Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief - Portfolio managers of certain mutual funds grantedrelief from provision in securities legislation that prohibitsthem from knowingly causing any investment portfolio managedby them to purchase or sell securities of any issuer from orto the account of a responsible person or its associates, subjectto a number of conditions.

Applicable Ontario Statute

Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., ss. 118(2)(b) and 121(2)(a)(ii).

Instruments Cited

National Instrument 33-105 - Underwriting Conflicts;National Instrument 44-101 - Short Form Prospectus Distributions;National Instrument 81-102 - Mutual Funds.

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

AND

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

AND

TD ASSET MANAGEMENT INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Ontario, Quebec,Nova Scotia, and Newfoundland & Labrador (the "Jurisdictions")has received an application from TD Asset Management Inc. ("TDAM")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the provision (the "InvestmentProhibition") contained in the Legislation, which prohibitsa portfolio manager from knowingly causing any investment portfoliomanaged by it to purchase or sell securities of any issuer fromor to the account of a responsible person, any associate ofa responsible person or the portfolio manager (collectively,the "Related Persons"), does not apply to TDAM inconnection with the purchase or sale (a "Trade") bymutual funds whose investment portfolios are managed by TDAM(collectively, the "Managed Funds") of

i. debt securities issued or fully and unconditionallyguaranteed by the federal or provincial governments ("GovernmentDebt Securities"), or

ii. debt securities of an issuer other thanthe federal and provincial governments ("Corporate DebtSecurities");

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 TDAM has represented to theDecision Makers that:

1. TDAM currently acts as portfolio managerfor Managed Funds whose investment objectives permit them toinvest in debt securities.

2. The head office of TDAM is in Toronto, Ontario.

3. In recent years, the amount of GovernmentDebt Securities available for investment in Canada has declinedsignificantly due to government deficit reduction programs.As a result, investors in debt securities have had to rely increasinglyon Corporate Debt Securities. However, because of the limitedsupply of Corporate Debt Securities in the primary market, holdersof outstanding Corporate Debt Securities have tended not tosell their holdings prior to the maturity date of their CorporateDebt Securities holdings. This has, in turn, led to the limitedavailability of Corporate Debt Securities in the secondary market.Moreover, because of their limited availability, the CorporateDebt Securities that are available in the secondary market areusually sold at prices that are higher than if they were purchasedin the primary market, assuming no change in the markets andin the status of the issuer.

4. The debt securities market is primarily adealers' market where a dealer provides buy or sell price quotes(as the case may be) and, if the price quotes are accepted,the resulting Trade is effected with the dealer acting as principal.

5. TDAM and its affiliates are principal dealersin the Canadian debt securities market - both primary and secondary.

6. The Investment Prohibition, combined withthe circumstances described in paragraphs 3 and 4 above, hasmade it even more difficult for TDAM to acquire debt securitiesfor the Managed Funds in the secondary market.

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

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Makers with the Jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the Investment Prohibition does notapply so as to enable TDAM to cause the Managed Funds to purchaseGovernment Debt Securities or Corporate Debt Securities from,or sell such debt securities to, the account of a Related Person,other than a mutual fund, in the secondary market,

PROVIDED THAT

1. at the time of causing a Managed Fund toTrade in Government Debt Securities or Corporate Debt Securitiespursuant to this Decision, the following conditions are satisfied:

(a) the Trade

(i) represents the business judgment of TDAMuninfluenced by considerations other than the best interestsof the Managed Fund, or

(ii) is, in fact, in the best interests of theManaged Fund;

(b) the Trade is consistent with, or is necessaryto meet, the investment objective of the Managed Fund as disclosedin its simplified prospectus;

(c) the terms of the Trade are better than theterms quoted by one or more dealers who are neither affiliatesnor associates of the Related Person (the "IndependentDealers") with whom the Trade is made;

(d) if the Trade is a purchase of CorporateDebt Securities,

(i) the purchase is not made from the RelatedPerson during the 60-day period after the distribution of suchCorporate Debt Securities, if the Related Person acted

A. as underwriter in the distribution of theCorporate Debt Securities, or

B. as a selling group member selling more than5% of the underwritten securities;

(ii) the issuer of the Corporate Debt Securitiesis not a "related issuer" or "connected issuer",as defined in National Instrument 33-105 Underwriting Conflicts,of the Related Person;
(iii) the Related Person is not

A. the issuer of the Corporate Debt Securities,or

B. a promoter of the issuer of the CorporateDebt Securities; and

(iv) the Corporate Debt Securities have beengiven, and continue to have, an "approved rating"by an "approved rating organization" as such termsare defined in section 1.1 of NI 44-101 - Short Form ProspectusDistributions;

2. prior to effecting any Trade pursuant tothis Decision,

(a) the simplified prospectus of the ManagedFund discloses that it may purchase or sell Government DebtSecurities or Corporate Debt Securities from or to the accountof a Related Person pursuant to this Decision, and

(b) the annual information form of the ManagedFund describes the policies or procedures referred to in paragraph3 below;

3. prior to effecting any Trade pursuant tothis Decision, the Managed Fund has in place written policiesor procedures to ensure that,

(a) there is compliance with the conditionsof this Decision,

(b) in connection with any Trade in GovernmentDebt Securities or Corporate Debt Securities with a RelatedPerson,

(i) each Managed Fund maintains an itemizeddaily record of all such Trades showing, for each Trade,

A. the name and principal amount of the debtsecurities,

B. if the Trade is in Government Debt Securities,the relevant benchmark Canada bond (the "Benchmark Bond"),the bid-ask price of the Benchmark Bond, and the price thatwas paid or received by the Managed Fund on the Trade,

C. if the Trade is in Corporate Debt Securities,

i. the relevant Benchmark Bond or, in the caseof US$-Pay Corporate Debt Securities, the relevant US TreasuryBond,

ii. the bid-ask price of the Benchmark Bondor US Treasury Bond, and

iii. the spread over the Benchmark Bond or USTreasury Bond that was paid or received by the Managed Fundon the Trade,

D. the time and date of the Trade, and

E. the name of the dealer on the Trade;

(ii) TDAM maintains written records of the quotationsreceived from Independent Dealers, and each Managed Fund maintainsa daily consolidated record of the quotations (including theprice, quantity, time and date) received from one or more IndependentDealers, in respect of each Trade made with a Related Person;

(iii) TDAM conducts a timely review of eachManaged Fund's Trades with Related Persons to confirm that eachTrade

A. represented the business judgment of TDAMuninfluenced by considerations other than the best interestsof the Managed Fund, or

B. was, in fact, in the best interests of theManaged Fund; and

4. the following particulars of each Trade pursuantto this Decision are set out in a report certified by TDAM andfiled on SEDAR, in respect of each Managed Fund, no later than30 days after the end of the month in which one or more suchTrades were made:

(a) the issuer of the debt securities,

(b) the principal amount of debt securitiespurchased or sold by the Managed Fund,

(c) the price at which the purchase or salewas made,

(d) the Related Person with whom the Trade wasmade, and

(i) in the case of a Trade in Government DebtSecurities, the price paid or received by the Managed Fund,or

(ii) in the case of a Trade in Corporate DebtSecurities, the spread over the relevant Benchmark Bond or USTreasury Bond that was paid or received by the Managed Fund,and

(e) a certification by TDAM that the Trade

(i) represented the business judgment of TDAMuninfluenced by considerations other than the best interestsof the Managed Fund, or

(ii) was, in fact, in the best interests ofthe Managed Fund; and

5. this Decision, as it relates to the jurisdictionof a Decision Maker, will terminate after the coming into forceof any legislation or rule of that Decision Maker dealing withthe matters regulated by section 4.2 of NI 81-102.

September 13, 2002.

"Paul M. Moore"     "RobertKorthals"