Approval granted for merger of mutual funds. Relief granted in respect of current mergers and future mergers to send tailored simplified prospectus and not to send financial statements, unless requested.
National Instrument 81-102 - Mutual Funds, subsection 5.5(1)(b) and section 5.6.
August 10, 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 TERRITORIES AND NUNAVUT TERRITORY
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
CLARINGTONFUNDS INC. ("CLARINGTON")
CLARINGTON GLOBAL CORE PORTFOLIO,
CLARINGTON U.S. CORE PORTFOLIO,
CLARINGTON CANADIAN GROWTH FUND,
CLARINGTON NAVELLIER U.S. ALL CAP CLASS OF CLARINGTON SECTOR FUND INC.,
CLARINGTON U.S. GROWTH FUND,
CLARINGTON U.S. SMALLER COMPANY GROWTH FUND,
CLARINGTON U.S. VALUE CLASS OF CLARINGTON SECTOR FUND INC.,
CLARINGTON GLOBAL VALUE CLASS OF CLARINGTON SECTOR FUND INC.,
CLARINGTON GLOBAL HEALTH SCIENCES CLASS OF CLARINGTON SECTOR FUND INC.,
CLARINGTON ASIA PACIFIC FUND,
CLARINGTON INTERNATIONAL EQUITY FUND AND
CLARINGTON GLOBAL COMMUNICATIONS FUND
(COLLECTIVELY, THE "TERMINATING FUNDS")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from Clarington and the Terminating Funds (the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") for:
• approval of the mergers (the "Current Mergers") of the Terminating Funds into the applicable Continuing Funds (as defined below) as set out in paragraph 4 below;
• an exemption from the requirement (the "Prospectus Delivery Requirement") to deliver the Clarington Funds simplified prospectus to securityholders of the Terminating Funds in connection with the Current Mergers and all future mergers of mutual funds managed by Clarington (the "Future Mergers"); and
• an exemption from the requirement (the "Financial Statement Delivery Requirement") to deliver the financial statements of the Continuing Funds to securityholders of the Terminating Funds in connection with the Current Mergers and all Future Mergers
(collectively, the Prospectus Delivery Requirement and the Financial Statement Delivery Requirement are 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.
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:
"Class" or "Classes" means, individually or collectively, Clarington Navellier U.S. All Cap Class, Clarington U.S. Value Class, Clarington Global Value Class, Clarington Global Health Sciences Class and Clarington Global Equity Class;
"Continuing Funds" means Clarington Canadian Core Portfolio, Clarington Canadian Equity Fund, Clarington Navellier U.S. All Cap Fund, Clarington Global Small Cap Fund, Clarington Global Equity Class and Clarington Global Equity Fund;
"Fund" or "Funds" means, individually or collectively, the Terminating Funds and the Continuing Funds;
"Sector Fund" means Clarington Sector Fund Inc.;
"Tax Act" means the Income Tax Act (Canada).
This decision is based on the following facts represented by the Filers:
1. Clarington is a corporation incorporated under the laws of Ontario. Clarington is the manager of each of the Funds and the trustee of each of the Funds other than the Classes. The head office of Clarington is located in Ontario.
2. Sector Fund is a mutual fund corporation incorporated by articles of incorporation under the laws of Ontario on July 17, 2000. Each of the Classes is a separate class of shares of Sector Fund.
3. Each of the Funds, other than the Classes, is an open-end mutual fund trust established under the laws of Ontario by a master declaration of trust.
4. Clarington intends to merge the Terminating Funds into the Continuing Funds as follows:
(a) Clarington Global Core Portfolio and Clarington U.S. Core Portfolio into Clarington Canadian Core Portfolio (the "Core Portfolio Merger");
(b) Clarington Canadian Growth Fund into Clarington Canadian Equity Fund (the "Canadian Merger");
(c) Clarington Navellier U.S. All Cap Class into Clarington Navellier U.S. All Cap Fund (the "Navellier Merger");
(d) Clarington U.S. Growth Fund into Clarington Navellier U.S. All Cap Fund (the "U.S. Growth Merger");
(e) Clarington U.S. Smaller Company Growth Fund into Clarington Global Small Cap Fund;
(f) Clarington U.S. Value Class, Clarington Global Value Class and Clarington Global Health Sciences Class into Clarington Global Equity Class (the "Global Equity Class Merger"); and
(g) Clarington Asia Pacific Fund, Clarington International Equity Fund and Clarington Global Communications Fund into Clarington Global Equity Fund.
