TD Asset Management Inc. et al.
Headnote
Mutual funds in Ontario (non-reporting issuers) granted an extension of the audited annual financial statement filing deadline and delivery requirement as they are wholly invested in offshore investment funds for which audited financial information is not yet available.
Rules Cited
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.2, 5.1(2), 17.1.
March 30, 2007
IN THE MATTER OF
NATIONAL INSTRUMENT 81-106
INVESTMENT FUND CONTINUOUS DISCLOSURE
AND
IN THE MATTER OF
TD ASSET MANAGEMENT INC.
(TDAM)
AND
DIVERSIFIED GLOBAL ASSET MANAGEMENT
CORPORATION (DGAM)
AND
IN THE MATTER OF
DIVERSIFIED VALUE ADDED -- REAL RETURN FUND
DIVERSIFIED VALUE ADDED -- U.S. EQUITY FUND
DIVERSIFIED VALUE ADDED -- LONG BOND FUND
(the Funds)
DECISION DOCUMENT
BACKGROUND
The Ontario Securities Commission has received an application from TDAM and DGAM (the Applicants) on behalf of the Funds, for a decision pursuant to section 17.1 of National Instrument 81-106 -- Investment Fund Continuous Disclosure (NI 81-106) exempting the Funds from:
(a) the requirement in section 2.2 of NI 81-106 (the Filing Requirement) that the Funds file audited annual financial statements on or before the 90th day after their most recently completed financial year (the Filing Deadline); and
(b) the requirement in subsection 5.1(2) of NI 81-106 that the Funds deliver their audited financial statements to securityholders by the Filing Deadline (the Delivery Requirement).
REPRESENTATIONS
This Decision is based on the following facts represented by the Applicants:
The Applicants
1. TDAM is a corporation amalgamated under the Business Corporations Act (Ontario).
2. TDAM is registered as an investment counsel and portfolio manager and as a limited market dealer under the Securities Act (Ontario) (the Act).
3. DGAM is a corporation amalgamated under the Companies Act (Nova Scotia).
4. DGAM is registered as an investment counsel and portfolio manager and as a limited market dealer under the Act.
5. TDAM and DGAM are the managers of the Funds.
The Funds
6. Each of the Funds is a trust established under the laws of Ontario. Each of the Funds is a "mutual fund in Ontario" but is not a "reporting issuer" under the Securities Act (Ontario).
7. Securities of the Funds are distributed by TDAM or DGAM, as a limited market dealer, in Ontario, on a private placement basis pursuant to one or more exemptions from the prospectus requirement or otherwise in accordance with regulatory relief granted to TDAM and/or DGAM.
8. The investment objective of a Fund is to enhance the performance of the Fund in relation to a specified fixed-income or equity index (each, an Index) over the long term through economic exposure to the performance of an underlying fund managed by DGAM (the DGAM Fund) and the performance of the specified Index. A Fund's investment in the DGAM Fund will be in furtherance of the first element of economic exposure and a Fund's investment in an underlying fund managed by TDAM (the TDAM Fund) will be in furtherance of the second element of economic exposure.
9. The percentage of the assets of a Fund that are invested in securities of the DGAM Fund and the TDAM Fund will be determined by TDAM and DGAM jointly from time to time on a basis that TDAM and DGAM consider is appropriate for the Fund and is consistent with the investment objectives of the Fund.
10. The DGAM Fund in which a Fund currently invests is the DGAM Diversified Fund, which is governed by the laws of the Cayman Islands.
11. The DGAM Diversified Fund invests substantially all of its assets in the DGAM Partners' Fund which is also governed by the laws of the Cayman Islands.
12. The DGAM Partners' Fund invests in a diversified portfolio of hedge funds (the Underlying Funds).
13. A Fund may make investments in or that relate to other DGAM Funds that have substantially the same structure, investment objective, strategy and restrictions as the DGAM Diversified Fund.
