Arrow Capital Management Inc. (Re), 2021 CanLII 123983

November 23, 2021

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

and

IN THE MATTER OF ARROW CAPITAL MANAGEMENT INC. (the Filer)

and

(AGOC)

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of AGOC, of which the Filer is the investment fund manager, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that exempts AGOC from:

(a) section 4.4 of National Instrument 81-106 - Investment Fund Continuous Disclosures (NI-81-106) from Form 81-106F1 - Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1);

(b) items 3.1(7) and 4.1(1) of Part B 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 AGOC to include, in its annual and interim management reports of fund performance (MRFPs), past performance data notwithstanding that such data relates to a period prior to AGOC offering its securities under a simplified prospectus;

(c) 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 AGOC to include performance data in sales communications notwithstanding that such performance data relates to a period prior to AGOC offering its securities under a simplified prospectus; and AGOC has not distributed its securities under a simplified prospectus for 12 consecutive months;

(d) 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);

(e) 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 AGOC to include in its fund facts the past performance data of AGOC notwithstanding that such performance data relates to a period prior to AGOC offering its securities under a simplified prospectus; and AGOC has not distributed its securities under a simplified prospectus for 12 consecutive months;

(collectively, the Performance Data 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 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 (collectively, the Other Jurisdictions) (together with the Jurisdiction, the Canadian Jurisdictions).

Interpretation

Terms defined in NI 81-102, National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

AIF means an annual information form of a Fund prepared in accordance with Form 81-101 F2 – Contents of Annual Information Form under NI 81-101, as the same may be amended from time to time;

Alternative Fund means a fund that is an “alternative mutual fund” under NI 81-102;

NAV means “net asset value”;

Prospectus means a simplified prospectus of a Fund prepared in accordance with Form 81-101 F1 – Contents of Simplified Prospectus under NI 81-101 as the same may be amended from time to time;

Representations

This decision is based on the following facts represented by the Filer on behalf of itself and the Fund:

The Filer

1. The Filer is a corporation existing under the laws of Ontario having its registered head office in Toronto, Ontario.

2. The Filer is the investment fund manager and portfolio manager of the Fund.

3. The Filer is registered in the following categories in the Canadian Jurisdictions as indicated below:

(a) Ontario: Portfolio Manager (PM), Investment Fund Manager (IFM); Exempt Market Dealer (EMD) and Commodity Trading Manager under the Commodity Futures Act (Ontario);

(b) Alberta: EMD;

(c) British Columbia: EMD;

(d) Quebec: EMD and IFM; and

(e) Newfoundland and Labrador: IFM.

4. The Filer is not in default of securities legislation in any of the Canadian Jurisdictions.

AGOC

5. AGOC will be an open-ended public Alternative Fund governed by NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities.

6. AGOC is organized as part of a mutual fund corporation established under the laws of the Province of Ontario.

7. AGOC will distribute securities in each of the Canadian Jurisdictions pursuant to a Prospectus, AIF and fund facts documents, prepared and filed in accordance with NI 81-101 and accordingly, the Fund, is, or will be, a reporting issuer in the Canadian Jurisdictions where the Performance Data Relief is relied upon.

8. AGOC is not in default of applicable securities legislation in any of the Canadian Jurisdictions.

9. AGOC, a class of shares of a mutual fund corporation, was established on June 15, 2020. AGOC currently has Series A, F and I shares issued and outstanding. Series A, F and I Shares of AGOC were first issued on June 30, 2020.

10. The investment objective of AGOC is to achieve superior capital appreciation over both short and long term horizons primarily through the selection and management of long and short positions in global equity securities and equity derivative securities.

11. Since the inception of each series of AGOC, shares of each series of AGOC 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 Canadian Jurisdictions.

Exemption Sought

12. The Filer intends to qualify for distribution under a prospectus each of the series of shares of AGOC.

13. Since inception, AGOC has prepared annual and interim financial statements in accordance with NI 81-106.

14. Since inception, AGOC has not deviated from the investment restrictions contained in NI 81-102 for Alternative Funds, which are described in the offering memorandum of AGOC.

15. AGOC will be managed substantially similarly after it becomes a reporting issuer as it was prior to becoming a reporting issuer. As a result of AGOC becoming a reporting issuer:

(a) AGOC’s investment objectives will not change, other than to provide additional detail as required by NI 81-101;

(b) The management fee charged to AGOC by the Filer will not change;

(c) The day-to-day administration of AGOC 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 AGOC); and

(d) The management expense ratios of each of the series of shares of AGOC (excluding performance fees) are not expected to increase by a material amount.

16. The Filer proposes to present the performance data of each of the series of shares of AGOC for the time period since the inception of AGOC in sales communications.

17. Without the Performance Data Relief, sales communications pertaining to AGOC cannot include performance data of AGOC that relate to a period prior to it becoming a reporting issuer.

18. Without the Performance Data Relief, sales communications pertaining to AGOC would not be permitted to include performance data until AGOC has distributed securities under a simplified prospectus for 12 consecutive months.

19. As a reporting issuer, AGOC will be required under NI 81-101 to prepare and file Fund Facts for each series of shares offered.

21. Without the Performance Data Relief, the Fund Facts for each of the series of shares of AGOC cannot include performance data that relate to a period prior to AGOC becoming a reporting issuer.

22. As a reporting issuer, AGOC will be required under NI 81-106 to prepare, file and send MRFPs.

23. Without the Performance Data Relief, the MRFPs of AGOC cannot include financial highlights and performance data of AGOC that relate to a period prior to it becoming a reporting issuer.

24. The performance data and other financial data of AGOC 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 AGOC.

25. Without the Performance Data Relief, investors in AGOC following AGOC becoming a reporting issuer will have no information about AGOC’s past performance or financial highlights on which to base their investment decision.

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:

1. any sales communication, any MRFPs and any Fund Facts that contain performance data of AGOC relating to a period prior to when AGOC was a reporting issuer discloses:

(a) that AGOC was not a reporting issuer during such period;

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

(c) performance data of AGOC for 10, 5, 3 and one year periods, when applicable;

(d) that the financial statements of AGOC are posted on AGOC’s website and are available to investors upon request;

2. the information contained under the heading “Fund Expenses Indirectly Borne by Investors” in Part B of the simplified prospectus of AGOC based on the management expense ratio (MER) for AGOC for the financial year ended December 31, 2021 be accompanied by disclosure that:

(a) the information is based on the MER of AGOC for its last completed financial year when its shares were offered privately during part of such financial year;

(b) the MER of AGOC may increase as a result of AGOC offering its shares under the simplified prospectus; and

3. the Filer posts the financial statements of AGOC for the period ended December 31, 2020 and June 30, 2021 on AGOC’s website and makes those financial statements available to investors upon request.

“Darren McKall”

Darren McKall

Manager, Investment Funds & Structured Products Branch

Ontario Securities Commission

File #2021/0556

Sedar #: 3314519