5. Pursuant to the Current Mergers, securityholders will receive securities in the same series of the applicable Continuing Fund as they currently own in the Terminating Fund.
6. Securities of the Funds are currently qualified for sale by a simplified prospectus and annual information form dated June 28, 2005, which have been filed and accepted in all of the Jurisdictions.
7. Each of the Funds is a reporting issuer under applicable securities legislation of each Jurisdiction and is not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Jurisdictions.
8. Other than circumstances in which the securities regulatory authority of a Jurisdiction (the "Authorities") has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established by the Authorities.
9. 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.
10. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of an applicable Terminating Fund.
11. The portfolios and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund arising from the Current Mergers may be acquired by the applicable Continuing Fund in compliance with National Instrument 81-102 -- Mutual Funds ("NI 81-102") and are currently, or will be, acceptable, on or prior to the effective date of the Current Mergers, to the portfolio advisers of the applicable Continuing Fund and are or will be consistent with the investment objectives of the applicable Continuing Fund.
12. Securityholders of a Terminating Fund will continue to have the right to redeem securities of the Terminating Fund for cash at any time up to the close of business on the business day immediately prior to the effective date of the Current Mergers.
13. A material change report and amendments to the then current simplified prospectus and annual information form of the Funds were filed via SEDAR on June 10, 2005 with respect to the proposed Current Mergers.
14. A notice of meeting, a management information circular and a proxy in connection with meetings of securityholders have been mailed to securityholders of the Terminating Funds, Clarington Global Equity Class and Clarington Canadian Core Portfolio and have been filed via SEDAR on July 29, 2005. The management information circular contains disclosure of the management fees of the Continuing Funds.
15. Securityholders of the Terminating Funds and of Clarington Global Equity Class will be asked to approve the Current Mergers at meetings to be held on August 17, 2005. Clarington, as the sole common shareholder of Sector Fund, will also approve the Global Equity Class Merger, as required under corporate law.
16. Each Terminating Fund will merge into the applicable Continuing Fund on or about the close of business on August 26, 2005 and the Continuing Funds will continue as publicly offered open-end mutual funds governed by the laws of Ontario.
17. Each Terminating Fund will be wound up as soon as reasonably possible following the relevant Current Merger.
18. Clarington will pay for the costs of the Current Mergers. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the date of the Current Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.
19. Approval of the Current Mergers is required because each Current 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) Other than the Navellier Merger, each of the Continuing Funds does not have substantially similar investment objectives as the Terminating Fund;
(b) The U.S. Growth Merger and the Global Equity Class Merger will result in an increase in the management fees for securityholders of Clarington U.S. Growth Fund and Clarington Global Value Class;
(c) Except for the Core Portfolio Merger, the Canadian Merger and the Global Equity Class Merger, each of the Current 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;
(d) The current simplified prospectus of the Clarington Funds will not be sent to securityholders of the Terminating Funds but, instead, a tailored document consisting of the Part A and the Part B of the simplified prospectus for the Continuing Funds will be sent to securityholders of the Terminating Funds;
(e) The most recent annual and interim financial statements for the Continuing Funds will not be sent to the securityholders of the Terminating Funds but, instead, Clarington will prominently disclose in the information circular sent to securityholders 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 Clarington website at www.claringtonfunds.com, by calling a toll-free number or by faxing a request to Clarington.
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:
(I) the Current Mergers are approved; and
(II) the Requested Relief is granted in respect of the Current Mergers and all Future Mergers (collectively, the "Mergers"), provided that:
(a) the material sent to securityholders in respect of a Merger includes a tailored simplified prospectus consisting of:
(i) the current Part A of the simplified prospectus of the applicable continuing fund, and
(ii) the current Part B of the simplified prospectus of the applicable continuing fund;
(b) the information circular sent to securityholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;
(c) the information circular sent to securityholders in connection with a Merger prominently discloses that securityholders 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 Clarington website at www.claringtonfunds.com, by calling Clarington's toll-free telephone number or by faxing a request to Clarington;
(d) upon request by a securityholder for financial statements, Clarington will make best efforts to provide the securityholder with financial statements of the applicable continuing fund in a timely manner so that the securityholder can make an informed decision regarding a Merger; and
(e) 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.
This Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publication in final form of any legislation or rule of that Decision Maker dealing with matters in paragraph 5.5(1)(b) of NI 81-102.