Mavrix Fund Management Inc. et al.

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of Mutual Fund Mergers -- approval required because mergers do not meet the criteria for pre-approval -- differences in investment objectives -- financial statements of continuing fund not required to be sent to unitholders of the terminating funds provided that information circular sent in connection with the unitholder meeting clearly discloses the various ways unitholders can access the financial statements -- exemption from sending financial statements for future mergers as well.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6.

June 25, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

MAVRIX FUND MANAGEMENT INC.

(the "Manager")

AND

IN THE MATTER OF

MAVRIX CANADA FUND AND

MAVRIX DIVERSIFIED FUND

(the "Terminating Funds")

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Manager for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for:

(a) approval of the mergers of the Terminating Funds into Mavrix Income Fund (the "Continuing Fund") (the Terminating Funds and the Continuing Fund are sometimes collectively referred to as the "Funds") under subsection 5.5(1)(b) of National Instrument 81-102 ("NI 81-102") (the "Current Mergers"); and

(b) relief from the financial statements delivery requirements contained in subsection 5.6(1)(f)(ii) of NI 81-102 in respect of:

(i) the Current Mergers; and

(ii) all future mergers of mutual funds managed by the Manager (the "Future Mergers" and collectively with the Current Mergers, the "Mergers")

(collectively, the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission is the principal regulator for this application; and

(ii) the Manager has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the "Non-Principal Jurisdictions").

INTERPRETATION

Defined terms contained in National Instrument 14-101 -- Definitions and in MI 11-102 have the same meaning if used in this decision unless otherwise defined.

REPRESENTATIONS

This decision is based on the following facts represented by the Manager:

1. The Manager is a corporation existing under the laws of Ontario. The head office of the Manager is located in Toronto, Ontario.

2. The Manager is the manager and trustee of the Funds.

3. The Funds are open-end mutual fund trusts established under the laws of Ontario by declarations of trust.

4. Units of the Funds are currently qualified for sale in each of the provinces and territories of Canada by a simplified prospectus dated June 29, 2007, as amended (the "Prospectus").

5. Each of the Manager and the Funds is a reporting issuer in the Jurisdiction and each of the Non-Principal Jurisdictions. Neither the Manager nor the Funds are in default of the securities legislation in the Jurisdiction or in any of the Non-Principal Jurisdictions.

6. Other than circumstances in which the Principal Regulator or the securities regulatory authority of a Non-Principal Jurisdiction has expressly granted an exemption, each of the Funds follows the standard investment restrictions and practices set out in NI 81-102.

7. The net asset value for each of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for business.

8. The Manager intends to merge each of the Terminating Funds into the Continuing Fund effective on or about the close of business on June 30, 2008 (the "Effective Date"). The Current Mergers will be structured pursuant to the following steps:

a. The Manager will review each Terminating Fund's investment portfolio and consider the portfolio in light of the investment objectives of the Continuing Fund. If a Terminating Fund holds investments which are not suitable for the Continuing Fund, those investments may be sold prior to the Effective Date. The value of any investments sold prior to the Effective Date will depend on prevailing market conditions. As a result, a Terminating Fund and the Continuing Fund may each temporarily hold cash or money market instruments and may not be fully invested in accordance with their respective investment objectives for a brief period of time prior to, and following the Current Mergers.

b. On the Effective Date, each Terminating Fund will transfer all of its assets (which will consist of cash and portfolio securities) to the Continuing Fund, in exchange for units of the Continuing Fund.

c. Immediately following the above-noted transfer and distribution, each Terminating Fund will distribute to its unitholders the units of the Continuing Fund so that following the distribution, the unitholders of a Terminating Fund will become direct unitholders of the Continuing Fund. Unitholders of each Terminating Fund will receive units of the same value and of the same class of the Continuing Fund as they currently own in the Terminating Fund.

d. As soon as reasonably possible following the Current Mergers, each Terminating Fund will be wound up.

9. Unitholders of the Terminating Funds will continue to have the right to redeem units of the Terminating Funds for cash at any time up to the close of business on the Effective Date. In addition, any automatic reinvestments of distributions, purchases under pre-authorized chequing plans and automatic withdrawal plans in effect prior to the Current Mergers for a Terminating Fund will be re-established in the Continuing Fund unless the investor advises the Manager otherwise.

10. On or about the Effective Date, the name of the Continuing Fund will be changed from "Mavrix Income Fund" to "Mavrix Balanced Monthly Pay Fund".

