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Brompton STABLE Income Fund - MRRS Decision
Headnote
Mutual Reliance Review System for ExemptiveRelief Applications - closed-end investment trust exempt fromprospectus and registration requirements in connection withissuance of units to existing unit holders pursuant to distributionreinvestment plan whereby distributions of income are reinvestedin additional units of the trust, subject to certain conditions- first trade in additional units deemed a distribution unlessmade in compliance with MI 45-102.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53 and 74(1).
Multilateral Instrument Cited
Multilateral Instrument 45-102 Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA, ONTARIO, QUÉBEC,
NOVA SCOTIA, NEW BRUNSWICK,PRINCE EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR,
YUKON, NUNAVUT AND NORTHWESTTERRITORIES
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BROMPTON STABLE INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Québec, Nova Scotia, New Brunswick, Prince Edward Island,Newfoundland and Labrador, Yukon, Nunavut and Northwest Territories(the "Jurisdictions") has received an applicationfrom Brompton STABLE Income Fund (the "Fund") fora decision, pursuant to the securities legislation of the Jurisdictions(the "Legislation"), that the requirement containedin the Legislation to be registered to trade in a security andto file and obtain a receipt for a preliminary prospectus anda final prospectus (the "Registration and Prospectus Requirements")shall not apply to certain trades in units of the Fund pursuantto a distribution reinvestment plan (the "Plan");
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications ("System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;
AND WHEREAS the Fund has representedto the Decision Makers that:
1. The Fund is an unincorporated closed-endinvestment trust established under the laws of the Provinceof Ontario by an amended and restated declaration of trustdated November 21, 2002.
2. The beneficial interests in the Fund aredivided 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 undividedbeneficial interest in the Fund.
3. The Fund has filed a final long form prospectusdated November 21, 2002 (the "Prospectus") and hasbecome a reporting issuer in each province and territory inCanada upon obtaining a receipt for its Prospectus dated November22, 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 demandan amount computed by reference to the value of a proportionateinterest in the whole or in part of the net assets of theFund as contemplated in the definition of "mutual fund"contained in the Legislation.
5. Application has been made to list the Unitsfor trading on the Toronto Stock Exchange.
6. The investment objectives of the Fund areto:
(a) provide Unitholders with monthly Distributionsinitially targeted to yield approximately 7.5% per annumbased on the offering price of the Units;
(b) maintain a Standard & Poor's SR-1stability rating; and
(c) preserve the Net Asset Value per TrustUnit.
7. The Fund currently intends to make cashdistributions of distributable income ("Distributions")on the tenth business day of each month (each a "DistributionDate") to Unitholders of record on the last businessday of the immediately preceding calendar month with the firstDistribution to be made in the second month following themonth in which the closing of the initial public offeringof Units occurs.
8. The Fund intends to establish the Planpursuant to which Unitholders may, at their option, investcash Distributions paid on their Units in additional Units("Plan Units"). The Plan will not be available toUnitholders who are not Canadian residents.
9. Distributions due to participants who optto participate in the Plan ("Plan Participants")will be paid to Computershare Trust Company of Canada in itscapacity as agent under the Plan (in such capacity, the "PlanAgent") and applied to purchase Plan Units. Plan Unitspurchased under the Plan will be purchased by the Plan Agentdirectly from the Fund or in the market in the following manner:
(a) if the weighted average trading priceon the TSX (or such other stock exchange on which the Unitsare listed, if the Units are no longer listed on the TSX)for the 10 trading days immediately preceding the relevantDistribution Date, plus applicable commissions and brokeragecharges, (the "Market Price") is less than theNet Asset Value per Fund Unit (as determined in accordancewith the Plan Agreement) on the Distribution Date, the PlanAgent shall apply the Distribution either to purchase PlanUnits in the market or from treasury in accordance withsubparagraph (c) below;
(b) if the Market Price is equal to or greaterthan the Net Asset Value per Unit on the relevant DistributionDate, the Plan Agent shall apply the Distribution to purchasePlan Units from the Fund through the issue of new Unitsat a purchase price equal to the higher of (i) the Net AssetValue 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 theFund in the market pursuant to subparagraph (a) above willbe made by the Plan Agent on an orderly basis during the10 trading day period following the Distribution Date andthe price paid for those Plan Units will not exceed 115%of the Market Price of the Units on the relevant DistributionDate. On the expiry of such 10 day period, the unused part,if any, of the Distributions attributable to the Plan Participantswill be used to purchase Plan Units from the Fund at a purchaseprice equal to the higher of (i) the Net Asset Value perTrust 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 PlanUnits only in accordance with the mechanisms described inthe Plan and, accordingly, there is no opportunity for a PlanParticipant or the Plan Agent to speculate on changes in theNet Asset Value per Unit.
11. The Fund will invest in the assets withthe objective of maintaining a Standard & Poor's SR-1stability rating which rating will be based on the compositionof the Fund's portfolio of income securities, investment objectives,investment restrictions and investment strategy. An SR-1 stabilityrating represents S&P's current opinion that the Unitshave the highest level of expected sustainability and lowestlevel of expected variability in the distributions of theFund relative to the distributions of other rated Canadianincome funds. Accordingly, the Net Asset Value per Unit shouldbe less volatile than that of a typical equity fund, and thepotential for significant changes in the Net Asset Value perUnit over short periods of time is moderate.
