Securities Law & Instruments


Exemptiongranted to labour sponsored investment fund corporation to permitit to pay certain specified distribution costs out of fund assetscontrary to section 2.1 of National Instrument 81-105 Mutual FundSales Practices.


SecuritiesAct, R.S.O. 1990, c.S.5, as am.


NationalInstrument 81-105 Mutual Fund Sales Practices.



R.S.O.1990, CHAPTER S.5, AS AMENDED (the "Act")










WHEREASthe application (the "Application") of StartingStartups InvestmentFund Inc. (the "Fund") filed with the Ontario Securities Commission(the "Decision Maker") for an exemption pursuant to section9.1 of National Instrument 81-105 Mutual Fund Sales Practices("NI 81-105") from section 2.1 of NI 81-105 to permit the Fundto make certain payments to participating dealers;

ANDWHEREAS considering the Application and the recommendationof staff of the Decision Maker;

ANDWHEREAS the Fund has represented to the Decision Makerthat:

1.The Fund is a corporation incorporated under the CanadianBusiness Corporations Act by articles of incorporationdated October 29, 2001.

2.The Fund has applied for registration as a labour sponsoredinvestment fund corporation under the Community Small BusinessInvestments Fund Act (Ontario) and will, when so registered,be a prescribed labour-sponsored venture capital corporationunder the Income Tax Act (Canada).

3.The Fund is a mutual fund as defined in subsection 1(1) of theAct. The Fund has filed a preliminary prospectus dated October31, 2001 (the "Preliminary Prospectus") with the Decision Makerand intends to distribute Class A Shares (the "Class A Shares")once a receipt for a final prospectus has been issued by theDecision Maker.

4.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, an unlimited number ofClass B of which 100 shares are issued and outstanding as ofthe date hereof, and an unlimited number of Class C shares issuablein series of which none are issued and outstanding as of thedate hereof.

5.StartingStartups Capital Corp. (the "Manager") and the ComputingDevices Canada Employees' Association formed and organized theFund.

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

(i) a sales commissions of 6% of the selling price for eachClass A Share subscribed for (the "Sales Commissions"), and

(ii) an annual service fee of 0.5% of the net asset value ofthe Class A Shares held by customers of the sales representativesof the dealers (the "Service Fee").

7.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.

8.All of the costs associated with the distribution of Class AShares, including the Sales Commissions, the Service Fee andthe Co-op Expenses (collectively the "Distribution Costs") arefully disclosed in the Preliminary Prospectus. The fact thatthe Fund intends to pay these costs out of the assets of theFund is also disclosed in the Preliminary Prospectus.

9.For accounting purposes, the Fund will

(i) defer and amortize the amount paid or payable in respectof the Sales Commission to retained earnings on a straight linebasis over eight years;

(ii) expense the Service Fee and the Co-op Expenses in the fiscalperiod when incurred.

10.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.

11.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.

12.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 throughborrowing.

13.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.

14.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.

15.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.

ANDWHEREAS the Decision Maker being satisfied that todo so would not be prejudicial to the public interest;

NOWTHEREFORE pursuant to section 9.1 of NI 81-105, theDecision Maker hereby exempt the Fund from section 2.1 of NI81-105 to permit the Fund to pay the Distribution Costs, providedthat:

(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 9 above;

(c)the summary section of the final prospectus has full, true andplain disclosure explaining to investors that

(i) they pay the Sales Commission indirectly, as the Fund paysthe Sales Commission 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

this summary section must be placed within the first 10 pagesof the final prospectus;

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

December21, 2001.

"PaulM. Moore"       "Robert W. Korthals"