Mutual Reliance Review System for ExemptiveRelief Applications -- closed-end investment trust exempt fromprospectus requirements in connection with the sale of unitsrepurchased from existing unit holders pursuant to market purchaseprogram -- first trade in repurchased units deemed a distributionunless made in compliance with MI 45-102.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 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,
ONTARIO, NOVA SCOTIA, NEWBRUNSWICK,
PRINCE EDWARD ISLAND, NEWFOUNDLANDAND
LABRADOR AND YUKON
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
COMPASS INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia,New Brunswick, Prince Edward Island, Newfoundland and Yukon(the "Jurisdictions") has received an applicationfrom COMPASS Income Fund (the "Trust") fora decision, pursuant to the securities legislation of the Jurisdictions(the "Legislation"), that the requirement containedin the Legislation to file and obtain a receipt for a preliminaryprospectus and a final prospectus (the "Prospectus Requirements")shall not apply to the distribution of units of the Trust (the"Units") which have been repurchased by the Trustpursuant to the mandatory market purchase program, the discretionarymarket purchase program, or by way of redemption of Units atthe request of holders thereof, nor to the first trade or resaleof such repurchased Units (the "Repurchased Units")which have been distributed by the Trust;
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;
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 an amended and restated declaration of trustdated as of April 16, 2002 (the "Declaration of Trust").
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 March 28, 2002upon obtaining a receipt for its final prospectus dated March27, 2002 (the "Prospectus"). As of the date hereof,the Trust is not in default of any requirements under theLegislation.
4. Each Unit represents an equal, undividedbeneficial interest in the net assets of the Trust and isredeemable at net asset value of the Trust ("Net AssetValue") per Unit on November 30th of eachcalendar year.
5. Each whole Unit is entitled to one voteat all meetings of Unitholders and is entitled to participateequally with all other Units with respect to any and all distributionsmade by the Trust.
6. Middlefield COMPASS Management Limited(the "Manager"), which was incorporated pursuantto the Business Corporations Act (Ontario), is themanager and the trustee of the Trust.
7. The Units are listed and posted for tradingon the Toronto Stock Exchange (the "TSX") underthe trading symbol "CMZ.UN". As at July 4, 2003,13,860,086 Units were issued and outstanding.
8. In order to enhance liquidity and to providemarket support for the Units, pursuant to the Declarationof Trust and the terms and conditions that attach to the Units,the Trust shall, subject to compliance with any applicableregulatory requirements, be obligated to purchase (the "MandatoryPurchase Program") any Units offered in the market ona business day at the then prevailing market price if, atany time after the closing of the Trust's initial public offeringpursuant to the Prospectus, the price at which Units are thenoffered for sale is less than 95% of the Net Asset Value perUnit determined as at the close of business in Toronto, Ontarioon the immediately preceding business day, provided that:
(a) the maximum number of Units that theTrust shall purchase in any three month period (commencingwith the three month period that begins on the first dayof the month following the month in which the closing ofthe Trust's initial public offering occurs) will be 2.50%of the number of Units outstanding at the beginning of eachsuch three month period; and
(b) the Trust shall not be required to purchaseUnits pursuant to the Mandatory Purchase Program if:
(i) in the opinion of the Manager, theTrust lacks the cash, debt capacity or resources in generalto make such purchases; or
(ii) in the opinion of the Manager, themaking of any such purchases by the Trust would adverselyaffect the ongoing activities of the Trust or the remainingUnitholders.
9. In addition, the Declaration of Trust providesthat the Trust, subject to applicable regulatory requirementsand limitations, shall have the right, but not the obligation,exercisable in its sole discretion, at any time, to purchaseoutstanding Units in the market at prevailing market prices(the "Discretionary Purchase Program"). Such discretionarypurchases may be made through the facilities and under therules of any exchange or market on which the Trust Units arelisted (including the TSX) or as otherwise permitted by applicablesecurities laws.
