In the Matter of Evolve Funds Group Inc., 2024 CanLII 81969

September 03, 2024

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 EVOLVE FUNDS GROUP INC. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of a new mutual fund, of which the Filer will be the manager, to be established in the future that will seek to invest primarily in high-interest deposit accounts (the New Fund) and that will offer Mutual Fund Securities (as defined below), as well as on behalf of any other future mutual funds managed by the Filer that will offer Mutual Fund Securities, either alone or along with ETF Securities (as defined below), (collectively with the New Fund, the Funds, and individually, 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 simplified prospectus for the Mutual Fund Securities (as defined below) in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and the form prescribed by Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1), provided that the Filer files a prospectus for the Mutual Fund Securities in accordance with the provisions of National Instrument 41-101 General Prospectus Requirements (NI 41-101), other than the requirements pertaining to the filing of ETF Facts, and in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2) (the Simplified Prospectus Form Requirements); and

(b) permits the Filer and each Fund 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 Redemption Requirements).

(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 in all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).

Interpretation

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

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 (as defined herein) from one or more Funds on a continuous basis from time to time.

Basket of Securities means, in relation to a Fund, a group of securities or assets representing the constituents of the Fund.

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 to perform certain duties in relation to the ETF Securities, including the posting of a liquid two-way market for the trading of the Fund’s ETF Securities on the TSX or another Marketplace.

ETF means an exchange traded fund.

ETF Facts means a prescribed summary disclosure document required pursuant to NI 41-101, in respect of one or more classes of ETF Securities being distributed under a prospectus.

ETF Securities means securities of an ETF class of a Fund that are listed or will be listed on the TSX or another Marketplace and that will be distributed pursuant to a prospectus prepared in accordance with NI 41-101 and Form 41-101F2.

Fund Facts means a prescribed summary disclosure document required pursuant to NI 81-101, in respect of one or more classes of Mutual Fund Securities being distributed under a prospectus.

Marketplace means a “marketplace” as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.

Mutual Fund Securities means non-exchange-traded securities of a Fund that will be distributed pursuant to a prospectus prepared in accordance with NI 41-101 and Form 41-101F2.

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.

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 incorporated under the laws of the Province of Ontario, with its head office in Toronto, Ontario.

2. The Filer is registered as a portfolio manager in Ontario, a commodity trading manager in Ontario and an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. The Filer will be the investment fund manager of the Funds.

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

The Funds

4. Each Fund will be a mutual fund structured as a trust or a class of a corporation that is governed by the laws of a Jurisdiction. Each Fund will be a reporting issuer in the Jurisdiction(s) in which its securities are distributed.

5. Each Fund will offer Mutual Fund Securities and may in the future also offer ETF Securities.

6. Subject to any exemptions that have been or may be granted by the applicable securities regulatory authorities, each Fund will be an open-ended mutual fund subject to NI 81-102.

7. The Filer will apply to list any ETF Securities of each of the Funds on the TSX or another Marketplace. The Filer will not file a final or amended prospectus for any of the Funds in respect of ETF Securities, if any, until the TSX or other applicable Marketplace has conditionally approved the listing of the ETF Securities.

8. Mutual Fund Securities will not be listed on the TSX or another Marketplace.

9. The Mutual Fund Securities and ETF Securities (if any) will be distributed on a continuous basis in one or more of the Jurisdictions under a prospectus.

10. Investors will be able to subscribe for or purchase Mutual Fund Securities directly from a Fund through appropriately registered dealers.

11. ETF Securities, if issued, will generally only be subscribed for and purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.

12. In addition to subscribing for and re-selling Creation Units, Authorized Dealers and Designated Brokers are also generally engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer or Designated Broker.

13. Each Fund will appoint, at any given time, a Designated Broker to perform 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.

14. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, ETF Securities generally are not able to be purchased directly from a 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. ETF Securities may also be issued directly to securityholders upon a reinvestment of distributions of income or capital gains.

15. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A securityholder that holds a Prescribed Number of ETF Securities or 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 95% of the closing price of the ETF Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.

16. Mutual Fund Securities may be subscribed for or redeemed directly from a Fund through qualified financial advisors or brokers.

Simplified Prospectus Form Requirements

17. The Filer believes it is more efficient and expedient to present all series and classes of securities of each Fund, including Mutual Fund Securities and ETF Securities (as applicable), 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 Funds by permitting disclosure relating to all series and classes of securities to be included in one prospectus. The Filer will file a long form prospectus in respect of the New Fund, and proposes to continue to file long form prospectuses in respect of the ETF Securities and Mutual Fund Securities of Funds.

18. The Funds will file Fund Facts in the form prescribed by Form 81-101F3 Contents of Fund Facts Document in respect of any Mutual Fund Securities and will file ETF Facts in the form prescribed by Form 41-101F4 Information Required in an ETF Facts Document in respect of each class or series of ETF Securities (as applicable).

19. The Filer will ensure that any additional disclosure included in the prospectus relating to the Mutual Fund Securities will not interfere with an investor’s ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.

20. The Funds will comply with the provisions of NI 41-101 when filing any amendment or prospectus.

21. The Mutual Fund Securities of each Fund will be subject to the prospectus and Fund Facts delivery obligations set out in NI 81-101.

22. If the Exemption Sought is granted, it is expected that when the prospectus for the New Fund is renewed in 2025, the Filer will include the New Fund with other funds for which Filer is a manager, including funds with similar investment objectives and strategies as the New Fund, that offer both ETF Securities and Mutual Fund Securities and will file a long form prospectus in accordance with the provisions of NI 41-101, other than the requirements pertaining to the filing of ETF Facts for the Mutual Fund Securities. The Filer believes this will provide administrative efficiency for the Funds and for investors.

Sales and Redemption Requirements

23. 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 from the Sales and Redemption Requirements, the Filer and the Funds would not be able to technically comply with those parts of the Instrument.

24. The Exemption Sought from the Sales and Redemption Requirements will permit the Filer and each Fund that offers both Mutual Fund Securities and ETF Securities to treat the Mutual Fund Securities and the ETF 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 from the Sales and Redemption Requirements 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.

1. The decision of the principal regulator is that the Exemption Sought is granted, provided that:

(a) the Filer files a long form prospectus in respect of the Mutual Fund Securities in accordance with the requirements of NI 41-101 and Form 41-101F2, other than the requirements pertaining to the filing of an ETF Facts document;

(b) the Filer includes disclosure required pursuant to Form 81-101F1 (that is not contemplated by NI 41-101F2) in respect of the Mutual Fund Securities in each Fund’s prospectus, as applicable; and

(c) the Filer includes disclosure regarding this decision under the heading “Exemptions and Approvals” in each Fund’s prospectus.

2. The decision of the principal regulator is that the Exemption Sought from the Sales and Redemption Requirements is granted, provided that:

(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 (as applicable), each Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.

“Darren McKall”

Darren McKall Manager, Investment Management Division Ontario Securities Commission

Application #2024/0464 SEDAR+ Project #6164481