TD TSE 300 Index Fund 7 Capped Index Fund - MRRS Decision
Headnote
Relief granted from certain provisions of securities legislation for initial and continuous distribution of units of exchange-traded funds - relief from requirement that prospectus include an underwriter's certificate - relief from prohibition oninvestments in certain issuers which are substantial security holders of the funds' management company.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c.S.5, as am. s. 59, ss. 111(2), s. 147 and s. 113.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
PRINCE EDWARD ISLAND, NOVA SCOTIA, NEWFOUNDLAND,
YUKON, NORTHWEST TERRITORIES AND NUNAVUT
AND
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
TD TSE 300 INDEX FUND AND
TD TSE 300 CAPPED INDEX FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provincesof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island, NovaScotia, Newfoundland, Yukon, Northwest Territories and Nunavut (the "Jurisdictions") has received an application fromTD Asset Management Inc. ("TDAM") on behalf of TD TSE 300 Index Fund and TD TSE 300 Capped Index Fund(together, the "Funds") for a decision pursuant to the securities legislation (the "Legislation") of the Jurisdictions that:
1. the requirement to include a certificate of the Underwriters, as defined in paragraph 9 below, not apply inrespect of the prospectus of the Funds; and
2. the prohibition on investments in certain issuers which are substantial security holders of TDAM or the Fundsnot apply to the Funds.
The Legislation referred to in paragraphs 1 and 2 above will be referred to in this Decision Document as the "ApplicableLegislation";
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS TDAM made the following representations to the Decision Makers:
1. Each Fund is a trust established under the laws of Ontario, which will issue units of beneficial interest ("Units").
2. The investment objective of the TD TSE 300 Index Fund is to provide long-term growth of capital by replicating,to the extent possible, the performance of the TSE 300 Composite Index. The investment objective of the TDTSE 300 Capped Index Fund is to provide long-term growth of capital by replicating, to the extent possible, theperformance of the TSE 300 Capped Index. Each Fund intends to hold the shares of the companies(collectively, the "Constituent Companies") that are included in the index that it is tracking (the "Target Index")in substantially the same proportions as they are represented in its Target Index.
3. TDAM is the trustee of the Funds and as such is responsible for the day-to-day administration of each Fund.TDAM is registered under the respective Legislation of all of the Jurisdictions as a portfolio manager andinvestment counsel and as a mutual fund dealer (or the equivalent categories of registration).
4. Each Fund has filed a preliminary prospectus (the "Prospectus") in each Jurisdiction and, upon the issuanceof a receipt for the final prospectus, will be a reporting issuer under the Legislation of each Jurisdiction wheresuch term is applicable.
5. The shares of The Toronto-Dominion Bank ("TD Bank") are included in the Target Index of each Fund. TDBank is a substantial security holder of TDAM which is the management company of the Funds and of TDSecurities Inc. and TD Waterhouse Investor Services (Canada) Inc. which may be distribution companies ofthe Funds.
6. Units of each Fund will be listed and posted for trading on the Toronto Stock Exchange (the "Exchange") andwill confer on the holder a proportionate share of the economic benefits similar to those that such holder couldobtain through individual investments in the securities of the Constituent Companies (collectively, the "IndexShares") of the Fund's Target Index.
7. It is intended that the dollar value of the Index Shares underlying the Units of each Fund (the "Core Asset ShareValue per Unit") and the trading price of such Units on the Exchange will equal, as closely as possible, aspecified fraction of the level of each Fund's Target Index as will be disclosed in the (final) prospectus of theFunds. From time to time, however, there may be a deviation in tracking such that the Core Asset Share Valueper Unit will be greater or less than such specified fraction.
8. The net asset value (the "Net Asset Value") of each Fund will be calculated daily. The Net Asset Value per Unitof each Fund will be calculated and published daily.
9. Units of each Fund may be purchased directly from the Fund by registered brokers or dealers who have enteredinto an underwriting agreement with such Fund (the "Underwriters"). An Underwriter may subscribe for Unitsof each Fund on any subscription day. The majority of the consideration payable by Underwriters for Units ofeach Fund will consist of Index Shares, in prescribed quantities, and cash. The Underwriters will not receiveany fees or commissions in connection with the issuance of Units of each Fund. In addition, TDAM, as trusteeof the Funds may, at its discretion, charge an administrative fee on the issuance of Units to Underwriters tooffset the expenses incurred by the Funds in issuing Units.
