New Generation Biotech (Equity) Fund Inc. et al.

Headnote

National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund reorganization -- approval required because transaction does not meet the criteria for pre-approval -- labour sponsored investment funds with different managers -- reorganization not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada) -- current simplified prospectus not required to be sent to shareholders of the selling funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(a), 5.5(1)(b), 5.6(1).

August 31, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(The "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NEW GENERATION BIOTECH (EQUITY) FUND INC.,

THE VENGROWTH INVESTMENT FUND INC.,

THE VENGROWTH II INVESTMENT FUND INC.,

THE VENGROWTH III INVESTMENT FUND INC., THE VENGROWTH

ADVANCED LIFE SCIENCES FUND INC.

and THE VENGROWTH TRADITIONAL INDUSTRIES FUND INC.

(Collectively, The "Selling Funds")

AND

COVINGTON CAPITAL CORPORATION

(The "Filer")

DECISION

Background

The principal regulator in the Jurisdiction has received a joint application from the Selling Funds and the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") for approval pursuant to:

(i) subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") for the sale of assets of the Selling Funds to Covington Fund II Inc. (the "Asset Transfer Approval"); and,

(ii) subsection 5.5(1)(a) of NI 81-102 for the change of manager of certain Selling Funds in connection with the sale of assets (the "Change of Manager Approval").

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 Selling Funds and the Filer have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Nunavut, the Yukon Territories and the Northwest Territories (collectively with Ontario, the "Jurisdictions").

Interpretation

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.

Representations

The decision is based on the following facts represented by the Selling Funds and/or the Filer:

The Selling Funds

1. The Selling Funds are not in default of securities legislation in any Jurisdiction.

2. Information about the Selling Funds consists of the following:

New Generation Biotech (Equity) Fund Inc. ("NGBE")

(a) NGBE was incorporated on October 31, 2000 under the Business Corporations Act (Ontario) (the "OBCA").

(b) NGBE is registered as a labour sponsored investment fund corporation ("LSIF") under the Community Small Business Investment Funds Act (Ontario) (the "CSBIF Act") and is a prescribed labour-sponsored venture capital corporation ("LSVCC") under the Income Tax Act (Canada) (the "Tax Act"). NGBE's investment activities are governed by the CSBIF Act.

(c) NGBE is a reporting issuer in Ontario only.

(d) The fundamental investment objective of NGBE is to achieve long-term capital appreciation by investing in a diversified portfolio of securities of biotechnology and health care related ventures.

The VenGrowth Investment Fund Inc. ("VGI")

(a) VGI was incorporated by articles of incorporation dated November 9, 1994 under the Canada Business Corporations Act (the "CBCA") and was continued under the Business Corporations Act (British Columbia) (the "BCBCA") in December 2009.

(b) VGI is registered as a LSIF under the CSBIF Act and is registered as a LSVCC under the Tax Act. VGI's investment activities are governed by the CSBIF Act and the Tax Act.

(c) VGI is a reporting issuer in Ontario only.

(d) The fundamental investment objective of VGI is to invest in small to medium-sized eligible businesses with the objective of achieving long-term capital appreciation.

The VenGrowth II Investment Fund Inc. ("VGII")

(a) VGII was incorporated by articles of incorporation dated October 18, 1999 under the CBCA and was continued under the BCBCA in December 2009.

(b) VGII is registered as a LSIF under the CSBIF Act and is a registered as a LSVCC under the Tax Act. VGII's investment activities are governed by the CSBIF Act and the Tax Act.

(c) VGII is a reporting issuer in all Jurisdictions.

(d) The fundamental investment objective of VGII is to invest in small to medium-sized eligible businesses with the objective of achieving long-term capital appreciation.

The VenGrowth III Investment Fund Inc. ("VGIII")

(a) VGIII was incorporated by articles of incorporation dated April 26, 2004 under the CBCA.

(b) VGIII is registered as a LSIF under the CSBIF Act and is registered as a LSVCC under the Tax Act. VGIII's investment activities are governed by the CSBIF Act and the Tax Act.

(c) VGIII is a reporting issuer in all provinces of Canada.

(d) The fundamental investment objective of VGIII is to invest in small to medium-sized eligible businesses with the objective of achieving long-term capital appreciation.

