IA Clarington Investments Inc. et al.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted to exchange-traded series of conventional mutual funds for continuous distribution of securities – relief to permit funds’ prospectus to not include an underwriter’s certificate – relief from take-over bid requirements for normal course purchases of securities on the TSX – relief granted to facilitate the offering of exchange-traded series and conventional mutual fund series within same fund structure – relief granted from the requirement in NI 41-101 to prepare and file a long form prospectus for exchange-traded series provided that a simplified prospectus is prepared and filed in accordance with NI 81-101 – exchange-traded series and mutual fund series referable to same portfolio and have substantially identical disclosure – relief permitting all series of funds to be disclosed in same prospectus – disclosure required by NI 41-101 for exchange-traded series and not contemplated by NI 81-101 will be disclosed in prospectus under relevant headings.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 59(1), 147.
National Instrument 41-101 General Prospectus Requirements, s. 19.1.
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

[TRANSLATION]

August 27, 2018

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC 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.
(the Filer)

AND

IA CLARINGTON CORE PLUS BOND FUND,
IA CLARINGTON GLOBAL BOND FUND AND
IA CLARINGTON EMERGING MARKETS BOND FUND
(the Proposed ETF Funds)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer on behalf of the Proposed ETF Funds, each being an exchange traded series of a mutual fund, and such other exchange traded series mutual funds as are managed or may be managed by the Filer now or in the future that are structured in the same manner as the Proposed ETF Funds (the Other ETF Funds and together with the Proposed ETF Funds, the Funds and each individually, a Fund) for a decision under the securities legislation of the Jurisdictions (the Legislation) that:

(a)           exempts the Filer and each Fund from the requirement in subsection 3.1(2) of Regulation 41-101 respecting General Prospectus Requirements (V-1.1, r.14) (Regulation 41-101) to prepare and file a long form prospectus for the ETF Securities (as defined below) in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2), subject to the terms of this decision and provided that the Filer files a prospectus for the ETF Securities in accordance with the provisions of Regulation 81-101 respecting Mutual Fund Prospectus Disclosure (V-1.1, r. 38) (Regulation 81-101), other than the requirements pertaining to the filing of a fund facts document (the ETF Prospectus Form Requirement);

(b)           exempts the Filer and each Fund from the requirement in section 5.9 of Regulation 41-101 (and in Ontario, subsection 59(1) of the Securities Act (Ontario)) to include a certificate of an underwriter in a Fund’s prospectus (the Underwriter’s Certificate Requirement);

(c)           exempts all purchasers and holders purchasing ETF Securities in the normal course through the facilities of the TSX (as defined below) or another Marketplace (as defined below) from the Take-over Bid Requirements (as defined below) in Part 2 of Regulation 62-104 respecting Takeover Bids and Issuer Bids (V-1.1, r. 35) (Regulation 62-104)

(collectively, the Exemption 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; and

(b)           the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System (V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in jurisdiction of Canada other than the Jurisdictions (the Other Jurisdictions)); and

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

Interpretation

Terms defined in Regulation 14-101 respecting Definitions (V-1.1, r. 3), Regulation 11-102, Regulation 41-101, Regulation 62-104, Regulation 81-101 and Regulation 81-102 respecting Investment Funds (V-1.1, r. 39) (Regulation 81-102) have the same meaning if used in this decision, unless otherwise defined.

Affiliate Dealermeans a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units (as defined below) from time to time.

Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.

Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.

Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund’s ETF Securities on the TSX or another Marketplace.

ETF Securities means securities of an exchange-traded series of securities of a Fund that are listed or will be listed on the TSX or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with Regulation 81-101 and Form 81-101F1.

Form 81-101F1 means Form 81-101F1 Contents of Simplified Prospectus.

Form 81-101F2 means Form 81-101F2 Contents of Annual Information Form.

Marketplace means a “marketplace” as defined in Regulation 21-101 respecting Marketplace Operation (V-1.1, r. 5) that is located in Canada.

Mutual Fund Securities means securities of a non-exchange-traded series of a Fund that are or will be distributed pursuant to a simplified prospectus prepared in accordance with Regulation 81-101 and Form 81-101F1.

Other Dealer means a registered dealer that acts as authorized dealer or designated broker to other exchange-traded funds that are not managed by the Filer.

Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.

Prospectus Delivery Decision means a decision granting relief from the Prospectus Delivery Requirement to an Affiliate Dealer, Authorized Dealer, Designated Broker or Other Dealer dated August 24, 2015 and any subsequent decision granted to an Affiliate Dealer, Authorized Dealer, Designated Broker or Other Dealer that grants similar relief.

Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement.

Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities of a Fund, as applicable.

Take-over Bid Requirements means the requirements of Regulation 62-104 relating to take-over bids, including the requirement to file a report of a take-over bid and to pay the accompanying fee, in each jurisdiction of Canada.

TSX means the Toronto Stock Exchange.

Representations

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

The Filer

1.             The Filer’s head office is in Québec City, Québec.

2.             The Filer is a corporation amalgamated under the laws of Canada.

3.             The Filer is registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador, as an exempt market dealer in Québec and Ontario, and as a portfolio manager in all the jurisdictions of Canada.

4.             The Filer or an affiliate of the Filer is, or will be, the investment fund manager of each Fund.

5.             The Filer is not in default of securities legislation in any jurisdiction of Canada.

The Funds

6.             Each Proposed ETF Fund is established under the laws of Ontario as an investment fund that is an open-ended mutual fund trust. Each Fund is, or will be, a reporting issuer in each jurisdiction of Canada in which its securities are distributed. Each Fund offers, or will offer, ETF Securities and Mutual Fund Securities.

7.             Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to Regulation 81-102 and Securityholders will have the right to vote at a meeting of Securityholders in respect of matters prescribed by Regulation 81-102.

8.             The Proposed ETF Funds currently offer Series A, Series E, Series EF, Series F, Series I, Series L and Series O units. IA Clarington Core Plus Bond Fund also currently offers Series E4, Series EF4, Series F4, Series L4, Series P, Series P4, Series T4 and Series W units. IA Clarington Global Bond Fund and IA Clarington Emerging Markets Bond Fund also currently offer Series E5, Series EF5, Series F5, Series L5 and Series T5 units. These Mutual Fund Securities are currently distributed under a simplified prospectus dated June 18, 2018.

9.             On or about August 27, 2018, an amended and restated prospectus in respect of the ETF Securities of the Proposed ETF Funds will be filed with the securities regulatory authorities in each jurisdiction of Canada.

10.          The Filer will apply to list any ETF Securities of the Funds on the TSX or another Marketplace. The Filer will not file an amendment for any of the Funds in respect of the ETF Securities until the applicable Marketplace has conditionally approved the listing of the ETF Securities.

The Exemption Sought

11.          Mutual Fund Securities may be subscribed for or purchased directly from a Fund through qualified financial advisors or brokers.

12.          ETF Securities will be distributed on a continuous basis in one or more jurisdictions of Canada under a prospectus. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities on any day when there is a trading session on the TSX or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.

13.          In addition to subscribing for and re-selling Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer, Designated Broker or Affiliate Dealer.

14.          Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, cash only, a Basket of Securities and cash, and/or a combination of cash and securities other than Baskets of Securities, in each case in an amount equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order.

15.          Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker may be contractually required to subscribe for Creation Units of a Fund for cash in an amount not to exceed a specified percentage of the net asset value of the Fund or such other amount established by the Filer.

16.          The Designated Brokers and Authorized Dealers will not receive any fees or commissions from the Filer or the Funds in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or the Fund may, in the Filer’s discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.

17.          Each Fund will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for ETF Securities for the purpose of maintaining liquidity for the ETF Securities.

18.          Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement under the Legislation, ETF Securities generally will not be able to be purchased directly from a Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.

