IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA,
SASKATCHEWAN, MANITOBA, ONTARIO, QUEBEC, NOVA SCOTIA, NEW BRUNSWICK, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR, YUKON, NORTHWEST TERRITORIES AND NUNAVUT
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF MORTGAGE-BACKED SECURITIES TRUST
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of British Columbia, Saskatchewan, Manitoba, Ontario,
Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador,
Yukon, Nunavut and Northwest Territories (the "Jurisdictions") has received an
application from Mortgage-Backed Securities Trust (the "Trust") for a decision,
pursuant to the securities legislation of the Jurisdictions (the "Legislation"),
that the requirement contained in the Legislation to be registered to trade in a security
and to file and obtain a receipt for a preliminary prospectus and a final prospectus (the
"Registration and Prospectus Requirements") shall not apply to certain trades in
units of the Trust pursuant to a distribution reinvestment plan (the "Plan");
AND WHEREAS under the Mutual Reliance Review System for Exemptive
Relief Applications ("System"), the Ontario Securities Commission is
the
principal regulator for this application;
AND WHEREAS, unless otherwise defined, the terms herein have the
meaning set out in National Instrument 14-101 Definitions or in Quebec Commission Notice
14-101;
AND WHEREAS the Trust has represented to the Decision Makers that:
1. The Trust is a limited purpose trust established under the laws of
the Province of Ontario pursuant to a declaration of trust dated March 28, 2003
(the "Declaration of Trust").
2. The Trust is authorized to issue an unlimited number of units.
3. The Trust became a reporting issuer or the equivalent thereof in the
Jurisdictions upon obtaining a receipt for its final prospectus dated March 28,
2003. As of the date hereof, the Trust is not in default of any of the requirements
under the
Legislation.
4. The trustee and manager of the Trust is Sentry Select Capital Corp.
(the "Manager"), a mutual fund manager and dealer with its head office
in
Ontario.
5. The investment objects of the Trust are: (i) to provide holders of
Units ("Unitholders") with a stream of monthly cash distributions that,
in any year, will be targeted to approximate the average 10-year U.S. Treasury
Note yield for
that year plus 3.50%; and (ii) to preserve the net asst value (the "NAV")
of the
Trust.
6. Upon completion of the offering, the Trust will use the net proceeds
of the offering to become the sole limited partner with a 99.99% interest in
the income of
Mortgage-Backed Securities Limited Partnership (the "Partnership"),
a limited partnership established under the laws of the State of Delaware. A
wholly-owned subsidiary
of the Manager will be entitled to 0.01% of the income of the Partnership.
7. The assets of the Partnership will be invested in a portfolio
consisting primarily of AAA rated mortgage-backed securities issued by Federal
National Mortgage Association, Federal Home Loan Mortgage Corporation and Government
National
Mortgage Association (collectively, the "U.S. Agencies").
8. The investment manager of the Partnership will be Fixed Income
Discount Advisory Company (the "Investment Manager"), a fixed income
management company in the United States, based in New York, specializing in managing
interest rate
sensitive strategies and investing in U.S. Agency mortgage-backed securities
and U.S.
Treasury securities.
9. Each of the Trust Units represents an equal, undivided interest in
the net assets of the Trust, is entitled to one vote and to participate equally
with all
other Trust Units in all distributions made by the Trust.
10. Registrations of interests in and transfers of Trust Units will be
made only through a book-based system administered by The Canadian Depository
for
Securities Limited ("CDS").
11. The Trust Units have been conditionally approved for listing on the
Toronto Stock Exchange (the "TSX").
12. On a monthly basis, each Unitholder of record at the close of
business on the last business day of the month (the "Record Date")
will be
entitled to receive monthly distributions (the "Distributions"). Distributions
by the Trust will be paid on or about the 15th day following month-end ("Distribution
Dates"). The Trust may make special distributions in cash or in Trust Units
at any
time in addition to monthly cash distributions.
13. The Trust intends to adopt, on or prior to the closing of the
initial public offering of Trust Units, the Reinvestment Plan so that, subject
to obtaining all the requested decisions, Distributions may be automatically
reinvested, at
the election of each Unitholder, to purchase additional Trust Units (the "Plan
Units") on each Unitholder's behalf, pursuant to the Reinvestment Plan in
accordance with the provisions of a distribution reinvestment plan agency agreement
(the "Plan
Agreement") to be entered into among the Trust and Computershare Investor
Services
Inc. (the "Plan Agreement").
14. Unitholders will have no right to purchase additional Trust Units
from the Trust other than pursuant to the Reinvestment Plan.
15. Pursuant to the terms of the Reinvestment Plan, a Unitholder will be
able to elect to reinvest his or her share of Distributions from the Trust in
Plan Units by giving notice of the Unitholder's decision to participate in the
Reinvestment Plan to
the Plan Agent through the Unitholder's dealer or other participant in CDS (a "CDS
Participant") through which it holds its Trust Units. The Distributions
due to
Unitholders who have elected to participate (the "Plan Participants")
will be automatically reinvested on their behalf by the Plan Agent to purchase
Plan Units in the
market or from the Trust as follows: purchases of Plan Units in the market will
be made by the Plan Agent on an orderly basis during the 5 trading day period
following the
Distribution Date and the price paid for those Plan Units will not exceed the
higher of 95% of the closing price of the Trust Units on the TSX on the trading
day immediately
preceding the Distribution Date (the "Market Price") and the NAV per
Trust Unit on the relevant Distribution Date. On the expiry of such 5 trading
day period, the unused
portion, if any, of the Distributions attributable to the Plan Participants will
be used to purchase Plan Units from the Trust at a purchase price equal to the
higher of the NAV
per Trust Unit on the relevant Distribution Date and 95% of the Market Price.
16. As all Trust Units, including those issued pursuant to the
Reinvestment Plan, are issued in book-entry only form and are held by CDS, Plan
Participants will not be entitled to receive certificates representing Plan Units
purchased or issued under the Reinvestment Plan. The Plan Agent will furnish
to each Plan Participant (i) reports of the Plan Units purchased for the Plan
Participant's account in
respect of each Distribution and the cumulative total of all Plan Units purchased
for that account, and (ii) any relevant information about the Reinvestment Plan
disseminated by the
Trust.
17. No fractional Trust Units will be issued under the Reinvestment
Plan. A cash adjustment for any fractional Trust Unit will be paid by the Plan
Agent to
CDS to be credited to the Plan Participant via the applicable CDS Participant.
18. A cash adjustment for any fractional Plan Unit will be paid by the
Plan Agent upon the withdrawal from or termination by a Plan Participant of his
or her participation in the Reinvestment Plan, or upon termination of the Reinvestment
Plan,
based on the NAV per Trust Unit on the last business day prior to such withdrawal
or
termination.
19. The Plan Units purchased pursuant to the Reinvestment Plan in the
market or from the Trust will be allocated on a pro rata basis to the Plan Participants.
20. The Plan Agent's charges for administering the Reinvestment Plan and
all brokerage fees and commissions in connection with purchases in the market
pursuant to
the Reinvestment Plan will be paid by the Trust.
21. The Manager may terminate the Reinvestment Plan in its sole
discretion, upon not less than 30 days' notice to (i) the Plan Participants via
the CDS Participants through which the Plan Participants hold their Trust Units
and (ii) the Plan
Agent. The Manager may also amend, modify or suspend the Reinvestment Plan at
any time in its sole discretion, provided that it gives notice of that amendment,
modification or
suspension to (i) the Plan Participants via the CDS Participants through which
the Plan
Participants hold their Trust Units and (ii) the Plan Agent.
22. The Manager may, in its sole discretion, and upon at least 90 days'
notice to the Plan Agent, remove the Plan Agent and appoint any person or entity
licensed to carry on the business of a trustee in Ontario as the Plan Agent.
The Plan Agent may
resign as agent under the Reinvestment Plan upon at least 90 days' notice to
the Manager and upon delivery to the Manager of all documents and monies being
held by the Plan Agent
on the Trust's behalf pursuant to the Agreement.
