No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise.

PROSPECTUS

CONTINUOUS OFFERING

December 28, 2009

COVINGTON FUND II INC. CLASS A SHARES

AND

COVINGTON STRATEGIC CAPITAL FUND INC. CLASS A SHARES, SERIES I AND CLASS A SHARES, SERIES II

Covington Fund II Inc. (“Covington Fund II”) and Covington Strategic Capital Fund Inc. (“Covington Strategic Capital Fund”) (Covington Fund II and Covington Strategic Capital Fund are individually referred to as a “Fund” and collectively referred to as the “Funds”) are each registered as a labour sponsored investment fund corporation under the Community Small Business Investment Funds Act (Ontario) (the “Ontario Act”) and are each a prescribed labour-sponsored venture capital corporation under the Income Tax Act (Canada), as amended (the “Federal Tax Act”). Class A Shares of Covington Fund II and Class A Shares, Series I (“Series I Shares”) and Class A Shares, Series II (“Series II Shares”) of Covington Strategic Capital Fund are being offered separately hereunder. During the period of distribution, prices may vary from purchaser to purchaser. Unless the context provides otherwise, references to “Class A Shares” in this prospectus are to the Class A Shares of both Funds.

Covington Fund II

Investment Objective and Strategy: Covington Fund II will make investments in eligible businesses as defined in the Ontario Act. In general terms, eligible businesses are public or private companies carrying on business in Ontario with less than 500 employees and less than $50 million of total assets. The 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. In order to achieve this objective, the investment strategy of Covington Fund II is to invest in two different types of situations. The first is in companies with significant growth potential in early stage or expanding markets. The second is in more established, steady growth companies which will often provide current yield and early return of capital to Covington Fund II. See “Investment Objective” and “Investment Strategies”.

Investment Advisor and Fund Advisor: The investment advisor of Covington Fund II is Covington Capital Corporation (“Covington”). As investment advisor, Covington provides advice and analysis to Covington Fund II in respect of Covington Fund II’s investments in eligible businesses. Covington is a wholly-owned subsidiary of RC Capital Management Inc. (“RC Capital”) which purchased Covington from AMG Canada Corp. on July 2, 2009. Mr. Scott D. Clark is the President, Chief Executive Officer and Chief Compliance Officer of Covington and Mr. Philip R. Reddon is the Managing Director of Covington (collectively, the “Principals”). The Principals, supported by a senior investment team, have significant experience as investors in, or advisors to, middle market Canadian companies. The fund advisor for Covington Fund II is also Covington. As fund advisor, Covington is responsible for providing marketing and investor relations services to Covington Fund II. See “Organization and Management Details of the Funds”.

Covington Strategic Capital Fund

Investment Objective and Strategy: Covington Strategic Capital Fund will make investments in eligible businesses as defined in the Ontario Act. The objective of Covington Strategic Capital Fund 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. Covington Strategic Capital Fund will invest primarily in Canadian independent software vendors that develop software applications to run on one or more software operating systems, and intends

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to develop and grow investee businesses in cooperation with strategic partners. See “Investment Objective” and “Investment Strategies”.

The Manager and Fund Advisor: The manager of Covington Strategic Capital Fund is Covington. As manager, Covington performs Covington Strategic Capital Fund’s daily administrative operations and engages and supervises service providers to Covington Strategic Capital Fund and provides advice and analysis to Covington Strategic Capital Fund in respect of Covington Strategic Capital Fund’s investments in eligible businesses. The fund advisor for Covington Strategic Capital Fund is also Covington. As fund advisor, Covington is responsible for providing marketing and investor relations services to Covington Strategic Capital Fund. See “Organization and Management Details of the Funds - CSCF Fund Advisor Agreement”.

Covington Fund II and Covington Strategic Capital Fund

The Sponsor: The sponsor of each of the Funds is the Canadian Police Association (the “Sponsor”). Prior to August 2003, the Sponsor was the Canadian Police Association Incorporated, which merged with the National Professional Police Association in August 2003 to form the Canadian Police Association. See “Organization and Management Details of the Funds – The Sponsor of the Funds”.

The Fund Administrator: The fund administrator for each of the Funds is CI Investments Inc. (formerly called “CI Mutual Funds Inc.”) (“CI”). CI is responsible for providing administration and client services, shareholder reporting and transfer agency services to the Funds. See “Organization and Management Details of the Funds – The Fund Administrator of the Funds”.

Tax Benefits

Federal Tax Credits: Individuals resident in Canada who are first purchasers of Class A Shares of a Fund issued under this prospectus will be eligible for a 15% federal tax credit to a maximum credit of $750 for the year (for investments of $5,000 or more). See “Canadian Federal Income Tax Considerations – Federal Tax Credit Available to First Purchasers”.

Ontario Tax Credits: Pursuant to the Ontario Tax Act (Ontario Tax Act means the Taxation Act, 2007 (Ontario), as amended, with respect to the 2009 and subsequent taxation years in force on the date of this prospectus), individuals resident in Ontario who purchase Class A Shares issued under this Prospectus by March 1, 2010, will be eligible for a provincial tax credit equal to 15% of the purchase price of Class A Shares to a maximum credit of $1,125 for the 2009 taxation year based on an investment of $7,500. The provincial tax credit will be reduced for the 2010 and 2011 taxation years and eliminated for the 2012 and subsequent taxation years. See the “Prospectus Summary – Tax Benefits” and “Ontario Income Tax Considerations – Ontario Tax Credits Available to First Purchasers”.

An individual may generally claim federal and Ontario tax credits for investments in Class A Shares made by the individual’s registered retirement savings plan (“RRSP”) and an individual or his or her spouse or common-law partner may generally claim the tax credits for investments in Class A Shares made by a spousal RRSP.

Eligible investors who purchase Class A Shares after December 31, 2009, but on or before March 1, 2010 (the last day on which Class A Shares may be acquired by an eligible investor to claim federal and provincial tax credits for 2009) may elect to have their Ontario tax credit and their federal tax credit apply in respect of the 2009 taxation year instead of the 2010 taxation year.

The above maximum Ontario and federal tax credits for a taxation year apply in respect of an eligible investor’s aggregate purchases in respect of that year of shares issued by labour sponsored investment fund corporations, in the case of the Ontario tax credit, or labour-sponsored venture capital corporations, in the case of the federal tax credit.

The Offering:

Continuous Offering Price for Covington Fund II: net asset value per Class A Share Continuous Offering Price for Covington Strategic Capital Fund: net asset value per Class A Share, Series I or

Class A Share, Series II Minimum Initial Subscription: $500 Minimum Subsequent Subscription: $25 For Pre-Authorized Chequing Plan, Minimum Subscription: $25

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Covington Fund II. Covington Fund II pays to the selling registered dealers a commission of 6% of the offering price in respect of the sale of Class A Shares. Covington Fund II also pays to registered dealers a service fee equal to 0.5% annually of the average total net asset value of the Class A Shares held by the clients of the sales representatives of the dealers, calculated and paid monthly. See “Plan of Distribution”. Sales commissions incurred prior to January 1, 2004 have been capitalized as deferred charges and amortized on a straight line basis over eight years, consistent with Covington Fund II’s past practice. Sales commissions incurred on and after January 1, 2004 are charged to retained earnings (deficit) in accordance with generally accepted accounting principles. See “Fees and Expenses”.

Class A Shares of Covington Fund II are offered on a continuous basis (the “Continuous Offering”) at the net asset value per Class A Share. See “Calculation of Net Asset Value”. Covington Fund II may suspend offering Class A Shares and recommence offering Class A Shares at any time Covington Fund II, in its discretion, deems appropriate. Class A Shares subscribed for during the Continuous Offering will be issued as of the first business day following the date of subscription for a purchase price equal to the net asset value per Class A Share at the close of business on the business day on which the subscription is received. During the period of distribution, prices may vary from purchaser to purchaser. See “Purchases of Securities”.

Covington Strategic Capital Fund. Covington Strategic Capital Fund distributes Class A Shares through registered dealers and Covington manages the relationship with such registered dealers. Covington is paid a fee for providing distribution and capital retention services. Investors who purchase Class A Shares will not pay any sales commissions directly. Covington pays to registered dealers a commission of 10% of the offering price in respect of the sale of Series I Shares. In addition, after a period of eight years, Covington Strategic Capital Fund will pay to each registered dealer having clients holding Series I Shares a servicing commission equal to 0.5% annually of the net asset value of the Series I Shares held by those clients. Covington pays to registered dealers a commission of 6% of the offering price in respect of the sale of Series II Shares. In addition, Covington Strategic Capital Fund pays to each registered dealer having clients holding Series II Shares a servicing commission equal to 0.5% annually of the net asset value of the Series II Shares held by those clients. See “Purchases of Securities”.

Class A Shares of Covington Strategic Capital Fund are offered on a continuous basis (the “Continuous Offering”) at the net asset value per Class A Share for the applicable series of Class A Shares. See “Calculation of Net Asset Value”. Covington Strategic Capital Fund may suspend offering Class A Shares or any series thereof and recommence offering Class A Shares or any series thereof at any time that Covington Strategic Capital Fund, in its discretion, deems appropriate. Class A Shares subscribed for during the Continuous Offering will be issued as of the first business day following the date of subscription for a purchase price equal to the net asset value per Class A Share for the applicable series of Class A Shares at the close of business on the business day on which the subscription is received. During the period of distribution, prices may vary from purchaser to purchaser. See “Purchases of Securities”.

Additional information about the Funds is available in the following documents:

� the most recently filed annual financial statements;

� any interim financial statements filed after those annual financial statements;

� the most recently filed annual management report of fund performance; and

� any interim management report of fund performance filed after that annual management report of fund performance.

These documents are incorporated by reference into this prospectus which means that they legally form part of this prospectus. Please see the “Documents Incorporated by Reference” section for further details.

Investors should read the prospectus and review the financial statements and management reports of fund performance carefully before making an investment decision. Careful consideration should be given to the risk factors associated with making an investment in the Fund. See “Risk Factors”. Investors should also consult with their professional advisors prior to making an investment in the Fund.

The Class A Shares of each Fund are highly speculative in nature. An investment in a Fund is appropriate only for investors who are prepared to retain their money in that Fund for a long period of time and who

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have the capacity to absorb a loss of some or all of their investment. There is no guarantee that an investment in a Fund will earn a regular rate of return. Although the Funds are mutual funds, some of the rules designed to protect investors who purchase securities of mutual funds sold in Ontario do not apply to the Funds. In particular, rules directed at ensuring liquidity and diversification of investments and certain other investment restrictions and practices normally applicable to mutual funds do not apply to the Funds. See “Risk Factors”.

Mutual funds generally value their investments at the closing market price at which they can be bought and sold. Each Fund is required, by applicable securities legislation, to obtain on an annual basis, a valuation by an independent qualified person of the net asset value of the Fund and the net asset value per Share. The Fund satisfies this requirement by engaging Ernst & Young LLP, the Fund’s independent auditors, to perform certain procedures on the value of the Fund’s investments for which no public markets exist as at August 31 of each year as part of Ernst & Young LLP’s audit of the Fund’s annual financial statements.The Funds and Covington are responsible for valuations of the Class A Shares for purposes of sales and redemptions. The existence of a daily valuation is designed to give investors flexibility in the timing of purchases and redemptions of Class A Shares but in no way modifies the restrictions on the transfer or redemption of Class A Shares. The valuations carried out by the Funds, Covington or an independent qualified person may not reflect the prices at which the investments of the Funds can actually be sold, particularly after taking into account associated selling costs such as sales commissions and legal fees. See “Calculation of Net Asset Value”.

The Funds may have liability for the repayment of tax credits in certain circumstances. Investors may be required to repay any tax credit received as a result of their investment if their Class A Shares are redeemed within eight years of purchase. Also, in most cases, investors must pay redemption fees to the Funds if their Class A Shares are redeemed within eight years of purchase. Furthermore, the Funds are prohibited by law from making redemptions in certain circumstances, may suspend redemptions for substantial periods of time in certain circumstances and, in any financial year, a Fund will not be required to redeem Class A Shares having an aggregate redemption price exceeding 20% of the net asset value of that Fund as of the last day of the preceding financial year. Investors may not be able to dispose of their Class A Shares other than by way of redemption, as there is no formal market, such as a stock exchange, through which Class A Shares may be sold. In addition, there are restrictions on the voting and transfer of Class A Shares. See “Canadian Federal Income Tax Considerations”, “Ontario Income Tax Considerations” and “Attributes of the Securities”.

Subscriptions will be received subject to rejection or allotment in whole or in part. The Class A Shares are offered for sale only through registered dealers. The Funds will not accept a purchase order placed directly by an investor. See “Purchases of Securities”.

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TABLE OF CONTENTS

ELIGIBILITY FOR INVESTMENT............................................................................................................................. 6 PROSPECTUS SUMMARY......................................................................................................................................... 7 OVERVIEW OF THE LEGAL STRUCTURE OF THE FUNDS ................................................................................ 24 INVESTMENT OBJECTIVE ....................................................................................................................................... 24 INVESTMENT STRATEGIES..................................................................................................................................... 25 OVERVIEW OF THE SECTORS THAT THE FUNDS INVEST IN .......................................................................... 29 INVESTMENT RESTRICTIONS................................................................................................................................. 36 FEES AND EXPENSES ............................................................................................................................................... 37 ANNUAL RETURNS AND MANAGEMENT EXPENSE RATIO ............................................................................ 42 RISK FACTORS ........................................................................................................................................................... 43 DISTRIBUTION POLICY............................................................................................................................................ 46 PURCHASES OF SECURITIES .................................................................................................................................. 47 REDEMPTION OF SECURITIES................................................................................................................................ 48 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS.................................................................................. 49 ONTARIO INCOME TAX CONSIDERATIONS........................................................................................................ 53 ORGANIZATION AND MANAGEMENT DETAILS OF THE FUNDS ................................................................... 56 CALCULATION OF NET ASSET VALUE ................................................................................................................ 67 ATTRIBUTES OF THE SECURITIES ........................................................................................................................ 70 SECURITYHOLDER MATTERS................................................................................................................................ 74 TERMINATION OF THE FUND................................................................................................................................. 75 PLAN OF DISTRIBUTION.......................................................................................................................................... 76 PRINCIPAL HOLDERS OF SECURITIES OF THE FUNDS..................................................................................... 77 INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS............................................. 77 PROXY VOTING DISCLOSURE FOR PORTFOLIO SECURITIES HELD ............................................................. 77 MATERIAL CONTRACTS.......................................................................................................................................... 78 LEGAL AND ADMINISTRATIVE PROCEEDINGS ................................................................................................. 79 EXPERTS...................................................................................................................................................................... 79 EXEMPTIONS AND APPROVALS ............................................................................................................................ 79 PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION................................................ 80 DOCUMENTS INCORPORATED BY REFERENCE ................................................................................................ 80 AUDITORS’ CONSENT .............................................................................................................................................. 81 CERTIFICATE.............................................................................................................................................................. C-1 CERTIFICATE.............................................................................................................................................................. C-1

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ELIGIBILITY FOR INVESTMENT

In the opinion of Gowling Lafleur Henderson LLP, so long as a Fund is registered as a labour sponsored investment fund corporation under the Ontario Act and is a prescribed labour-sponsored venture capital corporation under the Federal Tax Act, Class A Shares of that Fund will be qualified investments for trusts governed by a registered retirement savings plan (“RRSP”) and a registered retirement income fund (“RRIF”) (each a “Registered Plan”) at a particular time if: (i) the annuitant is not at that time a designated shareholder of that Fund and (ii) it cannot reasonably be considered that any amount received in respect of the Class A Shares is on account of payment for services provided by the annuitant of the Registered Plan to that Fund or a person related to that Fund. In general, a designated shareholder is a person who is, or is related to, a person who, alone or together with non-arm’s length persons, owns directly or indirectly not less than 10% of the issued shares of any class or series of the capital stock of the applicable Fund, or any other corporation related to the applicable Fund. However, an annuitant will not be considered to be a designated shareholder if the cost to the annuitant, and persons not dealing at arm’s length with the annuitant, of shares in the applicable Fund, or any other corporation related to the applicable Fund, is less than $25,000, and the annuitant deals at arm’s length with the applicable Fund.

Alternatively, the Class A Shares will be qualified investments for such trust at any time if: (i) immediately after the time the Class A Shares were acquired by the Registered Plan, the annuitant was not a connected shareholder of the applicable Fund; and (ii) the Registered Plan does not receive an amount in respect of the Class A Shares which may reasonably be considered to be on account of payment for services to or for the applicable Fund or a person related to the applicable Fund or in respect of the acquisition of goods or services from the applicable Fund or person related to the applicable Fund. In general, a connected shareholder is a person who, alone or together with non-arm’s length persons, owns directly or indirectly not less than 10% of the issued shares of any class or series of the capital stock of the applicable Fund, or any other corporation related to the applicable Fund. However, an annuitant will not be considered to be a connected shareholder if the annuitant deals at arm’s length with the applicable Fund and the cost to the annuitant, and persons not dealing at arm’s length with the annuitant, of shares in the applicable Fund, or any other corporation related to the applicable Fund, is less than $25,000. See “Canadian Federal Income Tax Considerations” and “Ontario Income Tax Considerations”.

Although, as described above, Class A Shares will generally be qualified investments for RRIFs, a RRIF is not permitted to subscribe directly for Class A Shares.

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PROSPECTUS SUMMARY

The following is a summary of the principal features of this distribution and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus or incorporated by reference in this prospectus.

Covington Fund II

Covington Fund II is a corporation incorporated under the laws of Ontario. Covington Fund II is registered as a labour sponsored investment fund corporation under the Ontario Act and qualifies as a prescribed labour-sponsored venture capital corporation under the Income Tax Act (Canada) (the “Federal Tax Act”).

Covington Fund II makes investments in eligible businesses as defined in the Ontario Act. In general terms, eligible businesses are public or private companies carrying on business in Ontario with less than 500 employees and less than $50 million of total assets. The 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. In order to achieve this objective, the investment strategy of Covington Fund II is to invest in two different types of situations. The first is in companies with significant growth potential in early stage or expanding markets. The second is in more established, steady growth companies, which will often provide current yield and early return of capital to Covington Fund II. Pending such investments, Covington Fund II will invest in high quality, short-term government and public company debt obligations.

Covington Strategic Capital Fund

Covington Strategic Capital Fund is a corporation incorporated under the laws of Ontario. Covington Strategic Capital Fund is registered as a labour sponsored investment fund corporation under the Ontario Act and qualifies as a prescribed labour-sponsored venture capital corporation under the Federal Tax Act.

Covington Strategic Capital Fund makes investments in eligible businesses as defined in the Ontario Act. The objective of Covington Strategic Capital Fund 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. Covington Strategic Capital Fund will invest primarily in Canadian independent software vendors that develop software applications that may run on one or more software operating system platforms, and intends to develop and grow investee businesses in cooperation with strategic partners.

Covington has considerable experience in investing in this industry sector with approximately one-third of its managed portfolio companies being software companies. It has been Covington’s experience that limitations on a software company’s revenue growth are attributable largely to a lack of relationships and the inability to establish the necessary channel partners for product distribution in these various sectors. Although obtaining sufficient capital is a part of solving these shortcomings, software companies must also forge relationships with key industry partners so that the capital investment can be efficiently leveraged through collaboration with established, successful and strategic partners. Covington believes that involving strategic partners in Covington Strategic Capital Fund’s investment process can greatly assist investee companies in establishing necessary relationships. The appropriate candidates will be early to expansion stage software companies that would benefit from the services of strategic partners in addition to the financing to be provided by Covington Strategic Capital Fund. Covington expects that strategic partners will assist in establishing appropriate sales channels while providing equally important product and market credibility to prospective customers of the investee company.

Covington Strategic Capital Fund seeks to establish both formal and informal relationships with strategic partners that can assist Covington Strategic Capital Fund in achieving its objectives. Strategic partners with which Covington Strategic Capital Fund establishes relationships are expected to be a source of qualified investment referrals to Covington and, where appropriate, they will provide resources to assist in due diligence evaluations. Although reference is made in this prospectus to the term “strategic partners”, the relationship of Covington Strategic Capital Fund and Covington with such parties is not and is not expected to be in the form of a legal partnership and in many cases will be strictly informal.

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Investment Restrictions

Covington Fund II and Covington Strategic Capital Fund are subject to certain investment restrictions under the Ontario Act. In addition, the Funds have adopted certain other investment policies and guidelines. Potential investments of a Fund will be evaluated according to, among other things: stage of development; size of company; quality of management; the market potential of the products or services sold or distributed; the profit potential of the company; and the opportunity for realization by the Fund of its investments. See “Investment Objective” and “Investment Strategies”.

Risk Factors

These securities are highly speculative in nature and suitable only for investors able to make a long-term investment and who have the capacity to lose some or all of their investment. Many of the companies in which the Funds will invest are developing products, technologies or services for which markets are not yet established and may never be established. It is possible that some of the Funds’ investments will not mature and generate expected returns. There is no assurance that suitable investments in eligible businesses will be found. Early stage investment funds are usually considered more risky than funds that invest in companies at varying stages of development. The Funds’ early stage investments will typically take longer to mature and present opportunities than other venture capital investments. Venture capital investment in eligible businesses according to the investment restrictions and policies applicable to the Funds requires a greater commitment to investment analysis than investments in most other securities. Investors in Class A Shares of a Fund will be relying on the business judgment, expertise and integrity of the board of directors and management of the applicable Fund and of Covington. Many of the rules normally applicable to mutual funds do not apply to the Funds. In particular, rules directed at ensuring liquidity and diversification of investments and certain other investment restrictions and practices normally applicable to mutual funds do not apply. The Funds may take positions in small and medium-sized businesses that represent a larger percentage of the equity than a mutual fund would be permitted to take, and this may increase the risk per investment. The values that the Funds put on their investments may not reflect the amounts for which they can actually be sold. The transfer of Class A Shares of each Fund is restricted. There is no formal market, such as a stock exchange, through which Class A Shares may be sold, and none is expected to develop. The Funds will generally be required to withhold certain amounts on the redemption of their Class A Shares before the eighth anniversary of the issue date for the particular share. There are certain restrictions on the voting and redemption of Class A Shares. The Funds may be subject to certain penalty taxes or lose their registration if they fail to meet the investment requirements of the Ontario Act. If a Fund’s registration under the Ontario Act is revoked, investors in that Fund may be ineligible for federal and provincial tax credits. There is no assurance that changes will not be introduced to federal or provincial legislation or regulations which, if unfavourable, could impair the Funds’ investment performance and their ability to attract future investment capital. Investors should consult with a professional advisor. See “Risk Factors”. The reduction of Ontario tax credits for the 2010 and 2011 taxation years and the elimination of the Ontario provincial tax credit for 2012 and subsequent years are likely to materially reduce future sales of Class A Shares of the Fund. The availability of funds for investment by the Funds in the future will be reduced and the Funds may be adversely impacted. Investors should consult with a professional advisor. See “Risk Factors”.

Tax Benefits

Federal Tax Credits: Individuals resident in Canada who are first purchasers of Class A Shares of the Funds issued under this prospectus will be eligible for a 15% federal tax credit to a maximum credit of $750 for the year (based on an investment of $5,000). Proposed amendments to the Federal Tax Act, applicable to acquisitions of Class A Shares after 2003, provide that a federal tax credit is only available for a Class A share of a prescribed labour-sponsored venture capital corporation that is not federally registered if a provincial tax credit is also available in respect of the Class A Share. See “Canadian Federal Income Tax Considerations – Federal Tax Credit Available to First Purchasers”.

Ontario Tax Credits: Individuals resident in Ontario who purchase Class A Shares issued under this Prospectus by March 1, 2010 will be eligible for a provincial tax credit equal to 15% of the purchase price of Class A Shares to a maximum credit of $1,125 for the 2009 taxation year based on an investment of $7,500. The provincial tax credit

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will be reduced for the 2010 and 2011 taxation years and eliminated for the 2012 and subsequent taxation years. See “Ontario Income Tax Considerations – Ontario Tax Credits Available to First Purchasers”.

Investors who purchase Class A Shares of a Fund after December 31, 2009, but on or before March 1, 2010 (the last day on which Class A Shares may be acquired by an eligible investor to claim federal and provincial tax credits for 2009) may elect to have their Ontario tax credit and their federal tax credit apply in respect of the 2009 taxation year instead of the 2010 taxation year.

The above maximum Ontario and federal tax credits apply in respect of an eligible investor’s aggregate purchases in respect of the year of shares issued by labour sponsored investment fund corporations, in the case of the Ontario tax credit, or prescribed labour-sponsored venture capital corporations, in the case of the federal tax credit.

Subject to the qualification discussed above under the heading “Eligibility for Investment”, the Class A Shares of the Funds are qualified investments for RRSPs and RRIFs. An individual who purchases Class A Shares and elects to transfer such Class A Shares to an RRSP under which the individual or his or her spouse or common-law partner is the annuitant is entitled to treat such transfer as a deductible contribution to the RRSP, subject to the contribution limits in the Federal Tax Act. This deduction from income is in addition to the federal and provincial tax credits referred to above. In addition, Class A Shares may be purchased by certain RRSPs. In such a case, the individual who contributed to the RRSP generally is entitled to claim the federal tax credit and the provincial tax credit. See “Eligibility for Investment”, “Canadian Federal Income Tax Considerations” and “Ontario Income Tax Considerations”.

The Offering

Offering: Class A Shares of Covington Fund II.

Series I Shares and Series II Shares of Covington Strategic Capital Fund. The difference between the Series I Shares and the Series II Shares is the sales commission structure and corresponding redemption structure associated with each such series, and the difference in the time over which and corresponding net asset value upon which such fees are calculated. See “Purchases of Securities”.

Offering Price: Class A Shares of Covington Fund II are offered on a continuous basis at the net asset value per Class A Share at the close of business on the date on which the subscription for Class A Shares is received.

Class A Shares of Covington Strategic Capital Fund are offered on a continuous basis at the net asset value per Class A Share for the applicable series of Class A Shares at the close of business on the date on which the subscription for Class A Shares is received.

Purchasers: The Class A Shares of each Fund may be issued only to individuals and RRSPs. See “Attributes of the Securities — Class A Shares — Issue”.

Minimum Investment for each Fund:

Minimum initial subscription: $500. Minimum subsequent subscription: $25. For pre-authorized chequing plan, the minimum subscription is $25.

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Voting Rights: Each Class A Share entitles the holder to one vote per share at all general meetings of shareholders of the applicable Fund. Holders of Class A Shares of Covington Fund II are currently entitled to elect two directors of the Covington Fund II. Holders of Class A Shares of Covington Strategic Capital Fund are currently entitled to elect one director of the Covington Strategic Capital Fund. See “Attributes of the Securities” and “Organization and Management Details of the Funds - The Sponsor of the Funds”.

