Securities Law & Instruments


Exemption granted to labour sponsored investmentfund corporation to permit it to pay certain specified distributioncosts out of fund assets contrary to section 2.1 of NationalInstrument 81-105 Mutual Fund Sales Practices. Exemption grantedon the condition that the distribution costs so paid are permittedby, and otherwise paid in accordance with the National Instrument.

Statutes Cited

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

Rules Cited

National Instrument 81-105 Mutual Fund SalesPractices.



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











(Section 9.1)

UPON the application (the "Application")of VentureLink Diversified Income Fund Inc. (the "IncomeFund") and VentureLink Diversified Balanced Fund Inc. (the"Balanced Fund") (the Income Fund and the BalancedFund are referred to collectively as the "Funds" andindividually as a "Fund") filed with the Ontario SecuritiesCommission (the "Decision Maker") for an exemptionpursuant to section 9.1 of National Instrument 81-105 MutualFund Sales Practices ("NI 81-105") from section 2.1of NI 81-105 to permit the Fund to make certain payments toregistered dealers;

AND UPON considering the Applicationand the recommendation of staff of the Decision Maker;

AND WHEREAS each of the Funds and SkylonFunds Management Inc. (the "Manager"), the Managerof each of the Funds, have represented to the Decision Makeras follows:

1. Each Fund is a corporation incorporatedunder the Business Corporations Act (Ontario). EachFund is registered as a labour sponsored investment fund corporationunder the Community Small Business Investments Fund Act(Ontario).

2. Each Fund is a mutual fund as defined inthe Securities Act (Ontario). Each Fund has filed apreliminary prospectus dated October 8, 2002 (the "PreliminaryProspectus") in the Province of Ontario in connectionwith the proposed offering to the public of Class A Shares,Series I and Class A Shares, Series II in the capital of theIncome Fund and Class A Shares in the capital of the BalancedFund (collectively, the "Class A Shares").

3. The authorized capital of each Fund consistsof an unlimited number of Class A Shares of which none arecurrently issued and outstanding as of the date hereof, andan unlimited number of Class B Shares in the capital of eachFund, of which 100 shares are issued and outstanding as ofthe date hereof.

4. The Class A Shares of the Income Fund areissuable in two series, Series I and Series II.

5. The Manager and the Canadian Federal PilotsAssociation (the "Sponsor") formed and organizedeach of the Funds.

6. Each Fund proposes to pay directly to registereddealers certain costs associated with the distribution ofits Class A Shares. These costs are:

(a) with respect to the distribution ofboth series of Class A Shares of the Income Fund and theClass A Shares of the Balanced Fund, a sales commissionof 6% of the selling price for each relevant Class A Sharesubscribed for (the "6% Sales Commission"), and

(b) with respect to the Class A Shares,Series I of the Income Fund a commission of 4% of the sellingprice of each Class A Share, Series I held by investors.Such commission is to be paid in lieu of service fees payablebefore the eighth anniversary of the date of issue of suchClass A Shares, Series I of the Income Fund (the "4%Trailing Commission").

7. Each Fund may also pay for the reimbursementof co-operative marketing expenses (the "Co-op Expenses")incurred by registered dealers in promoting sales of the ClassA Shares, pursuant to co-operative marketing agreements aFund may enter into with such dealers.

8. All of the costs associated with the distributionof Class A Shares including, among other things, the 6% SalesCommission and the 4% Trailing Commission (together, the "SalesCommissions"), and the Co-op Expenses (collectively,the "Distribution Costs") are fully disclosed inthe Preliminary Prospectus.

9. For accounting purposes, the Funds will,as applicable:

(a) defer and amortize that amount paidor payable in respect of the 6% Sales Commission to retainedearnings on a straight line basis over eight years,

(b) defer and amortize the amount paid orpayable in respect of the 4% Trailing Commission to incomeon a straight line basis over eight years, and

(c) expense the Co-op Expenses in the fiscalperiod when incurred and will not defer and amortize anyCo-op Expenses.

10. The accounting treatment of the SalesCommissions is necessary to ensure that the applicable accountingentries of each of the Funds do not result in an unjustifiableincrease in the net asset value of that Fund in the eventthat an investor redeems Class A Shares prior to the end ofthe eight year amortization period.

11. The eight year amortization treatmentperiod is appropriate with respect to each of the Funds giventhat in the case of labour-sponsored investment funds, taxcredits must be repaid to investors that redeem their ClassA Shares prior to the eighth anniversary of the date of theirsubscription.

12. To ensure that the entire subscriptionprice paid by a subscriber of Class A Shares is taken intoaccount for the purpose of determining the applicable federaland provincial tax credits, the gross investment amount willbe paid to each of the Funds in respect of each subscription,as opposed, for example, to the net amount obtained afterdeducting the Sales Commissions from the subscription price.

13. Due to the structure of the Funds, themost tax efficient way for the Distribution Costs to be financedis for each Fund to pay them directly.

14. The Manager or its affiliate are the onlymembers of the organization of the Funds, other than the Fundsthemselves, available to pay Distribution Costs. Without therequested discretionary relief the Manager would be obligedto finance the Distribution Costs through borrowing.

15. Any loans taken by the Manager to financethe Distribution Costs would result in an increased managementfee chargeable to the applicable Fund, an amount equal tothe borrowing costs incurred by the Manager plus an amountrequired to compensate the Manager for any risks associatedwith fluctuations in the net asset value of the applicableFund. Requiring compliance with section 2.1 of NI 81-105 wouldcause management expenses of the applicable Fund to increaseabove those contemplated in the Preliminary Prospectus.

16. Requiring the Manager to pay the DistributionCosts while granting an exemption to other labour funds andpermitting such funds to pay similar Distribution Costs directly,would put the Funds at a permanent and serious competitivedisadvantage with their competitors.

17. Each of the Fund undertake to comply withall other provisions of NI 81-105. In particular, each Fundundertakes that all Distribution Costs paid by it will becompensation permitted to be paid to participating dealersunder NI 81-105.

AND UPON THE Decision Maker being satisfiedthat to do so would not be prejudicial to the public interest:

NOW THEREFORE pursuant to section 9.1of NI 81-105, the Decision Maker hereby exempts the Fund fromsection 2.1 of NI 81-105 to permit the Funds to pay the DistributionCosts, provided that:

(a) the Distribution Costs are otherwisepermitted by, and paid in accordance with, NI 81-105;

(b) the Distribution Costs are accountedfor in the Fund's financial statements in the manner describedin paragraph nine above;

(c) the summary section (the "SummarySection") of the (final) prospectus of the Funds hasfull, true and plain disclosure describing the commissionof Class A Shares, Series I as a 10% initial sales commission,plus service fees after eight years. The Summary Sectionmust be placed within the first 10 pages of the final prospectus;

(d) the (final) prospectus has full, trueand plain disclosure explaining the services and value thatthe participating dealers would provide to investors inreturn for the service fees payable to them;

(e) the Summary Section of the (final) prospectushas full, true and plain disclosure explaining to investorsthat:

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

(ii) a portion of the net asset valueof the Funds is comprised of a deferred commission, ratherthan an investment asset; and

(f) this Decision shall cease to be operativeon the date that a rule replacing or amending section 2.1of NI 81-105 comes into force.

November 19, 2002.

"H. Lorne Morphy"                    "RobertW. Korthals"