The VenGrowth Advanced Life Sciences Fund Inc. ("VGALS")

(a) VGALS was incorporated by articles of incorporation dated October 31, 2001 under the CBCA.

(b) VGALS is registered as a LSIF under the CSBIF Act and is a registered as a LSVCC under the Tax Act. VGALS's investment activities are governed by the CSBIF Act and the Tax Act.

(c) VGALS is a reporting issuer in all Jurisdictions.

(d) The fundamental investment objective of VGALS is to invest in small and medium-sized eligible Canadian businesses in the life sciences sector with the objective of achieving long-term capital appreciation.

The VenGrowth Traditional Industries Fund Inc. ("VGTI")

(a) VGTI was incorporated by articles of incorporation dated August 3, 2003 under the CBCA.

(b) VGTI is registered as a LSIF under the CSBIF Act and is registered as a LSVCC under the Tax Act. VGTI's investment activities are governed by the CSBIF Act and the Tax Act.

(c) VGTI is a reporting issuer in all provinces of Canada.

(d) The fundamental investment objective of VGTI is to invest in small and medium-sized eligible Canadian businesses with the objective of generating interest and dividend income as well as long-term capital appreciation

3. Information about Covington Fund II Inc. (the "Covington Fund II") consists of the following:

(a) Covington Fund II was incorporated under the OBCA by articles of incorporation dated September 20, 1999 and was continued under the CBCA by articles of continuance dated November 25, 2010.

(b) Covington Fund II is a registered LSIF under the CSBIF Act and is a prescribed LSVCC under the Tax Act. Covington Fund II's investment activities are governed by the CSBIF Act and will, following the Transaction, be governed by the CSBIF Act and the Tax Act.

(c) Covington Fund II is a reporting issuer in Ontario only and is not in default of securities legislation in Ontario. Covington Fund II will become a reporting issuer in the remaining Jurisdictions upon closing of the Transaction.

(d) The fundamental investment objective of Covington Fund II is to earn long-term capital appreciation on part of its investment portfolio and current yield and early return of capital on the remainder of its investment portfolio through investment in common shares, convertible preference shares or other instruments which create a right to acquire common shares, debt (with or without conversion features), warrants and other securities of both early stage, high growth companies as well as established businesses.

The Transaction

4. The shareholders of the Selling Funds approved the Transaction at shareholders' meetings held on August 25, 2011. Over 90% of votes cast by Class A shareholders of each of VGI, VGII, VGALS and VGTI and NGBE were cast in favour of the Transaction. Approximately 88% of votes cast by Class A shareholders of VGIII were cast in favour of the Transaction.

5. The shareholders of Covington Fund II approved the Transaction at a shareholders' meeting to be held on August 25, 2011. Approximately 97% of votes cast by Class A shareholders of Covington Fund II were cast in favour of the Transaction.

6. The Transaction is expected to close on a date (the "Closing Date") to be determined by the Selling Funds and Covington Capital Corporation, the manager of Covington Fund II (the "Covington Manager"), currently expected to be on or about September 1, 2011.

7. Details of the proposed sale of assets of the Selling Funds which would result in securityholders of the Selling Funds becoming securityholders of Covington Fund II (the "Transaction") were contained in (i) the information circular dated July 6, 2011 (the "VenGrowth Circular") sent by VGI, VGII, VGIII, VGALS and VGTI (collectively, the "VenGrowth Funds"), and (ii) the information circular dated July 14, 2011 (the "NGBE Circular") sent by NGBE, to their respective shareholders, which contains details of the Transaction, including income tax considerations associated with the Transaction. A copy of the VenGrowth Circular was filed on SEDAR on July 14, 2011. A copy of the NGBE Circular was filed on SEDAR on July 22, 2011.

8. In connection with the Covington Shareholders' Meeting, Covington Fund II shareholders were sent an information circular dated July 12, 2011 (the "Covington Circular") which contained details of the Transaction. A copy of the Covington Circular was filed on SEDAR on July 22, 2011.

9. The Selling Funds, Covington Fund II, the Covington Manager and each of VGI Manager, VGII Manager, VGIII Manager, VGALS Manager and VGTI Manager (collectively, the "VenGrowth Managers") have entered into an asset purchase agreement dated July 6, 2011 (the "APA") setting out the terms and conditions of the Transaction. A copy of the APA was filed on SEDAR.

