TD Asset Management Inc. et al. - MRRS Decision

MRRS Decision

Headnote

Approval of fund mergers pursuant to subsection 5.5(1)(b) of NI 81-102- exemption from securityholder approval requirement in clause 5.1(f) of NI 81-102 -motivated by elimination of foreign content restrictions from Income Tax Act - sole difference between merging funds being the objective to maintain RSP eligibility no longer necessary.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.7(1)(b).

March 23, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC,

NEW BRUNSWICK, NOVA SCOTIA, PRINCE EDWARD

ISLAND, NEWFOUNDLAND AND LABRADOR,

NORTHWEST TERRITORIES, YUKON AND NUNAVUT

(THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TD ASSET MANAGEMENT INC. (TDAM)

AND

TD MANAGED INCOME PORTFOLIO

TD MANAGED INCOME & MODERATE

GROWTH PORTFOLIO

TD MANAGED BALANCED GROWTH PORTFOLIO

TD MANAGED AGGRESSIVE GROWTH PORTFOLIO

TD MANAGED MAXIMUM EQUITY GROWTH PORTFOLIO

TD FUNDSMART MANAGED INCOME PORTFOLIO

TD FUNDSMART MANAGED INCOME & MODERATE

GROWTH PORTFOLIO

TD FUNDSMART MANAGED BALANCED

GROWTH PORTFOLIO

TD FUNDSMART MANAGED AGGRESSIVE

GROWTH PORTFOLIO AND

TD FUNDSMART MANAGED MAXIMUM EQUITY

GROWTH PORTFOLIO

(THE TERMINATING FUNDS)

AND

TD MANAGED INCOME RSP PORTFOLIO

TD MANAGED INCOME & MODERATE

GROWTH RSP PORTFOLIO

TD MANAGED BALANCED

GROWTH RSP PORTFOLIO

TD MANAGED AGGRESSIVE

GROWTH RSP PORTFOLIO

TD MANAGED MAXIMUM EQUITY

GROWTH RSP PORTFOLIO

TD FUNDSMART MANAGED INCOME

RSP PORTFOLIO

TD FUNDSMART MANAGED INCOME & MODERATE

GROWTH RSP PORTFOLIO

TD FUNDSMART MANAGED BALANCED

GROWTH RSP PORTFOLIO

TD FUNDSMART MANAGED AGGRESSIVE

GROWTH RSP PORTFOLIO AND

TD FUNDSMART MANAGED MAXIMUM EQUITY

GROWTH RSP PORTFOLIO

(THE CONTINUING FUNDS)

(COLLECTIVELY, THE FILERS)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from TDAM in respect of the Terminating Funds and the Continuing Funds (collectively, the Funds) for a decision under the Securities Legislation of the Jurisdictions (the Legislation) that:

(a) exempts the Terminating Funds from the requirement of section 5.1(f) of National Instrument 81-102 (NI 81-102) to obtain the prior approval of the securityholders (the Securityholder Approval Requirement) of the Terminating Funds to the merger (a Merger) of any Terminating Fund into the applicable Continuing Fund; and

(b) approves each Merger as contemplated by section 5.5 (1)(b) of NI 81-102

(collectively, the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) Ontario is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filers:

1. TDAM is a corporation incorporated under the Business Corporations Act (Ontario) and is the manager of each Fund.

2. Each Fund is a trust established under the laws of Ontario. Each Fund is a reporting issuer or the equivalent thereof in each Jurisdiction, is subject to the requirements of NI 81-102 and is not in default of any requirements of applicable securities legislation.

3. Each of the Funds invests primarily in units of mutual funds (each an Underlying Fund) which vary depending on the investment objective of the Fund, and may invest directly in guaranteed investment certificates, bonds issued by Canadian or provincial governments and strip bonds.

4. The only difference in investment objectives between a Terminating Fund and the applicable Continuing Fund is that the investment objectives of the Continuing Fund include an additional objective to maintain eligibility for registered plans. The investment strategies of a Terminating Fund and its Continuing Fund are the same. In any event, both are eligible for registered plans.

5. As a result of the elimination of the foreign property rules from the Income Tax Act (Canada) (the Tax Act) on June 29, 2005 (the Tax Changes), there is no longer a reason for both a Terminating Fund and the applicable Continuing Fund since there are no longer any adverse tax consequences under the Tax Act for holding foreign property in excess of formerly prescribed limits in a registered plan. Accordingly there is no longer a requirement for a difference between the Underlying Funds held by a Terminating Fund and the Underlying Funds held by the corresponding Continuing Fund, in order that the latter maintain eligibility for registered plans.

6. On the date of a Merger, a Continuing Fund will have invested its assets directly in securities of the same Underlying Funds and in approximately the same proportions as the direct and indirect investments of the applicable Terminating Fund. Consequently, on the date of each Merger, each Terminating Fund and the applicable Continuing Fund will provide investors with exposure to the same Underlying Funds and approximately the same investment portfolio.

7. Subsection 5.1(f) of NI 81-102 requires that each Terminating Fund which will cease to continue after its Merger obtain the prior approval of its securityholders before effecting the Merger.

8. TDAM is of the opinion that the costs of convening special meetings to obtain such approvals far exceed the benefits of convening such meetings, and that it would not be prejudicial to securityholders to grant an exemption from such requirement on the conditions described below.

9. All of the Mergers would be done on a tax deferred basis.

10. TDAM has concluded that it would be appropriate to terminate the Terminating Funds to reduce redundancy and any possible confusion among investors in the Funds.

11. The management expense ratio (MER) for each Terminating Fund and the applicable Continuing Fund, are capped at rates which are identical. Accordingly, securityholders of the Terminating Funds have not been disadvantaged by the time which has elapsed since the Tax Changes were implemented.

12. In determining which Funds should continue, in this case, TDAM considers the relative net assets of the Funds to be the most important factor and that in each case it is appropriate for the Fund with the most assets to be the Continuing Fund. In all cases, the Continuing Fund has more assets than the corresponding Terminating Fund (by between 132% and 917% as of January 31, 2006).

13. TDAM is satisfied that the trustee of each Fund has sufficient authority and flexibility under the constating documents of the Funds to implement the Mergers without securityholder approval if the relief requested herein is granted by the Decision Makers.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

1. TDAM, as manager of the Terminating Funds:

(a) issues a press release announcing its intention to effect the Mergers in the manner described in the Decision,

(b) sends a communication to dealers who have clients invested in a Terminating Fund describing the applicable Mergers so that dealers and their sales representatives will be in a position to discuss the applicable Mergers with their clients,

(c) posts the press release and the dealer communication to TDAM's website, and

(d) files the press release with the securities regulatory authorities in the Jurisdictions as soon as practical after TDAM decides to proceed with a Merger and, in any event, at least 60 days before the date of such Merger;

2. TDAM sends or causes to be sent to each registered holder of units of a Terminating Fund, a communication that describes the purpose of the Merger and the manner in which units in the Terminating Fund will be exchanged for units of the applicable Continuing Fund that is part of or accompanies the management report of fund performance for the Terminating Fund for the period ended December 31, 2005; and

3. Each Merger is in compliance with all of the requirements of section 5.6 (1) of NI 81-102 other than paragraphs 5.6 (e) and (f) of NI 81-102.

"Leslie Byberg"
Manager, Investment Funds
Ontario Securities Commission