Securities Law & Instruments


Exemptiongranted to labour sponsored investment fund corporation to permitit to pay

certainspecified distribution costs out of fund assets contrary tosection 2.1 of National

Instrument81-105 Mutual Fund Sales Practices.

Statutes Cited

Securities Act, R.S.O.1990, c.S.5, as am.


NationalInstrument 81-105 Mutual Fund Sales Practices.


















WHEREAS the local securities regulatory authority orregulator (the "Decision Maker") in each of Alberta, BritishColumbia, Manitoba, New Brunswick, Newfoundland and Labrador,Nova Scotia, Prince Edward Island, Saskatchewan and Ontario(the "Jurisdictions") has received an application from VentureLinkFinancial Services Innovation Fund Inc. (the "Fund") for a decisionpursuant to section 9.1 of National Instrument 81-105 ("NI 81-105")that the prohibition contained in section 2.1 of NI 81-105 againstthe making of certain payments by the Fund to participatingdealers shall not apply to the Fund;

AND WHEREAS under the Mutual Reliance ReviewSystem for Exemptive Relief Applications (the "System"), theOntario Securities Commission is the principal regulator forthis application;

AND WHEREAS the Ontario Securities Commissionissued a decision document on December 4, 2001 (the "December4th Decision");

AND WHEREAS counsel for the Fund requestedchanges to be made to the December 4th Decision after it wasissued;

AND WHEREAS the Fund and Skylon Funds ManagementInc. (the "Manager"), the manager of the Fund, have representedto the Decision Makers as follows:

1.The Fund is a corporation incorporated under the Canada BusinessCorporations Act. It is registered as a labour-sponsored venturecapital corporation under the Income Tax Act (Canada) and theEquity Tax Credit Act (Nova Scotia) and is registered as a laboursponsored investment fund corporation under the Community SmallBusiness Investments Fund Act (Ontario).

2.The Fund is a mutual fund as defined in the legislation of eachof the Jurisdictions. The Fund has filed a preliminary prospectusdated September 27, 2001 (the "Preliminary Prospectus") in eachof the Jurisdictions in connection with the proposed offeringto the public of Class A Shares, Series I and Class A Shares,Series II in the capital of the Fund (collectively, the "ClassA Shares").

3.The authorized capital of the Fund consists of an unlimitednumber of Class A Shares of which none are currently issuedand outstanding as of the date hereof and an unlimited numberof Class B Shares in the capital of the Fund, of which 100 sharesare issued and outstanding as of the date hereof.

4.The Manager and the United Steelworkers of America, TCU NationalLocal 1976 (the "Sponsor") formed and organized the Fund.

5.The Fund proposes to pay directly to participating dealers certaincosts associated with the distribution of its Class A Shares.These costs are:

(i) with respect to the distribution of both series of ClassA Shares,

a. the fee of the Agent, National Bank Financial Inc., for thepublic offering of its Class A Shares, on a best effort basis,equal to 0.50% of the aggregate gross proceeds of the offeringas described in the final prospectus as well as the Agent'sout-of-pocket expenses incurred on or before March 1, 2002 foradvisory services rendered to the Fund (collectively, the "CorporateFinance Fee"),

b. a sales commission of 6% of the selling price for each ClassA Share, Series I or Series II subscribed for (the "6% SalesCommission"), and

(ii) with respect to the holding by investors of Class A Shares,Series I , a commission of 4% of the selling price of each SeriesI share held, in lieu of service fees payable before the eighthanniversary of the date of issue of such Series I shares (the"4% Trailing Commission").

6.The Fund may also pay for the reimbursement of co-operativemarketing expenses (the "Co-op Expenses") incurred by certaindealers in promoting sales of the Class A Shares, pursuant toco-operative marketing agreements the Fund may enter into withsuch dealers.

7.All of the costs associated with the distribution of Class AShares, including among other things, the Corporate FinanceFee, the 6% Commission and the 4% Trailing Commission (together,the "Sales Commissions"), and the Co-op Expenses (collectively,the "Distribution Costs") are fully disclosed in the PreliminaryProspectus. The fact that the Fund intends to pay these costsout of the assets of the Fund is also disclosed in the PreliminaryProspectus.

8.For accounting purposes, the Fund will

(i) defer and amortize the amount paid or payable in respectof the 6% Sales Commission to retained earnings on a straightline basis over eight years,

(ii) defer and amortize the amount paid or payable in respectof the 4% Trailing Commission and the Corporate Finance Feeto income on a straight line basis over eight years, and

(iii) expense the Co-op Expenses in the fiscal period when incurredand will not defer and amortize any Co-op Expenses.

9.Gross investment amounts will be contributed to the Fund inrespect of each subscription. This is to ensure that the entiresubscription amount contributed by the investor is counted forthe purpose of the applicable federal and provincial tax creditsin connection with the purchase of Class A Shares.

10.Due to the structure of the Fund, the most tax efficient wayfor the Distribution Costs to be financed is for the Fund topay them directly.

11.The Manager, or its affiliate is the only member of the organizationof the Fund, other than the Fund, available to pay the DistributionCosts. The Manager does not have sufficient resources to paythe Distribution Costs, and unless the requested discretionaryrelief is granted, would be obliged to finance these costs throughborrowings.

12.Any loans obtained by the Manager to finance the DistributionCosts would result in the Manager increasing the managementfee chargeable to the Fund, by an amount equal to the borrowingcosts incurred by the Manager plus an amount required to compensatethe Manager for any risks associated with fluctuations in thenet asset value of the Fund and, therefore, fluctuations inthe Manager's fee. Requiring compliance with section 2.1 ofNI 81-105 would cause the expenses of the Fund to increase abovethose contemplated in the Preliminary Prospectus.

13.Requiring the Manager to pay the Distribution Costs while grantingan exemption to other labour funds permitting such funds topay similar Distribution Costs directly, would put the Fundat a permanent and serious competitive disadvantage with itscompetitors.

14.The Fund undertakes to comply with all other provisions of NI81-105. In particular, the Fund undertakes that all DistributionCosts paid by it will be compensation permitted to be paid toparticipating dealers under NI 81-105.

AND WHEREAS under the System, this MRRS DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");

AND WHEREAS each of the Decision Makers issatisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decisionhas been met:

THE DECISION of the Decision Makers under subsection9.1(1) of NI 81-105 is that the Fund shall be exempt from section2.1 of NI 81-105 to permit the Fund to pay the DistributionCosts, provided that:

(a)the Distribution Costs are otherwise permitted by, and paidin accordance with, NI 81-105;

(b)the Distribution Costs are accounted for in the Fund's financialstatements in the manner described in paragraph 8 above;

(c)the summary section (the "Summary Section") of the final prospectusof the Fund has full, true and plain disclosure describing thecommission structure of Class A Shares, Series I as a 10% initialsales commission, plus service fees after eight years. The SummarySection must be placed within the first 10 pages of the finalprospectus.

(d)the final prospectus includes full, true and plain disclosureexplaining the services and value that the participating dealerswould provide to investors in return for the service fees payableto them;

(e)the Summary Section of the final prospectus includes full, trueand plain disclosure explaining to investors that

(i) they pay the Sales Commissions indirectly, as the Fund paysthese Sales Commissions using investors' subscription proceeds,and

(ii) a portion of the net asset value of the Fund is comprisedof a deferred commission, rather than an investment asset; and

(f)this Decision shall cease to be operative with respect to aDecision Maker on the date that a rule replacing or amendingsection 2.1 of NI 81-105 comes into force.

THIS DECISION DOCUMENT contains the changesto the December 4th Decision and hereby supersedes the December4th Decision.

December 17, 2001.

"Paul M. Moore"      "H. Lorne Morphy"