Front Street Capital 2004 et al.

Headnote

National Instrument 81-101 Mutual Fund Prospectus Disclosure, section 6.1 -- exemption from requirement in section 2.1 and Item 5(b) of Form 81-101F1 to permit the Continuing Fund to disclose the start date of the Terminating Fund as its start date.

National Instrument 81-102 Mutual Funds, section 19.1 -- exemption from sections 15.3(2), 15.6(a)(i), 15.6(b), 15.6(d), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) to permit the Continuing Fund to use performance data of the Terminating Fund in sales communications and reports to securityholders.

National Instrument 81-106 Mutual Fund Continuous Disclosure, section 17.1 -- exemption from requirements in Section 4.4 and Items 3.1(1), 3.1(2), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with sections 15.3(2) and 15.9(2)(d) of NI 81-102, 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(2) of Part B and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the Continuing Fund to include in its annual and interim management reports of fund performance the financial highlights and past performance of the Terminating Fund.

Continuing Fund effectively a continuation of Terminating Fund whose track record since its start date is significant information which can assist investors in determining whether to purchase or hold shares of Continuing Fund with merger and any significant differences between funds appropriately disclosed.

Applicable Legislative Provisions

National Instrument 81-101 Mutual Fund Prospectus Disclosure, s. 6.1.

National Instrument 81-102 Mutual Funds, s. 19.1.

National Instrument 81-106 Mutual Fund Continuous Disclosure, s. 17.1.

December 3, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FRONT STREET CAPITAL 2004 (the "Manager")

AND

IN THE MATTER OF

FRONT STREET MUTUAL FUNDS LIMITED ("MF"),

FRONT STREET OPPORTUNITY FUNDS LTD.

("FSOF"), AND THE ENTITY RESULTING FROM THE

AMALGAMATION OF MF AND FSOF NAMED

FRONT STREET MUTUAL FUNDS LIMITED

("New MF", together with the Manager, the "Filers")

AND

IN THE MATTER OF

FRONT STREET SMALL CAP OPPORTUNITIES

FUND CLASS OF SHARES OF FSOF

(the "Terminating Fund")

AND

IN THE MATTER OF

FRONT STREET SMALL CANADIAN CAP FUND

(TO BE RENAMED FRONT STREET SMALL CAP FUND)

CLASS OF SHARES OF NEW MF

(the "Continuing Fund")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers on behalf of themselves and the Continuing Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") granting an exemption from the following provisions of the Legislation to enable the Continuing Fund to include in its annual and interim management reports of fund performance ("MRFPs") the performance data and information derived from the financial statements of the Terminating Fund (collectively, the "Financial Data") that are presented in the Terminating Fund's annual MRFP for the year ended October 31, 2008, when available (the "Terminating Fund's 2008 annual MRFP") (collectively, the "Exemption Sought"):

(a) Section 4.4 of National Instrument 81-106 -- Investment Fund Continuous Disclosure ("NI 81-106") for the purposes of the relief requested from Form 81-106F1 -- Contents of Annual and Interim Management Report of Fund Performance ("Form 81-106F1");

(b) Items 3.1(1), 3.1(2), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.9(2)(d) of National Instrument 81-102 -- Mutual Funds ("N1 81-102"), 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(2) of Part B of Form 81-106F1; and

(c) Items 3(1) and 4 of Part C of Form 81-106F1.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Northwest Territories, Yukon and Nunavut.

Interpretation

Terms defined in National Instrument 14-101 Definitions, NI 81-102 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers on behalf of themselves and the Continuing Fund:

The Filers

1. The head office of the Filers is located at 33 Yonge Street, Suite 600, Toronto, Ontario. The Filers are not in default of securities legislation in any jurisdiction.

2. Each of MF and FSOF was, and New MF is, a mutual fund corporation subsisting under the laws of Canada and offering mutual fund classes of shares.

3. The Manager was directly or indirectly the manager of MF and FSOF and is the manager of New MF.

The Amalgamation and Merger

4. On October 15, 2008, each of MF and FSOF obtained shareholder approval to amalgamate to form a single mutual fund corporation.

5. On November 1, 2008, MF and FSOF were amalgamated to form New MF (the "Amalgamation"). As part of the Amalgamation, the Terminating Fund merged with the Continuing Fund (the "Merger"). The Filers received regulatory approval for the Merger on October 31, 2008.

6. The Amalgamation is intended to benefit investors by giving them a broader choice of mutual funds between which they may switch their investments on a tax-deferred basis. The Amalgamation may also benefit investors as a result of increased economies of scale which result from the consolidation of sales, marketing and management activities that are expected to reduce fund expenses.

