The Ontario Securities Commission (OSC) investigation into
mutual fund trading practices has generated questions and concerns
regarding our policies and practices. In an effort to help address
these questions, the following information has been prepared to
provide some background and outline TD Asset Management's (TDAM's)
position and policies. Current Status of the Regulator's InvestigationQ: What is the status of the OSC investigation into late
trading and market timing?A: The Ontario Securities Commission investigation was conducted
in three phases. In the first phase, which began in November 2003,
all Canadian mutual fund managers were asked to provide information
on any late trading or market timing activities of which they were
aware, and for a description of their policies and procedures to
prevent late trading and market timing. In the second phase, the
OSC selected 36 fund companies and requested more detailed
information in an effort to assess their procedures and practices
as they related to late trading and market timing. In the third phase, the OSC conducted an analysis of trading
data and held site visits for 20 fund managers. On October 1, 2004
the OSC issued a press release indicating that they were in
discussions with certain money managers with a view to resolving
allegations of market timing by some investors in funds they
managed. On December 16, 2004 the OSC approved settlement
agreements concerning market timing activities. The OSC also
announced that there has been no evidence of late trading activity
detected in Canada and all indications of market timing had ceased
for some time. The OSC also announced on December 16, 2004, that
their probe into trading activities in mutual funds was
complete. LATE TRADINGQ: What is late trading?A: Late trading is illegal and occurs when mutual fund trade
orders are received after a fund's cut-off time (typically when
stock markets close at 4:00 PM Eastern Time [ET]), but are filled
at that day's unit price rather than the next business day's unit
price. Late trading is a violation of National Instrument 81-102, a
nationally adopted instrument that regulates mutual funds. Q: Why is late trading a concern?A: It is a concern because of the opportunity this creates for
investors to trade and financially benefit from knowledge not
available to the fund's other unitholders who placed orders before
4:00 PM ET. Q: Does TDAM have a policy on late trading?A: Yes. Our policy is that mutual fund trade orders received
after 4:00 PM ET receive the next business day's unit price. All of
TD Mutual Funds' record-keeping systems are designed to move orders
received after 4:00 PM ET to the next business day. MARKET TIMINGQ: What is market timing?A: Market timing strategies generally involve short-term trading
of mutual funds to take advantage of short-term discrepancies
between the expected current price of a security and the stale
value of that security used in valuing the fund's portfolio.
International funds are vulnerable to this type of trading, as
traders can exploit differences between time zones. Periodically, events that could reasonably be expected to impact
the value of a security or an entire market occur after a security
has been priced in a foreign market. Examples of events might be a
major political announcement or resignation of people critical to
the operation of a company. In these circumstances, the closing
mutual fund price(s) may not fully reflect the expected current
value(s) of the affected security(ies); these prices are sometimes
referred to as 'stale' prices. Q: Why is market timing of concern?A: The movement of cash in-and-out of a fund is not optimal for
the long-term operation of a fund. In some cases, a fund's
portfolio manager may buy securities to keep the fund fully
invested and then sell these same securities to cover the
subsequent redemption. This can also create the need to keep
additional cash to cover redemptions and these activities result in
increased custody, trading, and transaction costs. Q: How does TDAM discourage market timing?A: While market timing is not illegal, our funds are designed
for long-term mutual fund investors. TDAM started to charge an
early redemption fee (ERF) for most TD Mutual Funds many years ago.
This 2% fee is applied to investors that buy and sell units of the
same fund within 30 or 90 days, thus discouraging for market
timing. The amount charged by this process is paid to the fund to
cover any costs or possible negative impact to the fund or its
unitholders. In addition, we also retain the right to reject
purchase orders from a unitholder who is conducting any activity
considered detrimental to the funds or its unitholders. At TD Mutual Funds we are committed to protecting the best
interests of our unitholders. We strive to apply the highest
standard of care and diligence, and we review our current policies
and practices regularly to ensure they continue to protect you and
the funds. Updated December 2004 | 
