UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~January 31, ~~2000~~2001


	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 1-15101

TD ~~WATERHOUSE~~Waterhouse ~~GROUP~~Group, ~~INC~~Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or other jurisdiction of incorporation or organization)		13-4056516 (IRS Employer Identification No.)
Delaware		13-4056516
100 Wall Street, New York, NY (Address of principal executive offices)		10005 (Zip Code)
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
100 Wall Street, New York, NY		10005
(Address of Principal Executive Offices)		(Zip Code)

(212) 806-3500

(Registrant’s ~~telephone~~Telephone ~~number~~Number, ~~including~~Including ~~area~~Area ~~code~~Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been ~~subject~~ subject to such filing requirements for the past 90 days. Yes ~~[X]~~ No

Number of shares outstanding of each of the registrant’s classes of Common Stock at ~~September~~March 1314, ~~2000~~2001.


Common Stock, $.01 Par Value		379,789,350 shares

TABLE OF CONTENTS

PART I.
Part I.
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
	Item 6. Exhibits and Report on Form 8-K
FINANCIAL DATA SCHEDULE

TD WATERHOUSE GROUP, INC.

FORM 10-Q QUARTERLY REPORT

For the Quarter Ended ~~July~~January 31, ~~2000~~2001

Table of Contents

PART I. FINANCIAL INFORMATION:
			Page
Part I. Financial Information:
Item 1.	Financial Statements
		Consolidated Statements of Income		3
		Consolidated Statements of Financial Condition		4
		Consolidated Statements of Cash Flows		5
		Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			109
Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk			1916
PART II. OTHER INFORMATION:
Part II. Other Information:
Item 1.	Legal Proceedings			2118
Item 2.	Changes in Securities and Use of Proceeds			2118
Item 3.	Defaults Upon Senior Securities			2118
Item 4.	Submission of Matters to a Vote of Security Holders			2118
Item 5.	Other Information			2118
Item 6.	Exhibits and ~~Reports~~Report on Form 8-K			2219
Signatures				2421

Forward-Looking Statements:

In addition to historical information, this interim report contains forward-looking statements that reflect management’s current expectations. These statements relate to, among other things, contingencies, business strategy, sources of liquidity, capital expenditures, and operating results and financial condition. Achievement of the expressed expectations is subject to a number of risks and uncertainties that could cause actual results to differ materially from those expectations. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in this interim report for a discussion of important factors that may cause such differences.

~~PART~~Part I.

Item 1. Financial Statements

TD WATERHOUSE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of dollars, except share and per share ~~amounts~~data)

		Three Months Ended				Nine Months Ended
		July 31,				July 31,
		2000		1999		2000		1999
		(unaudited)				(unaudited)
Revenues
Commissions and fees		$	202,947	$	155,455	$	798,628	$	484,133
Mutual fund and related revenue			37,065		25,722		107,969		69,317
Net interest revenue			88,846		51,668		258,809		124,983
Other			16,752		10,109		50,528		28,554
	Total revenues		345,610		242,954		1,215,934		706,987
Expenses
Employee compensation and benefits			97,539		71,335		317,561		201,656
Execution and clearing costs			40,610		32,489		129,913		100,592
Occupancy and equipment			32,445		21,409		92,646		58,210
Advertising and marketing			23,434		14,642		88,815		38,698
Communications			14,468		9,971		48,057		32,687
Amortization of goodwill			11,556		9,290		31,757		27,853
Professional fees			11,477		6,422		31,397		16,670
Other			47,251		28,383		170,375		88,594
	Total expenses		278,780		193,941		910,521		564,960
Income before income taxes			66,830		49,013		305,413		142,027
Income tax provision			32,339		22,621		137,286		65,606
	Net income	$	34,491	$	26,392	$	168,127	$	76,421
	Basic and diluted earnings per share	$	0.09	$	0.08	$	0.44	$	0.23
Weighted average shares outstanding — basic			379,789		351,113		378,666		339,104
Weighted average shares outstanding — diluted			380,111		351,113		378,819		339,104

(Unaudited)



		Three Months Ended
		January 31,

		2001		2000

Revenues




Commissions and fees		$	196,252	$	258,810




Mutual fund and related revenue			41,600		33,197




Net interest revenue			79,820		75,917




Other			29,621		13,724

	Total revenues		347,293		381,648

Expenses




Employee compensation and benefits			101,907		103,534




Execution and clearing costs			39,532		41,149




Occupancy and equipment			34,541		26,854




Advertising and marketing			27,997		36,131




Communications			15,495		13,616




Amortization of goodwill			11,877		9,625




Professional fees			11,568		8,602




Other			39,458		40,865

	Total expenses		282,375		280,376

Income before income taxes			64,918		101,272




Income tax provision			27,847		44,256

	Net income	$	37,071	$	57,016

	Basic earnings per share	$	0.10	$	0.15

	Diluted earnings per share	$	0.10	$	0.15

	Weighted average number of shares outstanding — basic		379,789,350		376,419,200




	Weighted average number of shares outstanding — diluted		379,861,658		376,419,200

The accompanying notes are an integral part of these consolidated financial statements.

TD WATERHOUSE GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands of dollars, except share and per share ~~amounts~~data)

		July 31, 2000			October 31, 1999
		(unaudited)
Assets
Cash and cash equivalents		$	1,026,884		$	569,181
Securities owned, at market value			116,958			342,042
Receivable from brokers and dealers			340,435			194,370
Receivable from customers, net			8,747,198			5,868,804
Deposits paid for securities borrowed			499,112			664,299
Receivable from affiliates			2,606			7,010
Deposits with clearing organizations			53,038			35,495
Fixed assets, net of accumulated depreciation			126,623			73,543
Goodwill, net of accumulated amortization			822,933			654,081
Other assets			164,347			182,991
	Total assets	$	11,900,134		$	8,591,816
Liabilities and Stockholders’ Equity
Liabilities
Bank loans and overdrafts		$	1,148,783		$	249,010
Deposits received for securities loaned			4,193,870			3,962,958
Securities sold, not yet purchased, at market value			8,414			3,554
Payable to brokers and dealers			516,432			160,254
Payable to customers			2,900,429			2,016,535
Payable to affiliates			347,837			32,323
Accrued compensation, taxes payable and other liabilities			596,761			215,062
	Total liabilities		9,712,526			6,639,696
Commitments and contingent liabilities (Note 2)
Stockholders’ Equity
Common stock, $.01 par value: 700 million shares authorized, 379,789,350 shares issued and outstanding			3,798			3,764
Preferred stock, $.01 par value: 100 million shares authorized, one share issued and outstanding			—			—
Preferred stock of subsidiaries, $23,700 par value: 100,000 shares authorized, 5 shares issued and outstanding			119			119
Preferred stock of subsidiaries, CDN$1,000 par value: unlimited shares authorized, 17,100 shares issued and outstanding			11,829			—
Additional paid-in capital			1,983,730			1,916,622
Retained earnings			199,568			31,441
Accumulated other comprehensive (loss)/income			(11,436	)		174
	Total stockholders’ equity		2,187,608			1,952,120
	Total liabilities and stockholders’ equity	$	11,900,134		$	8,591,816

(Unaudited)


		January 31, 2001			October 31, 2000

Assets




Cash and cash equivalents		$	411,992		$	859,579




Securities owned, at market value			542,612			138,515




Receivable from brokers and dealers			107,854			104,266




Receivable from customers			6,085,545			7,978,551




Deposits paid for securities borrowed			1,215,981			640,750




Receivable from affiliates			8,814			5,039




Deposits with clearing organizations			57,513			51,943




Fixed assets, net of accumulated depreciation			158,082			140,591




Goodwill, net of accumulated amortization			796,714			804,266




Other assets			207,790			265,817

	Total assets	$	9,592,897		$	10,989,317

Liabilities and Stockholders’ Equity




Liabilities




Bank loans and overdrafts		$	27,458		$	963,031




Deposits received for securities loaned			3,218,328			4,111,677




Securities sold, not yet purchased, at market value			5,411			6,396




Payable to brokers and dealers			158,998			105,467




Payable to customers			3,324,873			2,849,485




Payable to affiliates			351,455			358,907




Accrued compensation, taxes payable and other liabilities			240,201			370,431

	Total liabilities		7,326,724			8,765,394

Commitments and contingent liabilities (Note 2)




Stockholders’ Equity




Preferred stock, $.01 par value: 100 million shares authorized, one share issued and outstanding			—			—




Preferred stock of subsidiaries, $23,700 par value:




	100,000 shares authorized, 5 shares issued and outstanding		119			119




Preferred stock of subsidiaries, Cdn$1,000 par value: unlimited shares authorized, 17,100 shares issued and outstanding			11,829			11,829




Common stock, $.01 par value: 700 million shares authorized, 379,789,350 shares issued and outstanding			3,798			3,798




Additional paid-in capital			1,983,730			1,983,730




Retained earnings			278,828			241,757




Accumulated other comprehensive loss			(12,131	)		(17,310	)

	Total stockholders’ equity		2,266,173			2,223,923

	Total liabilities and stockholders’ equity	$	9,592,897		$	10,989,317

The accompanying notes are an integral part of these consolidated financial statements.

TD WATERHOUSE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

			Nine Months Ended
			July 31,
			2000			1999
			(unaudited)
Cash flows from operating activities:
Net income			$	168,127		$	76,421
Adjustments to reconcile net income to cash provided by/(used in) operating activities:
Depreciation and amortization				56,889			28,791
(Increases)/decreases in operating assets:
	Securities owned			224,798			(136,597	)
	Receivable from brokers and dealers			(159,256	)		(91,158	)
	Receivable from customers			(2,911,067	)		(3,076,896	)
	Deposits paid for securities borrowed			160,212			(551,921	)
	Receivable from affiliates			4,404			(63,131	)
	Deposits with clearing organizations			(17,771	)		(36,746	)
	Other net assets			16,170			(21,131	)
Increases/(decreases) in operating liabilities:
	Bank loans and overdrafts			901,232			320,053
	Deposits received for securities loaned			235,081			2,602,272
	Securities sold, not yet purchased			4,957			(925	)
	Payable to brokers and dealers			378,113			26,199
	Payable to customers			916,992			137,585
	Payable to affiliates			291,195			62,832
	Accrued compensation, taxes payable and other liabilities			379,167			124,461
		Cash provided by/(used in) operating activities		649,243			(599,891	)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements				(80,215	)		(29,153	)
Acquisitions of businesses, net of assets acquired and liabilities assumed				(196,448	)		(16,772	)
		Cash used in investing activities		(276,663	)		(45,925	)
Cash flows from financing activities:
Preferred stock issued by subsidiary				11,652			—
Common shares and additional paid in capital				67,142			—
Subordinated debt with affiliate				25,316			—
Proceeds from initial public offering				—			986,077
Preferred stock redemption				—			(236,881	)
Debt repayment				—			(45,176	)
Capital contribution from Parent				—			157,753
		Cash provided by financing activities		104,110			861,773
Effect of exchange rate differences in cash and cash equivalents				(18,987	)		(501	)
Increase in cash and cash equivalents				457,703			215,456
Cash and cash equivalents, beginning of period				569,181			522,029
Cash and cash equivalents, end of period			$	1,026,884		$	737,485
Supplemental disclosures of cash flow information
		Cash paid for interest	$	287,582		$	124,687
		Cash paid for income taxes	$	312,439		$	93,645

(Unaudited)



			Three Months Ended
			January 31,

			2001			2000

Cash flows from operating activities:




Net income			$	37,071		$	57,016




Adjustments to reconcile net income to cash provided by/(used in) operating activities:




Depreciation and amortization				24,641			16,628




(Increases)/decreases in operating assets:




	Securities owned			(400,179	)		220,224




	Receivable from brokers and dealers			(2,693	)		(114,107	)




	Receivable from customers			1,915,852			(3,273,123	)




	Deposits paid for securities borrowed			(561,031	)		985




	Receivable from affiliates			(3,775	)		141,657




	Deposits with clearing organizations			(5,299	)		(9,234	)




Other assets, net				55,039			93,387




	(Decreases)/increases in operating liabilities:




	Bank loans and overdrafts			(935,811	)		850,838




	Deposits received for securities loaned			(902,056	)		1,151,544




	Securities sold, not yet purchased			(1,071	)		5,307




	Payable to brokers and dealers			52,032			318,437




	Payable to customers			443,167			586,321




	Payable to affiliates			(9,007	)		236,563




	Accrued compensation, taxes payable and other liabilities			(132,820	)		31,738

		Cash (used in)/provided by operating activities		(425,940	)		314,181

Cash flows from investing activities:




Purchase of furniture, equipment and leasehold improvements				(29,128	)		(18,742	)




Acquisitions of businesses, net of assets acquired and liabilities assumed				—			(15,840	)

		Cash used in investing activities		(29,128	)		(34,582	)

Cash flows from financing activities:




Subordinated debt with affiliate				1,092			9,152

		Cash provided by financing activities		1,092			9,152

Effect of exchange rate differences in cash and cash equivalents				6,389			3,217

(Decrease)/increase in cash and cash equivalents				(447,587	)		291,968




Cash and cash equivalents, beginning of period				859,579			569,181

Cash and cash equivalents, end of period			$	411,992		$	861,149

Supplemental disclosures of cash flow information




		Cash paid for interest	$	106,192		$	60,053

		Cash paid for income taxes	$	29,071		$	70,409

The accompanying notes are an integral part of these consolidated financial statements.

TD WATERHOUSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except ~~share and~~ per share amounts)

(Unaudited)

1. Organization and Description of the Business

TD Waterhouse Group, Inc. (the “Company”), is a Delaware holding company which, through its operating subsidiaries, is a leading provider of online financial services to investors in the United States, Canada, the United Kingdom, Australia and Hong Kong. The Company isalso has joint ventures in Japan, India and Luxembourg to serve investors in those countries. As of January 31, 2001, the Company was 88.6% owned by The Toronto-Dominion Bank (“TD Bank”) directly and through ~~its wholly-owned~~certain ~~subsidiary,~~of TD ~~Waterhouse~~Bank’s ~~Holdings, Inc~~subsidiaries. ~~(“TDW~~ ~~Holdings”).~~

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant transactions and balances between and among the Company and its subsidiaries have been eliminated in consolidation. These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements as of of October 31, ~~1999~~2000 included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, ~~1999~~2000, as filed with the SEC.

2. Commitments and Contingent Liabilities

In the normal course of conducting its securities business, the Company has been named as a defendant in certain lawsuits and legal actions. In the opinion of management, after consultation with outside legal counsel, the ultimate outcome of such matters will not have a material adverse effect on the financial condition or results of operations of the Company.

3. Net Capital Requirements

As registered broker-dealers and members of the New York Stock Exchange, the Company’s U.S. subsidiaries, TD Waterhouse Investor Services, Inc. (“TDW US”) and National Investor Services Corp. (“NISC”), are subject to the SEC’s Uniform Net Capital Rule, which requires the maintenance of minimum net capital. At ~~July~~January 31, ~~2000,~~2001 TDW US US and NISC were both in compliance with their respective ~~capital~~ capital requirements and had net capital of $1416,~~816~~611 and $~~763~~833,~~668~~156, respectively, which was $1012,~~202~~777 and $~~617~~732,~~729~~012, respectively, in excess of their required net capital.

TD Waterhouse Investor Services (Canada) Inc. (“TDW Canada”) is a member of the Investment Dealers Association of Canada (“IDA”) and is required to meet its risk-adjusted capital rules, which require the maintenance of minimum risk-adjusted capital of Cdn. $250 (US U.S. $~~168~~167 at ~~July~~ January 31, ~~2000~~2001). As at ~~July~~ January 31, ~~2000~~2001, TDW Canada was in compliance with such requirements.

TD Waterhouse Investor Services (UK) Limited (“TDW UK”), TD Waterhouse Holdings (Australia) Pty. Limited (“TDW Australia”), and TD Waterhouse Investor Services (Hong Kong) Limited (“TDW HK”) are all subject to broker-dealer capital requirements in their respective countries and, as at ~~July~~January 31, ~~2000~~2001, were in compliance with such requirements.

4. Net Interest Revenue

The Company reports interest revenue, which primarily arises ~~from~~ from margin loans to customers, net of related financing cost (interest expense). Interest expense was $~~116~~101,~~106~~177 and $5883,~~922 for~~147, for the three months ended ~~July~~January 31, ~~2000~~2001 and ~~1999,~~ ~~respectively, and $336,141 and $134,241 for the nine months ended July~~January 31, 2000 ~~and 1999~~, respectively.

TD WATERHOUSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Segment Information

Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating and geographic segments of a company’s business. Currently, the nature and extent of the Company’s operations are such that it operates in only one reportable segment as a provider of discount brokerage services.

