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 mutual funds to include in annual and interim management reports of fund performance the financial highlights and past performance of the funds that are derived from the funds' annual financial statements that pertain to time periods when the funds were not a reporting issuer.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.4, 17.1.
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 Contents of Annual and Interim Management Report of Fund Performance.
April 24, 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 LYSANDER FUNDS LIMITED (the Filer) AND IN THE MATTER OF LYSANDER-CANSO CREDIT OPPORTUNITIES FUND (LCCOF)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of LCCOF for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting LCCOF from:
(a) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1); and
(b) Items 3.1(7) and 4.1(1) in respect of the requirement to comply with section 15.3(2) of NI 81-102, 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 LCCOF to include, in its annual and interim management reports of fund performance (MRFPs), past performance data notwithstanding that such performance data relates to a period prior to LCCOF offering its securities under a simplified prospectus,
(collectively, the Exemption Sought).
Under the process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).
In this decision: Short Selling Relief means the relief granted by the principal regulator to LCCOF from the following provisions of National Instrument 81-102 Investment Funds (NI 81-102) in order to permit LCCOF to short sell "government securities" (as defined in NI 81-102) up to a maximum of 300% of LCCOF's net asset value (NAV):
(a) subparagraph 2.6.1(1)(c)(v) of NI 81-102, which restricts LCCOF from selling a security short if, at the time, the aggregate market value of the securities sold short by LCCOF exceeds 50% of LCCOF's NAV; and
(b) section 2.6.2 of NI 81-102, which states that LCCOF may not borrow cash or sell securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the Short Selling Fund would exceed 50% of LCCOF's NAV.
In addition, unless expressly defined herein, terms in this decision have the respective meanings given to them in MI 11-102, National Instrument 15-101 Definitions, NI 81-102 and NI 81-106.
The decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the Business Corporations Act (Ontario) with its head office located in Toronto, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador and as an exempt market dealer in Ontario.
3. The Filer is the trustee and investment fund manager of LCCOF.
4. LCCOF is an alternative mutual fund established under the laws of Ontario that will operate under the provisions of NI 81-102 applicable to alternative mutual funds.
5. The Filer is not in default of securities legislation in any of the Jurisdictions.
6. The Filer expects that securities of LCCOF will be qualified for distribution in some or all of the Jurisdictions pursuant to a simplified prospectus, annual information form and fund facts prepared and filed in accordance with NI 81-101. LCCOF will be governed by NI 81-102 and NI 81-106, subject to any relief granted therefrom by the Canadian securities regulatory authorities.
7. The investment objective of LCCOF is to seek to achieve long term capital growth through a diversified portfolio composed primarily of debt and money market securities. LCCOF will use alternative investment strategies such as engaging in short sales and purchasing securities on margin or with borrowed funds.
8. LCCOF seeks to achieve its investment objective by investing in or obtaining exposure to primarily corporate bonds of Canadian and foreign issuers.
9. LCCOF is an open-ended mutual fund trust created under the laws of Ontario on August 14, 2008. LCCOF currently has Series C and Series F units issued and outstanding. Units of LCCOF were first issued on December 19, 2008. Subsequently and prior to any Series F units being issued, all units of LCCOF that were then issued and outstanding were redesignated as Series C units. Accordingly, the inception date for Series C units (which is also the inception date of LCCOF) is December 19, 2008 (LCCOF Inception Date). The inception date for Series F units is March 31, 2014.
10. Since the respective inception date of each series of LCCOF, units of each series of LCCOF have only been distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) in the Jurisdictions in which units of LCCOF have been distributed.
11. Series C is charged a management fee at a rate of 0.50% per annum.
12. Series F is charged a management fee at a rate of 1.00% per annum. Series F is also subject to a performance fee (the Series F Performance Fee).
13. The Filer intends to qualify for distribution under a prospectus Series A and Series F units of LCCOF, but not Series C. Series A units will be a new series with a start date approximately the same as the date of the final prospectus.
14. Since the LCCOF Inception Date, LCCOF has prepared annual and interim financial statements in accordance with NI 81-106.
15. Since the LCCOF Inception Date, LCCOF has not deviated from the investment restrictions contained in NI 81-102, other than: (i) the short selling of government securities, which is done in accordance with the requested Short Selling Relief; and (ii) from time to time, where there was temporary cash borrowing, which did not exceed a period of 30 days.
16. LCCOF will be managed substantially similarly after it becomes a reporting issuer as it was prior to becoming a reporting issuer. As a result of LCCOF becoming a reporting issuer:
(a) LCCOF's investment objectives will not change, other than to provide additional detail as required by NI 81-101;
(b) The management fee charged to LCCOF in respect of Series F units will decrease from 1.00% to 0.75%;
(c) The day-to-day administration of LCCOF will not change, other than to comply with the additional regulatory requirements associated with being a reporting issuer (none of which will impact the portfolio management of LCCOF); and
(d) The management expense ratio of Series F units of LCCOF (excluding performance fees) is not expected to increase by more than 0.10%, which is an immaterial amount.
17. The Filer proposes to present the performance data of Series F units of LCCOF for the time period since the LCCOF Inception Date in sales communications. For the period from the LCCOF Inception Date to March 30, 2014 (i.e., the period during which LCCOF only had Series C units issued and outstanding but before any Series F units were issued), the performance data of Series F presented would be data generated by doing the following:
(a) Using the performance data of Series C, first "undo" the Series C management fee;
(b) Expenses would be left un-touched;
(c) Apply the Series F management fee (at the rate of 1.00%) and Series F Performance Fee to the data.
18. As a reporting issuer, LCCOF will be required under NI 81-106 to prepare, file and send MRFPs.
19. Absent the Exemption Sought, the MRFPs of LCCOF cannot include financial highlights and performance data of LCCOF that relate to a period prior to it becoming a reporting issuer.
20. The performance data and other financial data of LCCOF for the time period before it became a reporting issuer is significant and meaningful information for existing and prospective investors in making an informed decision on whether to purchase units of LCCOF.
21. In the absence of the Exemption Sought, investors in LCCOF following LCCOF becoming a reporting issuer will have no information about LCCOF's past performance or financial highlights on which to base their investment 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 Exemption Sought is granted provided that:
(a) any MRFP that includes performance data of LCCOF relating to a period prior to when LCCOF was a reporting issuer discloses:
(i) that LCCOF was not a reporting issuer during such period;
(ii) that the expenses of LCCOF would have been higher during such period had LCCOF been subject to the additional regulatory requirements applicable to a reporting issuer;
(iii) that the financial statements of LCCOF for such period are posted on LCCOF's website and are available to investors upon request;
(iv) performance data of LCCOF for 10, 5, 3 and one year periods; and
(b) the Filer posts the financial statements of LCCOF for the past 10 years on LCCOF's website and makes those financial statements available to investors upon request.