Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - closed-end investment trust exempt fromprospectus and registration requirements in connection withthe issuance of units to existing unit holders pursuant to adistribution reinvestment plan whereby distributions 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(2001), 24 OSCB 7029.

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

SERIES S-1 INCOME FUND

 

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 Series S-1 Income Fund (the"Fund"), for a decision under the securities legislationof the Jurisdictions (the "Legislation") that therequirement contained in the Legislation to be registeredto trade in a security (the "Registration Requirement")and to file a preliminary prospectus and a final prospectusand obtain receipts therefor (the "Prospectus Requirement")shall not apply to certain trades in trust units of the Fund("Trust Units") under a distribution reinvestmentplan (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 April 17, 2003 (the "Declaration ofTrust");

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 34,376,000Trust Units issued and outstanding on July 2, 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 receiveon demand an amount computed by reference to the value ofa proportionate interest in the whole or in part of thenet assets of the Fund as contemplated in the definitionof "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 and instalmentreceipts or other rights to acquire such securities in respectthereof, as well as 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 three underlying objectives:

4.6.1 to provide Unitholders with highlystable and sustainable monthly distributions comprisedof amounts received by the Fund from the Portfolio ("DistributableIncome");

4.6.2 to maintain a S&P SR-1 stabilityrating or equivalent rating; and

4.6.3 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 May 28, 2003 when it obtaineda Final Decision Document for its prospectus dated May 28,2003 (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 Series Management Ltd. (the"Administrator") is the authorized attorney ofthe Fund;

4.11 the Trust Units are listed on the TorontoStock Exchange under the symbol "SRC.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 by providing 10 days' writtennotice to the DRIP Agent prior to the applicable recorddate;

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 including net realized capital gainsdistributed by the Fund and not the reinvestment of dividends,interest, earnings or surplus 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 contained in the Legislation shall not applyto trades or distributions by the Fund of DRIP Units forthe account of DRIP Participants pursuant to the DRIP, providedthat:

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; and

7.2 the Prospectus Requirement containedin the Legislation shall not apply to the first trade ofDRIP Units acquired by DRIP Participants pursuant to theDRIP, 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 Legislationin 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 Legislation.

August 1, 2003.

"Stephen R. Murison"
"Thomas G. Cooke"