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 Fund) for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Fund from:
(a) Subsection 15.3(2), paragraph 15.3(4)(c), subparagraph 15.6(1)(a)(i), and paragraphs 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 its past performance data in sales communications notwithstanding that:
(i) the past performance data will relate to a period prior to the Fund offering its units under a simplified prospectus; and
(ii) the Fund has not distributed its securities under a simplified prospectus for 12 months
(collectively, the past performance data);
(b) Paragraph 15.1.1(a) of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (the Risk Classification Methodology) to permit the Fund to include its past performance data in determining its investment risk level in accordance with the Risk Classification Methodology;
(c) Paragraph 15.1.1(b) of NI 81-102, Item 4(2)(a) and Instruction (1) of Item 4 of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3) and Item 4(2)(a) and the Instruction of Item 4 of Form 41-101F4 Information Required in an ETF Facts Document (Form 41-101F4) to permit the Fund to disclose its investment risk level as determined by including its past performance data in accordance with the Risk Classification Methodology;
(d) Item 10(b) of Part B of Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1), to permit the Fund to use its past performance data to calculate its investment risk rating in its simplified prospectus;
(e) Section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the relief requested from Form 81-101F1 and Form 81-101F3, and section 3B.2 of National Instrument 41-101 General Prospectus Requirements (NI 41-101) for the purposes of the relief requested from Form 41-101F4;
(f) Items 5(2), 5(3) and 5(4) and Instruction (1) of Part I of Form 81-101F3 and items 5(3), 5(4) and 5(5) and Instruction (1) of Part I of Form 41-101F4 in respect of the requirement to comply with subsection 15.3(2), paragraph 15.3(4)(c), subparagraph 15.6(1)(a)(i), and paragraphs 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102 to permit the Fund to include in its fund facts documents and ETF facts document the past performance data of the Fund notwithstanding that such performance data relates to a period prior to the Fund offering its units under a simplified prospectus and that the Fund has not distributed its units under a simplified prospectus for 12 consecutive months, including allowing the Fund to use the actual performance data of its Class A units as the past performance data of the Class F units of the Fund until the Class F units of the Fund were issued, and to use such actual past performance data as the past performance data of the Class E units;
(g) Section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of relief requested herein from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1); and
(h) Items 3.1(7), 4.1(1) in respect of the requirement to comply with subsection 15.3(2) and paragraph 15.3(4)(c) of NI 81-102, items 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 the Fund to include in its annual and interim management reports of fund performance (MRFP) the past performance data and financial highlights of the Fund notwithstanding that such performance data and financial highlights relate to a period prior to the Fund offering its units under a simplified prospectus
(collectively, the Performance Relief).
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
Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 41-101, NI 81-101, NI 81-102 and NI 81-106 have the same meaning if used in the decision, unless otherwise defined.
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 of the Jurisdictions and is not in default of securities legislation of any of the Jurisdictions.
4. The Filer is also the investment fund manager and portfolio manager of the Fund.
The Fund
5. The Fund is an open-ended mutual fund trust, governed by the laws of the Jurisdiction.
6. The Filer established the Fund on March 31, 2020 (the Initial Effective Date). Since the commencement of operations of the Fund, the units of the Fund, have been distributed to qualified investors by means of the prospectus exemptions in National Instrument 45-106 Prospectus Exemptions on a private placement basis.
7. The Fund currently consists of four classes of units:
a. the Class A units, the Class M units and the Class I units, which were first offered for sale on the Initial Effective Date; and
b. the Class F units which were first offered for sale effective September 9, 2021 (the Class F Effective Date and together with the Initial Effective Date, the Effective Dates).
8. Class I units of the Fund will be offered on a private exempt basis through an offering memorandum and will not be offered under a simplified prospectus.
9. The Fund is not in default of securities legislation in any of the Jurisdictions.
10. The Filer wishes for the Fund to distribute its units pursuant to a simplified prospectus, fund facts, and ETF facts (the Disclosure Documents). To that end, a preliminary simplified prospectus, fund facts and ETF facts dated April 18, 2023 have been filed with the securities regulatory authorities in each of the Jurisdictions. Upon the issuance of a final receipt for the Disclosure Documents of the Fund, the Fund will become a reporting issuer in each of the Jurisdictions. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, the Fund will become subject to the requirements of NI 81-102 that relate to alternative mutual funds and the requirements of NI 81-106 that apply to investment funds that are reporting issuers.
11. The investment objective of the Fund is to seek short and long-term capital growth and to exceed the growth of the MSCI World Index over a five year period by primarily investing on a long-short basis in exchange traded securities. The Fund may use leverage through the use of cash borrowings, short sales and derivatives. If used, the aggregate amount of cash borrowing and the market value of the securities sold short will not exceed 50% of the Fund's net asset value (NAV), and the aggregate amount of cash borrowing, the market value of the securities sold short and the notional amount of derivatives used for non-hedging purposes will not exceed 300% of the Fund's NAV.
12. The Fund will be managed on the same basis after it becomes a reporting issuer as it was during the period commencing as of the Initial Effective Date through to before it became a reporting issuer. The investment objective, fees and day-to-day administration will not change when the Fund becomes a reporting issuer.
13. The Fund has complied with the investment restrictions and practices contained in NI 81-102 since inception.
14. The Filer proposes that the actual performance data for the time period between the Initial Effective Date and the Class F Effective Date, which represents the actual performance data for the Class A units of the Fund (the "Class A Performance Period") be used as the past performance data of the Class F units of the Fund during such period, adjusted for the difference in management fee between the Class A and Class F units of the Fund. The Filer also proposes that the past performance data of the Class A units during the Class A Performance Period coupled with the past performance data of the Class F units of the Fund, until the Fund becomes a reporting issuer, be used as the past performance data of the Class E units of the Fund, adjusted for the difference in management fee between the Class A and Class E units of the Fund. The only difference in performance between the Class A units and the Class F units and the Class E units of the Fund since the Initial Effective Date would have been due to the different management fees paid by each such class of units of the Fund (the management fees of the Class F units of the Fund are the same as the management fees of the Class E units of the Fund) as all of the expenses of the Fund are common expenses.
15. The Filer proposes to present the Fund's past performance data for the time period commencing as of the Initial Effective Date, including as set out above in paragraph 14, as the performance data of the Class A units, the Class F units, the Class E units and the Class M units of the Fund in the sales communications relating to such classes of units of the Fund. Without the Performance Relief, the sales communications pertaining to the Fund cannot include past performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer, and the Fund cannot provide past performance data in its sales communications until it has distributed securities under a simplified prospectus for at least 12 consecutive months.
16. The Filer proposes to use the Fund's past performance data for the time period commencing as of the Initial Effective Date to determine the investment risk level of the Class A units, the Class F units, the Class E units and the Class M units of the Fund, and to disclose that investment risk level in its Disclosure Documents for each such class of units of the Fund. Without the Performance Relief, the Filer, in determining and disclosing the Fund's investment risk level in its Disclosure Documents for each such class of units of the Fund, cannot use the past performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.
17. The Filer proposes to include in the fund facts and ETF facts documents for each class of units of the Fund, as applicable, the past performance data for the time period commencing as of the Initial Effective Date in the charts required by items 5(2), 5(3) and 5(4) of Form 81-101F3, and items 5(3), 5(4) and 5(5) of Form 41-101F4, under the sub-headings "Year-by-year returns", "Best and worst 3-month returns" and "Average return", respectively, related to the periods prior to the Fund becoming a reporting issuer in each of the Jurisdictions. Without the Performance Relief, the fund facts and ETF facts documents of the Fund cannot include past performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.
18. As a reporting issuer, the Fund is required under NI 81-106 to prepare and send MRFPs to all holders of its securities on an annual and interim basis. Without the Performance Relief, the MRFPs of the Fund cannot include financial highlights and the past performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.
19. The past performance data and other financial data of the Fund for the time period commencing as of the Initial Effective Date, and adjusted for the different management fees of the Class F units and Class E units of the Fund as set out above, and before the Fund became a reporting issuer is significant and meaningful information for existing and prospective investors of units of the Fund.
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 Performance Relief is granted provided that:
(a) Any sales communication, fund facts documents and MRFP that contains past performance data of the units of the Fund relating to a period of time prior to when the Fund was a reporting issuer discloses that:
(i) the Fund was not a reporting issuer during such period;
(ii) the expenses of the Fund would have been higher during such period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer;
(iii) the Filer obtained exemptive relief on behalf of the Fund to permit the disclosure of past performance data of the units of the Fund relating to a period prior to when the Fund was a reporting issuer; and
(iv) with respect to any MRFP, the financial statements of the Fund for such period are posted on the Filer's website and are available to investors upon request; and
(b) The Filer posts the financial statements of the Fund since the Effective Dates on the Fund's designated website and delivers those financial statements to investors upon request.