Transfer: The transfer of Class A Shares of a Fund is restricted except in circumstances similar to those described below with respect to the redemption of Class A Shares. See “Attributes of the Securities – Class A Shares - Redemption”.

Redemption

A holder of Class A Shares of a Fund may require that Fund to redeem his or her Class A Shares on or after the eighth anniversary of the date of issue of the Class A Shares. Class A Shares may also be redeemed at any time prior to the expiry of the eight year period if a special tax determined by formula for recovery of an amount in respect of the tax credits on such shares is withheld from the redemption proceeds and paid to the Receiver General for Canada and an amount equal to 15% of the original issue price or the redemption price, whichever is less, is withheld and paid to the Minister of Revenue (Ontario).

A holder of Class A Shares of a Fund may also require that Fund to redeem his or her Class A Shares prior to expiry of the eight year period without withholding of the tax credit or other amount referred to above in the event of any of the following: (i) the holder has requested the applicable Fund to redeem the Class A Shares within 60 days after the day on which the Class A Shares were issued to the original purchaser and the tax credit certificate issued under the Ontario Act has been returned to the applicable Fund; (ii) the original purchaser of the Class A Shares, as defined in the Ontario Act, has become disabled and permanently unfit for work or becomes terminally ill, (iii) the Class A Shares or the beneficial interest therein has devolved upon the holder as a consequence of the death of the original purchaser; or (iv) the applicable Fund publicly announces that it proposes to dissolve or wind-up and the redemption, acquisition or cancellation of the Class A Shares is part of the dissolution or wind-up of the applicable Fund, and occurs within a reasonable time before the applicable Fund surrenders its registration.

In determining whether the redemption of a Class A Share is prior to eight years from the date of issue, under the Ontario Act, a Class A Share issued in February or March that is redeemed in February or on March 1 is deemed to be redeemed on March 31. Under the Federal Tax Act, if a Class A Share is redeemed in February or on March 1 of a calendar year and that day is no more than 31 days before the day that is eight years after the day on which the Class A Share was issued, then there will be no requirement to withhold the federal special tax.

Subject to the withholding of any amount required to be withheld as described above and the deduction of the applicable redemption fees described below, Class A Shares will be redeemed at the net asset value per Class A Share as of the close of business on the date on which the applicable Fund receives the duly completed request for redemption.

In any financial year, a Fund will not be required to redeem Class A Shares having an aggregate redemption price exceeding 20% of the net asset value of that Fund as of the last day of the preceding financial year. Each Fund intends to maintain sufficient liquid investments to enable it to honour requests for redemptions however Covington Fund II may subject itself to an annual cap on redemptions as part of its strategy to ensure sufficient liquidity to honour redemptions. See “Redemption of Securities”, “Attributes of the Securities — Class A Shares” and “Risk Factors – Redemption”.

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Redemption Fee

Covington Fund II:

A redemption fee of up to 6% of the offering price of the Class A Shares will be charged to investors and calculated as 0.75% of the offering price of the Class A Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Class A Shares. After the eighth anniversary of the date of issue of the Class A Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington Fund II. See “Redemption of Securities” and “Attributes of the Securities — Class A Shares”.

Covington Strategic Capital Fund:

Series I Shares: A redemption fee of up to 10% of the offering price of the Series I Shares will be charged to investors and calculated as 1.25% of the offering price of the Series I Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series I Shares. After the eighth anniversary of the date of issue of the Series I Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Redemption of Securities” and “Attributes of the Securities — Class A Shares”.

Series II Shares: A redemption fee of up to 6% of the offering price of the Series II Shares will be charged to investors and calculated as 0.75% of the offering price of the Series II Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series II Shares. After the eighth anniversary of the date of issue of the Series II Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Redemption of Securities” and “Attributes of the Securities — Class A Shares”.

Valuation Dates

In order to establish the net asset value per Class A Share for purposes of issuing and redeeming Class A Shares, valuations of each Fund’s assets are carried out on a daily basis. The net asset value per Class A Share is determined as at the end of each business day. The Fund is required, by applicable securities legislation, to obtain on an annual basis, a valuation by an independent qualified person of the net asset value of the Fund and the net asset value per Share. The Fund satisfies this requirement by engaging Ernst & Young LLP, the Fund’s independent auditors, to perform certain procedures on the value of the Fund’s investments for which no public markets exist as at August 31 of each year as part of Ernst & Young LLP’s audit of the Fund’s annual financial statements. See “Calculation of Net Asset Value”.

Dividends

Holders of Class A Shares of a Fund are entitled to receive dividends at the discretion of the board of directors of the applicable Fund. The dividend policy of each Fund is, under normal circumstances, not to pay any cash dividends. However, earnings and realized capital gains of a Fund may be capitalized each year thereby entitling the applicable Fund to certain tax refunds. See “Distribution Policy – Dividends”. See “Canadian Federal Income Tax Considerations” and “Ontario Income Tax Considerations”.

Termination

Either Fund may be dissolved by special resolution of its shareholders. See “Termination of the Fund” and “Attributes of the Securities – Class A Shares – Dissolution” for information about the entitlements of Class A shareholders on a dissolution.

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Organization and Management of Covington Fund II Inc. and Covington Strategic Capital Fund Inc.

Covington Capital Corporation: Covington is the investment advisor of Covington Fund II and the manager of Covington Strategic Capital Fund. Covington sources and manages eligible investments for each Fund.

Covington is responsible for identifying investment opportunities, investigating, structuring and negotiating prospective investments, making recommendations and providing certain administrative services. However, the Investment Committee of each Fund is responsible for final approval of all investment decisions. Subject to independent valuation as required under the Ontario Act and approval of the applicable Fund’s Valuation Committee in specified circumstances, Covington is responsible for evaluating and reporting on the performance of portfolio companies on an ongoing basis and assisting the management of portfolio companies where appropriate. Finally, Covington is responsible for the determination and execution of the appropriate timing, terms and methods of liquidating investments in portfolio companies. See “Investment Strategies”.

Covington is a wholly-owned subsidiary of RC Capital which purchased Covington from AMG Canada Corp. on July 2, 2009. RC Capital is owned equally by two trusts of which the Principals are the sole trustees. Mr. Scott D. Clark is the President, Chief Executive Officer and Chief Compliance Officer of Covington and Mr. Philip R. Reddon is the Managing Director of Covington. The Principals, supported by an investment team, have significant experience as investors in, or advisors to, middle market Canadian companies. The Principals have networks of contacts through which to source potential investments and have the capability and experience to undertake financial and business analysis, investment structuring, credit evaluation, business valuation, investment monitoring and control, financial and corporate restructuring, and exit management. See “Organization and Management Details of the Funds – Investment Advisor”.

Covington also provides investment advisory services to certain other labour sponsored investment funds. See “Organization and Management Details of the Funds - Conflicts of Interest”.

The head office and principal place of business of Covington is 200 Front Street West, Suite 3003, Toronto, Ontario M5V 3K2.

The Fund Advisor:

Covington is the fund advisor for the Funds. As fund advisor, Covington provides marketing and investor relations services to the Funds. See “Organization and Management Details of the Funds - CFII Fund Promoter Agreement” and “Organization and Management Details of the Funds - CSCF Fund Advisor Agreement”.

The Fund Administrator:

The Fund Administrator for the Funds is CI, which provides administration and client services, shareholder reporting and transfer agency services to each of the Funds from Toronto, Ontario. See “Organization and Management Details of the Funds - The Fund Administrator of the Funds”.

The Sponsor: The sponsor of each of the Funds is the Canadian Police Association (the “Sponsor”) which is based in Ottawa, Ontario. Prior to August 2003, the Sponsor was the Canadian Police Association Incorporated, which merged with the National Professional Police Association in August 2003 to form the Canadian Police Association. See “Organization and Management Details of

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the Funds – The Sponsor of the Funds”.

The Sponsor is entitled to elect that number of directors representing the total number of directors less the number of directors that the holders of the Class A Shares are entitled to elect. Therefore, the Sponsor is currently entitled to elect four out of the six members of the board of directors of Covington Fund II. The Sponsor owns all of the issued and outstanding Class B Shares of Covington Fund II, which entitle holders to one vote per share at general meetings of shareholders of Covington Fund II but do not entitle the holders to any dividends. See “Attributes of the Securities — Sponsor’s Shares (Class B Shares)”.

The Sponsor is entitled to elect that number of directors representing the total number of directors less the number of directors that the holders of the Class A Shares are entitled to elect. Therefore, the Sponsor is currently entitled to elect five of the six members of the board of directors of Covington Strategic Capital Fund. The Sponsor owns all of the issued and outstanding Class B Shares of Covington Strategic Capital Fund, which entitle holders to one vote per share at general meetings of shareholders of Covington Strategic Capital Fund but do not entitle holders to any dividends. See “Attributes of the Securities — Sponsor’s Shares (Class B Shares)”.

While members of the Sponsor may subscribe for Class A Shares of the Funds, neither the Sponsor nor its members are required to make any investment in Class A Shares of the Funds. Individuals investing in Class A Shares need not be members of or have any connection with the Sponsor.

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The Registrar and Transfer Agent:

Each of Covington Fund II and Covington Strategic Capital Fund has retained CI to provide registrar, transfer agency, shareholder reporting, customer support and various other administration services. In addition to providing the registrar, transfer agency and other shareholder administration services to Covington Fund II and Covington Strategic Capital Fund, the Registrar and Transfer Agent performs similar services for outside clients including other labour sponsored investment funds. See “Organization and Management Details of the Funds – The Registrar and Transfer Agent”.

The Custodian:

Each of Covington Fund II and Covington Strategic Capital Fund has retained RBC Dexia Investor Services Trust to act as custodian of the Class A Share Investment Portfolios and the reserve portfolio. The Custodian also performs certain valuation and fund accounting services for the Funds. The Custodian provides services to each of Covington Fund II and Covington Strategic Capital Fund in Toronto, Ontario. See “Calculation of Net Asset Value” and “Securityholder Matters – Reporting to Shareholders”.

The Auditor:

Each of Covington Fund II and Covington Strategic Capital Fund has retained Ernst & Young LLP, Ontario to act as the auditor of the Funds. The Auditor provides services to the Funds in Toronto, Ontario. See “Organization and Management Details of the Funds – The Auditor”.

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Relationship Among Principal Parties

The diagram below shows the relationships among the principal parties described in this prospectus and their major responsibilities.

RC Capital Management Inc.

Fund Administrator:CI Investments Inc.

• administ ration and client services

• shareholder reporting• transfer agent and

registrar• other shareholder services

Sponsor:Canadian

PoliceAssociation

• holds Class B Shares

• participating on all sub-commit tees of the Board of Directors of the Fund

CFIISponsorAgreement

CFII FundAdministratorAgreement

Covington CapitalCorporation

• source transactions• identify and analyze

investment opportunit ies• provides investment

analysis, investment recommendations

• recommend investments to Investment Committee of the Fund

• structure and negotiate approved investments

• arrange for valuations• monitor investments• determine t iming and

method of exit ing from investments

• administrative services• marketing services• investor services

InvestmentAdvisorAgreement

CFII FundAdvisorAgreement

CovingtonStrategic

Capital Fund Inc.

CSCF Sponsor Agreement

CSCF FundAdministratorAgreement

CSCF FundAdvisorAgreement

Ma nagementAgreement

CovingtonFund II Inc.

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Summary of Fees and Expenses

This table lists the fees and expenses that you have to pay if you invest in Covington Fund II Inc. and/or Covington Strategic Capital Fund Inc. You may have to pay some of these fees and expenses directly. The Fund may have to pay some of these fees and expenses, which will reduce the value of your investments in the Fund.

Summary of Distribution Expenses Payable by Covington Fund II

Sales Commissions and Service Fees:

6% of offering price plus an annual service fee of 0.5% of net asset value of Class A Shares.(*)

Investors who purchase Class A Shares will not pay any sales commissions directly.

Covington Fund II pays to the selling registered dealer a commission of 6% of the offering price in respect of the sale of Class A Shares. Covington Fund II also pays to registered dealers a service fee equal to 0.5% annually of the average total net asset value of the Class A Shares held by the clients of the sales representatives of the dealers, calculated and paid monthly. See “Purchases of Securities”.

Marketing Services Fee:

0.5% of offering price of Class A Shares.(*)

Covington Fund II pays to Covington a marketing services fee of 0.5% of the offering price of Class A Shares. See “Purchases of Securities”.

Summary of Distribution Expenses Payable by Covington Strategic Capital Fund

Sales Commissions and Service Fees:

Series I Shares: 10% of offering price plus, after eight years, an annual service fee equal to 0.5% of the net asset value of the Series I Shares.(*)

Investors who purchase Class A Shares will not pay any sales commissions directly.

Series I Shares: Covington pays to the selling registered dealer a commission of 10% of the offering price in respect of the sale of Series I Shares. This commission consists of a 6% commission plus an additional 4% commission of the offering price of the Series I Shares. The 4% commission is paid in lieu of any service fees payable before the eighth anniversary of the date of issue of such Series I Shares. In addition, after a period of eight years, Covington Strategic Capital Fund will pay to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series I Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. See “Purchases of Securities”.

Series II Shares: 6% of offering price plus an annual service fee equal to 0.5% of the net asset value of the Series II Shares.(*)

Series II Shares: Covington pays to the selling registered dealer a commission of 6% of the offering price in respect of the sale of Series II Shares. In addition, Covington Strategic Capital Fund pays to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series II Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. See “Purchases of Securities”.

Although investors who purchase Class A Shares will not pay any sales commissions directly, they indirectly support the payment of sales commissions by Covington Strategic Capital Fund and Covington as Covington Strategic Capital Fund pays services fees to registered dealers whose sales representatives’ clients hold Class A Shares and Covington Strategic Capital Fund compensates Covington for the payment of sales commissions through a monthly distribution fee and the provision of various

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other services discussed in this prospectus through the fees paid in respect of investment advisory services and management services. See “Fees and Expenses” and “Purchases of Securities”.

Summary of Ongoing Expenses Payable by Covington Fund II

Sponsor Fee:

Annual fee up to 0.3% of net asset value on first $200 million of combined assets of the Funds and 0.1% of net asset value on combined assets over $200 million.(*)

Covington Fund II pays the Sponsor an annual fee at the rate of up to 0.3% of the net asset value of Covington Fund II with respect to Covington Fund II’s share of the first $200 million of combined assets of the Funds, both labour-sponsored investment fund corporations sponsored by the Sponsor, and at a rate of 0.1% of the net asset value of Covington Fund II with respect to Covington Fund II’s share of any combined assets in excess of $200 million. The sponsor fee is calculated and paid monthly. See “Fees and Expenses - Sponsor Fees”.

Investment Advisor Fees: Covington Fund II pays the following amounts to Covington:

(i) Covington receives an annual fee for its investment advisory services at the rate of 2.0% of the net asset value of Covington Fund II, calculated and paid monthly; and

Annual fee of 2.0% of net asset value for investment advisory services plus, subject to satisfying certain performance conditions, an IPA equal to 20% of income earned from investments.(*)

(ii) Covington is entitled to an incentive participation amount (the “IPA”) based on realized gains and the cumulative performance of Covington Fund II. Before any IPA is paid to Covington on the realization of an eligible investment, Covington Fund II must have:

(A) earned sufficient income to generate a rate of return on eligible investments greater than the average of the 5-year GIC rate of the five major banks plus 2% on an annualized basis. The income on eligible investments includes investment gains and losses (realized and unrealized) earned and incurred since inception of Covington Fund II;

(B) earned income from the particular investment which provides a cumulative investment return at an average annual rate in excess of 12% since investment; and

(C) fully recouped an amount equal to all principal invested in the particular investment.

Subject to all of the above, the IPA will be equal to up to 20% of all income earned from the particular investment since the date of the initial investment.

See “Fees and Expenses - Covington Fees”.

Fund Advisor Fee:

Annual fee of 0.75% of net asset value.(*)

Covington Fund II pays to Covington an annual fee for marketing and investor relations services at the rate of 0.75% of the net asset value of Covington Fund II, calculated and paid monthly. See “Fees and Expenses - Fund Advisor Fees”.

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Fund Administrator Fee:

Annual fee of 0.60% of net asset value.(*)

Covington Fund II pays to the Fund Administrator an annual fee for administration and client services, shareholder reporting and transfer agency services at the rate of 0.60% of the net asset value of Covington Fund II per annum. See “Fees and Expenses - Fund Administrator Fees”.

Operating Expenses:

As incurred.(*)

Other Covington Fund II expenses include administrative and operating expenses including expenses relating to portfolio transactions, taxes, legal, audit, custodial and fund accounting fees, costs of qualifying the Class A Shares for distribution, marketing, security realization and directors’ fees (including fees paid to directors who are members of the Audit Committee, Investment Committee or the Valuation Committee). These operating expenses will be higher than those of other mutual funds and pooled investment vehicles. See “Fees and Expenses - Operating Expenses”. All the fees and expenses payable in connection with the establishment and maintenance of the Independent Review Committee will be paid by Covington Fund II. See “Organization and Management Details of the Funds - Independent Review Committee of the Funds”.

Summary of Ongoing Expenses Payable by Covington Strategic Capital Fund

Sponsor Fee:

Annual fee up to 0.3% of average net asset value on the first $200 million of combined assets of the Funds and 0.1% of average net asset value on combined assets over $200 million.(*)

Covington Strategic Capital Fund pays the Sponsor an annual fee at the rate of up to 0.3% of the average net asset value of Covington Strategic Capital Fund with respect to Covington Strategic Capital Fund’s share of the first $200 million of combined assets of Covington Strategic Capital Fund and Covington Fund II Inc., both labour sponsored investment fund corporations sponsored by the Sponsor, and at a rate of 0.1% of the average net asset value of Covington Strategic Capital Fund with respect to the Covington Strategic Capital Fund’s share of any combined assets in excess of $200 million, provided that all of the assets of Covington Fund II are included in the first $200 million of combined assets. The sponsor fee is calculated and paid monthly. See “Fees and Expenses – Sponsor Fees”.

Management Fees:

Annual fee of 1.5% of average net asset value for investment advisory services, plus annual fee of 0.525% of the average net asset value for management services plus, subject to satisfying certain performance conditions, an IPA equal to 20% of income earned from investments.(*)

Covington Strategic Capital Fund pays the following amounts to Covington:

(a) Covington receives an annual fee for its investment advisory services at the rate of 1.5% of the average net asset value of Covington Strategic Capital Fund, calculated and paid monthly;

(b) Covington is entitled to an incentive participation amount (the “IPA”) based on realized gains and the cumulative performance of the Fund. Before any IPA is paid to Covington on the realization of an eligible investment, Covington Strategic Capital Fund must have:

(i) earned sufficient income to generate a rate of return on eligible investments greater than the average of the 5-year GIC rate of the five major Canadian banks plus 2% on an annualized basis. The income on eligible investments includes investment gains and losses (realized and unrealized) earned and incurred since inception of Covington Strategic Capital Fund;

(ii) earned income from the particular investment which provides a cumulative return at an average annual rate in

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excess of 8% since investment; and

(iii) fully recouped an amount equal to all principal invested in the particular investment.

Subject to all of the above, the IPA will be equal to up to 20% of all income earned from the particular investment since the date of the initial investment, provided that Covington Strategic Capital Fund will not pay the IPA on any partial disposition of an eligible investment unless and until Covington Strategic Capital Fund receives (from all dispositions of that investment on a cumulative basis) an amount equal to at least the full amount of the principal invested in the eligible investment; and

(c) Covington receives an annual fee for management services at the rate of 0.525% of the average net asset value of Covington Strategic Capital Fund, calculated and paid monthly.

See “Fees and Expenses - Operating Expenses – Manager Fees”.

Fund Advisor Fee:

Monthly fee equal to 1/12 of 0.975% of the net asset value per year.(*)

Covington Strategic Capital Fund pays to Covington a monthly fee for marketing and investor relations services at the rate of 1/12 of 0.975% of the average net asset value of Covington Strategic Capital Fund calculated and paid monthly. See “Fees and Expenses - Operating Expenses – Fund Advisor Fee”.

Fund Administrator Fee:

Annual fee of 0.60% of net asset value(*)

Covington Strategic Capital Fund pays to the Fund Administrator an annual fee for administration and client services, shareholder reporting and transfer agency services at the rate of 0.60% of the net asset value of Covington Strategic Capital Fund per annum. See “Fees and Expenses - Operating Expenses — Fund Administrator Fee”.

Distribution and Services Costs: Covington is responsible for managing the relationship with registered dealers selling the Class A Shares of Covington Strategic Capital Fund and will pay the sales commission to such dealers in respect of sales of the Class A Shares. Such sales commissions will not be charged to nor amortized by Covington Strategic Capital Fund.

Series I Shares: monthly fee equal to 0.160% of the offering price of unredeemed Series I Shares plus, after eight years, Covington Strategic Capital Fund will pay registered dealers having clients holding Series I Shares a commission equal to 0.5% annually of the net asset value of the Series I Shares held by clients of the sales representatives of such registered dealers.(*)

Series I Shares: Covington Strategic Capital Fund pays Covington a monthly distribution services fee in respect of such distribution related services equal to 0.160% of the offering price of the issued and unredeemed Series I Shares, equivalent to an annual distribution services fee of 1.92% of such offering price. The monthly distribution services fee is intended to reimburse Covington for financing costs incurred to fund the payment of the commissions, including an amount for interest and a one-time financing commitment fee payable in connection with such financing. In addition, after a period of eight years, Covington Strategic Capital Fund pays to each registered dealer having clients holding Series I Shares a servicing commission equal to 0.5% annually of the net asset value of the Series I Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. See “Purchases of Securities”.

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Series II Shares: monthly fee equal to 0.096% of original issue price of unredeemed Series II Shares plus Covington Strategic Capital Fund will pay registered dealers having clients holding Series II Shares a commission equal to 0.5% annually of the net asset value of the Series II Shares held by clients of the sales representatives of such registered dealers.(*)

Series II Shares: Covington Strategic Capital Fund pays Covington a monthly distribution services fee in respect of such distribution related services equal to 0.096% of the offering price of the issued and unredeemed Series II Shares, equivalent to an annual distribution services fee of 1.152% of such offering price. The monthly distribution services fee is intended to reimburse Covington for financing costs incurred to fund the payment of the commissions, including an amount for interest and a one-time financing commitment fee payable in connection with such financing. In addition, Covington Strategic Capital Fund pays to each registered dealer having clients holding Series II Shares a servicing commission equal to 0.5% annually of the net asset value of the Series II Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. See “Purchases of Securities”.

Operating Expenses:

As incurred.(*)

Other Covington Strategic Capital Fund expenses include administrative expenses and operating expenses including expenses relating to portfolio transactions, taxes, legal, audit, custodial and fund accounting fees, costs of qualifying the Class A Shares for distribution, marketing, security realization and directors’ fees (including fees paid to directors who are members of the Audit Committee, Investment Committee or the Valuation Committee). These operating expenses will be higher than those of other mutual funds and pooled investment vehicles. See “Fees and Expenses - Operating Expenses”. All the fees and expenses payable in connection with the establishment and maintenance of the Independent Review Committee will be paid by Covington Strategic Capital Fund. See “Organization and Management Details of the Funds - Independent Review Committee of the Funds”.

Summary of Investor Expenses for Covington Fund II

Sales Charge: Nil.

Transfer Fee: Nil.

RRSP/RRIF Fee: Nil. See “Purchase of Class A Shares — RRSPs and RRIFs”.

Redemption Fee:

Up to 6% of the offering price, reduced by 0.75% of the offering price for each year or partial year elapsed since issuance.(*)

A redemption fee of up to 6% of the offering price of the Class A Shares will be charged to investors and calculated as 0.75% of the offering price of the Class A Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Class A Shares. After the eighth anniversary of the date of issue of the Class A Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington Fund II. See “Redemption of Securities” and “Attributes of the Securities — Class A Shares — Redemption”.

Summary of Investor Expenses for Covington Strategic Capital Fund

Sales Charge: Nil.

Transfer Fee: Nil.

RRSP/RRIF Fee: Nil. See “Purchases of Securities - RRSPs and RRIFs”.

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Redemption Fee:

Series I Shares: up to 10% of offering price, reduced by 1.25% of the offering price for each year or partial year elapsed since issuance.(*)

Series I Shares: A redemption fee of up to 10% of the offering price of the Series I Shares will be charged to investors and calculated as 1.25% of the offering price of the Series I Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series I Shares. After the eighth anniversary of the date of issue of the Series I Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Redemption of Securities” and “Attributes of the Securities — Class A Shares — Redemption”.

Series II Shares: up to 6% of offering price, reduced by 0.75% of the offering price for each year or partial year elapsed since issuance.(*)

Series II Shares: A redemption fee of up to 6% of the offering price of the Series II Shares will be charged to investors and calculated as 0.75% of the offering price of the Series II Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series II Shares. After the eighth anniversary of the date of issue of the Series II Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington Strategic Capital Fund who will in turn pay it to Covington. See “Redemption of Securities” and “Attributes of the Securities — Class A Shares — Redemption”.

Summary of Dealer Compensation for the Funds

Sales Commissions: See “Summary of Distribution Expenses Payable by Covington Fund II ___ Sales Commissions and Service Fees” and “Summary of Distribution Expenses Payable by Covington Strategic Capital Fund — Sales Commissions and Service Fees”.

Service Fee: See “Summary of Ongoing Expenses Payable by Covington Fund II — Sales Commissions and Service Fees” and “Summary of Ongoing Expenses Payable by Covington Strategic Capital Fund – Sales Commissions and Service Fees”.

Notes:

(*) This is only a summary and should be read together with the detailed information appearing elsewhere in this prospectus

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Annual Returns and Management Expense Ratio

Annual Returns

This information shows the annual performance of the Funds for each of the fiscal years shown. How the Funds have performed in the past does not necessarily indicate how they will perform in the future.

Covington Fund II Covington Strategic Capital Fund Class A Shares Series I Shares Series II Shares

2009 – 30.69% 2008 – (8.86)% 2007 – (4.36)% 2006 – (2.71)% 2005 – 9.55%

2009 – (11.80)% 2008 – 30.99% 2007 – 10.68% 2006 – 8.36% 2005 – (3.69)%

2009 –(11.08)% 2008 – 30.97% 2007 – 10.62% 2006 – 8.49% 2005 – (3.51)%

On August 24, 2007 (the “Effective Date”), Covington Strategic Capital Fund acquired substantially all of the assets of Financial Industry Opportunities Fund Inc. (“FIOF”), in exchange for Class A Shares of Covington Strategic Capital Fund. On the Effective Date: (i) 470,588 Class A, Series I shares of FIOF were exchanged for 272,517 Series I Shares of Covington Strategic Capital Fund; and (ii) 131,726 Class A Series II shares of FIOF were exchanged for 76,903 Series II Shares of Covington Strategic Capital Fund. See “Covington Strategic Capital Fund Inc.” This information shows the annual performance of FIOF for the full fiscal years that the fund was in distribution.

Financial Industry Opportunities Fund Inc.

