Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - Application for relief from the registrationand prospectus requirements in connection with the distributionand resale of units of the applicant trust pursuant to a distributionreinvestment plan - relief granted subject to conditions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 74(1), s. 25 and s. 53.

Ontario Rules

Rule 45-502 -- Dividend or Interest Reinvestmentand Stock Dividend Plans.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, SASKATCHEWAN,MANITOBA,

ONTARIO, QUÉBEC, NOVASCOTIA, NEW BRUNSWICK, PRINCE

EDWARD ISLAND, AND NEWFOUNDLANDAND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

HOME EQUITY INCOME TRUST

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker")in each of British Columbia, Saskatchewan, Manitoba, Ontario,Québec, Nova Scotia, New Brunswick, Prince Edward Island,and Newfoundland and Labrador (the "Jurisdictions")has received an application from Home Equity Income Trust (the"Trust") for a decision, pursuant to the securitieslegislation of the Jurisdictions (the "Legislation"),that the requirement contained in the Legislation to be registeredto trade in a security and to file and obtain a receipt fora preliminary prospectus and a final prospectus (the "Registrationand Prospectus Requirements") shall not apply to thedistribution or resale of units of the Trust pursuant to a distributionreinvestment plan (the "Plan");

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 open-endinvestment trust established under the laws of Ontario withits head office in Ontario.

2. The Trust is not considered to be a "mutualfund" as defined in the Legislation because the holdersof Units ("Unitholders") are not entitledto receive on demand an amount computed by reference to thevalue of a proportionate interest in the whole or in partof the net assets of the Trust as contemplated in the definitionof "mutual fund" in the Legislation.

3. The Trust became a reporting issuer orthe equivalent thereof in the Jurisdictions on July 30, 2002upon obtaining a receipt for its final prospectus dated July30, 2002 (the "Prospectus"). As of the datehereof, the Trust is not in default of any requirements underthe Legislation.

4. The authorized capital of the Trust consistsof an unlimited number of Units. As at the date hereof, 11,108,052Units are issued and outstanding. The Units are listed onthe Toronto Stock Exchange (the "TSX").

5. The Trust makes monthly cash distributions("distributions") to Unitholders of recordon the last business day of each month (each a "DeclarationDate") in an amount equal to the income of the Trust,subject to certain adjustments, less an amount for cash reservesas determined by the trustees of the Trust. Distributionsare payable to Unitholders of record on the Declaration Dateand will be paid within 30 days of the end of each month (eacha "Distribution Date"). The Trust may alsomake other distributions at any time in addition to monthlydistributions, if it considers it appropriate, including toensure that the Trust will not be liable for income tax underthe Income Tax Act (Canada).

6. 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 (the "PlanUnits") pursuant to the Plan and in accordance withthe provisions of a distribution reinvestment plan agencyagreement (the "Plan Agreement") enteredinto by the Trust and Computershare Trust Company of Canada(the "Plan Agent").

7. Pursuant to the terms of the Plan, a Unitholderwill be able to elect to become a participant in the Planby notifying the broker or other investment dealer throughwhich the Unitholder holds Units (the "CDS Participant")of the Unitholder's decision to participate in the Plan. Participationin the Plan will not be available to Unitholders who are notresidents of Canada for the purposes of the Income TaxAct (Canada).

8. Distributions due to Unitholders who haveelected to participate in the Plan (the "Plan Participants")will be automatically reinvested on their behalf by the PlanAgent to purchase Plan Units from the Trust. The Plan Unitswill be issued by the Trust at a price (the "MarketPrice") equal to the weighted average of the closingprice of the Units on the TSX (or such other exchange or marketon which the Units are listed) for each of the ten tradingdays immediately preceding the Distribution Date on whichthere were trades provided that if there was trading on theapplicable exchange or market for fewer than six of the precedingten trading days, the Market Price shall be the weighted averageof the following prices established for each of the precedingten trading days: (i) the weighted average of the last bidand last asking prices of the Units for each day there wasno trading; and (ii) the closing price of the Units for eachday that there was trading.

9. Each Plan Participant's account maintainedby his or her CDS Participant will be credited with that numberof whole Units issued to the Plan Participant which is equalto the amount to be reinvested for the Plan Participant dividedby the Market Price. In addition, each Plan Participant'saccount will be credited with that number of whole Units whichis equal to 4% of the Units issued to the Plan Participantpursuant to the Plan.

10. 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 the Market Price.

11. The Plan is open for participation byall Unitholders (other than non-residents of Canada), so thatsuch Unitholders can ensure protection against potential dilution,albeit insignificant, by electing to participate in the Plan.

12. Plan Units purchased under the Plan willbe registered in the name of CDS & Co. ("CDS").

13. A Plan Participant may terminate his orher participation in the Plan by providing, or by causingto be provided, written notice to the relevant CDS Participant.If notice is received on or before 5:00 p.m. on the businessday that is five business days prior to the date of determinationof Unitholders entitled to receive a distribution (a "RecordDate"), the termination will have effect beginningwith the distribution to be made with respect to such RecordDate. Thereafter, distributions payable to such Unitholderwill be in cash.

14. The Trust reserves the right to suspendor terminate the Plan at any time in its sole discretion.The Trust may amend or modify the Plan at any time in itssole discretion, subject to any necessary approvals of applicableregulatory authorities, but such action shall have no retroactiveeffect that would prejudice the interest of the Plan Participants.

15. In the event the Plan is modified or terminated,the Trust will send to CDS, each CDS Participant and thosePlan Participants which it is able to identify, written noticeof such termination or modification (a "Notice").The Notice shall set forth the nature of the modification,if applicable, the purpose of the modification or the reasonfor the termination and the effective date of the modificationor termination. In the event of a modification, the Noticewill contain sufficient detail to enable Plan Participantsto determine whether they wish to continue to participatein the modified Plan. Any modification or termination of thePlan will not be effective prior to the month following themonth in which the Notice was issued.

16. The Trust may, in its sole discretion,and upon not less than 90 days' prior written notice to thePlan Agent, remove the Plan Agent and appoint another personas the Plan Agent. The Plan Agent may resign as agent underthe Plan upon not less than 90 days' prior written noticeto the Trust and upon delivery to the Trust of all documentsand monies being held by the Plan Agent on the Trust's behalfpursuant to the Plan Agreement.

17. 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 or interest of the Trust.

18. 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, not morethan 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) except in Québec, the first tradeor resale of Plan Units acquired pursuant to the Plan in aJurisdiction shall be deemed a distribution or primary distributionto the public under the Legislation unless the conditionsof paragraphs 1 through 5 of subsection 2.6(3) of MultilateralInstrument 45-102 are satisfied; and

(e) 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, if ina special relationship with the Trust, has no reasonablegrounds to believe that the Trust is in default of any requirementof the Legislation of Québec.

August 1, 2003.

"Robert W. Korthals"
"Paul K. Bates"