Clarington Funds Inc. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- approval of the change of control of a mutual fund manager.

Rules Cited

National Instrument 81-102 Mutual Funds, ss. 5.5(2), 5.7(1).

December 21, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, YUKON TERRITORY,

NORTHWEST TERRITORIESAND NUNAVUT TERRITORY

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CLARINGTONFUNDS INC. (THE "FILER")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") to approve the indirect change of control of the Filer, the manager of the Clarington Funds and the Clarington Target Click Funds listed in Appendix "A" (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

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

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision. The following additional terms shall have the following meanings:

"Bid" means the take-over bid for all of the common shares of CC on a fully-diluted basis made by Industrial Alliance;

"CC" means Clarington Corporation;

"CFI" means ClaringtonFunds Inc., a wholly-owned subsidiary of CC;

"Funds" means the Clarington Funds and the Clarington Target Click Funds, as set out in Appendix "A";

"IAFM" means Industrial Alliance Fund Management Inc., an affiliate of Industrial Alliance;

"IAIM" means Industrial Alliance Investment Management Inc., a wholly-owned subsidiary of Industrial Alliance; and

"Industrial Alliance" means Industrial Alliance Insurance and Financial Services Inc.

Representations

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

1. Under the Bid, Industrial Alliance has offered to acquire all of the outstanding shares of CC. The completion of the Bid is subject to the satisfaction of conditions customary for take-over bids of this nature, including the obtaining of all regulatory approvals.

2. CFI is a corporation incorporated under the laws of the Province of Ontario. It acts as the trustee and the manager of the Funds that are mutual fund trusts and as the manager of the Funds that are classes of shares of mutual fund corporations. CFI is registered as a mutual fund dealer and as a limited market dealer under the Securities Act (Ontario). CFI is not a member of the Mutual Fund Dealers Association of Canada. As at October 31, 2005, CFI had assets under management of approximately $4.1 billion. Securities of the Funds are sold in all of the Jurisdictions through registered dealers. CC owns all of the issued and outstanding shares of CFI.

3. The Funds consist of the 22 Clarington Funds and the four Clarington Target Click Funds. The Funds are reporting issuers (where such status exists) in each of the Jurisdictions and are not in default of any of the requirements of the Jurisdictions. Securities of the Clarington Funds are qualified for distribution in all of the Jurisdictions by an amended and restated simplified prospectus and annual information form each dated August 26, 2005, as further amended. Units of the Clarington Target Click Funds are qualified for distribution in all of the Jurisdictions by a simplified prospectus and annual information form each dated June 28, 2005.

4. Established in 1892, Industrial Alliance is a capital stock life insurance company that is incorporated, organized and validly existing under the Companies Act (Québec). Industrial Alliance's head office is located at 1080 Saint-Louis Road, Québec City, Québec. In addition to the Companies Act (Québec), Industrial Alliance is governed by the Act respecting insurance (Québec) and the Act respecting Industrial-Alliance Life Insurance Company (Québec).

5. Industrial Alliance is a reporting issuer in all of the provinces of Canada and is not on any list of defaulting issuers maintained in any Jurisdiction.

6. Industrial Alliance's common shares are listed and posted for trading on the Toronto Stock Exchange (the "TSX") under the trading symbol IAG.

7. The Act respecting Industrial-Alliance Life Insurance Company (Québec) prohibits the direct or indirect acquisition by any person of 10% or more of the outstanding voting shares of Industrial Alliance. To the best of the knowledge of the directors and officers of Industrial Alliance, no individual or corporation beneficially owns, directly or indirectly, or exercises control or direction over, 10% or more of the outstanding voting shares of Industrial Alliance.