Class A Shares, Series I Class A Shares,

Series II

2006 – (9.3) % 2005 – (1.2)%

2006 – (8.8)% 2005 – (1.0)%

Management Expense Ratio for Covington Fund II:

The management expense ratio of Covington Fund II is based on total expenses including all fees, charges and expenses paid or payable by Covington Fund II for each fiscal year of Covington Fund II and is expressed as an annualized percentage of daily average net assets during that fiscal year. Covington Fund II’s management expense ratios listed below are for the fiscal years ending August 31.

Class A Shares 2009 – 4.95% 2008 – 4.86% 2007 – 4.78% 2006 – 4.97% 2005 – 4.99%

See the financial statements for details as to the amount of fees and expenses which have been charged to Covington Fund II for the financial year ended August 31, 2009.

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Management Expense Ratio for Covington Strategic Capital Fund:

The management expense ratio of Covington Strategic Capital Fund is based on total expenses including all fees, charges and expenses paid or payable by Covington Strategic Capital Fund for each fiscal year of Covington Strategic Capital Fund and is expressed as an annualized percentage of daily average net assets during that fiscal year. Covington Strategic Capital Fund’s management expense ratios listed below are for the fiscal years ending August 31.

Series I Shares Series II Shares

2009 – 8.57%* 2009 – 8.44%* 2008 – 15.81%* 2008 – 15.56%* 2007 – 12.28%* 2007 – 10.72%* 2006 – 4.78% 2006 – 4.49% 2005 – 7.40% 2005 – 7.12%

* The management expense ratio before IPA or contingent IPA was 7.38% and 7.24% for the Series I Shares and Series II Shares respectively for the year ended August 31, 2009, 7.71% and 7.5% respectively for the year ended August 31, 2008, and 4.60% and 4.01% respectively for the year ended August 31, 2007. See the financial statements for details as to the amount of fees and expenses which have been charged to Covington Strategic Capital Fund for the financial year ended August 31, 2009. See “Fees and Expenses – Covington Fees” for a discussion respecting the IPA for 2009.

OVERVIEW OF THE LEGAL STRUCTURE OF THE FUNDS

Covington Fund II Inc.

Covington Fund II Inc. was incorporated under the laws of the Province of Ontario by articles of incorporation dated September 20, 1999. The head and registered office of the Fund is at 200 Front Street West, Suite 3003, P.O. Box 10, Toronto, Ontario M5V 3K2.

Covington Fund II is registered as a labour sponsored investment fund corporation under the Ontario Act and is a prescribed labour-sponsored venture capital corporation under the Federal Tax Act.

The Fund is considered a mutual fund under securities legislation. However, many of the rules normally applicable to mutual funds under relevant securities legislation and policies are not applicable to the Fund as a labour sponsored investment fund. See “Risk Factors”.

Covington Strategic Capital Fund Inc.

Covington Strategic Capital Fund Inc. was incorporated under the laws of the Province of Ontario by articles of incorporation dated November 18, 2003. The head and registered office of the Fund is at 200 Front Street West, Suite 3003, P.O. Box 10, Toronto, Ontario M5V 3K2.

Covington Strategic Capital Fund is registered as a labour sponsored investment fund corporation under the Ontario Act and is a prescribed labour-sponsored venture capital corporation under the Federal Tax Act.

On August 24, 2007 (the “Effective Date”), Covington Strategic Capital Fund acquired substantially all of the assets of Financial Industry Opportunities Fund Inc. (“FIOF”), a labour sponsored investment fund also managed by Covington, in exchange for Class A Shares of Covington Strategic Capital Fund (the “Acquisition”). The number of Class A Shares of Covington Strategic Capital Fund issued to the shareholders of FIOF was based on the net asset value of FIOF relative to the net asset value of Covington Strategic Capital Fund on the Effective Date. As a result, on the Effective Date: (i) 470,588 Class A, Series I shares of FIOF were exchanged for 272,517 Series I Shares of Covington Strategic Capital Fund for a value of approximately $3,755,000; and (ii) 131,726 Class A Series II shares of FIOF were exchanged for 76,903 Series II Shares of Covington Strategic Capital Fund for a value of approximately $1,067,000. The Acquisition was approved by the Ontario Securities Commission and shareholders of each fund at a special meeting of the funds held on August 8, 2007.

The Fund is considered a mutual fund under securities and legislation. However, many of the rules normally applicable to mutual funds under relevant securities legislation and policies are not applicable to the Fund as a labour sponsored investment fund. See “Risk Factors”.

INVESTMENT OBJECTIVE

Covington Fund II Inc.

Covington Fund II will make investments in eligible businesses as defined in the Ontario Act. In general terms, eligible businesses are public and private companies carrying on business in Ontario with less than 500 employees and less than $50 million of total assets. The 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. In order to achieve this objective, the investment strategy of Covington Fund II is to invest in two different types of situations. The first is in companies with significant growth potential in early stage or expanding markets. The second is in more established, steady growth companies, which will often provide current yield and early return of capital to Covington Fund II.

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Covington Strategic Capital Fund Inc.

Covington Strategic Capital Fund will make investments in eligible businesses as defined in the Ontario Act. The objective of Covington Strategic Capital Fund 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. Covington Strategic Capital Fund will invest primarily in Canadian independent software vendors that develop software applications that may run on one or more software operating system platforms, and intends to develop and grow investee businesses in cooperation with strategic partners.

INVESTMENT STRATEGIES

Covington Fund II Inc.

In order to achieve this objective, the investment strategy of Covington Fund II is to invest in two different types of situations. The first is in companies with significant growth potential in early stage or expanding markets. The second is in more established, steady growth companies which will often provide current yield and early return of capital to Covington Fund II. See “Investment Objective and Strategy”. Pending such investments, Covington Fund II will invest in securities that qualify as reserves as defined in the Ontario Act. See “Overview of the Sectors that the Funds Invest In – Liquid Portfolio”.

Segment 1 — Early Stage/High Growth Opportunities

The primary focus of the first segment of Covington Fund II’s investment strategy is on early stage/high growth situations. These situations usually involve small companies and generally require more than one tranche of investment. The size of initial investment is likely to be smaller than in Segment 2 and may lend itself to syndication with other pools of capital in order to support the additional future financial demands of high growth situations.

The small business sector is a fertile ground for high growth opportunities. The majority of these potentially high growth situations are technology driven and many of them involve companies with the potential to expand the market for their products internationally. Often these companies not only need growth equity so that their cash flow can be used to support their increased size, but also require assistance in assessing their strategic goals. The Principals of Covington are experienced in providing both the funding and the operational guidance to assist this type of company.

Segment 2 — Established Businesses

The primary focus of the second segment of Covington Fund II’s investment strategy is in lesser risk and larger size companies. These investments will be in subordinated participating debt or equity and may or may not be syndicated with other pools of capital. These investments will usually generate a current yield. Additional compensation for the loans may be received through a variety of methods including participation in cash flow, fixed bonus payments, convertible features or equity rights. Common equity may also form part of the transaction structure in some situations.

The companies in this group will possess a strong current performance record and will generally have a solid financial structure. The use of funds in these types of situations will usually be for expansion of the business or for project funding. The owners of this type of company are often unwilling to give up equity in order to fund the growth and therefore usually would rather fix the majority of the investor return and provide an upside through cash flow participation or a small equity share. Although this may reduce the return potential of the investment, it will generally decrease the downside risk of the investment.

Investment Considerations

In implementing its investment strategy, Covington Fund II will consider a number of factors, including the following:

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� Industry Diversification: No more than 35% of Covington Fund II’s total assets at the time of investment will be invested in any one industry without approval of the Investment Committee of Covington Fund II. Covington Fund II may look more closely at investing in industries offering significant potential for employment, provided the investment otherwise meets Covington Fund II’s investment criteria.

� Size of Investments: The size of each investment will depend on the financial requirements of the business in which the investment is made. In most circumstances, the minimum investment is expected to be approximately $250,000 and the maximum investment $20 million (or 10% of the equity capital of Covington Fund II), including any follow-on investment requirements. Covington Fund II’s investment in the early stage/high growth sector may form part of a larger investment made with other investors.

� Geographic Diversification: Covington Fund II will attempt to diversify its investments geographically by investing in businesses throughout Canada, to the extent permitted by the Ontario Act. There may also be some investments outside of Canada as permitted by the Ontario Act.

� Stage of Development: By virtue of its segmented approach, Covington Fund II will diversify its investments in businesses at different stages of development so as to balance appropriate risks with desired returns.

� Management Team: Covington Fund II will evaluate the cohesiveness and experience of the management team and their commitment to the company’s success.

� Realization Potential: Covington Fund II will normally have a reasonable expectation that it will be able to dispose of the investment within five to seven years if it wishes to do so. Some investments may require a greater maturation period in order to realize their full potential.

Covington Fund II will seek to acquire, where possible, an ownership position in the business, frequently in excess of 10% of any class or series of a class of securities of the business, which is significant enough to justify Covington Fund II’s efforts in making and monitoring the investment. Covington Fund II will assess the merits of syndicating an investment on a transaction-by-transaction basis.

Covington Strategic Capital Fund Inc.

Covington believes that Canada has a thriving market for small, independent software companies or vendors but the majority of these companies never manage to break through an annual revenue level that exceeds $2 million. Covington has considerable experience in investing in this industry sector, with approximately one-third of its managed portfolio companies being software companies. These software companies operate in all segments of the economy providing Covington Strategic Capital Fund with balanced exposure to a variety of industries including manufacturing, service and distribution, healthcare and information and communication technology.

It has been the Covington’s experience that limitations on a software company’s revenue growth are attributable largely to a lack of relationships and the inability to establish the necessary channel partners for product distribution in these various sectors. Although obtaining sufficient capital is a part of solving these shortcomings, software companies must also forge relationships with key industry partners so that the capital investment can be efficiently leveraged through collaboration with established, successful and strategic partners. Covington believes that involving strategic partners in Covington Strategic Capital Fund’s investment process can greatly assist investee companies in establishing necessary relationships. The appropriate candidates will be early to expansion stage software companies that would benefit from the services of strategic partners in addition to the financing to be provided by Covington Strategic Capital Fund. Covington expects that strategic partners will assist in establishing appropriate sales channels while providing equally important product and market credibility to prospective customers of the investee company.

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The Collaborative Model

Covington intends to involve strategic partners throughout the investment process. They are expected to be a source of qualified investment referrals to Covington and, where appropriate, they will provide resources to assist in due diligence evaluation. It is an important role of Covington to assist in strengthening relationships between investee companies and strategic partners.

Strategic Partners

To assist Covington Strategic Capital Fund in fulfilling its investment objectives, Covington expects to enter into relationships, both formal and informal, with strategic partners that are positioned to provide assistance to Covington Strategic Capital Fund in identifying and evaluating investee companies, and to provide technical, sales and marketing and other assistance to the Covington Strategic Capital Fund’s investee companies. Although reference is made in this prospectus to the term “strategic partners”, the relationship of Covington Strategic Capital Fund and Covington with such parties is not and is not expected to be in the form of a legal partnership and in many cases will be strictly informal.

Investment Considerations

In implementing its investment strategy, Covington Strategic Capital Fund will consider a number of factors, including the following:

� Suitability for Collaborative Model: Covington Strategic Capital Fund intends to develop and grow investee businesses in cooperation with strategic partners. Covington Strategic Capital Fund will focus on investment opportunities in companies that have technologies and business plans that can benefit from the collaboration model in addition to the financing to be provided by Covington Strategic Capital Fund.

� Investment Diversification: Covington Strategic Capital Fund will be investing in the information technology sector with a particular emphasis on software applications. Given that many software companies target specific industry verticals, Covington will seek to limit Covington Strategic Capital Fund’s target verticals to 35% of any single industry unless it obtains the approval of the Investment Committee of Covington Strategic Capital Fund.

� Size of Investments: The size of each investment will depend on the financial requirements of the business in which the investment is made. In most circumstances, the minimum investment is expected to be approximately $250,000 and the maximum investment $15 million, including any follow on investment requirements. Covington Strategic Capital Fund’s investment in the early stage/high growth sector may form part of a larger investment made with other investors.

� Geographic Diversification: Covington Strategic Capital Fund will attempt to diversify its investments geographically by investing in entities carrying on businesses throughout Canada to the extent permitted by the Ontario Act. There may also be some investments outside of Canada as permitted by the Ontario Act.

� Stage of Development: By virtue of its segmented approach, Covington Strategic Capital Fund will diversify its investments in businesses at different stages of development so as to balance appropriate risks with desired returns.

� Management Team: Covington Strategic Capital Fund will evaluate the cohesiveness and experience of the management team and their commitment to the company’s success.

� Realization Potential: Covington Strategic Capital Fund will normally have a reasonable expectation that it will be able to dispose of the investment within five to seven years if it wishes to do so. Some investments may require a greater maturation period in order to realize their full potential.

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Covington Strategic Capital Fund will seek to acquire, where possible, an ownership position in the business, frequently in excess of 10% of any class or series of a class of securities of the business, which is significant enough to justify Covington Strategic Capital Fund’s efforts in making and monitoring the investment. Covington Strategic Capital Fund will assess the merits of syndicating an investment on a transaction-by-transaction basis.

Identifying Investment Opportunities

The success of each Fund depends on its ability to identify attractive investment opportunities consistent with the investment objective of the applicable Fund and applicable statutory restrictions. The Principals of Covington have networks of contacts with entrepreneurs, venture capital companies, investment dealers and investment managers, financial intermediaries, merger and acquisition specialists and professional firms through which to source certain investment opportunities for referral to the Funds. Covington actively seeks to develop attractive investment opportunities and will present all such opportunities to the applicable Fund for consideration. As well, each Fund has received and expects to receive proposals from businesses seeking financing as awareness of the Funds is developed. The Sponsor may also provide the Funds with a potential source of investment opportunities. The Funds may from time to time earn fees upon the commitment of funds to potential investee companies.

The Funds will co-operate with other investors in identifying, structuring and negotiating investments. Participation with other investors in attractive investments increases a Fund’s investment opportunities. Each Fund may also invite other investors to participate in transactions structured by it.

The Funds will not pay any finders’ fees or similar compensation to Covington, directors, officers or employees in connection with the making of investments by the Fund. However, expenses incurred by Covington in carrying out due diligence investigations, preparing or assisting in the preparation of strategic and business plans and providing advisory services and directors to investee companies may be paid by the investee company. In addition, except with the prior approval of the applicable Fund, directors’ remuneration paid by investee companies to representatives of such Fund or Covington will be retained by the Funds.

The board of directors of each Fund (each a “board”) has overall responsibility for all investments made by the applicable Fund, including the establishment of investment policies and the implementation of appropriate procedures with respect to the investment process.

Investment Committee

Each board has established an investment committee (the “Investment Committee”). The Investment Committee for each Fund is responsible for reviewing all investment recommendations made by Covington, and approval or rejection of all investments, reviewing the performance of existing investments and recommending investment policies and procedures to the board for approval. Where an additional investment in a business in which a Fund has already invested is considered necessary, any two of the Chairman, President or Managing Director of Covington (the “Senior Officers”) may authorize such additional investment up to an amount not exceeding 10% of the original investment.

Each board has granted Covington a renewable investment discretion in an amount not to exceed $5 million, exercisable by any two of the Senior Officers. The applicable Investment Committee must subsequently approve the investment in the normal course in order to renew the discretion.

Screening Investments

In its evaluation of a prospective investment for a Fund, Covington’s investigation will usually include the following:

� research on the particular industry, markets, products, services and/or technology;

� an analysis of the competitive position of the particular company;

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� inquiries about the experience of the management team, and in some instances an independent human resources report on the capabilities and effectiveness of the management team;

� an examination of the past performance and business plan of the company;

� an analysis of the company’s financial statements, projections and forecasts;

� an assessment of the regulatory environment in which the company operates; and

� obtaining opinions and information about the company and its prospects from consultants, customers, suppliers, bankers, financial analysts and technical consultants, as may be required.

Following screening and an initial favourable review, Covington will prepare an investment memorandum reporting on the results of its investigation and analysis which will be forwarded to all members of the applicable Investment Committee.

Where it is considered advisable, Covington will engage on behalf of a Fund other specialists with particular expertise for assistance and advice with respect to its review of particular investment opportunities.

Form of Investments

The particular form of a Fund’s investments in portfolio companies will be negotiated after taking into account the investment criteria and guidelines of the applicable Fund, the long-term requirements of the portfolio company and tax considerations.

Depending on the circumstances, a Fund’s investments may take the form of debt (with or without conversion features), debt with warrants to acquire shares, nominal cost common shares or participation in cash flow or earnings, preferred shares (with or without conversion features) or common shares or rights to acquire common shares. Certain investments may involve a combination of these instruments. Typically, the Funds will seek to protect invested capital through a floating charge security, financial covenants and/or a shareholders’ agreement.

Timing of Investments

It is difficult to predict the nature and timing of investments in eligible businesses. The nature of a Fund’s investment portfolio will depend in large part on the amount of money raised by that Fund and the investment opportunities presented to that Fund. In addition, the ability of a Fund to invest its funds will depend upon the time required to originate and monitor such investments. Depending on the factors mentioned, each Fund will continue to identify suitable investment opportunities and invest monies received from each offering over a period of approximately two years. Each Fund intends to comply with the provisions of the Ontario Act regarding minimum levels of investment in eligible businesses. See “Investment Restrictions – Statutory Investment Restrictions”.

OVERVIEW OF THE SECTORS THAT THE FUNDS INVEST IN

Covington Fund II does not restrict its investments to a specific sector. Covington Strategic Capital Fund will invest primarily in Canadian independent software vendors that develop software applications to run on one or more software operating systems

Covington Fund II – Significant Holdings of Covington Fund II

As of November 30, 2009, 94.6% of the total assets of Covington Fund II were invested in eligible businesses, 2.9% were invested in cash and marketable securities as described below under “Liquid Investments” and 2.5 % remained in other assets.

As of November 30, 2009 the total cost of Covington Fund II’s investments in eligible businesses was $60,790,318. These investments were made over the period of November 29, 1999 to November 30, 2009. No persons or

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companies have any arrangement with Covington Fund II pursuant to which they are responsible for purchasing or selling portfolio investments or making brokerage arrangements with respect thereto.

The following table contains information with respect to those entities that Covington Fund II holds 5 percent or more of any class of securities, beneficially owned directly or indirectly. This information is current as of November 30, 2009.

Name and Address of Entity

Nature of Entity’s Principal Business

Number of Shares (or par

value

Type of any Class of

Securities owned by the

Fund

% of Securities owned (1)

6,990,523 Class A preferred shares

68.1%

709,942 Common shares

49.5%

Adventus Remediation Technologies Inc. 1345 Fewster Drive, Mississauga, ON L4W 2A5

Develops, manufactures, markets and sells proprietary soil and water bioremediation technologies

$225,000 10% Demand Promissory Note

75%

6,095 Exchangeable common shares

19.9%

1,736 Common shares

2.1%

BTE Technologies Inc. 7455-L New Ridge Road Hanover, MD 21076

Developer and manufacturer of injury prevention and rehabilitation systems

$420,000 USD 10% Debenture

34.9%

Business Propulsion Systems Inc. 703 Evans Ave. Suite 107 Toronto, ON M9C 5E9

Business Propulsion Systems Inc. is a global software solution provider. The company’s central technology is an enterprise software solution called A3MS, a web based planning and execution software system designed for the institutional financial services market.

1,520,000 Preferred shares

32.6%

$375,000 10% Convertible debenture

18.8%

$1,700,000 5% Convertible debenture

34%

$1,511, 000 10% Convertible debenture

28.5%

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Name and Address of Entity

Nature of Entity’s Principal Business

Number of Shares (or par

value

Type of any Class of

Securities owned by the

Fund

% of Securities owned (1)

$421,667 10% Convertible debenture

16.8%

$500,000 25% Demand Promissory Note

100%

$421,667 25% Demand Promissory Note

16.8%

EGI Financial Holdings Inc. 1550 Enterprise Rd., Suite 310 Mississauga, ON L4W 4P4

Operates an insurance brokerage/underwriting firm and a reinsurance company

1,770,848 Common shares

14.93%

Embotics Corporation 411 Legget Drive, Suite 502 Ottawa, Ontario K2K 3C9

Embotics has created a software product called V-Commander that enables a corporation to control and manage its Virtual Machine ("VM") server network.

130,435 Preferred shares

33.3%

2,060,000

Common shares

49.8%

Fidelity Stainless Inc. 2213 North Sheridan Way Mississauga, ON L5K 1A3

Distributor of stainless steel long products and ornamental tube

$285,623 6% Demand Promissory Note

64%

Ivey CSBIF I Inc. London, Ontario

Invests in companies with the assistance of the Ivey School of Business to evaluate each potential investment opportunity

250,000 Common shares

47.6%

Ivey CSBIF II Inc. London, Ontario

Invests in companies with the assistance of the Ivey School of Business to evaluate each potential investment opportunity

250,000 Common shares

47.6%

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Name and Address of Entity

Nature of Entity’s Principal Business

Number of Shares (or par

value

Type of any Class of

Securities owned by the

Fund

% of Securities owned (1)

$2,400,000 12% Debenture

100%

1,025,860 Warrants 8.4%

2,103,334 Common shares

17.3%

Linea Marketing Group Inc. 105 Gibson Dr. Markham, ON L3R 3K7

Linea is a designer and distributor of home décor products to retailers across North America.

$500,000

7% Demand Promissory Note

100%

$2,310,672 12% Debenture

100%

$2,250,000 5% Debenture 75.0%

$3,400,000 12% Demand promissory note

50%

3,690,136 Common shares

31.5%

Mist Mobility Integrated System Technology Inc. Unit 14B, 190 Colonnade Rd. S Nepean, ON K2E 7J5

A Canadian manufacturer of precision guided parachute aerial delivery systems (SHERPA)

$750,000 15% Debenture

50%

$375,000 10% Debenture

17.9%

1,055 Preferred shares

8.25%

Mo Products Inc.

Wholesaler/distributor of Pack-Mate and Vacu-Seal product lines

117,475 Common shares

8.25%

Powerband Canada Inc. 5515 North Service Rd. Suite 200 Burlington, ON L7L 6G4

Start-up company developing an automobile finance portal for the Canadian market

8,135,971

Common shares

29%

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Name and Address of Entity

Nature of Entity’s Principal Business

Number of Shares (or par

value

Type of any Class of

Securities owned by the

Fund

% of Securities owned (1)

$500,000 12% Demand Promissory Note

50%

Soliton Inc. 44 Victoria Street, Suite 2100 Toronto, ON M5C 1Y2

Develops and sells software which enables financial services firms to manage historical market data

106,903 Class A Series I preferred shares

21%

SXC Health Solutions Corp. 555 Industrial Drive Milton, ON L9T 5E1

Provider of pharmacy information technology processing solutions and services to the healthcare benefits management and out-patient pharmacy industries

961,405 Common shares

3.21%

254,409 Common shares

29.9% TNR Doors Inc. 21 Hooper Rd. Barrie, ON L4N 9S3

Manufactures flexible and durable industrial rubber doors

$187,959 12% Subordinated debenture

33.3%

Notes: (1) The percentages given for warrants reflect the relevant percentage of common shares of the investee company that would be acquired upon exercise of the warrants.

Covington Strategic Capital Fund – Significant Holdings of Covington Strategic Capital Fund

As of November 30, 2009, 57.1 % of the total assets of Covington Strategic Capital Fund were invested in eligible businesses, 41.3% were invested in cash and marketable securities as described below under “Liquid Investments” and 1.6% remained in other assets.

As of November 30, 2009 the total cost of Covington Strategic Capital Fund’s investments in eligible businesses was $14,384,235. These investments were made over the period of November 21, 2003 to November 30, 2009. No persons or companies have any arrangement with Covington Strategic Capital Fund pursuant to which they are responsible for purchasing or selling portfolio investments or making brokerage arrangements with respect thereto.

The following table contains information with respect to those entities that Covington Strategic Capital Fund holds 5 percent or more of any class of securities, beneficially owned directly or indirectly. This information is current as of November 30, 2009.

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Name and Address of

Entity

Nature of Entities’ Principal

Business

Number of Shares

Held (or par value)

Type of any Class of Securities Owned by the

Fund

% of Securities

Owned

1293551 Ontario Inc. (Masstech) 2 East Beaver Creek Road, Building 3 Richmond Hill, ON L4B 2N3

1293551 Ontario Inc. is a developer of hardware and software based products for the digital media infrastructure industry.

116,866

Convertible preferred B shares

4.9%

$250,000 Prime plus 1/2% demand promissory note

100%

485,000

Convertible preferred shares

10.4%

$1,578,000 5% Convertible debenture

31.6%

$127,500 10% Convertible debenture

6.4%

$1,000,000 10% Convertible debenture

18.8%

Business Propulsion Systems Inc. 703 Evans Avenue, Suite 107 Toronto, ON M9C 5E9

Business Propulsion Systems Inc. is a global software solution provider. The company’s central technology is an enterprise software solution called A3MS, a web based planning and execution software system designed for the institutional financial services market.

$421,667

10% Convertible debenture

16.8%

$1,125,000

25% Demand Promissory Note

100%

$500,000 12% Demand Promissory Note

100%

Embotics Corporation 411 Legget Drive, Suite 502 Ottawa, Ontario K2K 3C9

Embotics has created a software product called V-Commander that enables a corporation to control and manage its Virtual Machine ("VM") server network.

130,435 Preferred shares 33.3%

$500,000 6% Convertible debenture

2.1% Nexgen Financial Limited Partnership 1070-36 Toronto St. Toronto, Ontario M5C 2C5

An independent financial services firm formed in 2005 to develop value-added investment solutions for financial advisors and their clients.

7,895 Limited partnership units 2.1%

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Name and Address of

Entity

Nature of Entities’ Principal

Business

Number of Shares

Held (or par value)

Type of any Class of Securities Owned by the

Fund

% of Securities

Owned

Protus I.P. Solutions 2435 Holly Lane Ottawa, Ontario K1V 7P2

An ASP specializing in providing IP-based fax services and solutions to companies.

300,000 Common shares 2.1%

Powerband Canada Inc. 5515 North Service Rd. Suite 200 Burlington, ON L7L 6G4

Powerband is a start-up company developing an automobile finance portal for the Canadian market related to on-demand credit application processing for the retail automotive sector

6,352,442

Common shares

22.6%

$500,000

12% Demand Promissory Note

50%

$1,250,000 12% Demand Promissory Note

100%

Wire IE Holdings International Inc.

A global professional services company that focuses on wireless broadband solutions

2,097,315 Preferred shares 100%

Note: The percentages given for warrants reflect the relevant percentage of common shares of the investee company that would be acquired upon exercise of the warrants.

