Hamilton Capital Partners Inc. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of investment fund merger -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers -- a reasonable person may not consider the Funds to have substantially similar fundamental investment objectives -- merger will not be a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- merger to otherwise comply with pre-approval criteria, including securityholder vote and IRC approval -- securityholders provided with timely and adequate disclosure regarding the merger -- National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 5.6(1), 19.1.

May 29, 2020

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 HAMILTON CAPITAL PARTNERS INC. ("Hamilton ETFs" or the "Filer") AND HAMILTON GLOBAL BANK ETF, HAMILTON GLOBAL FINANCIALS YIELD ETF, HAMILTON U.S. MID-CAP FINANCIALS ETF (USD), HAMILTON CANADIAN BANK VARIABLE-WEIGHT ETF, HAMILTON AUSTRALIAN FINANCIALS YIELD ETF (the "Terminating Funds") AND HAMILTON GLOBAL FINANCIALS ETF, HAMILTON U.S. MID/SMALL-CAP FINANCIALS ETF, HAMILTON CANADIAN BANK MEAN REVERSION INDEX ETF, HAMILTON AUSTRALIAN BANK EQUAL-WEIGHT INDEX ETF (the "Continuing Funds")

DECISION

Background

The principal regulator in the Jurisdiction (the "Decision Maker") has received an application from the Filer on behalf of the Terminating Funds and the Continuing Funds (each a "Fund" and, collectively, the "Funds") for a decision under the securities legislation of the Jurisdiction of the Decision Maker (the "Legislation") approving the proposed merger (each, a "Merger" and collectively, the "Mergers") of each Terminating Fund into the applicable Continuing Fund pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds ("NI 81-102") as outlined on Schedule A hereto (the "Approval Sought").

Under National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions ("NP 11-203"):

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

(b) the Filer 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, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with Ontario, the "Jurisdictions").

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 herein.

Representations

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

The Filer

1. Hamilton ETFs is a corporation organized under the laws of Ontario with a head office in Toronto, Ontario.

2. Hamilton ETFs is the manager, trustee and portfolio manager of the Funds.

3. Hamilton ETFs is registered as: (i) an investment fund manager in Ontario, Quebec and Newfoundland & Labrador; (ii) an exempt market dealer in Ontario; and (iii) a portfolio manager in Ontario.

4. Hamilton ETFs is not in default of any of the requirements of the securities legislation of any of the provinces and territories of Canada.

The Funds

5. Each Terminating Fund is an existing, exchange-traded, open-ended mutual fund trust, established under the laws of Ontario by a declaration of trust (the "Declaration of Trust") and each are governed by the provisions of NI 81-102.

6. Units of the Terminating Funds are currently qualified for sale in each of the provinces and territories of Canada pursuant to a prospectus dated August 7, 2019, as amended by Amendment No. 1 dated April 29, 2020, and related ETF Facts (collectively, the "Terminating Fund Offering Documents").

7. Units of the Terminating Funds are also currently listed and traded on the Toronto Stock Exchange ("TSX").

8. The Terminating Funds are reporting issuers as defined under the applicable securities legislation of each province and territory of Canada and are not in default of any of the requirements of the securities legislation of any of the provinces and territories of Canada.

9. Each Continuing Fund is a newly established exchange-traded, open-ended mutual fund trust, established under the laws of Ontario by the Declaration of Trust and each is governed by the provisions of NI 81-102.

10. Securities of the Continuing Funds are qualified for sale in each of the provinces and territories of Canada pursuant to a prospectus and related ETF Facts dated May 11, 2020 (together the "Continuing Fund Offering Documents").

11. The Continuing Funds are reporting issuers as defined under the applicable securities legislation of each province and territory of Canada and are not in default of any of the requirements of the securities legislation of any of the provinces and territories of Canada.

12. The Filer, on behalf of the Continuing Funds, has also applied to list the units of the Continuing Funds on the TSX. The TSX has conditionally approved the listing of the units of the Continuing Funds. Listing is subject to the Continuing Funds fulfilling all of the original listing requirements of the TSX.

13. Other than under circumstances in which the securities regulatory authority or securities regulator of a province or territory of Canada has expressly exempted, or will exempt, a Fund therefrom, each of the Funds follow, or will follow, the standard investment restrictions and practices established by NI 81-102.

14. The net asset value for each Fund is, or will be, calculated on a daily basis at the end of each day the TSX, is open for trading in accordance with the Fund's valuation policy and as described in the Fund's offering documents.

Reasons for the Approval Sought

15. The Filer has concluded that regulatory approval for the Mergers is required under subsection 5.5(1)(b) of NI 81-102, and pre-approval for the Mergers under section 5.6(1) is unavailable, because:

(a) the fundamental investment objectives of the Continuing Funds may not be considered to be "substantially similar" by a reasonable person to the investment objectives of their corresponding Terminating Funds; and

(b) each of the Mergers will not be completed as a "qualifying exchange" or other tax deferred transaction under the Income Tax Act (Canada) (the "Tax Act").

16. Except as noted above, each of the other conditions for pre-approval under subsection 5.6(1) of NI 81-102 is, or will be, met in respect of each Merger.

The Proposed Mergers

17. Subject to receipt of all necessary regulatory approvals and the outcome of the vote of unitholders of each Terminating Fund, each Merger (as described on Schedule A) is anticipated to be effective on or about June 26, 2020 (each an "Effective Date").

18. Each Merger will be effected on a taxable basis.

19. Prior to the Mergers, as required, each Terminating Fund will sell any securities in its portfolio that do not meet the investment objective and investment strategies of the applicable Continuing Fund. As a result, the Terminating Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to the Merger being effected. Consequently, the assets of each Terminating Fund to be acquired by the applicable Continuing Fund to effect each Merger are currently or will, on the Effective Date, be acceptable to the portfolio manager of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the applicable Continuing Fund.

20. Hamilton ETFs will pay the costs associated with the sale of securities in a Terminating Fund's portfolio that do not meet the investment objective and investment strategies of the applicable Continuing Fund, including brokerage commissions.

21. Unitholders of each Terminating Fund are required to, and will be asked to, approve their Merger. The Filer will convene the Meetings (as defined below) in order to seek the approval of unitholders of the Terminating Funds to complete the Mergers.

22. As each Continuing Fund is newly established, aside from units held by the Filer in respect of seed capital, the Continuing Funds will not have any unitholders prior to the Mergers being implemented.

23. The Filer will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the Effective Date and legal, proxy solicitation, printing, mailing and regulatory fees.

24. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of the corresponding Terminating Fund.

25. No fees or sales charges will be payable by unitholders of the Funds in connection with the Mergers.

26. As units of each Terminating Fund are listed on the TSX, unitholders generally do not purchase, switch or redeem units of a Terminating Fund directly through the Filer. Rather, units of the Terminating Funds are generally traded on the secondary market on the TSX. Unitholders of the Terminating Funds will therefore be able to trade their units on the TSX until the close of business on the De-Listing Date (as defined below).

Unitholder Disclosure

27. Press releases and a material change report were issued and filed on SEDAR on April 28, 2020 with respect to the proposed Mergers in accordance with applicable securities laws. The Terminating Fund Offering Documents were amended to include disclosure with respect to the Mergers in accordance with applicable securities law. The Continuing Fund Offering Documents also disclosed the proposed Mergers with the Terminating Funds, including the anticipated effective date of each Merger.

28. Pursuant to National Instrument 81-107 -- Independent Review Committee for Investment Funds, the independent review committee of the Funds (the "IRC") has reviewed the proposed Mergers as a potential "conflict of interest" matter and the process to be followed in connection with each such Merger. After such review, the IRC has determined that the Mergers, if implemented, would achieve a fair and reasonable result for each Fund. The determination of the IRC was disclosed in the Circular (as defined below).

29. To obtain unitholder approval of the Terminating Funds for the Mergers, a notice of meeting, a management information circular (the "Circular") and a form of proxy in connection with the special meetings of unitholders of the Terminating Funds (collectively, the "Meeting Materials") to be held virtually on June 17, 2020 (the "Meetings" and each a "Meeting") were mailed to unitholders of the Terminating Funds of record as of May 18, 2020 and filed on SEDAR on May 27, 2020 in accordance with applicable securities law requirements. The Meeting Materials disclosed that unitholders of the Terminating Funds may vote to approve their Merger by proxy until 11:59 p.m. on June 17, 2020.

30. The Circular provides a comparison of the fundamental investment objectives, fee structures, other material differences between the Funds, as well as the tax consequences of the Mergers. As part of the Meeting Materials, unitholders of a Terminating Fund were also provided with the ETF Facts of the corresponding Continuing Fund.

31. The Circular also disclosed that unitholders of the Terminating Funds can obtain the Continuing Fund Offering Documents from the Filer upon request or on SEDAR at www.sedar.com. Accordingly, investors of the Terminating Funds will have an opportunity to consider such information prior to voting on the Mergers.

Merger Steps

32. Each Merger will be structured substantially as follows:

(a) The board of directors of the Filer will approve the Merger.

(b) Pursuant to subsection 5.1(f) of NI 81-102, unitholders of a Terminating Fund will be asked to approve its Merger at its Meeting.

(c) The Declaration of Trust will be amended to permit such actions as are necessary to complete the Merger.

(d) Prior to the Merger, as required, the Terminating Fund will sell any securities in its portfolio that do not meet the investment objective and investment strategies of the applicable Continuing Fund. As a result, the Terminating Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to the Merger being effected.

(e) The value of the Terminating Fund's investment portfolio and other assets will be determined at the close of business on the Effective Date in accordance with the Declaration of Trust.

(f) As required, a Terminating Fund will declare, pay and automatically reinvest a distribution to its unitholders of net realized capital gains and net income, if any, to ensure that it will not be subject to tax for its current tax year.

(g) Units of the Terminating Fund will be delisted from the TSX on or prior to the Effective Date (the "De-Listing Date"). The de-listing of the Terminating Fund will be subject to the approval of the TSX and will be made in accordance with any conditions of such approval. Unitholders of the Terminating Fund will not be able to trade their units on the TSX after the close of business on the De-Listing Date.

(h) The Terminating Fund's assets and liabilities will be transferred to its respective Continuing Fund. In return, the Continuing Fund will issue to the Terminating Fund securities of the Continuing Fund having an aggregate net asset value equal to the value of the assets transferred to the Continuing Fund.

(i) Immediately thereafter, securities of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund in exchange for their securities in the Terminating Fund on a dollar-for-dollar and class-by-class basis. Each Terminating Fund and each Continuing Fund only have, or will have, Class E -- ETF Units outstanding. Therefore, unitholders of each Terminating Fund will receive Class E -- ETF Units of their corresponding Continuing Fund.

(j) The Terminating Fund will be wound-up as soon as practicable and, in any case, within 30 days following the Merger.

Benefits of the Mergers

33. The Filer believes that the Mergers will be beneficial to unitholders of the Funds for the following reasons:

(a) The management fees of each Continuing Fund will be lower than those of the corresponding Terminating Fund. The Mergers therefore have the potential to lower costs for unitholders.

(b) In addition, with certain Mergers the operating costs and expenses of the Continuing Fund will be spread over a greater pool of assets when certain Terminating Funds merge into their Continuing Fund, potentially resulting in a lower management expense ratio for the Continuing Fund than may occur otherwise.

(c) Although the investment objectives of a Terminating Fund may not be substantially similar to its corresponding Continuing Fund, Hamilton ETFs submits that each Terminating Fund has a similar investment mandate as its corresponding Continuing Fund. As a result, certain Mergers will contribute towards reducing duplication and redundancy across the Hamilton ETFs fund line-up and may potentially reduce the administrative and regulatory operating costs and expenses associated with the Terminating Funds.

(d) Certain Mergers will involve an actively managed Terminating Fund merging into a Continuing Fund which will meet its investment objective by attempting to replicate an index. In such cases, the association with the Continuing Fund's global index provider, Solactive AG, may provide additional reputational strength to the Continuing Fund and may therefore also lead to an increase in assets; an increase which might not otherwise occur. As well, the associated indices will provide unitholders with access to additional performance history of the strategy, thereby providing greater transparency of returns.

(e) In the case of the Continuing Funds that will be actively managed, the investable universe has been widened, giving each Continuing Fund access to additional investment opportunities, increased liquidity and greater flexibility when making investment decisions.

(f) Each Continuing Fund will have an asset base of greater size, potentially allowing for increased portfolio diversification opportunities and a smaller proportion of assets set aside to fund redemptions. The ability to improve diversification may lead to increased returns and a reduction of risk, while at the same time creating a higher profile that may attract more investors.

(g) With respect to certain Mergers, the applicable Continuing Fund is expected to attract more assets as marketing efforts will be concentrated on a single fund, rather than multiple funds with similar investment mandates. The ability to attract assets to a Continuing Fund will benefit investors by ensuring that the Continuing Fund is a viable, long-term, attractive investment vehicle for existing and potential investors.

Taxable Mergers

34. As noted, each Merger will be effected on a taxable basis. Based on available information: (i) each Terminating Fund is expected to realize a net capital loss as a result of the Mergers; and (ii) the Filer expects that the majority of unitholders of the Terminating Funds will recognize a capital loss. Such information was also disclosed in the Circular.

35. The Filer has determined that it would not be appropriate to effect the Mergers as a "qualifying exchange" because, for investors that hold their units of a Terminating Fund outside of a registered plan and are in a capital loss position, triggering such capital loss can be beneficial as such capital losses can be used to offset any capital gains realized in the same year or any of the previous three years, and thus immediately reduce their tax liability.

Decision

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

The decision of the Decision Maker under the Legislation is that the Approval Sought is granted provided the Filer obtains the prior approval of unitholders of a Terminating Fund for its Merger prior to the Effective Date.

"Darren McKall"

Investment Funds & Structured Products Branch

Ontario Securities Commission

SCHEDULE "A"