IA Clarington Investments Inc. et al.

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- continuing funds have different investment objectives than terminating funds, mergers not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act, tailored document will be sent to unitholders instead of complete current prospectus and financial statements will be sent upon request -- unitholders of terminating funds provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

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

May 19, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUEBEC AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

IA CLARINGTON INVESTMENTS INC.

(IA Clarington)

AND

IA CLARINGTON CANADIAN GROWTH FUND,

IA CLARINGTON CANADIAN OPPORTUNITIES

FUND, IA CLARINGTON CANADIAN VALUE FUND,

IA CLARINGTON U.S. DIVIDEND FUND,

IA CLARINGTON CORE PORTFOLIO,

IA CLARINGTON DIVERSIFIED BALANCED FUND,

IA CLARINGTON CANADIAN GROWTH & INCOME

FUND, IA CLARINGTON CANADIAN INCOME

FUND II. IA CLARINGTON TACTICAL INCOME FUND

(each, a Terminating Fund and collectively,

the Terminating Funds)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from IA Clarington for a decision under the securities legislation of the Jurisdictions (the Legislation) for approval under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) of the mergers (the Mergers) of the Terminating Funds into the applicable Continuing Funds as set out in paragraph 8 below (the Approval Sought).

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

(a) the Autorité des marchés financiers is the principal regulator for this application;

(b) IA Clarington has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, the Yukon Territory and Nunavut Territory, where applicable; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following additional terms shall have the following meanings:

Continuing Funds means IA Clarington Canadian Leaders Fund, IA Clarington Canadian Small Cap Fund, IA Clarington Dividend Growth Fund, IA Clarington Navellier U.S. All Cap Fund, IA Clarington Canadian Equity Fund, IA Clarington Monthly Income Balanced Fund and IA Clarington Diversified Income Fund;

Current Simplified Prospectus means the simplified prospectus dated July 4, 2008, as amended, that qualifies the Continuing Funds, among others, for sale;

Fund or Funds means, individually or collectively, the Terminating Funds and the Continuing Funds;

IRC means the independent review committee for the Funds;

Materially Changed Continuing Funds means IA Clarington Navellier U.S. All Cap Fund, IA Clarington Monthly Income Balanced Fund and IA Clarington Diversified Income Fund;

NI 81-107 means National Instrument 81-107Independent Review Committee for Investment Funds; and

Tax Act means the Income Tax Act (Canada).

Representations

This decision is based on the following facts represented by IA Clarington:

1. IA Clarington is a corporation amalgamated under the laws of Canada. IA Clarington is a wholly-owned subsidiary of Industrial Alliance Insurance and Financial Services Inc., a public company listed on the Toronto Stock Exchange.

2. IA Clarington is the manager and trustee of each of the Funds. The head office of IA Clarington is located in Québec City, Québec.

3. Each of the Funds is an open-end mutual fund trust established under the laws of Ontario by a master declaration of trust.

4. Securities of the Funds are currently qualified for sale in each province and territory of Canada by a simplified prospectus and annual information form dated July 4, 2008, as amended.

5. None of the Funds or IA Clarington are in default of securities legislation in any province or territory of Canada.

6. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established by the Decision Makers.

7. The net asset value for each series of the Funds is calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading.

8. IA Clarington intends to reorganize the Funds as follows:

(a) IA Clarington Canadian Growth Fund into IA Clarington Canadian Leaders Fund (sometimes referred to as the Leaders Fund Merger);

(b) IA Clarington Canadian Opportunities Fund into IA Clarington Canadian Small Cap Fund (sometimes referred to as the Small Cap Fund Merger);

(c) IA Clarington Canadian Value Fund into IA Clarington Dividend Growth Fund (sometimes referred to as the Growth Fund Merger);

(d) IA Clarington U.S. Dividend Fund into IA Clarington Navellier U.S. All Cap Fund (sometimes referred to as the Navellier Fund Merger);

(e) IA Clarington Core Portfolio into IA Clarington Canadian Equity Fund (sometimes referred to as the Equity Fund Merger);

(f) IA Clarington Diversified Balanced Fund, IA Clarington Canadian Growth & Income Fund and IA Clarington Canadian Income Fund II into IA Clarington Monthly Income Balanced Fund (sometimes referred to as the Balanced Fund Mergers); and

(g) IA Clarington Tactical Income Fund into IA Clarington Diversified Income Fund (sometimes referred to as the Income Fund Merger).

9. IA Clarington also intends to merge Sarbit US Equity Trust into IA Clarington Navellier U.S. All Cap Fund, subject to the requisite approvals.

10. In addition, IA Clarington proposes to merge Clarington Diversified Income + Growth Fund and Focused 40 Income Fund, two closed-end funds managed by IA Clarington, into IA Clarington Diversified Income Fund on or about June 30, 2009, subject to the approval of unitholders of these two closed-end funds.