11. A material change report and press release were filed on SEDAR on May 16, 2008 and amendments to the Prospectus and annual information form of the Funds were filed on SEDAR on May 22, 2008.

12. A notice of meeting, a management information circular and a form of proxy were mailed to unitholders of the Terminating Funds on May 26, 2008 in connection with such meetings, and were filed on SEDAR. The materials mailed to unitholders also included a copy of the Prospectus of the Funds. The management information circular provides sufficient information about the Merger to permit unitholders to make an informed decision about the Merger.

13. The notice of meeting and the management information circular prominently disclose that unitholders can obtain the most recent annual and interim financial statements of the Continuing Fund by accessing the SEDAR website at www.sedar.com, by accessing the Manager's website at www.mavrixfunds.com or by calling the Manager's toll-free telephone number.

14. Unitholders of the Terminating Funds approved the Current Mergers at special meetings to held on June 18, 2008, as adjourned to and reconvened on June 25, 2008.

15. Upon a request by a unitholder of a Terminating Fund for financial statements of the Continuing Fund, the Manager will make best efforts to provide the unitholder with such financial statements in a timely manner so that the unitholder can make an informed decision regarding the Current Merger.

16. Each of the Terminating Funds and the Continuing Fund have an unqualified audit report in respect of their most recent audited financial statements, being the annual financial statements for the year ended December 31, 2008.

17. The Independent Review Committee of the Terminating Funds provided a positive recommendation with respect to the Current Mergers and such recommendation was included in the management information circular.

18. All costs attributable to the Current Mergers, which will consist primarily of legal, proxy solicitation, printing, mailing and regulatory costs, and including any brokerage expenses incurred in respect of any sale of portfolio assets of the Terminating Funds, will be borne by the Manager and will not be borne by the Funds.

19. The Terminating Funds will merge into the Continuing Fund on or about the close of business on the Effective Date and the Continuing Fund will continue as a publicly offered open-end mutual fund governed by the laws of Ontario. Following the Current Mergers, the Terminating Funds will be wound up as soon as reasonably practicable.

20. Each of the Current Mergers will be carried out as a "qualifying exchange" for the purposes of section 132.2 of the Income Tax Act (Canada). Unitholders of the Terminating Funds have been provided with information about the tax consequences of the Current Mergers in the management information circular and have had the opportunity to consider this information prior to voting on the Current Mergers.

21. No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolios of the Terminating Funds.

22. Approval of the Current Mergers is required because the Current Mergers do not meet all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

a. the fundamental investment objectives of Mavrix Canada Fund and the Continuing Fund may not be considered substantially similar; and

b. the meeting materials sent to unitholders of the Terminating Funds did not include the most recent annual and interim financial statements that have been made public for the Continuing Fund.

23. Except as noted above, the Current Mergers will comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

24. The Manager submits that the Current Mergers will result in the following benefits:

a. unitholders of the Funds will enjoy increased economies of scale and lower fund operating expenses (which are borne indirectly by unitholders) as part of a larger combined Continuing Fund;

b. the Current Mergers will eliminate the administrative and regulatory costs of operating the Terminating Funds as separate mutual funds;

c. the Continuing Fund will have a portfolio of greater value, allowing for increased portfolio diversification opportunities than the Terminating Funds currently enjoy;

d. to the extent that securities in a Terminating Fund's portfolio are transferred to the Continuing Fund, there will be a savings in brokerage charges over a straight liquidation of those portfolio securities if the Terminating Fund was simply terminated; and

e. the Continuing Fund, as a result of its greater size, will benefit from its larger profile in the marketplace.

DECISION

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) the management information circular sent to securityholders in connection with a Merger prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the applicable continuing fund by accessing the SEDAR website at www.sedar.com, by accessing the Manager's website at www.mavrixfunds.com or by calling the Manager's toll-free telephone number;

(b) upon a request by a securityholder of a terminating fund for financial statements, the Manager will make best efforts to provide the unitholder with financial statements of the applicable continuing fund in a timely manner so that the unitholder can make an informed decision regarding the Merger;

(c) each applicable terminating fund and the applicable continuing fund with respect to a Merger have an unqualified audit report in respect of their last completed financial period; and

(d) the information circular sent to unitholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger.

This decision will terminate one year after the publication in final form of any legislation or rule dealing with matters in paragraph 5.5(1)(b) of NI 81-102.