7. Upon the Merger, the portfolio assets of the Terminating Fund were transferred to the Continuing Fund. The portfolio assets of the Continuing Fund are maintained as a separate portfolio by New MF for the exclusive benefit of the shareholders of the Continuing Fund.

8. Upon the Merger, the portfolio assets referable to each series of shares of the Terminating Fund became referable to a corresponding series of shares of the Continuing Fund (each such series, a "Replacement Series"). The rights associated with each Replacement Series are identical in all respects to the rights formerly associated with the corresponding series of shares of the Terminating Fund. Upon the Merger, for each share they held of the Terminating Fund, shareholders received a share of the Replacement Series. The net asset value ("NAV") of each such share of the Replacement Series was equal to the NAV per share of the corresponding series of shares of the Terminating Fund.

9. Prior to the Merger, the Terminating Fund was operated in accordance with the requirements of National Instrument 81-104 -- Commodity Pools ("NI 81-104"), distributed its shares to the public pursuant to a prospectus and had been a reporting issuer for at least 12 months.

10. The Continuing Fund is not a commodity pool, it is a conventional mutual fund governed by NI 81-102. New MF has filed with the securities regulatory authorities in all of the provinces and territories of Canada a preliminary simplified prospectus and annual information form and will file a final simplified prospectus and annual information form in due course to qualify the shares of the Continuing Fund for distribution to the public.

11. The Continuing Fund is a new fund and did not have any assets (other than a nominal amount to establish it) or liabilities and did not have its own Financial Data as at the effective date of the Merger. In order for the Merger to be as seamless as possible for investors in the Terminating Fund and the Continuing Fund:

(a) Notwithstanding the Amalgamation and Merger, the Continuing Fund will be managed substantially similarly to the Terminating Fund. The Continuing Fund has substantially similar investment objectives and investment strategies, the same manager and portfolio investment manager, the same management fee and redemption fee structure as the Terminating Fund and, as at the effective date of the Amalgamation and Merger, the Continuing Fund held the same portfolio assets as the Terminating Fund;

(b) The Manager proposes that the Continuing Fund's MRFPs include the Financial Data presented in the Terminating Fund's 2008 annual MRFP.

12. The Merger effectively converts a commodity pool to a conventional mutual fund. Unlike conventional mutual funds governed by NI 81-102, commodity pools operated in accordance with NI 81-104 are less restricted in the use of derivatives and in the calculation of performance fees.

13. The Continuing Fund is more restricted in its derivatives use than the Terminating Fund was. However, the Terminating Fund made very little use of the additional derivatives flexibility provided in NI 81-104 and, as stated in the Management Proxy Circular accompanying the notice of meeting for the October 15, 2008 meeting at which the Amalgamation and Merger received shareholder approval, the Manager does not believe that this will result in a material change in the Continuing Fund's portfolio or investment performance following the Merger.

14. The performance fee paid to the Manager in respect of the year ended October 31, 2008 differs from the performance fee that would have been payable had the Terminating Fund been subject to the performance fee calculation requirements of NI 81-102 during this period (such difference, the "Performance Fee Differential"). Accordingly, the actual returns of the Terminating Fund net of performance fees for that fiscal period differ from the returns net of performance fees that the Terminating Fund would have achieved had it been subject to the performance fee calculation requirements of NI 81-102.

15. Any significant differences between the Terminating Fund and the Continuing Fund, including the difference in the calculation of the performance fee, will be noted in the Continuing Fund's MRFPs containing Financial Data of the Terminating Fund, and those MRFPs will also note the effect on returns for the year ended prior to the Merger of the Performance Fee Differential.

16. The Continuing Fund will prepare comparative interim and annual financial statements for 2009 under section 2.1 of NI 81-106 using the Terminating Fund's annual financial statements for the year ended October 31, 2008.

17. The Financial Data of each series of the Terminating Fund is significant information which can assist investors in determining whether to purchase or hold shares of the corresponding Replacement Series.

18. The Filers have filed a separate application for exemptive relief from certain provisions of (a) NI 81-102 to permit the Continuing Fund to use performance data of the Terminating Fund in sales communications and reports to securityholders ("Fund Communications") and (b) National Instrument 81-101 -- Mutual Fund Prospectus Disclosure and Form 81-101F1 -- Contents of Simplified Prospectus to permit the Continuing Fund to disclose the start date of the Terminating Fund as its start date (the "NI 81-102 and NI 81-101 Relief").

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) The MRFP for each Replacement Series include the Financial Data of the corresponding series of the Terminating Fund and disclose the Merger for the relevant time periods;

(b) The Continuing Fund prepare its simplified prospectus and other Fund Communications in accordance with the NI 81-102 and NI 81-101 Relief.