IN THE MATTER
OF SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, Qu�bec, NOVA SCOTIA, NEW BRUNSWICK,
PRINCE EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR AND YUKON
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND IN THE MATTER OF PATHFINDER INCOME FUND
MRRS DECISION DOCUMENT
WHEREAS the
local securities
regulatory authority or regulator (the "Decision Maker") in each of British
Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Qu�bec, Nova Scotia, New Brunswick,
Prince Edward Island, Newfoundland and Yukon (the "Jurisdictions")
has received
an application from PATHFINDER Income Fund (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 (the "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 Qu�bec
Commission Notice 14-101;
AND WHEREAS THE TRUST has represented to the Decision
Makers that:
1. The Trust is an unincorporated closed-end investment trust established under the laws
of the Province of Ontario by a declaration of trust dated as of September 25, 2002.
2. The Trust is not considered to be a "mutual fund" as defined in the
Legislation because the holders of Units ("Unitholders") are not entitled
to
receive on demand an amount computed by reference to the value
of a proportionate interest in the whole or in part of the net assets of the
Trust as
contemplated in the definition of "mutual fund" in the Legislation.
3. The Trust became a reporting issuer or the equivalent thereof in the Jurisdictions
on September 26, 2002 upon obtaining a receipt for its final prospectus dated
September 25,
2002 (the "Prospectus"). As of the date hereof, the Trust is not in
default of
any requirements under the Legislation.
4. The beneficial interests in the Trust are divided into a single class of voting
units
(the "Units"). The Trust is authorized to issue an unlimited number
of Units. Each Unit represents a Unitholder's proportionate undivided beneficial
interest in the
Trust.
5. The Units are listed and posted for trading on the Toronto Stock Exchange
(the "TSX") under the symbol "PAZ.UN". As of the date hereof,
15,500,000
Units are issued and outstanding.
6. The Trust currently intends to make cash distributions
("Distributions") of distributable income to Unitholders of record on the day on
which the Trust declares a distribution to be payable (each a "Declaration
Date"), and such Distributions will be payable on a day which is on or before the
last business day of the month following a Declaration Date (each a "Distribution
Date").
7. The Trust has adopted the Plan which, subject to obtaining all necessary regulatory
approvals, will permit Distributions to be automatically reinvested, at the election
of
each Unitholder, to purchase additional Units ("Plan Units") pursuant to the
Plan and in accordance with a distribution reinvestment plan agency agreement entered into
by the Trust, Middlefield PATHFINDER Management Limited in its capacity as manager of the
Trust (in such capacity, the "Manager") and MFL Management Limited in its
capacity as agent under the Plan (in such capacity, the "Plan Agent").
The Plan will not be available to Unitholders who are not residents of Canada
for the purposes of
the Income Tax Act (Canada).
8. Pursuant to the terms of the Plan, a Unitholder will be able to elect to become a
participant in the Plan by notifying the Manager, or by causing the Manager to be
notified, in writing, of the Unitholder's decision to participate in the Plan.
Participation in the Plan will not be available to Unitholders who are not residents of
Canada for the purposes of the Income Tax Act (Canada).
