Securities Law & Instruments

Headnote

Relief from certain self-dealing prohibitionsto permit mutual funds to passively track target securitiesmarket indices.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as amended,s. 111(2)(a) and 111(3).

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
ONTARIO, NOVA SCOTIA AND
NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
CLARICA CANADIAN EQUITY INDEX FUND

AND

CLARICA BOND INDEX FUND

MRRS DECISION DOCUMENT

WHEREAS the Canadian securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotiaand Newfoundland and Labrador (the "Jurisdictions")has received an application from Clarica Diversico Ltd. ("Diversico"),in its capacity as manager and promoter of the Clarica CanadianEquity Index Fund and the Clarica Bond Index Fund (collectivelythe "Funds"), for a decision pursuant to the securitieslegislation of the Jurisdictions (the "Legislation")that the following restrictions (the "Investment Restrictions")contained in the Legislation shall not apply to Diversico orthe Funds in respect of investments made by the Funds in securitiesof Sun Life Financial Services of Canada Inc. ("Sun Life")or its subsidiaries (collectively the securities are referredto as "Sun Life Securities"):

1. the restrictions contained in the Legislationprohibiting a mutual fund from knowingly making or holding aninvestment in any person or company who is a substantial securityholderof the mutual fund, its management company or distribution company;

AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this Application;
AND WHEREAS Diversico has represented to the Decision Makersas follows:

1. Diversico is a corporation amalgamated underthe laws of Canada. Diversico is the manager and promoter ofthe Funds.

2. The Funds are open-end mutual fund trustsestablished under the laws of Ontario. The investment objectiveof each of the Funds is to track the performance of a specifiedtarget index as follows: the TSE 300 Composite Total ReturnIndex in the case of the Clarica Canadian Equity Index, andthe Scotia Capital Universe Bond Index in the case of the ClaricaBond Index Fund or, in each case, in the event that such indexis modified or discontinued, a replacement for that index oran index that is substantially similar to that index (the "TSEIndex" and "Bond Index", respectively).

3. The Funds are both index mutual funds asdefined in National Instrument 81-102.

4. Units of the Funds are qualified for distributionin each of the Jurisdictions pursuant to a simplified prospectus/amendedand restated simplified prospectus dated December 18, 2001 (the"Prospectus"). Each of the Funds is a reporting issuerunder the securities legislation of each Jurisdiction.

5. TD Asset Management Inc. ("TDAM")is the portfolio adviser of each of the Funds. TDAM is a mutualfund dealer and an investment counsel and portfolio manager.

6. Diversico is a wholly-owned subsidiary ofClarica Life Insurance Company ("Clarica").

7. On December 17, 2001, Clarica and Sun Lifeentered into a transaction agreement, pursuant to which SunLife has agreed to acquire all of the outstanding common sharesof Clarica (the "Transaction"). The Transaction isproposed to be effected through a reorganization of Clarica'scapital structure to provide for the exchange of each outstandingcommon share of Clarica ("Clarica Common Shares"),except those Clarica Common Shares beneficially owned by SunLife as general fund assets, for 1.5135 common shares of SunLife ("Sun Life Common Shares") through a series oftransactions.

8. The Transaction has been approved by holdersof Clarica Common Shares and holders of Clarica voting insurancepolicies at a special meeting held on March 6, 2002. Subjectto the satisfaction of all closing conditions and the receiptof all applicable regulatory approvals, it is anticipated thatthe Transaction will be completed during the second quarterof 2002.

9. Upon closing of the Transaction, Diversicowill be an indirect wholly-owned subsidiary of Sun Life.

10. Among the securities comprising the TSEIndex are Sun Life Common Shares. Among the securities comprisingthe Bond Index are Sun Life Exchangeable Capital Securities- Series A ("SLEECS"), issued by a special purposetrust created by a wholly-owned subsidiary of Sun Life.

11. The target index for each Fund is disclosedin the investment objectives in the Prospectus. It is part ofthe fundamental nature of the Funds that all the assets of theFunds are invested in securities of each of the companies includedin the target index or instruments that provide exposure tosuch securities, and that the portfolios of the Funds are notactively managed.

12. The number of securities comprising theapplicable target index of each Fund in which the Fund actuallyinvests from time to time will depend upon the size and valueof the assets of the Fund and the composition of the targetindex. Each Fund will therefore be periodically rebalanced totrack its target index as closely as possible while minimizingtrading costs.

13. The portfolios of the Funds are not activelymanaged. The portfolio of each Fund is passive and is comprisedof securities comprising the target index of such Fund. Allpurchases and sales of the portfolios of the Funds will be determinedby the composition of the applicable target index and the weightingtherein of the constituent securities.

14. As a result of tracking the TSE Index, theClarica Canadian Equity Index Fund holds 8,900 Sun Life CommonShares as at April 1, 2002. In order to track its target indexfollowing completion of the Transaction, the Clarica CanadianEquity Index Fund will have to continue to hold Sun Life CommonShares and may need to acquire additional Sun Life Securitiesin the future.

15. As a result of tracking the Bond Index,the Clarica Bond Index Fund holds 30,000 SLEECS as at April1, 2002. In order to track its target index following completionof the Transaction, the Clarica Bond Index Fund will have tocontinue to hold SLEECS and may need to acquire additional SunLife Securities in the future.

16. The deviation from the Investment Restrictionswill not be the result of any active decision of TDAM or Diversicoto increase the investment of either Fund in Sun Life Securities,but rather it will be an indirect consequence of carrying outthe investment objective of each Fund, to match the performanceof its target index.

17. The investments of each Fund in its targetindex represents the business judgement of responsible personsuninfluenced by considerations other than the best interestsof each Fund.

AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

AND WHEREAS the Decision Makers aresatisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decisionhas been met;

THE DECISION of the Decision Makerspursuant to the Legislation is that the Investment Restrictionsdo not apply to the investment or the holding of an investmentby the Funds in Sun Life Securities.

PROVIDED THAT the portion of each Fund'sassets invested in Sun Life Securities is determined accordingto each Fund's investment objective of tracking the performanceof its specified target index, and not pursuant to the discretionof the portfolio adviser or the manager of each Fund.

May 24, 2002.

"Paul M. Moore"      "Kerry D. Adams"