Mutual Reliance Review Systemfor Exemptive Relief Applications - Closed-end investment trustexempt from the prospectus and registration requirements inconnection with issuance of trust units to existing unitholderspursuant to a distribution reinvestment plan whereby distributionsof income are reinvested in additional units of the trust orwhereby unitholders may directly purchase additional units ofthe trust, each subject to certain conditions - first traderelief provided, subject to certain conditions.
Applicable Ontario StatutoryProvisions
Securities Act, R.S.O. 1990,c. S.5, as am., sections 25, 53 and 74(1).
Applicable Ontario Rules
Rule 45-502 - Dividend or InterestReinvestment and Stock Dividend Plans.
Multilateral Instrument 45-102- Resale of Securities - section 2.6(4).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN
MANITOBA, ONTARIO, QUEBEC,NOVA SCOTIA,
NEW BRUNSWICK, PRINCE EDWARDISLAND,
NEWFOUNDLAND AND LABRADORAND YUKON
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
COMPASS INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the local securitiesregulatory authority or regulator (the "Decision Maker")in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Québec, Nova Scotia, New Brunswick, Prince EdwardIsland, Newfoundland and Labrador and Yukon (the "Jurisdictions")has received an application from COMPASS Income Fund (the "Trust")for a decision, pursuant to the securities legislation of theJurisdictions (the "Legislation"), that the requirementcontained in the Legislation to be registered to trade in asecurity and to file and obtain a receipt for a preliminaryprospectus and a final prospectus (the "Registration andProspectus Requirements") shall not apply to the distributionor resale of units of the Trust pursuant to a distribution reinvestmentplan (the "Plan");
AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this application;
AND WHEREAS THE TRUSThas represented to the Decision Makers that:
1. The Trust is an unincorporatedclosed-end investment trust established under the laws ofthe Province of Ontario by a declaration of trust dated asof March 27, 2002, as amended and restated.
2. The Trust is not consideredto be a "mutual fund" as defined in the Legislationbecause the holders of Units ("Unitholders") arenot entitled to receive on demand an amount computed by referenceto the value of a proportionate interest in the whole or inpart of the net assets of the Trust as contemplated in thedefinition of "mutual fund" in the Legislation.
3. The Trust became a reportingissuer or the equivalent thereof in the Jurisdictions on March28, 2002 upon obtaining a receipt for its final prospectusdated March 27, 2002 (the "Prospectus"). As of thedate hereof, the Trust is not in default of any requirementsunder the Legislation.
4. The beneficial interestsin the Trust are divided into a single class of voting units(the "Units"). The Trust is authorized to issuean unlimited number of Units. Each Unit represents a Unitholder'sproportionate undivided beneficial interest in the Trust.As of April 16, 2002, 13,500,000 Units were issued and outstanding.
5. The Units are listed andposted for trading on The Toronto Stock Exchange (the "TSE")under the symbol "CMZ.UN".
6. The Trust currently intendsto make cash distributions ("distributions") ofdistributable income to Unitholders of record on the day onwhich the Trust declares a distribution to be payable (eacha "Declaration Date"), and such distributions willbe payable on a day which is on or before the last businessday of the month following a Declaration Date (each a "DistributionDate").
7. The Trust has adopted thePlan which, subject to obtaining all necessary regulatoryapprovals, will permit distributions to be automatically reinvested,at the election of each Unitholder, to purchase additionalUnits ("Plan Units") pursuant to the Plan and inaccordance with a distribution reinvestment plan agency agreemententered into by the Trust, Middlefield COMPASS ManagementLimited in its capacity as manager of the Trust (in such capacity,the "Manager") and MFL Management Limited in itscapacity as agent under the Plan (in such capacity, the "PlanAgent"). The Plan will not be available to Unitholderswho are not residents of Canada for the purposes of the IncomeTax Act (Canada).
8. Pursuant to the terms ofthe Plan, a Unitholder will be able to elect to become a participantin the Plan by notifying the Manager, or by causing the Managerto be notified, in writing, of the Unitholder's decision toparticipate in the Plan.
