TD Asset Management Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the self-dealing provision in s.4.2(1) of NI 81-102Investment Funds to permit inter-fund trades in private debt securities between investment funds subject to NI 81-102 and pooled funds managed by the same manager -- Inter-fund trades permitted subject to conditions, including the approval of the independent review committee of each Fund, compliance with paragraphs (d), (f) and (g) of subsection 6.1(2) of NI 81-107 Independent Review Committee for Investment Funds, and the requirement to obtain an independent valuation for the private debt security from an independent valuation firm.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from s.13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit inter-fund trades of private debt securities between mutual funds, pooled funds and managed accounts managed by the same manager -- Inter-fund trades permitted subject to conditions, including the approval of the independent review committee of each Fund, compliance with paragraphs (d), (f) and (g) of subsection 6.1(2) of NI 81-107Independent Review Committee for Investment Funds, and the requirement to obtain an independent valuation for the private debt security from an independent valuation firm -- Where inter-fund trades of private debt occur between pooled funds sold only to "permitted clients" or between managed accounts and pooled funds sold only to "permitted clients", the manager will use its own valuation models to determine the prices at which the private debt securities are purchased and sold, subject to the requirement to have an independent valuation firm registered with the CPAB carry out an annual audit of the valuation methodology to ensure the value attributed to the securities is fair and reasonable.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 4.2(1) and 19.2.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5 and 15.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).

April 18, 2019

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF TD ASSET MANAGEMENT INC. (the Filer) AND THE FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation):

(a) for an exemption from section 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103") which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell the securities of any issuer from or to the investment portfolio of an associate of a responsible person, or any investment fund for which a responsible person acts as an adviser; and

(b) for an exemption from section 4.2(1) of National Instrument 81-102 -- Investment Funds ("NI 81-102") which prohibits an investment fund from purchasing a security from, selling a security to, another investment fund managed by the Filer or an affiliate of the Filer;

to permit a Fund or Managed Account (as defined below) to engage in Inter-Fund Trades (as defined below) involving Private Debt (as defined below).

The relief requested in (a) above is referred to as the "Inter-Fund Trade Relief" and the relief requested in (b) above is referred to as the "Section 4.2(1) Relief". The Inter-Fund Trade Relief together with the Section 4.2(1) Relief are collectively referred to as the "Exemption Sought".

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System ("MI 11-102") is intended to be relied upon in each of the other Provinces and Territories of Canada (together with Ontario, the "Jurisdictions").

Interpretation

Defined terms contained in National Instrument 14-101 Definitions, NI 81-102 and NI 31-103 have the same meaning in this decision unless otherwise defined. The following terms have the following meanings:

"Funds" means the Mutual Funds and the Pooled Funds;

"Existing Pooled Funds" means TD Emerald Private Debt Pooled Fund Trust and TD Emerald Long Private Debt Pooled Fund Trust, each of which is not a reporting issuer;

"Future Pooled Funds" means any investment fund (other than an Existing Pooled Fund) that is not a reporting issuer, of which the Filer or an affiliate of the Filer acts as investment fund manager and/or portfolio manager;

"Inter-Fund Trade" means the purchase or sale of securities (i) between Funds, or (ii) between a Managed Account and a Fund;

"Managed Account" means an account managed by the Filer for a client that is not a responsible person and over which the Filer has discretionary authority;

"Mutual Funds" means any mutual fund, as defined in the Securities Act (Ontario), that is a reporting issuer and subject to NI 81-102, of which the Filer or an affiliate of the Filer acts as investment fund manager and/or portfolio manager;

"Pooled Funds" means the Existing Pooled Funds and the Future Pooled Funds.

Representations

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

Filer

1. The Filer is a corporation existing under the laws of the province of Ontario with its head office in Toronto, Ontario.

2. The Filer is registered as an investment fund manager in the Provinces of Ontario, Québec and Newfoundland and Labrador, as a portfolio manager and exempt market dealer in each of the provinces and territories of Canada, as a derivatives portfolio manager in the province of Québec and as a commodity trading manager in the province of Ontario.

3. The Filer is the investment fund manager and portfolio manager of the Existing Pooled Funds.

4. The Filer is or will be the investment fund manager and/or portfolio manager of the Funds.

5. The Filer provides discretionary investment management services to investors through Managed Accounts.

Mutual Funds

6. Each of the Mutual Funds is or will be:

(a) an open-ended mutual fund trust or an open-ended mutual fund corporation, and

(b) a reporting issuer in each of the Jurisdictions that is subject to the provisions of NI 81-102.

7. The securities of each of the Mutual Funds are or will be qualified for distribution pursuant to simplified prospectuses and annual information forms that have been prepared or will be prepared and filed in accordance with NI 81-101 -- Mutual Fund Prospectus Disclosure.

Pooled Funds

8. Each of the Pooled Funds is or will be an open-ended or closed-ended investment fund established as a trust or limited partnership.

9. None of the Pooled Funds is or will be a reporting issuer in any of the Jurisdictions, nor subject to NI 81-102.

10. The securities of the Pooled Funds are or will be distributed on a private placement basis pursuant to available prospectus exemptions.

11. Each of the Existing Pooled Funds is available only to investors who are "permitted clients" as such term is defined in NI 31-103, other than those described in paragraph (k) of the definition, unless the client of the managed account is otherwise a permitted client.

12. The Filer, each of the existing Mutual Funds and each of the Existing Pooled Funds is not in default of securities legislation in the Jurisdictions.

Managed Accounts

13. Each Managed Account client wishing to receive the discretionary investment management services of the Filer has entered into, or will enter into, a written agreement (an "Investment Management Agreement") whereby the client appoints the Filer to act as portfolio manager in connection with an investment portfolio of the client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute the trade.

14. Each Investment Management Agreement or other documentation in respect of a Managed Account contains, or will contain, the authorization of the client for the Filer to engage in Inter-Fund Trades.

Private Debt

15. To the extent consistent with the investment objective of a Fund or Managed Account, the investment portfolio of a Fund or Managed Account may include private debt securities and loans (or a portion of a loan) in respect of which the bid and ask price is not readily available given the limited number of investors/lenders and the limited trading involved ("Private Debt").

16. The Filer believes that permitting investment in Private Debt will provide the Funds and Managed Accounts with a diversification benefit as well as exposure to issuers in sectors that may be underrepresented, as compared to the Canadian corporate bond indices. The Filer is also of the view that investment in Private Debt will assist the Funds and Managed Accounts in achieving their stated investment objectives, given the benefits of yield enhancement, diversification and lower risk due to stronger covenants and security packages, as compared to public bonds.

Inter-Fund Trades

17. The Filer wishes to permit any Fund or Managed Account to engage in Inter-Fund Trades in respect of Private Debt.

18. The Filer previously obtained exemptive relief in respect of certain Inter-Fund Trades on April 27, 2009 and on July 2, 2009 (collectively, the "Prior Relief"). The terms of the Prior Relief required that "the transaction complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities the current market price of the security may be the Last Sale Price".

19. The Filer is unable to carry out Inter-Fund Trades in Private Debt between the Funds and Managed Accounts in accordance with the terms of the Prior Relief because Private Debt securities are not commonly traded in secondary markets, do not have an external pricing source, and accordingly do not have readily available bid and ask quotes. As such, absent the Exemption Sought, the Filer is prohibited from carrying out an Inter-Fund Trade in respect of Private Debt.

Controls

20. Each Fund and Managed Account, as applicable, will only purchase Private Debt that are consistent with, or necessary to meet, the Fund's or Managed Account's investment objectives. Each Fund and Managed Account will only sell Private Debt if the Filer has determined that disposing of such securities is appropriate for the Fund or Managed Account, as applicable.

21. Private Debt are illiquid assets as defined in NI 81-102. Each Mutual Fund will comply with the restrictions concerning illiquid assets provided for in NI 81-102.

22. All decisions to purchase or sell Private Debt pursuant to an Inter-Fund Trade will be made based on the judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund or Managed Account, as applicable.

23. The Filer has, or will have, policies and procedures in place to address any potential conflicts of interest that may arise as a result of Inter-Fund Trades in respect of Private Debt and the Filer will be able to appropriately deal with any such conflicts.

24. The Filer, on behalf of each Fund, has established or will establish an independent review committee (the "IRC") consistent with section 3.7 of National Instrument 81-107 Independent Review Committee for Investment Funds ("NI 81-107"). The IRC of each Fund will be expected to comply with the standard of care set out in section 3.9 of NI 81-107 as if each Fund were subject to that rule.

25. The Filer will refer the Inter-Fund Trades in respect of Private Debt involving a Fund to the IRC of such Fund.

26. Prior to a Fund making a purchase or sale of Private Debt pursuant to an Inter-Fund Trade:

(a) The IRC of the Fund will approve the transaction in accordance with section 5.2(2) of NI 81-107;

(b) The Filer will comply with section 5.1 of NI 81-107; and

(c) The Filer and the IRC of the Fund will comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transaction.

Valuation

27. With respect to Private Debt to be purchased or sold pursuant to an Inter-Fund Trade solely between Existing Pooled Funds or between an Existing Pooled Fund and a Managed Account:

(a) The valuation and/or prices of the Private Debt are not reported by an independent source. The Filer has developed valuation models and methodologies (the "Valuation Models") specifically for Private Debt to determine fair value. The Valuation Models are based on a discounted cash flow model and the inputs used in the Valuation Models are derived from both external and internal sources. The application of the Valuation Models and the inputs used in the Valuation Models are overseen by an internal risk group of the Filer whose members do not include the portfolio management teams who make the investment decisions in respect of Private Debt for a Fund or Managed Account. The Filer proposes that a reputable valuation firm that is independent of the Filer and its affiliates, that is an accounting firm registered with the Canadian Public Accountability Board ("CPAB") and the valuation services of which are provided by professionals who are active members of the Canadian Institute of Chartered Business Valuators will be retained to review on an annual basis whether the Valuation Models developed and used by the Filer to determine the fair value attributed to Private Debt are reasonable from the perspective of an independent third party and that such models would result in a valuation that is fair from a financial point of view. Such valuation models and methodologies will then be used by the Filer to determine the price(s) at which Private Debt are purchased from or sold by an Existing Pooled Fund in connection with an Inter-Fund Trade with another Existing Pooled Fund or a Managed Account.

(b) The Valuation Models to be used by the Filer to determine the prices at which Private Debt are purchased and sold by an Existing Pooled Fund in connection with an Inter-Fund Trade with another Existing Pooled Fund or Managed Account will also be used to calculate the net asset value for the purpose of the issue price or redemption price of the units of the Existing Pooled Fund.

(c) A public accounting firm that is registered with the CPAB is or will be retained to act as auditor of the Existing Pooled Funds and will carry out an audit, in accordance with Canadian generally accepted auditing standards, of the annual financial statements of the Existing Pooled Funds. The annual financial statements will be prepared in accordance with International Financial Reporting Standards ("IFRS"). The financial statements will present the Private Debt at their fair values, which will be determined based on all applicable fair valuation principles set out in IFRS 13 Fair Value Measurement. These principles consider the credit spreads and yields used by market participants in the fair market valuation of private debt securities and other market value influencing assumptions, to the extent that such information is publicly available.

28. With respect to Private Debt to be purchased or sold pursuant to an Inter-Fund Trade between Funds or between Funds and Managed Accounts other than as described in paragraph 27 (including an Inter-Fund Trade solely involving the Existing Pooled Funds or the Existing Pooled Funds and Managed Accounts where the Filer has determined not to establish fair value of the Private Debt using the Valuation Models), the Valuation Models will not be used. Instead the Filer proposes that a reputable valuation firm that is independent of the Filer and its affiliates and that the Filer determines to have sufficient expertise in valuing Private Debt will be retained to value the Private Debt that is the subject of the Inter-Fund Trade and such valuation will be used for purposes of carrying out the Inter-Fund Trade.

Compensation

29. The Filer and its affiliates will receive no remuneration with respect to any purchase or sale of Private Debt in connection with an Inter-Fund Trade. In the case of syndicated Private Debt, an agent bank may charge the Fund or Managed Account nominal fees for the transfer or assignment of such syndicated Private Debt.

Record Keeping

30. For each purchase or sale of Private Debt, each Fund will keep written records in a financial year of the Fund. These records will reflect details of the Private Debt received or delivered by the Fund and the value assigned to such Private Debt. These records will be retained for five years after the end of the financial year, the most recent two years in a reasonably accessible place.

Disclosure

31. The Filer will disclose in the next renewal of its prospectus for its Mutual Funds, the next update of its offering documents of each Pooled Fund and in the Investment Management Agreement or other documentation in respect of a Managed Account that Inter-Fund Trades of Private Debt securities between the Funds and Managed Accounts may occur from time to time, and also disclose how the price of such securities is determined and the valuation procedure for such securities.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that:

1. The Section 4.2(1) Relief is granted provided that the following conditions are satisfied:

(a) the transaction is consistent with the investment objectives of each of the Funds involved in the trade;

(b) the IRC of each Fund involved in the trade has approved the transaction in respect of that Fund in accordance with the terms of section 5.2 of NI 81-107;

(c) the transaction complies with paragraphs (d), (f) and (g) of subsection 6.1(2) of NI 81-107; provided that in the case of syndicated Private Debt, an agent bank may charge the Fund nominal fees for the transfer or assignment of such syndicated Private Debt;

(d) the transaction is executed at the fair value of the Private Debt that is the subject of the transaction determined by a reputable valuation firm that is independent of the Filer and its affiliates and that the Filer determines to have sufficient expertise in valuing Private Debt;

2. The Inter-Fund Trading Relief is granted provided that the following conditions are satisfied:

(a) the Inter-Fund Trade is consistent with the investment objectives of the Fund or Managed Account, as applicable;

(b) the Filer, as manager of a Fund, refers the Inter-Fund Trade involving a Fund to the IRC of that Fund in the manner contemplated by section 5.1 of NI 81-107 and the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;

(c) the next renewal prospectus of the Mutual Funds, the next update of the offering documents of each Pooled Fund and the Investment Management Agreement or other documentation in respect of a Managed Account, involved in an Inter-Fund Trade discloses that the Fund or Managed Account, as applicable, may engage in Inter-Fund Trades of Private Debt securities from time to time, and also discloses how the price of such securities is determined and the valuation procedure for such securities;

(d) in the case of an Inter-Fund Trade solely involving Existing Pooled Funds or Existing Pooled Funds and Managed Accounts where the price of the Private Debt is to be determined using the Valuation Models:

(A) securities of each Existing Pooled Fund are sold pursuant to available exemptions from the prospectus requirements only to investors who are "permitted clients" as such term is defined in NI 31-103, other than those described in paragraph (k) of the definition, unless the client of the managed account is otherwise a permitted client;

(B) the IRC of each Existing Pooled Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(C) the Inter-Fund Trade Complies with paragraphs (d), (f) and (g) of subsection 6.1(2) of NI 81-107; provided that in the case of syndicated Private Debt, an agent bank may charge the Existing Pooled Fund or Managed Account, as applicable, nominal fees for the transfer or assignment of such syndicated Private Debt;

(D) the Investment Management Agreement or other documentation in respect of a Managed Account involved in the Inter-Fund Trade authorizes the Inter-Fund Trade;

(E) the Inter-Fund Trade is executed at the fair value of the Private Debt that is the subject of the transaction determined using the Valuation Models of the Filer which are also used to determine the net asset value of the Existing Pooled Fund(s);

(F) a reputable valuation firm, that is independent of the Filer and its affiliates, that is an accounting firm registered with the CPAB and the valuation services of which are provided by professionals who are active members of the Canadian Institute of Chartered Business Valuators is retained to review on an annual basis whether the Valuation Models developed and used by the Filer to determine the fair value attributed to Private Debt are reasonable from the perspective of an independent third party and that such models would result in a valuation that is fair from a financial point of view;

(G) a public accounting firm that is registered with the CPAB is or will be retained to act as auditor of the Existing Pooled Funds and will carry out an audit, in accordance with Canadian generally accepted auditing standards, of the annual financial statements of the Existing Pooled Funds. The annual financial statements will be prepared in accordance with International Financial Reporting Standards ("IFRS"). The financial statements will present the Private Debt at their fair values, which will be determined based on all applicable fair valuation principles set out in IFRS 13 Fair Value Measurement. These principles consider the credit spreads and yields used by market participants in the fair market valuation of private debt securities and other market value influencing assumptions, to the extent that such information is publicly available;

(e) in the case of an Inter-Fund Trade between Funds (other than where the Inter-Fund Trade is carried out in accordance with 2(d) above):

(A) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(B) the Inter-Fund Trade complies with paragraphs (d), (f) and (g) of subsection 6.1(2) of NI 81-107; provided that in the case of syndicated Private Debt, an agent bank may charge the Fund nominal fees for the transfer or assignment of such syndicated Private Debt;

(C) the transaction is executed at the fair value of the Private Debt that is the subject of the transaction determined by a reputable valuation firm that is independent of the Filer and its affiliates and that the Filer determines to have sufficient expertise in valuing Private Debt;

(f) in the case of an Inter-Fund Trade between a Managed Account and a Fund (other than where the Inter-Fund Trade is carried out in accordance with 2(d) above):

(A) the IRC of the Fund has approved the Inter-Fund Trade in respect of such Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;

(B) the Investment Management Agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade; and

(C) the Inter-Fund Trade complies with paragraphs (d), (f) and (g) of subsection 6.1(2) of NI 81-107; provided that in the case of syndicated Private Debt, an agent bank may charge the Fund or Managed Account, as applicable, nominal fees for the transfer or assignment of such syndicated Private Debt;

(D) the transaction is executed at the fair value of the Private Debt that is the subject of the transaction determined by a reputable valuation firm that is independent of the Filer and its affiliates and that the Filer determines to have sufficient expertise in valuing Private Debt.

"Darren McKall"

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission