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 prospectus and registration requirements to permit distributions by the funds to designatedbrokers in specified circumstances - relief from registration requirements to permit members of a futures exchange, ortheir partners, officers or employees, to trade in units of the funds, subject to certain conditions.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c.S.5, as am. ss. 74(1), s. 25 and s. 53.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, 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, New Brunswick, Prince Edward Island, Nova Scotia,Newfoundland, Yukon, Northwest Territories and Nunavut (the "Jurisdictions") has received an application from TDAsset 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 the prospectusand/or registration requirements contained in the Legislation do not apply to:
(a) trades in Units of the Funds to the Designated Brokers, as defined in paragraph 10 below, in the circumstancesdescribed in the same paragraph, and
(b) trades in Units of the Funds by members of a futures exchange or the members' partners, officers andemployees trading on behalf of such members;
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, and TDAM is the trustee of each Fund.
2. As trustee, TDAM is responsible for the day-to-day administration of each Fund. TDAM is registered in all ofthe Jurisdictions as a portfolio manager and investment counsel and also as a mutual fund dealer (or theequivalent categories of registration) under their respective Legislation.
3. 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.
4. Each Fund will issue units of beneficial interest ("Units"). For this purpose, each Fund has filed a preliminaryprospectus (the "Prospectus") in each Jurisdiction. Upon the issuance of a receipt for the (final) prospectus,each Fund will be a reporting issuer under the Legislation of each Jurisdiction where such term is applicable.
5. The Units of each Fund will be listed and posted for trading on the Toronto Stock Exchange (the "Exchange").Each Unit will confer on the holder a proportionate share of the economic benefits similar to those that suchholder could obtain through individual investments in the securities of the Constituent Companies (collectively,the "Index Shares") of the Fund's Target Index.
6. 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
7. 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.
8. The Units of each Fund may be purchased directly from the Fund by registered brokers or dealers who haveentered into an underwriting agreement with such Fund (the "Underwriters"). An Underwriter may subscribefor Units of each Fund on any subscription day. The majority of the consideration payable by Underwriters forUnits of each Fund will consist of Index Shares, in prescribed quantities, and cash. The Underwriters will notreceive any fees or commissions in connection with the issuance of Units of each Fund. In addition, TDAM, astrustee of the Funds may, at its discretion, charge an administrative fee on the issuance of Units to Underwritersto offset the expenses incurred by the Funds in issuing Units.
9. No Fund will issue Units until the Fund has received, in aggregate, at least $500,000 in subscriptions from theUnderwriters.
10. 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 a similar extraordinary situation. EachFund may also issue Units to its unitholders ("Unitholders") upon the automatic reinvestment of specialdividends or capital gains distributions made on the Index Shares held by the Fund.
11. Except as described in paragraphs 8 and 10, 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.
12. 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 Fund in effecting such exchange.
13. 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.
14. 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.
15. 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.
16. 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 and before the voting right described inparagraph 14 is changed, and prior to any increase in the amount of fees payable by the Fund.
17. 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.
18. Members of a futures exchange (or their partners, officers and employees), who are registered only under thecommodity futures legislation or requirements (if any) of the Jurisdiction where such members carry on thebusiness of trading in futures contracts may wish to trade the Units of each Fund in order to hedge theirderivatives holdings based on the Fund's 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
(a) the prospectus and registration requirements of the Legislation do not apply to trades in Units of theFunds to Designated Brokers in the circumstances described in paragraph 10 above;
(b) the registration requirement of the Legislation does not apply to trades in Units of the Funds bymembers of a futures exchange, or the members' partners, officers or employees trading on behalfof such members, provided that
(i) the members or their partners, officers or employees are registered for trading purposesunder the commodity futures legislation or requirements (if any) of the Jurisdiction wheresuch members carry on the business of trading in futures contracts,
(ii) the trades in Units of the Funds are made only for such members' own account, and
(iii) neither the members nor their partners, officers or employees will trade in Units of the Fundson behalf of their clients.
January 17th, 2001.
"Howard I. Wetston" "R. Stephen Paddon"