In the December 2015 edition of The Investment Funds Practitioner, the Ontario Securities Commission (OSC) Investment Funds and Structured Products Branch reviews a number of recent issues arising from applications for discretionary relief, prospectuses and continuous disclosure documents filed by investment funds with the OSC. Among these are three that we’d like to highlight here:
Pooled funds acting as top funds in fund-on-fund structures no longer receiving NI 81-106 financial statement filing relief
In the past, OSC staff have sometimes granted top fund pooled funds relief from financial statement delivery deadlines under National Instrument 81-106 – Investment Fund Continuous Disclosure (NI 81-106) where the bottom fund was established in another jurisdiction and had a different year-end. Such relief recognized the fact that the top funds’ auditors could not conclude their audit until the audited financials of the bottom funds were available. However, staff is now of the view that the better solution to this problem is for the top funds to align their financial year-ends so as to avoid the issue altogether. As a result, staff will generally no longer be recommending relief in these circumstances.
IFRS transition proceeding smoothly
The OSC’s spot-checking of the first year of IFRS-based financial statement filings under NI 81-106 has uncovered only one relatively minor issue; namely that, in its highlights table, one fund manager had used IFRS for the current financial year but Canadian GAAP for the immediately preceding year. The immediately preceding year should also have been reported under IFRS as financial statements for that year were to have been prepared in accordance with that standard. It is important to remember that as long as any pre-IFRS financial periods still appear as historical data in highlight tables, an explanation of the accounting principles applying to them must be included as a footnote to the table. The OSC notes that by 2017, the last pre-IFRS periods will generally have dropped out of the highlights tables in most cases.
Requirements when a closed-end investment fund transitions to corporate status
Finally, the OSC notes that the trend to converting closed-end investment funds to corporate issuers raises issues under National Instrument 81-102 – Investment Funds, according to which such transitions are restructurings requiring securityholder approval. Required disclosure in the management information circular includes:
- Financial statements and MD&A for the issuer’s last two financial years and most recent interim period, prepared in accordance with the same standards applying to Canadian corporate issuers;
- A review of significance differences under securities law between requirements applying to an issuer and those applying to investment funds (e.g. disclosure differences); and
- A statement of executive compensation prepared in accordance with Form 51-102F6 – Statement of Executive Compensation.
Fund managers considering such a transition should speak with staff in advance if there appear to be any potentially novel aspects to their plans.