Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications -- registration and prospectus relief toallow units to be distributed under a distribution reinvestmentplan by a closed-end trust that does not meet the definitionof mutual fund. First trade relief granted such that the seasoningperiod that would otherwise apply is eliminated.

Applicable Alberta 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(2001), 24 OSCB 5522.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC,NEW BRUNSWICK,

NEWFOUNDLAND & LABRADOR,NOVA SCOTIA

AND PRINCE EDWARD ISLAND

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CITADEL MULTI-SECTOR INCOMEFUND

 

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") ineach of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Quebec, New Brunswick, Newfoundland and Labrador,Nova Scotia and Prince Edward Island (the "Jurisdictions")has received an application from Citadel Multi-Sector IncomeFund (the "Fund"), for a decision under the securitieslegislation of the Jurisdictions (the "Legislation")that the requirements contained in the Legislation to be registeredto trade in a security (the "Registration Requirement")and to file and obtain a receipt for a preliminary prospectusand a final prospectus before effecting a trade that is adistribution (the "Prospectus Requirement") shallnot apply to certain trades in trust units of the Fund ("TrustUnits") under a distribution reinvestment plan (the "DRIP");

2. AND WHEREAS under the Mutual Reliance ReviewSystem for Exemptive Relief Applications (the "System"),the Alberta Securities Commission is the principal regulatorfor this application;

3. AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 - Definitions or in Quebec Securities CommissionNotice 14-101;

4. AND WHEREAS the Fund has represented tothe Decision Makers that:

4.1 the Fund is a closed-end investmenttrust established under the laws of Alberta under a declarationof trust dated December 12, 2002 (the "Declarationof Trust"), as amended and restated on January 30,2003;

4.2 Computershare Trust Company of Canadais the trustee of the Fund (in such capacity, the "Trustee");

4.3 under the Declaration of Trust, theFund is authorized to issue an unlimited number of transferable,non-redeemable Trust Units, of which there were 27,055,273Trust Units issued and outstanding on February 14, 2003;

4.4 the Fund is not a "mutual fund"as defined in the Legislation because the holders of TrustUnits ("Unitholders") are not entitled to receive,on demand or within a specified period after demand, anamount 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;

4.5 the assets of the Fund consist of aportfolio of securities including Canadian income fundsand Canadian high yielding investment grade debt, as wellas cash and cash equivalents (the "Portfolio");

4.6 the investment objective of the Fundis to achieve the maximum total return for Unitholders bybalancing the following two underlying objectives:

4.6.1 to provide Unitholders with a stable,tax effective income stream comprised of amounts receivedby the Fund from the Portfolio ("Distributable Income");and

4.6.2 return at least the original issueprice of the Trust Units to Unitholders upon terminationof the Fund;

4.7 each Trust Unit represents an equal,fractional undivided beneficial interest in the net assetsof the Fund, and entitles its holder to one vote at meetingsof Unitholders and to participate equally with respect toany and all distributions made by the Fund, including distributionsof net income and net realized capital gains, if any;

4.8 the Fund became a reporting issuer ineach of the Jurisdictions on January 30, 2003 when it obtaineda final decision document for its prospectus dated January30, 2003 (the "Prospectus"). As of the date hereof,the Fund is not in default of any requirements under theLegislation;

4.9 the Fund is not a "qualifying issuer"as defined in Multilateral Instrument 45-102 -- Resaleof Securities;

4.10 Citadel Multi-Sector Management Inc.(the "Administrator") is the authorized attorneyof the Fund;

4.11 the Trust Units are listed on the TorontoStock Exchange under the symbol "CMS.UN";

4.12 the Trust Units are available onlyin book-entry form whereby CDS & Co., a nominee of TheCanadian Depository for Securities Limited, is the onlyregistered holder of Trust Units;

4.13 the Fund has established the DRIP topermit Unitholders, at their discretion, to automaticallyreinvest the Distributable Income paid on their Trust Unitsin additional Trust Units ("DRIP Units") as analternative to receiving cash distributions;

4.14 distributions due to participants inthe DRIP ("DRIP Participants") will be paid toComputershare Trust Company of Canada in its capacity asagent under the DRIP (in such capacity, the "DRIP Agent")and applied to the purchase of DRIP Units;

4.15 no commissions, service charges orbrokerage fees will be payable by DRIP Participants in connectionwith the DRIP;

4.16 the DRIP Agent will purchase DRIP Unitsfrom the Fund at the net asset value per Trust Unit as atthe applicable distribution date;

4.17 DRIP Participants may terminate theirparticipation in the DRIP at any time by providing 10 days'written notice to the DRIP Agent prior to the applicablerecord date;

4.18 DRIP Participants do not have the optionof making cash payments to purchase additional DRIP Unitsunder the DRIP;

4.19 the distribution of the DRIP Unitsby the Fund pursuant to the DRIP cannot be made in relianceon certain registration and prospectus exemptions containedin the Legislation as the DRIP involves the reinvestmentof distributable income distributed by the Fund and notthe reinvestment of dividends or interest of the Fund; and

4.20 the distribution of the DRIP Unitsby the Fund pursuant to the DRIP cannot be made in relianceon registration and prospectus exemptions contained in theLegislation for distribution reinvestment plans for mutualfunds, as the Fund is not considered to be a "mutualfund" as defined in the Legislation;

5. AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each of the DecisionMakers (collectively, the "Decision");

6. AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to makethe Decision has been met;

7. THE DECISION of the Decision Makers underthe Legislation is that:

7.1 the Registration Requirement and ProspectusRequirement shall not apply to trades or distributions bythe Fund of DRIP Units for the account of DRIP Participantspursuant to the DRIP, provided that:

7.1.1 at the time of the trade or distributionthe Fund is a reporting issuer or the equivalent underthe Legislation and is not in default of any requirementsof the Legislation;

7.1.2 no sales charge is payable in respectof the trade;

7.1.3 the Fund has caused to be sent tothe person or company to whom the DRIP Units are traded,not more than 12 months before the trade, a statementdescribing:

7.1.3.1 their right to withdraw fromthe DRIP and to make an election to receive cash insteadof DRIP Units on the making of a distribution of incomeby the Fund (the "Withdrawal Right"); and

7.1.3.2 instructions on how to exercisethe Withdrawal Right;

7.1.4 the first trade of the DRIP Unitsacquired under this Decision shall be deemed to be a distributionor a primary distribution to the public under the Legislation;and

7.2 the Prospectus Requirement shall notapply to the first trade of DRIP Units acquired under thisDecision, provided that:

7.2.1 except in Quebec, the conditionsin paragraphs 2 through 5 of subsection 2.6(4) of MultilateralInstrument 45-102 -- Resale of Securities are satisfied;and

7.2.2 in Quebec:

7.2.2.1 at the time of the first tradethe Fund is a reporting issuer in Quebec and is notin default of any of the requirements of the securitieslegislation in Quebec;

7.2.2.2 no unusual effort is made toprepare the market or to create a demand for the DRIPUnits;

7.2.2.3 no extraordinary commissionor consideration is paid to a person or company otherthan the vendor of the DRIP Units in respect of thetrade; and

7.2.2.4 the vendor of the DRIP Units,if in a special relationship with the Fund, has no reasonablegrounds to believe that the Fund is in default of anyrequirement of the securities legislation in Quebec.

April 28, 2003.

"Glenda A. Campbell"
"Stephen R. Murison"