August 16, 2019
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 Manager) AND
TD BALANCED INCOME FUND
TD ADVANTAGE BALANCED INCOME PORTFOLIO TD ADVANTAGE BALANCED PORTFOLIO
(each, a Terminating Fund, and collectively, the Terminating Funds, and together with the Manager on behalf of the Terminating Funds, the Filers)
DECISION
BACKGROUND
The principal regulator in the Jurisdiction has received an application (the Application) from the Filers, for a decision under the securities legislation of the jurisdiction of the principal regulator (the Legislation) approving the mergers of each of the Terminating Funds into the Continuing Fund (as defined below) (the Mergers), 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 Filers have 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 other provinces and territories of Canada (the Other Jurisdictions and collectively 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 terms (in alphabetical order) have the following meanings:
Circular means the management information circular provided by the Manager in connection with the Mergers.
Continuing Funds means TD Diversified Monthly Income Fund, TD Managed Income Portfolio, and TD Managed Income & Moderate Growth Portfolio.
Funds mean collectively, the Terminating Funds and the Continuing Funds.
IRC means the independent review committee of the Funds.
Merger Effective Date means on or about October 25, 2019 – the expected date for effecting the Mergers.
Tax Act means the Income Tax Act (Canada).
TD AIF refers to the TD Mutual Funds’ annual information form dated July 25, 2019.
TD MAP AIF refers to the TD Managed Assets Program Portfolios’ annual information form dated October 25, 2018, as amended.
TD MAP Funds refers to TD Managed Income Portfolio and TD Managed Income & Moderate Growth Portfolio.
TD MAP SP refers to the TD Managed Assets Program Portfolios’ simplified prospectus dated October 25, 2018, as amended.
TD SP refers to the TD Mutual Funds’ simplified prospectus dated July 25, 2019.
REPRESENTATIONS
The decision is based on the following facts represented by the Filers:
The Manager
TD Asset Management Inc. (TDAM) is a corporation amalgamated under the Business Corporations Act (Ontario) with its head office located in Toronto, Ontario.
TDAM is registered as (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, (ii) a portfolio manager and exempt market dealer in each of the provinces and territories of Canada, and (iii) a commodity trading manager in Ontario.
TDAM is the manager and trustee of each of the Funds.
The Funds
Each of the Funds is an open-ended mutual fund trust established under the laws of the province of Ontario by a declaration of trust.
Each of the Funds is a reporting issuer under the applicable securities legislation of each Jurisdiction.
Neither TDAM nor the Funds is in default of securities legislation in any jurisdiction of Canada.
Other than circumstances in which the securities regulatory authority of a Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions established under NI 81-102.
Each of the Funds is subject to National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107)
Investor Series, Advisor Series, F-Series, C-Series, O Series, H5 Series, T5 Series, FT5 Series and FT8 Series of the Funds, with the exception of the TD MAP Funds, are qualified for distribution pursuant to the TD SP and TD AIF.
Investor Series, Advisor Series, F-Series, H5 Series, T5 Series, FT5 Series and FT8 Series of the TD MAP Funds are qualified for distribution pursuant to the TD MAP SP and TD MAP AIF.
The net asset value for each series of securities of the Funds is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the simplified prospectuses and annual information forms for the Funds.
Reasons for the Approval Sought
- 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. In particular:
(a) the fundamental investment objectives of the Continuing Funds are not, or may be considered not to be, “substantially similar” to the investment objectives of the Terminating Funds;
(b) a portion of the portfolio holdings of the Terminating Funds are not acceptable to the portfolio advisers of the applicable Continuing Funds into which they will be merged; and
(c) the fee structure of certain series of the Terminating Funds are not, or may be considered not to be, “substantially similar” to the fee structure of the corresponding series of the applicable Continuing Fund.
- Except as described in this decision, the Mergers will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Mergers
- Pursuant to the Mergers, unitholders of each of the Terminating Funds would become unitholders of the Continuing Funds, as follows:
Terminating Fund Continuing Fund
TD Balanced Income Fund TD Diversified Monthly Income Fund
TD Advantage Balanced Income Portfolio TD Managed Income Portfolio
TD Advantage Balanced Portfolio TD Managed Income & Moderate Growth Portfolio
As required by NI 81-107, TDAM presented the terms of the proposed Mergers to the IRC of the Funds for a recommendation. The IRC reviewed the proposed Mergers and provided a positive recommendation for each of the proposed Mergers on June 13, 2019, having determined that the proposed Mergers, if implemented, achieve a fair and reasonable result for each of the Terminating Funds and their respective unitholders.
In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), a press release announcing the proposed Mergers was issued on July 18, 2019. A material change report with respect to the proposed Mergers was filed on SEDAR on July 18, 2019. Furthermore, the TD SP, TD AIF and fund facts documents pertaining to the Terminating Funds, which describe each of the proposed Mergers, were filed with SEDAR on July 25, 2019.
TDAM has determined that the proposed Mergers will not constitute a material change for the Continuing Funds. As a result, TDAM will not be seeking the prior approval of unitholders of the Continuing Funds.
Unitholders of the Terminating Funds will be asked to approve the Mergers at special meetings to be held on or about September 27, 2019.
By way of order dated December 5, 2016, TDAM was granted exemptive relief (Notice and Access Relief) from the requirement set out in paragraph 12.2(2)(a) of NI 81-106 to send a printed information circular to each registered unit holder of securities of a Fund whose proxies are being solicited, and instead allow a Fund to send a Notice-and-Access Document (as defined in condition 1 of the Decision) using the Notice-and-Access Procedure (as defined in condition 2 of the Decision) (the Decision).
In accordance with TDAM’s standard of care owed to the relevant Funds pursuant to applicable legislation, TDAM will only use the notice-and-access procedure for a particular meeting where it has concluded that it is appropriate and consistent to do so, also taking into account the purpose of the meeting and whether the Funds would obtain better participation rates by sending the information circular with the other proxy-related materials.
Pursuant to the requirements of the Notice and Access Relief, TDAM will mail a notice- and-access document, form of proxy in connection with the special meetings, and the most recent fund facts of the relevant series of the Continuing Fund, as applicable (collectively, the Meeting Materials) to unitholders of the Terminating Funds commencing on or about August 23, 2019 and concurrently filed on SEDAR. The Circular, to which the notice-and-access document provides a link, will also be filed on SEDAR at the same time.
The tax implications of the Mergers, the differences between the investment objectives and fee structures of the Terminating Funds and the Continuing Funds, as applicable, and the IRC's recommendation of the Mergers will be described in the Meeting Materials so that unitholders of the Terminating Funds can consider this information before voting on the Mergers. The Meeting Materials will also describe the various ways in which unitholders can obtain, at no cost, a copy of the simplified prospectus, annual information form and fund facts for each Continuing Fund and its most recent interim and annual management reports of fund performance and interim unaudited and annual audited financial reports and statements.
Unitholders of a Terminating Fund will have the right to redeem securities of, or make switches out of, a Terminating Fund, up to the close of business on the business day immediately before the Merger Effective Date.
If all required approvals for the Mergers are obtained, the Mergers will be completed on or about October 25, 2019.
TDAM will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the trades that occur both before and after the date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees. There are no charges payable by unitholders of the Terminating Funds who acquire units of the corresponding Continuing Funds as a result of the Mergers.
Procedure for the Mergers
- If the necessary approvals are obtained, TDAM will carry out the following steps to complete the Mergers:
(a) Each Terminating Fund will jointly elect with the applicable Continuing Fund that the Merger be a "qualifying exchange" as defined in subsection 132.2(1) of the Tax Act.
(b) Prior to effecting the Mergers, if required, each Terminating Fund will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the Continuing Fund. As a result, the Terminating Fund and the Continuing Fund may each temporarily hold cash or money market instruments and may not be fully invested in accordance with their respective investment objectives for a brief period of time prior to, and following, the Merger. In the case of the Mergers of TD Advantage Balanced Income Portfolio and TD Advantage Balanced Portfolio, all or substantially all of the investment portfolio of the Terminating Funds will be liquidated prior to the Effective Date.
(c) Prior to the Merger, each Terminating Fund and Continuing Fund will distribute to their respective unitholders a sufficient amount of its net income and net realized capital gains, if any, to ensure that neither of the Terminating Fund nor the Continuing Fund will be subject to tax under Part I of the Tax Act for their taxation year ending on the Effective Date.
(d) The value of each Terminating Fund's portfolio securities 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 each Terminating Fund.
(e) On the Effective Date, each Terminating Fund will transfer all of its net assets to the applicable Continuing Fund in exchange for units of the Continuing Fund. Each Terminating Fund anticipates that it will have no liabilities (other than trades pending settlement) on the Effective Date. Consequently, the units of the Continuing Fund received by the Terminating Fund will have an aggregate net asset value equal to the value of the Terminating Fund's investment portfolio and other assets that the Continuing Fund is acquiring, which units will be issued at the applicable series net asset value per unit as of the close of business on the Effective Date in accordance with its declaration of trust.
(f) Immediately thereafter, each Terminating Fund will redeem all of its outstanding units and will distribute to its unitholders, the units of the Continuing Fund received by it on a dollar-for-dollar and series-by-series basis in exchange for their units in the Terminating Fund.
(g) As soon as reasonably possible following each Merger, and in any case within 60 days following the Effective Date of the Merger, the applicable Terminating Fund will be wound up.
Merger Benefits
- The Manager believes that the Mergers are beneficial to unitholders of the Terminating Funds and Continuing Funds for the following reasons:
(a) the Continuing Funds into which the Terminating Funds will be merged into are larger and offer the potential for greater portfolio diversification and, accordingly, greater potential for investment returns and risk reduction;
(b) unitholders in each Continuing Fund, as a result of its greater size, may benefit from its larger profile in the marketplace;
(c) the management expense ratios of each of TD Managed Income Portfolio and TD Managed Income & Moderate Growth Portfolio are lower than those of the corresponding Terminating Fund;
(d) the Continuing Funds have generally delivered better long-term performance than the applicable Terminating Funds; and
(e) the Proposed Mergers will result in a more streamlined and simplified product line-up that is easier for investors to understand.
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 Filers obtain the prior approval of the unitholders of the Terminating Funds for the Mergers at a special meeting held for that purpose.
“Darren McKall”
Darren McKall, Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission
SEDAR Project #2944455
Application #2019/0371