Liquid Investments

Pending investment in eligible businesses, each Fund’s assets (including funds received on the liquidation of investments) are invested in reserves and will earn a rate of return associated with such investments rather than the rate of return sought from investments in eligible businesses. The Ontario Act defines investments that qualify as “reserves” to include Canadian dollars in cash or on deposit with qualified Canadian financial institutions, debt instruments of or guaranteed by the Canadian federal government, debt obligations of provincial and municipal governments, Crown corporations and corporations listed on designated stock exchanges, guaranteed investment certificates issued by Canadian trust companies, qualified investment contracts, and shares that are listed on a designated stock exchange. Canadian bank sponsored asset backed commercial paper qualifies as a reserve for the purposes of the Ontario Act.

The Funds may invest in Canadian bank sponsored asset backed commercial paper from time to time. See “Investment Restrictions” and “Risk Factors – Credit Risk”.

Each Fund intends to maintain sufficient liquid investments to enable it to honour requests for redemptions. See “Attributes of the Securities — Class A Shares — Redemption”.

The total cost of marketable securities held by Covington Fund II and Covington Strategic Capital Fund as at November 30, 2009 was approximately $2,916,453 and $7,412,344, respectively.

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INVESTMENT RESTRICTIONS

Statutory Investment Restrictions

Each Fund is subject to investment restrictions contained in the Ontario Act. Under the Ontario Act, “eligible investments” for labour sponsored investment fund corporations are shares or debt of an eligible business. Eligible businesses generally are taxable Canadian corporations or Canadian partnerships engaged in eligible business activities in Ontario which, together with related corporations or partnerships, do not have more than $50 million in assets or more than 500 employees at the time that the investment is made and which employ 50% or more of its full-time employees, earning at least 50% of the salaries and wages payable by it, in Ontario at the time of investment. However, an investee company may grow beyond these limits without affecting its status as an eligible business and investments may be maintained and additional investments may be made in that investee company, provided that at the time the applicable Fund previously invested in the investee company, it was an eligible investment and the aggregate of the investments in the business and any related business does not exceed $20 million or, if prescribed, the prescribed amount. Generally, a Fund’s investment in an eligible investment may not be used by the investee corporation or partnership to (among other things) carry on business or re-invest outside Canada. However, the Minister of Finance (Ontario) may, upon application, issue an order to allow for some investment or business to be carried on outside of Canada, which would ensure the viability of the Ontario business. The purpose of such restrictions is to ensure that monies raised from investors are available to assist the growth of eligible businesses in Ontario, and thereby create or preserve employment opportunities in Ontario.

The Ontario Act permits a Fund to hold qualifying debt obligations only where the debt obligation, if secured, is secured (i) by a security interest in one or more assets of the entity and the terms of the debt obligation or any agreement relating to the debt obligation do not prevent the entity from dealing with the assets in the ordinary course of business before any default on the debt obligation, (ii) by a guarantee, or (iii) by both a security interest described in (i) and a guarantee and, except in a few instances, does not entitle the holder of the debt obligation to rank ahead of any other secured creditor of the issuer in realizing on the same security.

The Ontario Act permits a Fund to hold only the following investments: (i) specified securities of eligible businesses; (ii) assets that were specified securities of eligible businesses when acquired by the applicable Fund; and (iii) specified reserves. The Ontario Act defines investments that qualify as “reserves” to include Canadian dollars in cash or on deposit with qualified Canadian financial institutions, debt instruments of or guaranteed by the Canadian federal government, debt obligations of provincial and municipal governments, Crown corporations and corporations listed on designated Canadian stock exchanges, guaranteed investment certificates issued by Canadian trust companies, qualified investment contracts, and shares that are listed on a designated stock exchange. On December 31 of each year, each Fund is required to hold eligible investments that have an aggregate cost of not less than 60% of the capital raised on the issue of the applicable Fund’s Class A Shares that remain outstanding at the end of the year and were issued before the 61st day of that year (excluding Class A Shares that have been outstanding for at least 94 months) less 20% of the capital raised on Class A Shares of the applicable Fund issued during the period beginning on the 61st day of the year preceding the applicable year and ending on the 60th day of the applicable year that are outstanding at the end of that year. This amount is further adjusted to reflect the amount of net realized losses, if any, and certain taxes and penalty amounts incurred for the year.

If a Fund does not meet the investment restrictions in the Ontario Act, the Fund could be subject to penalty taxes and/or could lose its registration as a labour sponsored investment fund corporation. See “Canadian Federal Income Tax Considerations – Federal Penalty Taxes Potentially Applicable to the Funds” and “Ontario Income Tax Considerations – Ontario Income Taxes Potentially Applicable to the Funds”.

Each Fund is, at the date of this prospectus, in compliance with all investment restrictions contained in the Ontario Act.

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In addition to the investment restrictions contained in the Ontario Act, each Fund is prohibited by its Articles of Incorporation from lending money, guaranteeing a loan or providing other financial assistance to a shareholder of the applicable Fund, to a person related to a shareholder of the applicable Fund or to a trade union, an association or federation of trade unions, or an association or federation of worker co-operatives.

FEES AND EXPENSES

Remuneration of Executive Officers

None of the executive officers of Covington Fund II or Covington Strategic Capital Fund are entitled to remuneration from the Funds.

Remuneration of Directors

Directors of Covington Fund II who are independent of the Sponsor are entitled to an annual fee of $15,000 and a fee of $750 for each meeting day. Directors of Covington Fund II who are representatives of the Sponsor are entitled to an annual fee of $12,000. No additional fees are paid to the members of any Committee.

Directors of Covington Strategic Capital Fund who are independent of the Sponsor are entitled to an annual fee of $7,000. Directors who are independent of the Sponsor are entitled to a fee of $750 for each meeting and directors who are representatives of the Sponsor are entitled to a fee of $500 for each meeting.

The Funds do not have any other compensation plans (including in respect of a termination of employment or a change in responsibilities following a change of control) or any stock option plans for it executive officers or directors.

Sponsor Fees

Covington Fund II pays the Sponsor an annual fee at the rate of up to 0.3% of the net asset value of Covington Fund II with respect to Covington Fund II’s share of the first $200 million of combined assets of the Funds, both labour-sponsored investment fund corporations sponsored by the Sponsor, and at a rate of 0.1% of the net asset value of Covington Fund II with respect to Covington Fund II’s share of any combined assets in excess of $200 million. The sponsor fee is calculated and paid monthly.

Covington Strategic Capital Fund pays the Sponsor an annual fee at the rate of up to 0.3% of the average net asset value of Covington Strategic Capital Fund with respect to Covington Strategic Capital Fund’s share of the first $200 million of combined assets of the Funds, both labour sponsored investment fund corporations sponsored by the Sponsor, and at a rate of 0.1% of the average net asset value of Covington Strategic Capital Fund with respect to Covington Strategic Capital Fund’s share of any combined assets in excess of $200 million, provided that all of the assets of Covington Fund II are included in the first $200 million of combined assets. The sponsor fee is calculated and paid monthly.

The Sponsor has waived all fees payable to the Sponsor pursuant to the CSCF Sponsor Agreement since the inception of Covington Strategic Capital Fund to the end of the fiscal year ending August 31, 2007. Total fees (exclusive of goods and services tax) paid or payable to the Sponsor pursuant to the Sponsor Agreements since inception of the Funds are as follows:

Covington Fund II Covington Strategic Capital Fund

Period Total Fees Paid

Period Total Fees Paid

September 1, 2002 to August 31, 2003 $305,585 - - September 1, 2003 to August 31, 2004 $337,540 January 9, 2004 to August 31, 2004 - September 1, 2004 to August 31, 2005 $358,865 September 1, 2004 to August 31, 2005 - September 1, 2005 to August 31, 2006 $403,000 September 1, 2005 to August 31, 2006 - September 1, 2006 to August 31, 2007 $476,000 September 1, 2006 to August 31, 2007 -

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Covington Fund II Covington Strategic Capital Fund

Period Total Fees Paid

Period Total Fees Paid

September 1, 2007 to August 31, 2008 $369,000 September 1, 2007 to August 31, 2008 $51,000 September 1, 2008 to August 31, 2009 $222,000 September 1, 2008 to August 31, 2009 60,000 September 1, 2009 to November 30, 2009

$75,400 September 1, 2009 to November 30, 2009

$14,100

In the Sponsor Agreements, the Sponsor has represented to the Funds that the Sponsor will use all fees received by it from the Funds to further its chartered objectives and to fund certain public interest programs of the Sponsor. These include the National Justice Network, the Canadian Resource Centre for Victims of Crime and ongoing efforts related to public safety and the reform of the justice system in Canada.

Covington Fees

Pursuant to the Investment Advisor Agreement, Covington receives an annual fee for its investment advisory services at the rate of 2.0% of the net asset value of Covington Fund II, calculated and paid monthly.

Pursuant to the Management Agreement, Covington receives an annual fee for its investment advisory services at the rate of 1.5% of the average net asset value of Covington Strategic Capital Fund, calculated and paid monthly. In addition, Covington receives an annual fee for its management services at the rate of 0.525% of the average net asset value of Covington Strategic Capital Fund, calculated and paid monthly.

Covington is also entitled to an additional incentive participation amount (the “IPA”) based on gains realized from the disposition of eligible investments, and the cumulative performance of each Fund. Before any IPA is paid to Covington on the realization of an eligible investment, the applicable Fund must have:

(a) earned sufficient income to generate a rate of return on eligible investments greater than the 5 year GIC rate plus 2% (based on the average of the five major banks’ GIC rate quoted on the day of disbursement for each eligible investment) on an annualized basis. This includes investment gains and losses (realized and unrealized) earned and incurred since inception of the applicable Fund;

(b) earned income from the particular investment which provides a cumulative investment return at an average annual rate in excess of:

(i) 12% since investment in the case of Covington Fund II; and

(ii) 8% since investment in the case of Covington Strategic Capital Fund; and

(c) fully recouped an amount equal to all principal invested in the particular investment.

Subject to all of the above, the IPA will be equal to up to 20% of all income earned from the particular investment since the date of the initial investment. The IPA has been structured so that Covington will only receive IPA payments with respect to an investment by a Fund if certain returns are realized (i) by that Fund on its portfolio of eligible investments, and (ii) by that Fund in the particular investment, and that Fund has had all of its principal investment repaid.

If the thresholds built into the IPA formula, calculated at the time a specific investment is sold completely, are not met, an IPA is not earned and will not be paid. Furthermore, once a specific investment is sold completely, and provided that the thresholds built into the IPA formula are not met, an IPA will not be paid nor will an IPA be payable at a later date for that particular investment.

The Funds believe that the structure of the IPA is appropriate given the Fund’s investment objectives and that it is comparable to that used by other investment funds engaged in venture capital investing. The Funds believe that the

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IPA structure is necessary in order to attract and retain investment managers with experience in venture capital investing.

Each Fund intends to record an actual IPA liability for which all of the above criteria have been met and a contingent IPA liability where only criteria (a) and (b) above have been met on the Fund’s statement of financial position.

Covington was paid approximately $209,000 in 2009 as an IPA in respect of an investment sold in Covington Strategic Capital Fund.

Covington has waived all fees payable to Covington pursuant to the Management Agreement since the inception of Covington Strategic Capital Fund to the end of the fiscal year ending August 31, 2007. Total fees (exclusive of goods and services tax) paid or payable to Covington pursuant to the Investment Advisor Agreement (with Covington Fund II) and the Management Agreement (with Covington Strategic Capital Fund) since the inception of Funds are as follows:

Covington Fund II Covington Strategic Capital Fund

Period Total Fees Paid Period Total Fees Paid

September 1, 2002 to August 31, 2003 $2,554,421 - - September 1, 2003 to August 31, 2004 $2,649,440 January 9, 2004 to August 31,

2004 -

September 1, 2004 to August 31, 2005 $2,585,676 September 1, 2004 to August 31, 2005

-

September 1, 2005 to August 31, 2006 $2,862,000 September 1, 2005 to August 31, 2006

-

September 1, 2006 to August 31, 2007 $2,898,000 September 1, 2006 to August 31, 2007

-

September 1, 2007 to August 31, 2008 $2,351,000 September 1, 2007 to August 31, 2008

$347,000

September 1, 2008 to August 31, 2009 1,840,000 September 1, 2008 to August 31, 2009

$405,000

September 1, 2009 to November 30, 2009

$502,600 September 1, 2009 to November 30, 2009

$95,000

Distribution Services Fees

Covington Strategic Capital Fund pays Covington a monthly distribution services fee in respect of such distribution related services equal to 0.160% (1.92% annually) and 0.096% (1.152% annually) of the offering price of the issued and unredeemed Series I Shares and Series II Shares, respectively. The monthly distribution services fee is intended to reimburse Covington for financing costs incurred to fund the payment of the commissions, including an amount for interest and a one-time financing commitment fee payable in connection with such financing. See “Plan of Distribution”.

Total fees (exclusive of goods and services tax) paid or payable to Covington with respect to distribution fees since the inception of Covington Strategic Capital Fund are as follows:

Covington Strategic Capital Fund

Period Total Fees Paid

January 9, 2004 to August 31, 2004 Series I Shares - $32,233 Series II Shares - $7,870

September 1, 2004 to August 31, 2005 Series I Shares - $69,530 Series II Shares - $17,419

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Covington Strategic Capital Fund

Period Total Fees Paid

September 1, 2005 to August 31, 2006 Series I Shares - $83,584 Series II Shares - $21,113

September 1, 2006 to August 31, 2007 Series I Shares - $96,793 Series II Shares - $24,580

September 1, 2007 to August 31, 2008 Series I Shares - $196,970 Series II Shares - $43,345

September 1, 2008 to August 31, 2009 Series I Shares - $218,196 Series II Shares - $49,499

September 1, 2009 to November 30, 2009] Series I Shares - $57,737 Series II Shares - $12,230

Fund Advisor Fees

Pursuant to the CFII Fund Promoter Agreement, Covington Fund II pays Covington an annual fee for marketing and investor relations services at the rate of 0.75% of the net asset value of Covington Fund II, calculated and paid monthly. Covington is also entitled to a marketing services fee of 0.5% of the offering price of any Class A Shares of Covington Fund II sold. See “Plan of Distribution”.

Pursuant to the CSCF Fund Advisor Agreement, Covington Strategic Capital Fund pays Covington an annual fee for marketing and investor relations services at the rate of 0.975% of the average net asset value of Covington Strategic Capital Fund commencing August 24, 2007, calculated and paid monthly.

Covington and its applicable predecessors have waived all fees payable to them pursuant to the CSCF Fund Advisor Agreement since the inception of Covington Strategic Capital Fund to the fiscal year ending August 31, 2007. Total fees (exclusive of goods and services tax) paid or payable to Covington or its predecessors pursuant to the Fund Advisor Agreements are as follows:

Covington Fund II Covington Strategic Capital Fund

Period Total Fees Paid Period Total Fees Paid

September 1, 2002 to August 31, 2003 $957,908 - - September 1, 2003 to August 31, 2004 $993,534 January 9, 2004 to August 31, 2004 - September 1, 2004 to August 31, 2005 $969,629 September 1, 2004 to August 31, 2005 - September 1, 2005 to August 31, 2006 $1,073,000 September 1, 2005 to August 31, 2006 - September 1, 2006 to August 31, 2007 $1,087,000 September 1, 2006 to August 31, 2007 - September 1, 2007 to August 31, 2008 $885,000 September 1, 2007 to August 31, 2008 $167,000 September 1, 2008 to August 31, 2009 $690,000 September 1, 2008 to August 31, 2009 $195,000 September 1, 2009 to November 30, 2009

$188,500 September 1, 2009 to November 30, 2009

$45,700

Fund Administrator Fees

Under the Fund Administrator Agreements, CI is entitled to be paid an annual fee for administration and client services, shareholder reporting and transfer agency services at the rate of 0.60% of the net asset value of each Fund per annum. The fee is paid monthly and is based on the average net asset value of each Fund during the month.

Total fees (exclusive of goods and services tax) paid or payable to CI pursuant to the Fund Administrator Agreements since the inception of each Fund are as follows:

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Covington Fund II Covington Strategic Capital Fund

Period Total Fees Paid

Period Total Fees Paid

September 1, 2002 to August 31, 2003 $766,326 - - September 1, 2003 to August 31, 2004 $794,827 December 1, 2003 to August 31, 2004 $12,812 September 1, 2004 to August 31, 2005 $775,705 September 1, 2004 to August 31, 2005 $31,295 September 1, 2005 to August 31, 2006 $859,000 September 1, 2005 to August 31, 2006 $39,114 September 1, 2006 to August 31, 2007 $867,000 September 1, 2006 to August 31, 2007 $47,447 September 1, 2007 to August 31, 2008 $704,000 September 1, 2007 to August 31, 2008 $103,000 September 1, 2008 to August 31, 2009 $552,000 September 1, 2008 to August 31, 2009 $120,000 September 1, 2009 to November 30, 2009

$150,800 September 1, 2009 to November 30, 2009

$28,100

Operating Expenses

Each Fund is responsible for paying all of its operating expenses, including sales commissions, certain ongoing marketing costs of the applicable Fund, audit and legal expenses, fees paid to any independent valuator, certain consultancy costs and the fees payable to Covington, the Fund Administrator and the Sponsor. The nature of the investments to be made by the Funds generally require a greater commitment to investment analysis, due diligence investigations and post-investment monitoring than investment in most publicly traded securities. In addition, the cost to determine the value of the Funds’ assets for which no published market exists is greater than valuation costs for mutual funds which invest primarily in listed securities. Consequently, the operating expenses of the Funds are higher than many mutual funds and other pooled investment vehicles.

Dealer Commission

Covington Fund II pays to the selling registered dealer a commission of 6% of the offering price in respect of the sale of Class A Shares of Covington Fund II. Covington Fund II also pays to registered dealers a service fee equal to 0.5% annually of the average total net asset value of the Class A Shares of Covington Fund II held by the clients of the sales representatives of the dealers, calculated and paid monthly. See “Plan of Distribution”. Covington Fund II directly pays sales commissions and marketing expenses, subject to applicable securities regulatory requirements.

Covington pays to the selling registered dealer a commission of 10% of the offering price in respect of the sale of Series I Shares of Covington Strategic Capital Fund. This commission consists of a 6% sales commission plus an additional 4% commission of the offering price of the Series I Shares. The 4% commission is paid in lieu of any service fees payable before the eighth anniversary of the date of issue of such Series I Shares. In addition, after a period of eight years, Covington Strategic Capital Fund will pay to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series I Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. See “Plan of Distribution”.

Covington pays to the selling registered dealer a commission of 6% of the offering price to in respect of the sale of Series II Shares of Covington Strategic Capital Fund. In addition, Covington Strategic Capital Fund pays to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series II Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. See “Plan of Distribution”.

Consistent with industry practice and as described in the financial statements, Covington Fund II capitalized sales commissions it paid prior to January 1, 2004 related to the sale of the Class A Shares as deferred charges. Deferred charges are amortized, net of related income taxes, on a straight-line basis to the deficit over eight years from the date of issue of the related shares. In July 2003, the Accounting Standards Board of The Canadian Institute of Chartered Accountants issued a new recommendation, revising the definition of generally accepted accounting principles (“GAAP”). The result of this change is that, as of September 1, 2004 any balance of unamortized deferred charges is no longer allowable as an asset and Covington Fund II is required to write off the unamortized balance of the deferred charges to the deficit. If Covington Fund II were to write off these deferred charges, it would reduce the net asset value of Covington Fund II by the amount of the deferred charges written off.

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On September 30, 2003, the OSC issued OSC Staff Notice 81-706 allowing, for transitional purposes, limited exemptive relief from the requirement to calculate net asset value for purposes of pricing purchases and redemptions in accordance with GAAP for labour sponsored investment funds that cease adding new sales commissions to the existing deferred charge asset balance by December 31, 2003. The OSC Staff Notice allows prices for purchases and redemptions to be determined on the basis that the deferred charge for accounting purposes, existing as an asset of Covington Fund II at December 31, 2003, may continue to be amortized over its remaining amortization period.

As a result of these changes, sales commissions incurred prior to January 1, 2004 by Covington Fund II have been capitalized as deferred charges and amortized on a straight line basis over eight years, consistent with Covington Fund II’s past practice. Covington Fund II’s deferred charge balance was completely amortized by January 2009. No further balance remains. Sales commissions incurred on and after January 1, 2004 are charged to retained earnings (deficit) in accordance with generally accepted accounting principles.

Independent Review Committee Expenses

The Funds will pay all of the fees and expenses associated with the Independent Review Committee. See “Organization and Management Details of the Fund – Independent Review Committee”.

ANNUAL RETURNS AND MANAGEMENT EXPENSE RATIO

Annual Returns

This information shows the annual performance of the Funds for each of the fiscal years shown. How the Funds have performed in the past does not necessarily indicate how they will perform in the future.

Covington Fund II Covington Strategic Capital Fund Class A Shares Series I Shares Series II Shares

2009 – 30.69% 2008 –(8.86)% 2007 –(4.36)% 2006 – (2.71)% 2005 – 9.55%

2009 – (11.80)% 2008 – 30.99% 2007 – 10.68% 2006 – 8.36% 2005 – (3.69)%

2009 – (11.08)% 2008 – 30.97% 2007 – 10.62% 2006 – 8.49% 2005 – (3.51)%

On August 24, 2007 (the “Effective Date”), Covington Strategic Capital Fund acquired substantially all of the assets of Financial Industry Opportunities Fund Inc. (“FIOF”), in exchange for Class A Shares of Covington Strategic Capital Fund. On the Effective Date: (i) 470,588 Class A, Series I shares of FIOF were exchanged for 272,517 Series I Shares of Covington Strategic Capital Fund; and (ii) 131,726 Class A Series II shares of FIOF were exchanged for 76,903 Series II Shares of Covington Strategic Capital Fund. See “Covington Strategic Capital Fund Inc.” This information shows the annual performance of FIOF for the full fiscal years that the fund was in distribution.

Financial Industry Opportunities Fund Inc.

Class A Shares, Series I Class A Shares,

Series II

2006 – (9.3) % 2005 – (1.2)%

2006 – (8.8)% 2005 – (1.0)%

Management Expense Ratio for Covington Fund II:

The management expense ratio of Covington Fund II is based on total expenses including all fees, charges and expenses paid or payable by Covington Fund II for each fiscal year of Covington Fund II and is expressed as an

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annualized percentage of daily average net assets during that fiscal year. Covington Fund II’s management expense ratios listed below are for the fiscal years ending August 31.

Class A Shares 2009 – 4.95% 2008 – 4.86% 2007 – 4.78% 2006 – 4.97% 2005 – 4.99%

See the financial statements included in this prospectus for details as to the amount of fees and expenses which have been charged to Covington Fund II for the financial year ended August 31, 2009.

Management Expense Ratio for Covington Strategic Capital Fund:

The management expense ratio of Covington Strategic Capital Fund is based on total expenses including all fees, charges and expenses paid or payable by Covington Strategic Capital Fund for each fiscal year of Covington Strategic Capital Fund and is expressed as an annualized percentage of daily average net assets during that fiscal year. Covington Strategic Capital Fund’s management expense ratios listed below are for the fiscal years ending August 31.

Series I Shares Series II Shares

2009 –8.57%* 2009 –8.44%* 2008 – 15.81%* 2008 – 15.56%* 2007 – 12.28%* 2007 – 10.72%* 2006 – 4.78% 2006 – 4.49% 2005 – 7.40% 2005 – 7.12%

* The management expense ratio before IPA or contingent IPA was for 7.38% and 7.24% for the Series I Shares and Series II Shares respectively for the year ended August 31, 2009, 7.71% and 7.5% respectively for the year ended August 31, 2008, and 4.60% and 4.01% respectively for the year ended August 31, 2007.

See the financial statements included in this prospectus for details as to the amount of fees and expenses which have been charged to Covington Strategic Capital Fund for the financial year ended August 31, 2009.

RISK FACTORS

The following may be considered as risk factors pertaining to an investment in Class A Shares of either Fund.

Speculative Nature of Investment and No Guarantee of Rate of Return

There is no guarantee that an investment in Class A Shares of a Fund will earn a specified rate of return or any return in the short or the long term. An investment in Class A Shares is only appropriate for investors able to make a long-term commitment and with the capacity to absorb a loss of some or all of their investment.

Investments of the kind to be made by the Funds, by their nature, involve a higher risk of failure and a longer commitment than that typical for other types of investments. Many such investments require between seven to ten years in order to mature and generate the returns expected by investors. Furthermore, despite diversification of the Funds’ investment portfolios for purposes of distributing risk, the investments of the Funds are likely to mature at different times creating an irregular pattern in the net asset value per Class A Share for each Fund. In addition, certain of the investments may not mature and generate the returns expected. As well, losses on unsuccessful investments are often realized before gains on successful investments are realized.

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Although each Fund is a mutual fund, many of the rules designed to protect investors who purchase securities of mutual funds do not apply to the Funds. In particular, rules directed at ensuring liquidity and diversification of investments and certain other investment restrictions and practices normally applicable to mutual funds do not apply. The Funds may take positions in small and medium-sized businesses which represent a larger percentage of the equity than a mutual fund would be permitted to take, and this may increase the risk per investment.

Venture capital investment in eligible businesses according to the investment restrictions and policies applicable to the Funds requires a greater commitment to investment analysis than investments in most other securities. In addition, the cost to determine the value of a Fund’s assets for which no published market exists is greater than the valuation costs for mutual funds which invest primarily in listed securities. Consequently, the operating expenses of the Funds are substantially higher than those of many conventional mutual funds and other pooled investment vehicles.

Availability of Suitable Investments

The business of the Funds is to make investments in eligible small and medium sized Canadian businesses. There is no assurance that sufficient suitable eligible investments with a connection to industries focused on by a Fund will be found to fulfill the investment objectives of that Fund. The Funds may be required to invest in eligible businesses with limited or no connection to the industries on which it is focused in order to meeting the investment pacing requirements of the Ontario Act.

Management and Track Record

Investors will be relying upon the business judgement, expertise and integrity of the board of directors of the applicable Fund, Covington, the applicable Investment Committee and the applicable Valuation Committee. Each Fund itself has a limited track record of investment in this area.

Holders of Class A Shares of Covington Fund II are entitled to elect two directors of Covington Fund II (currently two of six) and holders of Class A Shares of Covington Strategic Capital Fund are entitled to elect one director of Covington Strategic Capital Fund (currently one of six). See “Attributes of the Securities — Class A Shares”.

External Factors

The net asset value of a Fund is based on the value of the marketable securities and investments in that Fund’s portfolio and therefore the value of the Class A Shares of that Fund will increase or decrease with the value of such investments. The value of the marketable securities and investments will fluctuate with general economic conditions, including the level of interest rates, corporate earnings, economic activity, the Canadian dollar and other factors. Given each Fund’s investment focus, the risks associated with such fluctuation may be amplified for investors as emerging businesses often are affected more than larger, more mature entities by external events, including downturns in general economic conditions.