10. Each Class A shareholder of Covington Fund II approved the Transaction by ordinary resolution, and approved the amendment of the articles of Covington Fund II to create two series of Class A shares by special resolution of such class (i.e. to pass, two-thirds of votes cast must vote in favour).

11. Each class of shareholder of the Selling Funds approved the Transaction by special resolution (i.e. to pass, two-thirds of votes cast must vote in favour). As part of such approval resolutions, approval was obtained by special resolution of such class to amend the rights attached to each series of Class A shares of each Selling Fund to add a merger redemption procedure (the "Transaction Redemption Procedure") so that on the Closing Date each Selling Fund may redeem its issued Class A shares in exchange for the Transaction Shares (defined below) it receives in connection with the sale of its assets to Covington Fund II.

12. Prior to the Closing Date, Covington Fund II will amend its articles to create two series of Class A shares. On the Closing Date, Covington Fund II will issue either Class A shares, Series I or Class A shares, Series II, or both (the "Transaction Shares"), as described in the VenGrowth Circular and NGBE Circular, to each of the Selling Funds in exchange for the assets of the Selling Funds. The number of Transaction Shares issued to a Selling Fund will be determined by reference to the net asset value of the relevant Selling Fund (as determined in accordance with that fund's valuation policies and procedures) as at the Closing Date. The series of Transaction Shares issued to a Selling Fund has been determined based upon amount and manner in which the sales commissions were paid upon the issuance of the Class A shares of the Selling Funds.

13. Pursuant to the Transaction Redemption Procedure, each of the Selling Funds will redeem their respective Class A shares in exchange for the Transaction Shares received by such Selling Fund.

14. Shareholders of the Selling Funds will receive an equivalent value of Transaction Shares in payment for the Class A shares of the Selling Fund held by such shareholder on the Closing Date. The number of Transaction Shares of a series delivered in payment of the redemption price of the redeemed Class A shares of a shareholder of a Selling Fund will be equal to the number of Class A shares of the Selling Fund held by the shareholder multiplied by the "Exchange Ratio". For the purposes of the foregoing, the Exchange Ratio equals the Transaction NAV per Share of the Selling Fund's Class A shares divided by the Transaction NAV per Share of the Transaction Shares where "Transaction NAV per Share" means:

(a) The NAV of a fund (as determined in accordance with that fund's valuation policies and procedures and adjusted as necessary to account for any proceeds to be paid under any dissent rights) as at the Closing Date allocated to each series of Class A shares of that fund; divided by

(b) The number of outstanding Class A shares of that series of that fund (adjusted for shareholders exercising dissent rights) as of the Closing Date.

15. Redemptions of Class A shares of Covington Fund II, VGTI and VGIII are currently occurring without suspension. Upon completion of the Transaction, holders of Class A shares of Covington Fund II, VGTI and VGIII will not be subject to any new redemption fees or redemption restrictions on their Class A shares of Covington Fund II.

16. Redemptions of Class A shares of NGBE, VGI, VGII and VGALS are currently suspended. Upon the completion of the Transaction, holders of Class A shares of NGBE, VGI, VGII and VGALS will have two options from which to select should they wish to redeem their Transaction Shares

(a) they may request a redemption of some or all of their Transaction Shares on the Closing Date. The redemption will be subject to the payment of a 15% redemption fee. This redemption fee will be retained by Covington Fund II for the benefit of all non-redeeming shareholders. This fee is payable to Covington Fund II and is intended to allow Covington Fund II to better manage its cash resources post-Transaction. A total of up to $30 million is available to be paid to holders of Transaction Shares who received those shares in payment of the redemption price for Class A shares of NGBE, VGI, VGII or VGALS on the implementation of the Transaction and who request to redeem those Transaction Shares pursuant to a Redemption Request Form. Accounting for the 15% redemption fee set out above, the total value of Transaction Shares of NGBE, VGI, VGII and VGALS that may be redeemed under this option will not be greater than $35.3 million. If redemption requests exceed $35.3 million, shareholders requesting this early redemption will have their Transaction Shares redeemed on a pro rata basis and will receive their pro rata share of the amount available to fund the early redemptions; or

(b) they may retain some or all of their Transaction Shares (reflecting the full NAV of their Class A shares at the Closing Date less the NAV of any Transaction Shares that were redeemed under (a) above) and they will be able to redeem 15% of the number of Transaction Shares that they received on the Closing Date (not including the Transaction Shares that were redeemed under (a) above) without a redemption fee during each 12 month period, the first such period commencing on the Closing Date and successive periods running through to the fourth anniversary of the Closing Date.

The shareholder will be able to request the first redemption (this redemption being for the first 12 month period starting from the Closing Date) on the date on which the integration of the back office of the VenGrowth Funds with Covington Fund II is completed, which date is expected to occur within 6 months of the Closing Date (the "Integration Date"). Covington Fund II will publicly announce the Integration Date and communicate that information to investment advisors through electronic means. The shareholder will then be able to request further annual redemptions at any time commencing 12 months from the first anniversary of the Closing Date, and continuing for successive 12 month periods from the anniversary of the Closing Date until the fourth anniversary of the Closing Date, after which they will be able to redeem all or any of their Transaction Shares. The redemption rights under (b) above cannot be accumulated from one 12 month period to another.

17. All redemptions, whether under paragraphs 15 or 16 above, will also be subject to tax credit recapture withholdings under the CSBIFA or the Tax Act and applicable deferred sales commissions if Class A shares are redeemed at a date when they have been issued for less than eight years. The Selling Funds and Covington Fund II have received from the Canada Revenue Agency an advance income tax ruling (the "ITA Ruling") under which each Transaction Share will be deemed pursuant to paragraph 204.85(3)(a) of the Tax Act to have been issued by Covington Fund II at the time the Selling Fund issued the Class A share which such Transaction Share replaced.

18. The Covington Manager will continue to serve as manager for Covington Fund II.

19. If the Transaction is completed, the existing management agreements between the VenGrowth Funds and the VenGrowth Managers would not continue. Although the structure relating to the elimination of these agreements is not yet settled, the VenGrowth Managers have agreed to certain payments in consideration therefore (the "VenGrowth Contract Termination Arrangement"). Additionally, to facilitate the Transaction, the Selling Funds, Covington Fund II, the VenGrowth Managers and the Covington Manager have agreed that the combined payments from Covington Fund II to the Covington Manager and the VenGrowth Managers following the Transaction shall not exceed 2.75% of NAV annually. The total amount of management fees currently charged by Covington Manager is 2.75% of NAV annually. The elimination of the VenGrowth Managers' agreements will not result in any aggregate incremental cost borne by the VenGrowth Funds , NGBE or Covington Fund II.

20. Under the VenGrowth Contract Termination Arrangement, the timing and amount of payments to be made to the VenGrowth Managers shall be as follows (i) the VenGrowth Managers will receive a payment at a rate of 1.4% of the NAV of Covington Fund II annually, paid monthly; (ii) the VenGrowth Managers will receive a payment equal to 35% of the Incentive Participation Amount earned on the venture investments of Covington Fund II until July 2013, thereafter, the VenGrowth Managers will receive 50% of the incentive participation amount earned on the venture investments of Covington Fund II, payable quarterly; (iii) the VenGrowth Managers will be entitled to receive a payment equal to on-going capital maintenance fees and any deferred sales commissions (described below); and (iv) management fees payable for any new retail funds raised and managed by the Covington Manager will also be shared equally between the Covington Manager and the VenGrowth Managers. The payments in (i) and (ii) shall continue for at least eight years, and the payments in (iii) will continue as set out below.

21. There is no provision in the VenGrowth Contract Termination Agreement or elsewhere in the documents effecting the Transaction that contemplates the payments to the VenGrowth Managers described in the immediately preceding paragraph being increased. The payments listed in subsections (i), (ii) or (iii) of the immediately preceding paragraph (the "VenGrowth Manager Payments") will be subject to Part 5 of NI 81-102 in Ontario and, in particular, securityholder approval will be required for any increase in the VenGrowth Manager Payments.

22. The Covington Manager will enter into a new Management Agreement for Covington Fund II, reducing its management fee for the combined Covington Fund II from 2.75% of the NAV of Covington Fund II, to 1.35% of the NAV of the combined Covington Fund II.

23. Upon Closing, the obligation to make the contemplated payments to the VenGrowth Managers will become an obligation of the Covington Fund II.

24. Any future sales communications and disclosure documents of Covington Fund II will disclose both the amounts payable to the Covington Manager under the new Management Agreement and the VenGrowth Manager Payments.

