Middlefield Fund Management Limited and Middlefield Canadian Growth Class

Headnote

Passport System for Exemptive Relief Applications -- exemption from National Instrument 81-102 Mutual Funds to allow additional time to reduce proportion of net assets comprising of illiquid assets to 15% or less, subject to certain conditions and requirements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, s. 2.4(2).

February 10, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

MIDDLEFIELD FUND MANAGEMENT LIMITED

(The "Applicant")

AND

IN THE MATTER OF

MIDDLEFIELD RESOURCE CLASS

("Resource Class")

(the "Filers")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for an exemption from section 2.4(2) of National Instrument 81-102 -- Mutual Funds ("NI 81-102") to permit Resource Class until March 2, 2009 to reduce the percentage of its net assets made up of illiquid assets to 15% or less (the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, Nunavut and the North West Territories.

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

The Applicant

1. The Applicant is a corporation organized under the Business Corporations Act (Ontario). The head office of the Applicant is located at 1 First Canadian Place, 58th Floor, P.O. Box 192, Toronto, Ontario, M5X 1A6.

2. The Applicant is the manager of the Resource Class.

The Resource Class

3. The Resource Class is a class of shares of Middlefield Mutual Funds Limited, a mutual fund corporation established under the Business Corporations Act (Ontario).

4. The fundamental objective of the Resource Class is to provide investors long-term growth of capital. The Resource Class invests in equity and equity-related securities primarily of Canadian companies participating in the natural resources, commodity and energy industries as well as suppliers of those industries, including assets that are "illiquid assets" as defined in NI 81-102.

5. The Resource Class is a reporting issuer in each of the provinces and territories of Canada pursuant to a simplified prospectus filed on May 26, 2008 in each of the provinces and territories of Canada.

6. The Resource Class serves primarily as a rollover vehicle for flow-through limited partnerships that the Applicant manages. Approximately 98% of the Resource Class's investors obtained their shares of the Resource Class as a result of investing in the Applicant's flow-through limited partnerships.

7. The Filers do not anticipate receiving any further illiquid securities in 2009 since there are no planned rollovers of flow-through limited partnerships that the Applicant manages.

8. On August 1, 2008, the percentage of net assets of the Resource Class exceeded the 15% limit of illiquid assets prescribed by section 2.4(2) of NI 81-102.

9. Pursuant to section 2.4(2) of NI 81-102, the Resource Class had until October 30, 2008 to reduce the percentage of net assets made up of illiquid assets to 15% or less. Since August 1, 2008, the Resource Class has been actively trying to reduce its illiquid assets. The Resource Class has been unable to obtain a fair price for its illiquid investments. Accordingly, the Resource Class was unable to reduce the percentage of illiquid assets to 15% or less as it would not have been in the best interest of shareholders of the Resource Class to sell these illiquid assets at a significant discount to their fair values.

10. The Applicant miscalculated the date by which the Resource Class was required to reduce its illiquid assets below 15% and, consequently, did not file this application until December 3, 2008. The Applicant has implemented measures to ensure it does not miscalculate the date by which illiquid assets must be reduced below 15% in the future.

11. The Resource Class presently holds illiquid assets amounting to approximately 17% of its net assets as at January 15, 2009.

12. The Exemption Sought is necessary primarily as a result of the success of the investment made by the Resource Class in one issuer, Value Creation Inc. This investment represents approximately 11% of the Resource Class's net asset value as at January 15, 2009.

13. The Applicant is actively pursuing opportunities to reduce its holdings of illiquid assets.

14. Other than section 2.4(2) of NI 81-102, the Resource Class is not in default of any of the requirements of the securities legislation in any of the provinces or territories of Canada.

15. The Resource Class issued a press release dated December 2, 2008 disclosing that the Resource Class had exceeded the 15% restriction and had filed the application for the Exemption Sought.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted so long as the Resource Class does not acquire any more illiquid assets.