9. Distributions due to participantsin the Plan ("Plan Participants") will be paid tothe Plan Agent and applied to purchase Plan Units. Plan Unitspurchased under the Plan will be purchased by the Plan Agentin the market or directly from the Trust in the followingmanner:
(a) after each DistributionDate, purchases of Plan Units shall be made in the marketat the market price of Units on The Toronto Stock Exchange(or such other exchange or market on which Units are thenlisted) plus applicable commissions and brokerage charges(collectively, the "Market Price"). Such marketpurchases shall be made during the 15 business days nextfollowing the relevant Distribution Date, on any businessday when the Market Price per Unit is less than the netasset value of the Trust ("Net Asset Value") perUnit determined as at such Distribution Date. Upon the expirationof the 15 business day period, the remainder (if any) ofthe amount paid to the Plan Agent for the benefit of PlanParticipants shall be applied to a purchase of Plan Unitsfrom the Trust on the 16th business day after the DistributionDate at a price equal to the Net Asset Value per Unit asat the Distribution Date, provided that if the Net AssetValue per Unit as at the Distribution Date is less than95% of the Market Price per Unit on the Distribution Date,then the Plan Units will be purchased from the Trust ata price equal to 95% of the Market Price per Unit as atthe Distribution Date; and
(b) the Plan Units purchasedin the market or from the Trust shall be allocated by thePlan Agent on a pro rata basis to the Plan Participants.
10. The Plan also allows PlanParticipants to make optional cash payments ("OptionalCash Payments") which will be used by the Plan Agentto purchase Plan Units. A Plan Participant must invest a minimumof $100 per Optional Cash Payment. Optional Cash Paymentswill be used by the Plan Agent to purchase Plan Units on thesame basis as distributions as described above. The aggregatenumber of Plan Units that may be purchased with Optional CashPayments in a calendar year will be limited to 2% of the outstandingUnits at the commencement of that calendar year, providedthat for the 2002 calendar year, the number of Plan Unitsthat may be purchased with Optional Cash Payments will belimited to 2% of the outstanding Units immediately followingthe Closing of the initial public offering of Units pursuantto the Prospectus. The Plan Agent may limit the maximum amountof Optional Cash Payments in any calendar year to ensure thatthe 2% limit is not exceeded.
11. Optional Cash Payments,along with a Plan Participant's notice of his or her intentionto make an Optional Cash Payment, must be received by thePlan Agent on or before 5:00 p.m. (Toronto time) on the daywhich is at least five business days prior to a DistributionDate, in order to be invested in Plan Units immediately followingsuch Distribution Date. Optional Cash Payments and/or noticesreceived less than five business days prior to a DistributionDate will result in the Plan Agent holding (without interest)the Optional Cash Payment and using the same to purchase PlanUnits after the second Distribution Date following the dateof receipt of the Optional Cash Payment.
12. The Plan Agent will purchasePlan Units only in accordance with mechanics described inthe Plan and, accordingly, there is no opportunity for a PlanParticipant or the Plan Agent to speculate on Net Asset Valueper Unit.
13. The Plan is open for participationby all Unitholders (other than non-residents of Canada), sothat such Unitholders can ensure protection against potentialdilution, albeit insignificant, by electing to participatein the Plan.
14. Plan Units purchased underthe Plan will be registered in the name of the Plan Agent,as agent for the Plan Participants.
15. A Plan Participant mayterminate his or her participation in the Plan by providing,or by causing to be provided, at least ten business days'prior written notice to the Manager and, such notice, if actuallyreceived no later than ten business days prior to the nextDeclaration Date, will have effect beginning with the distributionto be made with respect to such Declaration Date. Thereafter,distributions payable to such Unitholder will be in cash.
16. The Manager reserves theright to suspend or terminate the Plan at any time in itssole discretion, in which case Plan Participants and the PlanAgent will be sent written notice thereof. In particular,the Manager may, on behalf of the Trust, terminate the Planin its sole discretion, upon not less than 30 days' priorwritten notice to the Plan Participants and the Plan Agent.
17. The Manager may amendor modify the Plan at any time in its sole discretion, providedthat it obtains the prior approval of the TSE (if Units arethen listed thereon) and provided further that if, in theManager's reasonable opinion: (i) the amendment or notificationis material to Plan Participants, then at least 30 days' priorwritten notice thereof is given to Plan Participants and thePlan Agent; and (ii) the amendment or modification is notmaterial to Plan Participants, then notice thereof may begiven to Plan Participants and the Plan Agent after effectingthe amendment or modification. The Manager may also, in consultationwith the Plan Agent, adopt additional rules and regulationsto facilitate the administration of the Plan.
