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 VENATOR CAPITAL MANAGEMENT LTD. (the Filer) AND VENATOR INCOME FUND (the Fund)
February 7, 2020
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 regulator (the Legislation) exempting class A units (Class A Units) and class F units (Class F Units and, together with the Class A Units, the Units) of the Fund from:
(a) 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 (NI 81-102) to permit the Fund to include, with respect to the Units, performance data in sales communications notwithstanding that the performance data will relate to a period prior to the Fund offering its securities under a prospectus,
(b) Section 15.1.1(a) of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (Appendix F) to permit the Fund to include its past performance data in determining its investment risk level in accordance with Appendix F,
(c) Section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the relief requested herein from Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3),
(d) Item 5(2), 5(3) and 5(4), and Instructions (1) and (5) 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), to permit the Fund to include in its fund facts the past performance data of the Units of the Fund notwithstanding that such (i) performance data relates to a period prior to the Fund offering its securities under a prospectus, and (ii) the Fund has not distributed its securities under a prospectus for 12 months, and
(e) Section 15.1.1(b) of NI 81-102 and Item 4(2)(a) and Instruction (1) of Item 4 of Form 81-101F3 to permit the Fund to disclose its investment risk level as determined by including its past performance data in accordance with Appendix F,
(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 section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer in each of the provinces and territories of Canada (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.
Representations
This decision is based on the following facts represented by the Filer:
The Fund is an open-ended mutual fund trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated July 30, 2008 (the Inception Date), as amended and restated as at February 21, 2013 and January 23, 2020 (the Declaration of Trust).
The Filer is a corporation incorporated under the laws of the Province of Ontario with its head office located in Toronto, Ontario.
The Filer is the trustee, investment fund manager, promoter and portfolio manager of the Fund.
The Filer is registered under securities legislation in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer. The Filer is registered under securities legislation in Newfoundland and Labrador, Ontario and Quebec as an investment fund manager.
Since the Inception Date until the date of the receipt issued for the Fund’s simplified prospectus, dated January 23, 2020 (the Prospectus) filed pursuant to National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), the Units were distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions in the Jurisdictions.
Upon the issuance of the receipt for the Prospectus, the Fund became a reporting issuer under the securities legislation of each province and territory of Canada and commenced distributing its securities to the public. In addition, the Fund became 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.
The Filer and the Fund are not in default of securities legislation in any of the Jurisdictions.
Since the Inception Date, the Fund, as a “mutual fund in Ontario”, has prepared and sent annual and interim financial statements to all holders of its securities in accordance with NI 81-106.
Since the Inception Date, the Fund has complied with the investment restrictions and practices contained in NI 81-102, in all material respects.
The management of the Fund has not changed materially since it became a reporting issuer and, in particular:
(a) the Fund’s investment objective has not changed, other than to provide additional detail as required by NI 81-101;
(b) the management fee charged to the Fund in respect of its existing classes of Units has not changed; and
(c) 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 that are available to investors of mutual funds managed by the Filer, as described in the Prospectus, annual information form and fund facts.
As a reporting issuer the Fund is required under NI 81-101 to prepare and file fund facts for each class of Units.
The Filer proposes to present the performance data of Units of the Fund for the time period since its Inception Date in sales communications and fund facts.
Without the Exemption Sought, the sales communications pertaining to the Fund cannot include performance data that relates to a period prior to its becoming a reporting issuer, and the Fund cannot provide performance data in its sales communications until it has distributed securities under a simplified prospectus for at least 12 months.
The Filer proposes to include in the fund facts for each class of Units, 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 Exemption Sought, the fund facts of the Fund cannot include performance data of the Fund that relate to a period prior to it becoming a reporting issuer.
The Filer proposes to use the Fund’s past performance data to determine its investment risk level and disclose it in the fund facts for each class of Units.
Without the Exemption Sought, the Filer, in determining and disclosing the Fund’s investment risk level in the fund facts for each class of Units, cannot use the Fund’s past performance data for any period prior to the Fund offering that class of Units to the public.
As a reporting issuer, the Fund is required under NI 81-106 to prepare and send annual and interim management reports of fund performance (individually, an MRFP and collectively, the MRFPs) in accordance with NI 81-106.
The Filer has filed in 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 the Units of the Fund since the Inception Date.
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 Units of the Fund and for use in determining the Fund’s risk level.
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 sales communications and any fund facts that contains performance data of the Units of the Fund relating to a period of time prior to when the Fund was a reporting issuer discloses:
(i) that the Fund was not a reporting issuer during such period; and
(ii) performance data of Units of the Fund as applicable for the 10, 5, 3 and one year periods; and
(b) the Fund prepares its MRFPs in accordance with the NI 81-106 Relief.
“Darren McKall”
Darren McKall
Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission
App. No. #2019/0637; Sedar No 3016706