8. Industrial Alliance is a leading financial institution in Canada and an industry leader in the insurance and financial services sectors. Operating its insurance and wealth management activities across Canada, Industrial Alliance is the fifth largest life and health insurance company in Canada. The Industrial Alliance group of companies insures more than 1.7 million Canadians, employs more than 2,600 people and manages or administers more than $32.4 billion in assets, including managing over $7.0 billion in segregated funds and over $1.2 billion in mutual funds. Industrial Alliance distributes its wealth management products and services through both a dedicated sales force of approximately 1,400 representatives and a broad network of independent representatives, including those employed with leading mutual fund and securities firms within the Industrial Alliance group of companies. Industrial Alliance is one of the 100 largest public companies in Canada.

9. Among other things, Industrial Alliance manufactures its own segregated funds and is among the largest promoters, manufacturers and distributors of segregated funds in Canada.

10. Industrial Alliance owns all of the voting shares of IAFM, which is the trustee and the manager of 19 mutual funds known as the IA Funds and the R Funds and five fund-of-fund mutual funds known as the Distinction Portfolios. Units of the IA Funds and the R Funds are qualified for distribution in all of the Jurisdictions by a simplified prospectus and annual information form each dated August 26, 2005. Units of the Distinction Portfolios are qualified for distribution in all of the Jurisdictions by a simplified prospectus and annual information form each dated October 7, 2005.

11. IAIM, a wholly-owned subsidiary of Industrial Alliance, is registered as an adviser in the categories of investment counsel and portfolio manager in Ontario, Québec and British Columbia. IAIM acts as portfolio adviser to 14 of the IA Funds and the R Funds and to the five Distinction Portfolios.

12. Industrial Alliance also owns or controls several registrants that are also members of either the Mutual Fund Dealers Association of Canada or the Investment Dealers Association of Canada.

13. By virtue of their roles as directors and/or officers of Industrial Alliance and/or its affiliates, the proposed new directors and officers of CFI have demonstrated that they have the necessary education, experience, integrity and competence to be directors and/or officers of CFI.

14. Notice of the change in control was mailed to securityholders of the Funds on November 24, 2005. In the near term, the operation and administration of the Funds will not be materially affected by the change of control of CFI because, following the successful completion of the Bid: (i) CFI will continue to act as the trustee and/or manager of the Funds, although its operations may be merged with IAFM's operations; (ii) the investment objectives and strategies and the portfolio advisers of each of the Funds will remain the same for a minimum of 60 days following the change of control of CFI and any change to an investment objective of a Fund will be subject to securityholder approval; (iii) except for the position of President and Chief Operating Officer that will be assumed by an officer of IAFM, the officers of CFI will remain the same; (iv) the persons responsible for the administration of the Funds will continue in such capacities; (v) CFI will continue to provide wholesale and client service support for the Funds; and (vi) the management fees and operating expenses of the Funds will not be increased.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.

"Rhonda Goldberg"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission

 

Appendix "A"

List of Funds

Clarington Funds
Clarington Core Portfolio (formerly Clarington Canadian Core Portfolio)
Clarington Canadian Bond Fund
Clarington Money Market Fund
Clarington Short-Term Income Class{•}
Clarington Canadian Dividend Fund
Clarington Canadian Income Fund
Clarington Canadian Income Fund II
Clarington Diversified Income Fund
Clarington Global Income Fund
Clarington Income Trust Fund
Clarington U.S. Dividend Fund
Clarington Canadian Balanced Fund
Clarington Canadian Equity Class{•}
Clarington Canadian Equity Fund
Clarington Canadian Growth & Income Fund
Clarington Canadian Resources Class{••}
Clarington Canadian Small Cap Fund
Clarington Canadian Value Fund
Clarington Navellier U.S. All Cap Fund
Clarington Global Equity Class{•}
Clarington Global Equity Fund
Clarington Global Small Cap Fund
 
Clarington Target Click Funds
Clarington Target Click 2010 Fund
Clarington Target Click 2015 Fund
Clarington Target Click 2020 Fund
Clarington Target Click 2025 Fund

{•} each a class of shares of Clarington Sector Fund Inc.

{••} a class of shares of Clarington Canadian Resources Inc.