Financial Industry Opportunities Fund Inc.

Headnote

MRRS -- Approval of fund merger -- merger of two labour sponsored investment funds -- information circular contains prospectus like disclosure of both funds -- current long form prospectus and financial statements not sent to securityholders with information circular -- information circular clearly discloses availability of prospectus and financial statements -- unitholders of both the Continuing Fund and the Terminating Fund to vote to approve the Merger.

Applicable Legislative Provisions

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

August 22, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF ONTARIO

AND

IN THE MATTER OF

FINANCIAL INDUSTRY OPPORTUNITIES FUND INC.

ORDER

Background

The Ontario Securities Commission (the "Commission") has received an application (the "Application") from Financial Industry Opportunities Fund Inc. ("FIOF") dated July 5, 2007 for approval of a proposed merger of FIOF into Covington Strategic Capital Fund Inc. ("CSCF", collectively with FIOF, the "Funds") (the "Merger") pursuant to clause 5.5(1)(b) of National Instrument 81-102 - Mutual Funds ("NI 81-102").

Interpretation

The defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision;

Representations

This decision is based on the following facts represented by the Funds:

Covington Strategic Capital Fund Inc.

1. CSCF was incorporated under the Business Corporations Act (Ontario) on November 18, 2003.

2. CSCF is a registered labour sponsored investment fund corporation under the Community Small Business Investment Funds Act (Ontario) (the "Ontario Act") and is a prescribed labour-sponsored venture capital corporation under the Income Tax Act (Canada) (the "Tax Act"). CSCF's investing activities are governed by such legislation (the "CSCF LSIF Legislation").

3. CSCF makes investments in eligible Canadian businesses as defined in the Ontario Act. The objective of CSCF is to realize 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. CSCF invests primarily in Canadian independent software vendors that develop software applications to run on one or more software operating systems, all of which qualify as an "eligible business" under the Ontario Act.

4. The labour sponsor of CSCF is the Canadian Police Association (the "CSCF Sponsor").

5. The authorized capital of CSCF is as follows:

(a) an unlimited number of Class A shares issuable in series, which are widely held, of which there are two series issued and outstanding;

(b) an unlimited number of Class B shares, of which all of the issued and outstanding shares are held by the CSCF Sponsor; and

(c) an unlimited number of Class C shares issuable in series, of which there are no shares issued.

6. Covington Capital Corporation (the "Covington") is the manager and investment fund adviser of CSCF under a management agreement.

7. CSCF's shares are not listed on an exchange, however CSCF currently offers its Class A Shares, Series I and Class A Shares, Series II under a prospectus dated February 22, 2007, as amended (the "CSCF Prospectus").

8. As of May 31, 2007, CSCF had approximately $8.5 million in net assets.

9. The net asset value of CSCF is calculated on a daily basis.

10. CSCF has complied with Part 11 of National Instrument 81-106 - Investment Fund Continuous Disclosure ("NI 81-106") in connection with the Merger.

Financial Industry Opportunities Fund Inc.

11. FIOF was incorporated under the Business Corporations Act (Ontario) on November 25, 2003.

12. FIOF is a registered labour sponsored investment fund corporation under the Ontario Act and is a prescribed labour-sponsored venture capital corporation under the Tax Act. FIOF's investing activities are governed by such legislation (the "FIOF LSIF Legislation").

13. FIOF's investment objective is to achieve long-term capital appreciation through investment in a diversified portfolio of private and public financial services companies which qualify as an "eligible business" under the Ontario Act.

14. The labour sponsor of FIOF is the Canadian Federal Pilots Association (the "FIOF Sponsor").

15. The authorized capital of FIOF is as follows:

(a) an unlimited number of Class A shares issuable in series, which are widely held, of which there are two series issued and outstanding; and

(b) an unlimited number of Class B shares, of which all of the issued and outstanding shares are held by the FIOF Sponsor.

16. Covington is the manager and investment adviser of FIOF.

17. FIOF offers Class A Shares, Series I and Class A Shares, Series II under a prospectus dated January 16, 2007, as amended (the "FIOF Prospectus").

18. As of May 31, 2007, FIOF had approximately $5 million in net assets.

19. The net asset value of FIOF is calculated on a daily basis.

20. FIOF has complied with Part 11 of NI 81-106 in connection with the proposed Merger.

The Merger

21. On June 1, 2007, the Funds announced a proposal in which CSCF will acquire the net assets of FIOF. The Merger has been approved by the boards of both Funds.

22. On June 13, 2007 each of the Funds filed a notice of meeting and record date calling special meetings of the shareholders of each of the Funds for August 8, 2007 (the "Shareholders' Meetings"). The Merger was approved by securityholders of both Funds at the Shareholder Meeting and the Merger is expected to be effective on or about August 27, 2007 (the "Effective Date").

23. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set forth in section 5.6 of NI 81-102 as follows:

(a) the Manager proposes to indicate to securityholders of FIOF the manner in which the annual and interim financial statements of the Continuing Fund may be obtained rather than delivering such statements;

(b) the Merger of FIOF and CSCF involves the merger of funds that do not, in the opinion of the Manager, have "substantially similar investment objectives"; and

(c) the Merger will not be a "qualifying exchange" within the meaning of section 132.2 of the Tax Act.

24. Each of the Funds is managed by the same manager and the valuation methodologies and commission structures of the Funds are substantially similar.

25. In connection with the Shareholders' Meetings, shareholders of both Funds were sent an information circular (the "Circular") which contained details of the proposed Merger, including income tax considerations associated with the Merger.

26. The Merger will be subject to the completion of a valuation review by Ernst & Young LLP to review and conclude whether the carrying values of both Funds' venture investment portfolio, as determined by the Manager, represent reasonable estimates of fair value. Ernest & Young will report as at the effective date of the acquisition of assets. This review is intended to provide greater comfort that the net asset values and the exchange ratios are calculated on a comparable and fair basis.

27. The Merger will be effected by the following steps:

(a) CSCF will purchase the net assets of FIOF in exchange for Class A shares of CSCF (the "Merger Shares"); and

(b) FIOF will redeem all of its own issued Class A shares and pay the redemption price for these securities through an automatic redemption procedure in exchange for transferring Merger Shares to its shareholders.

The end result of these steps is that the net assets of FIOF will be held by CSCF and shareholders of FIOF will become shareholders of CSCF.

28. FIOF will retain sufficient assets to pay its liabilities, if any, as of the Effective Date. It is currently contemplated that as soon as reasonably practicable after the Effective Date with no public shareholders and no assets or liabilities, FIOF will cease being a reporting issuer (upon approval of the Commission) and will be dissolved or wound-up, after all necessary ancillary steps have been taken to complete the transfer of FIOF's net assets to CSCF under the Merger.

29. CSCF will not generally assume the liabilities of FIOF in connection with the Merger. However, if directors and officers of FIOF and directors of Covington have indemnity agreements from FIOF, those indemnity agreements will be assumed by CSCF but only on the basis that recourse will be limited to the value attributable the Merger Shares issued to shareholders of FIOF pursuant to the Merger.

30. For a moment in time immediately after CSCF purchases the net assets of FIOF in exchange for the Merger Shares of CSCF, FIOF will have 100% of its portfolio invested in shares of CSCF and will own 10% or more of the outstanding shares of CSCF.

31. The Merger will not be a "qualifying exchange" within the meaning of section 132.2 of the Tax Act. Therefore, the distribution of Merger Shares of CSCF on the redemption of Class A shares of FIOF will be a taxable event resulting in a capital gain or capital loss to the shareholders of FIOF depending on each shareholder's adjusted cost base of the shares. However, about 94% of issued and outstanding Class A shares of FIOF are held in registered retirement savings plans not subject to tax. Moreover, based on historical selling prices and the anticipated relative values of the Merger Shares and the Class A shares of FIOF on the Effective Date, very few of the shareholders of FIOF will realize a capital gain as a result of the Merger.

32. The last scheduled pricing date for Class A shares of FIOF before the anticipated Effective Date of the Merger will be on the last day that FIOF Class A shares will be sold. The effective date of the Merger is August 27, 2007 and Class A shares of FIOF will go off-sale as at 4:00 p.m. (EST) on August 24, 2007.

