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BEST fund to outline 'liquidity options'


Investors in BEST Discoveries Fund are to vote on a "proposed arrangement" on June 24 that will offer them options to get their money back, says BEST Capital Management Inc.

The move comes after a decision in December to halt redemptions in the BEST (business, engineering, science and technology) labour-sponsored venture capital fund, while its board of directors explored strategic options to "maximize returns for all shareholders."

A plan of arrangement is typically a merger with another entity, but officials with BEST did not return calls yesterday. "The arrangement will provide the shareholders with liquidity options for the fund's shares," the company said in a statement.

Toronto-based BEST Capital is preparing an information circular that will give details of the plan of arrangement for the fund, which has about $33-million in assets.

Ontario labour funds have had a tough time raising money because the province plans to reduce provincial tax credits by the 2011 registered retirement savings plan season, which runs from January to March, and phase it out completely by the 2013 RRSP season. Poor performance has also dampened enthusiasm for these funds.

BEST Discoveries, launched in 1996, invests in sectors such as telecommunications, information technology, computers and life sciences. It lost 38.7 per cent for the year ended April 30, and has posted an average annual loss of 3.2 per cent over 10 years.

While the fund used to meet redemption requests from the sales of investments, it said it had trouble exiting companies recently because of "adverse market conditions."

In 2006, BEST Capital acquired Axis Capital Corp., an Ottawa-based labour fund that focuses mainly on investing in startup software and wireless technology companies.

BEST Capital is not the only fund that's run into problems. Vancouver-based GrowthWorks Capital Ltd., which has been a consolidator of Ontario-based labour funds, acquired Canadian Medical Discoveries Fund this year and merged it with GrowthWorks Canadian Fund last Friday.

A condition of that deal was that unit holders could redeem only up to 45 per cent of their investment in next two years, and must leave the rest in GrowthWorks Canadian for three years.

Toronto-based VenGrowth Asset Management Inc. also halted redemptions last December in two of its labour funds. Investors in the VenGrowth I and VenGrowth II funds can get back their money only in the form of an annual distribution, starting Aug. 31, from the proceeds of the sales of the companies.

© 2007 The Globe and Mail. All rights reserved.

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