10. No Fund will issue Units until the Fund has received, in aggregate, at least $500,000 in subscriptions fromUnderwriters.
11. Each Fund may also issue Units periodically to one or more registered brokers or dealers ("DesignatedBrokers") upon an adjustment of its Target Index, a take-over bid or similar extraordinary situation. Each Fundmay also issue Units to its unitholders ("Unitholders") upon the automatic reinvestment of special dividends orcapital gains distributions made on the Index Shares held by the Fund.
12. Except as described in paragraphs 9 and 11, the Units of each Fund may not be purchased directly from theFunds. It is anticipated that, for the most part, investors will purchase Units of each Fund through the facilitiesof the Exchange.
13. It is expected that Unitholders of each Fund who wish to dispose of their Units will do so by selling them on theExchange. However, holders of a prescribed number of Units, or integral multiples thereof, may redeem suchUnits for baskets of the Index Shares plus cash. Unitholders of each Fund who redeem a prescribed numberof Units, or integral multiple thereof, may be charged an administrative fee in order to offset the expensesincurred by the Funds in effecting such exchange.
14. All Unitholders will also have the right to redeem Units solely for cash at a discount to the market price of theUnits. The Funds intend that the redemption price will be equal to 95% of the closing trading price of the Unitson the effective day of the redemption. The Funds do not expect that Unitholders will generally exercise thisredemption right.
15. Unitholders of each Fund holding at least the prescribed number of Units will be entitled to vote a proportionof the Index Shares held by the Fund equal to that Unitholder's proportionate holding of outstanding Units.Unitholders holding less than a prescribed number of Units will have no right to vote Index Shares held by aFund.
16. Subject to the expense ceiling agreed to by TDAM and described below, each Fund will be responsible for thefollowing costs and expenses: brokerage expenses and commissions; the trustee fee payable to TDAM;registrar and transfer agency fees; securities movement charges payable to the Fund's custodian; legal andaudit fees; the preparation, printing, filing and distribution of prospectuses, financial statements, annual reportsand annual filing fees payable to securities regulatory authorities relating to the issuance of Units. In respectof annual filing fees payable to securities regulatory authorities, the Fund will charge a transaction fee on theissuance of Units payable pro rata by the Underwriters and Designated Brokers who subscribe for Units whichwill effectively reimburse the Fund for such fees. TDAM has agreed, however, that the aggregate of the costsand expenses charged to the Fund in any year, net of the reimbursement of filing fees referred to above andexcluding brokerage expenses and commissions, will not exceed the following percentages per year of theaverage daily aggregate of Core Asset Share Value, Core Asset Cash and Accrued Distributions (as suchterms are defined in the Prospectus):
TD TSE 300 Index Fund -- 0.25%
TD TSE 300 Capped Index Fund -- 0.25%
TDAM has agreed to be responsible for the costs and expenses of the Fund in excess of the above specifiedpercentages.
17. Unitholders of each Fund will have the right to vote at a meeting of the Fund's Unitholders before thefundamental investment objectives of such Fund are changed or before the voting right described in paragraph15 is changed and prior to any increase in the amount of fees payable by the Fund.
18. Each Fund proposes to lend the Index Shares which it holds itself or through an agent to brokers, dealers andother financial institutions desiring to borrow securities. The securities lending will enable each Fund to earnincome to partially offset the costs and expenses of such Fund. This will enable the Funds to reduce the effectof such costs and expenses, thereby enhancing each Fund's ability to provide investment results whichcorrespond to the price performance of its Target Index.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that the Applicable Legislation shall notapply so as to:
(i) require an underwriter's certificate in the prospectus of the Funds; and
(ii) prohibit the Funds from making or holding an investment in securities of TD Bank, provided that suchinvestment is made or held:
a. in accordance with each Fund's stated investment objective that requires it to invest insecurities of TD Bank in order to track its Target Index, and
b. in substantially the same proportion as the securities of TD Bank are weighted or reflectedin each Fund's Target Index.
January 19, 2001.
"Howard I. Wetston" "R. Stephen Paddon"