33. Shareholders of FIOF will continue to have the right to redeem shares of FIOF for cash at any time up to the close of business on the business day immediately preceding the Effective Date of the Merger.

34. Shareholders of FIOF were entitled to exercise dissent rights pursuant to and in the manner set forth in Section 185 of the Business Corporations Act (Ontario) with respect to the resolution approving the sale of all or substantially all of the assets of FIOF to CSCF. Shareholders of FIOF that validly exercised these rights and did not withdraw their dissent ("Dissenting Shareholders") were entitled to receive the "fair value" of their FIOF Class A shares as at the day before the resolution approving the sale was adopted by shareholders of each Fund on August 8, 2007. Any Dissenting Shareholders of FIOF who held their FIOF Class A shares for less than eight years are required, in accordance with LSIF Legislation, to repay federal and provincial tax credits granted when the shares were originally purchased.

35. Covington will continue to serve as manager for CSCF post-Merger.

36. As the manager of both CSCF and FIOF is Covington, all of the costs of effecting the Merger (consisting primarily of legal, proxy solicitation, printing, mailing and accounting costs) will be paid by Covington.

37. Any pre-authorized purchase plans in effect for FIOF prior to the Merger will be re-established in CSCF, unless the investor otherwise advises their registered dealer, who will advise Covington,.

Shareholder Disclosure

38. The materials sent to shareholders of the Funds did not include copies of the current long form prospectuses of each of the Funds, or copies of the annual and interim financial statements of each of the Funds, as required by Section 5.6(1)(f)(ii) of NI 81-102. However, the Circular sent to the shareholders of each of the Funds instead:

(a) included disclosure about the Merger and prospectus-like disclosure concerning both Funds and the Merger Shares to be issued under the Merger;

(b) for purposes of NI 81-106 and National Instrument 51-102 -- Continuous Disclosure Obligations ("NI 51-102"), incorporated by reference the CSCF Prospectus and the FIOF Prospectus (as permitted under NI 51-102);

(c) disclosed that shareholders could obtain current copies of both of the CSCF Prospectus and the FIOF Prospectus at no cost by accessing the SEDAR website at www.sedar.com, by accessing the Covington website at www.covingtonfunds.com or by calling a toll-free telephone number (in which case the Covington will cause the requested material to be promptly mailed to the requesting shareholder); and

(d) disclosed that shareholders could obtain annual and interim financial statements of each of the Funds as at and for the periods ended August 31, 2006 and February 28, 2007, respectively, and any management reports of fund performance produced by both CSCF and FIOF at no cost by accessing the SEDAR website at www.sedar.com, by accessing the Covington website at www.covingtonfunds.com or by calling a toll-free telephone number (in which case Covington would cause the requested material to be promptly mailed to the requesting shareholder).

39. The Circular contained a description of the Merger, including the tax considerations associated with the Merger and other disclosure that was intended to assist the shareholders of each of the Funds to allow them to make an informed decision with respect to the Merger.

40. Since a labour sponsored investment fund does not use the National Instrument 81-101 -- Mutual Fund Prospectus Disclosure simplified prospectus and annual information form model of disclosure, and NI 81-106 does not require the filing of an annual information form by investment funds that have a current prospectus, annual information forms for both of the Funds were not made available to shareholders of the Funds.

The Commission is satisfied that the test contained in NI 81-102 has been met.

The decision of the Commission under NI 81-102 is that the Approval is granted subject to the following:

(a) the Funds have prominently disclosed in the first few pages of the Circular that shareholders can obtain the most recent annual and interim financial statements of each of the Funds that have been made public, at no cost, by accessing the SEDAR website at www.sedar.com, by accessing the Covington website at www.covingtonfunds.com or by calling a toll-free telephone number, and

(b) the Funds have prominently disclosed in the first few pages of the Circular a reference to where shareholders can find the prospectus-like disclosure concerning the Funds in the Circular.

(c) FIOF and CSCF will each have an unqualified auditors report in respect of its last completed financial period.