14. Investors in a Fund (the Unitholders) receive an offering memorandum (the Offering Memorandum) that describes the Fund, the DGAM Diversified Fund and the DGAM Partners' Fund and that the Fund may make investments in or that relate to other DGAM Funds and other relevant information about the Fund.
Preparing the Funds' Annual Financial Statements
15. The Funds have a financial year-end of December 31.
16. The DGAM Partners' Fund, the DGAM Diversified Fund and any other DGAM Fund in which a Fund invests have a December 31 financial year-end and the Underlying Funds will likely have a December 31 financial year-end.
17. Section 2.2 and subsection 5.1(2) of NI 81-106 require the Funds to file and deliver their audited annual financial statements by the Filing Deadline.
18. Section 2.11 of NI 81-106 provides an exemption (the Filing Exemption) from the Filing Requirement if, among other things, the Funds deliver their annual financial statements in accordance with Part 5 of NI 81-106 by the Filing Deadline.
19. The annual audited financial statements of the DGAM Diversified Fund, the DGAM Partners' Fund and any other DGAM Fund are required to be prepared in accordance with U.S. GAAP and delivered to securityholders within 180 days of the year end.
20. The annual audited financial statements of the Underlying Funds are prepared in accordance with the accounting principles applicable to them, such as International Financial Reporting Standards, Canadian GAAP or U.S. GAAP, and delivered in accordance with the delivery requirements applicable to them, which is generally within 180 days of the year end.
21. TDAM and DGAM have been advised by the auditors of each of the Funds that compliance with Canadian GAAP requires a Fund to include certain information about its holdings in the DGAM Diversified Fund, and such information must be provided by the DGAM Diversified Fund.
22. TDAM and DGAM have also been advised by the auditors of each of the Funds that compliance with Canadian GAAS requires the auditors of a Fund, in auditing the information contained in the financial statements of the Fund that was provided by the DGAM Diversified Fund, to review the audited annual financial statements of the DGAM Diversified Fund.
23. TDAM and DGAM have also been advised by the auditors of the DGAM Diversified Fund that, for reasons similar to those provided in paragraphs 21 and 22 above, the audit of the DGAM Diversified Fund cannot be completed until the audit of the DGAM Partners' Fund is completed and the audit of the DGAM Partners' Fund cannot be completed until the audited financial statements of a significant portion of the Underlying Funds have been received.
24. Given the above, it is expected that TDAM and DGAM will not be able to file the financial statements of the Funds by the Filing Deadline. As a result, the Funds will not be able to meet the Filing Deadline and will not be able to comply with the Delivery Requirement.
25. The Funds may want to rely on the Filing Exemption. Subsection 2.11(b) of the Filing Exemption requires that the Funds deliver financial statements to securityholders in accordance with Part 5 of NI 81-106 by the Filing Deadline. As noted in paragraph 24 above, the Funds will not be able to meet the Filing Deadline and will not be able to comply with the Delivery Requirement. As a result, the Funds will not be able to satisfy the condition in subsection 2.11(b) and therefore will not be able to rely on the Filing Exemption.
26. The Funds will notify Unitholders that they have received and intend to rely on relief from the Filing Requirement and the Delivery Requirement.
DECISION
The Director is satisfied that the test contained in NI 81-106 that provides the Director with the jurisdiction to make the decision has been met.
The decision of the Director under NI 81-106 is that:
(a) the Funds are exempted from the Filing Requirement provided that:
(i) the audited annual financial statements of the Funds are filed on or before the 180th day after the Funds' most recently completed financial year, or
(ii) the conditions in section 2.11 of NI 81-106 are met, except for subsection 2.11(b), and the audited annual financial statements of the Funds are delivered to securityholders in accordance with Part 5 of NI 81-106 on or before the 180th day after the Funds' most recently completed financial year; and
(b) the Funds are exempted from the Delivery Requirement provided that the audited annual financial statements of the Funds are delivered to securityholders in accordance with Part 5 of NI 81-106 on or before the 180th day after the Funds' most recently completed financial year.