VenGrowth II Capital Management Inc. and VenGrowth II Investment Fund Inc.
Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to mutual fund no longer in distribution from certain prospectus disclosure requirements in National Instrument 81-102 Mutual Funds in connection with fund mergers and changes of auditor -- Relief subject to conditions including that disclosure will be provided in fund's AIF instead.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.1, 5.3(2)(d), 5.3.1(b), 19.1.
National Instrument 81-107 Independent Review Committee for Investment Funds.
October 8, 2008
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
VENGROWTH II CAPITAL MANAGEMENT INC.
(the Fund Manager and the Filer)
AND
IN THE MATTER OF
VENGROWTH II INVESTMENT FUND INC.
(the Fund)
DECISION
Background
The principal regulator in the Jurisdiction has received an 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) for an exemption from the disclosure requirements contained in sections 5.3(2)(d) and 5.3.1(b) of National Instrument 81-102 Mutual Funds (NI 81-102) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) 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 in each of the other provinces and territories of Canada (the Other 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:
1. The Fund is a corporation incorporated under the laws of Canada by articles of incorporation dated October 18, 1999. The Fund is registered as a labour-sponsored investment fund corporation (LSIF Corporation) under Part II of the Community Small Business Investment Funds Act (Ontario) and as a labour-sponsored venture capital corporation as defined in the Income Tax Act (Canada). Its head office is in Toronto.
2. The Fund Manager is a corporation incorporated under the laws of Ontario by articles of incorporation dated September 3, 1999. Its head office is in Toronto.
3. The Fund's authorized capital consists of an unlimited number of Class A Shares and 25,000 Class B Shares.
4. All of the issued Class B Shares are owned by the Association of Canadian Financial Officers, the sponsor of the Fund.
5. The Class A Shares were distributed under a prospectus until November 2004 at which time the Fund was closed to new fund raising.
6. The Class A Shares are not listed on an exchange.
7. The Fund's strategy for meeting its investment objectives has been to invest the net proceeds raised from the Class A Shares in globally competitive small and medium sized businesses with proven and experienced management and strong track records. The Fund focuses on broadly diversified, predominantly later-stage venture companies and has a dominant focus on technology firms.
8. The strategy for meeting the Fund's investment objective is now being implemented by seeking to maximize the profitability of the existing portfolio companies and assisting them towards successful exits. To that end, the Fund may continue to provide follow on funding to existing portfolio companies in order to finance expansion.
9. The Fund will comply with the Canada Business Corporations Act in obtaining the requisite shareholder and committee approvals.
10. The Fund has an Independent Review Committee that complies with National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107).
11. Section 5.1 of NI 81-102 requires that securityholder approval must be obtained before specified fundamental changes are made to a mutual fund.
12. Paragraph 5.1(f) of NI 81-102 deals with a reorganization by a mutual fund with, or a transfer of assets by a mutual fund to another mutual fund, if the mutual fund ceases to continue after the transaction and the transaction results in securityholders of the mutual fund becoming securityholders of the other mutual fund.
13. Sub-section 5.3(2) of NI 81-102 provides that securityholder approval is not required in connection with a reorganization under paragraph 5.1(f) if certain conditions are met. The conditions include paragraph 5.3(2)(d) of NI 81-102 that requires the Fund's simplified prospectus to disclose that, although the approval of securityholders may not be obtained before making the change, security holders will be sent a written notice at least 60 days before the change.
14. The Fund may enter into a reorganization or sale of assets in the future to effect an orderly wind-down or disposition of assets.
15. Section 5.3.1 of NI 81-102 sets out the requirements for a mutual fund to change its auditor. Sub-section 5.3.1(b) requires that the Fund's simplified prospectus disclose that, although the approval of securityholders will not be obtained before making the change, security holders will be sent a written notice at least 60 days before the change.
16. The Fund may propose to change its auditor at the next annual general meeting of the Fund, which is expected to be held on or about January 26, 2009.
17. The Fund does not file a prospectus as it has ceased public distribution.
18. The Fund is required to file an Annual Information Form (AIF) under Part 9 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) on or before the 90th day after the end of the Fund's most recently completed financial year. The Fund's year end is August 31. The next AIF will be filed on or before the end of November, 2008. The Fund will include disclosure in the AIF that although shareholders will not be entitled to vote on the change of auditor, they will be sent notice at least 60 days prior to the effective date of any such change. The Fund will include disclosure in the AIF that although shareholders may not be entitled to vote on a reorganization, they will be sent notice at least 60 days prior to the effective date of such a change.
19. Without the Exemption Sought, the Fund is unable to comply with the requirements in paragraph 5.3(2)(d) or sub-section 5.3.1(b) of NI 81-102. The Fund will comply with each of the other requirements in sub-section 5.3(2) and section 5.3.1 of NI 81-102 including obtaining IRC approval of the changes.
20. The Fund is not in default of securities legislation in any jurisdiction.
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 so long as the Fund is not in public distribution and the Fund's AIF includes the disclosure referenced in paragraph 18 above.