Securities Law & Instruments

Headnote

Exemption from the restrictions in sections111(2)(b), 111(2)(c)(ii), 111(3), 117(i)(a) and 118(2)(b) toinvest in related exchange traded funds subject to certain conditions.

Statutes Cited

Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., 111(2)(b), 111(2)(c)(ii), 111(3), 113, 117(i)(a) 117(2),118(2)(b),121(2)(a).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, ONTARIO,

QUEBEC, NOVA SCOTIA AND NEWFOUNDLAND& LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TD ASSET MANAGEMENT INC.

AND

IN THE MATTER OF

EMERALD CANADIAN EQUITY INDEXFUND

TD CANADIAN INDEX FUND

TD BALANCED FUND

TD BALANCED GROWTH FUND

TD DIVIDEND INCOME FUND

TD DIVIDEND GROWTH FUND

TD CANADIAN EQUITY FUND

TD CANADIAN BLUE CHIP EQUITYFUND

TD CANADIAN VALUE FUND

TD CANADIAN STOCK FUND

(collectively, the "TDFunds")

TD PRIVATE CANADIAN DIVIDENDFUND

TD PRIVATE CANADIAN EQUITY/GROWTHFUND

TD PRIVATE EQUITY/INCOME FUND

TD PRIVATE NORTH AMERICANEQUITY/GROWTH FUND

TD PRIVATE NORTH AMERICANEQUITY/INCOME FUND

(collectively the "TDPrivate Funds")

EMERALD CANADIAN LARGE CAPPOOLED FUND TRUST

EMERALD CANADIAN SMALL CAPPOOLED FUND TRUST

EMERALD CANADIAN MID CAP POOLEDFUND TRUST

EMERALD CANADIAN 300 POOLEDFUND TRUST

EMERALD ENHANCED CANADIANEQUITY POOLED FUND TRUST

EMERALD CANADIAN EQUITY 300POOLED FUND TRUST II

EMERALD CANADIAN 300 CAPPEDPOOLED FUND TRUST

EMERALD CANADIAN EQUITY 299POOLED FUND TRUST, EMERALD

ENHANCED CANADIAN 300 POOLEDFUND TRUST

(collectively, the "EmeraldPooled Funds")

 

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 (the "Jurisdictions")has received an application (the "Application") fromTD Asset Management Inc. ("TDAM"), on its own behalfand on behalf of the TD Funds, TD Private Funds and EmeraldPooled Funds (collectively, the "Funds") for a decisionunder the securities legislation of the Jurisdictions (the "Legislation")that, in connection with proposed investments by the Funds inunits (the "Units") of the TD S&P/TSX CompositeIndex Fund (the "TSX Fund") and TD S&P/TSX CappedComposite Index Funds (the "TSX Capped Fund") (eacha "TD ETF"),

a. the Funds are exempt from the provisionsin the Legislation of the Jurisdictions, other than Quebec,that

i. prohibit a mutual from making or holdingan investment in any person or company in which the mutualfund, alone or together with one or more related mutualfunds, is a substantial security holder, and

ii. prohibit a mutual fund from making orholding an investment in an issuer in which any person orcompany who is a substantial securityholder of the mutualfund, its management company, or its distribution companyhas a significant interest,

(together, the "Investment Prohibitions");

b. TDAM is exempt from

i. the provision in the Legislation of theJurisdictions, other than Quebec, that prohibits a portfoliomanager from causing an investment portfolio managed byit to purchase or sell the securities of any issuer fromor to the account of a responsible person, or

ii. the provision of the Quebec Legislationthat prohibits a registered person from subscribing or buying,on behalf of a portfolio managed by the registered person,securities that the registered person or an affiliate ofthe registered person owns or is underwriting,

(together, the "Registrant Prohibitions");and

c. TDAM is exempt from the provision in theLegislation of the Jurisdictions, other than Quebec, thatrequires the management company of a mutual fund to file areport of every transaction of purchase or sale of securitiesbetween the mutual fund and any related person or company(the "Reporting Requirement");

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this Application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Quebec Commission Notice 14-101;

AND WHEREAS TDAM has represented to theDecision Makers as follows:

1. TDAM is the trustee, manager and portfoliomanager of the Funds. It is registered under the Legislationof each Jurisdiction as an adviser in the categories of investmentcounsel and portfolio manager. TDAM is responsible for theday-to-day administration, and for managing the investmentportfolios, of the Funds.

2. The Funds, other than the Emerald PooledFunds, are reporting issuers under each Jurisdiction's Legislationand are subject to National Instrument 81-102 - Mutual Funds("NI 81-102"). Each Emerald Pooled Fund is a "mutualfund in Ontario" as defined in the Legislation of Ontario.

3. The TD ETFs are mutual funds whose Unitsare listed and posted for trading on the Toronto Stock Exchange(the "Exchange"). The TD ETFs are reporting issuersunder each Jurisdiction's Legislation and are subject to theapplicable requirements of NI 81-102. The Units of the TDETFs are in continuous distribution.

4. TD Securities Inc. ("TDSI") isone of the underwriters in the continuous distribution ofUnits of the TD ETFs. TDSI is also a "responsible person"as such term is defined in the Legislation of the Jurisdictions,other than Quebec.

5. TDAM and TDSI are affiliates because bothare wholly-owned subsidiaries of the Toronto-Dominion Bank.

6. TDAM is the trustee and portfolio managerof the TD ETFs and, as such, is responsible for the day-to-dayadministration, and for managing the investment portfolios,of the TD ETFs.

7. The fundamental investment objective ofeach TD ETF is to provide long-term growth of capital by replicating,to the extent possible, the performance of the S&P/TSXComposite Index and the S&P/TSX Capped Composite Index(each, a "Target Index"), respectively. To achieveits investment objective, each TD ETF acquires and holds aportfolio of shares (the "Index Shares") of companies(each a "Constituent Company") that comprise therelevant Target Index.

8. As one of the underwriters in the continuousdistribution of Units of the TD ETFs, TDSI may subscribe forUnits of the TD ETFs at any time. As payment therefor, TDSIis required to deliver Index Shares and cash in an amountsufficient so that the aggregate value of the Index Sharesand cash is equal to the net asset value, next determinedfollowing receipt of the subscription order, of the Unitssubscribed for.

9. TDSI also acts as a designated broker ofthe TD ETFs. As such, TDSI may be required to purchase IndexShares from, or sell certain securities to, the TD ETFs asa result of

(a) an adjustment to the relevant TargetIndex,

(b) a take-over bid for a Constituent Companyof the relevant Target Index, or

(c) the receipt by the TD ETFs of dividendsor other distributions from a Constituent Company that resultsin an adjustment to the relevant Target Index.

10. In acting as an underwriter and designatedbroker of the TD ETFs, TDSI receives no compensation fromthe TD ETFs or TDAM. However, as a dealer, TDSI may engagein secondary market trading activity in Units of the TD ETFs

(a) on an agency basis, and receive compensationfor its services as agent, or

(b) on a principal basis, and benefit fromthe spread between the price at which it purchases Unitsand the price at which it sells them.

11. The TD ETFs have not issued any Unitsto the underwriters, acting as such, since the original closingof their initial distribution of Units on February 22, 2002.At that time, TDSI subscribed for 3,600,000 Units of the TSXFund and 1,050,000 Units of the TSX Capped Fund as an underwriter.Additional units were subsequently issued to TDSI as designatedbroker when the Target Indices were adjusted.

12. As at August 28, 2002, TDSI continuedto hold 44.1% and 48.5%, respectively, of the outstandingUnits of the TSX Fund and TSX Capped Fund.

13. The net asset value ("NAV")per Unit of the TD ETFs is published daily on TDAM's website.The closing price of the TD ETFs on the Exchange is publisheddaily in newspapers of general circulation in Canada.

14. As at October 29, 2002, the aggregateNAV of the Funds was approximately $12.7 billion. The aggregateNAV of the TD ETFs as at the same date was approximately $191.1million.

15. The proposed investment in Units of theTD ETFs would be consistent with the investment objectiveof the Funds. For this purpose, each Fund proposes to investonly the cash balances that it holds either to fund redemptionsor pending direct investment in securities other than Unitsof the TD ETFs.

16. It is anticipated that each Fund willinvest between 0.50% and 3.00% of its NAV in a TD ETF. However,the aggregate investment of each Fund in the TD ETFs and inany other mutual fund similar to the TD ETFs that are managedby TDAM will not exceed 5% of its NAV.

17. If each Fund were to invest .05% of itsNAV in Units of each TD ETF, the aggregate investment of theFunds in Units of the TD ETFs could result in the Funds acquiringand holding, collectively, an aggregate of 20% or more ofthe outstanding Units of each TD ETF (the "20% Threshold")from time to time. TDAM will ensure that the Funds' collectiveand aggregate holding in each TD ETF does not at any timeexceed 40% of the outstanding Units of each ETF.

18. It is contemplated that, from time totime, TDAM may cause the Funds to purchase Units of the TDETFs from the account of TDSI.

19. Pursuant to a prior MRRS decision Documentdated April 24, 2001 (the "Previous Exemption"),each Fund was permitted to invest in Units of TD ETFs, subjectto certain conditions including the condition that the aggregateinvestment would not exceed 5% of its NAV. In obtaining thePrevious Exemption, it was represented to the Decision Makersthat a Fund will not knowingly make or hold an investmentin a TD ETF if, at the time of such investment, the Fund,either alone or together with other funds, is a substantialsecurity holder of the TD ETF. The Previous Exemption expiredon April 24, 2002.

AND WHEREAS under the System this MRRSDecision Document evidences the decision of each Decision Maker(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

I. the Investment Prohibitions do not applyso as to enable each Fund to make or hold an investment inUnits of the TD ETFs;

II. the Registrant Prohibitions do not applyso as to enable TDAM to cause each Fund to

(A) purchase Units of the TD ETFs notwithstandingthat TDSI is one of the underwriters in the continuous distributionof Units of the TD ETFs,

(B) purchase Units of each TD ETF from theaccount of TDSI or its affiliates or associates followingthe 60-day period after

(i) any subscription by TDSI as an underwriterfor Units of the TD ETFs, or

(ii) any issuance of Units of the TD ETFsto TDSI as a designated broker, or

(C) sell Units of each TD ETF to the accountof TDSI or its affiliates or associates at any time; and

III. the Reporting Requirement does not applyto TDAM in connection with the purchase or sale of Units ofthe TD ETFs between the Funds and any related person or company(the "Related Person"),

PROVIDED THAT

(1) at the time of each investment in orpurchase of Units of the TD ETFs by a Fund pursuant to paragraphI and subparagraph II(A) of this Decision, the followingconditions are satisfied:

a. the investment

(i) represents the business judgmentof TDAM uninfluenced by considerations other than thebest interests of the Fund, or

(ii) is, in fact, in the best interestsof the Fund;

b. the investment is consistent with,or is necessary to meet, the investment objective of theFund that (in the case of the TD Funds and TD PrivateFunds) is disclosed in the Fund's simplified prospectus;

c. if the investment is made during the60-day period after

(i) any subscription by TDSI as an underwriterfor Units of the TD ETFs, or

(ii) any issuance of Units of the TDETFs to TDSI as a designated broker,

the purchase order is not placed, on anagency or principal basis, with TDSI or its affiliatesor associates;

d. each purchase is made on the Exchangeor any other exchange on which the Units of the TD ETFsare listed and traded;

e. TDSI does not receive, directly orindirectly, any form of compensation in acting as an underwriteror designated broker in connection with the distributionof Units of the TD ETFs;

(2) in the case of an investment in or purchaseof Units of the TD ETFs by a Fund pursuant to paragraphI and subparagraph II(A) of this Decision,

(a) the aggregate investment of each Fundin Units of the TD ETFs, and in securities of any othermutual fund similar to the TD ETFs that are managed byTDAM or its affiliates or associates, does not exceed5% of its NAV;

(b) the Funds' aggregate holding in eachTD ETF does not exceed 40% of the outstanding Units ofeach TD ETF;

(c) whenever the aggregate holding ofUnits of each TD ETF by one or more of the Funds tripsthe 20% Threshold, TDAM files on SEDAR under the continuousdisclosure category of filing, and within 10 days followingthe end of each month in which the aggregate holding trippedthe 20% Threshold, a report certified by TDAM and statingthe percentage of the outstanding Units of each TD ETFcollectively held by the Funds;

(3) in the case of the purchase or saleof Units of the TD ETFs by each Fund pursuant to subparagraphsII(B) and (C) of this Decision, the purchase or sale ismade in compliance with the requirements of section 4.3of NI 81-102;

(4) in the case of the exemption from theReporting Requirement pursuant to paragraph III of thisDecision, the statement of portfolio transactions preparedand filed for each Fund in accordance with the Legislationdiscloses, in respect of Units of each TD ETF bought orsold during the period covered by the statement of portfoliotransactions,

a. the name of each Related Person,

b. the amount of fees paid to each RelatedPerson, and

c. the person or company that paid thefees;

(5) paragraphs I and III of this Decision,as they relate to the jurisdiction of a Decision Maker,will terminate in respect of the TD Funds and TD PrivateFunds after the coming into force of any legislation orrule of that Decision Maker dealing with the matters regulatedby section 2.5 of NI 81-102; and

(6) subparagraph II(A) of this Decision,as it relates to the jurisdiction of a Decision Maker, willterminate in respect of the TD Funds and TD Private Fundsafter the coming into force of any legislation or rule ofthat Decision Maker dealing with the matters regulated bysection 4.1 of NI 81-102.

November 26, 2002.

"H. Lorne Morphy"                    "RobertW. Korthals"