Growthworks Commercialization Fund Ltd. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from paragraphs 5.1(f) and 5.5(1)(b) of NI 81-102 to permit a series of shares issued by an LSIF to pools its assets with those of another series of the fund at a certain date in the future without securityholder and regulatory approval.

Rules Cited

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.5.

January 17, 2006

IN THE MATTER OF

NATIONAL INSTRUMENT 81-102 MUTUAL FUNDS

(NI 81-102)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

GROWTHWORKS COMMERCIALIZATION FUND LTD.

(THE FUND)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of Ontario, Saskatchewan, Alberta and British Columbia (the Jurisdictions) has received an application from the Fund for a decision under NI 81-102 that the Fund be exempt from paragraphs 5.1(f) and (g) and paragraph 5.5(1)(b) of NI 81-102 to permit the Series 1, 06 Series and any other series of its Class A shares issued after the date of this decision (each a Series) to pool their assets among Series at a future date without the requirement to obtain the prior approval of securityholders or prior approval of the securities regulatory authority or regulator (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Fund:

1. The Fund is a corporation incorporated under the Canada Business Corporations Act by articles of incorporation dated May 13, 2004, having its registered office in Toronto, Ontario.

2. The Fund is registered as a labour-sponsored venture capital corporation under the Income Tax Act (Canada), as a labour-sponsored investment fund corporation under the Community Small Business Investment Funds Act (Ontario), and is an approved fund under the Labour-sponsored Venture Capital Corporations Act (Saskatchewan). As such, the Fund will invest in small and medium sized Canadian businesses with the objective of achieving long term capital appreciation.

3. The Fund has also given notice to the Ministry of Finance (Ontario) of its intention to issue shares as a research oriented investment fund in 2005 and 2006 (and expects to do so for future years as well). As such, it is anticipated that the Fund will primarily invest in early stage research oriented companies.

4. GrowthWorks WV Management Ltd. (the Manager) is the manager of the Fund under a management contract. The Manager is part of the GrowthWorks group of companies and is a wholly-owned subsidiary of GrowthWorks Ltd.

5. The Canadian Federation of Labour, the sponsor of the Fund, formed and organized the Fund.

6. The authorized capital of the Fund consists of:

(a) an unlimited number of Class A shares, issuable in series, which are widely held,

(b) an unlimited number of Class B Shares, all of which are held by the sponsor of the Fund, and

(c) an unlimited number of Class C shares, all of which are held by the Manager to provide a "participating" or "carried" interest in the venture investments of the Fund.

7. The Fund is a mutual fund under applicable securities legislation. The Fund is currently a reporting issuer or equivalent in the Jurisdictions. The Fund's securities are not listed on any exchange.

8. The Fund distributes, or will distribute, its Class A shares in Series in the Jurisdictions under a long form prospectus (the Prospectus). To date, the Fund has issued Series 1 shares and 06 Series shares by way of Prospectuses dated January 12, 2005 and December 14, 2005, respectively.

9. The Prospectus of each Series of Class A Shares of the Fund discloses, or will disclose, the investment objectives, investment strategies and risks of investing in Class A Shares. All Series have, or will have, the same investment objectives, investment strategies, and cost structure.

10. The Fund's board of directors (the Board) has adopted, and is expected to continue in the future to adopt, a dividend policy in respect of each Series of Class A Shares. The policy is to pay cash dividends during a period of approximately three years after the offering period of each Series that total about 25% of the purchase price of the Series. Each year (until determined otherwise by the Board), a new Series of Class A Shares will be offered under the Prospectus.

11. To permit implementation of the dividend policy, yet gain the risk mitigation benefit of broader portfolio diversification, the Prospectus for the Fund's 06 Series shares sets out the following asset allocation rules (the Asset Allocation Rules):

"• The venture and non-venture investments made with the capital raised from the sale of a particular Series will be allocated solely to that Series during the period ending on March 1^st of the third calendar year after the RSP season the Series was first offered in (the "Separate Pool End Date").

• Once the Separate Pool End Date has passed for a Series, the venture and non-venture investments previously solely allocated to that Series will be pooled with the assets of all other Series Shares that have passed their Separate Pool End Dates and be allocated among those Series in proportion to their relative net asset values."

12. Because each Series is referable to a separate pool of assets for a period of three years, each Series is technically to be considered a separate mutual fund for the purposes of NI 81-102 (based on the interpretation provision in subsection 1.3(1) thereof).

13. Unless the Requested Relief is granted, the change in the allocation of assets to a Series that occurs after the Separate Pool End Date will technically be considered a merger of separate mutual funds and will require the Fund to comply with the securityholder and regulatory approval provisions in paragraphs 5.1(f) and (g) and 5.5(1)(b) of NI 81-102.

Decision

Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Makers with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under NI 81-102 is that the Requested Relief is granted provided that:

(a) the Prospectus under which a Series is distributed includes substantially the disclosure set out in paragraph 11 regarding Asset Allocation Rules, and

(b) the investment objective of the Fund or any Series does not change without the prior approval of securityholders of the Fund or Series, as the case may be.