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diversiTrust Income Fund - MRRS Decision
Headnote
MRRS for Exemptive Relief Applications - relieffrom registration and prospectus requirements granted for issuanceof trust units of the Applicant issued under a distributionreinvestment plan, subject to certain conditions. First traderelief granted, subject to certain conditions.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am.sections 25, 53 and 74(1).
Instruments Cited
Multilateral Instrument 45-102 Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NOVA SCOTIA,NEW BRUNSWICK,
PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR, YUKON,
NUNAVUT AND NORTHWEST TERRITORIES
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
DIVERSITRUST INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundlandand Labrador, Yukon, Nunavut and Northwest Territories (the"Jurisdictions") has received an application fromdiversiTrust Income Fund (the "Trust") for a 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 the distribution or resale of units of theTrust pursuant to a distribution reinvestment plan (the "Plan"),subject to certain conditions;
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "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 Trust has representedto the Decision Makers that:
1. The Trust is an unincorporated closed-endinvestment trust established under the laws of the Provinceof Ontario by a declaration of trust dated as of October 29,2002.
2. The Trust is not considered to be a "mutualfund" as defined in the Legislation because the holdersof Units ("Unitholders") are not entitled to receiveon demand an amount computed by reference to the value ofa proportionate interest in the whole or in part of the netassets of the Trust as contemplated in the definition of ''mutualfund'' in the Legislation.
3. The Trust became a reporting issuer orthe equivalent thereof in the Jurisdictions on October 31,2002 upon obtaining a receipt for its final prospectus datedOctober 29, 2002 (the "Prospectus"). As of the datehereof, the Trust is not in default of any requirements underthe Legislation.
4. The beneficial interests in the Trust aredivided into a single class of voting units (the "Units").The Trust is authorized to issue an unlimited number of Units.Each Unit represents a Unitholder's proportionate undividedbeneficial interest in the Trust. As of the date hereof, 8,375,000Units are presently issued and outstanding.
5. The Units are listed and posted for tradingon the Toronto Stock Exchange (the "TSX") underthe symbol "DTF.UN".
6. The Trust currently intends to make cashdistributions ("distributions") of distributableincome to Unitholders of record on the day on which the Trustdeclares a distribution to be payable (each a "RecordDate"), and such distributions will be payable on a daywhich is on or about the tenth business day of the month followinga Record Date (each a "Distribution Date").
7. The Trust has adopted the Plan which, subjectto obtaining all necessary regulatory approvals, will permitdistributions to be automatically reinvested, at the electionof each Unitholder, to purchase additional Units ("PlanUnits") pursuant to the Plan and in accordance with adistribution reinvestment plan services agreement enteredinto by the Trust, Dynamic Mutual Funds Ltd. in its capacityas manager of the Trust (in such capacity, the "Manager")and Computershare Trust Company in its capacity as agent underthe Plan (in such capacity, the "Plan Agent").
8. Optional Cash Payments, along with a PlanParticipant's notice of his or her intention to make an OptionalCash Payment, must be received by the Plan Agent via the applicableCanadian Depository for Securities Limited ("CDS")Participant 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.
9. Distributions due to participants in thePlan ("Plan Participants") will be paid to the PlanAgent and applied to purchase Plan Units. Plan Units purchasedunder the Plan will be purchased by the Plan Agent in themarket or directly from the Trust in the following manner:
(a) if the weighted average trading priceon the Toronto Stock Exchange (or such other stock exchangeon which the Units are listed, if the Units are not listedon the Toronto Stock Exchange) for the 10 trading days immediatelypreceding the relevant Distribution Date, plus applicablecommissions and brokerage charges (the "Market Price")is less than the net asset value of the Trust per Unit (the"Net Asset Value per Unit") on the DistributionDate, the Plan Agent shall apply the distributions eitherto purchase Units in the market or from treasury as follows:purchases in the market will be made by the Plan Agent duringthe 10 trading day period following the Distribution Dateand the price paid for those Plan Units will not exceed115% of the Market Price of the Units. On the expiry ofthat period, the unused part, if any, of the distributionsattributable to the Plan Participants will be used to purchasePlan Units from the Trust at the higher of (i) the Net AssetValue per Unit on the relevant Distribution Date and (ii)95% of the Market Price;
(b) if the Market Price is equal to or greaterthan the Net Asset Value per Unit on the Distribution Date,the Plan Agent shall apply the distributions to purchasePlan Units from the Trust through the issue of new PlanUnits at the higher of (i) the Net Asset Value per Uniton the relevant Distribution Date and (ii) 95% of the MarketPrice on the relevant Distribution Date; and
(c) the Plan Units purchased in the marketor from the Trust's treasury will be allocated by the PlanAgent on a pro rata basis to the Plan Participants.
