Terra Firma Emerging Companies Fund 2004 Inc. et al. - s. 9.1 of NI 81-105

Headnote

Exemption from section 2.1 of National Instrument 81-105 Mutual Fund Sales Practices granted to labour sponsored investment fund corporation to permit it to pay certain specified distribution costs out of fund assets.

Rules Cited

National Instrument 81-105 Mutual Fund Sales Practices.

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

AND

IN THE MATTER OF

NATIONAL INSTRUMENT 81-105

MUTUAL FUND SALES PRACTICES

AND

IN THE MATTER OF

TERRA FIRMA EMERGING COMPANIES FUND 2004 INC.,

TERRA FIRMA INCOME FUND 2004 INC.,

AND TERRA FIRMA EQUITY FUND 2004 INC.

DECISION DOCUMENT

WHEREAS the Ontario Securities Commission (the "Commission") has received an application from Terra Firma Emerging Companies Fund 2004 Inc., Terra Firma Income Fund 2004 Inc., and Terra Firma Equity Fund 2004 Inc. (the "Funds") for a decision pursuant to section 9.1 of National Instrument 81-105 Mutual Fund Sales Practices ("NI 81-105") that the prohibition contained in section 2.1 of NI 81-105 against the making of certain payments by the Funds to registered dealers shall not apply to the Funds;

AND WHEREAS the Funds have represented to the Commission as follows:

1. Each Fund is a corporation incorporated under the Business Corporations Act (Ontario) by articles of incorporation dated October 30, 2003.

2. Each Fund was registered as a labour sponsored investment fund corporation ("LSIF") pursuant to the Community Small Business Investment Funds Act (Ontario) effective December 17, 2003. As such, each Fund is a labour sponsored venture capital corporation under the Income Tax Act (Canada). The Funds will not be applying for registration as an LSIF, or similar concept, under the legislation of any other provincial jurisdiction.

3. Amended preliminary prospectuses have been filed in the Province of Ontario for purposes of qualifying for distribution the Class A Shares of the Funds (the "Class A Shares"), one in respect of Terra Firma Emerging Companies Fund 2004 Inc. dated November 28, 2003 (SEDAR Project 585116), and the other, on a combined basis in respect of Terra Firma Income Fund 2004 Inc. and Terra Firma Equity Fund 2004 Inc. dated November 28, 2003 (SEDAR Project 585355).

4. The offerings proposed to be made pursuant to the amended preliminary prospectuses will be made only in Ontario and the Funds will be mutual funds pursuant to the securities legislation of Ontario. Except for their respective names and investment emphasis and objectives, the Funds are identical in all material respects.

5. IPM Funds Inc. (the "Manager"), together with The National Guild of Canadian Media, Manufacturing, Professional, and Service Workers / Communication Workers of America, (the "Sponsor") have caused the Funds to be formed and organized.

6. The authorized capital of each Fund comprises unlimited numbers of Class A shares, Class B shares and Class C shares, of which no Class A shares, no Class B shares and 10 Class C shares were issued and outstanding as of the date of the Application. The Manager is the sole owner of the Class C shares of each Fund, and the Sponsor will be the sole owner of the Class B shares of each Fund.

7. As is disclosed in the Amended preliminary prospectuses, the following distribution costs will be paid in the manner set forth below, except in the case of a Fund's Class A Shares, Series II, participating dealers may elect to charge investors a sales commission up to 2% of the original issue price of the shares (which will be deducted from their investment):

(a) sales commissions (the "Sales Commissions"):

(i) the Fund will pay a sales commission in the amount of 5% of the subscription price derived on the sale of a Class A Share, Series I to the dealer procuring such subscription; and

(b) servicing commissions (the "Servicing Commissions"):

(i) the Manager will pay an annual service fee to dealers equal to 0.5% of the net asset value of Class A Shares, Series I held by clients of the sales representatives of participating dealers; and

(ii) in the case of a Fund's Class A Shares, Series II, the Manager will pay an annual service fee to dealers equal to 1.0% of the net asset value of such shares held by clients of the sales representatives of the dealers.

8. With respect to the Servicing Commissions, the Funds will pay a service fee to the Manager equal to the Servicing Commissions as reimbursement for the Servicing Commissions paid to the dealers by the Manager.

9. The Sales Commissions will be included in each Fund's management expense ratio and recognized as expenses in the statement of operations of the Fund in the period in which they were incurred.

10. With respect to the Sales Commissions described above, the gross investment amounts will be paid to the Funds (as opposed to first deducting a commission and remitting the net investment amount to the Funds) in order to ensure that the entire amount paid by an investor is eligible for applicable federal and Ontario tax credits which arise on the purchase of the Class A Shares of the Funds.

11. The Funds undertake to comply with all other provisions of NI 81-105. In particular, the Funds undertake that all Sales Commissions paid by them will be compensation permitted to be paid to participating dealers under NI 81-105.

AND WHEREAS the Commission is satisfied that to do so would not be prejudicial to the public interest;

THE DECISION of the Commission under section 9.1 of NI 81-105 is that the Funds shall be exempt from section 2.1 of NI 81-105 to permit the Funds to pay the Sales Commissions, provided that:

(a) The Sales Commissions are otherwise permitted by, and paid in accordance with, NI 81-105;

(b) the Funds, in their financial statements, will expense the Sales Commissions in the fiscal period when incurred;

(c) the summary section of the final prospectus has full, true and plain disclosure explaining to investors that they pay the Sales Commissions indirectly, as the Funds pay the Sales Commissions. This summary section must be placed within the first 10 pages of the final prospectus; and

(d) this exemption shall cease to be operative on the date that a rule or regulation replacing or amending section 2.1 of NI 81-105 comes into force or on November 30, 2004 whichever date comes first.

January 9, 2004.