Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemptive relief from seed capital requirement, investment risk classification methodology requirement, and prospectus, fund facts and sales communication disclosure requirements to permit a continuing fund to use certain disclosure of a terminating fund, and to calculate investment risk level using performance history of terminating fund – National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1 and 6.1.
National Instrument 81-102 Investment Funds, ss. 3.1, 15.3(2), 15.6(1)(a)(i)(A), 15.6(1)(b), 15.6(1)(d)(i), 15.8(2)(a) and 15.8(3)(a), 15.9(2), 15.1.1 and 19.1.

Citation: Re Canoe Financial LP, 2019 ABASC 124

August 6, 2019

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
(THE JURISDICTIONS)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
CANOE FINANCIAL LP
(THE FILER)

AND

CANOE CANADIAN SMALL MID CAP FUND (THE TERMINATING FUND),
CANOE CANADIAN SMALL MID CAP PORTFOLIO CLASS
(THE CONTINUING FUND, AND TOGETHER WITH THE TERMINATING FUND, THE 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 Funds for a decision under the securities legislation of the Jurisdictions (the Legislation) granting an exemption from:

(a)           section 3.1 of National Instrument 81-102 Investment Funds (NI 81-102) to permit the filing of a simplified prospectus for the Continuing Fund (the Simplified Prospectus), notwithstanding that the initial investment required in respect of the Continuing Fund (the Seed Capital Requirement) will not be provided (the Seed Capital Relief);

(b)           section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the exemption sought from Form 81‑101F1 Contents of Simplified Prospectus (Form 81-101F1) and for the purposes of the exemption sought from Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3);

(i)            Item 5(b) of Part B of Form 81-101F1 to permit the Continuing Fund to disclose the series start dates of the Terminating Fund as its series start dates in the Simplified Prospectus;

(ii)           Item 9.1(b) of Part B of Form 81-101F1 to permit the Continuing Fund to use the performance history of the Terminating Fund to calculate its investment risk rating in the Simplified Prospectus;

(iii)           Item 13.2 of Part B of Form 81-101F1 to permit the Continuing Fund to use the financial data of the Terminating Fund in making the calculation required under the subheading “Fund Expenses Indirectly Borne by Investors” in the Simplified Prospectus;

(iv)          Item 2 of Part I of Form 81-101F3 to permit the Continuing Fund to use the start date of each series of the Terminating Fund in the “Date series started” box of the Quick Facts table in the fund facts documents of each series of the Continuing Fund (the Fund Facts Documents);

(v)           Item 3 of Part I of Form 81-101F3 to permit the Continuing Fund to show the investments of the Terminating Fund in the “Top 10 investments” and “Investment mix” tables in the Continuing Fund's initial Fund Facts Documents;

(vi)          Item 4 of Part I of Form 81-101F3 to permit the Continuing Fund to use the performance history of the Terminating Fund to calculate its investment risk rating in the Fund Facts Documents;

(vii)         Item 5 of Part I of Form 81-101F3 to permit the Continuing Fund to use the performance data of the Terminating Fund in the “Average return”, “Year-by-year returns” and “Best and worst 3-month returns” sections in the Fund Facts Documents; and

(viii)         Item 1.3 of Part II of Form 81-101F3 to permit the Continuing Fund to use the management expense ratio (the MER), trading expense ratio (the TER) and fund expenses of the Terminating Fund in the “Fund expenses” section of the Fund Facts Documents;

(c)           sections 15.3(2), 15.6(1)(a)(i)(A), 15.6(1)(b), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2) of NI 81-102 to permit the Continuing Fund to use the performance data of the Terminating Fund in sales communications and reports to securityholders of the Continuing Fund (collectively, the Fund Communications); and

(d)           section 15.1.1 of NI 81-102 to permit the Continuing Fund to calculate its investment risk level using the performance history of the Terminating Fund (together with paragraphs (b) and (c) above, the Past Performance Relief, and together with the Seed Capital Relief, the Exemption Sought).

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

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

(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 each of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon; and

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

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:

The Filer and the Funds

1.             The Filer is a limited partnership established under the laws of Alberta. The general partner of the Filer is Canoe Financial Corp., a corporation incorporated under the laws of Alberta. The Filer's head office is located in Calgary, Alberta.

2.             The Filer is registered as an investment fund manager in Alberta, Ontario, Québec and Newfoundland and Labrador, a portfolio manager in Alberta, Ontario and Québec and an exempt market dealer in each jurisdiction of Canada. The Filer is also registered as a derivatives portfolio manager in Québec.

3.             The Filer is the investment fund manager of the Terminating Fund and will be the investment fund manager of the Continuing Fund once it is created.