11. Should IA Clarington obtain the requisite approvals for the merger of Sarbit US Equity Trust into IA Clarington Navellier U.S. All Cap Fund, IA Clarington proposes to change the investment objective of IA Clarington Navellier U.S. All Cap Fund at the time of the merger, so that it will be almost identical to the current investment objective of Sarbit US Equity Trust. If the investment objective of IA Clarington Navellier U.S. All Cap Fund is changed, the sub-advisor of the Fund will also change from Navellier & Associates, Inc. to Sarbit Advisory Services Inc.

12. Should IA Clarington obtain the requisite approvals for the Income Fund Merger, IA Clarington proposes to change the investment objective of IA Clarington Diversified Income Fund at the time of the Merger, so that it will be identical to the current investment objective of IA Clarington Tactical Income Fund. If the investment objective of IA Clarington Diversified Income Fund is changed, IA Clarington will appoint Catapult Financial Management Inc. to be the sub-advisor of the Fund.

13. The Merger of:

(a) IA Clarington U.S. Dividend Fund into IA Clarington Navellier U.S. All Cap Fund;

(b) IA Clarington Diversified Balanced Fund, IA Clarington Canadian Growth & Income Fund and IA Clarington Canadian Income Fund II into IA Clarington Monthly Income Balanced Fund; and

(c) IA Clarington Tactical Income Fund, Clarington Diversified Income + Growth Fund and Focused 40 Income Fund into IA Clarington Diversified Income Fund

will be a material change for the Continuing Funds, as the net asset value of each Continuing Fund is smaller than the net asset value of the investment funds merging into it.

14. An amendment to the simplified prospectus and annual information form of the Funds, a material change report and a press release with respect to the proposed Mergers were filed via SEDAR on March 25, 2009 and March 26, 2009.

15. Unitholders of the Terminating Funds and of the Materially Changed Continuing Funds will be asked to approve the Mergers at meetings to be held on May 29, 2009. Unitholders of each of IA Clarington Navellier U.S. All Cap Fund and IA Clarington Diversified Income Fund will also be asked to approve the change to the Funds' investment objectives at the meetings.

16. In accordance with NI 81-107, IA Clarington referred the proposed Mergers to the IRC. The IRC reviewed the proposed Mergers and determined that the proposed Mergers, if implemented, would achieve a fair and reasonable result for each of the Funds.

17. Units of the Terminating Fund will be exchanged for the same series of units of the applicable Continuing Fund in the following Mergers:

(a) the Leaders Fund Merger;

(b) the Navellier Fund Merger;

(c) the Equity Fund Merger;

(d) the Merger of IA Clarington Canadian Income Fund II into IA Clarington Monthly Income Balanced Fund; and

(e) the Income Fund Merger.

18. In the Small Cap Fund Merger, Series A units, Series F units and Series I units of IA Clarington Canadian Opportunities Fund will be exchanged for Series X units, Series F units and Series I units of IA Clarington Canadian Small Cap Fund, respectively.

19. In the Growth Fund Merger, Series A units, Series F units and Series I units of IA Clarington Canadian Value Fund will be exchanged for Series T6 units, Series F6 units and Series I units of IA Clarington Dividend Growth Fund, respectively.

20. In the Merger of IA Clarington Diversified Balanced Fund into IA Clarington Monthly Income Balanced Fund, Series A units and Series I units of IA Clarington Diversified Balanced Fund will be exchanged for Series X units and Series I units of IA Clarington Monthly Income Balanced Fund, respectively.

21. In the Merger of IA Clarington Canadian Growth & Income Fund into IA Clarington Monthly Income Balanced Fund, Series A units and Series F units of IA Clarington Canadian Growth & Income Fund will be exchanged for Series T6 and Series F6 units of IA Clarington Monthly Income Balanced Fund, respectively.

22. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of an applicable Terminating Fund.

23. Units of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund on a series-by-series and dollar-for-dollar basis in the following Mergers:

(a) the Leaders Fund Merger;

(b) the Navellier Fund Merger;

(c) the Equity Fund Merger;

(d) the Merger of IA Clarington Canadian Income Fund II into IA Clarington Monthly Income Balanced Fund; and

(e) the Income Fund Merger.

24. Units of IA Clarington Canadian Small Cap Fund received by IA Clarington Canadian Opportunities Fund will be distributed to unitholders of IA Clarington Canadian Opportunities Fund on a dollar-for-dollar basis, with holders of Series A units, Series F units and Series I units of IA Clarington Canadian Opportunities Fund receiving Series X units, Series F units and Series I units of IA Clarington Canadian Small Cap Fund, respectively.

25. Units of IA Clarington Dividend Growth Fund received by IA Clarington Canadian Value Fund will be distributed to unitholders of IA Clarington Canadian Value Fund on a dollar-for-dollar basis, with holders of Series A units, Series F units and Series I units of IA Clarington Canadian Value Fund receiving Series T6 units, Series F6 units and Series I units of IA Clarington Dividend Growth Fund, respectively.

26. Units of IA Clarington Monthly Income Balanced Fund received by IA Clarington Diversified Balanced Fund will be distributed to unitholders of IA Clarington Diversified Balanced Fund on a dollar-for-dollar basis, with holders of Series A units and Series I units of IA Clarington Diversified Balanced Fund receiving Series X units and Series I units of IA Clarington Monthly Income Balanced Fund, respectively.

27. Units of IA Clarington Monthly Income Balanced Fund received by IA Clarington Canadian Growth & Income Fund will be distributed to unitholders of IA Clarington Canadian Growth & Income Fund on a dollar-for-dollar basis, with holders of Series A units and Series F units of IA Clarington Canadian Growth & Income Fund receiving Series T6 and Series F6 units of IA Clarington Monthly Income Balanced Fund, respectively.

28. The portfolios and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund arising from the Mergers are currently, or will be, acceptable, on or prior to the effective date of the Mergers, to the portfolio advisors of the applicable Continuing Fund and are or will be consistent with the investment objectives of the applicable Continuing Fund.

29. Each of the Continuing Funds will not assume the liabilities of the applicable Terminating Fund(s), and each Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the date of the Mergers.

30. Each Terminating Fund will merge into the applicable Continuing Fund on or about the close of business on June 5, 2009. Each Terminating Fund will be wound up as soon as reasonably possible following the Mergers, and the Continuing Funds will continue as publicly offered open-end mutual funds governed by the laws of Ontario.

31. Unitholders of a Terminating Fund will continue to have the right to redeem units of the Terminating Fund for cash at any time up to the close of business on the effective date of the Mergers. Consistent with the disclosure in the simplified prospectus of the Terminating Funds when units were purchased, any redemption fees payable in connection with units purchased under the deferred sales charge option and the low load option when unitholders redeem units of the Terminating Funds will apply. Any switch fees or short-term trading charges in connection with a switch or redemption of units of the Terminating Funds will also apply.

32. IA Clarington will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.

33. Approval of the Mergers is required because each Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

(a) in the case of the Leaders Fund Merger, the Growth Fund Merger, the Navellier Fund Merger, the Equity Fund Merger, the Merger of IA Clarington Canadian Growth & Income Fund into IA Clarington Monthly Income Balanced Fund and the Merger of IA Clarington Canadian Income Fund II into IA Clarington Monthly Income Balanced Fund, the Continuing Funds do not have substantially similar investment objectives to the relevant Terminating Fund;

(b) each of the Mergers will not be a "qualifying exchange" within the meaning of section 132.2 of the Tax Act or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act;

(c) the Current Simplified Prospectus will not be sent to unitholders of the Terminating Funds; and

(d) the most recent annual and interim financial statements for the Continuing Funds will not be sent to the unitholders of the Terminating Funds but, instead, IA Clarington will prominently disclose in the information circular sent to unitholders of the Terminating Funds that they can obtain the most recent interim and annual financial statements of the Continuing Funds by accessing the SEDAR website at www.sedar.com, by accessing the IA Clarington website, by calling a toll-free number or by faxing a request to IA Clarington.

34. IA Clarington will, except as noted in paragraph 33, comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

35. A notice of meeting, a management information circular and a proxy in connection with meetings of unitholders (collectively, the Meeting Materials) were mailed to unitholders of the Terminating Funds and unitholders of the Materially Changed Continuing Funds, on or about May 4, 2009 and were filed via SEDAR.

36. The proposed changes to the investment objective and sub-advisor for IA Clarington Navellier U.S. All Cap Fund in connection with the merger of Sarbit US Equity Trust into IA Clarington Navellier U.S. All Cap Fund are described in the Meeting Materials, so that the unitholders of IA Clarington U.S. Dividend Fund and IA Clarington Navellier U.S. All Cap Fund may consider this information before voting on the Merger.

37. The proposed change to the investment objective and the appointment of Catapult Financial Management Inc. as the sub-advisor for IA Clarington Diversified Income Fund in connection with the Merger of IA Clarington Tactical Income Fund into IA Clarington Diversified Income Fund are described in the Meeting Materials, so that the unitholders of these Funds may consider this information before voting on the Merger.

38. The tax implications of the Mergers as well as the foregoing differences between the Terminating Funds and the Continuing Funds are described in the Meeting Materials so that the unitholders of the Terminating Funds may consider this information before voting on the Mergers.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Approval Sought is granted provided that:

(a) the information circular sent to unitholders in connection with a Merger provides sufficient information about the Merger to permit unitholders to make an informed decision about the Merger;

(b) the information circular sent to unitholders in connection with a Merger prominently discloses that unitholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by accessing the SEDAR website at www.sedar.com, by accessing the IA Clarington website, by calling IA Clarington's toll-free telephone number or by faxing a request to IA Clarington;

(c) upon request by a unitholder for financial statements, IA Clarington will make best efforts to provide the unitholder with financial statements of the applicable Continuing Fund in a timely manner so that the unitholder can make an informed decision regarding a Merger;

(d) each applicable Terminating Fund and the applicable Continuing Fund with respect to a Merger have an unqualified audit report in respect of their last completed financial period; and

(e) the material sent to unitholders of the Terminating Funds in respect of each Merger includes a tailored simplified prospectus consisting of:

(i) the Part A of the applicable Current Simplified Prospectus; and

(ii) the Part B of the Current Simplified Prospectus of the applicable Continuing Fund.