Securities Law & Instruments


Exemption from section 2.1 of National Instrument81-105 Mutual Fund Sales Practices granted to labour sponsoredinvestment fund corporation to permit it to pay certain specifieddistribution costs out of fund assets.

Rules Cited

National Instrument 81-105 Mutual Fund SalesPractices.















WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,New Brunswick, Nova Scotia, Prince Edward Island and Newfoundlandand Labrador (the "Jurisdictions") has received anapplication from The VenGrowth Traditional Industries Fund Inc.(the "Fund") for a decision under section 9.1of National Instrument 81-105, Mutual Fund Sales Practices("NI 81-105") that the prohibition in section 2.1of NI 81-105 against the making of certain payments by the Fundto participating dealers shall not apply to the Fund;

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101, Definitions;

AND WHEREAS the Fund has representedto the Decision Makers that:

1. The Fund is a corporation incorporatedunder the Canada Business Corporations Act by articlesof incorporation dated August 8, 2003.

2. The Fund has applied to be registered asa labour sponsored investment fund corporation under the CommunitySmall Business Investment Funds Act (Ontario) (the "OntarioAct") and expects to be registered as such by October,2003. The Fund will not be applying for registration as alabour sponsored venture capital corporation, or similar concept,under the provincial legislation of the Jurisdictions.

3. The Fund has applied to be registered asa labour sponsored venture capital corporation under the IncomeTax Act (Canada) (the "Tax Act") and expectsto be registered as such by October, 2003.

4. The Fund is a mutual fund pursuant to thesecurities legislation of the Jurisdictions (the "Legislation"),and will distribute securities in the Jurisdictions undera prospectus. The Fund has filed a preliminary prospectusdated August 20, 2003 under Sedar Project No. 565839 in eachof the Jurisdictions.

5. The Fund will become a "reportingissuer" or equivalent in the Jurisdictions that havethis concept when its prospectus is receipted in such Jurisdictions.

6. The Fund will invest in traditional Canadianindustrial businesses with the objective of generating interestand dividend income and long-term capital appreciation.

7. The authorized capital of the Fund consistsof an unlimited number of Class A shares (the "ClassA Shares"), 25,000 Class B shares and 10,000 Class Cshares, of which 100 Class B shares and 100 Class C sharesare issued and outstanding as of the date hereof.

8. VenGrowth Traditional Industries ManagementInc. (the "Manager"), the manager of the Fund andthe Association of Public Service Financial Administrators,the sponsor of the Fund, formed and organized the Fund.

9. As will be disclosed in the Fund's prospectus,the Fund (or the Manager) will pay the following distributioncosts ("Distribution Costs"):

a. a sales commission in the amount of 6%of the subscription price derived on the sale of a ClassA Share to the dealer procuring such subscription ("SalesCommission"). Such sales commissions payable by theFund are amortized by it on a straight-line basis over aperiod of eight years on its financial accounts and arerecoverable on a straight line basis, at the rate of 0.75%per annum, in the event that Class A Shares are redeemedby the holders thereof prior to the expiry of an eight-yearperiod following the purchase thereof. This mechanism isviewed by the Fund as an appropriate and beneficial mechanismthrough which the Fund may match distribution expenses againstsubscriptions;

b. a monthly servicing commission ("ServicingCommission") of up to 1/12 of 0.5% of the total netasset value of Class A Shares held by clients of participatingdealers; and

c. the reimbursement of co-operative marketingexpenses (the "Co-op Expenses") incurred by certaindealers in promoting sales of the Class A Shares, pursuantto co-operative marketing agreements the Fund enters intowith such dealers from time to time. For accounting purposes,the Fund expenses the Co-op Expenses in the fiscal periodwhen incurred and does not defer or amortize any Co-op Expenses.

10. The structural aspects of the Fund relatingto the payment of commissions are consistent with the legislativerequirements contemplated under the Ontario Act. Gross investmentamounts will be paid to the Fund as opposed to, for example,first deducting a commission and remitting the net investmentamount to the Fund, in order to ensure that the entire amountpaid by an investor is eligible for applicable federal, andin the case of Ontario, provincial tax credits which ariseon the purchase of the Class A Shares of the Fund. Section25(4) of the Ontario Act, for example, provides that the provincialtax credit is a defined percentage of the amount receivedby the corporation as equity capital on the issue. Accordingly,the most tax efficient way for sales commissions to be financedis for the Fund to pay such expenses and amortize them inthe manner described above.

11. Due to the structure of the Fund, themost tax efficient way for the Distribution Costs to be financedis for the Fund (or the Manager) to pay them directly.

12. The payment of commissions on the saleof Class A Shares by the Fund is an event contemplated underthe Ontario Act and the Tax Act.

13. As other labour sponsored investment fundshave been granted this relief, requiring investors to paythe Distribution Costs would put the Fund at a permanent andserious competitive disadvantage with its competitors.

14. The Fund undertakes to comply with allother provisions of NI 81-105. In particular, the Fund undertakesthat all Distribution Costs paid by it will be compensationpermitted to be paid to participating dealers under NI 81-105.

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

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met:

THE DECISION of the Decision Makers undersection 9.1 of NI 81-105 is that the Fund shall be exempt fromthe prohibition in section 2.1 of NI 81-105 in order to permitthe Fund to pay the Distribution Costs directly provided that:

1. The Distribution Costs are otherwise permittedby, and paid in accordance with, NI 81-105;

2. The Fund will in its financial statements:

a. expense the Servicing Commission andthe Co-op Expenses in the fiscal period when incurred;

3. The summary section of the prospectus ofthe Fund has full, true and plain disclosure explaining toinvestors that:

a. they pay the Sales Commission indirectly,as the Fund (or the Manager) pays the Sales Commission usinginvestors' subscription proceeds; and

b. a portion of the net asset value of theFund may be comprised of a deferred commission, rather thanan investment asset.

This summary section must be placed withinthe first 10 pages of the prospectus.

4. This exemption shall cease to be operativewith respect to each Decision Maker on the date that a ruleor regulation replacing or amending section 2.1 of NI 81-105comes into force.

September 24, 2003.

"Paul M. Moore"
"Paul K. Bates"