Valuations

Each Fund offers Class A Shares at the net asset value per Class A Share, or series thereof, of the applicable Fund at the end of each business day. These daily values are based on estimates of the fair value of a Fund’s assets for which there is no published market. This valuation process is inevitably based on inherent uncertainties and the resulting values may differ from values that would have been used had a ready market existed for the investments and may not reflect the prices at which the investments may be sold. To the extent that these valuations are too high, new shareholder investment will provide a benefit to existing investors; similarly, to the extent these valuations are too low, existing investors will suffer a dilution in the value of their shares.

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Lack of Liquidity

No market exists at present through which the Class A Shares may be sold and none is expected to develop. There are restrictions on the transfer and redemption of Class A Shares. See “Attributes of the Securities — Class A Shares”. Consequently, holders of Class A Shares may not be able to sell their Class A Shares and Class A Shares may not be accepted as collateral for loans. If Class A Shares are sold or accepted as collateral for loans, the selling price or collateral value may be less than the net asset value of the Class A Shares.

Credit Risk

Credit risk is the risk that the company, government or other entity (including a special purpose vehicle) that issued a bond or other fixed income security (including asset backed and mortgage backed securities) cannot pay interest or repay principal when it is due. This risk is lowest among issuers that have a high credit rating from a credit rating agency. It is highest among issuers that have a low credit rating or no credit rating. Investments with a lower credit rating usually offer a better return than higher grade investments, but have the potential for substantial loss as well as gain, as will the funds that buy them.

High yielding, higher risk income securities in which some of the funds may invest are subject to greater risk of loss of principal and income than higher rated fixed income securities, and are considered to be less certain with respect to the issuer's capacity to pay interest and repay principal.

Redemption

In any financial year, a Fund is not required to redeem Class A Shares having an aggregate redemption price exceeding 20% of the net asset value of that Fund as of the last day of the preceding financial year and may suspend redemptions for substantial periods of time in such circumstances. Where a redemption request is not honoured in one year, it will be made as of the first day of the next financial year of the applicable Fund subject to the 20% limit referred to above. Although, each Fund intends to maintain sufficient liquid investments to enable it to honour redemption requests, it cannot guarantee that it will be able to honour all redemption requests in the month in which they are made. The redemption of Class A Shares may be suspended in certain circumstances as permitted by applicable securities laws.

Covington Fund II is in the process of securing a line of credit from a third party financier to assist it to honour redemptions from time to time as it divests of investments. It is anticipated that in order to secure such financing Covington Fund II will be required to covenant that it will not redeem, in any financial year, Class A Shares having an aggregate redemption price exceeding 30% of the net asset value of that Fund as of the last day of the preceding financial year.

Non-Compliance with Investment Requirements

Each Fund is subject to special taxes and penalties if it does not comply with the investment requirements of the Ontario Act. See “Ontario Income Tax Considerations”. The investment performance of a Fund may be adversely affected if that Fund becomes subject to such special taxes and penalties or if its registrations are revoked.

Mutual Fund Rules

Although the Fund is a mutual fund, many of the rules normally applicable to mutual funds under relevant securities legislation and policies are not applicable to the Fund as a labour sponsored investment fund. In particular, rules directed at ensuring liquidity and diversification of investments and certain other investment restrictions and practices normally applicable to mutual funds operating in Canada do not apply. The Fund may take positions in businesses which represent a larger percentage of the equity than a mutual fund would be permitted to take, and this may increase the risk per investment.

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Revocation of Registration

A Fund’s registration may be revoked if it does not comply with the investment requirements in the Ontario Act. If a Fund’s registration is revoked, persons who acquire Class A Shares of that Fund after such revocation will not be eligible for the federal tax credits or for Ontario tax credits. See “Ontario Income Tax Considerations — Revocation of Registration Under the Ontario Act”.

Legislative Changes

The tax attributes of an investment in Class A Shares of the Funds and various investment restrictions placed on the Funds have been altered frequently. Changes to federal or provincial legislation, rules or practices, if unfavourable, could impair the investment performance of the Funds as well as the ability of the Funds to attract future investment capital.

The reduction of the Ontario provincial tax credit for the 2010 and 2011 taxation years and the elimination of the Ontario provincial tax credit for the 2012 and subsequent taxation years are likely to materially reduce future sales of Class A Shares of the Funds. The availability of funds for investment by the Funds in the future would be reduced and the liquidity of the Funds may be adversely impacted. See “Ontario Income Tax Considerations – Ontario Tax Credits Available to First Purchasers”.

Conflicts of Interest

The services of the directors and officers of Covington are not exclusive to the Funds. The directors and officers of Covington may provide similar services and devote a portion of their time to other investments, directorships and offices. The other activities of the directors and officers of Covington and parties and persons retained by Covington and their affiliates may result in certain conflicts of interest. In addition, the activities of strategic partners of Covington Strategic Capital Fund and their affiliates may result in certain conflicts of interest. See “Organization and Management Details of the Funds – Conflicts of Interest”.

Non Cash Distributions

Individuals holding Class A Shares may be liable for the payment of tax upon the deemed receipt by the holder of a dividend in the amount added to the stated capital or a Capital Gains Dividend even where the holder did not receive a cash distribution from a Fund.

Follow on Financings

It is likely that portfolio companies will require additional financing after the investments made by a Fund in order to fully implement their business strategies. If a Fund is unable to raise additional capital after it has met the investment pacing requirements applicable to that Fund, it will be reliant upon third parties to provide such financing in order to realize on investments in portfolio companies. The ability of the Funds to raise additional capital is dependent upon a number of factors including the state of the capital markets and legislative changes to the labour sponsored investment fund program.

DISTRIBUTION POLICY

Dividends

A Fund may declare such dividends on the Class A Shares and the Class C Shares (if any) out of money legally available for dividends at the discretion of the applicable board of directors. However, the Funds do not currently anticipate declaring any cash dividends in the foreseeable future.

A Fund may capitalize annually certain amounts of its interest and other investment income (other than dividends in respect of taxable Canadian corporations) and capital gains to the extent necessary to obtain a refund of the tax otherwise payable on its taxable capital gains and to reduce the tax otherwise payable by it on its interest and other

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investment income (other than dividends in respect of taxable Canadian corporations). Any such capitalization would be effected by increasing the stated capital of the Class A Shares and Class C Shares (if any) on a pro rata basis. If and to the extent that a Fund increases the stated capital of the Class A Shares, a holder of Class A Shares of that Fund will be deemed to have received a dividend equal to the amount of the stated capital increase in respect of his or her Class A Shares even though the holder will not receive a cash distribution from a Fund. The amount of the deemed dividend will increase the adjusted cost base of the Class A Shares to the holder. See “Canadian Federal Income Tax Considerations - Status of the Investment Fund” and “Canadian Federal Income Tax Considerations – Taxation of Dividends”.

PURCHASES OF SECURITIES

General

Class A Shares of Covington Fund II are offered on a continuous basis at the net asset value per Class A Share of Covington Fund II at the close of business on the business day on which the subscription for Class A Shares of Covington Fund II is received. Class A Shares of Covington Strategic Capital Fund are offered on a continuous basis at the net asset value per Class A Share for the applicable series of Class A Shares at the close of business day on which the subscription for Class A Shares of Covington Strategic Capital Fund is received. Unless Class A Shares of a Fund are being purchased pursuant to a pre-authorized chequing plan, the minimum initial investment in that Fund is $500. All subsequent investments in the applicable Fund must be in increments of at least $25.

All subscriptions for Class A Shares are subject to acceptance or rejection by the applicable Fund and the right is reserved to reject any subscription. The Class A Shares are offered for sale only through registered dealers. The Funds will not accept a purchase order placed directly by an investor. In the event that a subscription for Class A Shares is rejected, all money received with the subscription will be returned immediately to the applicant.

Class A Shares may be purchased pursuant to a pre-authorized chequing plan by completing the appropriate section of the subscription form. Investment in Class A Shares through such plan is subject to a minimum investment of $25. Participants are not required to commit to any specific number of purchases and may make purchases monthly, quarterly, semi-annually or annually. See “Plan of Distribution”.

CI will act on behalf of the Funds in processing subscriptions for Class A Shares and administering the pre-authorized chequing plan. Share certificates will not be provided unless requested by investors.

To be eligible for a federal tax credit and an Ontario tax credit as a result of the purchase of Class A Shares, the Class A shareholder, or the individual contributing to an RRSP that is a Class A shareholder, must file with his or her income tax return the tax credit certificate (“Tax Credit Certificate”) prepared and issued pursuant to the Ontario Act by CI for the applicable Fund. See “Canadian Federal Income Tax Considerations” and “Ontario Income Tax Considerations”.

RRSPs and RRIFs

Subject to the qualifications discussed under the heading “Eligibility for Investment” a Class A Share will be a qualified investment for an RRSP or RRIF. Individual investors may generally arrange to transfer Class A Shares to their own or their spouses’ or common-law partner’s self-directed RRSP. In addition, Class A Shares may be acquired directly by an investor’s RRSP. See “Eligibility for Investment” and “Canadian Federal Income Tax Considerations — Transfers to RRSPs and Transfers to RRIFs”.

Investors who wish to establish a registered retirement savings plan to purchase Class A Shares of a Fund may do so with TD Canada Trust, as trustee (the “Trustee”). Certain investors may also establish a registered retirement income fund (“RRIF”) with the Trustee. CI acts on behalf of the Trustee in processing and accepting application forms in connection with such plans.

Investors may take advantage of these arrangements by completing a declaration of trust, which is available from Covington in addition to the application form.

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REDEMPTION OF SECURITIES

Requests for redemption of Class A Shares of the Funds may be made by completing the appropriate request for redemption form. All requests for redemption must be signed by the shareholder and, if the applicable Fund requests, with the signature guaranteed by a Canadian chartered bank or trust company or by a member of a recognized stock exchange in Canada. No redemption will be effected until the written request for the same has been duly completed and delivered to the applicable Fund or a dealer distributing the Class A Shares of that Fund, together with a duly endorsed share certificate (if any). Requests for redemption will be accepted in the order in which they are received by the Fund.

There are restrictions on the redemption of Class A Shares of the Funds. Except in certain special circumstances, a holder who wishes to redeem Class A Shares of a Fund within eight years after the date on which such shares are issued will be subject to withholding of certain taxes intended to recover amounts in respect of the federal and Ontario tax credits received in respect of the purchase of Class A Shares. In addition, a holder who wishes to redeem Class A Shares of a Fund within eight years after the date on which such shares are issued may be charged an early redemption fee.

With respect to Class A Shares of Covington Fund II, a redemption fee of up to 6% of the offering price of the Class A Shares will be charged to investors and calculated as 0.75% of the offering price of the Class A Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Class A Shares. After the eighth anniversary of the date of issue of the Class A Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington Fund II. See “Attributes of the Securities — Class A Shares — Redemption”.

With respect to Series I Shares of Covington Strategic Capital Fund, a redemption fee of up to 10% of the offering price of the Series I Shares will be charged to investors and calculated as 1.25% of the offering price of the Series I Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series I Shares. After the eighth anniversary of the date of issue of the Series I Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Attributes of the Securities — Class A Shares — Redemption”.

With respect to Series II Shares of Covington Strategic Capital Fund, a redemption fee of up to 6% of the offering price of the Series II Shares will be charged to investors and calculated as 0.75% of the offering price of the Series II Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series II Shares. After the eighth anniversary of the date of issue of the Series II Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Attributes of the Securities — Class A Shares — Redemption”.

There is no redemption fee where the redemption occurs following the death of the holder (or the annuitant in the case of an RRSP holder) or after the eighth anniversary of the date of issue. A Fund may suspend the redemption of Class A Shares or may postpone the date of payment upon redemption (i) during any period when normal trading is suspended on any stock exchange, options exchange or futures exchange within or outside Canada on which securities are listed and traded, or on which permitted derivatives are traded, which represent more than 50% by value of the total assets of the applicable Fund without allowance for liabilities, or (ii) with the prior permission of the Ontario Securities Commission. In addition, in any financial year a Fund is not required to, but may at its option, redeem its Class A Shares having an aggregate redemption price exceeding 20% of the net asset value of that Fund as at the last day of the preceding financial year. See “Attributes of the Securities — Class A Shares — Redemption”.

Covington Fund II is in the process of securing a line of credit from a third party financier to assist it to honour redemptions from time to time as it divests of investments. It is anticipated that in order to secure such financing Covington Fund II will be required to covenant that it will not redeem, in any financial year, Class A Shares having an aggregate redemption price exceeding 30% of the net asset value of that Fund as of the last day of the preceding financial year.

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CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

Introduction

In the opinion of Gowling Lafleur Henderson LLP, counsel to the Funds, the following summary presents fairly the principal Canadian federal income tax considerations generally applicable to prospective purchasers of Class A Shares of the Funds pursuant to this prospectus who, for the purposes of the Federal Tax Act, are individuals (other than trusts that are not qualifying trusts) resident in Canada, hold their Class A Shares as capital property and deal at arm’s length with the applicable Fund that issues the Class A Shares. Generally, Class A Shares will be capital property to the holder thereof unless the holder is a trader or dealer in securities or has acquired the Class A Shares as part of an adventure in the nature of trade. This summary assumes that at the time the Class A Shares of the applicable Fund are purchased and at all relevant times thereafter, the Fund is registered as a labour sponsored investment fund corporation under the Ontario Act and is a prescribed labour-sponsored venture capital corporation under the Federal Tax Act.

This summary is based on the current provisions of the Federal Tax Act and the regulations under the Federal Tax Act, specific proposals for amendment to such legislation and regulations that have been publicly announced and counsel’s understanding of the current administrative practices of the Canada Revenue Agency (“CRA”) publicly available as of the date hereof. This summary does not take into account or anticipate any changes in law, whether by judicial, governmental or legislative action.

This summary is of a general nature only and is not exhaustive of all possible federal income tax considerations. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular purchaser. Therefore, prospective purchasers should consult their own tax advisors with respect to their individual circumstances.

Federal Tax Credit Available to First Purchasers

An individual who is the original purchaser of a Class A Share issued under this prospectus will be entitled to a federal labour-sponsored fund tax credit (the “Federal Tax Credit”) in respect of that original acquisition of the Class A Share. An individual is also eligible for the Federal Tax Credit if the original purchaser is a qualifying trust for the individual. A qualifying trust for the individual is a trust governed by an RRSP where, in the case of a non-spousal RRSP, the individual is the annuitant and, in the case of a spousal RRSP, the individual’s spouse or common-law partner is the annuitant and no other person has claimed the Federal Tax Credit in respect of the Class A Shares.

Pursuant to the Federal Tax Act, the Federal Tax Credit will be 15% of the original purchaser’s net cost of the Class A Shares to the individual (or to the qualifying trust for the individual) up to a maximum net cost of $5,000. Generally, the net cost of a Class A Share is the consideration paid on the subscription for the Class A Share less the amount of any assistance provided by a government, municipality or public authority in respect of the acquisition of the Class A Share, other than a tax credit (including the Federal Tax Credit or any provincial tax credit). The annual aggregate maximum Federal Tax Credit in respect of purchases of Class A Shares and any shares of prescribed labour-sponsored venture capital corporations is $750.

The Federal Tax Credit may be deducted only from the individual’s tax payable under the Federal Tax Act and only in respect of the calendar year in which the Class A Share is acquired, or subscribed and paid for, unless the Class A Share is acquired, or subscribed and paid for, in the first 60 days of the following calendar year in which case the Federal Tax Credit may, at the individual’s option, be deducted from the tax payable under the Federal Tax Act in respect of the preceding calendar year.

The Federal Tax Credit is not transferable by the individual and is not refundable to the extent it exceeds the individual tax otherwise payable.

In order to claim a Federal Tax Credit, the individual must file with his or her tax return the Information Return issued to him or her by the applicable Fund in respect of the acquisition of the Class A Shares.

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Proposed amendments to the Federal Tax Act, applicable to acquisitions of Class A Shares after 2003, provide that the Federal Tax Credit in respect of Class A Shares of a prescribed labour-sponsored venture capital corporation that is not registered under the Federal Tax Act is only available if a provincial tax credit is also available in respect of the Class A Shares. It is expected that no provincial tax credit and, therefore, no Federal Tax Credit will be available in respect of the Class A Shares issued in respect of 2012 and subsequent years.

Transfer of Class A Shares to an RRSP

Subject to the qualifications discussed above under the heading “Eligibility for Investment”, a Class A Share will be a qualified investment for an RRSP. An individual who is the original purchaser of a Class A Share may transfer, for no consideration, the Class A Share to an RRSP under which the individual or his or her spouse or common-law partner is the annuitant. The individual who makes such transfer will be entitled to treat an amount equal to the fair market value of the Class A Share at the time of the transfer as a contribution in kind to the RRSP and will be deemed to have been disposed of the Class A Share for proceeds of disposition equal to such fair market value. The contribution will be deductible in computing the original holder’s income in accordance with the provisions of the Federal Tax Act which place limits on the annual amount of deductible RRSP contributions. This deduction is in addition to the Federal Tax Credit available against tax otherwise payable. The determination of the fair market value of a Class A Share at any particular time is a factual matter.

On the transfer of a Class A Share to an RRSP, the holder of the Class A Share may realize a capital gain but any capital loss is denied. See “Taxation of Securityholders - Disposition of Class A Shares” below.

An RRSP is also permitted to subscribe directly for Class A Shares.

Transfer of Class A Shares to a RRIF

Subject to the qualifications discussed above under the heading “Eligibility for Investment”, a Class A Share will also be a qualified investment for a RRIF. Class A Shares can be transferred by an individual to a RRIF which purchases the shares for valuable consideration if the individual or his or her spouse or common-law partner is the annuitant of the RRIF. On such a sale of a Class A Share to a RRIF, the original holder of the Class A Share may realize a capital gain but any capital loss is denied. See “Taxation of Securityholders - Disposition of Class A Shares”. No tax deduction is available in respect of the sale or other transfer of a Class A Share by an individual to a RRIF.

A RRIF is not permitted to subscribe directly for Class A Shares.

Status of the Investment Funds

The taxation year of each Fund ends on August 31st of each year. As a prescribed labour-sponsored venture capital corporation, each Fund will be a “mutual fund corporation” for the purposes of the Federal Tax Act. Each Fund is required to compute its net income and net realized gains and losses in Canadian dollars for purposes of the Federal Tax Act and may, as a consequence, realize foreign exchange gains or losses that will be taken into account in computing its income for tax purposes.

Covington Fund II has elected, and Covington Strategic Capital Fund intends to elect, to have each of its “Canadian securities” (as defined in subsection 39(6) of the Federal Tax Act) treated as capital property. Such an election is intended to ensure that gains realized by a Fund on a disposition of Canadian securities are treated as capital gains.

When a Fund sells, or otherwise disposes of a capital property, that Fund will generally realize a capital gain (or capital loss) to the extent that the proceeds of disposition exceed (or are exceeded by) the adjusted cost base to that Fund of the property and any reasonable costs of disposition. One-half of any capital gain or capital loss will be a Fund’s taxable capital gain or allowable capital loss, as the case may be. Taxable capital gains must be included in computing a Fund’s income. Allowable capital losses may normally be deducted against taxable capital gains of a Fund for the year. Allowable capital losses in excess of taxable capital gains for the year may generally be carried

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back three years and carried forward indefinitely for deduction against net taxable capital gains realized in those years.

The tax paid by a Fund on net realized taxable capital gains will be refundable on a formula basis when Class A Shares are redeemed by that Fund or when that Fund pays or is deemed to pay dividends which it elects to be treated as capital gains dividends (“Capital Gains Dividends”).

Each Fund is subject to Canadian federal and Ontario provincial tax (including federal surtax) at full corporate rates (without the benefit of any rate reduction) plus an additional 6 2/3% tax on its interest and other investment income (other than dividends from taxable Canadian corporations) net of reasonable expenses. Part of the tax payable by a Fund on its net investment income will be eligible to be refunded in a taxation year in which that Fund pays or is deemed to have paid taxable dividends (other than Capital Gains Dividends).

Taxable dividends received by a Fund from taxable Canadian corporations will generally be included in that Fund’s income and deducted in computing its taxable income.

Taxation of Securityholders

Tax Implication of the Investment Funds’ Distribution Policy

Holders of Class A Shares will be liable to tax on taxable dividends, other than Capital Gains Dividends, received, or deemed to be received from the applicable Fund, subject to the gross-up and dividend tax credit rules applicable to dividends from taxable Canadian corporations. Taxable dividends (other than Capital Gains Dividends) may be designated by a Fund to be “eligible dividends”. Canadian resident recipients of “eligible dividends” benefit from an enhanced gross-up and dividend tax credit. Taxable dividends paid by a Fund may be designated as “eligible dividends” if that Fund is able to satisfy certain conditions. There is no assurance that a Fund will be entitled to designate any dividends as eligible dividends.

As described above, a Fund may pay, or may be deemed to have paid, Capital Gains Dividends to holders of Class A Shares. Capital Gains Dividends received, or deemed to have been received, by a holder of a Class A Share will be treated as realized capital gains in the hands of such holder and will be subject to the general rules relating to the taxation of capital gains.

A Fund may increase the stated capital of its outstanding Class A Shares in order to maximize the refund of tax available to it in respect of taxes payable on net realized capital gains or net investment income. If a Fund does so, that Fund will file an election such that it will be deemed to have paid a dividend on its then issued and outstanding Class A Shares equal to the amount added to the stated capital of such Class A Shares and each holder of a Class A Share will be deemed to have received a dividend, or if that Fund so elects, a Capital Gains Dividend, equal to the holder’s proportionate share thereof even though the holder will not receive a cash distribution from that Fund.

If Class A Shares of a Series are purchased just before a dividend is paid, or is deemed to have been paid, on that Series of Class A Shares, the holder will be taxed on the holder’s share of the dividend. Therefore the holder may be paying tax on income and capital gains realized by a Fund before the Class A Shares were purchased.

Disposition of Class A Shares

A holder will generally realize a capital gain (or capital loss) on the disposition of a Class A Share, including on a redemption of a Class A Share, to the extent that the proceeds of disposition of the Class A Share exceed (or are exceeded by) the adjusted cost base to the holder of the Class A Share and any reasonable costs of disposition (including any redemption fee payable to the applicable Fund).

The cost of a Class A Share acquired by the holder will generally be equal to the subscription price paid. The cost of each Class A Share acquired will be averaged with the adjusted cost base of all other Class A Shares of the holder for the purpose of determining the adjusted cost base of each Class A Share at any subsequent time. The adjusted cost base of a Class A Share of the holder will be increased by the amount of any dividend or Capital Gains

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Dividend deemed to have been received by the holder as a result of any increase in the stated capital of the respective series of Class A Shares as described above under “Status of the Investment Funds”. The adjusted cost base of a Class A Share will not be reduced by the Federal Tax Credit or by any Ontario tax credit received by the holder.

A capital loss that would otherwise arise on the disposition of a Class A Share will be reduced by the amount of the Federal Tax Credit and the applicable Ontario tax credit received in respect of the Class A Share by the holder of the Class A Share (or by a person with whom the holder does not deal at arm’s length) to the extent that the amount of such tax credits has not previously reduced a capital loss in respect of the Class A Share.

Any capital loss realized by a holder of Class A Shares on the sale or transfer of Class A Shares to an RRSP under which the holder or the holder’s spouse or common-law partner is the annuitant, or to a RRIF under which the holder is the annuitant, will be deemed to be nil.

One-half of any capital gain or capital loss will be the holder’s taxable capital gain or allowable capital loss, as the case may be. Taxable capital gains must be included in computing the holder’s income. Allowable capital losses may normally be deducted against taxable capital gains for the year. Allowable capital losses in excess of taxable capital gains for the year may generally be carried back three years and carried forward indefinitely for deduction against net taxable capital gains realized in those years.

Redemption of Class A Shares

There are restrictions on the redemption of Class A Shares. Except for redemptions specifically permitted under the Federal Tax Act and the Ontario Act, a holder redeeming Class A Shares within eight years after the date on which such shares are issued will be subject to certain taxes intended to recover amounts in respect of the Federal Tax Credit and the Ontario tax credit (discussed below) received in respect of the purchase of the Class A Shares. The amount recoverable under the Federal Tax Act is determined by formula and is equal to a specified proportion of the amount that must be repaid in respect of the Ontario tax credit.

The redemption of a Class A Share will constitute a disposition for income tax purposes such that the comments above in “Disposition of Class A Shares” will generally apply. The proceeds of disposition for these purposes will equal the redemption proceeds (including any amounts withheld from the redemption proceeds and paid to the Receiver General for Canada and the Minister of Finance (Ontario) as a return of the Federal Tax Credit and Ontario Tax Credit, respectively.) The amount recoverable under the Federal Tax Act will not exceed the proceeds of disposition (net of the amounts recovered in respect of the Ontario Tax Credit).

Taxation of Registered Plans

Subject to the qualifications discussed above under the heading “Eligibility for Investment”, Class A Shares are qualified investments for trusts governed by RRSPs or RRIFs.

An RRSP or RRIF will not be liable to tax under the Federal Tax Act in respect of taxable dividends or capital gains dividends received or deemed to have been received by the RRSP or RRIF in respect of Class A Shares or in respect of capital gains realized on the disposition of Class A Shares.

Distributions from an RRSP or RRIF to a holder are included in the income of the holder in the year of the distribution. Where the plan is a spousal plan, under certain circumstances, the distributions to the annuitant of the RRSP or RRIF may be included in the income of the spouse who was the contributor to the spousal plan.

Federal Penalty Taxes Potentially Applicable to the Funds

The Federal Tax Act requires each Fund, as a prescribed labour-sponsored venture capital corporation, to file returns with the CRA and pay a federal tax in an amount equal to any tax payable by the applicable Fund to Ontario as a consequence of its failure to acquire sufficient properties of a character described in the Ontario Act. If a Fund subsequently qualifies for a refund of such tax payable under the Ontario Act, that Fund would be entitled to a credit

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against tax payable by it under the Federal Tax Act of an amount generally equal to the refund received under the Ontario Act.

If a Fund as a consequence of the Ontario Act is required on merger, winding up or dissolution to pay an amount to the Minister of Finance (Ontario), and if that fund is not a registered labour-sponsored venture capital corporation or a revoked corporation under the Federal Tax Act, that Fund would be required under the Federal Tax Act to pay an additional federal tax, for the taxation year, in an amount equal to the amount that was payable under the Ontario Act

ONTARIO INCOME TAX CONSIDERATIONS

Introduction

In the opinion of Gowling Lafleur Henderson LLP, counsel to the Funds, the following summary presents fairly the principal Ontario income tax considerations generally applicable to prospective purchasers of Class A Shares pursuant to this prospectus who, for the purposes of the relevant income tax legislation, are individuals (other than trusts that are not qualifying trusts) resident in Ontario, hold their Class A Shares as capital property and deal at arm’s length with the applicable Fund that issues the Class A Shares. Generally, Class A Shares will be capital property to the holder thereof unless the holder is a trader or a dealer in securities or has acquired the Class A Shares as part of an adventure in the nature of trade. This summary assumes that, at the time the Class A Shares of the applicable Fund are purchased and at all relevant times thereafter, that Fund is registered as a labour sponsored investment fund under the Ontario Act and is a prescribed labour-sponsored venture capital corporation under the Federal Tax Act and the Fund and its officers, directors and shareholders conduct their business and affairs at all relevant times in a manner that is not contrary to the spirit and intent of the Ontario Act.

This summary is based on the current provisions of the Ontario Act and the Ontario Tax Act, the regulations under such statutes and counsel’s understanding of the current administrative and assessing practices published by the Ontario provincial taxation authorities. This summary does not take into account or anticipate any other changes in law, whether by judicial, governmental or legislative act.

This summary is of a general nature only and is not exhaustive of all possible Ontario provincial income tax considerations. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular purchaser. Therefore, prospective purchasers should consult their own tax advisors with respect to their individual circumstances.

Ontario Taxation of the Funds

Counsel has been advised by management of the Funds that each Fund does not intend to carry on business through a permanent establishment in any province other than Ontario. Subject to this assumption, all of the aggregate income of a Fund will be attributable to, and taxable in, the Province of Ontario.

The taxation of a Fund will generally parallel the taxation of that Fund under the Federal Tax Act except with respect to refundable taxes on investment income.

Ontario Taxation of Class A Shareholders

Under the Ontario Tax Act, an individual who is resident in Ontario on the last day of a taxation year is generally liable for Ontario tax at rates that are specified percentages of the individual’s taxable income. Taxable income for an individual for the purpose of the Ontario Tax Act is generally calculated based on the provisions of the Federal Tax Act. For example, one-half of any capital gains or capital losses will be the holder’s taxable capital gains or allowable capital losses, as the case may be, for the purposes of the Ontario Tax Act. An enhanced dividend tax credit is applicable under the Ontario Tax Act for dividends eligible for the federal enhanced tax credit. The ordinary dividend tax credit continues to apply to other taxable dividends.

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Ontario Tax Credits Available to First Purchasers

An individual who is resident in Ontario and: (i) has subscribed and paid for Class A Shares issued under this prospectus; or (ii) is the annuitant of a qualifying trust that has subscribed and paid for Class A Shares as the original purchaser, will be eligible for an Ontario tax credit against Ontario tax payable under the Ontario Tax Act. The annual aggregate maximum credit against such Ontario tax in respect of purchases of Class A Shares of a labour sponsored investment fund corporation for the 2009 taxation year, is 15% of the equity capital received by the Fund from the individual (or a qualifying trust for the individual) on the issuance of Class A Shares up to $1,125 based on an investment of $7,500 for that taxation year. The maximum of $1,125 is in respect of the individual’s aggregate purchases of Class A Shares of the Fund and any other shares of a labour sponsored investment fund corporation in respect of that taxation year.

The maximum credit is in respect of the individual’s aggregate purchases of Class A Shares of the Funds and any other shares issued by labour sponsored investment fund corporations in respect of the same taxation year (the “Ontario Tax Credit”). In order to claim the Ontario tax credit, the individual must file the Tax Credit Certificate issued under the Ontario Tax Act with his or her tax return. The Ontario tax credit may be deducted from the individual’s tax payable only in respect of the calendar year in which the Class A Shares are paid for, unless the Class A Shares are paid for in the first 60 days of the calendar year, in which case the Ontario tax credit may, at the individual’s option, be deducted from the tax payable in the preceding calendar year. The Ontario Tax Credit is not transferable by the individual and is not refundable to the extent that it exceeds the individual’s tax otherwise payable.

Under the Ontario Tax Act, the Ontario tax credit for the 2009 taxation year is 15% of the equity capital received from the individual in 2009 (or the first 60 days of 2010) to a maximum of $1,125. For the 2010 taxation year, the Ontario tax credit will be 10% of the equity capital received from an individual to a maximum of $750. For 2011, the Ontario tax credit will be 5% of the equity capital received from the individual to a maximum of $375. The Ontario tax credit will be eliminated for the 2012 and subsequent taxation years.

Ontario Tax on Redemptions of Class A Shares

Under the Ontario Act, the holder of a Class A Share is liable to pay a tax calculated at the rate of 15% of the lesser of the amount received by the applicable Fund on the issue of the Class A Share or the amount paid on redemption, acquisition or cancellation of the Class A Share by the applicable Fund unless (i) the redemption, acquisition or cancellation occurs or is deemed to occur more than eight years after the day on which the Class A Share is issued or (ii) the redemption, acquisition or cancellation is permitted pursuant to the Ontario Act in the circumstances described above. See “Redemption of Securities”.

Under the Ontario Act, each Fund is required to withhold and remit to the Minister of Finance (Ontario) the tax payable by a holder of Class A Shares of the applicable Fund upon the redemption, acquisition or cancellation of Class A Shares noted above. If a Fund fails to withhold and remit the amount as required, that Fund is required to pay the amount of the tax on behalf of the shareholder and is entitled to recover from the shareholder the amount remitted and not withheld.

For purposes of determining whether the redemption of a Class A Share is prior to eight years from the date of issue under the Ontario Act, if the Class A Share was issued in February or March and it is redeemed on a date in a subsequent year that is in February or on March 1, the redemption will be deemed to occur on March 31 of that subsequent year.

Ontario Penalty Taxes Potentially Applicable to the Funds

A Fund will be subject to a penalty tax under the Ontario Tax Act if it fails to maintain, above a minimum level for some and below a maximum level for others of, its investments in eligible Ontario businesses (minimum and maximum eligible investment requirements). For a summary of those investment requirements, see “Investment Restrictions – Statutory Investment Restrictions”. If a Fund is not in compliance with the minimum eligible investment requirements, the Minister of Finance (Ontario) may order that Fund to stop issuing Ontario Tax Credit

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certificates, until it provides proof to the satisfaction of the Minister of Finance (Ontario), that it is in compliance with the minimum and maximum eligible investment requirements.

If, at the end of a particular calendar year, a Fund does not satisfy the minimum eligible investment requirements, it is required to pay tax in respect of that calendar year equal to the amount by which the greater of:

(a) 15% of the amount by which the equity capital of that Fund received on the issue of its Class A Shares that is required to be maintained in eligible Ontario businesses as of the end of the calendar year exceeds the cost to that Fund of its investments in eligible Ontario businesses at the end of such calendar year; and

(b) the aggregate of: (i) 15% of the amount by which the cost of the investments by that Fund at the end of the calendar year in eligible businesses that are listed companies exceeds the limit on investments in listed companies imposed by the Ontario Act, and (ii) 15% of the amount by which the equity capital received on the issue of Class A Shares that is required to be invested at the end of the calendar year in eligible businesses that are small businesses exceeds the total of all amounts each of which is a cost to that Fund of its investment in such eligible small businesses at the end of the calendar year,

exceeds the amount of any such tax, other than an amount described in (b)(i) above, paid by that Fund in any prior year that has not been rebated to that Fund.

If application is made by a Fund and received by the Minister of Finance (Ontario) within three years after the end of the calendar year in respect of which the Ontario penalty tax was imposed and the Minister of Finance (Ontario) is satisfied that such Fund is maintaining the minimum and maximum eligible investment requirements, that Fund may be eligible to receive a rebate of the penalty tax without interest.

Revocation of Registration Under the Ontario Act

The Minister of Finance (Ontario) may revoke the registration of a Fund under the Ontario Act for certain reasons including if that Fund:

(a) does not comply with the restrictions in its articles of incorporation relating to the redemption, retraction and transfer of Class A Shares;

(b) fails to maintain the minimum level of eligible investments; or

(c) does not comply with any of the requirements of the Ontario Act or the regulations thereunder, or in the opinion of the Minister of Finance (Ontario), is conducting its affairs in a manner contrary to the spirit and intent of the Ontario Act.

If the Ontario registration of a Fund is revoked, that Fund must pay to the Minister of Finance (Ontario) an amount equal to the total of all Ontario tax credits in respect of all outstanding Class A Shares that were issued in the eight years immediately preceding the date of revocation of the registration. If the fair market value of such shares on the date of revocation is less than the actual issue price of the shares, the amount to be paid by that Fund is reduced to the amount that is determined if the amount of tax credit was calculated on the amount that is equal to such fair market value.

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ORGANIZATION AND MANAGEMENT DETAILS OF THE FUNDS

Officers and Directors of Covington Fund II

The name, place of residence and office of the directors and officers of Covington Fund II and their principal occupations in the last five years are set out below.

Name and Municipality of

Residence Major positions with the Fund

Principal Occupation

Director Since**

Class A Shares Beneficially Owned as at November 30,

2009

R. Scott Colbran Acton, Ontario*

Valuation Committee Chair and Director

Communications Consultant and Company Director. Director – Look Communications Inc. Past President & CEO Look Communications Inc. (1999). Past President & COO, Rogers Cable TV (1996). Past President, MacLean Hunter Cable TV (1994)

2002 614 Class A Shares

Terrence B. Kulka Ottawa, Ontario

Chair, Audit Committee Member, Governance & Policy Review Committee Chair and Director

Director of the Executive MBA Program, University of Ottawa, Telfer School of Management

2008

Nil

Ray Massicotte Ottawa, Ontario

Governance & Policy Review Committee Member and Director

Director, Canadian Police Association. President, Waterloo Regional Police Association.

2009 Nil

Larry Molyneaux Toronto, Ontario

Valuation Committee Member and Director

President, Police Association of Ontario (2008). Director, Member Benefits of the Toronto Police Association since 2004. Director, Canadian Police Association.

2008

Nil

Charles Momy Ottawa, Ontario

Audit Committee Member, Governance & Policy Review Committee Member and Director

President, Canadian Police Association (2008-present). Past President, Ottawa Police Association (2003-2008). Director, Canadian Police Association (since 2005).

2008

Nil

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Name and Municipality of

Residence Major positions with the Fund

Principal Occupation

Director Since**

Class A Shares Beneficially Owned as at November 30,

2009

Henry J. Pankratz*** Toronto, Ontario

Audit Committee Chair, Valuation Committee Member and Director

Corporate Director since retiring as Deputy Chairman of Ernst & Young in 1999. Director of LPF Infrastructure Fund and Fengate/Greenfield Infrastructure Fund.

2003 Nil

Philip R. Reddon Burlington, Ontario

Chief Executive Officer of the Fund

Managing Director of Covington.

283 Class A Shares

Scott D. Clark Toronto, Ontario

Senior Vice-President of the Fund

Chief Executive Officer, President, Chief Compliance Officer and Director of Covington.

2,582 Class A Shares

Lisa M. Low Toronto, Ontario

Chief Financial Officer of the Fund

Chief Financial Officer of Covington.

500 Class A Shares

Notes:

(*) Mr. Colbran is currently a director of Look Communications Inc. and was on the board of directors on September 4, 2001 when Look Communications Inc. announced it had voluntarily sought and obtained protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) pursuant to an Order of the Ontario Superior Court of Justice. On February 11, 2002, Look Communications Inc. implemented its Plan of Compromise and Arrangement under the CCAA.

(**) Each director’s term of office expires at the next meeting of shareholders.

(***) Mr. Pankratz became a director of Millennium Biologix Corporation (MBC) on December 12, 2005 and of MBC’s wholly owned subsidiary, Millennium Biologix Technologies Inc. (MBTI), on November 15, 2006. Mr. Pankratz resigned as a director of each of MBC and MBTI effective May 8, 2007, the date of the appointment of an interim receiver and receiver over all of the assets, undertakings and properties of each of MBC and MBTI.

Officers and Directors of Covington Strategic Capital Fund

The name, place of residence and office of the directors and officers of Covington Strategic Capital Fund and their principal occupations in the last five years are set out below.

Name and Municipality of

Residence Major positions with the Fund

Principal Occupation

Director Since**

Class A Shares Beneficially Owned as at November 30,

2009

R. Scott Colbran * Acton, Ontario

Valuation Committee Chair and Director

Communications Consultant and Company Director. Director – Look Communications Inc. Past President & CEO Look Communications Inc. (1999). Past President & COO, Rogers Cable TV (1996). Past President, MacLean Hunter Cable TV (1994).

2007 Nil

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Name and Municipality of

Residence Major positions with the Fund

Principal Occupation

Director Since**

Class A Shares Beneficially Owned as at November 30,

2009

Terrence B. Kulka Ottawa, Ontario

Chair, Audit Committee Member, Governance & Policy Review Committee Chair and Director

Director of the Executive MBA Program, University of Ottawa, Telfer School of Management.

2008

Nil

Ray Massicotte Ottawa, Ontario

Governance & Policy Review Committee Member and Director

Director, Canadian Police Association. President, Waterloo Regional Police Association.

2009 Nil

Larry Molyneaux Toronto, Ontario

Valuation Committee Member and Director

President, Police Association of Ontario (2008). Director, Member Benefits of the Toronto Police Association since 2004. Director, Canadian Police Association.

2008

Nil

Charles Momy Ottawa, Ontario

Audit Committee Member, Governance & Policy Review Committee Member and Director

President, Canadian Police Association (2008-present). Past President, Ottawa Police Association (2003-2008). Director, Canadian Police Association (since 2005).

2008

Nil

Henry J. Pankratz*** Toronto, Ontario

Audit Committee Chair, Valuation Committee Member and Director

Corporate Director since retiring as Deputy Chairman of Ernst & Young in 1999. Director of LPF Infrastructure Fund and Fengate/Greenfield Infrastructure Fund.

2003 Nil

Philip R. Reddon Burlington, Ontario

Chief Executive Officer of the Fund

Managing Director of Covington.

1,034 Class A Shares, Series II

Scott D. Clark Toronto, Ontario

Senior Vice-President of the Fund

Chief Executive Officer, President, Chief Compliance Officer and Director of Covington.

1,226 Class A Shares, Series II

Lisa M. Low Toronto, Ontario

Chief Financial Officer of the Fund

Chief Financial Officer of Covington.

417 Class A Shares, Series II

Notes:

(*) Mr. Colbran is currently a director of Look Communications Inc. and was on the board of directors on September 4, 2001 when Look Communications Inc. announced it had voluntarily sought and obtained protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) pursuant to an Order of the Ontario Superior Court of Justice. On February 11, 2002, Look Communications Inc. implemented its Plan of Compromise and Arrangement under the CCAA.

(**) Each director’s term of office expires at the next meeting of shareholders.

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(***) Mr. Pankratz became a director of Millennium Biologix Corporation (MBC) on December 12, 2005 and of MBC’s wholly owned subsidiary, Millennium Biologix Technologies Inc. (MBTI), on November 15, 2006. Mr. Pankratz resigned as a director of each of MBC and MBTI effective May 8, 2007, the date of the appointment of an interim receiver and receiver over all of the assets, undertakings and properties of each of MBC and MBTI.

Audit Committee

The board of each Fund has established an audit committee (the “Audit Committee”) comprised of three members of the board, each of whom are independent of Covington. The members of the Audit Committee for each Fund are Charles Momy, Henry J. Pankratz (Chair of the Audit Committee) and Terrence B. Kulka. A quorum at any meeting of the Audit Committee is at least a majority of the members. The Audit Committee is responsible for reviewing financial statements prepared by Covington on behalf of the Funds and liaising with the auditors of the Funds.

Investment Committee

The board of each Fund has established an investment committee (the “Investment Committee”). The members of the Investment Committee for each Fund are the full board of directors. A quorum at any meeting of an Investment Committee is at least a majority of the members. The Investment Committee is responsible for reviewing all investment recommendations made by Covington, and approval or rejection of all investments, reviewing the performance of existing investments and recommending investment policies and procedures to the applicable board for approval. See “Investment Strategies”.

Valuation Committee

The board of each Fund has established a valuation committee (the “Valuation Committee”) comprised of three directors, a majority of whom are independent of Covington. The members of the Valuation Committee for each Fund are Larry Molyneaux, Henry J. Pankratz and R. Scott Colbran (Chair of the Valuation Committee). A quorum at any meeting of a Valuation Committee is at least one board member who is independent of the Sponsor and one member representing the Sponsor. The Valuation Committee, together with the senior officers of Covington, is responsible for determining the value of the applicable Fund’s assets, and reviewing and approving the applicable Fund’s net asset value as set out in quarterly valuation reports prepared by Covington. See “Calculation of Net Asset - Valuation Policies and Procedures of Covington Fund II and Covington Strategic Capital Fund”.

Governance and Policy Review Committee

The board of Covington Fund II has established a governance and policy review committee (the “Governance Committee”) comprised of three directors, whose mandate is to review the mandates of each of the subcommittees of the board and to make recommendations as to modifications, if any. The members of the Governance Committee for Covington Fund II are Ray Massicotte, Charles Momy and Terrence B. Kulka (Chair of the Governance Committee). The Governance Committee has recommended a proposal that any payment of directors’ fees and expenses from investee companies to any director of Covington Fund II or employee of Covington must first be approved by the applicable Governance Committee. The proposal was reviewed and adopted by the board of Covington Fund II.

Meetings of the Board and Committees

Meetings of the board of each Fund are held at least annually. The Audit Committee of each Fund meets at least semi-annually. The Investment Committee of each Fund is required to meet whenever an investment has been recommended to that Fund by Covington. The Valuation Committee of each Fund meets quarterly to approve the valuation of the applicable Fund’s assets. In addition, the Valuation Committee of each Fund is required to meet in circumstances where the net asset value per Class A Share of the applicable Fund is expected to change by more than 5%. The Governance and Policy Review Committee of Covington Fund II meets quarterly.

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Conflicts of Interest

From time to time, a director of a Fund may face a conflict in connection with certain investment decisions. For example, a director or a director’s employer may have an interest in eligible businesses in which a Fund is considering investing. Where such conflicts arise, the director with such conflict is required to disclose the conflict and abstain from participating in the investment decision. Members of the board of a Fund may also serve as directors and on the Investment Committee and Valuation Committees of the other Fund. Each Fund has established appropriate conflict of interest provisions relating to the role of the directors of that Fund.

Investment Advisor

Covington Fund II - Investment Advisor Agreement

Covington is engaged as the investment advisor by Covington Fund II pursuant to an agreement dated July 24, 2008, between Covington Fund II and Covington (the “Investment Advisor Agreement”) to provide advice and analysis to Covington Fund II in respect of Covington Fund II’s investments in eligible businesses. The head and registered office of Covington is at 200 Front Street, Suite 3003, P.O. Box 10, Toronto, Ontario M5V 3K2.

The Investment Advisor Agreement has an initial term of five years to July 24, 2013 and will be renewed automatically for a further term of two years, unless, subject to applicable law, the holders of two-thirds of the Class A Shares of Covington Fund II represented at a shareholders’ meeting vote to terminate the engagement of Covington not less than six months prior to the expiry of the initial term. Subsequent renewals will be for a one-year term on the same basis. Covington Fund II, upon a two-thirds vote of the board of directors together with a vote of the holders of two-thirds of the Class A Shares represented at a shareholders’ meeting, may terminate the Investment Advisor Agreement in certain circumstances, including for a material breach of contract. Covington may resign as investment advisor in specified circumstances on not less than one year’s notice.

Covington is responsible for identifying investment opportunities which meet Covington Fund II’s investment criteria, analyzing proposed investments and preparing and making recommendations for investments to the Investment Committee of Covington Fund II. Covington is responsible for structuring and negotiating approved investments. In addition, Covington is responsible for the determination and execution of the appropriate timing, terms and methods of liquidating investments in portfolio companies. Covington has covenanted in the Investment Advisor Agreement that its recommendations will comply with the investment policies and restrictions applicable to Covington Fund II.

Covington monitors Covington Fund II’s portfolio of investments in eligible businesses, which normally includes participating on or placing appropriate nominees on investee companies’ boards of directors and evaluating the financial performance and other key performance indicators of investee companies. In addition, where appropriate, Covington seeks to add value to the businesses in which Covington Fund II invests by assisting management in developing strategic plans, providing business advice, assessing or recruiting key personnel, evaluating productivity, raising additional funding, enhancing industrial relations and helping to secure new markets. This may involve engaging the services of individuals or professional advisory firms with special expertise. These services will normally be paid for by the investee company, or failing that, by Covington Fund II.

CFII Fund Promoter Agreement

Covington is engaged as the fund promoter by Covington Fund II pursuant to an agreement dated July 24, 2008 (the “CFII Fund Promoter Agreement”) between Covington Fund II and Covington.

As fund promoter, Covington is responsible for providing marketing and investor relations services to Covington Fund II.

The CFII Fund Promoter Agreement has an initial term of five years to July 24, 2013 and will be renewed automatically for a further two year term unless, subject to applicable law, the holders of two-thirds of the Class A Shares of Covington Fund II represented at a shareholders’ meeting vote to terminate the engagement of Covington

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not less than six months prior to the expiry of the renewal term. Subsequent renewals will be for a one year term on the same basis. Covington Fund II, upon a two thirds vote of the board of directors together with a vote of the holders of two thirds of the Class A Shares of Covington Fund II represented at a shareholders’ meeting, may terminate the CFII Fund Promoter Agreement in certain other circumstances, including for a material breach of contract or specified non-performance. Covington may resign as fund advisor in specified circumstances on not less than one year’s notice. Under and subject to the terms of the CFII Fund Promoter Agreement, Covington may provide similar services to other investment funds or companies in the future.

Previous to the entry into the CFII Fund Promoter Agreement, Covington Fund II and a predecessor to Covington had entered into the Fund Advisor Agreement wherein Covington was retained by Covington Fund II to perform the same services.

Covington Strategic Capital Fund - Management Agreement

Covington is engaged as the manager by Covington Strategic Capital Fund pursuant to an agreement dated December 23, 2003 (as amended on April 16, 2004) between Covington Strategic Capital Fund and Covington (the “Management Agreement”) to provide advice and analysis to Covington Strategic Capital Fund in respect of Covington Strategic Capital Fund’s investments in eligible businesses. The head and registered office of Covington is at 200 Front Street, Suite 3003, P.O. Box 10, Toronto, Ontario M5V 3K2.

The Management Agreement has an initial term of eight years to December 23, 2011 and will be renewed automatically for a further term of two years, unless, subject to applicable law, the holders of two-thirds of the Class A Shares of Covington Strategic Capital Fund represented at a shareholders’ meeting vote to terminate the engagement of Covington not less than six months prior to the expiry of the initial term. Subsequent renewals will be for a one-year term on the same basis. Covington Strategic Capital Fund, upon a two-thirds vote of the board of directors of Covington Strategic Capital Fund together with a vote of the holders of two-thirds of the Class A Shares represented at a shareholders’ meeting, may terminate the Management Agreement in certain circumstances, including for a material breach of contract. Covington may resign as manager in specified circumstances on not less than one year’s notice.

Covington will be responsible for identifying investment opportunities that meet Covington Strategic Capital Fund’s investment criteria, analyzing proposed investments and preparing and making recommendations for investments to the Investment Committee of Covington Strategic Capital Fund. Covington will be responsible for structuring and negotiating approved investments. In addition, Covington will be responsible for the determination and execution of the appropriate timing, terms and methods of liquidating investments in portfolio companies. Covington has covenanted in the Management Agreement that its recommendations will comply with the investment policies and restrictions applicable to Covington Strategic Capital Fund.

Covington will monitor Covington Strategic Capital Fund’s portfolio of investments in eligible businesses, which normally will include participating on or placing appropriate nominees on investee companies’ boards of directors and evaluating the financial performance and other key performance indicators of investee companies. In addition, where appropriate, Covington will seek to add value to the businesses in which Covington Strategic Capital Fund invests by assisting management in developing strategic plans, providing business advice, assessing or recruiting key personnel, evaluating productivity, raising additional funding, enhancing industrial relations and helping to secure new markets. This may involve engaging the services of individuals or professional advisory firms with special expertise. These services will normally be paid for by the investee company, or failing that, by Covington Strategic Capital Fund.

Covington will be responsible for managing the relationship with registered dealers selling the Class A Shares of Covington Strategic Capital Fund and will pay the sales commissions to such dealers in respect of sales of such Class A Shares. Covington, or a party with whom Covington has contracted, will arrange for the financing required to pay such sales commissions, coordinate the payment of such sales commissions and implement all aspects of Covington Strategic Capital Fund’s distribution strategy. Covington will be entitled to a fee for providing distribution and capital retention services to Covington Strategic Capital Fund.

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CSCF Fund Advisor Agreement

Covington is engaged as fund advisor to Covington Strategic Capital Fund pursuant to an agreement dated December 23, 2003 (the “CSCF Fund Advisor Agreement”) between Covington Strategic Capital Fund and a predecessor to Covington.

As fund advisor, Covington is responsible for providing marketing and investor relations services to Covington Strategic Capital Fund. Covington is responsible for preparing marketing literature and for organizing and making presentations to potential salespeople and to registered dealers.

The CSCF Fund Advisor Agreement has an initial term of eight years to December 23, 2011 and will be renewed automatically for a further term of two years, unless, subject to applicable law, the holders of two-thirds of the Class A Shares of Covington Strategic Capital Fund represented at a shareholders’ meeting vote to not renew the engagement of Covington as fund advisor not less than six months prior to the expiry of the initial term. Subsequent renewals will be for a one-year term on the same basis. Covington Strategic Capital Fund, upon a two-thirds vote of the board of directors of Covington Strategic Capital Fund together with a vote of the holders of two-thirds of the Class A Shares represented at a shareholders’ meeting, may terminate the CSCF Fund Advisor Agreement in certain circumstances, including for a material breach of contract. Covington may resign as fund advisor in specified circumstances on not less than one year’s notice.

Officers and Directors of the Investment Advisor

The name, place of residence and position held by each of the directors and officers of Covington and their principal occupations in the last five years are as follows:

Name and Place of Residence Office with Covington Principal Occupation

SCOTT D. CLARK Toronto, Ontario

Director, President and Chief Executive Officer

President and Chief Executive Officer, Covington

PHILIP R. REDDON Burlington, Ontario

Director and Managing Director Managing Director, Covington

LISA M. LOW Toronto, Ontario

Chief Financial Officer and Director Chief Financial Officer, Covington

The following is a summary of the qualifications and experience of the directors and officers of Covington.

Scott D. Clark, HBA

Scott D. Clark joined Covington in March 2001 and has over 24 years of experience in the financial services industry, the last eighteen of which have been in the private equity field. Mr. Clark is responsible for assessing new business opportunities, negotiating and structuring transactions and advising investee companies.

Prior to joining Covington, Mr. Clark was a Vice President at Harrowston Inc. where he assisted in the formulation of a venture capital investment strategy to expand Harrowston Inc. beyond traditional buyouts. Prior to Harrowston Inc., Mr. Clark was Vice President of Investments at Working Ventures Canadian Fund Inc. and also held various positions at the Business Development Bank of Canada. Mr. Clark holds a degree in Honours Business Administration from the Ivey School of Business in London, Ontario.

Lisa M. Low, CA

Lisa M. Low is the Chief Financial Officer of the Manager. Ms. Low joined the Manager in 1996 and has held roles in the finance and operations areas of the business including accounting, administration, treasury and financial reporting. Prior to joining the Manager, Ms. Low held positions with IBM (Advantis) Canada and Deloitte & Touche. Ms. Low is a Chartered Accountant and graduated from the University of Waterloo with an M. Acc.

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Philip R. Reddon, BA, BComm (HBA)

Philip R. Reddon joined Covington in 2002. In his role as Managing Director, his responsibilities include analysis of new investment opportunities for the Funds and assisting in the management and monitoring of the Funds’ existing investments.

Mr. Reddon has over 16 years experience in the private equity field including six years at Bank of Montreal Capital Corporation, a $400 million private equity fund. As Managing Director and head of its Technology Investment team, Mr. Reddon was a member of the investment committee and sat on the boards of eight companies. Prior to BMO Capital, Mr. Reddon spent six years with the Business Development Bank of Canada. Mr. Reddon holds a Bachelor of Arts from the University of Western Ontario and a Bachelor of Commerce (Honours Business Administration) from the University of Windsor.

Principals

Covington is investment advisor and manager to Covington Fund II and Covington Strategic Capital Fund, respectively. Covington is a wholly-owned subsidiary of RC Capital. RC Capital is owned equally by two trusts of which the Principals are the sole trustees. Mr. Scott D. Clark is the President, Chief Executive Officer and Chief Compliance Officer of Covington and Mr. Philip R. Reddon is the Managing Director of Covington. The Principals, supported by a senior investment team that have significant experience as investors in, or advisors to, middle market Canadian companies. The Principals respective qualifications and experience are summarized above.

Conflicts of Interest

The services of the directors and officers of Covington and its affiliates and associates, are not exclusive to the Funds. As a result, Covington has adopted specific policies and procedures in accordance with applicable securities law to ensure that Covington deals fairly and objectively with all its clients, including each Fund, when allocating investment opportunities and the costs associated with executing any investment decisions. The directors and officers of Covington will provide similar services and devote a portion of their time to other investments, directorships and offices. The other activities of Covington and of the respective officers, directors, shareholders, associates and parties and persons retained by Covington and their affiliates (collectively the “Conflict Parties”) may result in certain conflicts of interest. As a result, Covington has put in place certain policies and procedures to prevent any conflicts of interest from occurring or resolve any conflicts that may inadvertently arise. Covington will present to each Fund all investment opportunities other than those listed in the immediately following paragraph which are available to Covington, provided that a Fund is able to make the proposed investment and the investment meets that Fund’s investment guidelines. Notwithstanding the foregoing, the Funds have acknowledged that there may be situations in which Covington may require a Fund to co-invest with others in an investment opportunity which otherwise meets that Fund’s investment guidelines and for which that Fund has the necessary resources.

The terms of the agreements with Covington will not preclude the Conflict Parties from: (i) making an investment which is developed or originated by a third party which is made available by such third party only to one or more of the Conflict Parties and not a Fund; (ii) making an investment which relates to a pre-existing investment of such party, including a follow-on investment in any entity; (iii) making an investment in connection with or incidental to any business or other activity carried on by the Conflict Parties, if such business or activity does not principally consist of investing in the same types of investments that a Fund invests in; (iv) making an investment which is not eligible for a Fund; (v) making an investment in any seed capital stage company in Ontario as long as a Fund is an “accredited investor” as defined in Ontario Securities Commission Rule 45-501 – Ontario Prospectus and Registration Exemptions or in National Instrument 45-106 – Prospectus and Registration Exemptions; or (vi) providing services to investee companies on commercially reasonable terms.

A Fund shall not invest or maintain an investment in an eligible business if the eligible business does not deal at arm’s length with that Fund or any of the directors of that Fund unless (i) such eligible business would deal at arm’s length with that Fund but for that Fund’s interest as a holder of investments in the eligible business, or (ii) such investment was approved by special resolution of the shareholders of that Fund before the investment was made. Subject to the foregoing, (i) the Conflict Parties have the right to co-invest with a Fund in any investments provided that Fund believes, acting reasonably, that such investment will not impair the ability of that Fund to satisfy the

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investment pacing requirements of the Ontario Act, and (ii) that Fund and its officers, directors and shareholders may, directly or indirectly, invest in, eligible businesses in which the Conflict Parties have an interest provided that a third party invests, directly or indirectly, in such business at the same time and on substantially the same financial terms as the investment made by that Fund. Covington will report to the board of directors of each Fund quarterly on such activities by the Conflict Parties or more frequently if Covington wishes the assistance of the applicable board of directors in resolving any such conflict.

Independent Review Committee of the Funds

National Instrument 81-107 Independent Review Committee for Investment Funds (“NI 81-107”), came into force on November 1, 2006. NI 81-107 requires all publicly offered investment funds, such as the Funds, to establish an independent review committee (the “IRC” or the “Independent Review Committee”). The Manager must refer all conflict of interest matters for review or approval to the IRC. NI 81-107 also imposes obligations upon the Manager to establish written policies and procedures for dealing with conflict of interest matters, to maintain records, in respect of these matters and to provide the IRC with guidance and assistance in carrying out its functions and duties. According to NI 81-107, the IRC must be comprised of a minimum of three independent members, and is subject to requirements to conduct regular assessments of its members and to provide reports, at least annually, to the Funds and to its shareholders in respect of those functions. The report prepared by the Funds will be available, at the applicable time, on the Funds’ website www.covingtonfunds.com, or at a shareholders’ request at no cost, by contacting the Fund at 200 Front Street W., Suite 3003, P.O. Box 10, Toronto, Ontario M5V 3K2 or at info@covingtonfunds.com.

The initial members of the IRC were Miles F. Pittman, David French and Kevin B. Love. These members were appointed on May 1, 2007. The Funds’ IRC commenced operations effective October 11, 2007. In the current year, the IRC of the Funds met on January 26, May 21, June 29 and July 2. Effective July 2, 2009, due to a change of control of Covington, the initial members of the IRC ceased to be members. A new IRC was appointed on September 15, 2009. The new members of the IRC are Henry J. Pankratz, R. Scott Colbran and Terrence B. Kulka.

The Independent Review Committee for the Funds is also the Independent Review Committee of other funds for which Covington acts as the Manager. The members of the Independent Review Committee are paid an annual fee of $25,000 per annum per member for sitting on the Independent Review Committee as well as a meeting fee of $1,500 per meeting and, in the case of the Chair, $2,000 per meeting. The Independent Review Committee expenses are paid by a fund are based on that fund’s percentage of total net assets under management of the total net assets under management by Covington. In addition, there may be incremental insurance and legal costs involved in operating the Independent Review Committee.

For their services as members of the IRC, the IRC members are paid an annual fee (as set out in the table below) and are reimbursed for their expenses. For the most recently completed calendar year, the IRC members received the following amounts in fees and in reimbursement of expenses, in aggregate for all of the investment funds managed or administered by the Manager or its affiliates:

IRC Member Annual Fee Meeting Fee Fees Paid in 2008 Expenses Reimbursed

Miles F. Pittman $25,000 $2,000 $51,500 $1,741

David French $25,000 $1,500 $42,000 nil

Kevin B. Love $25,000 $1,500 $48,000 $1,275

Service Agreements

Pursuant to service agreements with Covington, each of the Principals is required to devote substantially all of his working time to the activities of Covington. Covington has also engaged additional operating personnel with investment experience as required. The employees of Covington are principally responsible for carrying on the business of Covington.

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Summary

Covington is positioned to access and capitalize on the capabilities of the Principals. The Principals will provide Covington with:

� networks of contacts for sourcing investment opportunities;

� frameworks and methodologies for undertaking financial and business analysis;

� guidance on transaction structuring;

� credit evaluation skills;

� guidance on business valuation techniques and frameworks;

� frameworks and processes for investment monitoring and control;

� extensive experience in financial and corporate restructurings; and

� exit management support to maximize shareholder value.

The Sponsor of the Funds

The sponsor of each of the Funds is the Canadian Police Association. Prior to August 2003, the Sponsor was the Canadian Police Association Incorporated, which merged with the National Professional Police Association in August 2003 to form the Canadian Police Association.

Pursuant to an agreement dated November 29, 1999 between Covington Fund II and the Sponsor (the “CFII Sponsor Agreement”), the Sponsor receives an annual fee for acting as the sponsor at the rate of up to 0.3% of the net asset value of Covington Fund II with respect to Covington Fund II’s share of the first $200 million of combined assets of the Funds and at a rate of 0.1% of the net asset value of Covington Fund II with respect to Covington Fund II’s share of any assets in excess of $200 million. The sponsor fee will be calculated and paid monthly.

Pursuant to an agreement dated December 22, 2003 between Covington Strategic Capital Fund and the Sponsor (the “CSCF Sponsor Agreement”, together with the CFII Sponsor Agreement referred to herein as the “Sponsor Agreements”), the Sponsor will receive an annual fee at the rate of up to 0.3% of the average net asset value of Covington Strategic Capital Fund with respect to the Covington Strategic Capital Fund’s share of the first $200 million of combined assets of the Funds, and at a rate of 0.1% of the average net asset value of Covington Strategic Capital Fund with respect to the Covington Strategic Capital Fund’s share of any combined assets in excess of $200 million, provided that all of the assets of Covington Fund II Inc. are included in the first $200 million of combined assets. The sponsor fee will be calculated and paid monthly.

The Funds are required to have a sponsor under the Ontario Act. In the Sponsor Agreements, the Sponsor has represented to the Funds that the Sponsor will use all fees received by it from the Funds to further its chartered objectives and to fund certain public interest programs of the Sponsor. These include the Canadian Resource Centre for Victims of Crime and ongoing efforts related to public safety and the reform of the justice system in Canada.

The Canadian Police Association Incorporated (“CPAI”) was incorporated by letters patent on December 4, 1953. The letters patent were subsequently amended on November 22, 1962 to create a corporation without share capital. In August 2003, the CPAI merged with the National Professional Police Association to form the Sponsor. The Sponsor is a non-profit corporation and is the national police association representing approximately 57,000 front-line police personnel across Canada who in turn are members of 170 various police services and locals. The head office of the Sponsor is Suite 100, 141 Catherine Street, Ottawa, Ontario K2P 1C3.

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The objective of the Sponsor is to be representative of all eligible police associations in Canada in promoting an efficient public police service and raising the standards of police work while communicating the vital importance of police work in everyday life in the community. The Sponsor promotes and advances the social and economic welfare of its members while giving collective expression to legislative requirements and presenting this information to elected representatives.

Relationship with the Funds

Through the Sponsor’s participation in the Funds, the Sponsor will provide Canadians with investment opportunities which might not otherwise be available to them.

The Sponsor is entitled to elect that number of directors representing the total number of directors less the number of directors that the holders of the Class A Shares are entitled to elect. Therefore, the Sponsor is currently entitled to elect four out of the six members of the board of directors of Covington Fund II. The Sponsor has agreed that it will elect as directors of Covington Fund II three persons who are either members of the Sponsor or persons independent of the Sponsor but approved by the balance of the board. The remaining appointee of the Sponsor will be nominated jointly by the Sponsor and Covington and will be independent of both parties. The Sponsor owns all of the issued and outstanding Class B Shares of Covington Fund II, which entitle holders to one vote per share at general meetings of shareholders of Covington Fund II but do not entitle the holders to any dividends. See “Attributes of the Securities — Sponsor’s Shares (Class B Shares)”.

The Sponsor is entitled to elect that number of directors representing the total number of directors less the number of directors that the holders of the Class A Shares are entitled to elect. Therefore, the Sponsor is currently entitled to elect five of the six members of the board of directors of Covington Strategic Capital Fund. The Sponsor has agreed that it will elect as directors of Covington Strategic Capital Fund, three persons who are either members of the Sponsor or persons independent of the Sponsor but approved by Covington. The remaining appointees of the Sponsor will be nominated jointly by the Sponsor and Covington and will be independent of both parties. The Sponsor owns all of the issued and outstanding Class B Shares of Covington Strategic Capital Fund, which entitle holders to one vote per share at general meetings of shareholders of Covington Strategic Capital Fund but do not entitle holders to any dividends. See “Attributes of the Securities — Sponsor’s Shares (Class B Shares)”.

While the members of the Sponsor may subscribe for Class A Shares of a Fund, neither the Sponsor nor its members are required to make any investment in Class A Shares of either Fund. Individuals investing in Class A Shares need not be members of or have any connection with the Sponsor.

The Fund Administrator of the Funds

CI has been engaged as the fund administrator for each Fund. CI has its registered and principal office at 2 Queen Street East, 20th Floor, Toronto, Ontario M5C 3G7.

CI manages mutual funds which are sold to the public in Canada under the names CI Corporate Class, CI Funds, CI Portfolio Series, Signature Funds, Clarica Funds and Synergy Funds. CI also manages several closed-end funds listed on the Toronto Stock Exchange, several families of segregated funds and a family of hedge funds.

CI is responsible for providing administration and client services, shareholder reporting and transfer agency services to the Funds. CI acts as transfer agent for the Class A Shares of the Funds and advises the Funds on a regular basis of the net new funds available for investment by the Funds. The Fund Administrator is entitled to an annual fee for its services which is calculated and charged monthly.

CI is engaged pursuant to an agreement dated November 26, 1999 between Covington Fund II and CI (the “CFII Administrator Agreement”). The CFII Fund Administrator Agreement expired on November 25, 2009 and was renewed automatically for an additional year. The CFII Fund Administrator Agreement shall be automatically renewed for subsequent one year terms unless, subject to applicable law, the holders of two-thirds of the Class A Shares of Covington Fund II represented at a shareholders’ meeting vote to terminate the engagement of CI not less than six months prior to the expiry of the term. Covington Fund II, upon a two-thirds vote of its board of directors

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together with a vote of the holders of two-thirds of its Class A Shares represented at a shareholders’ meeting, may terminate the CFII Fund Administrator Agreement in certain other circumstances, including for a material breach of contract or specified non-performance. CI may resign as fund administrator in specified circumstances on not less than one year’s notice.

The Fund Administrator is engaged pursuant to an agreement dated December 22, 2003 between Covington Strategic Capital Fund and the Fund Administrator (the “CSCF Fund Administrator Agreement” together with the CFII Fund Administrator Agreement referred to herein as the “Fund Administrator Agreements”). The CSCF Fund Administrator Agreement expires on December 31, 2010 and shall be automatically renewed for subsequent one year terms unless, subject to applicable law, the holders of two thirds of the Class A Shares represented at a shareholders’ meeting vote to terminate the engagement of the Fund Administrator not less than six months prior to the expiry of the term. Covington Strategic Capital Fund, upon a two thirds vote of the board of directors together with a vote of the holders of two thirds of the Class A Shares represented at a shareholders’ meeting, may terminate the CSCF Fund Administrator Agreement in certain other circumstances, including for a material breach of contract or specified non performance. The Fund Administrator may resign as fund administrator in specified circumstances on not less than one year’s notice or, if the Fund Administrator is terminated as fund administrator to Covington Fund II, on 90 days notice if such notice is provided within 90 days of such termination.

The Auditor

The auditors of the Funds are Ernst & Young LLP, Chartered Accountants, P.O. Box 251, Ernst & Young Tower, Toronto-Dominion Centre, Toronto, Ontario M5K 1J7.

The Registrar and Transfer Agent

CI currently provides marketing support and administrative services for the Funds and to both Covington Venture Fund Inc. and New Generation Biotech (Equity) Fund Inc., both labour sponsored investment funds which have retained Covington.

CI is the registrar and transfer agent for the Class A Shares of each Fund. Its head office is at 2 Queen Street East, 20th Floor, Toronto, Ontario M5C 3G7.

The Custodian

RBC Dexia Investor Services Trust acts as the custodian of Covington Fund II’s assets pursuant to a custodian agreement with Covington Fund II. RBC Dexia Investor Services Trust also acts as the custodian of Covington Strategic Capital Fund’s assets pursuant to a custodian agreement with Covington Strategic Capital Fund.

The Trustee

TD Canada Trust acts as trustee for RRSPs and RRIFs established by investors who wish to transfer their Class A Shares to an RRSP or a RRIF, or for RRSPs established to acquire Class A Shares directly from the Funds. Investors may also transfer their Class A Shares to their own or their spouses’ self-directed RRSP or RRIF or acquire Class A Shares in such RRSP.

CALCULATION OF NET ASSET VALUE

The net asset value of each Fund is determined as at the end of each business day by subtracting the aggregate amount of the applicable Fund’s liabilities from the aggregate of: (a) the value of its assets for which a published market exists determined in accordance with the general valuation policies described above; (b) the value of its assets for which no published market exists determined in accordance with the general valuation policies described above; (c) the book value, or if applicable, the estimated fair value of any other assets of the applicable Fund; and (d) in the case of Covington Fund II only, any unamortized balance of sales commissions and marketing services fees (see “Operating Expenses”). That value is used to calculate the applicable Fund’s net asset value per Class A Share, which is used as the purchase price and redemption price per Class A Share for the applicable Fund.

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On September 30, 2003, the Ontario Securities Commission (“OSC”) issued OSC Staff Notice 81-706 allowing, for transitional purposes, limited exemptive relief from the requirement to calculate the net asset value for purposes of pricing purchases and redemptions in accordance with GAAP for labour sponsored investment funds that cease adding new sales commissions to the existing deferred charge asset balance by December 31, 2003. The OSC Staff Notice allows prices for purchases and redemptions to be determined on the basis that the deferred charge for accounting purposes, existing as an asset of Covington Fund II at December 31, 2003, may continue to be deferred and amortized over its remaining period. Covington Fund II’s deferred charge balance was completely amortized by January 2009. No further balance remains.

Each Valuation Committee is required to review and, if acceptable, approve the net asset value of the applicable Fund as submitted by the Senior Officers of Covington at least four times each year (February 28, May 31, August 31 and November 30) and the Senior Officers of Covington are responsible for determining the net asset value of the applicable Fund for each business day.

The net asset value per Class A Share of Covington Fund II is the amount obtained by dividing the net asset value of Covington Fund II as of a particular date, after deducting the stated capital of the Class B Shares and Class C Shares, if any, of Covington Fund II, by the total number of Class A Shares of Covington Fund II, outstanding on that date. The net asset value per Class A Share of Covington Fund II as determined in the foregoing manner from time to time may differ from the prices at which shareholders would be able to sell (subject to the restrictions on transfer) any such Class A Shares to third party purchasers.

The net asset value per Class A Share for each applicable series of Class A Shares of Covington Strategic Capital Fund is the amount obtained by dividing the net asset value of Covington Strategic Capital Fund attributed to such series as of a particular date, after deducting the stated capital of the Class B Shares and Class C Shares, if any, of Covington Strategic Capital Fund, by the total number of the applicable series of Class A Shares of Covington Strategic Capital Fund, as the case may be, outstanding on that date. The net asset value per Class A Share for each applicable series of Class A Shares of Covington Strategic Capital Fund as determined in the foregoing manner from time to time may differ from the prices at which shareholders would be able to sell (subject to the restrictions on transfer) any such Class A Shares to third party purchasers.

Valuation Policies and Procedures of Covington Fund II and Covington Strategic Capital Fund

Valuation Committee

Each Fund’s board has established a valuation committee (the “Valuation Committee”) comprised of three directors, all of whom are independent of Covington. A quorum at any meeting of a Valuation Committee is at least one board member who is independent of the Sponsor and one member representing the Sponsor. Each board has delegated responsibility for determining the value of the Funds’ assets to its Valuation Committees and to the Senior Officers of Covington as set out below.

RBC Dexia Investor Services Trust (“RBC Dexia”) has been retained by each Fund to calculate the value (the “Published Valuation”) of its assets at the end of each business day. The Valuation Committees are required to review and, if acceptable, approve each Fund’s net asset value as set out in quarterly valuation reports prepared by Covington. The Valuation Committees are required to review and, if acceptable, approve the Published Valuation for any day where the net asset value per Class A Share of any Fund is expected to change by more than 5%.

Valuation of Assets for which a Published Market Exists

At the end of each business day, RBC Dexia calculates the value of each Fund’s assets for which there exists a published market and which can be readily disposed of in such market, on the basis of the quoted prices in such market, subject to an adjustment for restrictions on trading as required. For this purpose, a published market means any major market on which such securities are traded if the prices are regularly published in a newspaper or business or financial publication of general and regular paid circulation. Securities for which market quotations are, in Covington’s opinion, inaccurate, unreliable, not reflective of all available material information or not readily available are valued at their fair value as estimated by Covington. Fair value is determined on the basis of expected

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realizable value of the venture investments if they were disposed in an orderly fashion over a reasonable period of time. Covington notifies RBC Dexia of any adjustments in the holdings of each Fund. The Valuation Committees review and, if acceptable, approve the Published Valuation for each Fund, on a quarterly basis.

Valuation of Assets for which No Published Market Exists

The value of venture investments for which no quoted market value exists, or investments in restricted securities, is recorded at estimated fair value. The definition of fair value and the factors reviewed when determining fair value are set out under “Quarterly Valuations” below.

Quarterly Valuations

As of the last days of August, November and May and as of the last day for obtaining a federal or provincial tax credit for the preceding year (normally March 1) (the “Cut-off Date”), the Valuation Committee is required to determine the value (the “Quarterly Valuation”) of each Fund’s assets for which no published market exists, on the basis of policies and procedures established by the board for determining the fair value of such assets. In determining the value of such assets, the Valuation Committee is guided, where appropriate, but not bound, by the following methodology:

� The valuation standard is “fair value”. Fair value is defined as the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act.

� The fair value of the investments are determined using the appropriate valuation methodology after considering: the history and nature of the business; operating results and financial conditions; the general economic, industry and market conditions; capital market and transaction market conditions; independent valuations of the business; contractual rights relating to the investment; and other pertinent considerations.

The process of valuing investments for which no published market exists is subject to inherent uncertainties and the resulting values may differ from values which would have been used had a ready market existed for the investments.

Daily Valuations

The Senior Officers of Covington are required to notify RBC Dexia of any updates to the Quarterly Valuations as of the end of each business day (“Daily Valuations”). The Daily Valuations will be based on the most recent Quarterly Valuation and will take into account any material change in the assets of each Fund for which no published market exists. The Valuation Committee reviews and, if acceptable, approves the Daily Valuations on a quarterly basis. In addition, the Valuation Committee is required to review and, if acceptable, approve the Daily Valuations for any day where the net asset value per Class A Share for any Fund is expected to change by more than 5%.

Reporting of Net Asset Value

The Funds will make available to the financial press for publication the net asset value per Class A Share or applicable Series, as the case may be, on each business day.

Audit of Financial Statements

The Funds’ auditors are responsible for auditing the Funds’ financial statements in accordance with Canadian generally accepted auditing standards. The Funds have implemented internal control mechanisms so that appropriate audit evidence will be available to the auditors. The auditors are responsible for reporting on the fair presentation of the annual financial statements in accordance with Canadian generally accepted accounting principles.

For the purpose of auditing the financial statements, the auditors will be provided with copies of all investment valuation reports for each Fund prepared by Covington to permit the auditors to check whether the reports are in

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agreement with the valuation procedures described above and whether the conclusions reached in the reports are supported by the analysis in the reports.

Annual Valuation of Class A Shares

Each Fund is required, by applicable securities legislation, to obtain on an annual basis, a valuation by an independent qualified person of the net asset value of the Fund and the net asset value of the applicable series of Class A Share. The Fund satisfies this requirement by engaging Ernst & Young LLP, the Fund’s independent auditors, to perform certain procedures on the value of the Fund’s investments for which no public markets exist as at August 31 of each year as part of Ernst & Young LLP’s audit of the Fund’s annual financial statements.

ATTRIBUTES OF THE SECURITIES

The authorized capital of Covington Fund II consists of an unlimited number of Class A Shares, 25,000 Class B Shares, an unlimited number of Class C Shares issuable in series and 100 Class D Shares. The Class B Shares of Covington Fund II may be issued only to the sponsor of Covington Fund II. A total of 100 Class B Shares are issued and outstanding as of the date hereof and held by the Sponsor. The Class C Shares are non-voting and do not entitle purchasers to receive tax credits. Covington Fund II has not issued, and has no present intention to issue, any Class C Shares. 100 Class D Shares were issued to facilitate the incorporation of Covington Fund II. All of the Class D Shares were redeemed and cancelled on the issue of the Class B Shares to the Sponsor.

The authorized capital of Covington Strategic Capital Fund consists of an unlimited number of Class A Shares issuable in series of which the Series I Shares and the Series II Shares have been created as of the date hereof, an unlimited number of Class B Shares and an unlimited number of Class C Shares, issuable in series. The Class B Shares of Covington Strategic Capital Fund may be issued only to the sponsor of Covington Strategic Capital Fund. A total of 200 Class B Shares are issued and outstanding as of the date hereof and held by the Sponsor. The Class C Shares are non-voting and do not entitle purchasers to receive tax credits. Covington Strategic Capital Fund has not issued, and has no present intention to issue, any Class C Shares.

The Class A Shares of each Fund are issuable to individuals (other than trusts) who will be eligible for tax credits in connection with their purchases. In addition, the Class A Shares are also issuable to certain RRSPs. See “Canadian Federal Income Tax Considerations”.

The following is a summary of the material provisions attaching to each class of shares of the Funds. These provisions derive principally from the requirements of the Ontario Act and may be required to be changed if that Act is amended. Investors may wish to refer to the Ontario Act regarding certain details of these provisions. To the extent that the Class A Shares of Covington Fund II and the Class A Shares, Series I and Class A Shares, Series II of Covington Strategic Capital Fund differ, these differences are described below, otherwise the provisions relating to the Class A Shares as set forth below apply equally to the Class A Shares of Covington Fund II and the Class A Shares, Series I and Class A Shares, Series II of Covington Strategic Capital Fund.

Class A Shares

Issue

The Class A Shares of each Fund may be issued to individuals ordinarily resident in Ontario and to qualifying trusts governed by RRSPs or such other eligible investors as may be permitted by the Ontario Act.

Transfer

The Funds are currently considering amending their articles to remove certain restrictions on the transfer of Class A Shares that are no longer necessary under the Ontario Act. Until the articles of the Funds are amended, the transfer of Class A Shares is restricted except in circumstances similar to those described below with respect to the redemption of Class A Shares.

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Redemption

If a Tax Credit Certificate has been issued with respect to the purchase of a Class A Share, the applicable Fund may not redeem the Class A Share except in the following circumstances:

(a) the redemption occurs more than eight years after the date on which the Class A Share was issued;

(b) where the Class A Share is held by the individual having received the original labour-sponsored funds tax credit (the “specified individual”), or by an RRSP or a RRIF under which the specified individual or his or her spouse or common-law partner is the annuitant, the applicable Fund is notified in writing that:

(i) the specified individual has requested the applicable Fund to redeem the Class A Share within 60 days after the day on which the Class A Share was issued to the specified individual and the Tax Credit Certificate has been returned to the applicable Fund; or

(ii) the specified individual has become disabled and permanently unfit for work after acquiring the Class A Share or is terminally ill;

(c) the Class A Share is held by an individual who gives notice in writing to the applicable Fund that the Class A Share has devolved upon the individual as a consequence of the death of the specified individual or the death of the annuitant under an RRSP or RRIF that was the holder of the Class A Share;

(d) where the Class A Share is held by an RRSP or RRIF under which the specified individual or his or her spouse or common-law partner was the annuitant, the annuitant has died;

(e) where the redemption occurs within eight years after the date on which the Class A Share was issued in circumstances other than those described above, the applicable Fund withholds, generally, (i) an amount in respect of the federal tax credit that was received on the issuance of the Class A Share and (ii) an amount equal to 15% of the lesser of the issue price of the Class A Share and the amount otherwise payable on the redemption of the Class A Share, or (iii) such other amounts as are required to be withheld under the Federal Tax Act and the Ontario Act and the applicable Fund pays these amounts to the Receiver General for Canada and the Minister of Revenue (Ontario), respectively as required; or

(f) the shareholder has satisfied such other conditions as are prescribed by the Ontario Act.

Under the Ontario Act, when determining whether a Class A Share of a Fund that was issued in February or March has been held for eight years, a redemption of such Class A Share that occurs in February or on March 1 is deemed to occur on March 31. Under the Federal Tax Act, a redemption that occurs in February or on March 1 will be deemed to occur 30 days after the actual date of redemption for purposes of the Federal Tax Act. These measures are intended to accommodate holders of Class A Shares wishing to acquire new Class A Shares in the first 60 days of a year with the proceeds from the redemption of Class A Shares.

In any financial year, a Fund is not required to, but may, subject to the foregoing restrictions, at its option, redeem Class A Shares having an aggregate redemption price exceeding 20% of the net asset value of that Fund as at the last day of the preceding financial year.

Subject to the foregoing limitation, any such Class A Shares which a Fund has not redeemed in a particular financial year will be redeemed in the following financial year before that Fund redeems any other Class A Shares and, for such purposes, the requests to redeem such shares will be deemed to have been received by that Fund on the first day of the following financial year in the order that they were originally received by that Fund.

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Redemptions of Class A Shares will be made at the net asset value per Class A Share (see “Calculation of Net Asset Value”) as of the close of business on the date on which a Fund receives (or is deemed to have received) the request for redemption.

If a Fund is requested to redeem Class A Shares before the eighth anniversary of their issue, holders of Class A Shares so redeemed may be charged an early redemption fee.

With respect to Class A Shares of Covington Fund II, a redemption fee of up to 6% of the offering price of the Class A Shares will be charged to investors and calculated as 0.75% of the offering price of the Class A Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Class A Shares. After the eighth anniversary of the date of issue of the Class A Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington Fund II. See “Redemption of Securities”.

With respect to Series I Shares of Covington Strategic Capital Fund, a redemption fee of up to 10% of the offering price of the Series I Shares will be charged to investors and calculated as 1.25% of the offering price of the Series I Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series I Shares. After the eighth anniversary of the date of issue of the Series I Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Redemption of Securities”.

With respect to Series II Shares of Covington Strategic Capital Fund, a redemption fee of up to 6% of the offering price of the Series II Shares will be charged to investors and calculated as 0.75% of the offering price of the Series II Shares multiplied by the number of years or partial years remaining until the eighth anniversary of the date of issue of such Series II Shares. After the eighth anniversary of the date of issue of the Series II Shares, there will be no redemption fee. The redemption fee will be deducted from the redemption amount otherwise payable and will be paid to Covington. See “Redemption of Securities”.

The early redemption fee is subject to change from time to time to a percentage of the redemption amount to be determined by the directors of the applicable Fund, provided that any such change shall be effective only upon 30 days’ written notice to the holders of Class A Shares. The redemption fee will be deducted from the redemption amount otherwise payable and will be retained by the Fund or Covington, as the case maybe. There is no redemption fee where the redemption occurs following the death of the holder (or the annuitant, in the case of an RRSP or RRIF holder) or after the eighth anniversary of the date of issue.

Dividends

Holders of Class A Shares of each Fund are entitled to receive dividends at the discretion of the board or the applicable Fund.

Voting Rights

Holders of Class A Shares of each Fund are entitled to receive notice of and attend all meetings of shareholders of the applicable Fund and, except for meetings at which only holders of a different class or series of shares of the applicable Fund are entitled to vote separately as a class or series, are entitled to vote at any such meeting. Each Class A Share entitles the holder thereof to one vote per share.

Fractional Shares

A holder of a fractional Class A Share is entitled to exercise voting rights and to receive dividends in respect of such fractional Class A Share to the extent of such fraction.

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Election of Directors

Holders of Class A Shares of Covington Fund II voting as a class are entitled to elect two of the six directors of Covington Fund II. Holders of Class A Shares of Covington Strategic Capital Fund voting as a class are entitled to elect one of the six directors of Covington Strategic Capital Fund.

Dissolution

On the liquidation, dissolution or winding-up of a Fund or other distribution of the assets of a Fund for the purpose of winding up its affairs (“dissolution”), the holders of Class A Shares and Class C Shares (if any) will be entitled to share on a pro rata basis all the assets of that Fund remaining after payment of all liabilities of that Fund and after payment of the purchase price paid for the Sponsor’s Shares (less any amount previously distributed in respect of such shares).

Sponsor’s Shares (Class B Shares)

Issue

The Sponsor’s Shares may be issued only to the sponsor of a Fund.

Dividends

The holder of the Sponsor’s Shares is not entitled to receive dividends.

Voting Rights

The holder of the Sponsor’s Shares of a Fund is entitled to receive notice of and attend at all meetings of shareholders of that Fund and, except for meetings at which only holders of a different class or series are entitled to vote separately as a class or series, is entitled to vote at any such meeting. The Sponsor’s Shares entitle the holder thereof to one vote per share.

Election of Directors

The holder of the Sponsor’s Shares is entitled to elect that number of directors representing the total number of directors less the number of directors that the holders of the Class A Shares are entitled to elect. Therefore, the Sponsor is currently entitled to elect four out of the six members of the board of directors of Covington Fund II. The Sponsor has agreed that it will elect as directors of Covington Fund II three persons who are either members of the Sponsor or persons independent of the Sponsor but approved by the balance of the board. The remaining appointee of the Sponsor will be nominated jointly by the Sponsor and Covington and will be independent of both parties.

The holder of the Sponsor’s Shares is entitled to elect that number of directors representing the total number of directors less the number of directors that the holders of the Class A Shares are entitled to elect. Therefore, the Sponsor is currently entitled to elect five of the six members of the board of directors of Covington Strategic Capital Fund. The Sponsor has agreed that it will elect as directors of Covington Strategic Capital Fund, three persons who are members of the Sponsor including one person who is independent of the Sponsor and two nominees of the Covington. Any remaining appointees of the Sponsor will be nominated jointly by the Sponsor and Covington and will be independent of both parties.

Redemption

The Sponsor’s Shares of a Fund are redeemable by that Fund at a redemption price equal to the purchase price paid for such share (less any amount previously distributed in respect of such share).

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Dissolution

On dissolution, the holder of the Sponsor’s Shares will be entitled to receive the purchase price paid for such share (less any amount previously distributed in respect of such share) before any assets are distributed to holders of Class A Shares and Class C Shares (if any) but after payment of all liabilities of the applicable Fund.

Class C Shares

Issuable in Series

The Class C Shares of a Fund are issuable in series, each series consisting of such number of shares as may be determined by the board of a Fund.

Dividends

Holders of Class C Shares are entitled to receive dividends at the discretion of the board of a Fund, provided that no dividends will be declared and paid unless the same dividend per share is declared and paid on Class A Shares.

Dissolution

On dissolution, the holders of Class C Shares and Class A Shares will be entitled to share on a pro rata basis all the assets of the applicable Fund remaining after payment of all liabilities of the applicable Fund and after payment of the purchase price paid for the Sponsor’s Shares (less any amount previously distributed in respect of such shares).

Non-Voting

The holders of Class C Shares will be entitled to receive notice of and attend at all meetings of shareholders of the applicable Fund but, except as provided by law, will not be entitled to vote thereat.

Other Rights

Except as otherwise provided, the rights, privilege, restrictions and conditions attaching to each series of Class C Shares shall be determined by the board of a Fund, subject to the prior approval of the Minister of Finance (Canada) and the Minister of Finance (Ontario).

SECURITYHOLDER MATTERS

Meetings of Securityholders

Meetings of securityholders of either Fund will be held if called by the Manager or upon the written request to the Manager of shareholders of a Fund holding not less than 5% of the then outstanding Class A Shares of the Fund.

Two or more holders of Class A Shares of a Fund present in person or by proxy will constitute a quorum at a meeting of the shareholders.

Matters Requiring Securityholder Approval

Certain changes affecting either Fund may only be implemented with the approval of the shareholders. A meeting of the shareholders or where required by law a meeting of each class of shareholders of a Fund shall be convened to consider and approve any of the following matters which a Fund may propose to change in the future:

(a) subject to certain exemptions available under rules applicable to mutual funds, a change in any contract or the entering into of any new contract as a result of which the basis of the calculation of the fees or of other expenses that are charged to the Fund could result in an increase in charges to the Fund;

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(b) a change of the manager of the Fund (other than to an affiliate of the Manager);

(c) any change in the investment objective of the Fund;

(d) any decrease in the frequency of calculating the net asset value of the Class A Shares;

(e) subject to certain exemptions available under rules applicable to mutual funds, the commencement of the use by the Fund of permitted derivatives; or

(f) any other matter which is required by the constating documents of the Fund or by the laws applicable to the Fund or by any agreement to be submitted to a vote of the shareholders of the Fund.

Unless a greater majority is required by the laws applicable to a Fund, the approval of the shareholders shall be deemed to be given if expressed by a resolution passed by at least a majority of the votes cast at the meeting of shareholders or each class of shareholders, as the case may be, called to consider such resolution.

Shareholder approval will not be obtained before making changes of the type contemplated in paragraph (a) above where a Fund contracts at arm’s length with parties other than the Manager for all or part of the services it requires to carry on its operations. However, shareholders will be given at least 60 days’ notice before the effective date of any such change.

Reporting to Securityholders

Purchasers of Class A Shares of a Fund will receive an acknowledgment of receipt of subscription and a transaction confirmation for each purchase of Class A Shares. Shareholders will receive annually a statement showing the number and current value of their Class A Shares. Pursuant to the Fund Administrator Agreements, CI is responsible for providing certain services to the Funds, including services relating to processing of sales orders, maintaining shareholder records at its principal place of business in Toronto (including a register of transfers of Class A Shares for each Fund) and preparing and distributing certain shareholder reporting information.

Audited annual and unaudited semi-annual interim financial statements (on a supplemental mailing basis) of the Funds will be sent to all shareholders. Such financial statements will be prepared by the Funds in accordance with Canadian generally accepted accounting principles and will reflect the net asset value of the Funds as at the date of the statements.

Sale of Assets

A Fund may undertake a reorganization or sale of its assets to another mutual fund. Although the approval of shareholders will not be obtained before undertaking the reorganization or sale of assets, shareholders of that Fund will be given written notice at least 60 days before the effective date of any such transaction.

Auditor Changes

The auditor of a Fund may be changed without prior approval of shareholders, provided the IRC approves the change and the shareholders are sent written notice at least 60 days before the effective date of the change.

TERMINATION OF THE FUND

Under the Business Corporations Act, (Ontario) either Fund may be dissolved by special resolution of its shareholders. See “Attributes of the Securities – Class A Shares – Dissolution” for information about the entitlements of Class A shareholders on a dissolution.

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PLAN OF DISTRIBUTION

The Class A Shares of the Funds are offered for sale only through registered dealers.

Covington Fund II pays to the selling registered dealer a commission of 6% of the offering price in respect of the sale of Class A Shares. Covington Fund II also pays to registered dealers a service fee equal to 0.5% annually of the average total net asset value of the Class A Shares held by the clients of the sales representatives of the dealers, calculated and paid monthly.

Covington pays to the selling registered dealer a commission of 10% of the offering price in respect of the sale of Series I Shares. This commission consists of a 6% commission plus an additional 4% commission of the offering price of the Series I Shares. The 4% commission is paid in lieu of any service fees payable before the eighth anniversary of the date of issue of such Series I Shares. In addition, after a period of eight years, Covington Strategic Capital Fund will pay to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series I Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly.

Covington pays to the selling registered dealer a commission of 6% of the offering price to in respect of the sale of Series II Shares. In addition, Covington Strategic Capital Fund pays to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series II Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly.

Covington Strategic Capital Fund pays Covington a monthly distribution services fee in respect of such distribution related services equal to 0.160% and 0.096% of the offering price of the issued and unredeemed Series I Shares and Series II Shares, respectively, equivalent to an annual distribution services fee of 1.92% and 1.152%, respectively, of such offering price. The monthly distribution services fee is intended to reimburse Covington for financing costs incurred to fund the payment of the commissions, including an amount for interest and a one-time financing commitment fee payable in connection with such financing.

Although Covington Fund II expects to continue the offering of Class A Shares at prices equal to the net asset value per Class A Share from time to time and Covington Strategic Capital Fund expects to continue the offering of Class A Shares at prices equal to the net asset value per Class A Share for the applicable series of Class A Shares from time to time, a Fund may suspend offering Class A Shares, or any series thereof, and recommence offering Class A Shares, or any series thereof, at any time that Fund deems appropriate in its sole discretion. A Fund may suspend the offering of Class A Shares, or any series thereof, at any time when the Fund has more funds on hand than it can invest in suitable investments within a reasonable period of time and will recommence the offering at such time as sufficient investment opportunities are available.

Investors may purchase Class A Shares of the Funds through a pre-authorized chequing plan. Under the pre-authorized chequing plan, an individual investor who completes the appropriate section of the subscription form may authorize the applicable Fund to debit monthly, quarterly, semi-annually or annually the individual’s account at a financial institution which is a member of the Canadian Payments Association with an amount to be applied to the purchase of Class A Shares. Investment in Class A Shares of a Fund through a pre-authorized chequing plan is subject to a minimum investment of $25. No minimum purchase is necessary to establish such a plan. CI reserves the right to modify or discontinue these arrangements at any time. Class A Shares may be purchased by RRSPs through a pre-authorized chequing plan.

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There are no administrative fees payable for participation in the pre-authorized chequing plan. Participants in such plan are not required to commit to any specific number of purchases and may, at their option, make purchases monthly, quarterly, semi-annually or annually. A participant in the plan may change the dollar amount or frequency of his or her purchases or may terminate his or her participation in the plan at any time without penalty on written notice to the applicable Fund.

Additional Dealer Compensation

Covington Fund II pays to registered dealers a service fee equal to 0.5% annually of the average total net asset value of the Class A Shares of Covington Fund II held by the clients of the sales representatives of the dealers, calculated and paid monthly. After a period of eight years, Covington Strategic Capital Fund will pay to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series I Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly. Covington Strategic Capital Fund pays to registered dealers a service fee equal to 0.5% annually of the net asset value of the Series II Shares held by clients of the sales representatives of such registered dealers, calculated and paid monthly.

PRINCIPAL HOLDERS OF SECURITIES OF THE FUNDS

As at November 30, 2009, no person or company owned of record or beneficially, directly or indirectly, or exercises control or direction over, more than 10% of any class of shares of either Fund except the Sponsor, which owns all of the issued and outstanding Class B Shares of each Fund.

As at November 30, 2009, the directors and senior officers of each Fund, as a group, beneficially owned, directly or indirectly, less than 1% of the issued and outstanding Class A Shares of the applicable Fund.

As at November 30, 2009, there were 20 issued and outstanding common shares in the capital of Covington each of which was owned by RC Capital.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Each of Covington, CI and the Sponsor has an interest in the amount of remuneration and fees that are paid to them by the Funds. See “Operating Expenses”.

Some of the directors and officers of Covington and Covington Strategic Capital Fund held Class A shares of FIOF at the time of the Acquisition. These shareholdings, both on an individual and aggregated basis, do not materially affect control of Covington Strategic Capital Fund.

PROXY VOTING DISCLOSURE FOR PORTFOLIO SECURITIES HELD

Covington has the responsibility for the investment management of the Funds. Covington also has the responsibility of exercising the voting rights attaching to securities held by the Funds.

The objective in voting is to support proposals and director nominees that maximize the value of a Fund’s investments - and those of its shareholders - over the long term. While the goal is simple, the proposals received are varied and frequently complex. As such, the proxy voting guidelines instituted by Covington (the “Guidelines”) provide a framework to assess each proposal. While each proposal will be assessed on its merits, based on the particular facts and circumstances as presented, the Guidelines provide guidance for voting on routine matters for which a Fund may vote, such as proposals relating to the election of directors, approval of independent auditors, management compensation and incentive plans, changes in corporate structure and shareholders’ rights. For example:

� On governance matters, the Guidelines set out certain expected standards such as majority-independent boards of directors and key board committees comprised entirely of independent directors.

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� On executive compensation matters, the Guidelines support voting against stock-based compensation plans that substantially dilute a Fund’s ownership interest in the company, provide participants with excessive awards or have inherently objectionable structural features.

� On corporate structure and shareholders’ rights matters, the Guidelines oppose the creation of separate classes of shares that provide different voting rights to different groups of shareholders with similar economic investments.

For certain routine proxy proposals, such as with respect to stock-based compensation plans and shareholders’ rights plans, the Guidelines contain a series of criteria for Covington to consider before making a decision for or against such proposal.

In evaluating proxy proposals, information from many sources is considered, including Covington for a Fund, management or shareholders of a company presenting a proposal and independent proxy research services. Substantial weight will be given to the recommendations of the company’s board, absent guidelines or other specific facts that would support a vote against management.

While serving as a framework, the Guidelines cannot contemplate all possible proposals with which a Fund may be presented. In the absence of a specific guideline for a particular proposal (e.g., in the case of a non-routine matter, such as a transactional issue or contested proxy), management of a Fund will evaluate the issue and cast that Fund’s vote in a manner that, in the management’s view, will maximize the value of that Fund’s investment.

Because many factors bear on each decision, the Guidelines incorporate factors that should be considered in each voting decision. A Fund may refrain from voting if that would be in that Fund’s and its shareholders’ best interests. These circumstances may arise, for example, when the expected cost of voting exceeds the expected benefits of voting, or when exercising the vote results in the imposition of trading or other restrictions.

A Fund may vote contrary to these Guidelines in circumstances where it is in the best interests of that Fund and its shareholders.

Each Fund shall maintain and publish a proxy voting record in accordance with applicable laws. For a copy of the Fund’s Proxy Voting Guidelines, please go to www.covingtonfunds.com.

MATERIAL CONTRACTS

The Funds have entered into the following contracts which are material to investors in the three years immediately before the date of this prospectus:

(a) the Sponsor Agreements referred to under “Organization and Management Details of the Funds - The Sponsor of the Funds”;

(b) the Investment Advisor Agreement referred to under “Organization and Management Details of the Funds – Covington Fund II – Investment Advisor Agreement”;

(c) the Management Agreement referred to under “Organization and Management Details of the Funds – Covington Strategic Capital Fund – Management Agreement”;

(d) the Fund Promoter Agreements referred to under “Organization and Management Details of the Funds – CFII Fund Promoter Agreement” and “Organization and Management Details of the Funds – CSCF Fund Advisor Agreement”;

(e) the Fund Administrator Agreements referred to under “Organization and Management Details of the Funds - The Fund Administrator of the Funds”; and

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(f) the custodian agreements referred to under “Organization and Management Details of the Funds – The Custodian”.

Copies of the foregoing contracts may be inspected during regular business hours at the principal place of business of the Funds in Toronto.

LEGAL AND ADMINISTRATIVE PROCEEDINGS

There are no legal proceedings material to either Fund to which either Fund is a party or to which any of its property is subject and no such proceedings are known to be contemplated.

EXPERTS

Certain legal matters in connection with this offering will be passed upon on behalf of the Funds and the Manager by Gowling Lafleur Henderson LLP. Ernst & Young LLP is the Funds’ auditor and such firm has prepared an opinion with respect to the Funds’ financial statements for the financial years ended August 31, 2009 and 2008.

As at the date hereof, the partners and associates of Gowling Lafleur Henderson LLP, as a group beneficially hold, directly or indirectly less than one percent of securities of the Fund.

Ernst & Young LLP are auditors of the Funds and have confirmed that they are independent with respect to the Funds within the meaning of the Rules of Professional Conduct prescribed by the various provincial institutes of chartered accountants.

EXEMPTIONS AND APPROVALS

Pursuant to National Instrument 81-102 – Mutual Funds, each of Covington Fund II and Covington Strategic Capital Fund obtained exemptive relief permitting the payment of the Performance Bonus as it is outlined. See “Fees and Expenses – Performance Bonus”.

Pursuant to National Instrument 81-105 – Mutual Fund Sales Practices, the Fund has obtained exemptive relief permitting each of Covington Fund II and Covington Strategic Capital Fund to enter into co-operative marketing programs with certain dealers and to be able to reimburse those dealers for certain expenses incurred in promoting sales of Class A Shares.

Pursuant to National Instrument 81-106 - Investment Fund Continuous Disclosure ("NI 81-106"), which governs continuous disclosure requirements for investment funds, the financial statements of investment funds are required to be prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Canadian GAAP was modified by the introduction of section 3855 Financial Instruments – Recognition and Measurement (“Section 3855”) of the handbook of the Canadian Institute of Chartered Accountants. While Section 3855 defines specific measurement parameters for fair valuation of financial instruments which are traded in active markets, NI 81-106 allows daily net asset values of investment funds to be calculated using the fair value of the investment fund’s assets and liabilities. The valuation rules and techniques used by the Fund are in accordance with the Fund’s prospectus but are not necessarily in accordance with Section 3855. NI 81-106 has been amended to allow the daily net asset value (“NAV”) of an investment fund to be calculated in a manner that is not in accordance with Canadian GAAP for other than financial statement purposes. The adoption of Section 3855 therefore, results in a different valuation method for determining the Fund’s net assets as described in the Fund’s valuation methodology. Consequently, the Fund has applied Section 3855 for financial statement reporting purposes only. See “Calculation of Net Asset Value – Valuation Policies and Procedures”.

Financial statements of each of Covington Fund II and Covington Strategic Capital Fund contain a reconciliation of the net assets per Class A Share that is reported in such financial statements in accordance with Canadian GAAP to the net asset value used by each of Covington Fund II and Covington Strategic Capital Fund for all other purposes as determined in accordance with Pricing net asset value.

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PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION

Securities legislation in the Province of Ontario provides purchasers with the right to withdraw from an agreement to purchase mutual fund securities within two business days after receipt of a prospectus and any amendment or within 48 hours after the receipt of a confirmation of a purchase of such securities. If the agreement is to purchase such securities under a contractual plan, the time period during which withdrawal may be made longer. The securities legislation further provides a purchaser with remedies for rescission if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser; provided that the remedies for rescission are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to the applicable provisions of the securities legislation of the Province of Ontario for the particulars of these rights or should consult with a legal adviser.

DOCUMENTS INCORPORATED BY REFERENCE

Additional information about the Covington Fund II and Covington Strategic Capital Fund is available in the following documents:

1. The most recently filed comparative annual financial statements of the investment fund, together with the accompanying report of the auditor.

2. Any interim financial statements of the investment fund filed after those annual financial statements.

3. The most recently filed annual management report of fund performance of the investment fund.

4. Any interim management report of fund performance of the investment fund filed after that annual management report of fund performance.

These documents are incorporated by reference into the prospectus which means that they legally form part of this document. You can legally get a copy of these documents, at your request, and at no cost to you by calling 416-365-0060 or toll-free 1-866-244-4714 or by contacting your dealer.

These documents are available on the Covington Fund’s internet site www.covingtonfunds.com or by contacting the Fund at info@covingtonfunds.com, or at www.sedar.com.

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AUDITORS’ CONSENT

We have read the prospectus of Covington Fund II Inc. and Covington Strategic Capital Fund Inc. (collectively, the “Funds”) dated December 28, 2009 relating to the continuous offering of Class A Shares of Covington Fund II Inc. and Class A Shares, Series I and Class A Shares, Series II of Covington Strategic Capital Fund Inc. We have complied with Canadian generally accepted standards for an auditor’s involvement with offering documents.

We consent to the use through incorporation by reference in the above-mentioned prospectus of our report to the Class A shareholders of the Funds on the statements of financial position as at August 31, 2009 and 2008, the statements of investment portfolio as at August 31, 2009 and the statements of operations, changes in net assets and cash flows for the Funds for the years ended August 31, 2009 and 2008. Our reports are dated October 9, 2009.

Toronto, Canada December 28, 2009

“Ernst & Young LLP”Ernst & Young LLP

Chartered AccountantsLicensed Public Accountants

C-1

CERTIFICATE

Dated: December 28, 2009

This prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of Ontario.

On behalf of Covington Fund II Inc.

“Philip R. Reddon” “Lisa M. Low” Philip R. Reddon

Chief Executive Officer

Lisa M. Low Chief Financial Officer

On behalf of the Board of Directors of Covington Fund II Inc.

“Terrence B. Kulka” “Charles Momy” Terrence B. Kulka

Director

Charles Momy Director

CERTIFICATE OF MANAGER

Dated: December 28, 2009

This prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of Ontario.

On behalf of Covington Capital Corporation

“Scott D. Clark” “Lisa M. Low” Scott D. Clark

Chief Executive Officer

Lisa M. Low Chief Financial Officer

On behalf of the Board of Directors of Covington Capital Corporation

“Philip R. Reddon” “Scott D. Clark” Philip R. Reddon

Director

Scott D. Clark Director

“Lisa M. Low” Lisa M. Low

Director

C-1

CERTIFICATE

Dated: December 28, 2009

This prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of Ontario.

On behalf of Covington Strategic Capital Fund Inc.

“Philip R.. Reddon” “Lisa M. Low” Philip R. Reddon

Chief Executive Officer

Lisa M. Low Chief Financial Officer

On behalf of the Board of Directors of Covington Strategic Capital Fund Inc.

“Terrence B. Kulka” “Charles Momy” Terrence B. Kulka

Director

Charles Momy Director

CERTIFICATE OF MANAGER

Dated: December 28, 2009

This prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of Ontario.

On behalf of Covington Capital Corporation

“Scott D. Clark” “Lisa M. Low” Scott D. Clark

Chief Executive Officer Lisa M. Low

Chief Financial Officer

On behalf of the Board of Directors of Covington Capital Corporation

“Philip R. Reddon” “Scott D. Clark” Philip R. Reddon

Director

Scott D. Clark Director

“Lisa M. Low” Lisa M. Low

Director