Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- the fundamental investment objectives of the terminating funds and the continuing funds are not substantially similar -- some mergers will not be effected on a tax deferred basis -- securityholders of terminating funds are provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 19.1.

May 22, 2015

IN THE MATTER OF THE SECURITIES LEGISLATION OF THE PROVINCE OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NEXGEN FINANCIAL LIMITED PARTNERSHIP (the "Filer") AND NEXGEN TURTLE CANADIAN EQUITY REGISTERED FUND, NEXGEN TURTLE CANADIAN EQUITY TAX MANAGED FUND, NEXGEN NORTH AMERICAN LARGE CAP REGISTERED FUND, NEXGEN NORTH AMERICAN LARGE CAP TAX MANAGED FUND (each a "Terminating Fund" and collectively the "Terminating Funds") AND NEXGEN CANADIAN DIVIDEND REGISTERED FUND, NEXGEN CANADIAN DIVIDEND TAX MANAGED FUND, NEXGEN TURTLE CANADIAN BALANCED REGISTERED FUND, NEXGEN TURTLE CANADIAN BALANCED TAX MANAGED FUND (each a "Continuing Fund" and collectively the "Continuing Funds", and together with the Terminating Funds, the "Funds")

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the "Application") from the Filer on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for approval of the mergers (the "Mergers") of the Terminating Funds into the Continuing Funds (as set out below) under paragraph 5.5(1)(b) of National Instrument 81-102 ("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 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 British Columbia, Alberta, Quebec, Newfoundland and Labrador and Northwest Territories (together with Ontario, the "Jurisdictions").

Interpretation

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

Representations

The decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a limited partnership established under the laws of the Province of Ontario and its head office is located in Toronto, Ontario. The Filer is registered as a dealer in the category of mutual fund dealer, an adviser in the category of portfolio manager and an investment fund manager under the Securities Act (Ontario).

2. The Filer is the manager and portfolio manager of the Terminating Funds and the Continuing Funds.

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

The Funds

4. Two of the Terminating Funds, NexGen Turtle Canadian Equity Registered Fund and NexGen North American Large Cap Registered Fund (the "Registered Terminating Funds"), and two of the Continuing Funds, NexGen Turtle Canadian Balanced Registered Fund and NexGen Canadian Dividend Registered Fund (the "Registered Continuing Funds", and together with the Registered Terminating Funds, the "Registered Funds") are trusts established under the laws of Ontario.

5. Two of the Terminating Funds, NexGen Turtle Equity Tax Managed Fund and NexGen North American Large Cap Tax Managed Fund (the "Tax Managed Terminating Funds"), and two of the Continuing Funds, NexGen Canadian Balanced Tax Managed Fund and NexGen Canadian Dividend Tax Managed Fund (the "Tax Managed Continuing Funds", and together with the Tax Managed Terminating Funds, the "Tax Managed Funds") are portfolios comprised of classes of NexGen Investment Corporation, a mutual fund corporation incorporated under the laws of the Province of Ontario.

6. Securities of the Funds are currently offered for sale under a simplified prospectus and annual information form dated May 28, 2014 (the "Prospectus") in the Jurisdiction. Each of the Funds follows the standard investment restrictions and practices established under the Legislation, except where exemptive relief has been granted.

7. Each of the Funds is a reporting issuer under applicable securities legislation of the Jurisdictions.

8. The Funds are not in default of securities legislation in the Jurisdictions.

9. The structure of the Funds is comprised of fund-on-fund arrangements where each Registered Fund invests its assets in a corresponding underlying Tax Managed Fund. Securityholders of the Registered Funds hold securities of the Registered Funds within registered accounts. Securityholders of Tax Managed Funds hold securities of the Tax Managed Funds outside registered accounts.

The Proposed Mergers

10. The Filer intends to merge the Terminating Funds into the Continuing Funds as follows:

(a) NexGen Turtle Canadian Equity Registered Fund into the NexGen Turtle Canadian Balanced Registered Fund;

(b) NexGen North American Large Cap Registered Fund into the NexGen Canadian Dividend Registered Fund;

(c) NexGen Turtle Canadian Equity Tax Managed Fund into the NexGen Turtle Canadian Balanced Tax Managed Fund; and

(d) NexGen North American Large Cap Tax Managed Fund into the NexGen Canadian Dividend Tax Managed Fund.

The proposed Mergers in (a) and (b) above are the "Registered Mergers". The proposed Mergers in (c) and (d) above are the "Tax Managed Mergers".

11. The Approval Sought is required because the Mergers satisfy the requirements for pre-approved reorganizations and transfers set out in subsection 5.6(1) of NI 81-102, except for the following:

(a) a reasonable person would not consider each Terminating Fund and its corresponding Continuing Fund to have substantially similar investment objectives, as required by subparagraph 5.6(1)(a)(ii) of NI 81-102; and

(b) the Registered Mergers will not be effected on a tax deferred basis, as required by paragraph 5.6(1)(b) of NI 81-102.

12. With respect to the Registered Mergers, all securityholders in the Terminating Funds hold such funds in registered plans so the securityholders will not be impacted by effecting the Registered Mergers on a taxable basis.

13. The board of directors of NexGen approved and ratified the Mergers. A press release and a material change report in respect of the Mergers were filed on SEDAR on April 16, 2015.

14. As required by National Instrument 81-107 Independent Review Committee for Investment Funds ("NI 81-107"), NexGen presented the terms of the Mergers to the Independent Review Committee ("IRC") of the Funds for its review and recommendation. The IRC reviewed the potential conflict of interest matters related to the proposed Mergers and on April 15, 2015 determined that the proposed Mergers, if implemented, would achieve a fair and reasonable result for each of the Terminating Funds.

15. A summary of the IRC's recommendation has been included in a notice of the meeting sent to securityholders of the Terminating Funds as required by section 5.1(2) of NI 81-107.

16. The Mergers constitute a material change for the Terminating Funds. Amendments to the Prospectus and Fund Facts of the Terminating Funds reflecting such material change were filed on SEDAR on April 20, 2015.

17. The Mergers do not constitute a material change for the Continuing Funds.

18. Securityholders of the Terminating Funds will be asked to approve the Mergers at meetings (each a "Meeting") of the securityholders to be held on June 1, 2015.

19. In connection with each Meeting, a notice of the meeting of securityholders and a management information circular dated April 17, 2015 and a related form of proxy has been mailed to securityholders of the Terminating Funds (the "Meeting Materials").

20. The Meeting Materials contain the Fund Facts of the Continuing Funds, a description of the proposed Mergers, information about the Terminating Funds and the Continuing Funds, and income tax considerations for securityholders of the Terminating Funds. The Meeting Materials also describe the various ways in which securityholders can obtain a copy of the Prospectus of the Continuing Funds, as well as the recent interim and annual financial statements and management reports of fund performance for the Continuing Funds, at no cost.

21. As disclosed in the Meeting Materials, each Registered Merger is contingent on the corresponding Tax Managed Merger and vice-versa. With respect to the Mergers, each Tax Managed Fund is the underlying fund to the corresponding Registered Fund.

22. Subject to receipt of securityholder approval and the Approval Sought, it is proposed that the Mergers take place on or about June 5, 2015 (the "Merger Date").

23. If securityholder approval is not received at the Meeting in respect of a Terminating Fund, then the relevant Merger will not proceed.

24. Securityholders of the Terminating Funds will continue to have the right to redeem or transfer their securities of a Terminating Fund at any time up to the close of business on the business day prior to the effective date of the Mergers.

25. Following the Mergers, all optional plans, including pre-authorized purchase programs, automatic withdrawal plans and systemic switch programs, which were established with respect to a Terminating Fund will be re-established in comparable plans with respect to the Continuing Fund, unless a securityholder advises otherwise.

26. The Filer will pay all costs and expenses relating to the solicitation of proxies and holding the Meetings as well as the costs of implementing the Mergers, including any brokerage fees.

27. No sales charges will be payable by a securityholder in connection with the Mergers.

28. Following the Mergers, the Continuing Funds will continue as publicly offered open-end mutual funds and the Terminating Funds will be wound up.

29. If the necessary approvals are obtained, the following steps will be carried out to effect the Mergers:

(a) In respect of the Tax Managed Mergers:

(i) the portfolio securities held by the Tax Managed Terminating Funds that are consistent with the investment objectives and acceptable to the portfolio manager of the Tax Managed Continuing Funds will be transferred in-kind to the Tax Managed Continuing Funds prior to the Effective Date. Any investments held by the Tax Managed Terminating Funds that are not consistent with the investment objectives or acceptable to the portfolio manager of the Tax Managed Continuing Funds will be sold prior to the Effective Date;

(ii) each outstanding share of a Tax Managed Terminating Fund will be exchanged for share(s) of an equivalent class and series of the Tax Managed Continuing Fund. The share exchange will be effected on the basis of the relative net asset values of the applicable shares at the close of business on the Merger Date;

(iii) the assets and liabilities of NexGen Investment Corporation attributable to the Tax Managed Terminating Funds will be transferred to the Tax Managed Continuing Fund; and

(iv) the Tax Managed Terminating Funds will then be wound up.

(b) In respect of the Registered Mergers:

(i) each of the Registered Terminating Funds will transfer all of its assets less an amount required to satisfy the liabilities of the Registered Terminating Fund to the Registered Continuing Fund in exchange for units of the Registered Continuing Fund. The unit exchange will be effected on the basis of the relative net asset values of the applicable units at the close of business on the Merger Date;

(ii) each unitholder of a Registered Terminating Fund will receive the corresponding units of the Registered Continuing Fund;

(iii) each Registered Terminating Fund will distribute to its unitholders sufficient net income and net realized capital gains so that it will not be subject to tax under the Income Tax Act (Canada) for its current taxation year;

(iv) each Registered Terminating Fund will distribute to its unitholders the units of the Registered Continuing Fund received by it in exchange for all of the unitholders' existing units of the Registered Terminating Fund on a series-by-series basis so that following the distribution the unitholders of the Registered Terminating Fund will become direct unitholders of the Registered Continuing Fund; and

(v) the Registered Terminating Funds will be wound up.

30. In the opinion of the Filer, the Mergers will be beneficial to securityholders of the Terminating Funds for the following reasons:

(a) Securityholders in the Terminating Funds will enjoy potential improved economies of scale and potentially lower proportionate fund operating expenses (which are borne indirectly by securityholders) as part of a larger combined Continuing Fund;

(b) The management fees are the same for each Terminating Fund and its corresponding Continuing Funds and the management expense ratio (MER) of each Continuing Fund is the same, or lower, than the MER of its corresponding Terminating Fund;

(c) The portfolio manager is the same for each Terminating Fund and its corresponding Continuing Fund so securityholders of the Terminating Funds will experience continuity in investment style; and

(d) Securityholders in the Terminating Funds will not have adverse tax consequences from the Mergers whereas termination of the Terminating Funds would trigger adverse tax consequences upon the disposition of the Terminating Funds' portfolio assets.

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, provided that the Filer obtains the prior securityholder approval for the Mergers at the securityholder meeting held for that purpose, or any adjournments thereof.

"Vera Nunes"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission