TD Asset Management Inc. - MRRS Decision

Headnote

Exemptive relief granted to mutual funds changing their auditors from the requirement of a unitholder vote and certain reporting requirements.

Rules Cited

National Instrument 81-102 - Mutual Funds, ss. 5.1(d), 19.1.

National Instrument 81-106 -- Investment Fund Continuous Disclosure, ss. 13.2, 17.1.

October 6, 2005

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, YUKON,

NUNAVUT AND THE NORTHWEST TERRITORIES

(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.

AND

THE FUNDS

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from TD Asset Management Inc. (the "Applicant" or "Manager"), the trustee, manager and primary portfolio adviser for each of the mutual funds (the "Funds") listed on Schedule A for a decision under the securities legislation (the "Legislation") of the Jurisdictions:

• providing an exemption under section 19.1 of National Instrument 81-102 Mutual Funds ("NI 81-102") from subsection 5.1(d) of NI 81-102 to enable the Manager to change one or more of the current auditors (the "Current Auditors") of the Funds without obtaining the prior approval of the unitholders of the Funds (the "Auditor Changes");

• providing that the Application and this Decision Document be kept confidential until the issuance of this Decision Document (the "Confidentiality Request"); and

• providing an exemption under section 17.1 of National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") from subsection 13.2 of NI 81-106 to permit the Manager not to include the Reporting Package (as defined in National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102")) and a summary (the "Summary") of the Reporting Package in the information circular for the first meeting of unitholders of a Fund held subsequent to the Auditor Changes, as required by subsection 4.11(5) of NI 51-102 (the "Reporting Package Delivery Requirement" and together with the Auditor Changes and Confidentiality Request, the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for the 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 Applicant:

1. Each of the Funds is an open-end mutual fund trust established under the laws of Ontario. Each of the Funds is a member of a mutual fund family as indicated on Schedule A.

2. Each of the Funds is a reporting issuer where such status exists in each of the Jurisdictions and, to the knowledge of the Manager, is not in default of any requirements of the Legislation in the Jurisdictions.

3. Securities of each of the Funds are offered for sale on a continuous basis in each of the Jurisdictions pursuant to one or more simplified prospectuses for the relevant mutual fund family.

4. Each of the Funds has the Current Auditors indicated on Schedule A.

5. The Current Auditors have issued "unqualified" year-end audit reports in respect of the Funds and to the best of the Manager's knowledge, there were no "reportable events" as contemplated by NI 51-102.

6. Each of the Funds is subject to a Declaration of Trust or Trust Indenture (collectively, "Declaration of Trust") that governs the mutual fund family of which the Fund is a member. In conformity with subsection 5.1(d) of NI 81-102 the Declaration of Trust of each mutual fund family does not permit a change of auditors of a Fund without unitholder approval.

7. The provisions of certain Declarations of Trust will be amended to reflect that unitholder approval for a change of auditors would not be required if it were not required by the Legislation in the Jurisdictions or due to an exemption from the Legislation in the Jurisdictions. Notice of such amendments will be sent to the relevant unitholders of the Funds at the same time the notice of the Auditor Changes (the "Notice to Unitholders") is sent.

8. The Manager is a wholly-owned subsidiary of The Toronto-Dominion Bank (the "Bank"). The current auditors of the Bank are Ernst & Young LLP and PricewaterhouseCoopers LLP. The Bank has announced that commencing with its financial year ending in 2006, the sole auditors of the Bank will be Ernst & Young LLP. Ernst & Young LLP and PricewaterhouseCoopers LLP will continue to act as the Bank's auditors for its 2005 fiscal year.

9. Following the announcement by the Bank described in paragraph 8 above, for the reasons set out in paragraph 14 below, the Manager determined that the Funds and the Bank should not have the same auditors. Further, the Manager determined that it may be appropriate for all of the Funds to have the same auditors, or alternatively, appropriate for each of two groups of mutual fund families to have the same auditors for all mutual fund families in the group. Accordingly, the Manager requested each of PricewaterhouseCoopers LLP, Deloitte & Touche LLP and KPMG LLP (the "Respondents"), collectively the Current Auditors, to respond to three scenarios in a request for proposal (the "RFP"), being to act as auditors of (i) all of the Funds, (ii) a subset of all of the Funds (the Funds comprising certain mutual fund families), and (iii) another subset of all of the Funds (the Funds comprising certain other mutual fund families).

10. The Manager introduced the RFP in order to identify the auditors that it considers will best service the needs of the Funds. In the RFP the Manager indicated to the Respondents that it hopes to create synergies and efficiency improvements for the benefit of the unitholders of the Funds.

11. Following its evaluation of the responses to the RFP, the Manager selected PricewaterhouseCoopers LLP as auditors of each of the Funds, including the Funds for which they do not currently act as auditors, such that all of the Funds would have the same auditors. Accordingly, there will likely be a change of auditors for certain of the Funds.

12. Following the change of auditors as described above, the auditors of the Bank will be Ernst & Young LLP and the auditors of each of the Funds would be PricewaterhouseCoopers LLP.

13. The Funds are "subsidiaries" of the Bank for purposes of the Bank Act (Canada) (the "Bank Act"). The Bank Act requires that each of the subsidiaries of the Bank have the same auditors as the Bank unless the total assets of the subsidiary are not a material part of the Bank's total assets. Currently, the Bank Act does not require the Funds to have the same auditors as the Bank (because the Bank is not the beneficial owner of the assets of the Funds and, accordingly, the Funds' assets are not a material part of the Bank's total assets).

14. The Manager considers that the Funds are in a unique position compared to typical, corporate subsidiaries of the Bank, (a) because the Bank does not beneficially own the Funds' assets, (b) because of the fiduciary obligations owed by the Manager to the Funds and (c) because the securityholders of the Bank are not directly or indirectly the securityholders of the Funds.

15. In connection with certain conflict of interest matters relating to certain of the Funds, the Manager has appointed an independent review committee (the "IRC"). Prior to making the Auditor Changes the Manager will seek the approval of the IRC with respect to the Manager's proposal and will not proceed with the Auditor Changes without unitholder approval, unless the IRC approves the changes.

16. Each member of the IRC is independent from the Manager, the Funds, PricewaterhouseCoopers LLP, and their respective associates and affiliates.

17. The members of the IRC will exercise their powers and discharge their duties honestly, in good faith and in the best interests of the Funds, and, in doing so, will exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

18. The board of directors of the Manager will approve the Auditor Changes before such changes are implemented.

19. The current prospectus of each of the Funds provides that within the next year, the auditors of a Fund are subject to change and refers to the annual information form for additional information. The annual information form discloses that certain Funds may change auditors to Deloitte & Touche LLP, KPMG LLP, or PricewaterhouseCoopers LLP or another internationally recognized accounting firm and permission may be sought to implement a change of auditors without seeking unitholder approval.

20. Unitholders will be notified in the Notice to Unitholders of the Auditor Changes.

21. Instead of implementing the Reporting Package Delivery Requirement, the Manager will outline in the Notice to Unitholders the various ways that unitholders of the Funds can access the Reporting Package and the Summary. The Manager will make the Reporting Package and the Summary available at no cost to the unitholders of the Funds through accessing the Funds' websites, the SEDAR website, and/or by requesting a copy by calling a toll-free phone number of the Manager or by email to an email address provided by the Manager.

22. The substantial cost of holding unitholder meetings for the Auditor Changes is not justifiable in light of the Manager's expectation of a low participation rate by investors and the Manager's expectation that the Auditor Changes would be overwhelmingly approved by those unitholders that vote.

23. Pending the outcome of the RFP, the Manager had made no decision with respect to the Auditor Changes for any of the Funds. Accordingly, the Manager requested that the Application be kept confidential until the issuance of this Decision Document.

24. Unlike shareholders of public corporations, unitholders of mutual funds do not typically have annual meetings.

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:

(a) the IRC has reviewed the Auditor Changes and each member has, after reasonable inquiry, in respect of a Fund where there will be an Auditor Change, formed the opinion that the Auditor Change is in the best interests of the Fund, or represents the business judgment of the Manager uninfluenced by considerations other than the best interests of the Fund;

(b) the Notice to Unitholders will

(i) be sent to unitholders of the Funds at least 60 days prior to the effective date of the Auditor Changes, and

(ii) include the information described in paragraph 21 above; and

(c) there are no "reportable events" as defined in NI 51-102.

SCHEDULE A

FUND FAMILY AND FUND AUDITORS