12. The amount of Distributions that may bereinvested in Plan Units issued from treasury is small relativeto the Unitholders' equity in the Fund. The potential fordilution arising from the issuance of Units by the Fund atthe Net Asset Value per Unit on a Distribution Date is notsignificant.
13. The Plan is open to participation by allUnitholders other than Unitholders who are non-residents ofCanada, so that any Unitholder can ensure protection againstpotential dilution, albeit insignificant, by electing to participatein the Plan.
14. No commissions, service charges or brokeragefees will be payable by Plan Participants in connection withthe Plan.
15. Pursuant to the Plan, Plan Participantsmay also make cash payments ("Optional Cash Payments")which will be invested in Units by the Plan Agent. Any PlanParticipant may invest a minimum of $100 per Optional CashPayment with a maximum $20,000 per calendar year per PlanParticipant. Optional Cash Payments will be invested on thesame basis as Distributions. Optional Cash Payments must bereceived by the Plan Agent at least five business days priorto a Distribution Date. Optional Cash Payments received lessthan five business days prior to a Distribution Date willbe held by the Plan Agent until the next Distribution Date.
16. Plan Units purchased under the Plan willbe registered in the name of the Canadian Depository for SecuritiesLimited ("CDS") and credited to the account of theparticipant in the CDS depository service (the "CDS Participant")through whom a Unitholder holds Units.
17. Each Unitholder must elect to participatein the Plan on a monthly basis through the applicable CDSParticipant and will not be required to participate in thePlan in respect of any particular Distribution unless a Unitholderhas specifically elected to do so. The Fund has the rightto amend, suspend or terminate the Plan at any time, providedthat such action shall not have a retroactive effect whichwould prejudice the interests of the Plan Participants. AllPlan Participants will be sent notice of any such amendment,suspension or termination via the applicable CDS Participant.
18. The distribution of the Plan Units bythe Fund pursuant to the Plan cannot be made in reliance oncertain registration and prospectus exemptions contained inthe Legislation as the Plan involves the reinvestment of incomedistributed by the Fund and not the reinvestment of dividends,interest, capital gains or distributions out of earnings orsurplus of the Fund.
19. The distribution of the Plan Units bythe Fund pursuant to the Plan cannot be made in reliance onregistration and prospectus exemptions contained in the Legislationfor distribution reinvestment plans of mutual funds, as theFund is not a "mutual fund" as defined in the Legislation.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each of the DecisionMakers (collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Makers with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that the trades in Plan Units by the Fundto the Plan Participants pursuant to the Plan shall not be subjectto the Registration and Prospectus Requirements of the Legislationprovided that:
(a) at the time of the trade the Fund isa reporting issuer or the equivalent under the Legislationand is not in default of any requirements of the Legislation;
(b) no sales charge is payable in respectof the distributions;
(c) the Fund has caused to be sent to theperson or company to whom the Plan Units are traded, notmore than 12 months before the trade, a statement describing:
(i) their right to elect to participatein the Plan on a monthly basis to receive Plan Units insteadof cash on the making of a distribution of income by theFund; and
(ii) instructions on how to exercise theelection referred to in (i);
(d) in the financial year during which thetrade takes place, the aggregate number of Plan Units issuedpursuant to the Cash Payment Option of the Plan before thetrade plus the aggregate number of Plan Units issued inthe trade, shall not exceed 2% of the aggregate number ofUnits outstanding at the commencement of that financialyear;
(e) except in Québec, the first tradein Plan Units acquired pursuant to this Decision in a Jurisdictionshall be deemed a distribution or primary distribution tothe public under the Legislation unless the conditions setout in paragraphs 2 through 5 of subsection 2.6(4) of MultilateralInstrument 45-102 0- Resale of Securities are satisfied;
(f) in Québec, the first trade (alienation)in Plan Units acquired pursuant to this Decision will bea distribution unless:
(i) no unusual effort is made to preparethe market or to create a demand for the securities thatare the subject of the alienation;
(ii) no extraordinary commission or otherconsideration is paid in respect of the alienation;
(iii) if the seller of the securitiesis an insider of the Fund, the seller has no reasonablegrounds to believe that the Fund is in default of anyrequirement of securities legislation; and
(g) disclosure of the distribution of thePlan Units to Plan Participants is made to the relevantJurisdictions by providing the particulars of the date ofthe distribution of such Plan Units, the number of suchPlan Units and the purchase price paid or to be paid forsuch Plan Units in:
(i) an information circular or take-overbid circular filed in accordance with the Legislation;or
(ii) a letter with the Decision Makerin the relevant Jurisdiction by a person or company certifyingthat the person or company has knowledge of the factscontained in the letter,
when the Fund distributes such Plan Unitsfor the first time and thereafter, not less frequently thanannually, unless the aggregate number of Plan Units so tradedin any month exceeds 1% of the Units outstanding at thebeginning 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 ofthe end of such month.
December 11, 2002.
"Howard I. Wetston" "TheresaMcLeod"