19.          Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or multiple thereof may exchange such ETF Securities for cash and/or Baskets of Securities in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the net asset value per ETF Security.

ETF Prospectus Form Requirement

20.          The Filer believes it is more efficient and expedient to include all of the series of each Fund in one prospectus form instead of two different prospectus forms and that this presentation will assist in providing full, true and plain disclosure of all material facts relating to the securities of the Funds by permitting disclosure relating to all series of securities to be included in one prospectus.

21.          The Filer will ensure that any additional disclosure included in the simplified prospectus and annual information form relating to the ETF Securities will not interfere with an investor’s ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.

22.          The Funds will comply with the provisions of Regulation 81-101 when filing any amendment or prospectus.

Underwriter’s Certificate Requirement

23.          Authorized Dealers and Designated Brokers will not provide the same services in connection with a distribution of Creation Units as would typically be provided by an underwriter in a conventional underwriting.

24.          The Filer will generally conduct its own marketing, advertising and promotion of the Funds to the extent permitted by its registrations.

25.          Authorized Dealers and Designated Brokers will not be involved in the preparation of a Fund’s prospectus, will not perform any review or any independent due diligence to the content of a Fund’s prospectus, and will not incur any marketing costs or receive any underwriting fees or commissions from the Funds or the Filer in connection with the distribution of ETF Securities. The Authorized Dealers and Designated Brokers generally seek to profit from their ability to create and redeem ETF Securities by engaging in arbitrage trading to capture spreads between the trading prices of ETF Securities and their underlying securities and by making markets for their clients to facilitate client trading in ETF Securities.

26.          The Filer, on behalf of the Funds, may enter into agreements with various Authorized Dealers (that may or may not be Designated Brokers) pursuant to which the Authorized Dealers may subscribe for ETF Securities of one or more Funds.

Dealer Delivery Document

27.          Securities regulatory authorities have advised that they take the view that the first re-sale of a Creation Unit on the TSX or another Marketplace will generally constitute a distribution of Creation Units under the Legislation and that the Authorized Dealers, Designated Brokers and Affiliate Dealers are subject to the Prospectus Delivery Requirement in connection with such re-sales. Re-sales of ETF Securities in the secondary market that are not Creation Units would not ordinarily constitute a distribution of such ETF Securities.

28.          According to Authorized Dealers and Designated Brokers, Creation Units will generally be commingled with other ETF Securities purchased by the Authorized Dealers, Designated Brokers and Affiliate Dealers in the secondary market. As such, it is not practicable for the Authorized Dealers, Designated Brokers or Affiliate Dealers to determine whether a particular re-sale of ETF Securities involves Creation Units or ETF Securities purchased in the secondary market.

29.          Under the applicable Prospectus Delivery Decision, Authorized Dealers, Designated Brokers and Affiliate Dealers are exempt from the Prospectus Delivery Requirement in connection with the re-sale of Creation Units to investors on the TSX or another Marketplace. Under a Prospectus Delivery Decision, Other Dealers are also exempt from the Prospectus Delivery Requirement in connection with the re-sale of creation units of other exchange-traded funds that are either not managed by the Filer or that are managed by the Filer but are not structured as a separate series of a mutual fund.

30.          Each Prospectus Delivery Decision includes a condition that the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer undertakes that it will, unless it has previously done so, send or deliver to each purchaser of an ETF Security who is a customer of the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer and to whom a trade confirmation is required under the Legislation to be sent or delivered by the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer in connection with the purchase, the latest ETF Facts filed in respect of the ETF Security not later than midnight on the second day, exclusive of Saturdays, Sundays and holidays, after the purchase of the ETF Security.