10. Pursuant to the Declaration of Trust andsubject to the Trust's right to suspend redemptions, Unitsmay be surrendered for redemption (the "Redemption Program"and, together with the Mandatory Purchase Program and DiscretionaryPurchase Program, the "Programs") by a Unitholderat any time in the month of November of each year to the Trust'sregistrar and transfer agent, and each Unit properly surrenderedfor redemption by a Unitholder not later than 5:00 p.m. (Torontotime) on the fifth business day prior to November 30thof such year (the "Redemption Valuation Date") will,subject to an investment dealer finding purchasers for Unitsproperly surrendered for redemption upon the authorizationof the Unitholder and at the direction of the Trust, be redeemedby the Trust pursuant to the Redemption Program for a price(the "Redemption Price") equal to the Net AssetValue of the Trust divided by the number of Units then outstandingdetermined as of the applicable Redemption Valuation Date.
11. A Unitholder who has surrendered Unitsfor redemption will be paid the Redemption Price for suchUnits by the tenth business day following the Redemption ValuationDate.
12. Purchases of Units made by the Trust underthe under the Programs are exempt from the issuer bid requirementsof the Legislation pursuant to exemptions contained therein.
13. The Trust desires to, and the Declarationof Trust will be amended to, provide that the Trust shall,have the ability to sell through one or more securities dealersRepurchased Units, in lieu of cancelling such RepurchasedUnits and subject to obtaining all necessary regulatory approvals.
14. In order to effect sales of RepurchasedUnits by the Trust, the Trust intends to sell, in its solediscretion and at its option, any Repurchased Units purchasedby it under the Programs primarily through one or more securitiesdealers and through the facilities of the TSX (or such otherexchange on which the Units are then listed).
15. On or about 30 days prior to the amendmentto the Declaration of Trust being effected (as described above),the Trust will provide notice to the then current Unitholdersindicating that the Declaration of Trust will be amended toprovide that the Trust may, subject to receiving all necessaryregulatory approvals, arrange for one or more securities dealersto find purchasers for any Repurchased Units.
16. Repurchased Units which the Trust doesnot sell within ten months of the purchase of such RepurchasedUnits will be cancelled by the Trust.
17. Prospective Purchasers who subsequentlyacquire Repurchased Units will have equal access to all ofthe continuous disclosure documents of the Trust, which willbe filed on SEDAR, commencing with the Prospectus.
18. Legislation in some of the Jurisdictionsprovides that a trade by or on behalf of an issuer in previouslyissued securities of that issuer that have been purchasedby that issuer is a distribution subject to the ProspectusRequirements.
19. Legislation in some of the Jurisdictionsprovides that the first trade or resale of Repurchased Unitsacquired by a purchaser will be a distribution subject tothe Prospectus Requirement unless such first trade is madein reliance on an exemption therefrom.
20. The Declaration of Trust provides thatthe Trust may repurchase Units under the Mandatory PurchaseProgram, the Discretionary Purchase Program and the RedemptionProgram and the Declaration of Trust will be amended to providethat, subject to receiving all necessary regulatory approvals,the Trust may arrange for one or more dealers to find purchasersfor any Repurchased Units.
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 Repurchased Units pursuantto the Programs shall not be subject to the Prospectus Requirementof the Legislation provided that:
(a) the Repurchased Units are sold by theTrust through the facilities of and in accordance with theregulations and policies of the TSX or the market on whichthe Units are then listed;
(b) the Trust complies with the insider tradingrestrictions imposed by securities legislation with respectto the trades of Repurchased Units;
(c) the Trust complies with the conditionsof paragraphs 1 through 5 of subsection 2.8(2) of MultilateralInstrument 45-102 with respect to the sale of the RepurchasedUnits; and
(d) the first trade or resale of RepurchasedUnits acquired by a purchaser from the Trust pursuant to thePrograms in a Jurisdiction shall be deemed a distributionor primary distribution to the public under the Legislationunless the conditions of paragraphs 2 through 5 of subsection2.6(3) of Multilateral Instrument 45-102 are satisfied.
October 20, 2003.
"Robert W. Korthals"
"H. Lorne Morphy"