NGAM Canada LP (Re), 2016 CanLII 82753

November 30th, 2016

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 NGAM CANADA LP (the Manager)

and

NEXGEN CANADIAN DIVERSIFIED INCOME REGISTERED FUND

NEXGEN CANADIAN DIVERSIFIED INCOME TAX MANAGED FUND

(each, a Terminating Fund and collectively, the Terminating Funds, and with the Manager, the Filers)

DECISION DOCUMENT

Background

The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) approving the mergers (the Mergers) of the Terminating Funds into the Continuing Funds (defined below) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval 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 Manager 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 provinces and territories of Canada, other than the province of Ontario (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. The following additional terms shall have the following meanings:

Continuing Fund means each of NexGen Turtle Canadian Balanced Registered Fund (to be renamed, Natixis Strategic Balanced Registered Fund) and NexGen Turtle Canadian Balanced Tax Managed Fund (to be renamed, Natixis Strategic Balanced Tax Managed Fund);

Continuing Tax Managed Fund means NexGen Turtle Canadian Balanced Tax Managed Fund;

Continuing Trust Fund means NexGen Turtle Canadian Balanced Registered Fund;

Corporation means NGAM Canada Investment Corporation;

Fund or Funds means, individually or collectively, the Terminating Funds and the Continuing Funds;

IRC means the independent review committee for the Funds;

NI 81-107 means National Instrument 81-107 – Independent Review Committee for Investment Funds;

Tax Act means the Income Tax Act (Canada);

Taxable Merger means the Merger of NexGen Canadian Diversified Income Registered Fund into NexGen Turtle Canadian Balanced Registered Fund;

Tax Managed Fund means each of NexGen Canadian Diversified Income Tax Managed Fund and NexGen Canadian Diversified Income Tax Managed Fund, each an investment portfolio consisting of certain classes and series of the Corporation;

Terminating Tax Managed Fund means NexGen Canadian Diversified Income Tax Managed Fund;

Terminating Trust Fund means NexGen Canadian Diversified Income Registered Fund; and

Trust Fund means each of NexGen Canadian Diversified Income Registered Fund and NexGen Turtle Canadian Balanced Registered Fund.

Representations

This decision is based on the following facts represented by the Filers:

The Manager

1. The Manager is a corporation governed by the laws of Canada with its head office in Toronto, Ontario.

2. The Manager is the investment fund manager of the Funds and is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, and as a mutual fund dealer in Ontario and the Other Jurisdictions.

The Funds

3. The Funds are either open-ended mutual fund trusts established under the laws of Ontario or separate classes of securities of the Corporation, a mutual fund corporation governed under the laws of Ontario.

4. Securities of the Funds are currently qualified for sale under a simplified prospectus, annual information form and fund facts each dated June 10, 2016 as amended on September 22, 2016 (collectively, the Offering Documents).

5. Each of the Funds is a reporting issuer under the applicable securities legislation of Ontario and the Other Jurisdictions.

6. Neither the Manager nor the Funds is in default under the applicable securities legislation of Ontario or the Other Jurisdictions.

7. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under NI 81-102.

8. The net asset value for each series of the Funds is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the Offering Documents.

Reason for Approval Sought

9. Regulatory approval of the Mergers is required because each Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. The pre-approval criteria are not satisfied in the following ways:

(a) The fundamental investment objectives of each Continuing Fund is not, or may be considered not to be, “substantially similar” to the investment objectives of its corresponding Terminating Fund; and

(b) The Taxable Merger will not be completed as a “qualifying exchange” under the Tax Act.

10. Except as described in this decision, the proposed Mergers comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

The Proposed Mergers

11. The Manager intends to reorganize the Funds as follows:

(a) NexGen Canadian Diversified Income Tax Managed Fund will merge into NexGen Turtle Canadian Balanced Tax Managed Fund; and

(b) NexGen Canadian Diversified Income Registered Fund will merge into NexGen Turtle Canadian Balanced Registered Fund.

12. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the proposed Mergers was issued and filed via SEDAR on September 12, 2016. A material change report and amendments to the Offering Documents with respect to the proposed Mergers were filed via SEDAR on September 15, 2016 and September 22, 2016, respectively and disclosed the fact that the portfolio sub-advisor of both the Terminating Funds and the Continuing Funds was changing to Cidel Asset Management Inc. (Cidel) and the investment strategies were changing to reflect the investment style of Cidel.

13. The changes to the portfolio sub-advisors and investment strategies are beneficial to the Funds, as the historical institutional track record of the new portfolio sub-advisor under the strategies adopted by the Funds are superior to the historical performance of the Funds during the same time periods. The changes to the portfolio sub-advisors and investment strategies will occur as soon as possible, regardless of the Mergers because the Manager believes such changes are in the best interest of the Funds. It is consistent with the Manager’s fiduciary duty to change portfolio managers if the Manager believes that securityholders will benefit from the change.

14. Any associated costs resulting from the implementation of the changes to the portfolio sub-advisors will be borne by the Funds, and any costs associated with aligning the portfolio of the Terminating Funds with that of their respective Continuing Funds will be borne by the Manager.

15. As required by NI 81‑107 the IRC has been appointed for the Funds. The Manager presented the potential conflict of interest matters related to the proposed Mergers to the IRC for a recommendation. On September 8, 2016, the IRC reviewed the potential conflict of interest matters related to the proposed Mergers and provided its positive recommendation for each of the Mergers, after determining that each proposed Merger, if implemented, would achieve a fair and reasonable result for each applicable Fund.

16. Securityholders of the Terminating Funds will be asked to approve the Mergers at special meetings to be held on or about December 2, 2016.

17. In accordance with corporate law requirements, securityholders of the Continuing Tax Managed Fund will be asked to approve an amendment to the articles of the Corporation in connection with the exchange of securities relating to the applicable Merger for the Continuing Tax Managed Fund at special meetings to be held on or about December 2, 2016.

18. The Merger involving an exchange of securities of the Terminating Tax Managed Fund for securities of the Continuing Tax Managed Fund has also been approved by the Filer as the sole common voting shareholder of the Corporation, as required under applicable corporate law.

19. A notice of meeting, a management information circular and a proxy in connection with special meetings of securityholders (collectively, the Meeting Materials) were mailed to securityholders of the Terminating Funds and the Continuing Tax Managed Fund commencing on November 3, 2016 and were concurrently filed via SEDAR.

20. Fund facts relating to the relevant series of the Continuing Funds were mailed to securityholders of the corresponding Terminating Funds.

21. The tax implications of the Mergers as well as the differences between the investment objectives of the Terminating Funds and the Continuing Funds and the IRC’s recommendation of the Mergers are described in the Meeting Materials so that the securityholders of the Terminating Funds may consider this information before voting on the Mergers. The Meeting Materials also describe the various ways in which investors can obtain a copy of the simplified prospectus, annual information form and fund facts for the Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance.

22. Securityholders of each Terminating Fund will continue to have the right to redeem securities of the Terminating Fund at any time up to the close of business on the business day immediately before the effective date of the Mergers.

23. The Terminating Trust Fund will be wound up on or about December 30, 2016 if the Merger between the Tax Managed Funds is approved and the Trust Funds is not approved since the Terminating Trust Fund will no longer be able to meet its investment objective.

24. The Terminating Tax Managed Fund will continue as a separate fund if the Merger between the Tax Managed Funds is not approved.

Merger Steps

25. The proposed Merger of the Terminating Tax Managed Fund into the Continuing Tax Managed Fund will be structured as follows:

(a) Prior to effecting the Merger, if required, the Corporation will sell any securities in the portfolio underlying the Terminating Tax Managed Fund that do not meet the investment objective and investment strategies of the Continuing Tax Managed Fund. As a result, the portfolio of the Terminating Tax Managed Fund may temporarily hold a portion of its assets in cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to the Merger being effected.

(b) The value of the Terminating Tax Managed Fund’s portfolio and other assets will be determined at the close of business on the effective date of the Merger in accordance with the articles of the Corporation.

(c) The Corporation may pay ordinary dividends or capital gains dividends to securityholders of the Terminating Tax Managed Fund and/or the Continuing Tax Managed Fund, as determined by the Filer at the time of the Merger.

(d) The portfolio of assets and liabilities attributable to the Terminating Tax Managed Fund will be included in the portfolio of assets and liabilities attributable to the Continuing Tax Managed Fund after the close of business on the effective date.

(e) The articles of the Corporation will be amended so that all of the issued and outstanding securities of the Terminating Tax Managed Fund will be exchanged for securities of the Continuing Tax Managed Fund on a dollar-for-dollar and a class-by-class and series-by-series basis, so that securityholders of the Terminating Tax Managed Fund become securityholders of the Continuing Tax Managed Fund.

(f) The securities of the Terminating Tax Managed Fund will be cancelled.

26. The proposed Merger of the Terminating Trust Fund into the Continuing Trust Fund will be structured as follows:

(a) The master declaration of trust of the Funds will be amended to facilitate the Merger. Among other changes, the investment objective of each of the Funds will be amended to facilitate the Merger.

(b) Prior to effecting the Merger, the Terminating Trust Fund will sell all of its portfolio assets, being comprised of non-publicly offered limited recourse debt and the shares of the Inter-Fund class of the underlying Terminating Tax Managed Fund, as such assets will not meet the investment objectives and investment strategies of the Continuing Trust Fund. As a result, the Terminating Trust Fund will temporarily hold cash or money market instruments and will not be invested in accordance with its investment objectives for a brief period of time prior to the Merger being effected.

(c) The value of the Terminating Trust Fund’s portfolio and other assets will be determined at the close of business on the effective date of the Merger in accordance with the constating documents of the Terminating Trust Fund.

(d) The Continuing Trust Fund will acquire the investment portfolio and other assets of the Terminating Trust Fund in exchange for securities of the Continuing Trust Fund.

(e) The Continuing Trust Fund will not assume any liabilities of the Terminating Trust Fund and the Terminating Trust Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the Merger.

(f) The Terminating Trust Fund will distribute a sufficient amount of its net income and net realized capital gains, if any, to securityholders to ensure that they will not be subject to tax for their current tax year.

(g) The securities of the Continuing Trust Fund received by the Terminating Trust Fund will have an aggregate net asset value equal to the value of the portfolio assets and other assets that the Continuing Trust Fund is acquiring from the Terminating Trust Fund, and the securities of the Continuing Trust Fund will be issued at the applicable series net asset value per security as of the close of business on the effective date of the Merger.

(h) Immediately thereafter, units of the Continuing Trust Fund received by the Terminating Trust Fund will be distributed to securityholders of the Terminating Trust Fund in exchange for their units in the Terminating Trust Fund on a dollar‑for‑dollar and series-by-series basis, as applicable.

(i) As soon as reasonably possible following the Merger, the Terminating Trust Fund will be wound up.

27. The Manager will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the Merger-related trades that occur both before and after the effective date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.

28. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of its applicable Terminating Fund.

29. The investment portfolio and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund in order to effect the Mergers are currently, or will be, acceptable, on or prior to the effective date of the Mergers, to the portfolio manager(s) of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the applicable Continuing Fund.

30. Each Terminating Fund will merge into its applicable Continuing Fund and the Continuing Funds will continue as publicly offered open-ended mutual funds.

Benefits of Mergers

31. Due to the fund-on-fund investment structure of the Terminating Funds and the Continuing Funds, the Manager believes that the Mergers are beneficial to securityholders of each Terminating Fund and Continuing Fund for the same reasons as follows:

(a) the Mergers will result in a more streamlined and simplified product line-up that is easier for investors to understand;

(b) the Mergers will eliminate similar fund offerings across product line ups, thereby reducing the administrative and regulatory costs of operating each Terminating Fund and Continuing Fund as separate funds;

(c) following the Mergers, each Continuing Fund will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities if desired;

(d) there is or will be, following the portfolio sub-advisor change to Cidel, significant overlap between portfolio holdings of the Terminating Tax Managed Fund and portfolio holdings of the Continuing Tax Managed Fund, which means there is or will be, very little change to the investment exposure for investors in the Terminating Tax Managed Fund; and

(e) each Continuing Fund, as a result of its greater size, may benefit from its larger profile in the marketplace.

32. Further, the Manager believes that proceeding with the Merger of NexGen Canadian Diversified Income Registered Fund into NexGen Turtle Canadian Balanced Registered Fund on a taxable basis is appropriate because:

(a) All investors in the Terminating Trust Fund and Continuing Trust Fund hold their securities in registered plans or are non-taxable investors, as the Trust Funds may only be purchased by non-taxable or registered plan investors. A taxable merger is neither beneficial nor detrimental to a registered plan investor or non-taxable investor.

(b) The administrative costs of a taxable merger are less than the administrative costs of a tax-deferred merger because neither the Terminating Trust Fund nor the Continuing Trust Fund experience a deemed taxation year end on the effective date of the taxable merger. Although the Terminating Trust Fund is still required to file a tax return, it is not required to prepare the detailed tax election that is required as part of a tax-deferred merger. The Continuing Trust Fund is not required to file a tax return for the short taxation year.

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 Approval Sought is granted.

“Darren McKall”

Darren McKall

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission

SEDAR Project # 2538658