June 12, 2017
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 Filer)
AND
IN THE MATTER OF
NexGen Canadian Bond Tax Managed Fund and Loomis Sayles Global Diversified Corporate Bond Tax Managed Fund (formerly NexGen Corporate Bond Tax Managed Fund) (the Existing Top Corporate Funds)
AND
IN THE MATTER OF
NexGen Canadian Bond Fund and
Loomis Sayles Global Diversified Corporate Bond Fund (formerly NexGen Corporate Bond Fund) (the Existing Underlying Trust Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds (defined below) for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Funds from paragraph 2.1(1)(c) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) to permit the Funds to file a simplified prospectus (SP) that is not prepared in accordance with General Instruction (15) to Form 81-101F1 and instead allows the Part B of the SP for each Top Corporate Fund (defined below) to be combined with the Part B of the SP for its corresponding Underlying Trust Fund (defined below) as further described below (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 the application; and
(b) the Filer has provided notice that section 4.7 of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon Territory and Nunavut (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in MI 11-102, National Instrument 14-101 Definitions and NI 81-101 have the same meanings if used in this decision unless otherwise defined and the terms set out below have the following meaning:
Corporate Fund means each mutual fund managed by the Filer that is comprised of classes of a corporation.
Corporation means NGAM Canada Investment Corporation, an open-end mutual fund corporation established under the laws of Ontario.
Funds means, collectively, the Top Corporate Funds and the Underlying Trust Funds, and individually, each is a Fund.
Trust Fund means each mutual fund managed by the Filer that is a trust.
Top Corporate Fund means (a) each Existing Top Corporate Fund and (b) each future Corporate Fund that is the top fund in a Corporate Fund on Trust Fund Arrangement (defined below) that is substantially similar in investment structure, investment strategy and operational purpose to each Existing Top Corporate Fund and its corresponding Existing Underlying Trust Fund.
Underlying Trust Fund means (a) each Existing Underlying Trust Fund and (b) each future Trust Fund that is the underlying fund in a Corporate Fund on Trust Fund Arrangement that is substantially similar in investment structure, investment strategy and operational purpose to each Existing Top Corporate Fund and its corresponding Existing Underlying Trust Fund.
Representations
This decision is based on the following facts represented by the Filer:
The Filer and the Funds
The Filer is a limited partnership formed under the laws of the Province of Ontario having its head office in Toronto, Ontario.
The Filer is registered as an investment fund manager, mutual fund dealer and portfolio manager in Ontario, as an investment fund manager in Quebec and Newfoundland and Labrador and as an exempt market dealer in each of the Jurisdictions.
The Filer is the investment fund manager and principal distributor of the existing Funds and the trustee of the Existing Underlying Trust Funds. The Filer will be the investment fund manager of any future Funds and the trustee of any future Underlying Trust Funds.
Each Fund is, or will be, an open-end mutual fund created as a trust under the laws of the Province of Ontario or an open-end mutual fund that is comprised of classes of shares of a mutual fund corporation.
Each Fund is, or will be, a reporting issuer in some or all of the provinces and territories of Canada and is, or will be, subject to National Instrument 81-102 Investment Funds.
The securities of the Funds are, or will be, qualified for distribution pursuant to a SP, Fund Facts and annual information form that have been, or will be, prepared and filed in accordance with NI 81-101, subject to any exemptions therefrom that have been, or may in the future be, granted to the Funds by the securities regulatory authorities.
Neither the Filer nor any of the existing Funds is in default of securities legislation in any of the Jurisdictions.
The Corporate Fund on Trust Fund Arrangement
Each Existing Top Corporate Fund invests, and each future Top Corporate Fund will invest, substantially all of its portfolio assets in units of its corresponding Underlying Trust Fund (the Corporate Fund on Trust Fund Arrangement).
The Corporate Fund on Trust Fund Arrangement is intended to allow each Top Corporate Fund to replicate the performance of its corresponding Underlying Trust Fund.
Each Top Corporate Fund and Underlying Trust Fund comprising the particular Corporate Fund on Trust Fund Arrangement shares, or will share, substantially similar investment objectives and investment strategies and has, or will have, the same portfolio managers/subadvisors and the same underlying investment portfolio.
As a result of the Corporate Fund on Trust Fund Arrangement, the investment return of each Top Corporate Fund is determined by the investment performance of its corresponding Underlying Trust Fund.
The Proposed SP Part B Disclosure
Subject to any other exemption from NI 81-101 that has been, or may in the future be, granted to the Funds by the securities regulatory authorities, it is proposed that the SP of the Funds comply with the form requirements of NI 81-101, with the exception of Part B, where the Filer proposes, for expediency, to combine the Part B disclosure for two Funds, namely for each Top Corporate Fund and its corresponding Underlying Trust Fund, within a single Part B fund profile.
A separate Fund Facts document for each series of each Fund will continue to be prepared and filed in accordance with NI 81-101.
The Part B of a Fund will not be combined with the Part B of more than one other Fund by allowing the Funds to rely upon both the Exemption Sought and any of the Previous Decisions (defined below). Specifically, no Underlying Trust Fund will rely upon the Exemption Sought if the Underlying Trust Fund is part of a fund on fund structure other than a Corporate Fund on Trust Fund Arrangement described in this decision.
The Previous Relief
The Filer previously obtained similar relief to the Exemption Sought for Trust Fund on Corporate Fund investment structures managed by the Filer where the Trust Fund invests substantially all of its portfolio assets in a combination of non-publicly offered limited recourse debt and securities of its corresponding underlying Corporate Fund in a series of decisions dated February 24, 2006 (the 2006 Decision), March 8, 2007 (the 2007 Decision) and December 20, 2012 (the 2012 Decision, together with the 2006 Decision and the 2007 Decision, the Previous Decisions). The 2012 Decision applies to each Trust Fund and Corporate Fund in existence on that date as well as future funds that use the same investment structure.
NexGen Corporate Bond Tax Managed Fund (now named Loomis Sayles Global Diversified Corporate Bond Tax Managed Fund) and NexGen Corporate Bond Fund (now named Loomis Sayles Global Diversified Corporate Bond Fund) were inadvertently mentioned (using their former NexGen names) in the 2012 Decision, but could not rely on the 2012 Decision because the Corporate Fund on Trust Fund Arrangement was not contemplated by the 2012 Decision.
The Existing Top Corporate Funds and their corresponding Existing Underlying Trust Funds originally employed a fund on fund forward structure involving the use of a derivative (a forward contract) to allow each Existing Top Corporate Fund to obtain exposure to the performance of its corresponding Existing Underlying Trust Fund in a tax efficient manner.
Following the wind up of the forward structures in 2016, each Existing Top Corporate Fund began to invest directly in its respective Existing Underlying Trust Fund. At this time, the Part B of the SP of each Existing Top Corporate Fund was combined with the Part B of the SP for its corresponding Existing Underlying Trust Fund in reliance on an exemption granted as evidenced by issuance of the receipt for the current SP dated June 10, 2016.
The Filer is seeking the Exemption Sought: (a) because the Corporate Fund on Trust Fund Arrangement was not contemplated by the Previous Decisions; and (b) to extend the exemption granted by issuance of the receipt for the current SP dated June 10, 2016.
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 the Exemption Sought will terminate on the latest of: (a) the coming into force of any legislation or rule dealing with the Exemption Sought; or (b) the end date of any applicable transition period for any legislation or rule dealing with the Exemption Sought.
signed <Vera Nunes>
Vera Nunes,
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
2016/0426