Tralucent Asset Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from 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) and 15.1.1 of National Instrument 81-102 Investment Funds to permit a new prospectus qualified alternative mutual fund that has not distributed securities under a simplified prospectus in a jurisdiction for 12 consecutive months to include in its sales communications past performance data relating to a period when the fund's securities were previously distributed to investors on a prospectus-exempt basis and to use this past performance data to calculate its investment risk level in accordance with Appendix F Investment Risk Classification Methodology -- New alternative mutual fund having the same investment objectives and fee structure as for a period when its securities were offered on a prospectus-exempt basis; Relief granted from section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure for the purposes of the relief requested from Form 81-101F1 Contents of Simplified Prospectus and Form 81-101F3 Contents of Fund Facts Document, section 3B.2 of National Instrument 41-101 General Prospectus Requirements for the purposes of the relief requested from Form 41-101 Information Required in an ETF Facts Document, Item 10(b) of Part B of Form 81-101F1 Contents of Simplified Prospectus to permit the new alternative mutual fund to use the past performance data for a period when its securities were offered on a prospectus-exempt basis to calculate its investment risk rating in its simplified prospectus, Item 5 of Part I of Form 81-101F3 Contents of Fund Facts Document to permit the alternative mutual fund to include in its fund facts document past performance data for a period when the fund was offered on a prospectus-exempt basis, and Item 5 of Part I of Form 41-101F4 Information Required in an ETF Facts Document to permit the alternative mutual fund to include in its ETF facts document past performance data for a period when the fund was offered on a prospectus-exempt basis; Relief granted from section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure for the purposes of the relief requested from 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, to permit the new alternative mutual to include in its annual and interim management reports of fund performance the past performance and financial data relating to a period when the fund was previously offered on a prospectus-exempt basis.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1), 15.8(3)(a.1), 15.1.1 and 19.1.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1 and 6.1.
National Instrument 41-101 General Prospectus Requirements, s. 3B.2.
Item 10(b) of Part B of Form 81-101F1 Contents of Simplified Prospectus.
Item 5 of Part I of Form 81-101F3 Contents of Fund Facts Document.
Item 5 of Part I of Form 41-101F4 Information Required in an ETF Facts Document.
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.4 and 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 and Items 3(1) and 4 of Part C of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance.
August 3, 2023
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 TRALUCENT ASSET MANAGEMENT INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Tralucent Global Alt (Long/Short) Equity Fund (the Existing Fund) and such other mutual funds as are managed or may be managed by the Filer now or in the future that offer both ETF Securities (as defined below) and Mutual Fund Securities (as defined below) (collectively, the Future Funds and together with the Existing Fund, the Funds, and each, a Fund), for a decision under the securities legislation of the Jurisdiction (the Legislation) that:
(a) exempts the Filer and each Fund from the requirement to prepare and file a long form prospectus for the ETF Securities in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-1-1F2) provided that the Filer files (i) a prospectus for the ETF Securities in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), other than the requirements pertaining to the filing of a fund facts document; and (ii) an ETF facts document in accordance with Part 3B of National Instrument 41-101 General Prospectus Requirements (NI 41-101) (the ETF Prospectus Form Relief); and
(b) permits the Filer and each Fund that offers both ETF Securities and Mutual Fund Securities to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with the provisions of Parts 9, 10 and 14 of National Instrument 81-102 Investment Funds (NI 81-102) (the Sales and Redemptions Relief).
(collectively, the Exemption Sought).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator; 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 all of the provinces of Canada other than Québec and the Jurisdiction (together with Ontario, the Jurisdictions).
Interpretation
Capitalized terms used herein have the meaning ascribed thereto below (or in MI 11-102, 14-101 Definitions and NI 81-102, as applicable) unless otherwise defined in this decision.
(a) Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or the Designated Broker and that participates in the re-sale of Creation Units (as defined below) of a Fund from time to time.
(b) Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from the Fund on a continuous basis from time to time.
(c) Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.
(d) Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund's ETF Securities on the TSX or another Marketplace.
(e) ETF Facts means an ETF facts document prepared, filed and delivered in accordance with Part 3B of NI 41-101.
(f) ETF Securities means securities of an exchange-traded class of a Fund that will be listed on the TSX or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
(g) Form 81-101F1 means Form 81-101F1 Contents of Simplified Prospectus.
(h) Fund Facts means a fund facts document prepared, filed and delivered in accordance with Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3).
(i) Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.
(j) Market Price means the weighted average trading price of the ETF Securities of a Fund on the TSX or another Marketplace on which the ETF Securities of the Fund have traded on the effective date of a redemption.
(k) Mutual Fund Securities means securities of a non-exchange-traded class of a Fund that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
(l) Other Dealer means a registered dealer that is not an Authorized Dealer, the Designated Broker or an Affiliate Dealer.
(m) Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
(n) Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement.
(o) Securityholders means beneficial or registered holders of Mutual Fund Securities or ETF Securities of a Fund, as applicable.
(p) TSX means the Toronto Stock Exchange.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation formed and organized under the laws of the Jurisdiction. The head office of the Filer is located in Toronto, Ontario.
2. The Filer is registered as a portfolio manager, investment fund manager and exempt market dealer in the Jurisdiction, and as a portfolio manager and exempt market dealer in New Brunswick, Québec, Alberta and British Columbia.
3. The Filer is not a reporting issuer in any Jurisdiction and is not in default of securities legislation in any of the Jurisdictions.
4. The Filer is also the investment fund manager and portfolio manager of the Existing Fund. The Filer or an affiliate of the Filer will be the investment fund manager of the Future Funds.
The Funds
5. Each Fund is or will be an open-ended mutual fund trust, governed by the laws of the Jurisdiction.
6. The Filer established the Existing Fund in March 2020 and previously offered its classes of units to qualified investors by means of the prospectus exemptions in National Instrument 45-106 Prospectus Exemptions on a private placement basis.
7. The Filer wishes to offer Mutual Fund Securities and ETF Securities of the same Fund to interested retail investors by means of a simplified prospectus in the form prescribed by Form 81-101F1.
8. On April 19, 2023, a preliminary simplified prospectus in respect of each class of Mutual Fund Securities and ETF Securities of the Existing Fund, Fund Facts in respect of each class of Mutual Fund Securities of the Existing Fund, and ETF Facts in respect of the ETF Securities of the Existing Fund were filed with the securities regulatory authorities in each of the Jurisdictions.
9. The Existing Fund and each Future Fund will be a reporting issuer in the Jurisdictions in which it offers its Mutual Fund Securities and ETF Securities. Each Fund that relies on the Exemption Sought will offer ETF Securities along with Mutual Fund Securities.
10. The Mutual Fund Securities of the Existing Fund consist of Class A units, Class F units and Class M units. The ETF Securities of the Existing Fund consist of Class E units.
11. Subject to any exemptions that may be granted by the applicable securities regulatory authorities, each Fund will be subject to NI 81-102 and the Securityholders of each Fund will have the right to vote at a meeting of Securityholders in respect of any matter prescribed by NI 81-102.
12. The Filer has applied to list the ETF Securities of the Existing Fund on the TSX. The Filer will not file a final simplified prospectus for a Fund in respect of the ETF Securities of the Fund until the TSX or another applicable Marketplace has conditionally approved the listing of the ETF Securities of the Fund.
13. The Existing Fund is not in default of securities legislation in any of the Jurisdictions.
14. Mutual Fund Securities may be subscribed for or purchased directly from a Fund through mutual fund dealers, investment dealers and their representatives that are registered under applicable securities legislation in the Jurisdictions in which they are offered for sale.
15. ETF Securities will be distributed on a continuous basis in the Jurisdictions under a simplified prospectus in the form prescribed by Form 81-101F1. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or the Designated Broker. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the TSX or another Marketplace. Authorized Dealers and/or the Designated Broker subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.
16. In addition to subscribing for and re-selling their Creation Units, Authorized Dealers, the Designated Broker and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the Fund as Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the Fund as Creation Units in the secondary market despite not being an Authorized Dealer, the Designated Broker or an Affiliate Dealer that has entered in an agreement with the Filer.
17. The Designated Broker and each Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, a Basket of Securities and/or cash in an amount sufficient so that the value of the Basket of Securities and/or cash delivered to the Fund is equal to the net asset value of the ETF Securities subscribed for, next determined following the receipt of the subscription order for Creation Units.
18. Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, the Designated Broker may be contractually required to subscribe for Creation Units for cash in an amount not to exceed a specified percentage of the net asset value of the Fund or such other amount established by the Filer.
19. The Designated Broker and the Authorized Dealers will not receive any fees or commissions in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or the Fund may, in the Filer's discretion, charge a fee to the Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.
20. The Designated Broker performs certain other functions, which include standing in the market with a bid and ask price for ETF Securities for the purpose of maintaining liquidity for the ETF Securities.
21. Except for Authorized Dealers and the Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement under the Legislation, ETF Securities generally will not be able to be purchased directly from the Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace in Canada. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.
22. Securityholders that are not the Designated Broker or an Authorized Dealer that wishes to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or another Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or a multiple thereof may exchange such ETF Securities for Baskets of Securities and/or cash in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to the lesser of 95% of the Market Price of the ETF Securities of the Fund on the TSX or another Marketplace on the date of redemption and the net asset value per ETF Security of the Fund.
ETF Prospectus Form Relief
23. The Filer believes it is more efficient and expedient to include all classes of Mutual Fund Securities and ETF Securities of a Fund in one prospectus form instead of two different prospectus forms and that this presentation will assist in providing full, true and plain disclosure of all material facts relating to the securities of the Fund by permitting disclosure relating to all class of securities to be included in one prospectus. The Filer will file ETF Facts in the form prescribed by Form 41-101F4 Information Required in an ETF Facts (Form 41-101F4) in respect of each class of ETF Securities, and will file Fund Facts in the form prescribed by Form 81-101F3 in respect of each class of Mutual Fund Securities.
24. The Filer will ensure that any additional disclosure included in the simplified prospectus of the Fund relating to the ETF Securities will not interfere with an investor's ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.
25. The Fund will comply with the provisions of NI 81-101 when filing any prospectus or amendment thereto.
26. The Fund will comply with Part 3B of NI 41-101 when preparing, filing and delivering ETF Facts for the ETF Securities of the Fund.
Sales and Redemptions Relief
27. Parts 9, 10 and 14 of NI 81-102 do not contemplate both Mutual Fund Securities and ETF Securities being offered in a single fund structure. Accordingly, without the Exemption Sought, the Filer and the Fund, that offers both ETF Securities and Mutual Fund Securities would not be able to technically comply with those parts of NI 81-102.
28. The Sales and Redemptions Relief will permit the Filer and the Fund to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with Parts 9, 10 and 14 of NI 81-102. The Exemption Sought will enable each of the ETF Securities and Mutual Fund Securities to comply with Parts 9, 10 and 14 of NI 81-102, as appropriate, for the type of security being offered.
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. in respect of the ETF Prospectus Form Relief, the Filer complies with the following conditions:
(a) the Filer files a simplified prospectus in respect of the ETF Securities in accordance with the requirements of NI 81-101 and Form 81-101F1, other than the requirements pertaining to the filing of a fund facts document;
(b) the Filer includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1) in respect of the ETF Securities in each Fund's simplified prospectus; and
(c) the Filer includes disclosure regarding this decision under the heading "Additional Information" in each Fund's simplified prospectus; and
2. in respect of the Sales and Redemptions Relief, the Filer and each Fund comply with the following conditions:
(a) with respect to its Mutual Fund Securities, each Fund complies with the provisions of Parts 9, 10 and 14 of NI 81-102 that apply to mutual funds that are not exchange-traded mutual funds; and
(b) with respect to its ETF Securities, each Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.
Application File#: 2023/0243
SEDAR Project #: 3542416