~~The~~6. International ~~total revenues, income before income taxes, total accounts,~~Operations ~~average daily trades, total customer assets and identifiable~~ ~~assets of the Company’s businesses by geographic region are summarized below:~~

			For the Three Months						For the Nine Months
			Ended July 31,						Ended July 31,
			2000			1999			2000			1999
Total revenues (thousands):
	United States		$	227,738		$	179,596		$	814,002		$	522,787
	Canada			99,364			57,433			346,288			168,371
	Other			18,508			5,925			55,644			15,829
		Total	$	345,610		$	242,954		$	1,215,934		$	706,987
Income before income taxes (thousands):
	United States		$	51,262		$	34,702		$	196,763		$	97,591
	Canada			28,339			16,577			130,778			50,434
	Other			(12,771	)		(2,266	)		(22,128	)		(5,998	)
		Total	$	66,830		$	49,013		$	305,413		$	142,027

The total revenues, income before income taxes, and identifiable assets of the Company’s businesses by geographic region are summarized below:

			July 31,			October 31,
			For the Three Months
			2000			1999
			Ended
Identifiable assets:
			January 31,
	United States		$	8,082,043		$	6,327,880
			2001			2000
	Canada			2,838,896			2,048,049
Total revenues:
	Other			979,195			215,887
	United States		$	230,989		$	269,709
		Total	$	11,900,134		$	8,591,816
	Canada			97,868			93,847
	Other			18,436			18,092
		Total	$	347,293		$	381,648
	Income before income taxes:
	United States		$	55,078		$	67,506
	Canada			25,545			37,138
	Other			(15,705	)		(3,372	)
		Total	$	64,918		$	101,272

6. Comprehensive income


			January 31,		October 31,
			2001		2000

Identifiable assets:




	United States		$	5,936,578	$	7,592,537




	Canada			3,161,658		2,937,505




	Other			494,661		459,275

		Total	$	9,592,897	$	10,989,317

7. Comprehensive income

SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income, which includes net income and changes in equity except those resulting from investments by, or distributions to, stockholders. Comprehensive income is as follows:

			For the Three Months					~~For the Nine Months~~
			Ended July 31,					Ended July 31,
			Ended
			2000			1999		2000			1999
			January 31,			January 31,
Net income			$	34,491		$	26,392	$	168,127		$	76,421
			2001			2000
Changes in other comprehensive income:
Net income			$	37,071		$	57,016
	Cumulative translation adjustments			(3,055	)		9		(11,610	)		(501	)
Changes in other comprehensive income:
		Total comprehensive income	$	31,436		$	26,401	$	156,517		$	75,920
	Cumulative translation adjustments			5,179			3,217
		Total comprehensive income	$	42,250		$	60,233

8. Earnings Per Share

SFAS No. 128, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. Basic and diluted earnings per share are computed by dividing net income by the weighted average number of

TD WATERHOUSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7 8. Earnings Per Share — (Continued)

SFAS No. 128, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share. Basic EPS excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the period. ~~Diluted~~The ~~EPS reflects the potential reduction in EPS that~~Company’s ~~could~~outstanding ~~occur if securities or other contracts to issue common~~ stock ~~were~~options ~~exercised~~do ornot ~~converted~~have ~~into~~a ~~common~~dilutive ~~stock.~~effect ~~Earnings per~~on earnings ~~share under the basic~~ and, ~~diluted computations are~~ as ~~follows (in thousands~~such, ~~except~~are ~~share~~not ~~and~~included ~~per~~within ~~share~~the ~~amounts)~~calculation.

	For the Three Months		For the Nine Months
	Ended July 31, 2000		Ended July 31, 2000
Net Income	$	34,491	$	168,127
Weighted-average common shares outstanding — basic		379,789		378,666
Common stock equivalent shares related to stock incentive plans		322		153
Weighted-average common shares outstanding — diluted		380,111		378,819
Basic earnings per share	$	0.09	$	0.44
Diluted earnings per share	$	0.09	$	0.44

For the prior periods, securities or other contracts to issue common stock did not have a dilutive impact.

8. Acquisitions

Dealwise Limited, one of the UK’s largest discount brokerage firms, was acquired on May 19, 2000, for $123.4 million, and its operations are being merged into the operations of the Company’s subsidiary TDW UK. The $103.0 million excess of the purchase price over fair value of assets acquired was recorded as goodwill. No pro forma information has been provided because the acquisition is not material.

9. Reconciliation of U.S. and Canadian Generally Accepted Accounting Principles

The consolidated financial statements of the Company are ~~prepared~~ prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Material differences ~~for~~at January 31, ~~the~~2001 ~~three~~ and ~~nine months ended July~~October 31, 2000 and ~~1999~~for ~~and~~the three asmonths atended ~~July~~January 31, ~~2000~~2001 and ~~October 31,~~ ~~1999~~2000 between U.S. GAAP ~~financial statements~~ and accounting principles generally accepted in ~~Canada~~ Canada (“Canadian GAAP”) are described below.

	For the Three Months					For the Nine Months
	For the Three
	Ended July 31,					Ended July 31,
	Months Ended
	2000		1999			2000		1999
	January 31,		January 31,
Net Income
	2001		2000
Net income based on U.S. GAAP	$	34,491	$	26,392		$	168,127	$	76,421
Net Income
Stock based compensation, net of tax		0		(1,082	)		1,272		2,004
Net income based on U.S. GAAP	$	37,071	$	57,016
Net income based on Canadian GAAP	$	34,491	$	25,310		$	169,399	$	78,425
Stock based compensation, net of tax		—		(1,470	)
Net income based on Canadian GAAP	$	37,071	$	55,546

TD WATERHOUSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Reconciliation of U.S. and Canadian Generally Accepted Accounting Principles — (Continued)

Statement of Financial Condition

		July 31,		October 31,
		January 31,		October 31,
		2000		1999
		2001		2000
Total assets based on U.S. GAAP		$	119,~~900~~592,~~134~~897	$	810,~~591~~989,~~816~~317
Customer transactions as of trade date			1,~~015~~008,~~384~~799		1,~~218~~022,~~236~~291
	Total assets based on Canadian GAAP	$	1210,~~915~~601,~~518~~696	$	912,~~810~~011,~~052~~608
	Total liabilities based on U.S. GAAP	$	97,~~712~~326,~~526~~724	$	68,~~639~~765,~~696~~394
Customer transactions as of trade date			~~908~~1,~~416~~008,799		~~839~~1,~~411~~022,291
	Total liabilities based on Canadian GAAP	$	108,~~620~~335,~~942~~523	$	79,~~479~~787,~~107~~685

Stock Based Compensation

The TD Bank employee stock option plan (the “Plan”) ~~allows~~ allows option holders to elect to receive cash for the option’s intrinsic value, being the difference between the option’s exercise price and the current market value of the shares. In accounting for stock options with this feature, SFAS 123, Accounting for Stock Based Compensation, requires ~~expensing~~ expensing the annual change in the intrinsic value of the stock options. For options that have not fully vested, the change in ~~intrinsic~~ intrinsic value is amortized over the remaining vesting period. ~~For~~ For purposes of preparing its Canadian GAAP financial statements, TD Bank does not record compensation expense for stock based compensation, but rather cash payments to option holders are charged to retained earnings. Effective May 1, 2000, certain option holders signed legally binding waivers to forfeit their right to a shareless exercise as provided by the Plan, resulting in no further expense being recorded for the change in the intrinsic value of the stock options. Accordingly, this resulted in no U.S. GAAP to Canadian GAAP reconciling amounts for the quarter ended ~~July~~January 31, ~~2000~~2001.

Customer’s Securities Transactions

Under U.S. GAAP, customers’ securities transactions are recorded on a settlement date basis. Under Canadian GAAP, customers’ securities transactions are recorded on a trade date basis.

TD WATERHOUSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Reconciliation of U.S. and Canadian Generally Accepted Accounting Principles — (Continued)


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion of the financial condition and results of operations of TD Waterhouse Group, Inc. and its subsidiaries (collectively referred to as the “Company”) isare based on on the unaudited consolidated results of our U.S. and international businesses for the three months ~~and the nine months~~ ended ~~July~~ January 31, ~~2000~~2001, and should be read in conjunction with the Company’s audited financial statements as of October 31, ~~1999~~2000. This discussion contains forward-looking statements, including statements regarding our strategy, financial performance and revenue sources, which involve risks and uncertainties. Actual results of operations of the ~~businesses~~ businesses may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth elsewhere in this Form 10-Q and under the caption “Business-Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~1999~~2000, as filed with the SEC.

Overview

We are one of the largest online financial service providers in, and the second largest discount brokerage operation, in the world. We offer investors a broad range of brokerage, mutual fund, banking and other consumer financial products on an integrated basis through ~~227~~ 234 branches in the United States, Canada, the United Kingdom, Australia and Hong Kong. Our common stock trades on the New York and Toronto Stock Exchanges. ~~Our~~The Company also has joint ventures in Japan, India and Luxembourg to serve investors in those countries. Our principal shareholder is TD Bank, one of Canada’s largest financial institutions.

Revenues

Commissions and fees, which account for the majority of total revenues, include commissions earned for executing customer trades; payments received by us from market-makers, exchanges ~~and~~ and other execution agents for order flow; and fees for ~~providing~~ providing trade execution and clearance services to financial ~~institutions~~ institutions in the United States and Canada. Commissions and fees are primarily affected by changes in transaction volumes and changes in the commission or fee rates charged per transaction. Commissions, which account for ~~more~~approximately ~~than 91~~92% of commissions and transaction fees, fluctuate based on the number of active customer accounts, the average number of trades per account, and the average commission per revenue trade. Active customer accounts have grown 4537% to approximately 3.024 million as at ~~July~~January 31, ~~2000~~2001, ~~from~~ ~~over~~ from 2.037 million as at ~~July~~January 31, ~~1999~~2000. We define ~~active~~ active accounts as accounts that had purchase, sale or other ~~activity~~ activity or a position during the ~~latest~~previous ~~fiscal~~calendar quarter. ~~The significant~~This account growth ~~in daily average trading volumes in the U.S. and Canada~~ has ~~permitted~~helped ~~average trades per account~~ to ~~largely~~ ~~hold~~offset ~~level with~~ the ~~quarter~~impact ~~ended July 31, 1999, despite significant addition~~ of ~~accounts~~the in45% ~~international~~decrease ~~markets~~in the ~~with~~average ~~traditionally~~number ~~lower~~of ~~activity~~trades per account ~~than~~experienced ~~the North~~in ~~American~~comparison ~~markets.~~to ~~The~~the first quarter ended ~~July~~January 31, 2000, ~~reflected~~due ato ~~decline~~decreased ininvestor ~~average~~activity ~~trades~~as ~~per~~a ~~account~~result of ~~43.6%~~volatile ~~from the~~market ~~unusually active quarter ended April 30, 2000~~conditions. ~~This~~The ~~decline~~ decrease in ~~investor~~the ~~activity~~average ~~resulted~~number ~~from~~of ~~increased~~trades ~~market volatility~~per ~~and~~account aduring ~~seasonal~~the ~~industry~~first ~~trend.~~three ~~The~~months ~~slowdown~~of ~~led~~fiscal toyear ~~decreases~~2001 in ~~third~~comparison ~~quarter~~to ~~revenues~~the ~~and~~quarter ~~net~~ended ~~income~~October 31, of2000 ~~29%~~moderated to ~~and 55~~9%, ~~respectively,~~ ~~from~~despite the ~~second~~continued ~~quarter~~volatility ~~ended~~in ~~April 30,~~the ~~2000~~markets. The ~~Average~~average ~~commissions~~commission per revenue trade ~~for~~at ~~the~~$20.56 ~~third~~per ~~quarter~~trade ~~ended~~in the first ~~July 31,~~fiscal ~~2000~~quarter ~~decreased~~of to2001 ~~approximately~~was ~~$20 per trade,~~ down ~~10.8~~4% from ~~approximately~~ $22 21.36 per trade in the quarter ended ~~July~~January 31, ~~1999~~2000. ~~The~~Downward ~~third~~pressure ~~fiscal quarter of~~on ~~2000 average commission per revenue trade was also down 5.7% from~~ the average commission per revenue trade ofcontinued ~~approximately~~as ~~$21~~use ~~in the second fiscal quarter~~ of ~~2000. This was primarily due to the growth of~~ our online trading products, which provide online customers with discounts from our standard commission schedule~~. We~~, ~~use other broker-dealers to execute our customers’ orders and receive revenue from these broker-dealers for such order flow. Payments for order flow have not~~ increased ~~commensurate with increases in trading volumes as a result of changes in regulations and market conventions that caused market-makers and execution agents~~ to ~~change their payment policies for order flow~~ by74% ~~reducing the payment per trade and by limiting the types~~ of trades ~~on which payments are made~~conducted. ~~Order~~The ~~flow~~impact ~~revenue for the third quarter was approximately 3.2%~~ of ~~total~~these ~~revenue,~~events ~~which~~on ~~was~~our ~~down~~operating ~~slightly~~results ~~from~~is ~~the~~more ~~third~~fully ~~quarter~~detailed ofelsewhere ~~1999~~in ~~level of~~this ~~approximately 3~~report.~~5%. Growth of transaction fees for execution and~~ ~~clearing services are a function of the addition of new clients~~ ~~and general increases in market volumes.~~

~~Mutual~~We ~~fund~~use other broker-dealers to execute our customers’ orders and ~~related~~receive revenue ~~represents~~from ~~customary~~these ~~trailer~~broker-dealers ~~fees~~for such order ~~from~~flow. ~~third~~Payments ~~party~~for ~~and~~order ~~affiliated~~flow ~~mutual~~have ~~funds~~not increased commensurate with increases in ~~the~~trading volumes as a result of ~~U.S.~~ changes in regulations and ~~Canada~~market conventions that caused market-makers and, inexecution agents to change their payment policies for order flow by reducing the Upayment per trade and by limiting the types of trades on which payments are made.~~S. only~~ Order flow revenue for the first quarter was less than 4% of total revenue, roughly on par with the first quarter of 2000. Transaction fees for ~~shareholder~~ execution and clearing services, ~~administration~~continue to grow due to the addition of new clients and general increases in market volumes.

10 Mutual fund and related revenue represents customary trailer fees from third party and affiliated mutual funds in the U.S. and Canada and, in the U.S. only, fees for shareholder services, administration and investment management services provided to our proprietary money market and mutual funds. Such fees are

~~investment~~based ~~management services provided to our proprietary money market and mutual funds. Such fees are~~ primarily ~~based~~ upon the daily amount of customer assets invested in third party mutual funds and upon the average daily net asset value of our proprietary money market and mutual funds. As of January 31, 2001, customers had invested $34.7 billion in mutual and money market funds through us, which represented an increase of 14% from the $30.4 billion customers ~~Our~~had invested as of January 31, 2000. Our proprietary money market ~~accounts~~ and mutual funds had net assets valued at $10.2 billion at January 31, 2001, up 21% from the fiscal first quarter 2000 balances of $148.4 billion. Non-proprietary atfund ~~July~~balances reached $24.5 billion at January 31, 2001, up 11% from fiscal first quarter 2000 balances of $22.0 billion. WeIncluded ~~held~~in these balances was $76.75 billion of customer assets in no-load, no-fee mutual funds sponsored by third parties, atup ~~July 31,~~5% from the fiscal 2000. ~~Commissions~~first quarter balances of $6.2 billion. Commissions relating to the purchase and sale of mutual funds are included in commissions and fees.

We also receive fees for providing referral and administrative services to our affiliate, TD Waterhouse Bank, N.A. (“TDWB”), which isare based on the daily cash balances ~~our~~ our customers choose to sweep into ana Federal Deposit Insurance Corporation (“FDIC”) insured money market account with TDWB. Customer balances invested that were swept into the FDIC-insured account totaled $5.3 billion as of January 31, 2001, which was an increase of 8% over the $4.9 billion as of January 31, 2000. In addition, we provide investment advisory services to TDWB with respect to TDWB’s fixed income portfolio and receive a fee based on the market value of the assets under management. Fees related to services provided to TDWB are classified as mutual fund and related revenues.

Net interest revenue is the difference between interest earned on our interest-earning assets (which primarily consist of margin loans to customers) and the interest expense associated with our interest-bearing liabilities (which include free credit balances in customers’ accounts, deposits received for stock loaned and other borrowings). Net interest revenue is principally affected by changes in customer margin balances, as well as the prevailing net interest spread. Net interest spread represents the difference between the rate we charge customers on margin loans (based on the broker call rate) and the rate we pay our customers (which is our lowest cost source of funds) and the rate we pay our other creditors. In the U.S., securities regulations place limits on the amount of customer funds we can use to finance our business, while no such limitations exist in Canada. Accordingly, the net interest spread from our Canadian brokerage operations has exceeded that of our U.S. operations.

Other revenue consists primarily of revenues derived from ancillary services such as floor brokerage and retirement ~~account~~ account administration. Other revenue is also derived from foreign exchange transactions on customer investments in stocks traded on exchanges outside the customer’s home country, fees from affiliates, and gains on proprietary holdings on securities.

Operating Expenses

Our largest operating expense is employee compensation and benefits, which includes salaries and wages, incentive compensation and related employee benefits and taxes. We employ a a limited number of commissioned sales representatives; therefore, compensation and benefits do not vary directly with changes in commission revenue. Most employees do, however, receive annual incentive compensation based on the overall operating results of our operations in each geographical region, as well as the employee’s individual performance. Therefore, a significant portion of compensation and benefits expense will fluctuate based on our operating results. Prior to the beginning of the ~~current~~third fiscal quarter ~~being reported~~on May 1, 2000, compensation expense ~~has~~ also reflected the change in ~~intrinsic~~ intrinsic value of TD Bank stock options granted to our employees under TD Bank’s stock option plan. Effective May 1, 2000, certain ~~option~~ holders signed legally binding waivers to forfeit their right to a shareless exercise as provided by the ~~Plan~~ plan. As a result, no further expense will be recorded for the change in ~~the~~ intrinsic value of the stock options.

Execution and clearing costs include fees paid to floor brokers and exchanges for trade execution costs, fees paid to third-party vendors for data processing services, and fees paid to clearing entities for certain clearance and settlement services. Execution and clearing costs, with the exception of data processing expenses, generally fluctuate based on transaction volume. Data processing services are generally provided under longer-term fixed fee arrangements with the providers.

10 ~~Occupancy and equipment expense includes the costs of leasing and~~ ~~maintaining our office space and branch network, the leases and~~ rental costs related to computers and other equipment, and depreciation and amortization expense associated with our fixed assets and leasehold improvements. Occupancy and equipment expense is primarily affected by increases in the number of branches and employees.

Occupancy and ~~marketing~~equipment expense ~~has~~includes ~~increased~~the ~~significantly~~costs ~~from~~of ~~period to~~leasing ~~period~~and maintaining our office space and ~~management~~branch ~~expects~~network, ~~this~~the ~~trend~~leases and rental costs related to ~~continue~~computers inand ~~step~~other equipment, and depreciation and amortization expense associated with our fixed assets ~~revenue~~and ~~growth~~leasehold improvements. Occupancy and equipment expense is primarily affected by increases in the ~~future~~number of branches and employees.

Advertising and marketing includes media, print and direct mail advertising expenses and other costs incurred to create brand awareness, promote our product and service offerings and introduce new products and services. Due to the rapid development of new products and services and increased competition, advertising and marketing expense has increased significantly from period to period and management expects this trend to continue, however this expense will be managed to keep in step with revenue growth.

Communications expense includes telephone expenses, which are generally affected by changes in customer transaction volumes and the increased use of electronic communication channels and online service offerings.

We have been active in acquiring new businesses to rapidly ~~expand~~ expand our operations including: Marathon Brokerage in 1993, ~~Waterhouse~~ Waterhouse Securities Group in 1996, Pont Securities Limited in 1997 and Rivkin Croll Smith, Kennedy Cabot & Co., Jack White & Company and Gall & Eke in 1998~~, and YorkSHARE Limited, a U~~.K. ~~based discount broker operation, in November, 1999.~~ In ~~the~~fiscal ~~quarter~~year ~~ended April 30,~~ 2000, we ~~acquired~~we ~~CT Securities Inc. from CT Financial Services Inc. CT Financial Services Inc. was~~ acquired byYorkSHARE ~~TD Bank in February, 2000. The acquisition of Dealwise~~ Limited in the U.K., ~~one~~CT ofSecurities ~~the~~Inc. in Canada ~~largest~~and ~~discount~~Dealwise ~~brokers~~Limited in the U.K., ~~was completed early in the third fiscal quarter.~~ Goodwill relating to our ~~major~~ major acquisitions is generally ~~being~~ amortized over a period of 20 years from the date of acquisition.

We also provided the initial funding of two joint ventures in Japan and in India, which were completed in the second fiscal quarter, and began activity in the third fiscal quarter of the year 2000. ~~Contributions~~The ~~from~~results of operations for these joint ventures with The Bank of Tokyo-Mitsubishi, Ltd., which provides access to the Japanese market, and with Tata Finance Limited, which provides ~~us with~~ access to the ~~rapidly~~ developing market in India, are reflected in other income and are accounted for under the equity method of accounting. In the first quarter of the fiscal year 2001, we formed a joint venture with Banque Generale du Luxembourg to create a multi-market, multi-channel self directed investing service for high net worth Europeans and have provided the initial funding for the joint venture. This joint venture is expected to become operational this spring. We also announced the formation of a joint venture with The Charles Schwab Corporation (“Schwab”) to acquire the Glasgow, Scotland-based market maker, Aitken Campbell and Company Limited. The Company and Schwab will hold equal stakes in the joint venture, which will form the foundation of the UK market making operation for the joint venture partners. The joint venture and the acquisition, the purchase price of which totals approximately $88 million, are subject to various regulatory approvals, which are expected in the second quarter of 2001.

Professional fees include fees paid to consultants engaged to support our product, service and systems development efforts, as well as legal and accounting fees. These expenses generally fluctuate with overall changes in the level of business activities.

Other expenses consist of ~~administrative expenses related to~~ account ~~maintenance~~administration costs, such as statement production, ~~printing~~and general administrative expenses and other costs including printing and supplies, along with fees paid to TD Bank’s branch network for their administrative support and other costs, including postage. ItThey also ~~includes~~include expenses for trading errors and provisions against our margin ~~loan~~ loan portfolio.

We are subject to income taxes in each country in which we operate. The difference between our effective tax rate and the U.S. statutory rate of 35% differs from period to period, ~~but~~ but primarily results from state and local taxes in the ~~United States~~U.S., provincial taxes in Canada, and the effect of certain non-deductible expenses, most notably the amortization of goodwill.

* * *

Our revenues are derived primarily from securities brokerage and related services, and we expect this business to continue to account for a significant amount of our revenues. We, like other securities firms, are directly affected by economic and political conditions, broad trends in business and finance and changes in the conditions of the securities markets in which our customers trade. Over the past several years, the securities markets in the U.S. and Canada (which comprise the principal trading markets for most of our customers) have fluctuated considerably, including increased volatility during 2000. A downturn in either of these markets would adversely affect our operating results. Recently the markets for technology and Internet-related stocks have been especially volatile, and a significant downturn would have an even greater effect on us because a substantial portion of our customers invest in these types of stocks. In previous major stock market declines, many firms in the securities industry suffered financial losses, and the level of individual investor trading activity decreased after these events. When trading volume is low, our profitability would likely be adversely affected because a significant portion of our costs do not vary with revenue. In addition, during the past several years, the stock market has experienced a significant increase in market pricing and trading volume, which has contributed to an increase in investor interest in buying and trading securities. A sustained downturn in the stock market could adversely affect investor interest in buying and trading securities and, accordingly, adversely affect our business. For these reasons, severe market fluctuations and decreased investor trading activity could have a material adverse effect on our business, financial condition and operating results.

We adjust our expenses to the extent possible in anticipation of and in response to changes in financial market conditions and customer trading patterns. Certain of our expenses (including incentive compensation,

portions of communications, and execution and clearing costs) vary directly with changes in financial performance or customer trading activity. Expenses relating to the level of temporary employees, contractors, overtime hours, professional services, and advertising and marketing are adjustable over the short-term to help us achieve our financial objectives. Additionally, developmental spending (including branch openings, product and service rollouts, and certain information technology systems improvements) is generally discretionary and can be altered in response to market conditions. However, a significant portion of our expenses such as salaries and wages, occupancy and equipment, depreciation and amortization of goodwill do not vary directly, at least in the short term, with fluctuations in revenues or securities trading volumes, such as experienced in the third quarter. Also, we view our developmental spending as essential to our future growth, and therefore attempt to avoid major adjustments in such spending unless faced with a sustained slowdown in customer trading activity. Given the nature of our revenues and expenses, and the economic and competitive factors discussed above, our earnings may be subject to significant volatility from period to period. Our results for any interim period are not necessarily indicative of results for a full year.

We have experienced substantial changes in and expansion of our business and operations since we began offering our online Internet investing services in the U.S. in 1997. We expect to continue to experience periods of rapid change in the future. Our past expansion has placed, and any future expansion would place, significant demands on our administrative, operational, financial and other resources.

Effect of Recent Market Conditions

During the first two quarters of fiscal 2000, stock markets in the U.S. and Canada experienced a significant increase in market price levels and trading volume, which contributed to an increase in investor interest in buying and trading securities. During this period, we reached record levels of trading volume, revenues and net income. However, in the third and fourth quarter of fiscal 2000 and the first quarter of fiscal 2001, market price levels and trading volume decreased considerably from their peak levels in those earlier periods and the stock markets became increasingly volatile. Our revenues and net income were affected by this downturn. The declines in revenues and net income were due primarily to decreases in commissions and transaction fees as a result of a slowdown in investor activity and trades per account. We remained profitable by carefully managing our expenses, including marketing and advertising, as well as other discretionary spending, in response to these changing and volatile market conditions. These conditions have continued into the second quarter of fiscal year 2001.

We adjust our expenses in anticipation of and in response to changes in financial market conditions and customer trading patterns. Certain of our expenses (including incentive compensation, portions of communications, and execution and clearing costs) vary directly with changes in financial performance or customer trading activity. Expenses relating to the level of temporary employees, contractors, overtime hours, professional services, and advertising and marketing are adjustable over the short-term to help us achieve our financial objectives. Additionally, developmental spending (including branch openings, product and service rollouts, and certain information technology systems improvements) is generally discretionary and can be altered in response to market conditions. However, a significant portion of our expenses such as salaries and wages, occupancy and equipment, depreciation and amortization of goodwill do not vary directly, at least in the short term, with fluctuations in revenues or securities trading volumes. Also, we view our developmental spending as essential to our future growth, and therefore attempt to avoid major adjustments in such spending unless faced with a sustained slowdown in customer trading activity. Given the nature of our revenues and expenses, and the economic and competitive factors discussed above, our earnings may be subject to significant volatility from period to period. Our results for any interim period are not necessarily indicative of results for a full year.

Results of Operations

The following table sets forth the combined statement of income data for the periods indicated as a percentage of total revenues:

			For the Three						~~For the Nine~~
			Months Ended						~~Months Ended~~
			July 31,						July 31,
			January 31,
			2000			1999			2000			1999
			2001			2000
Revenues
Commissions and fees	~~Commissions and fees~~			5856.75	%		6467.08	%		~~65.7~~	%		~~68.5~~	%
	Mutual fund and related revenue			1012.70			108.67			~~8.9~~			~~9.8~~
	Net interest revenue			2523.70			2119.39			~~21.3~~			~~17.7~~
	Other			48.95			43.16			~~4.1~~			~~4.0~~
		Total revenues		100.0	%		100.0	%		~~100.0~~	%		~~100.0~~	%
Expenses
	Employee compensation and benefits			2829.23	%		2927.41	%		~~26.1~~	%		~~28.5~~	%
	Execution and clearing costs			11.84			1310.48			~~10.7~~			~~14.2~~
	Occupancy and equipment			9.49			87.80			~~7.6~~			~~8.2~~
	Advertising and marketing			6.8.1			69.05			~~7.3~~			~~5.5~~
	Communications			4.25			43.16			~~4.0~~			~~4.6~~
	Amortization of goodwill			3.34			32.85			~~2.6~~			~~4.0~~
	Professional fees			3.3			2.63			~~2.6~~			~~2.4~~
	Other			1311.74			1110.7			~~14.0~~			~~12.5~~
		Total expenses		8081.73	%		7973.85	%		~~74.9~~	%		~~79.9~~	%
Income before income taxes				19.3	%		20.2	%		25.1	%		20.1	%
Income tax provision				9.3			9.3			11.3			9.3
Net income				10.0	%		10.9	%		13.8	%		10.8	%

12 ~~North America comprises our primary market, with the predominant~~ ~~level of transactions being conducted in the United States and~~ ~~Canada. However, the international component continues to grow, with increased levels of activity expected to be reflected as a result of our rapidly expanding international operations, especially in~~

the United Kingdom. The table below provides a breakdown as to the geographic source of transaction, account and customer asset volumes, as rounded.



	For the Three
	Months Ended
	January 31,

	2001			2000

Income before income taxes		18.7	%		26.5	%




Income tax provision		8.0			11.6




Net income		10.7	%		14.9	%

			For the Three Months				For the Nine Months
			Ended July 31,				Ended July 31,
			2000		1999		2000		1999
Average daily trades:
	United States			117,900		89,400		153,200		89,300
	Canada			30,900		17,000		38,500		16,900
	Other			8,000		2,200		8,300		2,100
		Total		156,800		108,600		200,000		108,300
Total accounts at period end:
	United States			2,496,000		1,896,000
	Canada			1,017,000		675,000
	Other			735,000		262,000
		Total		4,248,000		2,833,000
Total Customer Assets (billions):
	United States		$	124.1	$	89.6
	Canada			34.9		21.5
	Other			3.6		1.6
		Total	$	162.6	$	112.7

Three Months Ended January 31, 2001 Versus Three Months Ended January 31, 2000

Three Months Ended July 31, 2000 Versus Three Months Ended July 31, 1999

Financial Overview

Net income for the three months ended ~~July~~January 31, ~~2000~~2001 was $3437.51 million, updown 3035.70% from $2657.40 million for the comparable period in ~~1999~~2000. Revenues for the three months ended ~~July~~January 31, ~~2000~~2001 ~~were~~of $~~345~~347.63 million, upwere 42down 9.30% ~~from~~ from $~~243~~381.06 million for the comparable period in ~~1999~~2000. ~~This arose~~The decline ~~from~~in revenues and net income were due primarily to a 3024.52% decrease ~~increase~~ in commissions and transaction fees, resulting from decreased investor activity. The decrease in investor activity resulted primarily from significant declines in market price levels and increases in market volatility during the second half of 2000 and the first quarter of 2001. The impact of the decrease in commission and transaction fees was mitigated by a 4425.13% increase in mutual fund and related revenue, a 725.01% increase in net interest revenue, and a 65115.78% increase in other revenue.

Total operating expenses of $~~278~~282.84 million for the three months ended ~~July~~January 31, ~~2000~~2001 were up 43marginally, 0.7% from $~~193~~280.94 million for the comparable period in ~~1999~~2000. This ~~resulted~~ ~~largely from a $26.2 million increase in~~was ~~compensation~~achieved ~~and~~by ~~benefits costs, which included~~ the ~~impact~~management of ~~over~~ ~~2,450~~compensation ~~additional~~costs ~~associates~~and ~~to handle the increased business~~advertising costs ~~volume, of~~ which ~~total,~~offset ~~over~~increases ~~1,350 were dedicated to retail service. Increases were also experienced~~ in ~~the~~professional ~~volume~~fees ~~driven clearing~~and ~~costs ($8.1 million),~~ occupancy and equipment ~~in connection~~costs ~~with~~related to the expanded ~~staffing and~~ branch ~~expansions ($11.0 million),~~network ~~increased marketing~~ and ~~advertising~~ ~~expenses~~continued ~~related~~investments toin ~~the national advertising and global branding campaigns ($8~~technology.~~8 million), and other expenses for the period~~ ~~($18.9 million).~~

Revenues

Commissions and Fees

Commissions and fees were $~~202~~196.93 million for the three months ended ~~July~~January 31, ~~2000~~2001, updown $4762.56 million, or 30 24.52%, from the comparable period in ~~1999~~2000. The total number of ~~trades~~ trades executed by us has ~~increased~~decreased 4622.73% from the comparable period in ~~1999~~ as2000, due to reduced trading by our ~~customer~~customers ~~base~~arising from ~~has~~the ~~grown~~decrease in market price levels and increased market volatility. Average commissions per revenue trade decreased 10 3.875% due to the ~~expanded~~continued ~~popularity~~increase in use of our online brokerage services, which are offered at a lower price than traditional agent based trading. For the three months ended ~~July~~January 31, ~~2000~~2001, total daily average online and total daily average electronic trades represented 74.0% and 76.6% of total trades, respectively, as compared to 72.1% and 75.3%, respectively, in the comparable 2000 period.



		Three Months Ended
		January 31,
						Percent
		2001		2000		Change

Total daily average online trades			110,399		136,932		(19	)%




Touch-tone			3,837		6,135		(37	)%

	Total daily average electronic trades		114,236		143,067		(20	)%




Agent trades			34,910		46,905		(26	)%

	Total daily average trades		149,146		189,972		(21	)%

Average commissions, per revenue trade		$	20.56	$	21.36		(4	)%

We added approximately 159,500 new customer accounts during the three months ended January 31, 2001, a decrease of 39% from the approximately 260,500 new accounts added during the comparable period in 2000. This reduction reflects a general slowdown in account openings in the industry, as market price levels decreased, market volatility increased, and competition for new customers remained intense. Our advertising and marketing expense per new account was approximately $175 for the three months ended January 31, 2001

~~and~~versus ~~total~~$139 ~~daily~~for ~~average~~the ~~electronic~~comparable ~~trades,~~2000 ~~reflected~~period. inWhile ~~the~~our ~~table~~cost per new ~~below,~~account ashas ~~rounded~~increased, ~~represented~~nevertheless, ~~73.7%~~we ~~and~~believe ~~77.2%~~that ~~of total trades,~~it ~~respectively,~~still asis ~~compared~~the tolowest ~~64.4% and 68.3%, respectively,~~ in the ~~comparable 1999 period~~industry.

		Three Months Ended
		July 31,
						Percent
		2000		1999		Change
Total daily average online trades			115,600		69,900		65	%
Touch-tone			5,400		4,300		24	%
	Total daily average electronic trades		121,000		74,200		63	%
Agent trades			35,800		34,400		4	%
	Total daily average trades		156,800		108,600		44	%
Average commissions, per revenue trade		$	19.69	$	22.07		(11	)%

We added approximately 172,000 new customer accounts (excluding those obtained through acquisitions) during the three months ended July 31, 2000, an increase of 2% from the approximately 169,000 new accounts added during the comparable period in 1999. Our advertising and marketing expense per new account was approximately $136 for the three months ended July 31, 2000 versus $87 for the comparable 1999 period, which preceded our re-branding under the TD Waterhouse name.

Mutual Fund and Related Revenue

Mutual fund and related revenue was $3741.16 million for the three months ended ~~July~~January 31, ~~2000~~2001, up $118.34 million, or 44or 25.13%, from the comparable period in ~~1999~~2000. This increase was ~~primarily~~ due to aincreased ~~significant increase in~~ customer assets held in third party mutual funds and proprietary money market and mutual funds.

Net Interest Revenue

Net interest revenue was $8879.8 million for the three months ended ~~July~~January 31, ~~2000~~2001, up $373.29 million, or 725.01%, from the comparable period in ~~1999~~2000. This increase was ~~primarily due to~~achieved despite a 596.18% ~~increase~~decrease in average customer margin loans to $86.575 billion during the three months ended ~~July~~ January 31, ~~2000~~ 2001 from $57.35 25 billion during the comparable period in ~~1999~~ 2000. Our average net interest spread of 2.4979% for the ~~three~~ three months ended ~~July~~January 31, ~~2000~~2001 was aan ~~slight~~ improvement ~~over the~~on the spread of 2.4149% for the comparable period in ~~1999~~2000. ~~due~~This ~~to the~~was ~~increased~~accomplished ~~growth~~as a result of improved funding spreads in our ~~Canadian~~ U.S. operations, ~~which~~due ~~has~~in ~~provides~~part to a rate increase in the U.S. last summer, ~~higher~~as ~~net~~well ~~interest~~as ~~spread~~an ~~than~~improvement in our Ufunding cost.S Along with this improvement we achieved an increased yield on invested capital. ~~operations.~~

Other Revenue

Other revenue was $29.6 million for the three months ended January 31, 2001, up $15.9 million, or 115.8%, from the comparable period in 2000. This increase is attributable to $11.0 million in gains on securities held and a contribution of approximately $4.0 million from a series of fees introduced in the United States during the last six months.