Take-over Bid Requirements

31.          As equity securities that will trade on the TSX or another Marketplace, it is possible for a person or company to acquire such number of ETF Securities so as to trigger application of the Take-over Bid Requirements. However,

a.             it will be difficult for purchasers of ETF Securities of a Fund to monitor compliance with the Take-over Bid Requirements because the number of outstanding ETF Securities will always be in flux as a result of the ongoing issuance and redemption of ETF Securities by each Fund; and

b.             the way in which ETF Securities will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium for outstanding ETF Securities because pricing for each ETF Security will generally reflect the series net asset value of the ETF Securities.

32.          The application of the Take-over Bid Requirements to the Funds would have an adverse impact on the liquidity of the ETF Securities because they could cause Designated Brokers and other large Securityholders to cease trading ETF Securities once a Securityholder has reached the prescribed threshold at which the Take-over Bid Requirements would apply. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the Funds.

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.

1.             The decision of the Decision Makers under the Legislation is that the Exemption Sought from the ETF Prospectus Form Requirement is granted, provided that the Filer will be in compliance with the following conditions:

a)            the Filer files a simplified prospectus and annual information form in respect of the ETF Securities in accordance with the requirements of Regulation 81-101, Form 81-101F1 and Form 81-101F2, other than the requirements pertaining to the filing of a fund facts document;

b)            the Filer includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1 or Form 81-101F2) in respect of the ETF Securities, in each Fund’s simplified prospectus and/or annual information form, as applicable; and

c)             the Filer includes disclosure regarding this decision under the heading “Additional Information” and “Exemptions and Approvals” in each Fund’s simplified prospectus and annual information form, respectively.

2.             The decision of the Decision Makers under the Legislation is that the exemption sought in respect of the Underwriter’s Certificate Requirement is granted provided that the Filer will be in compliance with the following conditions:

a)            the Filer provides or makes available to each Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer, the number of copies of the ETF Facts of each ETF Security that the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer reasonably requests in support of compliance with its respective Prospectus Delivery Decision;

b)            each Fund’s prospectus, as the same may be amended from time to time, will disclose the relief granted pursuant to the Exemption Sought and the Prospectus Delivery Decision;

c)             the Filer obtains an executed acknowledgement from each Authorized Dealer, Designated Broker and Affiliate Dealer, and uses its best efforts to obtain an acknowledgment from each Other Dealer:

i)              indicating each dealer’s election, in connection with the re-sale of Creation Units on the TSX or another Marketplace, to send or deliver the ETF Facts in accordance with a Prospectus Delivery Decision or, alternatively, to comply with the Prospectus Delivery Requirement; and

ii)             if the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer agrees to deliver the ETF Facts in accordance with a Prospectus Delivery Decision:

A.            an undertaking that the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer will attach or bind one Fund’s ETF Facts with another Fund’s ETF Facts only if the documents are being sent or delivered under the Prospectus Delivery Decision at the same time to an investor purchasing ETF Securities of each such Fund; and

B.            confirming that the Authorized Dealer, Designated Broker, Affiliate Dealer or Other Dealer has in place written policies and procedures to ensure that it is in compliance with the conditions of the Prospectus Delivery Decision;

d)            the Filer will keep records of which Authorized Dealers, Designated Brokers, Affiliate Dealers and Other Dealers have provided it with an acknowledgement under a Prospectus Delivery Decision, and which intend to rely on and comply with the Prospectus Delivery Decision or intend to comply with the Prospectus Delivery Requirement;

e)            the Filer files with its principal regulator, to the attention of the Director, Investment Funds, on or before January 31st in each calendar year, a certificate signed by its ultimate designated person certifying that, to the best of the knowledge of such person, after making due inquiry, the Filer has complied with the terms and conditions of this decision during the previous calendar year; and

f)             conditions (a), (b), (c), (d) and (e) above do not apply to the Exemption Sought after any new legislation or rule dealing with the Prospectus Delivery Decision takes effect and any applicable transition period has expired.

3.             The decision of the Decision Makers under the Legislation is that the Exemption Sought from the Take-over Bid Requirements is granted.

“Lucie Roy”
Senior Director, Corporate finance