4.             The Terminating Fund is an open-ended mutual fund trust governed by a master declaration of trust under the laws of Alberta. The Continuing Fund will form part of Canoe's portfolio class structure, and will consist of: (i) an investment in Canoe Canadian Small Mid Cap Class, being a share class of an open-ended mutual fund corporation called Canoe 'GO CANADA!' Fund Corp.; and (ii) units of Canoe Trust Fund.

5.             Securities of the Terminating Fund are qualified for sale in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia and Yukon under an amended and restated simplified prospectus, annual information form and fund facts documents, each dated March 1, 2019, prepared in accordance with the requirements of NI 81-101.

6.             The Terminating Fund is a reporting issuer under the applicable securities legislation of each jurisdiction of Canada, is subject to NI 81-102 and has been a reporting issuer for more than 12 months.

7.             The Filer has filed a preliminary simplified prospectus, annual information form and fund facts documents each dated June 20, 2019, with respect to the Continuing Fund. The Filer will not begin distributing securities of the Continuing Fund prior to the Merger (as defined below).

8.             The Continuing Fund is expected to be a reporting issuer under the applicable securities legislation of each jurisdiction of Canada and is expected to be subject to NI 81-102.

9.             Neither the Filer nor the Funds are in default of securities legislation in any jurisdiction in Canada.

10.          The Terminating Fund follows, and the Continuing Fund will follow, the standard investment restrictions and practices established under NI 81-102, except pursuant to the terms of any exemption that has been previously obtained.

The Merger

11.          The Filer proposes to merge the Terminating Fund into the Continuing Fund (the Merger) on or about August 12, 2019 and no later than December 31, 2019 (the Merger Date).

12.          Information regarding net assets (as of May 28, 2019), series offered and series start dates for the Terminating Fund are as follows:

Net assets

Series currently offered by the Terminating Fund

Date first offered for sale

Equivalent series to be offered by the Continuing Fund

$225,977,932

Series A

April 30, 2009

Series A

Series D

November 22, 1985

Series D

Series F

August 26, 2011

Series F

Series FV1

September 22, 2014

Series FV 2

Series OX

July 13, 2001

Series O

13.          The Terminating Fund will be terminated on or about the Merger Date and will be wound up as soon as reasonably possible following the Merger Date, and in any event, no later than 60 days following the Merger Date.

14.          The Continuing Fund is being created for the purpose of implementing the Merger, and therefore:

 
(a)           the securityholders of the Terminating Fund will have rights as securityholders of the Continuing Fund that are substantially similar in all material respects to the rights they had as securityholders of the Terminating Fund;

(b)           the securityholders of the Terminating Fund will hold securities of the equivalent series of the Continuing Fund with the same aggregate net asset value as they held before as securityholders of the Terminating Fund;

(c)           the Continuing Fund will have an investment objective and investment strategies that are identical to the investment objective and investment strategies of the Terminating Fund;

(d)           the portfolio manager and sub-advisor of the Terminating Fund are the Filer and Fiera Capital Corporation (Fiera Capital), respectively, and the Filer and Fiera Capital will also be the portfolio manager and sub-advisor, respectively, of the Continuing Fund;

(e)           the Continuing Fund will have valuation procedures that are identical to the valuation procedures of the Terminating Fund; and

(f)            the management fees attached to each series of the Continuing Fund will be the same as the management fees for each corresponding series of the Terminating Fund. However, the Terminating Fund uses a floating expense model whereas the Continuing Fund will have a fixed administration fee plus certain fund costs that are chargeable to the Continuing Fund. Notwithstanding the difference in expense structures, the Filer believes that the MER of the Continuing Fund will be similar to the most recent MER of the Terminating Fund.

15.          As a result, notwithstanding the Merger, the Continuing Fund will be managed in a manner which is substantially similar in all material respects to the manner in which the Terminating Fund has been managed.

Seed Capital Relief

16.          The Filer does not intend to subscribe for $150,000 of securities of the Continuing Fund as required by the Seed Capital Requirement because the assets of the Terminating Fund (which will become the assets of the Continuing Fund in connection with the implementation of the Merger) are significantly in excess of the $150,000 Seed Capital Requirement. Accordingly, the Filer is of the view that any seed capital injected into the Continuing Fund prior to the Merger will not provide any additional benefit to securityholders.

17.          On the Merger Date, securityholders of the Continuing Fund will hold securities of the Continuing Fund equal to the same net asset value as they did before as securityholders of the Terminating Fund, and therefore, the Continuing Fund will have already received subscriptions which, as of May 28, 2019, total approximately $225 million.

Past Performance Relief

18.          Subject to receipt of the Seed Capital Relief, the Continuing Fund will not have any assets (other than a nominal amount to establish the Continuing Fund) or liabilities at the time of the Merger.

19.          The assets of the Terminating Fund will be transferred to the Continuing Fund in connection with the implementation of the Merger.

20.          As the Filer intends to cease distribution of units of the Terminating Fund at the close of business on the business day prior to the Merger Date, it does not intend to renew the Terminating Fund's simplified prospectus and annual information form after their lapse date.

21.          The Continuing Fund will be a new fund. While the Continuing Fund will have the same assets and liabilities as the Terminating Fund, as a new fund, it will not have its own financial data and performance history (collectively, the Financial Data) as at the Merger Date.

22.          The Financial Data of the Terminating Fund is significant information which can assist investors in determining whether to purchase securities of the Continuing Fund. In the absence of the Past Performance Relief, investors will have no financial or performance information (such as past performance) on which to base such an investment decision.

23.          The Filer proposes to:

(a)           disclose the series start dates of the Terminating Fund as the series start dates of the Continuing Fund in:

(i)            the “Fund Details” table in Part B of the Simplified Prospectus; and

(ii)           under the subheading “Date series started” under the heading “Quick Facts” in the Fund Facts Documents;

(b)           use the performance data of the Terminating Fund to calculate the risk rating of the Continuing Fund in the:

(i)            Simplified Prospectus; and

(ii)           Fund Facts Documents;

(c)           use the performance data of the Terminating Fund in the:

(i)            Fund Communications; and

(ii)           the “Average return”, “Year-by-year returns” and “Best and worst 3-month returns” subsections of the Fund Facts Documents;

(d)           use the MER of the Terminating Fund in making the calculation required under the subheading “Fund Expenses Indirectly Borne by Investors” in Part B of the Simplified Prospectus;

(e)           show the investments of the Terminating Fund in the “Top 10 investments” and “Investment mix” tables in the initial Fund Facts Documents;

(f)            use the MER, TER and fund expenses of the Terminating Fund in the “Fund expenses” section of the Fund Facts Documents; and

(g)           incorporate by reference into the Simplified Prospectus the most recent annual financial statements and management reports of fund performance (MRFPs) of the Terminating Fund for the period ended March 31, 2019, and the most recent interim financial statements and MRFP of the Terminating Fund for the period ended September 30, 2018 (collectively, the Terminating Fund Disclosure), until such Terminating Fund Disclosure is superseded by more current financial statements and MRFPs of the Continuing Fund.

24.          The Filer is seeking to make the Merger as seamless as possible for investors of the Terminating Fund. Accordingly, the Filer submits that treating the Continuing Fund as fungible with the Terminating Fund for the purposes of the start dates, investment holdings and Financial Data would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the difference between the Terminating Fund and the Continuing Fund.

25.          The Filer submits that investors will not be misled if the start dates, investment holdings and Financial Data of the Continuing Fund reflect the start dates, investment holdings and Financial Data of the Terminating Fund.

26.          The Filer has filed a separate application for exemptive relief from certain provisions of National Instrument 81-106 Investment Fund Continuous Disclosure to permit the Continuing Fund to prepare annual and interim MRFPs using the Terminating Fund's financial highlights and past performance (the NI 81-106 Relief).

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.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that, in respect of the Past Performance Relief:

(a)           the Fund Communications include the applicable performance data of the Terminating Fund prepared in accordance with Part 15 of NI 81-102;

(b)           the Simplified Prospectus:

(i)            incorporates by reference the Terminating Fund Disclosure, until such Terminating Fund Disclosure is superseded by more current financial statements and MRFPs of the Continuing Fund;

(ii)           states that the start date for each series of the Continuing Fund is the start date of the corresponding series of the Terminating Fund; and

(iii)           discloses the Merger where the start date for each series of the Continuing Fund is stated;

(c)           the Fund Facts Document of each series of the Continuing Fund:

(i)            states that the “Date series started” date is the “Date series started” date of the corresponding series of the Terminating Fund;

(ii)           includes the performance data of the Terminating Fund prepared in accordance with Part 15 of NI 81-102; and

(iii)           discloses the Merger where the “Date series started” date is stated; and

(d)           the Continuing Fund prepares its MRFPs in accordance with the NI 81-106 Relief.

For the Commission:

“Tom Cotter”
Vice-Chair

“Kari Horn”
Vice-Chair

1       Not available for purchase.

2       This series will be created solely to facilitate the Merger and will not be available for purchase following the Merger.