CIBC Asset Management Inc. et al. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from subsection 4.1(1) of National Instrument 81-102 Mutual Funds to allow dealer managed mutual funds to invest in securities of an issuer during the prohibition period -- affililiate of the dealer manager acted as an underwriter in connection with the distribution of securities of the issuer.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.

June 5, 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, AND THE

NORTHWEST TERRITORIES, NUNAVUT

AND THE YUKON (the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM ("MRRS")

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

CIBC ASSET MANAGEMENT INC.,

CIBC GLOBAL ASSET MANAGEMENT INC.,

TD ASSET MANAGEMENT INC. AND

RBC ASSET MANAGEMENT INC.

(the "Applicants")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Applicants (each a "Dealer Manager"), the managers or portfolio advisers or both of the mutual funds named in Appendix "A" (the "Funds" or "Dealer Managed Funds") for a decision under section 19.1 of National Instrument 81-102 Mutual Funds ("NI 81-102") for:

• an exemption from subsection 4.1(1) of NI 81-102 (the "Investment Restriction") to enable the Dealer Managed Funds to invest in trust units (the "Units") of Teranet Income Fund (the "Issuer") during the period of distribution for the Offering (as defined below) (the "Distribution") and the 60-day period following the completion of the Distribution (the "60-Day Period") (the Distribution and the 60-Day Period together, the "Prohibition Period") notwithstanding that the Dealer Managers or their associates or affiliates act or have acted as an underwriter in connection with the initial public offering (the "Offering") of the Units offered pursuant to a final prospectus to be filed by the Issuer in accordance with the securities legislation of each of the Jurisdictions (the "Investment Restriction Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission (the "OSC") 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 meanings in this decision unless they are defined in this decision.

Representations

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

1. Each Dealer Manager is a "dealer manager" with respect to its Dealer Managed Funds, and each Dealer Managed Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.

2. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses that have been prepared and filed in accordance with their respective securities legislation.

3. The head offices of each of the Dealer Managers, except CIBC Global Asset Management Inc., are in Toronto, Ontario. The head offices of CIBC Global Asset Management Inc. are in Montreal, Québec.

4. The Issuer filed a preliminary prospectus (the "Preliminary Prospectus") dated May 8, 2006 with each of the Decision Makers, for which an MRRS decision document evidencing receipt by each of the Decision Makers was issued on May 9, 2006. The Issuer filed an amended and restated preliminary prospectus dated May 19, 2006 (the "Amended Prospectus").

5. According to the Issuer's term sheet dated May 11, 2006 (the "Term Sheet"), the Offering is being underwritten, subject to certain terms, by an underwriting syndicate that includes RBC Dominion Securities, TD Securities Inc. and CIBC World Markets Inc. (each a "Related Underwriter", together with any other underwriters which are now or may become part of the syndicate prior to closing, the "Underwriters"). Each Related Underwriter is an affiliate of one or more of the Dealer Managers.

6. As disclosed in the Preliminary Prospectus, the Issuer is an unincorporated, open-ended trust established under the laws of Ontario, created to indirectly acquire all of the outstanding shares of Teranet Inc., and all of its subsidiaries ("Teranet"). Teranet primarily operates and supports a system of electronic registration of real property interests in Ontario. The Issuer may also hold other investments in activities engaged, directly or indirectly, in the business of providing other integrated information products and services as well as activities ancillary and incidental thereto and such other investments as may be determined by the trustee of the Issuer. The Issuer currently intends to make monthly distribution of its consolidated available distributable cash to Unit holders to the extent determined prudent by the Issuer's trustees. According to the Term Sheet, the Issuer will have an initial payout rate of 95%.

7. According to the Term Sheet, the Offering is expected to be for 70 million Units and the initial offering price for the Units is estimated to be $10.00 per unit. As a result, the gross proceeds of the Offering are expected to be approximately $700 million depending on the final offering price for the Units. In addition, according to the Preliminary Prospectus, the Underwriters will be granted an over-allotment option (the "Over Allotment Option") to purchase an amount equal to a percentage of the Units issued in the Offering which may be exercised within 30 days following the closing of the offering, which is expected to occur on June 15, 2006 (the "Closing Date"). According to the Preliminary Prospectus, the Over Allotment Option is expected to be for an amount equal to up to approximately 15% of the number of Units offered in the Offering. If the Over Allotment Option is exercised in full, the gross proceeds of the Offering are expected to be approximately $805 million.

8. According to the Preliminary Prospectus, if the Over-Allotment Option is not exercised, the net proceeds of the Offering will be used to subscribe for units of Teranet Operating Trust ("TOT") and for notes of the TOT designated as series 1 notes. TOT will, in turn, subscribe for class A limited partnership units of Teranet Holdings LP. Teranet Holdings LP will use a portion of the net proceeds of the Offering to pay the cash portion of the purchase price for an interest bearing demand promissory note issued by Teramira Holdings Inc. ("Teramira") to the province of Ontario which is convertible at the option of the holder into class B common shares of Teranet. The balance of such net proceeds, together with certain funds made available to Teranet under the New Credit Facilities (defined below), will be used to fund the redemption of Teranet's outstanding bonds in the aggregate principal amount of $280,000,000 due September 8, 2009 designated as 6.48% revenue bonds, to fund the redemption of Teranet's outstanding bonds in the aggregate principal amount of $300,000,000 due March 30, 2017, designated as 5.37% junior bonds, to repay a $20,000,000 promissory note owing by Teranet to the province of Ontario, and to augment Teranet's working capital at the Closing Date.

9. If the Over Allotment Option is exercised in full, the additional net proceeds will be used by the Issuer to, directly or indirectly, acquire units and/or class B units of Teranet Holdings LP at a price of $10 per unit, net of fees payable to the Underwriters in respect of the Over Allotment Option.

10. Pursuant to an underwriting agreement, the Issuer and the Underwriters will enter into in respect of the Offering prior to the Issuer filing the final prospectus for the Offering, the Issuer will agree to sell to the Underwriters, and the Underwriters will agree to purchase, as principals, all of the Units offered under the Offering.

11. According to the Preliminary Prospectus, there is presently no market through which the Units may be sold and purchasers may not be able to resell the Units purchased. However, according to the Term Sheet, the Issuer has applied to list the Units on the Toronto Stock Exchange.

12. The Preliminary Prospectus does not disclose that the Issuer is a "related issuer" as defined in National Instrument 33-105 -- Underwriting Conflicts ("NI 33-105").

13. According to the Amended Prospectus, the Issuer may be a "connected issuer" as defined in NI 33-105 of the Related Underwriters for the reasons set forth in the Preliminary Prospectus. As disclosed in the Preliminary Prospectus, these reasons include that RBC Dominion Securities Inc., is a subsidiary of a Canadian chartered bank that has committed to provide: (i) a $70 million revolving credit facility; (ii) a $30 million LC facility; (iii) a $315 million bridge loan facility; and (iv) a $150 million term loan facility, and (v) a $100 million capex facility (collectively the "New Credit Facilities"), all upon closing of the Offering. CIBC World Markets Inc. is a subsidiary of a Canadian chartered bank that holds an approximate 3% indirect ownership interest in Teranet. Accordingly, the issuer may be considered a "connected issuer" to the Related Underwriters under NI 33-105. The Amended Prospectus does not disclose that TD Securities Inc. is a "connected issuer" to any of the Related Underwriters under NI 33-105.

14. According to the Amended Prospectus, the decision to issue the Units and the details of the Offering were made through negotiations between the Issuer, Teramira, Teranet and the Underwriters. As a consequence of the Offering the Related Underwriters will receive their proportionate share of the underwriters' fee.

15. The first quarterly meeting of the Independent Committee of the Dealer Managed Funds of RBC Asset Management Inc., immediately following the end of the Prohibition Period, is scheduled to be held on September 15, 2006.

16. Despite the affiliation between the Dealer Managers and the Related Underwriters, each Dealer Manager operates independently of its Related Underwriter. In particular, the investment banking and related dealer activities of the Related Underwriters and the investment portfolio management activities of each of their respective Dealer Managers are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:

(a) in respect of compliance matters (for example, each Dealer Manager and its Related Underwriter may communicate to enable the Dealer Manager to maintain up to date restricted-issuer lists to ensure that the Dealer Manager complies with applicable securities laws); and

(b) each Dealer Manager and its Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.

17. The Dealer Managed Funds are not required or obligated to purchase any Units during the Prohibition Period.

18. Each Dealer Manager may cause its Dealer Managed Funds to invest in the Units during the Prohibition Period. Any purchase of the Units by a Dealer Managed Fund will be consistent with the investment objectives of that Dealer Managed Fund and represent the business judgment of the Dealer Manager for that Dealer Managed Fund uninfluenced by considerations other than the best interests of the Dealer Managed Fund or in fact be in the best interests of the Dealer Managed Fund.

19. To the extent that the same portfolio manager or team of portfolio managers of a Dealer Manager manages two or more Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), the Units purchased for them will be allocated:

(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for its Dealer Managed Funds and Managed Accounts, and

(b) taking into account the amount of cash available to each Dealer Managed Fund for investment.

20. Except as described above, each Dealer Manager has not been involved in the work of its Related Underwriter and each Related Underwriter has not been and will not be involved in the decisions of its Dealer Manager as to whether such Dealer Manager's Dealer Managed Funds will purchase Units during the Prohibition Period.

21. There will be an independent committee (the "Independent Committee") appointed in respect of each Dealer Manager's Dealer Managed Funds to review such Dealer Managed Funds' investments in the Units during the Prohibition Period.

22. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with its Dealer Manager, the Dealer Managed Funds, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgment regarding conflicts of interest facing the Dealer Manager.

23. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in their respective Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

24. Each Dealer Manager, in respect of its Dealer Managed Funds, will notify a member of staff in the Investment Funds Branch of the Ontario Securities Commission, in writing of any SEDAR Report (as defined below) filed on SEDAR, as soon as practicable after the filing of such a report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.

Decision

Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from the Investment Restriction and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated.

Each of the Decision Makers is satisfied that the test contained in NI 81-102 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 Investment Restriction Relief is granted, notwithstanding that the Related Underwriters act or have acted as underwriters in the Offering provided that, in respect of each Dealer Manager and its Dealer Managed Funds, independent of any of the other Applicants and their Dealer Managed Funds, the following conditions are satisfied:

I. At the time of each purchase of Units (a "Purchase") by a Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:

(a) the Purchase

(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or

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

(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and

(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with its Related Underwriter;

II. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,

(a) there is compliance with the conditions of this Decision; and

(b) in connection with any Purchase,

(i) there are stated factors or criteria for allocating the Units purchased for two or more Dealer Managed Funds and other Managed Accounts, and

(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria;

III. The Dealer Manager does not accept solicitation by its Related Underwriter for the Purchase of Units for the Dealer Managed Funds;

IV. The Related Underwriter does not purchase Units in the Offering for its own account except Units sold by the Related Underwriter on Closing;

V. The Dealer Managed Fund has an Independent Committee to review the Dealer Managed Funds' investments in the Units during the Prohibition Period;

VI. The Independent Committee has a written mandate describing its duties and standard of care which, at a minimum, sets out the applicable conditions of this Decision;

VII. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;

VIII. The Dealer Managed Fund does not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above;

IX. The Dealer Managed Fund does not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above;

X. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Funds, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Funds to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above is not paid either directly or indirectly by the Dealer Managed Funds;

XI. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of each Dealer Managed Fund, no later than 37 days after the end of the Prohibition Period, that contains a certification by the Dealer Manager that contains:

(a) the following particulars of each Purchase:

(i) the number of Units purchased by the Dealer Managed Funds of the Dealer Manager;

(ii) the date of the Purchase and purchase price;

(iii) whether it is known whether any underwriter or syndicate member has engaged in market stabilization activities in respect of the Units;

(iv) if the Units were purchased for two or more Dealer Managed Funds and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and

(v) the dealer from whom the Dealer Managed Fund purchased the Units and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;

(b) a certification by the Dealer Manager that the Purchase:

(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and

(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Fund, or

(iii) was, in fact, in the best interests of the Dealer Managed Fund;

(c) confirmation of the existence of the Independent Committee to review the Purchase of the Units by the Dealer Managed Funds, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review;

(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Units for the Dealer Managed Funds and each Purchase by the Dealer Managed Fund:

(i) was made in compliance with the conditions of this Decision;

(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and

(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or

(iv) was, in fact, in the best interests of the Dealer Managed Fund.

XII. The Independent Committee advises the Decision Makers in writing of:

(a) any determination by it that the condition set out in paragraph XI(d) has not been satisfied with respect to any Purchase of the Units by a Dealer Managed Fund;

(b) any determination by it that any other condition of this Decision has not been satisfied;

(c) any action it has taken or proposes to take following the determinations referred to above; and

(d) any action taken, or proposed to be taken, by the Dealer Manager or a portfolio manager of a Dealer Managed Fund, in response to the determinations referred to above.

XIII. For Purchases of Units during the Distribution only, the Dealer Manager:

(a) expresses an interest to purchase on behalf of Dealer Managed Funds and Managed Accounts a fixed number of Units (the "Fixed Number") to an Underwriter other than its Related Underwriter;

(b) agrees to purchase the Fixed Number or such lesser amount as has been allocated to the Dealer Manager no more than five (5) business days after the final prospectus has been filed;

(c) does not place an order with an underwriter of the Offering to purchase an additional number of Units under the Offering prior to the completion of the Distribution, provided that if the Dealer Manager was allocated less than the Fixed Number at the time the final prospectus was filed for the purposes of the Closing, the Dealer Manager may place an additional order for such number of additional Units equal to the difference between the Fixed Number and the number of Units allotted to the Dealer Manager at the time of the final prospectus in the event the Underwriters exercise the Over-Allotment Option; and

(d) does not sell Units purchased by the Dealer Manager under the Offering, prior to the listing of such Units on the TSX.

XIV. Each Purchase of Units during the 60-Day Period is made on the TSX or NYSE; and

XV. For Purchases of Units during the 60-Day Period only, an underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in Ontario Securities Commission Rule 48-501, Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.

APPENDIX "A"

THE MUTUAL FUNDS

Frontiers Pools

Frontiers Canadian Equity Pool

Frontiers Canadian Monthly Income Pool

CIBC Mutual Funds

Canadian Imperial Equity Fund

CIBC Balanced Fund

CIBC Balanced Index Fund

CIBC Canadian Small Companies Fund

CIBC Capital Appreciation Fund

CIBC Core Canadian Equity Fund

CIBC Dividend Fund

CIBC Diversified Income Fund

CIBC Financial Companies Fund

CIBC Monthly Income Fund

Imperial Pools

Imperial Canadian Equity Pool

Imperial Canadian Dividend Income Pool

Imperial Canadian Dividend Pool

Imperial Canadian Income Trust Pool

Renaissance Talvest Mutual Funds

Renaissance Canadian Balanced Fund

Renaissance Canadian Balanced Value Fund

Renaissance Canadian Core Value Fund

Renaissance Canadian Dividend Income Fund

Renaissance Canadian Income Trust Fund

Renaissance Canadian Growth Fund

Renaissance Canadian Income Trust Fund II

Renaissance Canadian Small Cap Fund

Talvest Dividend Fund

Talvest Cdn. Asset Allocation Fund

Talvest Cdn. Equity Value Fund

Talvest Small Cap Cdn. Equity Fund

Talvest Millennium High Income Fund

Talvest Millennium Next Generation Fund

RBC Funds (formerly RBC Advisor Funds)

RBC Blue Chip Canadian Equity Fund

RBC Funds (formerly Royal Mutual Funds)

RBC Balanced Fund

RBC Canadian Equity Fund

RBC Canadian Growth Fund

RBC Canadian Value Fund

RBC Balanced Growth Fund

RBC Monthly Income Fund

RBC Private Pools

RBC Private Income Pool

RBC Private Dividend Pool

RBC Private Canadian Equity Pool

RBC Private Canadian Mid Cap Equity Pool

RBC Funds (New Advisor Series)

RBC Dividend Fund

RBC Tax Managed Return Fund

TD Mutual Funds

TD Balanced Fund

TD Canadian Value Fund

TD Monthly Income Fund

TD Dividend Growth Fund

TD Dividend Income Fund

TD Income Trust Capital Yield Fund

TD Balanced Growth Fund

TD Canadian Small-Cap Equity Fund

TD Private Funds

TD Private Income Trust Fund

TD Private Canadian Dividend Fund

TD Private Small/Mid-Cap Equity Fund