Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- investment fund manager obtaining relief from the requirement to obtain the approval of securityholders before changing the fundamental investment objective of certain funds -- relief required as a result of changes to federal budget eliminating certain tax benefits associated with character conversion transactions -- Filer required to send written notice at least 60 days before the effective date of the change to the investment objective of the funds setting out the change, the reasons for such change and a statement that the funds will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes -- National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.1(1)(c), 19.1.

February 19, 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 TD ASSET MANAGEMENT INC. (the Filer) AND IN THE MATTER OF TD CORPORATE BOND CAPITAL YIELD FUND (the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Fund from the requirement in subsection 5.1(1) (c) of National Instrument 81-102 Investment Funds ("NI 81-102") to obtain the approval of securityholders before changing the fundamental investment objectives of the Fund (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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (together with Ontario, the "Jurisdictions").

Interpretation

Terms defined in NI 81-102, National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following additional term shall have the following meaning:

"Reference Fund" means TD Corporate Bond Pool.

Representations

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

1. The Filer is a wholly-owned subsidiary of The Toronto-Dominion Bank and is registered under the Securities Act (Ontario) in the categories of investment fund manager, portfolio manager, exempt market dealer and, under the Commodity Futures Act (Ontario), in the category of commodity trading manager. The Filer's head office is located in Toronto, Ontario.

2. The Filer is the trustee, investment fund manager and portfolio manager of the Fund and the Reference Fund.

3. None of the Filer, the Fund or the Reference Fund is in default of securities legislation in any Jurisdiction.

4. The Fund and the Reference Fund are subject to the requirements of NI 81-102 and National Instrument 81-107 Independent Review Committee for Investment Funds, subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities.

5. The securities of the Fund are qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts dated July 23, 2015 that was prepared and filed in accordance with the securities legislation of the Jurisdictions. The securities of the Reference Fund were qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts dated July 27, 2011 prepared and filed in accordance with the securities legislation of the Jurisdictions. The Fund and the Reference Fund are reporting issuers or the equivalent in each Jurisdiction.

6. The current investment objectives of the Fund are to generate cash flow primarily through exposure to a pool that invests primarily in North American and/or international corporate bonds and other debt instruments (collectively, "Corporate Bonds"). The Fund gains exposure to Corporate Bonds by investing in Canadian equity securities and entering into forward contracts (the "Forwards") under which the Fund agrees to sell the equity securities in return for a price determined by reference to the value of a notional investment in units of the Reference Fund, less costs of the contract (the "Character Conversion Transactions").

7. The Income Tax Act (Canada) (the "Tax Act") has been amended following the Federal Minister of Finance's budget proposal first introduced on March 21, 2013. The amendments to the Tax Act have eliminated the tax benefits associated with Character Conversion Transactions (the "Tax Changes"). The Tax Changes apply to Character Conversion Transactions entered into or amended after March 20, 2013.

8. On April 3, 2013, the Filer issued a press release announcing the temporary closing of the Fund to new investment effective on April 5, 2013. The Fund remains closed to new investors. The Filer intends that the Fund be re-opened to new purchases on or about the effective date of the amendments to the investment objectives.

9. In response to the Tax Changes the Filer wishes to change the fundamental investment objectives of the Fund (the "Objectives Changes"). In conjunction with the Objectives Changes, the Filer also wishes to change the name of the Fund and amend the investment strategies of the Fund in order to remove references to the Character Conversion Transactions and to make them consistent with the revised fundamental investment objectives.

10. The final forward contract matures on September 6, 2016. The existing fundamental investment objectives of the Fund are expected to continue in effect until on or about August 31, 2016 and the Objectives Changes will take effect on or about September 1, 2016 (the "Effective Date").

11. The existing investment objectives of the Fund as stated in the current prospectus for the Fund and the proposed new fund name and investment objectives are set out in the table below:

Existing name and fundamental investment objectives

Proposed new name and fundamental investment objectives

 

TD Corporate Bond Capital Yield Fund

TD Corporate Bond Plus Fund

 

The fundamental investment objective is to generate cash flow primarily through exposure to a pool that invests primarily in North American and/or international corporate bonds and other debt instruments (collectively, "corporate bonds"). Corporate bonds include those which are issued and/or guaranteed by a corporation, a limited partnership, a trust, a special purpose entity, a company which has not been incorporated, and educational institutions.

The fundamental investment objective is to seek to earn income by primarily investing in, or gaining exposure to North American and/or international corporate bonds and other debt instruments (collectively, "corporate bonds"). Corporate bonds include those which are issued and/or guaranteed by a corporation, a limited partnership, a trust, a special purpose entity, a company which has not been incorporated, and educational institutions.

 

Unless a change is required because of changes in the law, the fundamental investment objective may only be changed with the approval of a majority of unitholders, given at a meeting called for that purpose.

Unless a change is required because of changes in the law, the fundamental investment objective may only be changed with the approval of a majority of unitholders, given at a meeting called for that purpose.

12. The Filer wishes to effect an amendment (the "Amendment") to the investment objectives and investment strategies of the Fund whereby:

(a) all references to the use of Character Conversion Transactions will be removed;

and

(b) the Fund will be permitted to directly invest its assets in, or gain exposure to, Corporate Bonds.

13. The Amendment would take effect no less than 60-days after the Filer delivers a written notice to the Fund's securityholders (the "Notice"). The Notice will provide the rationale for the changes, and a statement that the Fund will no longer be able to provide tax-advantaged returns after the final Forwards have matured.

14. With respect to the Fund, the Filer will comply with the "material change report" requirements set out in Part 11 of National Instrument 81-106 Investment Fund Continuous Disclosure in connection with the Filer's decision to make the Objectives Changes.

15. Securityholders may redeem their securities in advance of the Objectives Changes should they wish to do so.

16. The Filer submits that it is not prejudicial, nor contrary to the public interest to grant the Exemption Sought in the circumstances as represented above.

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, in respect of the Fund, securityholders will be sent the Notice, at least 60 days before the Effective Date, that sets out the change to the investment objectives, the reasons for such change and a statement that the Fund will no longer be able to provide tax advantaged returns after the final Forwards have matured.

"Darren McKall"
Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission