Securities Law & Instruments


A revocation and replacementorder granted to labour sponsored investment fund corporationto permit it to pay certain distribution costs out of fund assetscontrary to section 2.1 of National Instrument 81-105 MutualFund Sales Practices.

Statutes Cited

Securities Act, R.S.O. 1990,c. S.5, as am. s. 144.

Rules Cited

National Instrument 81-105 MutualFund Sales Practices.




















WHEREAS the local securitiesregulatory 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, Northwest Territories and Nunavut(the "Jurisdictions") granted Tuscarora Energy GrowthFund Inc. (the "Fund") relief pursuant to section9.1 of National Instrument 81-105 ("NI 81-105") fromthe prohibition contained in section 2.1 of NI 81-105 againstthe making of certain payments by the Fund to participatingdealers in connection with the distribution of Class A Shares,Series I and Class A Shares, Series II of the Fund on January9, 2002 (the "Prior Decision");

AND WHEREAS the DecisionMaker has received an application from the Fund for a decisionunder the securities legislation of the Jurisdictions (the "Legislation")revoking and replacing the Prior Decision;

AND WHEREAS the Fundplans to offer to the public Class A Shares, Series III of theFund; the Prior Decision does not provide relief for the Fundto make certain payments to participating dealers in connectionwith the proposed distribution of Class A Shares, Series III;

AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this application;

AND WHEREAS the Fundand Front Street Capital Inc. (the "Manager"), themanager of the Fund, have represented to the Decision Makersas follows:

1. The Fund is a corporationincorporated under the Canada Business Corporations Act. Itis registered as a labour-sponsored venture capital corporationunder the Income Tax Act (Canada).

2. The Fund is a mutual fundas defined in the legislation of each of the Jurisdictions.The Fund filed a prospectus dated January 31, 2002 (the "Prospectus")in each of the Jurisdictions in connection with the offeringto the public of Class A Shares, Series I and Class A Shares,Series II in the capital of the Fund. An amendment to theProspectus dated July 3, 2002 (the "Amendment"),in a form of a slipsheet, has been filed in each of the Jurisdictionsin connection with the proposed offering to the public ofClass A Shares, Series III (collectively, the "ClassA Shares.

3. The authorized capitalof the Fund consists of an unlimited number of Class A Sharesand an unlimited number of Class B Shares in the capital ofthe Fund. As at June 21, 2002, there were 875,837.121 ClassA Shares, Series I , 483,050.412 Class A Shares, Series IIand 100 Class B Shares outstanding.

4. The Manager and The NewspaperGuild of Canada/Communications Workers of America, as thesponsor, formed and organized the Fund.

5. The Fund pays directlyto participating dealers certain costs associated with thedistribution of its Class A Shares, Series I and Class A Shares,Series II. These costs are:

(i) with respect to thedistribution of Class A Shares, Series I and Class A Shares,Series II,

a. a sales commissionof 6% of the selling price for each Class A Share, SeriesI or Series II, subscribed for (the "6% Sales Commission"),and

b. a service fee of 0.5%annually of the net asset value of the Class A shares,Series I or Series II, held by the clients of the salesrepresentatives of the dealers (the "Series I andSeries II Service Fee").

(ii) with respect to theholding by investors of Class A Shares, Series I, a commissionof 4% of the selling price of each Series I share held,in lieu of service fees payable before the eighth anniversaryof the date of issue of such Series I shares (the "TrailingCommission").

6. The Fund proposes thatany sales commission associated with the distribution of ClassA Shares, Series III (the "Series III Sales Commission")will be paid by the investors.

7. The Fund proposes to paydirectly to participating dealers associated with the distributionof its Class A Shares, Series III, a service fee of 1.25%annually of the net asset value of the Class A Shares, SeriesIII, held by the clients of the sales representatives of thedealers (the "Series III Service Fee").

8. The Fund may also pay forthe reimbursement of co-operative marketing expenses (the"Co-op Expenses") incurred by certain dealers inpromoting sales of the Class A Shares, pursuant to co-operativemarketing agreements the Fund may enter into with such dealers.

9. All of the costs associatedwith the distribution of Class A Shares, including the 6%Sales Commission and the Trailing Commission (together, the"Sales Commissions"), the Series I and Series IIService Fee, the Series III Service Fee and the Co-op Expenses(collectively, the "Distribution Costs") and theSeries III Sales Commission are fully disclosed in the Prospectusas amended by the Amendment (the "Amended Prospectus").The fact that the Fund intends to pay certain of these costsout of the assets of the Fund is also disclosed.

10. For accounting purposes,the Fund will:

(i) defer and amortize theamount paid or payable in respect of the 6% Sales Commissionto retained earnings on a straight line basis over eightyears,

(ii) defer and amortizethe amount paid or payable in respect of the Trailing Commissionto income on a straight line basis over eight years, and

(iii) expense the SeriesI and Series II Service Fee, the Series III Service Feeand Co-op Expenses in the fiscal period when incurred.

11. Due to the structure ofthe Fund, the most tax efficient way for the DistributionCosts to be financed is for the Fund to pay them directly.

12. For Class A Shares, SeriesI and Class A Shares, Series II, gross investment amountswill be contributed to the Fund in respect of each subscription.This is to ensure that the entire subscription amount contributedby the investor is counted for the purpose of the applicablefederal tax credits in connection with the purchase of ClassA Shares, Series I and Class A Shares, Series II. For ClassA Shares, Series III, investment amounts, net of commissionpaid by the investor directly, will be contributed to theFund in respect of each subscription.

13. The Manager, or its affiliate,is the only member of the organization of the Fund, otherthan the Fund, available to pay the Distribution Costs. TheManager does not have sufficient resources to pay the DistributionCosts and, unless the requested discretionary relief is granted,would be obliged to finance these costs through borrowings.

14. Any loans obtained bythe Manager to finance the Distribution Costs would resultin the Manager increasing the management fee chargeable tothe Fund, by an amount equal to the borrowing costs incurredby the Manager plus an amount required to compensate the Managerfor any risks associated with fluctuations in the net assetvalue of the Fund and, therefore, fluctuations in the Manager'sfee. Requiring compliance with section 2.1 of NI 81-105 wouldcause the expenses of the Fund to increase above those contemplatedin the Amended Prospectus.

15. Requiring the Managerto pay the Distribution Costs while granting an exemptionto other labour funds permitting such funds to pay similarDistribution Costs directly, would put the Fund at a permanentand serious competitive disadvantage with its competitors.

16. The Fund undertakes tocomply with all other provisions of NI 81-105. In particular,the Fund undertakes that all Distribution Costs paid by itwill be compensation permitted to be paid to participatingdealers under NI 81-105.

AND WHEREAS under theSystem, this MRRS Decision Document evidences the decision ofeach Decision Maker (collectively, the "Decision");

AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;

THE DECISION of the DecisionMakers pursuant to the Legislation is that the Prior Decisionis hereby revoked and replaced with the following Decision witheffect as of, and from, the date hereof;

AND THE DECISION of theDecision Makers pursuant to section 9.1 of NI 81-105 is thatthe Fund shall be exempt from section 2.1 of NI 81-105 to permitthe Fund to pay the Distribution Costs, provided that:

(a) the Distribution Costsare otherwise permitted by, and paid in accordance with, NI81-105;

(b) the Distribution Costsare accounted for in the Fund's financial statements in themanner described in paragraph 10 above;

(c) the summary section ofthe Amended Prospectus has full, true and plain disclosuredescribing the commission structure of Class A Shares, SeriesI as a 10% initial sales commission, plus service fees aftereight years. This section is placed within the first 10 pagesof the Amended Prospectus;

(d) the Amended Prospectusincludes full, true and plain disclosure explaining the servicesand value that the participating dealers would provide toinvestors in return for the service fees payable to them;

(e) the summary section ofthe Amended Prospectus includes full, true and plain disclosureexplaining to investors that, for the Class A Shares, SeriesI and the Class A Shares, Series II:

(i) they pay the Sales Commissionsindirectly, as the Fund pays these Sales Commissions usinginvestors' subscription proceeds; and

(ii) a portion of the netasset value of the Fund is comprised of a deferred commission,rather than investment assets;

(f) this Decision shall ceaseto be operative with respect to a Decision Maker on the datethat a rule replacing or amending section 2.1 of NI 81-105comes into force.

July 24, 2002.

"Kerry D. Adams"                    "HaroldP. Hands"