Securities Law & Instruments

Headnote

 

National Policy 11-203 – relief granted from sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of National Instrument 81-102 Investment Funds to permit a mutual fund, that has not distributed securities under a simplified prospectus in a jurisdiction for 12 consecutive months, to include in their sales communications performance data for the period when the fund was not a reporting issuer – relief also granted from section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure for the purposes of the relief requested from Item 5 of Part I of Form 81-101F3 Contents of Fund Facts Document, to permit the mutual fund to include in its fund facts for certain series, the past performance data for the period when the fund was not a reporting issuer.

 

National Policy 11-203 – relief granted from section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure for the purposes of the relief requested from Form 81-106F1, Items 3.1(7), 4.1(1), 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1, and Items 3(1) and 4 of Part C of Form 81-106F1, to permit a mutual fund that has not distributed securities under a simplified prospectus in a jurisdiction for 12 consecutive months, to include in annual and interim management reports of fund performance the financial highlights and past performance of the fund that are derived from the fund’s annual financial statements that pertain to time periods when the fund was not a reporting issuer.

 

Applicable Legislative Provisions

 

National Instrument 81-102 Mutual Funds, ss. 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1), 15.8(3)(a.1), 19.1.

National Instrument 81-101 Investment Fund Prospectus Disclosure, s. 2.1.

National Instrument 81-106 Mutual Fund Continuous Disclosure, ss. 4.4 and 17.1.

Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance, Part B, Items 3.1(7), 4.1(1), 4.1(2), 4.2(1), 4.3(1) and 4.3(2).

Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance, Part C, Items 3(1) and 4.

Form 81-101F3 Contents of Fund Facts Document, Part I, Item 5.

 

August 3, 2017

 

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

CALDWELL INVESTMENT MANAGEMENT LTD.

(the Filer)

 

AND

 

IN THE MATTER OF

CALDWELL CANADIAN VALUE MOMENTUM FUND

(the Fund)

 

DECISION

 

Background

 

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Series O units, Series F units and Series I units of the Fund (each, a Series of Units and collectively, the Units) from:

 

(a)           Sections 15.3(2), 15.6(1)(a)(i) and 15.6(1)(d) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Fund to include performance data in sales communications notwithstanding that:

 

(i)            the performance data will relate to a period prior to the Fund offering its securities under a simplified prospectus; and

 

(ii)           the Fund has not distributed its securities under a simplified prospectus for 12 consecutive months,

 

(b)           Section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of relief requested herein from Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3); and

 

(c)           Items 5(2), 5(3) and 5(4), and Instructions (1) and (5) of Part I of Form 81-101F3 in respect of the requirement to comply with sections 15.3(2), 15.6(1)(a)(i) and 15.6(1)(d) of NI 81-102 to permit the Fund to include in its fund facts the past performance data of the Fund notwithstanding that:

 

(i)            such performance data relates to a period prior to the Fund offering its securities under a simplified prospectus; and

 

(ii)           the Fund has not distributed its securities under a simplified prospectus for 12 consecutive months,

 

(collectively, the Requested Relief).

 

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

 

(a)           the Ontario Securities Commission is the principal regulator for the 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, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut.

 

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.

 

Representations

 

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

 

1.             The Fund is an open-end unit trust established under the laws of the Province of Ontario and governed pursuant to an Amended and Restated Declaration of Trust dated as of March 28, 2014 (the Inception Date).

 

2.             The Filer is the investment fund manager and the trustee of the Fund. The head office of the Filer is located in Toronto, Ontario.

 

3.             The Filer is registered as a portfolio manager and investment fund manager in Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan.

 

4.             Since the Inception Date, the Fund was distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) in all provinces and territories of Canada, except for Quebec (collectively, the Jurisdictions).

 

5.             A simplified prospectus, annual information form and fund facts (the Disclosure Documents) has been filed to permit the Fund to distribute Series O Units, Series F Units and Series I Units to the public and become a reporting issuer under the securities legislation of each province and territory of Canada, other than Québec. Upon the issuance of the receipt for the Disclosure Documents, the Fund becomes subject to the requirements of NI 81-102 and National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that apply only to investment funds that are reporting issuers.

 

6.             The Filer and the Fund are not in default of securities legislation in any province or territory of Canada.

 

7.             Since its Inception Date, as a "mutual fund in Ontario", the Fund has prepared and sent audited annual and unaudited interim financial statements to all holders of its securities in accordance with NI 81-106.

 

8.             Since its Inception Date, the Fund has complied with the investment restrictions and practices contained in NI 81-102, including not using leverage in the management of its portfolio.

 

9.             The Fund will be managed substantially similarly as it was prior to becoming a reporting issuer. As a result of the Fund becoming a reporting issuer:

 

i.              the Fund's investment objectives have not changed;

 

ii.             the fee structure of Fund Units has not changed;

 

iii.            the day-to-day administration of the Fund has not changed, other than to comply with the additional regulatory requirements associated with being a reporting issuer (none of which would have impacted the portfolio management of the Fund) and to provide additional features, such as a monthly investment plan, that are available to investors of the mutual funds managed by the Filer, as described in the Disclosure Documents; and

 

iv.            the management expense ratio of the Units of the Fund has not increased by more than 0.10% for any Series of Units, which the Filer considers an immaterial amount.

 

10.          The Filer proposes to present the performance data of each Series of Units of the Fund for the time periods since their respective inception in sales communications pertaining to the Fund.

 

11.          Without the Requested Relief, the sales communications pertaining to the Fund cannot include performance data of the Fund that relate to a period prior to its becoming a reporting issuer.

 

12.          Without the Requested Relief, sales communications pertaining to the Fund would not be permitted to include performance data until the Fund has distributed securities under a simplified prospectus in a jurisdiction for 12 consecutive months.

 

13.          As a reporting issuer, the Fund will be required under NI 81-101 to prepare and file fund facts.

 

14.          The Filer proposes to include in the fund facts for each Series of Units of the Fund, past performance data in the chart required by items 5(2), 5(3) and 5(4) under the sub-headings "Year-by-year returns", "Best and worst 3-month returns" and "Average return", respectively, related to periods prior to the Fund becoming a reporting issuer in a Jurisdiction. Without the Requested Relief, the fund facts of the Fund cannot include performance data of the Fund that relate to a period prior to its becoming a reporting issuer.

 

15.          As a reporting issuer, the Fund will be required under NI 81-106 to prepare and send annual and interim management reports of fund performance (individually, an MRFP and collectively, the MRFPs) to all holders of its securities on an annual and interim basis.

 

16.          The Filer has filed a separate application for exemptive relief from certain provisions of NI 81-106 (the NI 81-106 Relief) to enable the Fund to include in its MRFPs the performance data of each Series of Units of the Fund that relate to a period prior to its becoming a reporting issuer.

 

17.          The performance data of the Fund for the time period before it became a reporting issuer is significant and meaningful information for existing and prospective investors of each Series of Units of the Fund.

 

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 Requested Relief is granted provided that:

 

(a)           any sales communication and any fund facts that contains performance data of a Series of Units of the Fund relating to a period prior to when the Fund was a reporting issuer:

 

(i)            discloses that the Fund was not a reporting issuer during such period;

 

(ii)           discloses that the expenses of the Fund would have been higher during such period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer; and

 

(iii)          discloses performance data of the Series of Units of the Fund as applicable for 10, 5, 3 and one year periods as well as since its inception, until the since inception data includes a 10 year period.

 

(b)           the information contained under the heading "Fund Expenses Indirectly Borne by Investors" in Part B of the simplified prospectus of the Fund based on the management expense ratio (MER) for each Series of Units of the Fund for the financial year ended December 31, 2016 and December 31, 2017 be accompanied by disclosure that:

 

(i)            in the case of MER for the financial year ended December 31, 2016, the information is based on the MER of the Fund for its last completed financial year when the Series of Units was offered privately;

 

(ii)           in the case of MER for the financial year ended December 31, 2017, the information is based on the MER of the Fund for its last completed financial year when the Series of Units was offered privately during a period of time in such financial year; and

 

(iii)          the MER of the Fund may increase as a result of the Fund offering the Series of Units under the simplified prospectus; and

 

(c)           the Fund prepare its MRFPs in accordance with the NI 81-106 Relief.

 

“Darren McKall”

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission