Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- approval required because merger does not meet the criteria for pre-approval -- merger not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- current simplified prospectus and financial statements of continuing fund not required to be sent to unitholders of the terminating fund in connection with the merger provided a tailored simplified prospectus is sent and the information circular sent for unitholder meeting clearly discloses the various ways unitholders can access the financial statements.

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

ONTARIO

(the Jurisdiction)

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

SARBIT US EQUITY TRUST

(the Terminating Fund)

 

DECISION

Background

The principal regulator has received an application from IA Clarington for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) of the merger (the Merger) of the Terminating Fund into IA Clarington Navellier U.S. All Cap Fund (the Approval Sought).

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

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

(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.

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:

Current Simplified Prospectus means the simplified prospectus dated July 4, 2008, as amended, that qualifies IA Clarington Navellier U.S. All Cap Fund, among others, for sale;

Fund or Funds means, individually or collectively, the Terminating Fund and IA Clarington Navellier U.S. All Cap Fund;

IRC means the independent review committee for the Funds;

NI 81-107 means National Instrument 81-107 Independent 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. A significant portion of IA Clarington's operations is located in Toronto, Ontario. IA Clarington's principal business office and most of its officers and employees are located in Ontario. Its marketing, finance, transfer agency, compliance and legal functions are primarily conducted in Ontario and its sales operations are directed from Ontario.

3. Sarbit US Equity Trust is an open-end mutual fund trust established under the laws of Manitoba by a master trust agreement.

4. Securities of Sarbit US Equity Trust are currently qualified for sale in each province and territory of Canada other than Québec by a simplified prospectus and annual information form dated September 12, 2008, as amended. Securities of IA Clarington Navellier U.S. All Cap Fund 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 applicable securities regulatory authorities.

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 merge the Terminating Fund into IA Clarington Navellier U.S. All Cap Fund. Should IA Clarington obtain the requisite approvals for the Merger, IA Clarington also 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 the Terminating Fund. 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.

9. The Merger of the Terminating Fund into IA Clarington Navellier U.S. All Cap Fund will be a material change for IA Clarington Navellier U.S. All Cap Fund, as the net asset value of IA Clarington Navellier U.S. All Cap Fund is smaller than the net asset value of the Terminating Fund.

10. An amendment to each of the simplified prospectuses and annual information forms of the Funds, a press release and a material change report with respect to the proposed Merger were filed via SEDAR on March 25, 2009 and March 26, 2009.

11. Unitholders of the Terminating Fund and of IA Clarington Navellier U.S. All Cap Fund will be asked to approve the Merger at meetings to be held on May 29, 2009. Unitholders of IA Clarington Navellier U.S. All Cap Fund will also be asked to approve the change to the Fund's investment objective at the meeting.

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

13. In connection with the Merger, Mutual Fund units, Class F units and Class I units of the Terminating Fund will be exchanged for Series A units, Series F units and Series I units of IA Clarington Navellier U.S. All Cap Fund, respectively.

14. No sales charges will be payable in connection with the acquisition by IA Clarington Navellier U.S. All Cap Fund of the investment portfolio of the Terminating Fund.

15. Units of IA Clarington Navellier U.S. All Cap Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund on a dollar-for-dollar basis, with holders of Mutual Fund units, Class F units and Class I units of the Terminating Fund receiving Series A units, Series F units and Series I units of IA Clarington Navellier U.S. All Cap Fund, respectively.

16. The portfolio and other assets of the Terminating Fund to be acquired by IA Clarington Navellier U.S. All Cap Fund arising from the Merger are currently, or will be, acceptable, on or prior to the effective date of the Merger, to the portfolio advisor of IA Clarington Navellier U.S. All Cap Fund and are or will be consistent with the investment objectives of IA Clarington Navellier U.S. All Cap Fund.

17. IA Clarington Navellier U.S. All Cap Fund will not assume the liabilities of the Terminating Fund, and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the date of the Merger.

18. The Terminating Fund will merge into IA Clarington Navellier U.S. All Cap Fund on or about the close of business on June 5, 2009. The Terminating Fund will be wound up as soon as reasonably possible following the Merger, and IA Clarington Navellier U.S. All Cap Fund will continue as a publicly offered open-end mutual fund governed by the laws of Ontario.

19. Unitholders of the 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 Merger. Consistent with the disclosure in the simplified prospectus of the Terminating Fund when units were purchased, any redemption fees payable in connection with units purchased under the deferred sales charge option and the low load deferred sales charge option when unitholders redeem units of the Terminating Fund will apply. Any switch fees or short-term trading charges in connection with a switch or redemption of units of the Terminating Fund will also apply.

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

21. Approval of the Merger is required because the 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) the Merger 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;

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

(c) the most recent annual and interim financial statements for IA Clarington Navellier U.S. All Cap Fund will not be sent to the unitholders of the Terminating Fund but, instead, IA Clarington will prominently disclose in the information circular sent to unitholders of the Terminating Fund that they can obtain the most recent interim and annual financial statements of IA Clarington Navellier U.S. All Cap Fund 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.

22. IA Clarington will, except as noted in paragraph 21, comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

23. 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 Fund and unitholders of IA Clarington Navellier U.S. All Cap Fund, on or about May 4, 2009 and were filed via SEDAR.

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

25. The tax implications of the Merger are described in the Meeting Materials, so that the unitholders of the Terminating Fund may consider this information before voting on the Merger.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Approval Sought is granted provided that:

(a) the information circular sent to unitholders in connection with the 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 the Merger prominently discloses that unitholders can obtain the most recent interim and annual financial statements of IA Clarington Navellier U.S. All Cap 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 IA Clarington Navellier U.S. All Cap Fund in a timely manner so that the unitholder can make an informed decision regarding the Merger;

(d) the Terminating Fund and IA Clarington Navellier U.S. All Cap Fund have an unqualified audit report in respect of their last completed financial period; and

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

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

(ii) the Part B of the Current Simplified Prospectus of IA Clarington Navellier U.S. All Cap Fund.

"Vera Nunes"
Assistant Manager, Investment Funds
Ontario Securities Commission

SEDAR Project # 1396741