Operating Expenses

Compensation and benefits expense was $97101.59 million for ~~the~~ the three months ended ~~July~~January 31, ~~2000~~2001, up down $261.26 million, or 36 1.76%, from the comparable period in ~~1999~~2000. This ~~increase~~decrease was ~~primarily~~ ~~due~~achieved tolargely through the ~~addition~~management of employee ~~new~~variable ~~employees~~compensation toexpense. ~~support~~This ~~our~~decrease offset the ~~rapid~~increase ~~growth~~of ~~and~~1,140 toin ~~provide~~the ~~incentive~~total ~~compensation~~number of employees over the number of employees in ~~line~~the ~~with~~first quarter 2000, which reflects ~~our~~expansion ~~operating~~through ~~results~~acquisition and increased call center capacity.

Execution and clearing costs were $4039.65 million for the three months ended ~~July~~January 31, ~~2000~~2001, up down $8.1.6 million, or 25 3.09%, from the comparable period in ~~1999~~2000. This ~~increase~~decrease was ~~primarily~~ due primarily to ~~increased~~decreased transaction volume ~~offset in part by productivity gains from our ability to leverage our existing clearing operations~~.

Occupancy and equipment expense was $3234.45 million for the three months ended ~~July~~January 31, ~~2000~~2001, up $117.07 million, or 51or 28.56%, from the comparable period in ~~1999~~2000. This increase over first quarter 2000 was the result of our continued investment in ~~primarily~~technology, ~~due~~globalization toand improvements in customer service. This took the form of additional lease expenses onarising ~~our expanded branch~~from branch openings and the four new call ~~center~~centers ~~space~~opened since then, additions through strategic acquisitions in Canada and the U.K., as well as increased lease and maintenance expenses on data processing equipment. ~~During~~Over $21 million was expended on hardware and software development, although, for the most part, ~~third~~these ~~quarter~~costs wehave ~~opened~~been ~~three~~capitalized, ~~new~~and ~~branches~~will be amortized over the useful life of the equipment or applications.

Advertising and marketing expense was $2328.40 million for the three months ended ~~July~~January 31, ~~2000~~2001, up down $8.81 million, or 60 22.05%, from the comparable period in ~~1999~~2000. This ~~increase~~decrease is the result of a reduction from the first ~~primarily~~quarter ~~relates~~2001 expected spending activity of $30 to $35 million, ~~increased~~in response to the less favorable market conditions. First quarter of 2000 marketing expenses included some of the impact of our initial national advertising campaign in the United States under the TD Waterhouse brand that was launched late in the fourth quarter of fiscal 1999.

1514

~~national~~Communications ~~advertising~~expense inwas $15.5 million for the ~~United~~three months ~~States~~ended January 31, ~~but~~2001, ~~also~~up ~~includes~~$1.9 million, or ~~costs~~13.8%, ~~arising~~ from ~~foreign~~the ~~national~~comparable ~~advertising~~period ~~and~~in ~~branding~~2000. This increase was due ~~campaigns~~to the opening new branches and increased international activity.

~~Communications~~Amortization ~~expense~~of goodwill was $1411.59 million for the three months ended ~~July~~January 31, ~~2000~~2001, up $42.53 million, or 45 23.14%, from the comparable period in ~~1999~~2000. ~~This~~The increase ~~was~~is ~~primarily~~ due to ~~increased~~the ~~trading~~acquisition ~~volumes~~of ~~and~~CT Securities Inc. in Canada in the ~~opening~~second fiscal quarter and of ~~new~~Dealwise ~~branches~~Limited in the U.K. in the third fiscal quarter of 2000.

~~Amortization~~Professional offees ~~goodwill~~were ~~was~~ $11.6 million for the three ~~months~~ months ended ~~July~~January 31, ~~2000~~2001, up $2.3.0 million, or 2434.45%, from the comparable period in ~~1999~~2000. This increase was attributable ~~due~~ to ~~the~~fees for state registration (up approximately ~~acquisition~~$700 thousand) of ~~YorkSHARE~~the ~~Limited~~increased dedicated retail associates (up over 500) in ~~the~~call ~~first~~centers ~~fiscal~~and ~~quarter,~~new branches. Expenses associated ~~2000,~~with the ~~acquisition~~launch of CT7 ~~Securities~~new ~~Inc.~~funds inalso contributed to the ~~second~~increase (approximately ~~fiscal~~$600 thousand). Fees for computer programming and ~~quarter,~~systems ~~2000~~consultants (approximately $3.5 million) were relatively unchanged, ~~and~~with ~~the~~other ~~acquisition~~general ofconsulting ~~Dealwise~~and professional ~~Limited~~fees inaccounting for the ~~third~~ ~~fiscal~~balance ~~quarter,~~of ~~2000~~the increase.

~~Professional~~Other ~~fees~~expenses were $1139.5 million for the three months ended ~~July~~January 31, ~~2000~~2001, updown $5.1.4 million, or 783.74%, ~~from~~ from the comparable period in ~~1999~~2000. This ~~increase~~decrease ~~was~~reflects ~~primarily due to~~lower business ~~fees for computer programming and systems consultants (up approximately $1~~volumes.~~2 million), state registration fees (up~~ ~~approximately $1.6 million) for the increased dedicated~~ ~~retail associates (up over 1,350) in call centers and new branches, and a $0.75 million increase in costs of management of international operations expansion.~~

~~Other~~Our ~~expenses~~effective ~~were~~income ~~$47.3 million~~tax rate for the three months ended ~~July~~January 31, 2001 and 2000, upwas ~~$18~~42.9 ~~million,~~% orand 6643.57%, respectively. ~~from~~The decrease in the effective tax rate was due ~~comparable~~primarily ~~period~~to ina ~~1999.~~statutory ~~The~~rate ~~increase~~decrease in ~~other~~Canada. ~~expenses~~Further, ~~is a~~the ~~reflection~~greater proportion of ~~the~~pre-tax ~~overall~~income ~~growth~~ in the ~~business,~~U.S. asrelative ~~it includes~~to ~~costs~~Canada, ~~related~~a tohigher ~~account~~rate ~~opening~~tax ~~and maintenance~~jurisdiction, ~~statement~~improved the effective ~~production~~tax ~~and~~rate. ~~printing~~These ~~and~~improvements ~~supplies,~~were ~~along~~mitigated ~~with~~by the increased ~~referral~~losses ~~commissions~~ in ~~Canada.~~the ~~Also~~other ~~included~~operating inunits, ~~other~~which ~~expenses~~have lower statutory ~~are~~tax ~~increased~~rates. ~~costs~~Our ~~incurred~~effective ~~for~~tax ~~trading~~rate, ~~errors~~excluding ~~and~~the antax ~~increase~~effects of innon-deductible ~~provisions~~goodwill, onwas 38.2% and 41.4%, respectively, for the ~~margin~~three ~~loan~~months ~~portfolio~~ended January 31, 2001 and 2000.

Credit ~~Our effective income tax rate for the three months ended~~ July 31, 2000 and 1999 was 48.4% and 46.2%, respectively. The increase in the effective tax rate was due to an increase in the Canadian business contribution, which has a higher tax rate and a large increase of non-deductible goodwill. Our effective tax rate, excluding the tax effects of non-deductible goodwill, was 43.3% and 41.5%, respectively, for the three months ended July 31, 2000 and 1999.

~~Nine~~ Credit ~~Months~~is ~~Ended~~extended ~~July 31,~~to ~~2000~~customers ~~Versus~~who ~~Nine~~purchase ~~Months~~securities ~~Ended~~and ~~July 31~~other financial products in their margin accounts. The customer must deposit and maintain a minimum percentage ownership in her or his portfolio. The extent of these loans is based on federal regulations and internal policies. Stock positions held in customer accounts are held as collateral for these loans. Risk of credit loss arises if the market value of the customer’s portfolio falls below the loan value in the account, ~~1999~~thus eliminating the equity. The risk of loss is increased when there are progressive and/or rapidly declining markets.

~~Financial~~ The ~~Overview~~control procedures that we employ include: authentication and qualification of customer accounts; verification of checks; ongoing review of margin maintenance requirement detail by security and customer; intra-day margin account management; planning for potential losses; and maintaining the effectiveness of collections. Surveillance reports are utilized in our efforts to ensure these loans are adequately secured, thus limiting credit exposure. Our independent risk management function monitors and modifies our risk management policies and procedures as required.

Net income for the nine months ended July 31, 2000 was $168.1 million, up 120.0% from $76.4 million for the comparable period in 1999. Revenues for the nine months ended July 31, 2000 were $1,215.9 million, up 72.0% from $707.0 million for the comparable period in 1999. This was due to a 65.0% increase in commissions and transaction fees, a 55.8% increase in mutual fund and related revenue, a 107.1% increase in net interest revenue, and a 77.0% increase in other revenue.

