Variation order granted to labour sponsored investment fund corporation to permit it to pay certain revised specified distribution costs out of fund assets contrary to section 2.1 of National Instrument 81-105 Mutual Fund Sales Practices.
Securities Act, R.S.O. 1990, c. S.5, as am. s. 144.
National Instrument 81-105 Mutual Fund Sales Practices.
IN THE MATTER OF
THE SECURITIES ACT R.S.O.
1990, C.S-5, AS AMENDED (the Act)
IN THE MATTER OF
NATIONAL INSTRUMENT 81-105
MUTUAL FUND SALES PRACTICES (NI 81-105)
IN THE MATTER OF
GROWTHWORKS WV OPPORTUNITY FUND INC.
(FORMERLY WORKING VENTURES OPPORTUNITY FUND INC.)
(Section 144 of the Act)
WHEREAS the Ontario Securities Commission (the Commission) issued an order dated December 22, 2000 (the Prior Order) pursuant to section 9.1 of NI 81-105 upon the application of Working Ventures II Technology Fund Inc. (the WV II Fund). The Prior Order granted relief from section 2.1 of NI 81-105 in respect of the WV II Fund paying certain distribution costs to participating dealers or their representatives;
AND WHEREAS the Commission issued a variation order dated January 13, 2003 (the Prior Variation Order) pursuant to section 144 of the Act upon the application of WV II Fund. This Prior Variation Order varied the Prior Order to provide relief from section 2.1 of NI 81-105 for the WV II Fund to pay certain revised distribution costs to participating dealers or their representatives;
AND WHEREAS WV II Fund changed its name to Working Ventures Opportunity Fund Inc. On October 30, 2003, Working Ventures Opportunity Fund Inc. changed its name to GrowthWorks WV Opportunity Fund Inc. (the Fund);
AND WHEREAS the Fund has applied to the Commission for an order, pursuant to section 144 of the Act, revoking and restating the Prior Variation and Prior Order with this order to allow the Fund to pay certain revised distribution costs directly;
AND WHEREAS the Fund has represented to the Commission that:
1. The Fund is a labour-sponsored investment fund corporation registered under the Community Small Business Investment Funds Act (Ontario), a prescribed labour-sponsored venture capital corporation under the Income Tax Act (Canada) and a mutual fund under the Act.
2. The outstanding capital of the Fund consists of Class A Shares, which are widely held, 1,000 Class B Shares held by the Canadian Federation of Labour as the sponsor of the Fund and an unlimited number of Class C Shares, issuable in series, of which 1,500,000 Class C Shares, Series 1 are held by GrowthWorks WV Canadian Fund Inc.
3. Effective November 1, 2003, the Fund is managed by GrowthWorks WV Management Ltd. (the Manager).
4. The Class A Shares of the Fund are currently qualified for sale under a prospectus dated January 20, 2003, as amended (the Current Prospectus).
5. As part of the its efforts to improve investor choice, the Fund announced on November 11, 2003 that it would be seeking shareholder approval at a special meeting of shareholders (the Special Meeting) to adopt a new share structure under which its Class A Shares would be issuable in series and to offer a second commission structure on some of the new series.
6. On December 3, 2003 under SEDAR Project #596596, the Fund filed a preliminary prospectus for the offering of new series of Class A Shares (the Preliminary Prospectus). The new series of Class A Shares offer six different investment focuses on the non-venture portion of the investment portfolio. Each investment focus is offered with a choice of two commissions structures.
7. As described in the Preliminary Prospectus, the currently issued Class A Shares will, subject to shareholder approval, be redesignated as the first series of Class A Shares named "WV Opportunity", but will no longer be offered for sale. It is intended that new series of Class A Shares offered from time to time by the Fund will be designated by the Board of Directors of the Fund either as Commission I or Commission II.
8. Due to recent changes in Canadian Generally Accepted Accounting Principles (GAAP) affecting the accounting treatment of deferred sales commissions, the Fund is proposing the following revised sales commission structures:
With respect to new series of Class A Shares designated as Commission I,
(a) An up-front sales commission of 6% of the purchase price will be paid by the Manager to dealers who sell those new series of Class A Shares;
(b) A quarterly service fee at annual rate of 0.5% per annum based on the average daily net asset value of those new series of Class A Shares held by the clients of the registered dealer will be paid by the Fund to the registered dealers (the Commission I Service Fees);
With respect to new series of Class A Shares designated as Commission II,
(c) An up-front sales commission of 9.3% of the purchase price (which is comprised of 6% plus an additional 3.3% in lieu of any annual service fees before the eighth anniversary of the date of the purchase) be paid by the Manager to dealers who sell those new series of Class A Shares;
(d) No service fee will be paid prior to the eighth anniversary of the date of purchase of those new series of Class A Shares. After the eight years, the Fund will pay a quarterly service fee at an annual rate of 0.5% of the average net asset value of those Class A Shares held by the dealers' clients (the Commission II Service Fees);
With respect to all new series of Class A Shares designated as either Commission I or II,
(e) the Fund may enter into co-operative advertising programs with participating dealers distributing Class A Shares in compliance with NI 81-105,
(collectively, the New Distribution Costs).
9. Payments of the New Distribution Costs are permitted under NI 81-105, except for the Commission I Service Fees and the Commission II Service Fees.
10. The Commission I Service Fees and the Commission II Service Fees will be expensed in the fiscal period when incurred;
AND WHEREAS the Commission is satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to section 144 of the Act, the Commission hereby revokes and restate the Prior Variation Order and the Prior Order with this order to exempt the Fund from section 2.1 of NI 81-105 to permit the Fund to pay the Commission I Service Fees and the Commission II Service Fees, provided that:
(a) the Commission I Service Fees and the Commission II Service Fees are otherwise permitted by, and paid in accordance with NI 81-105;
(b) the Fund will in its financial statements expense the Commission I Service Fees and the Commission II Service Fees in the fiscal period when incurred; and
(c) this Order shall cease to be operative with respect to the Commission on the date that a rule or regulation replacing or amending section 2.1 of NI 81-105 comes into force.
December 30, 2003.
"Robert L. Shirriff"
"Paul K. Bates"