Securities Law & Instruments


Applicant exempt from the requirement to filenotice pursuant to subsection 104(1) of the Regulations of proposedinvestments by the Applicant on behalf of the Fund in securitiesof a Registrant.

Applicable Statutes

Securities Act, R.S.O. 1990, c. S.5, as amended,s. 147, Ont. Reg. 1015, ss. 104(1).









(Subsection 104(1) of theRegulation)

UPON the application of Skylon AdvisorsInc. (the Applicant) for an order pursuant to section147 of the Securities Act (Ontario) (the SecuritiesAct) exempting the Applicant from the requirement to filenotice pursuant to subsection 104(1) of the Regulations underthe Securities Act (the Regulations) of proposed investmentsby the Applicant on behalf of VentureLink Financial ServicesInnovation Fund Inc. (the Financial Services Fund) andthe VentureLink Diversified Income Fund Inc. (the IncomeFund and, collectively, the Funds) in securitiesof a registered dealer, underwriter or adviser (a Registrant).

AND UPON considering the applicationand the recommendations of the staff of the Commission;

AND UPON the Applicant having representedto the Commission that:

1. The Financial Services Fund is registeredas a labour sponsored investment fund corporation under theCommunity Small Business Investment Funds Act (Ontario),as amended, and as a labour-sponsored venture capital corporationunder the Income Tax Act (Canada) and the EquityTax Act (Nova Scotia).

2. The Income Fund is registered as a laboursponsored investment fund corporation under the CommunitySmall Business Investment Funds Act (Ontario), as amended,and as a labour-sponsored venture capital corporation underthe Income Tax Act (Canada).

3. The investment objective of the FinancialServices Fund is to achieve long-term capital appreciationby making debt and equity investments in a diversified portfolioof small and medium-sized eligible businesses (a PortfolioCompany), primarily Canadian financial services companies,and investing the remainder of the net proceeds in reserves,including debt instruments whose returns are linked to theperformance of the financial services sub-index of the TSX.

4. The investment objectives of the IncomeFund are: (i) to generate a superior level of income by makingdebt and equity investments in a diversified portfolio ofestablished eligible businesses (an Income Portfolio Companyor, together with a Financial Services Portfolio Company,a Portfolio Company) operating in traditional industries,and investing the remainder of the net proceeds in reserveswhich generate a return linked to the performance of a basketof ongoing business income trust units; and (ii) to preserveand enhance the net asset value of the Income Fund.

5. None of the Funds or Skylon Funds ManagementInc. (the Manager), the manager of the Funds, is aregistrant under the Securities Act. The Manager has retainedthe Applicant to act as the investment advisor to the Funds.The Applicant is registered as an Investment Counsel PortfolioManager under the Securities Act. Both the Manager and theApplicant are wholly-owned subsidiaries of Skylon CapitalCorp., and certain senior officers of the Funds are also seniorofficers of the Manager and the Applicant.

6. As a result of investments in PortfolioCompanies and the relationship between the Applicant and theFunds, the Commission may consider the Applicant to have beneficialownership or control or direction over securities of a PortfolioCompany. Where the Portfolio Company is a Registrant, compliancewith subsection 104(1) of the Regulations would require theApplicant to give notice to the Commission of each investmentand to wait for at least 30 days during which time the Commissionwill review the proposed investment.

7. Section 104 of the Regulations is intendedto capture the ownership and operation of one Registrant byanother Registrant, not to capture financial investments madewithout a view to controlling the operations of the Registrant.The investments made by the Funds are and will be passiveinvestments made in the ordinary course of their businessof investing in a diversified portfolio of securities of financialservices companies and will be consistent with the investmentobjectives of the Funds. Neither of the Funds will make anyinvestment with the intention of acquiring and maintainingcontrol of any Portfolio Company. In the event that eitherof the Funds intends to make a subsequent investment or otherwisetake action that would result in its acquiring control ofa Portfolio Company, it will submit an application pursuantto section 104 of the Regulations in respect of the subsequentinvestment.

8. Apart from the possibility that the termsof the investments in Portfolio Companies may grant the Fundsthe right to representation on the board of directors of aPortfolio Company, none of the Funds, the Manager or the Applicantanticipates being involved in the management of the PortfolioCompanies.

9. None of the Funds, the Manager, or theApplicant anticipates having any input into the investmentdecisions of any of investment portfolios of the PortfolioCompanies and accordingly, there will be no opportunity forconflicts to arise regarding the allocation of investmentopportunities.

10. None of the Funds, the Manager or theInvestment Advisor anticipate a situation wherein as a resultof an investment being made by either or both of the Fundsin a Registrant, that investment will hinder the Registrant'sability to comply with the conditions of registration applicableto it.

11. The Funds are subject to a statutory requirementcontained in the Community Small Business Investment FundsAct (Ontario), as amended, that a minimum of 70% of thecapital raised from the sale of shares be invested by theend of the year after the year in which such capital is raised.Accordingly, the timing of the investments by each of theFunds is significant. If an investment opportunity ariseslate in the year and either or both of the Funds are requiredto wait thirty days for Commission approval pursuant to subsection104(1) of the Regulations, the investment will be delayedand may not be completed until the beginning of a new year.This may put either or both of the Funds into non-compliancewith their statutory obligations to have 70% of its capitalinvested in a particular year.

12. If the Funds are required to comply withsubsection 104(1) of the Regulations, including the requiredthirty day notice period, for each investment they make ina Registrant, the investment opportunities available to theFunds may be compromised, placing the Funds at a disadvantageopposite other investors. In order to achieve the best returnsfor their securityholders, the Funds must have the flexibilityto make investments in a timely manner and not risk givingup investment opportunities to investors who are not subjectto a prescribed notice period.

13. The Funds are unique in that (a) theyare labour sponsored funds and subject to statutory requirementsand prohibitions that are not normally applicable to investmentsfunds; (b) its investment objective gives the Financial ServicesFund, in particular, a mandate to invest in financial servicescompanies, some of which may be Registrants; and (c) althoughthe Funds themselves are not Registrants, their relationshipwith the Applicant, which is a Registrant, makes the Fundssubject to the regime imposed by subsection 104(1) of theRegulations.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest.

IT IS ORDERED by the Commission pursuantto section 147 of the Securities Act that the Applicant is exemptfrom the requirement to file notice pursuant to subsection 104(1)of the Regulations of proposed investments by the Applicanton behalf of the Funds in securities of a Registrant, providedthat:

such investments shall be passive, non-controllinginvestments as described in paragraphs 6 through 10 of therecitals to this order.

August 29, 2003.

"Wendell S. Wigle"
"H. Lorne Morphy"