18. The distribution of thePlan Units by the Trust pursuant to the Plan cannot be madein reliance on certain registration and prospectus exemptionscontained in the Legislation as, in Jurisdictions other thanthe province of Alberta, the Plan involves the reinvestmentof distributable income distributed by the Trust and not thereinvestment of dividends or interest of the Trust and, withrespect to Alberta, because participation in the Plan is notavailable to all Unitholders.
19. The distribution of thePlan Units by the Trust pursuant to the Plan cannot be madein reliance on registration and prospectus exemptions containedin the Legislation for distribution reinvestment plans ofmutual funds, as the Trust is not considered to be a "mutualfund" as defined in the Legislation because the Unitholdersare not entitled to receive on demand an amount computed byreference to the value of a proportionate interest in thewhole or in a portion of the net assets of the Trust.
AND WHEREAS under theSystem, this MRRS Decision Document evidences the decision ofeach of the Decision Makers (collectively, the "Decision");
AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Makers with the jurisdictionto make the Decision has been met;
THE DECISION of the DecisionMakers pursuant to the Legislation is that the trades of PlanUnits to the Plan Participants pursuant to the Plan shall notbe subject to the Registration and Prospectus Requirements ofthe Legislation provided that:
(a) at the time of the tradethe Trust is a reporting issuer or the equivalent underthe Legislation and is not in default of any requirementsof the Legislation;
(b) no sales charge is payablein respect of the distributions of Plan Units from treasury;
(c) the Trust has causedto be sent to the person or company to whom the Plan Unitsare traded, not more than 12 months before the trade, astatement describing:
(i) their right to withdrawfrom the Plan and to make an election to receive cashinstead of Plan Units on the making of a distributionby the Trust; and
(ii) instructions on howto exercise the right referred to in (i);
(d) in the calendar yearduring which the trade takes place, the aggregate numberof Plan Units issued pursuant to the Optional Cash Paymentsshall not exceed 2% of the aggregate number of Units outstandingat the commencement of that calendar year (or for the 2002calendar year, outstanding at the closing of the Trust'sinitial public offering of Units pursuant to the Prospectus);
(e) except in Québec,the first trade or resale of Plan Units acquired pursuantto the Plan in a Jurisdiction shall be deemed a distributionor primary distribution to the public under the Legislationunless the conditions in paragraphs 2 through 5 of subsection2.6(4) of Multilateral Instrument 45-102 are satisfied;
(f) in Québec, thefirst trade (alienation) of Plan Units acquired pursuantto the Plan in a Jurisdiction shall be deemed a distributionor primary distribution to the public unless:
i. at the time of thefirst trade the Trust is a reporting issuer in Québecand is not in default of any of the requirements of securitieslegislation in Québec;
ii. no unusual effortis made to prepare the market or to create a demand forthe Plan Units;
iii. no extraordinarycommission or consideration is paid to a person or companyother than the vendor of the Plan Units in respect ofthe trade; and
iv. the vendor of thePlan Units, if in a special relationship with the Trust,has no reasonable grounds to believe that the Trust isin default of any requirement of the securities legislationin Québec; and
(g) disclosure of the distributionof the Plan Units is made to the relevant Jurisdictionsby providing the particulars of the date of the distributionof such Plan Units, the number of such Plan Units and thepurchase price paid or to be paid for such Plan Units in:
(i) an information circularor take-over bid circular filed in accordance with theLegislation; or
(ii) a letter filed withthe Decision Maker in the relevant Jurisdiction by a personor company certifying that the person or company has knowledgeof the facts contained in the letter,
when the Trust distributessuch Plan Units for the first time and thereafter, not lessfrequently than annually, unless the aggregate number ofPlan Units so traded in any month exceeds 1% of the Unitsoutstanding at the beginning of a month in which the PlanUnits were traded, in which case a separate report shallbe filed in each relevant Jurisdiction in respect of thatmonth within ten days of the end of such month.
June 25, 2002.
"Harold P. Hands" "LorneMorphy"