9. Distributions due to participants in the Plan ("Plan Participants")
will be paid to the Plan Agent and applied to purchase Plan Units. Plan Units
purchased under the
Plan will be purchased by the Plan Agent in the market or directly from the Trust
in the following manner:
(a) if the weighted average trading price of the Units on the TSX (or such other exchange or market on which the Units are then listed) for the 10 trading days immediately preceding the relevant Distribution Date (the "Market Price") plus estimated brokerage fees and commissions is greater than or equal to the net asset value of the Trust (the "Net Asset Value") per Unit on the applicable Distribution Date, the Plan Agent will, after such Distribution Date, apply Distributions to the purchase of Plan Units from the Trust at a price equal to Net Asset Value per Unit as at the Distribution Date, provided that if the Net Asset Value per Unit as at the Distribution Date is less than 95% of the Market Price per Unit on the Distribution Date, then Plan Units will be purchased from the Trust at a price equal to 95% of the Market Price as at the Distribution Date;
(b) if the Market Price plus estimated brokerage fees and commissions is less than the Net Asset Value per Unit on the Distribution Date, purchases of Plan Units will be made in the market during the 10 business days next following the relevant Distribution Date, on any business day when the Market Price plus estimated brokerage fees and commissions is less than the Net Asset Value per Unit determined as at such Distribution Date, and on the 11th business day after the Distribution Date the unused part (if any) of the Distributions paid to the Plan Agent for the benefit of Plan Participants will be applied to a purchase of Plan Units from the Trust in accordance with paragraph (a) above;
(c) the Plan Units purchased in the market or from the Trust shall be allocated by the Plan Agent on a pro rata basis to the Plan Participants; and
(d) any applicable brokerage fees and commissions incurred in connection with purchases of Plan Units made in the market as contemplated by paragraph (b) above shall be borne on a pro rata basis by and from each Plan Participant's account.
10. The Plan also allows Plan
Participants to make optional cash
payments ("Optional Cash Payments") which will be used by the Plan
Agent to purchase Plan Units. A Plan Participant must invest a minimum of $100
per Optional Cash
Payment. Optional Cash Payments will be used by the Plan Agent to purchase Plan
Units on the same basis as Distributions as described above. The aggregate number
of Plan Units
that may be purchased with Optional Cash Payments in a calendar year will be limited
to 2% of the outstanding Units at the commencement of that calendar year, provided that
for the 2002 calendar year, the number of Plan Units that may be purchased with Optional
Cash Payments will be limited to 2% of the outstanding Units immediately following
the Closing of the initial public offering of Units pursuant to the Prospectus (including
any Units outstanding following the closing of the exercise of the over-allotment option
granted to the agents under the initial public offering). The Plan Agent may limit the
maximum amount of Optional Cash Payments in any calendar year to ensure that the 2% limit
is not exceeded.
11. Optional Cash Payments, along with a Plan Participant's notice of his or her intention
to make an Optional Cash Payment, must be received by the Plan Agent on or before 5:00
p.m. (Toronto time) on the day which is at least five business days prior to a
Distribution Date, in order to be invested in Plan Units immediately following such
Distribution Date. Optional Cash Payments and/or notices received less than five
business days prior to a Distribution Date will result in the Plan Agent holding
(without interest) the Optional Cash Payment and using the same to purchase Plan Units
after the second Distribution Date following the date of receipt of the Optional Cash
Payment.
12. The Plan Agent will purchase Plan Units only in accordance with mechanics described in
the Plan and, accordingly, there is no opportunity for a Plan Participant or the Plan
Agent to speculate on Net Asset Value per Unit.
13. The Plan is open for participation by all Unitholders (other than non-residents of
Canada), so that such Unitholders can ensure protection against potential dilution, albeit
insignificant, by electing to participate in the Plan.
14. The Trust will invest in securities with the objective of providing Unitholders with a
high level of sustainable income (as described in the Prospectus) as well as a
cost-effective method of reducing the risk of investing in such securities through broad
diversification. In addition, the Net Asset Value per Unit should be less volatile than
that of a typical equity fund based on historical data. As a result, the potential for
significant changes in the Net Asset Value per Unit over short periods of time is
moderate.
15. 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 from the issuance of Plan Units by the Trust at the Net Asset Value per Unit on a
Distribution Date is not significant.
16. Plan Units purchased under the Plan will be registered in the name of the Plan Agent,
as agent for the Plan Participants.
17. A Plan Participant may terminate his or her participation in the Plan by providing, or
by causing to be provided, at least ten business days' prior written notice to the Manager
and, such notice, if actually received no later than ten business days prior to the next
Declaration Date, will have effect beginning with the distribution to be made with respect
to such Declaration Date. Thereafter, Distributions payable to such Unitholder will be in
cash.
18. The Manager reserves the right to suspend or terminate the Plan at any time in its
sole discretion, in which case Plan Participants and the Plan Agent will be sent written
notice thereof. In particular, the Manager may, on behalf of the Trust, terminate the Plan
in its sole discretion, upon not less than 30 days' prior written notice to the Plan
Participants and the Plan Agent.
19. The Manager may amend or modify the Plan at any time in its sole discretion, provided
that it obtains the prior approval of the TSX (if Units are then listed thereon) and
provided further that if, in the Manager's reasonable opinion: (i) the amendment or
notification is material to Plan Participants, then at least 30 days' prior written notice
thereof is given to Plan Participants and the Plan Agent; or (ii) the amendment or
modification is not material to Plan Participants, then notice thereof may be given to
Plan Participants and the Plan Agent after effecting the amendment or modification. The
Manager may also, in consultation with the Plan Agent, adopt additional rules and
regulations to facilitate the administration of the Plan.
20. 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 distributable income distributed by the Trust
and not the reinvestment of dividends or interest of the Trust.
21. 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 considered
to be a "mutual fund" as defined in the Legislation because the Unitholders
are not entitled to receive on demand an amount computed by reference to the
value of a
proportionate interest in the whole or in a portion of the net assets of the
Trust.
AND WHEREAS under the System, this MRRS Decision
Document evidences the decision of each of the Decision Makes (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 of Plan Units 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 of Plan Units from treasury;
(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 withdraw from the Plan and to make an election to receive cash instead of Plan Units on the making of a distribution by the Trust; and
(ii) instructions on how to exercise the right referred to in (i);
(d) in the calendar year during which the trade takes place, the aggregate number of Plan Units issued pursuant to the Optional Cash Payments shall not exceed 2% of the aggregate number of Units outstanding at the commencement of that calendar year (or for the 2002 calendar year, outstanding at the closing of the Trust's initial public offering of Units pursuant to the Prospectus including any Units outstanding following the closing of the exercise of the over-allotment option granted to the agents under the initial public offering); and
(e) except in Qu�bec, the first trade or resale of Plan Units acquired pursuant to the Plan in a Jurisdiction shall be deemed a distribution or primary distribution to the public under the Legislation unless the conditions of paragraphs 2 through 5 of subsection 2.6(3) of Multilateral Instrument 45-102 are satisfied;
(f) in Qu�bec, the first trade (alienation) of Plan Units acquired pursuant to the Plan in a Jurisdiction shall be deemed to be a distribution or primary distribution to the public unless:
(i) at the time of the first trade, the Trust is a reporting issuer in Qu�bec and is not in default on any of the requirements of securities legislation in Qu�bec;
(ii) no unusual effort is made to prepare the market or to create a demand for the Plan Units;
(iii) no extraordinary commission or consideration is paid to a person or company other than the vendor of the Plan Units in respect of the first trade; and
(iv) the vendor of the Plan Units, if in a special relationship with the Trust, has no reasonable grounds to believe that the Trust is in default of any requirement of the Legislation of Qu�bec; and(g) disclosure of the initial distribution of the Plan Units is made to the relevant Jurisdictions by providing the particulars of the date of the distribution of such Plan Units, the number of such Plan Units and the purchase price paid or to be paid for such Plan Units in:
(i) an information circular or take-over bid circular filed in accordance with the Legislation; or
(ii) a letter filed with the Decision Maker in the relevant Jurisdiction by a person or company certifying that the person or company has knowledge of the facts contained in the letter,
when the Trust distributes such Plan Units for the first time and thereafter, not less frequently than annually, unless the aggregate number of Plan Units so traded in any month exceeds 1% of the Units outstanding at the beginning of a month in which the Plan Units were traded, in which case a separate report shall be filed in each relevant Jurisdiction in respect of that month within ten days of the end of such month.
DATED at Toronto this 4th of December, 2002
H. Lorne Morphy | Robert W. Korthals |
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - relief from the
prospectus and registration requirements to allow an open-end investment trust to issue
units to existing unit holders under distribution reinvestment plan, subject to conditions
- first trade in additional units deemed a distribution unless comply with MI 45-102
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(a), 48, 61 and 76