Securities Law & Instruments


National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of a change of control of an investment fund manager -- Approval is necessary under subsection 5.5(2) of National Instrument 81-102 Mutual Funds -- Approval of abridgement of notice period from 60 days to 50 days -- Decision conditional on no changes being made to the management, administration or portfolio management of the investment funds for at least 60 days subsequent to notice being provided to shareholders.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, s. 5.5(2).

June 25, 2009


















The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") for approval:

(i) pursuant to subsection 5.5(2) of National Instrument 81-102 Mutual Funds ("NI 81- 102") of a change of control of the Manager, and

(ii) pursuant to subsection 5.8(1)(a) of NI 81-102 of an abridgement of notice period of change of control of mutual fund manager to 50 days from 60 days.

(Items (i) and (ii) are referred to as the "Approval Sought".)

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, New Brunswick, Nova Scotia, Prince Edward Island and Quebec.


Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.


The decision is based on the following facts represented by the Filer:

The Acquisition

1. The securityholder of Covington, AMG Canada Corp. ("AMG Canada") has entered into a securities purchase agreement dated May 1, 2009 (the "Agreement") with RC Capital Management Inc. ("RC Capital") pursuant to which all of the issued and outstanding securities of Covington will be acquired by RC Capital (the "Acquisition"). The Acquisition remains subject to the receipt of all applicable regulatory approvals, third party consents, as well as the satisfaction of other customary closing conditions set out in the Agreement.

2. The Acquisition consists of a direct change of control of Covington thereby requiring the approval of the Regulators pursuant to section 5.5(2) of NI 81-102.

Relevant Parties

3. Information about the relevant parties involved in the Acquisition consists of the following:


(a) Covington is a company based in Toronto, Ontario and was formed by amalgamation on January 1, 2008 pursuant to the Companies Act (Nova Scotia).

(b) Covington is the investment advisor of Covington Fund II Inc., the manager and investment advisor of Covington Strategic Capital Fund Inc., Covington Venture Fund Inc. ("CVF"), and New Generation Biotech (Equity) Fund Inc. (collectively, the "Funds")

(c) Covington is registered with the OSC as investment counsel and portfolio manager, and as a limited market dealer.

(d) Covington typically manages and oversees all day-to-day operations of the Funds and also provides investment management services to the Funds.

(e) Each of the Funds is a labour sponsored investment fund which is registered pursuant to the Community Small Business Investment Funds Act (Ontario) and which has certain series of Class A Shares offered on a continuous basis.

(f) All of the Funds are reporting issuers in Ontario. CVF is a reporting issuer in all of the provinces of Canada except for Saskatchewan. None of the Funds are on any list of defaulting reporting issuers maintained by any Regulator.

AMG Canada

(a) AMG Canada is a company governed by the laws of Nova Scotia. AMG Canada is a holding company with interests in several Canadian investment management firms.

(b) AMG Canada is the sole securityholder of Covington.

RC Capital

(a) RC Capital was incorporated on April 30, 2009 pursuant to the Business Corporations Act (Ontario) to complete the transaction. The directors and officers of RC Capital are Mr. Philip R. Reddon and Mr. Scott D. Clark.

(b) RC Capital is owned as to 50% by a trust of which Philip R. Reddon is the sole trustee, and 50% by a trust of which Scott D. Clark is the sole trustee.

(c) Philip R. Reddon and Scott D. Clark, each have extensive experience providing management and investment management services to the Funds and have been officers and/or directors of the Funds for a number of years.

Proposed Change of Control

4. The change of control of Covington will not materially affect the operation and administration of the Funds. All of the current service providers, including the investment advisors of the Funds are expected to continue in their current roles. The systems, back office, fund accounting and other administrative functions are expected to continue to be operated in the same manner as currently being operated by the Funds and their administrators.

5. The management fees and operating expenses of the Funds will not change as a result of the proposed transaction.

6. The change of control of Covington will have no negative consequences on the ability of Covington to comply with all applicable regulatory requirements or its ability to satisfy its obligations to the Funds and their securityholders. To the extent that any changes are made following the completion of the Acquisition which constitute "material changes" within the meaning of NI 81-106, amendments will be made to the prospectuses of the Funds, as appropriate.

7. There will be some changes to the board of directors of Covington, such new persons will have had previous experience with mutual funds and the directors and officers of Covington will have the requisite integrity and experience required under section 5.7(1)(a)(v) of NI 81-102.

8. Effective as of the closing, Messrs Jeffrey S. Murphy and Umesh Vallipuram and Ms. Jennifer M. Borggaard will resign from the director positions that they hold with Covington. The board of directors of Covington will decrease in size from five directors to three directors and Ms. Lisa Low will replace Mr. Murphy, Mr. Vallipuram and Ms. Borggaard as director.

9. Upon closing of the Acquisition, all of the current members of the Funds' independent review committee (the "IRC") will, by operation of section 3.10(1)(c) of National Instrument 81-107 -- Independent Review Committee for Investment Funds ("NI 81-107"), cease to be members of the IRC. Therefore, Covington will fill the vacancies by appointing new members to the IRC pursuant to section 3.3(5) of NI 81-107.

10. A notice regarding the change of control of Covington was submitted to the registration branch of the OSC on May 12, 2009 which was within the necessary time periods pursuant to section 217(1) of the Regulations to Securities Act (Ontario) with regard to the Acquisition.

11. Pursuant to section 5.8(1)(a) of NI 81-102, each of the securityholders of the Funds were sent a notice of change of control on May 6, 2009 (the "Notice Date").

12. The Acquisition is currently expected to close in early July 2009 following the receipt of the regulatory approvals and the expiration of the notice period provided for in section 5.8(1)(a) of NI 81-102.

13. The 60th day following the Notice Date will be July 5, 2009. However, the parties wish to be able to complete the Acquisition as quickly as possible. Covington intends to maintain the operation and administration of the Funds and to cause no changes to the current service providers, including the investment advisors of the Funds for at least 60 days following the Notice Date.

14. In order to facilitate appropriate time periods for the Acquisition, Covington requests that the notice period be abridged to 50 days from 60 days, which would result in the end of the notice period being June 25, 2009. Covington believes that abridging the period prescribed by paragraph 5.8(1)(a) of the Legislation to 50 days will not be prejudicial to any of the shareholders of the Funds.


The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Approval Sought is granted provided that:

a) shareholders of the Funds are given at least 50 days notice of the change of control; and

b) no changes are made to the management, administration or portfolio management of the Funds for at least 60 days following the Notice Date.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission