Securities Law & Instruments

Headnote

Exemptiongranted to labour sponsored investment fund corporation to permitit to pay certain specified distribution costs out of fund assetscontrary to section 2.1 of National Instrument 81-105 Mutual FundSales Practices.

StatutesCited

SecuritiesAct, R.S.O. 1990, c.S.5, as am.

RulesCited

NationalInstrument 81-105 Mutual Fund Sales Practices.

INTHE MATTER OF

THESECURITIES LEGISLATION OF

ALBERTA,BRITISH COLUMBIA, MANITOBA,

NEWBRUNSWICK, NEWFOUNDLAND AND LABRADOR, NOVA SCOTIA,

PRINCEEDWARD ISLAND, SASKATCHEWAN, YUKON, ONTARIO

NORTHWESTTERRITORIES AND NUNAVUT

AND

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS

AND

INTHE MATTER OF

NATIONALINSTRUMENT 81-105

MUTUALFUND SALES PRACTICES

AND

INTHE MATTER OF

TUSCARORAENERGY GROWTH FUND INC.

MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator(the "Decision Maker") in each of Alberta, British Columbia,Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia,Prince Edward Island, Saskatchewan, Yukon, Ontario, NorthwestTerritories and Nunavut (the "Jurisdictions") has received anapplication from Tuscarora Energy Growth Fund Inc. (the "Fund")for a decision pursuant to section 9.1 of National Instrument81-105 ("NI 81-105") that the prohibition contained in section2.1 of NI 81-105 against the making of certain payments by theFund to participating dealers shall not apply to the Fund;

ANDWHEREAS under the Mutual Reliance Review System forExemptive Relief Applications (the "System"), the Ontario SecuritiesCommission is the principal regulator for this application;

ANDWHEREAS the Fund and Front Street Capital Inc. (the"Manager"), the manager of the Fund, have represented to theDecision Makers as follows:

1.The Fund is a corporation incorporated under the Canada BusinessCorporations Act. It is registered as a labour-sponsored venturecapital corporation under the Income Tax Act (Canada).

2.The Fund is a mutual fund as defined in the legislation of eachof the Jurisdictions. The Fund has filed a preliminary prospectusdated November 2, 2001 (the "Preliminary Prospectus") in eachof the Jurisdictions in connection with the proposed offeringto the public of Class A Shares, Series I and Class A Shares,Series II in the capital of the Fund (collectively, the "ClassA Shares").

3.The authorized capital of the Fund consists of an unlimitednumber of Class A Shares of which none are currently issuedand outstanding as of the date hereof and an unlimited numberof Class B Shares in the capital of the Fund, of which 100 sharesare issued and outstanding as of the date hereof.

4.The Manager and The Newspaper Guild of Canada / CommunicationWorkers of America (the "Sponsor") formed and organized theFund.

5.The Fund proposes to pay directly to participating dealers certaincosts associated with the distribution of its Class A Shares.These costs are:

(i) with respect to the distribution of both series of ClassA Shares,

a. a sales commission of 6% of the selling price for each ClassA Share, Series I or Series II subscribed for (the "6% SalesCommission"), and

b. a service fee of 0.5% annually of the net asset value ofthe Class A Shares, held by the clients of the sales representativesof the dealers (the "Service Fee").

(ii) with respect to the holding by investors of Class A Shares,Series I,

a. a commission of 4% of the selling price of each Series Ishare held, in lieu of service fees payable before the eighthanniversary of the date of issue of such Series I shares (the"Trailing Commission"), and

b. a corporate finance fee of 0.5% of the gross proceeds raisedon the initial offering of Class A Shares, Series I, as describedin the Preliminary Prospectus (the "Corporate Finance Fee").

6.The Fund may also pay for the reimbursement of co-operativemarketing expenses (the "Co-op Expenses") incurred by certaindealers in promoting sales of the Class A Shares, pursuant toco-operative marketing agreements the Fund may enter into withsuch dealers.

