase price equalto the higher of (i) the Net Asset Value per Unit on the relevantDistribution Date and (ii) 95% of the Market Price on the relevantDistribution Date;
(c)purchases of Plan Units made by the Trust in the market pursuantto subparagraph (a) above will be made by the Plan Agent on anorderly basis during the 10 trading day period following the DistributionDate and the price paid for those Plan Units will not exceed 115%of the Market Price of the Trust Units on the relevant DistributionDate. On the expiry of such 10 day period, the unused part, ifany, of the Distributions attributable to the Plan Participantswill be used to purchase Plan Units from the Trust at a purchaseprice equal to the higher of (i) the Net Asset Value per TrustUnit on the relevant Distribution Date and (ii) 95% of the MarketPrice on the relevant Distribution Date.
10.The Plan Agent will be purchasing Plan Units only in accordancewith the mechanisms described in the Plan and, accordingly, thereis no opportunity for a Plan Participant or the Plan Agent tospeculate on changes in the Net Asset Value per Unit.
11.The Trust will invest in the assets with the objective of providingUnitholders with a high level of sustainable income as well asa cost-effective method of reducing the risk of investing in suchsecurities. Accordingly, the Net Asset Value per Unit should beless volatile than that of a typical equity fund, and the potentialfor significant changes in the Net Asset Value per Unit over shortperiods of time is moderate.
12.The amount of Distributions that may be reinvested in Plan Unitsissued from treasury is small relative to the Unitholders' equityin the Trust. The potential for dilution arising from the issuanceof Plan Units by the Trust at the Net Asset Value per Unit ona Distribution Date is not significant.
13.The Plan is open to participation by all Unitholders (other thanUnitholders who are non-residents of Canada) so that such Unitholderscan ensure protection against potential dilution, albeit insignificant,by electing to participate in the Plan.
14.No commissions, service charges or brokerage fees will be payableby 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 bythe Plan Agent. Any Plan Participant may invest a minimum of $100per Optional Cash Payment with a maximum $20,000 per calendaryear per Plan Participant. Optional Cash Payments will be investedon the same basis as Distributions. Optional Cash Payments mustbe received by the Plan Agent at least five business days priorto a Distribution Date. Optional Cash Payments received less thanfive business days prior to a Distribution Date will be held bythe Plan Agent until the next Distribution Date.
16.Plan Units purchased under the Plan will be registered in thename of the Canadian Depository for Securities Limited ("CDS")and credited to the account of the participant in the CDS depositoryservice (the "CDS Participant") through whom a Unitholder holdsTrust Units.
17.Each Unitholder must elect to participate in the Plan on a monthlybasis through the applicable CDS Participant and will not be requiredto participate in the Plan in respect of any particular Distributionunless a Unitholder has specifically elected to do so. The Trusthas the right to amend, suspend or terminate the Plan at any time,provided that such action shall not have a retroactive effectwhich 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 Trust pursuant to thePlan cannot be made in reliance on certain registration and prospectusexemptions contained in the Legislation as the Plan involves thereinvestment of income distributed by the Trust and not the reinvestmentof dividends or interest of the Trust.
19.The distribution of the Plan Units by the Trust pursuant to thePlan cannot be made in reliance on registration and prospectusexemptions contained in the Legislation for distribution reinvestmentplans of mutual funds, as the Trust is not a "mutual fund" asdefined in the Legislation.
ANDWHEREAS under the System, this MRRS Decision Documentevidences the decision of each of the Decision Makers (collectively,the "Decision");
ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMakers with the jurisdiction to make the Decision has been met;
THEDECISION of the Decision Makers pursuant to the Legislationis that the trades in Plan Units by the Trust to the Plan Participantspursuant to the Plan shall not be subject to the Registrationand Prospectus Requirements of the Legislation provided that:
(a)at the time of the trade the Trust is a reporting issuer or theequivalent under the Legislation and is not in default of anyrequirements of the Legislation;
(b)no sales charge is payable in respect of the distributions;
(c)the Trust has caused to be sent to the person or company to whomthe Plan Units are traded, not more than 12 months before thetrade, a statement describing:
(i)their right to elect to participate in the Plan on a monthly basisto receive Plan Units instead of cash on the making of a distributionof income by the Trust; and
(ii)instructions on how to exercise the election referred to in (i);
(d)in the financial year during which the trade takes place, theaggregate number of Plan Units issued pursuant to the Cash PaymentOption of the Plan before the trade plus the aggregate numberof Plan Units issued in the trade, shall not exceed 2% of theaggregate number of Units outstanding at the commencement of thatfinancial year (or for financial year 2002, outstanding on March19, 2002);
(e)except in Québec, the first trade in Plan Units acquiredpursuant to this Decision in a Jurisdiction shall be deemed adistribution or primary distribution to the public under the Legislationunless the conditions set out in paragraphs 1 through 5 of subsection2.6(3) of MI 45-102 are satisfied;
(f)in Québec, the first trade (alienation) in Plan Units acquiredpursuant to this Decision will be deemed to be a distributionor a primary distribution to the public unless:
(i)at the time of the first trade, the Trust is and has been a reportingissuer in Quebec for the four months preceding the trade;
(ii)no unusual effort is made to prepare the market or to create ademand for the securities that are the subject of the alienation;
(iii)no extraordinary commission or other consideration is paid inrespect of the alienation;
(iv)if the seller of the securities is an insider of the Trust, theseller has no reasonable grounds to believe that the Trust isin default of any requirement of securities legislation; and
(g)disclosure of the distribution of the Plan Units to Plan Participantsis made to the relevant Jurisdictions by providing the particularsof the date of the distribution of such Plan Units, the numberof such Plan Units and the purchase price paid or to be paid forsuch Plan Units in:
(a)an information circular or take-over bid circular filed in accordancewith the Legislation; or
(b)a letter with the Decision Maker in the relevant Jurisdictionby a person or company certifying that the person or company hasknowledge of the facts contained in the letter,
whenthe Trust distributes such Plan Units for the first time and thereafter,not less frequently than annually, unless the aggregate numberof Plan Units so traded in any month exceeds 1% of the Units outstandingat the beginning of a month in which the Plan Units were traded,in which case a separate report shall be filed in each relevantJurisdiction in respect of that month within ten days of the endof such month.
"TheresaMcLeod" " Lorne Morphy"