25. Upon completion of the Transaction, the existing management agreement and servicing agreement between NGBE and Covington Manager shall be terminated without compensation to Covington Manager and the capital maintenance fees for NGBE will be pre-paid as described below.

26. The capital maintenance fee payable to the VenGrowth Manager is an annual fee per share of 1.15% (calculated on the original cost of the share in question) on all series A and B Class A shares of the VenGrowth Funds which, under the Transaction, will be exchanged for Series II Class A shares of Covington Fund II (in the case of Class A series A shares of VGALS and in the case of all VGII Class A shares (for Series I), this only applies to the shares issued after December 31, 2003). The capital maintenance fee for all Class A series C shares of each VenGrowth Fund is 1.65% which, under the Transaction, will be exchanged for Series II Class A shares of Covington Fund II (calculated on the original cost of the share in question).

27. The sales commission on a Class A share of a VenGrowth Fund was either zero, six or ten percent (depending on the series) of the net proceeds from the sale of such VenGrowth Fund Class A share. Such commission is deferred and is reduced by 1/8th every year for eight years from the date of issuance of the share in question, following which no commission on such share is payable by the holder thereof. If such share is redeemed at a date prior to eight years from the date such share was issued, the holder (indirectly) must pay the unamortized commission applicable at the date of redemption to the VenGrowth Managers. As noted above, the VenGrowth Managers will be entitled to the recovery of any deferred sales commissions related to all Class A shares of the VenGrowth Funds that were exchanged for Transaction Shares, on an on-going basis but only to the extent, with respect to each Transaction Share, that such Transaction Share is redeemed on a date that is prior to eight years from the date the Class A share for which it was exchanged was issued. For certainty, the exchange of Transaction Shares for Class A shares pursuant to the Transaction shall not cause deferred sales commissions to be recoverable by the VenGrowth Managers.

28. Capital maintenance fees also currently apply to NGBE. Covington Manager is also responsible for managing the relationships with registered dealers selling the Class A shares of NGBE. Prior to the cessation of new sales of Class A shares by NGBE, Covington financed the payment of a 10% or a 6% sales commission to such dealers in respect of sales of Class A shares, Series II and Class A shares, Series III, respectively sold prior to January 1, 2006. Covington Manager is remunerated for this service through a monthly fee of 0.160% of the original issue price of the Class A shares, Series II (1.92% annually) and 0.096% of the original issue price of the Class A shares, Series III (1.152% annually) which are still issued and outstanding during that month. In the event that such shares are redeemed prior to the eighth anniversary of the date of their issue, NGBE charges redeeming shareholders a fee equal to 1.25% and 0.75% of the original issue price for Class A shares, Series II and Class A shares, Series III respectively times the number of years until the eighth anniversary of the sale of the shares. NGBE pays this redemption fee to Covington Manager in lieu of the monthly fee on such redeemed shares. In merging NGBE and the VenGrowth Funds with Covington Fund II, two series of Class A shares are being created. The distinguishing difference between the two series is that Series I has very few remaining fees payable with respect to deferred sales commissions while Series II will have capital maintenance fees payable to reimburse remaining deferred sales commission amounts. The remaining distribution service fees will be prepaid as part of the Transaction.

29. After the Selling Funds redeem all Class A shares and the VenGrowth Funds pay to the holders of Class C shares of each VenGrowth Fund $1 and cancel the Class C shares, the Class B shares will be the only outstanding shares of each Selling Fund.

30. The Selling Funds will retain the Covington Manager as the manager of such funds for the purpose of winding up the Selling Funds as soon as reasonably possible after the Closing Date.

31. The NGBE Sponsor has agreed, upon completion of the Transaction, that it will execute an agreement with NGBE which will terminate its sponsorship agreement and facilitate the wind-up of NGBE without further compensation payable to the NGBE Sponsor over the fees due to the date of Closing.

32. Under the Transaction, pursuant to an agreement between the VenGrowth Sponsor, the Covington Sponsor and Covington Fund II, the VenGrowth Sponsor and the Covington Sponsor will become co-sponsors of Covington Fund II, and the total sponsor fees will not exceed 0.16% per annum of NAV of Covington Fund II, representing a reduction in the aggregate sponsor fees being paid by Covington Fund II. The VenGrowth Sponsor will be entitled to an aggregate sponsor fee of 0.11% per annum and the Covington Sponsor will be entitled to a sponsor fee of 0.05% per annum of NAV of Covington Fund II.