23. The Plan Agent will be purchasing Plan Units only in accordance with
the mechanisms described in the Plan and, accordingly, there is no opportunity
for a Plan Participant or the Plan Agent to speculate on changes in the NAV per
Unit.
24. The Trust will invest in the assets with the objective of providing
Unitholders with a high level of sustainable income as well as a cost-effective
method of reducing the risk of investing in such securities. Accordingly, the
NAV per Unit should be
less volatile than that of a typical equity fund, and the potential for significant
changes in the NAV per Unit over short periods of time is moderate.
25. The amount of Distributions that may be reinvested in Plan Units
issued from treasury is small relative to the Unitholders' equity in the Trust.
The potential for dilution arising form the issuance of Plan Units by the Trust
at the NAV per
Unit on a Distribution Date is not significant.
26. The Plan is open to participation by all Unitholders (other than
Unitholders who are non-residents of Canada) so that such Unitholders can ensure
protection against potential dilution, albeit insignificant, by electing to participate
in
the Plan.
27. No commissions, service charges or brokerage fees will be payable by
Plan Participants in connection with the Plan.
28. Plan Units purchased under the Plan will be registered in the name
of CDS and credited to the account of the CDS Participant through whom a Unitholder
holds
Trust Units.
29. Each Unitholder must elect to participate in the Plan on a monthly
basis through the applicable CDS Participant and will not be required to participate
in the Plan in respect of any particular Distribution unless a Unitholder has
specifically
elected to do so. The Trust has the right to amend, suspend or terminate the
Plan at any time, provided that such action shall not have a retroactive effect
which would prejudice
the interests of the Plan Participants. All Plan Participants will be sent notice
of any
such amendment, suspension or termination via the applicable CDS Participant.
30. The distribution of the Plan Units by the Trust pursuant to the Plan
cannot be made in reliance on certain registration and prospectus exemptions
contained in the Legislation as the Plan involves the reinvestment of income
distributed by the Trust
and not the reinvestment of dividends or interest of the Trust.
31. The distribution of the Plan Units by the Trust pursuant to the Plan
cannot be made in reliance on registration and prospectus exemptions contained
in the Legislation for distribution reinvestment plans of mutual funds, as the
Trust is not a "mutual fund" as defined in the Legislation.
AND WHEREAS under the System, this MRRS Decision Document evidences the
decision of each of the Decision Makers (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test
contained in the Legislation that provides the Decision Makers with the jurisdiction to
make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that
the trades in Plan Units by the Trust to the Plan Participants pursuant to the Plan shall
not be subject to the Registration and Prospectus Requirements of the Legislation provided
that:
(a) at the time of the trade the Trust is a reporting issuer or the equivalent under the Legislation and is not in default of any requirements of the Legislation;
(b) no sales charge is payable in respect of the distributions;
(c) the Trust has caused to be sent to the person or company to whom the Plan Units are traded, not more than 12 months before the trade, a statement describing:(i) their right to elect to participate in the Plan on a monthly basis to receive Plan Units instead of cash on the making of a distribution of income by the Trust; and
(ii) instructions on how to exercise the election referred to in (i);(d) except in Quebec, the first trade in Plan Units acquired pursuant to this Decision in a Jurisdiction shall be deemed a distribution or primary distribution to the public under the Legislation unless the conditions set out in paragraphs 2 through 5 of subsection 2.6(3) of Multilateral Instrument 45-102 are satisfied
(e) in Quebec, the first trade (alienation) in Plan Units acquired pursuant to this Decision will be deemed to be a distribution or a primary distribution to the public unless:(i) at the time of the first trade, the Trust is and has been a reporting issuer in Quebec for the four months preceding the trade;
(ii) no unusual effort is made to prepare the market or to create a demand for the securities that are the subject of the alienation;
(iii) no extraordinary commission or other consideration is paid in respect of the alienation;
(iv) If the seller of the securities is an insider of the Trust, the seller has no reasonable grounds to believe that the Trust is in default of any requirement of Quebec's securities legislation.
DATED April 29, 2003
Robert W. Korthals | H. Lorne Morphy |