Securities Law & Instruments

Headnote

Relief pursuant to s. 19.1of NI 81-102 from the requirements of clause 2.2(1)(A), clause 2.5(2)(a) and clause 2.5(2)(b) to allow top NI 81-102 fund to invest up to 10% of its assets in bottom pooled fund. Relief granted on basis that bottom fund will be NI 81-102 compliant and 10% investment restriction.

March 13, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUEBEC, ONTARIO, BRITISH COLUMBIA,

ALBERTA, SASKATCHEWAN, MANITOBA,

NEW BRUNSWICK, NOVA SCOTIA,

PRINCE EDWARD ISLAND AND

NEWFOUNDLAND AND LABRADOR

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

GBC ASSET MANAGEMENT INC. (the "Filer")

AND

GBC CANADIAN GROWTH FUND (the "Fund")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") pursuant to section 19.1 of National Instrument 81-102 -- Mutual Funds ("NI 81-102") for an exemption from the following provisions of NI 81-102 to permit the Fund to invest up to 10 percent of its net assets in the Pembroke U.S. Growth Fund (the "Underlying Fund"):

(a) subsection 2.2 (1)(a), which prohibits a mutual fund from purchasing a security of an issuer if, immediately after the purchase, the mutual fund would hold securities representing more than 10 percent of (i) the outstanding equity securities of that issuer or (ii) the votes attaching to the outstanding securities of that issuer;

(b) subsection 2.5 (2)(a), which prohibits a mutual fund from purchasing and holding securities of another mutual fund that is not subject to NI 81-102 and National Instrument 81-101 -- Mutual Fund Prospectus Disclosure ("NI 81-101"); and

(c) subsection 2.5 (2)(c), which prohibits a mutual fund from purchasing and holding securities of another mutual fund that is not qualified for distribution in the Jurisdictions.

(collectively, the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Autorité des marchés financiers 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 Filer:

1 The Filer is a corporation incorporated under the laws of Canada and has its head office in Montréal, Québec. The Filer is the trustee and manager of the Fund.

2 The Fund is an open-end mutual fund established under the laws of Ontario on September 8, 1988.

3 The Fund is a reporting issuer under the securities laws of each of the Jurisdictions (where such concept exists). Units of the Fund are currently being sold in each of the Jurisdictions by way of a simplified prospectus dated April 21, 2006, as amended by Amendment No. 1 dated January 4, 2007. The Fund is not in default of any requirements of applicable securities legislation.

4 The minimum required to invest in mutual funds managed by the Filer is $100,000.

5 The investment objective of the Fund is to provide long-term growth through capital appreciation by investing primarily in small to mid-size Canadian companies, judged to have above-average growth potential or to be undervalued.

6 The investment strategies of the Fund involve identifying stocks with either unsustainable growth characteristics or unrecognized intrinsic value from among a universe of emerging, primarily Canadian stocks. However, the Fund may also invest in foreign securities in a manner consistent with its investment objectives.

7 The investment objective of the Underlying Fund is to achieve long-term capital appreciation primarily through investment in a portfolio of common shares and other equity securities of small to medium size capitalization issuers where such securities are listed in the United States or where the issuer is a United States issuer, if the securities are listed on a recognized exchange in the United States or elsewhere, and that exhibit prospects for above average long-term earnings growth. From time to time, cash reserve will be invested in high grade short-term interest bearing securities.

8 The Underlying Fund is an open-end mutual fund established under the laws of Ontario and is a mutual fund as defined under the Securities Act (Quebec).

9 Units of the Underlying Fund are sold on an exempt basis in the Jurisdictions. The Underlying Fund is not in default of any requirements of applicable securities legislation.

10 The Filer is the manager and trustee of the Underlying Fund.

11 Pembroke Management Ltd acts as investment adviser for the Fund and the Underlying Fund.

12 The Underlying Fund is an attractive investment for the Fund because it provides a more efficient manner of achieving diversification through investment in the U.S. than the direct purchase of securities of U.S. companies.

13 A Fund's investment in units of the Underlying Fund will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.

14 The Underlying Fund is not a reporting issuer under the Legislation and, accordingly, is not governed by NI 81-102 or NI 81-101. Nevertheless, the Underlying Fund complies or will comply with the applicable provisions of NI 81-102.

15 There will be no duplication of management fees or incentive fees since no management fees or incentive fees are payable by the Fund in respect of its investment in the Underlying Fund.

16 Where a matter relating to the Underlying Fund requires a vote of security holders of the Underlying Fund, the Filer will not cause the securities of the Underlying Fund held by the Fund to be voted at such meeting.

17 If the Requested Relief is granted, the valuation frequency of the Underlying Fund will be changed to weekly to match that of the Fund.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) the Underlying Fund must comply with the applicable provisions of NI 81-102 and National Instrument 81-106 -- Investment Fund Continuous Disclosure at all times;

(b) unitholders of the Fund may obtain, upon request and free of charge, a copy of the offering memorandum of the Underlying Fund, if any, and the audited annual financial statements and semi-annual financial statements of the Underlying Fund. The Fund will disclose this information in its management reports of fund performance;

(c) the Fund discloses in its investment strategies of its simplified prospectus the ability to invest in securities of other mutual funds or pooled funds;

(d) there are compatible dates for the calculation of the net asset value of the Fund and the Underlying Fund for the purpose of the issue and redemption of securities of such mutual funds;

(e) no sales charges are payable by the Fund in relation to its purchases of units of the Underlying Fund;

(f) no redemption fees or other charges will be charged by the Underlying Fund in respect of the redemption by the Fund of units of the Underlying Fund owned by the Fund;

(g) the arrangements between or in respect of the Fund and the Underlying Fund are such as to avoid the duplication of management fees or incentive fees; and

(h) the Fund does not vote any of the securities of the Underlying Fund it holds except that the Fund may, if the Filer so chooses, arrange for all the securities it holds of the Underlying Fund to be voted by the beneficial holders of securities of the Fund.

"Josée Deslauriers"
Director of Capital Markets