10. The Plan also allows Plan Participantsto make optional cash payments ("Optional Cash Payments")which will be used by the Plan Agent to purchase Plan Units.A Plan Participant must invest a minimum of $100 per OptionalCash Payment. Optional Cash Payments will be used by the PlanAgent to purchase Plan Units on the same basis as distributionsas described above. The aggregate number of Plan Units thatmay be purchased with Optional Cash Payments in a calendaryear will be limited to 2% of the outstanding Units at thecommencement of that calendar year.
11. The Plan Agent will purchase Plan Unitsonly in accordance with mechanics described in the Plan and,accordingly, there is no opportunity for a Plan Participantor the Plan Agent to speculate on Net Asset Value per Unit.
12. The Trust will invest in the assets withthe objective of providing Unitholders with a stable streamof monthly cash distributions as well as a cost-effectivemethod of reducing the risk of investing in such securitiesthrough broad diversification. Accordingly, the Net AssetValue per Unit should be less volatile than that of a typicalequity fund, and the potential for significant changes inthe Net Asset Value per Unit over short periods of time ismoderate.
13. The amount of Distributions that may bereinvested in Plan Units issued from treasury is small relativeto the Unitholders' equity in the Trust.
14. The Plan is open for participation byall Unitholders (other than non-residents of Canada), so thatsuch Unitholders can reduce potential dilution by electingto participate in the Plan.
15. As all Units, including those issued pursuantto the Plan, are issued in book-entry only form and are heldby, and registered in the name of CDS, Plan Participants willnot be entitled to receive certificates representing PlanUnits purchased or issued under the Plan.
16. A Plan Participant may terminate his orher participation in the Plan by providing the Plan Agentvia the applicable CDS Participant, at least five businessdays' prior written notice to the manager and, such notice,if actually received no later than five business days priorto the next Record Date, will have effect beginning with thedistribution to be made with respect to such Record Date.Thereafter, distributions payable to such Unitholder willbe in cash.
17. The Manager reserves the right to suspendor terminate the Plan at any time in its sole discretion,in which case Plan Participants and the Plan Agent will besent written notice thereof. In particular, the Manager may,on behalf of the Trust, terminate the Plan in its sole discretion,upon not less than 30 days' prior written notice to the PlanParticipants and the Plan Agent.
18. The Manager may amend, modify or suspendthe Plan at any time in its sole discretion, provided thatit gives notice of that amendment, modification or suspensionto (i) CDS Participants through which the Plan Participantshold their Trust Units and (ii) the Plan Agent. The Managermay adopt additional rules and regulations to facilitate theadministration of the Plan subject to the approval of anyapplicable securities regulatory authority or stock exchange.
19. The distribution of the Plan Units bythe Trust pursuant to the Plan cannot be made in relianceon certain registration and prospectus exemptions containedin the Legislation as the Plan involves the reinvestment ofdistributable income distributed by the Trust and not thereinvestment of dividends, interest of the Trust, capitalgains or distributions out of earnings or surplus.
20. The distribution of the Plan Units bythe Trust pursuant to the Plan cannot be made in relianceon registration and prospectus exemptions contained in theLegislation for distribution reinvestment plans of mutualfunds, 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 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 of Plan Units to the PlanParticipants pursuant to the Plan shall not be subject to theRegistration and Prospectus Requirements of the Legislationprovided that:
(a) at the time of the trade the Trust 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 of Plan Units from treasury;
(c) the Trust 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 withdraw from the Planand to make an election to receive cash instead of PlanUnits on the making of a distribution by the Trust; and
(ii) instructions on how to exercise theright referred to in (i);
(d) in the calendar year during which thetrade takes place, the aggregate number of Plan Units issuedpursuant to the Optional Cash Payments shall not exceed2% of the aggregate number of Units outstanding at the commencementof that calendar year; and
(e) except in Québec, the first tradeor resale of Plan Units acquired pursuant to the Plan ina Jurisdiction shall be deemed a distribution or primarydistribution to the public under the Legislation unlessthe conditions of paragraphs 2 through 5 of subsection 2.6(3)or (4) of Multilateral Instrument 45-102 are satisfied;
(f) in Québec, the first trade (alienation)of Plan Units acquired pursuant to the Plan in a Jurisdictionshall be deemed to be a distribution or primary distributionto the public unless:
(i) at the time of the first trade, theTrust is a reporting issuer in Québec and is notin default on any of the requirements of securities legislationin Québec;
(ii) no unusual effort is made to preparethe market or to create a demand for the Plan Units;
(iii) no extraordinary commission or considerationis paid to a person or company other than the vendor ofthe Plan Units in respect of the first trade; and
(iv) the vendor of the Plan Units, ifin a special relationship with the Trust, has no reasonablegrounds to believe that the Trust is in default of anyrequirement of the Legislation of Québec; 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 Trust 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.
February 4, 2003.
"Robert W. Korthals" "KerryD. Adams"