7.All of the costs associated with the distribution of Class AShares, including the Corporate Finance Fee, the 6% Sales Commissionand the Trailing Commission (together, the "Sales Commissions"),the Service Fee and the Co-op Expenses (collectively, the "DistributionCosts") are fully disclosed in the Preliminary Prospectus. Thefact that the Fund intends to pay these costs out of the assetsof the Fund is also disclosed in the Preliminary Prospectus.

8.For accounting purposes, the Fund will

(i) defer and amortize the amount paid or payable in respectof the 6% Sales Commission to retained earnings on a straightline basis over eight years,

(ii) defer and amortize the amount paid or payable in respectof the Trailing Commission and the Corporate Finance Fee toincome on a straight line basis over eight years, and

(iii) expense the Service Fee and Co-op Expenses in the fiscalperiod when incurred.

9.Gross investment amounts will be contributed to the Fund inrespect of each subscription. This is to ensure that the entiresubscription amount contributed by the investor is counted forthe purpose of the applicable federal and provincial tax creditsin connection with the purchase of Class A Shares.

10.Due to the structure of the Fund, the most tax efficient wayfor the Distribution Costs to be financed is for the Fund topay them directly.

11.The Manager, or its affiliate is the only member of the organizationof the Fund, other than the Fund, available to pay the DistributionCosts. The Manager does not have sufficient resources to paythe Distribution Costs, and unless the requested discretionaryrelief is granted, would be obliged to finance these costs throughborrowings.

12.Any loans obtained by the Manager to finance the DistributionCosts would result in the Manager increasing the managementfee chargeable to the Fund, by an amount equal to the borrowingcosts incurred by the Manager plus an amount required to compensatethe Manager for any risks associated with fluctuations in thenet asset value of the Fund and, therefore, fluctuations inthe Manager's fee. Requiring compliance with section 2.1 ofNI 81-105 would cause the expenses of the Fund to increase abovethose contemplated in the Preliminary Prospectus.

13.Requiring the Manager to pay the Distribution Costs while grantingan exemption to other labour funds permitting such funds topay similar Distribution Costs directly, would put the Fundat a permanent and serious competitive disadvantage with itscompetitors.

14.The Fund undertakes to comply with all other provisions of NI81-105. In particular, the Fund undertakes that all DistributionCosts paid by it will be compensation permitted to be paid toparticipating dealers under NI 81-105.

ANDWHEREAS under the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively,the "Decision");

ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met:

THE DECISION of the Decision Makers under subsection9.1(1) of NI 81-105 is that the Fund shall be exempt from section2.1 of NI 81-105 to permit the Fund to pay the DistributionCosts, provided that:

(a) the Distribution Costs are otherwise permitted by, and paidin accordance with, NI 81-105;

(b) the Distribution Costs are accounted for in the Fund's financialstatements in the manner described in paragraph 8 above;

(c) the summary section (the "Summary Section") of the finalprospectus of the Fund has full, true and plain disclosure describingthe commission structure of Class A Shares, Series I as a 10%initial sales commission, plus service fees after eight years.The Summary Section must be placed within the first 10 pagesof the final prospectus.

(d) the final prospectus includes full, true and plain disclosureexplaining the services and value that the participating dealerswould provide to investors in return for the service fees payableto them;

(e) the Summary Section of the final prospectus includes full,true and plain disclosure explaining to investors that

(i) they pay the Sales Commissions indirectly, as the Fund paysthese Sales Commissions using investors' subscription proceeds,and

(ii) a portion of the net asset value of the Fund is comprisedof a deferred commission, rather than an investment asset; and

(f) this Decision shall cease to be operative with respect toa Decision Maker on the date that a rule replacing or amendingsection 2.1 of NI 81-105 comes into force.


January 9, 2002.

"PaulMoore"       "Robert W. Korthals"