33. The VenGrowth Funds were interested in a purchaser that could acquire all of their assets and the Covington Manager met that requirement, as well as other relevant requirements of the Board.

34. Subsequent to the announcement of the Transaction, GrowthWorks Canadian Fund Ltd. ("GrowthWorks") issued a press release and filed a dissident proxy circular urging shareholders of the VenGrowth Funds to vote against the Transaction and providing certain details of a transaction they would propose if the Transaction failed.

35. Under Section 5.5(1)(b) of NI 81-102, each of the Selling Funds is required to obtain the approval of the securities regulatory authority or regulator where a transfer of its assets is implemented, if the transaction will result in the securityholders of a Selling Fund becoming securityholders in another mutual fund. Each securityholder of a Selling Fund would, as a result of the Transaction, become a securityholder of Covington Fund II.

36. Under Section 5.5(1)(b) of NI 81-102, regulatory approval is required before the Covington Manager can become the manager of the VenGrowth Funds for the purpose of winding up those funds.

37. The Selling Funds will be wound up as soon as reasonably possible following the Closing Date. The Covington Manager will be retained as manager by the VenGrowth Funds after they (and NGBE) redeem all of their issued and outstanding Class A shares for the purpose of effecting the wind up of those funds. As the Covington Manager and the VenGrowth Managers are not affiliated, regulatory approval pursuant to section 5.5(1)(a) of NI 81-102 is required for this change.

38. The Transaction was negotiated through a thorough process conducted by a special committee (the "Special Committee") of the boards of directors of each of the VenGrowth Funds, which process is described in the VenGrowth Circular, during which process the Special Committee:

(a) retained independent legal counsel; and

(b) retained the services of an independent financial advisor (the "Financial Advisor"), to assist in its review process of alternative strategic proposals and, if requested, to assist in pursuing a transaction.

39. The Transaction was considered by the independent members of the board of directors of NGBE through a process described in the NGBE Circular. Such directors considered four different strategic options, determined that the Transaction was the most attractive option for the shareholders of NGBE and unanimously recommended that the shareholders of NGBE adopt the resolutions approving the Transaction and the amendment of articles.

40. The Transaction was considered by the independent members of the board of directors of Covington Fund II through a process described in the Covington Circular. Such directors explored strategic options that would allow Covington Fund II to better manage liquidity, stabilize the size of Covington Fund II and optimize returns to shareholders and unanimously recommended that the shareholders of Covington Fund II adopt the resolutions approving the Transaction..

41. As part of the evaluation of alternative strategic proposals, the Special Committee, with the assistance of the Financial Advisor, reviewed all strategic proposals presented, including the outline of a proposal contained in the dissident circular filed by GrowthWorks. The Special Committee determined that the Transaction was the most attractive option for the shareholders of the VenGrowth Funds and unanimously recommended that the shareholders of the VenGrowth Funds adopt the resolutions approving the Transaction and the amendment of articles.

42. The independent review committee of each of the Selling Funds and Covington Fund II has reviewed the terms of the Transaction and confirmed that, in their respective opinions, the Transaction achieves a fair and reasonable result for the respective funds.

43. The Financial Advisor also delivered a written fairness opinion addressed to the Board of Directors of each VenGrowth Fund concluding, that the Transaction is fair from a financial point of view to the Class A shareholders of that fund.

44. Notwithstanding any provision in a cost and expenses agreement (the "Cost and Expenses Agreement"), the particulars of which are described in the VenGrowth Circular and NGBE Circular and a copy of which was filed on SEDAR as a schedule to the APA governing the Transaction, the costs of effecting the Transaction will not be borne by the Selling Funds or Covington Fund II. Such costs (defined in the Costs and Expenses Agreement as the "Transaction Costs") will be borne by the Covington Manager and the VenGrowth Managers.

