Annual Review of Labour Sponsored Investment Funds

January 2009

Over the past several months, several LSIF providers have announced that they have halted redemptions. Canadian Medical Discoveries Fund (CMD) was first to announce in June 2008 and was followed in December by Vengrowth Investment Fund I & II, and B.E.S.T Discoveries Fund. At this time, no date has been set if and when redemptions will be re-instated. Vengrowth plans to pay an annual distribution to unit holders during this time.

Unit-holders nearing the end of their eight-year holding period have found out that they will be unable to sell (or rollover) their investments, understandably frustrating news.

What has Happened?

In the wake of the Provincial government's decision to wind-down the LSIF program by 2011 many funds have been crippled by poor sales and have been forced to fund redemptions from the portfolios, mostly consisting of private equity names that do not offer very good liquidity.

With a recent trend of increasing redemptions and while operating in an illiquid asset class amidst the dramatic adverse market conditions over the past year, managers have been forced to halt redemptions while opportunities are sought to exit portfolio holdings in a manner that is most beneficial for unit-holders.

As we reported last year, we felt that the potential for further consolidation in this asset class was very likely and now see further evidence of this in the potential purchase of CMD by Growthworks.

LSIFs have been one of the few investments offering retail investors tax-benefits from the Federal and Provincial tax credits available. While industry experts have lobbied with the Ontario government to reverse their decision on the tax-credit phase-out, no significant progress has been made over the past few years on this — though the government did increase the allowable purchases to $7,500 from $5,000 (for the Federal Tax Credits).

This RRSP season represents the final opportunity to qualify for the 15% Provincial tax credit (for the 2008 tax year) that will be reduced to 10% in 2009. (See chart, right)

If you have any questions on your LSIFS, please contact our LSIF specialist Andrew McGoey.

More on labour fund redemption suspension announcements

• Canadian Medical Discoveries
• Vengrowth
• B.E.S.T. Funds

More on labour sponsored funds

• Province of Ontario's planned phase-out schedule
• Tax Benefits & Investment Return Projections
• LSIF Fund Performance Numbers
• LSIF Rules
• How to claim your LSIF Tax Credits
• About potential purchase of CMD by Growthworks

Important LSIF Facts

Many specialty LSIFs qualify as a Research Oriented Investment Fund to be eligible for an additional 5% Ontario tax credit for a total of 35% in tax credits at the federal and provincial level.

After your 5 or 8 year holding period for your fund has expired, you can redeem and repurchase your fund, and get the tax credits all over again. See the rules for more details.  We regularly mail to clients who have shares eligible for redemption to let them know about their rollover options.  You may want to review your accounts to see if you will have holding period(s) ending in the near future and plan accordingly.  Please contact us - we would be glad to review your funds with you.

The LSIF purchase does not have to be made with new money. Existing assets in your RRSP or non-registered account can be used to purchase a Labour fund.

Not all provinces offer tax savings for LSIF investment.  This information is intended for Ontario residents.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rate(s) of return is (are) the historical annual compounded total return(s) including changes in (share or unit) value and reinvestment of all (dividends or distributions) and does (do) not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.  See more disclaimers ...

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