Clarington Funds Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Approval of a change in control of a mutual fund manager and abridgement of the related 60 day notice requirement to 30 days. -- Decision subject to no changes being made to portfolio management operations for period of 60 days subsequent to notice being provided to securityholders of the affected mutual funds.

Applicable Legislative Provisions

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

June 29, 2006

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 TERRITORIES AND NUNAVUT TERRITORY

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CLARINGTON FUNDS 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:

(a) approve the direct change of control of the Filer, the manager of the Clarington Funds, the IA Clarington Funds and the Clarington Target Click Funds listed in Appendix "A"; and

(b) abridge the 60-day notice period in respect of the notice required to be given to all securityholders of a mutual fund before the direct or indirect change of control of the manager of the mutual fund

(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:

"CC" means Clarington Corporation, a wholly-owned subsidiary of Industrial Alliance;

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

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

"IAFM" means Industrial Alliance Fund Management Inc., a subsidiary of Industrial Alliance;

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

"Québec Corp." means 9142-7476 Québec inc., a subsidiary of Industrial Alliance; and

"Reorganization" means the reorganization of certain wholly-owned subsidiaries of Industrial Alliance.

Representations

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

1. Under the Reorganization, IAFM, an affiliate of CFI, will become the manager and trustee of the Funds. However, in order to achieve the Reorganization in a tax-effective manner, it will be completed in several steps, which will involve the transferring of control of CFI to various subsidiaries of Industrial Alliance.

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 April 28, 2006, CFI had assets under management of approximately $4.4 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, the two IA Clarington Funds and the four Clarington Target Click Funds. The Funds are reporting issuers 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 IA Clarington Funds are qualified for distribution in all of the Jurisdictions by a simplified prospectus and annual information form each dated March 1, 2006. 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, as amended.

4. CC is a corporation incorporated under the laws of the Province of Ontario. Industrial Alliance acquired control of CC on December 28, 2005, pursuant to a take-over bid made by Industrial Alliance for all the common shares of CC. CC currently owns all the issued and outstanding shares of CFI. An application to approve the indirect change of control of CFI to Industrial Alliance was approved by the Decision Makers on December 21, 2005.

5. Established in 1892, Industrial Alliance is a capital stock life insurance company that is continued, 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).

6. 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.

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

8. 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.

9. 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.

10. Quebec Corp. is a corporation incorporated under the laws of the Province of Quebec. It currently has no operating business activity. It is a wholly-owned subsidiary of Industrial Alliance.

11. Notice of the change of control was mailed to securityholders of the Funds on May 30, 2006.

12. The Filer believes that shortening the notice period to not less than 30 days will not be prejudicial to securityholders of the Funds.

13. By virtue of their roles as directors and/or officers of CFI, the directors and officers of IAFM have demonstrated that they have the necessary education, experience, integrity and competence to be directors and/or officers of IAFM.

14. In the near term, the operation and administration of the Funds will not be materially affected by the change of control because, following the successful completion of the Reorganization: (i) 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 mailing of the notice to securityholders of the Funds and any change to an investment objective of a Fund or any merger of a Fund will be subject to securityholder approval; (ii) the officers and directors of CFI will become officers and directors of IAFM; (iii) the persons responsible for the administration of the Funds will continue in such capacities; (iv) IAFM will provide wholesale and client service support for the Funds; and (v) 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, provided that:

(a) securityholders of the Funds are given at least 30 days notice of the change of control of CFI prior to the change; and

(b) no changes are made to the portfolio management operations of the Funds during the 60-day period following the giving of notice of the change of control of CFI to securityholders of the Funds.

Appendix "A"

List of Funds

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

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