45. As disclosed in the press release of the VenGrowth Funds dated August 20, 2011, it was discovered that during the proxy solicitation process inaccurate information about redemption options available to shareholders of the Selling Funds was provided to a limited number of those shareholders by Georgeson Shareholder Communications Canada Inc. ("Georgeson"). Georgeson acted as the VenGrowth Funds' proxy solicitation agent. Based on internal investigations conducted by Georgeson, the misinformation was unintentional and appears to have been isolated to a relatively small number of shareholders. Nonetheless, the VenGrowth Funds and Georgeson took certain corrective steps, as detailed in the August 20, 2011 press release issued by the VenGrowth Funds, in an effort to confirm that shareholders who were contacted by Georgeson were made aware of the correct information in respect of their redemption options, as well as the process for changing their vote.

46. Given the small number of shareholders that were likely affected, as well as the corrective action taken to provide shareholders with the correct information, the VenGrowth Funds believe that the requisite approval by shareholders of each of the VenGrowth Funds would have been obtained whether or not the inaccurate information about redemption options was disseminated as described.

47. The Filer is the manager of the Covington Fund II, NGBE and a number of other LSIFs. The Filer is not the manager, or an affiliate of the manager, of the VenGrowth Funds.

48. The VenGrowth Funds will retain the Filer as the new manager of such funds for the purpose of winding up each of those funds as soon as reasonably possible after the Closing Date. NGBE also will be wound up as soon as reasonably possible after the Closing Date.

49. The Transaction is not a "qualifying exchange" within the meaning of Section 132.2 of the Tax Act and will not be a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act.

50. Shareholders of the Selling Funds were permitted to dissent from the Transaction pursuant to the dissent rights contained in the CBCA, the OBCA or the Business Corporations Act (British Columbia), as applicable. A shareholder who dissents will be entitled, in the event the Transaction becomes effective, to be paid fair value for the Class A Shares of a Fund held by such shareholder determined as at the close of business on the day before the resolutions approving the Transaction were passed. If a shareholder dissents from the Transaction and receives a cash payment for his shares, the shareholder is considered to have realized proceeds of disposition equal to the amount of the payment received by the shareholder. The proceeds of disposition will be reduced by the amount withheld and paid to the Receiver General for Canada as a return of the federal tax credit, the amount withheld from the proceeds and paid by the Covington Fund II to the Ministry of Finance (Ontario) as a return of the Ontario tax credit and applicable early redemption fees.

51. The Transaction meets all of the conditions contained in Section 5.6(1) of NI 81-102 for the pre-approval of the Transaction except for the following:

(a) the Covington Manager is not the manager of the VenGrowth Funds or an affiliate of any of the VenGrowth Managers;

(b) the VenGrowth Funds are reporting issuers in several local jurisdictions and Covington Fund II does not have a current prospectus in any jurisdiction other than Ontario;

(c) the Transaction is not a "qualifying exchange" within the meaning of Section 132.2 of the Tax Act as it does not involve a transfer of property of the Selling Funds to a mutual fund trust. The Transaction will not be a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act;

(d) the shareholders of each of the Selling Funds have received a prospectus summary, describing, in prospectus level detail, the attributes of Covington Fund II as they would exist should the Transaction proceed, rather than a copy of the current prospectus of Covington Fund II; and

(e) the shareholders of NGBE, VGI, VGII and VGALS do not have the right to redeem their shares until the date of the Transaction.

52. Shareholders of Covington Fund II will not be subject to tax as a result of the Transaction.

53. Shareholders of the Selling Funds who hold their Class A shares in a registered plan, such as an RRSP or RRIF, will not pay any income tax as a result of the redemption of their Class A shares pursuant to the Transaction.

54. Shareholders of the Selling Funds who hold their Class A shares outside a registered account may realize a capital gain or a capital loss as a result of the Transaction.

55. The ITA Ruling which has been obtained confirms that the Transaction is a "merger" within the meaning of subsection 204.85(3) and subsection 211.7(2) of the Tax Act such that the Class A shares of the Selling Funds will be deemed not to be redeemed, acquired or cancelled by the Selling Funds and, consequently, the shareholders of the Selling Funds will not be subject to a repayment of their tax credits under the Tax Act as a result of the Transaction.

56. The Transaction will result in the securityholders of the Selling Funds becoming securityholders of the Covington Fund II thereby requiring the approval of the Regulators pursuant to section 5.5(1)(b) of NI 81-102.

57. Under Section 5.5(1)(b) of NI 81-102, regulatory approval is required before the Covington Manager can become the manager of the VenGrowth Funds for the purpose of winding up those funds.

Decision

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 Asset Transfer Approval and the Change of Manager Approval are granted.