Total operating expenses of $910.5 million for the nine months ended July 31, 2000 were up 61.2% from $565.0 million for the comparable period in 1999, primarily resulting from additional business volume.

Revenues

Commissions and Fees

Commissions and fees were $798.6 million for the nine months ended July 31, 2000, up $314.5 million, or 65.0%, from the comparable period in 1999. The total number of trades executed by us has increased 86.6% from the comparable period in 1999 as our customer base has grown. Average commissions per revenue trade decreased 10.2% due to the expanded popularity of our online brokerage services, which are offered at a lower price than traditional agent based trading. For the nine months ended July 31, 2000, total daily average online

and total daily average electronic trades, reflected in the table below, as rounded, represented 73.5% and 76.8% of total trades, respectively, as compared to 60.5% and 64.7%, respectively, in the comparable 1999 period.

		Nine Months Ended
		July 31,
						Percent
		2000		1999		Change
Total daily average online trades			147,000		65,500		124	%
Touch-tone			6,600		4,600		44	%
	Total daily average electronic trades		153,600		70,100		119	%
Agent trades			46,400		38,200		22	%
	Total daily average trades		200,000		108,300		85	%
Average commissions, per revenue trade		$	20.71	$	23.06		(10	)%

We added approximately 851,000 new customer accounts (excluding those obtained through acquisition) during the nine months ended July 31, 2000, an increase of 44.4% from the approximately 589,000 new accounts added during the comparable period in 1999. Our advertising and marketing expense per new account was approximately $104 for the nine months ended July 31, 2000 versus $66 for the comparable 1999 period.

Mutual Fund and Related Revenue

Mutual fund and related revenue was $108.0 million for the nine months ended July 31, 2000, up $38.7 million, or 55.8%, from the comparable period in 1999. This increase was primarily due to a significant increase in customer assets held in third party mutual funds and proprietary money market and mutual funds.

Net Interest Revenue

Net interest revenue was $258.8 million for the nine months ended July 31, 2000, up $133.8 million, or 107.1%, from the comparable period in 1999. This increase was primarily due to a 110.1% increase in average customer margin loans to $8.6 billion during the nine months ended July 31, 2000 from $4.1 billion during the comparable period in 1999. Our average net interest spread of 2.44% for the nine months ended July 31, 2000 was lower than the spread of 2.57% for the comparable period in 1999 due to the continued growth of our U.S. operation, which has a lower net interest spread than our Canadian operation.

Operating Expenses

Compensation and benefits expense was $317.6 million for the nine months ended July 31, 2000, up $115.9 million, or 57.5%, from the comparable period in 1999. This increase was primarily due to the addition of new employees to support our rapid growth and incentive compensation to reflect the improvement in our operating results. Compensation as a percentage of revenues has decreased which reflects the fact that revenue growth has outpaced our employee growth in the short term.

Execution and clearing costs were $129.9 million for the nine months ended July 31, 2000, up $29.3 million, or 29.1%, from the comparable period in 1999. This increase was primarily due to increased transaction volume offset in part by productivity gains from our ability to leverage our large clearing operations.

Occupancy and equipment expense was $92.6 million for the nine months ended July 31, 2000, up $34.4 million, or 59.2%, from the comparable period in 1999. This increase was primarily due to additional lease expenses on our expanded office space, as well as increased lease and maintenance expenses on data processing equipment. During the first nine months of fiscal 2000 we opened 15 new branches, including two new call centers.

Advertising and marketing expense was $88.8 million for the nine months ended July 31, 2000, up $50.1 million, or 129.5%, from the comparable period in 1999. This increase primarily relates to increased

national advertising in the United States, however, it also includes costs arising from the foreign national advertising and branding campaigns launched in the fourth fiscal quarter of 1999.

Communications expense was $48.1 million for the nine months ended July 31, 2000, up $15.4 million, or 47.0%, from the comparable period in 1999. This increase was primarily due to increased trading volumes and the opening of new branches.

Amortization of goodwill was $31.8 million for the nine months ended July 31, 2000, up $3.9 million, or 14.0%, from the comparable period in 1999. This increase was due to the acquisition of YorkSHARE Limited in the first fiscal quarter of 2000, and of CT Securities Inc. in the second fiscal quarter of 2000, and Dealwise Limited in the third fiscal quarter of 2000.

Professional fees were $31.4 million for the nine months ended July 31, 2000, up $14.7 million, or 88.3%, from the comparable period in 1999. This increase was primarily due to fees for computer programming and systems consultants, along with registration fees for the increase in dedicated retail associates and costs for management of the international expansion.

Other expenses were $170.4 million for the nine months ended July 31, 2000, up $81.8 million, or 92.3%, from the comparable period in 1999. This increase was consistent with the overall growth in the business as reflected in the increased trading volumes and account openings, along with increased referral commissions in Canada. Additionally, other expenses for the nine months ended July 31, 2000 includes the increased costs incurred in trading errors and unsecured losses related to the record volumes and market volatility experienced in the second quarter.

Our effective income tax rate for the nine months ended July 31, 2000 and 1999 was 45.0% and 46.2%, respectively. The decrease in the fiscal year to date effective tax rate was primarily due to the large contribution in pre-tax income from our U.S. operations, which has the effect of reducing the impact of permanent differences such as the amortization of goodwill, as well as foreign provincial taxes. Our effective tax rate, excluding the tax effects of non-deductible goodwill, was 42.2% and 41.3%, respectively, for the nine months ended July 31, 2000 and 1999.

Liquidity and Capital Resources

WeHistorically, ~~finance~~we have financed our customer securities operations primarily through customer credit balances, deposits received for securities loaned, and other short-term borrowings ~~and cash generated by our operations~~. As of ~~July~~January 31, ~~2000~~2001, 9087.12% of our assets consisted of cash and cash equivalents or assets readily convertible into cash (principally receivables from customers, receivables from brokers and dealers, deposits paid for stock borrowed, and securities owned). Receivables from customers primarily consist of margin loans to customers, which are secured by customers’ readily marketable securities. Receivables ~~from~~ from brokers and dealers consist of amounts receivable for ~~pending~~ pending securities transactions, which can generally be settled ~~within~~ within three business days. Deposits paid for securities borrowed represent cash deposits placed with brokers securing marketable securities borrowed by us. Securities owned consist primarily of U.S. and Canadian government securities and other securities, which trade in highly liquid markets.

15 ~~Capital expenditures and investments in new technology, services~~ and advertising are being primarily financed through earnings from operations. Prior to the initial public offering of the Company’s common stock on June 23, 1999 (the “Offering”), acquisitions of new businesses have been funded through capital contributions from TD Bank. New acquisitions are funded by issuances of shares of the Company or its subsidiaries, by proceeds from the Offering and by funds generated by operations.

Net income plus depreciation and amortization was $55.5 million and $30.2 million for the three months ended and $224.9 million and $105.2 million for the nine months ended July 31, 2000 and 1999, respectively. Depreciation and amortization expense, which relates to fixed assets, leasehold improvements and goodwill, was $21.0 million and $4.2 million for the three months ended and $56.8 million and $28.8 million for the nine months ended July 31, 2000 and 1999, respectively. Capital expenditures were $38.8 million and $17.0 million in the three months ended and $78.1 million and $29.2 million in the nine months ended July 31, 2000 and 1999, respectively, which represented 11.2% and 7.0% and 6.4% and 4.1% of total revenues in each period.

Capital expenditures, ~~excluding~~and ~~acquisitions~~investments ofin new ~~businesses~~technology, ~~during~~ ~~the three months~~ services and ~~nine~~advertising ~~months~~have ~~ended~~to ~~July 31,~~date ~~2000 and~~been ~~1999,~~financed primarily ~~related~~through earnings tofrom ~~the~~operations. ~~purchase~~Acquisitions of ~~communications~~new ~~and~~businesses have been ~~data~~funded ~~processing~~through ~~equipment~~capital ~~and~~generated ~~leasehold~~from ~~improvements~~our ~~related~~initial topublic ~~new~~offering ~~branches~~in June 1999, earnings from operations and issuance ~~office~~of ~~facilities~~preferred and exchangeable preferred stock.

Net income plus depreciation and amortization was $61.7 million and $73.6 million for the three months ended January 31, 2001 and 2000, respectively. Depreciation and amortization expense, which relates to fixed assets, leasehold improvements and goodwill, was $24.6 million and $16.6 million for the three months ended January 31, 2001 and 2000, respectively. Capital expenditures, excluding acquisitions of new businesses, were $29.1 million and $18.7 million in the three months ended January 31, 2001 and 2000, respectively, which represented 8.4% and 4.9% of total revenues in each period. Capital expenditures, excluding acquisitions of new businesses, during the three months ended January 31, 2001 and 2000, related primarily to the purchase of communications and data processing equipment and leasehold improvements related to new branches and office facilities.

Our broker-dealer subsidiaries are subject to regulatory requirements intended to ensure their general soundness and liquidity and require that the broker-dealers comply with certain minimum capital requirements. These regulations, which differ in each country, generally prohibit our broker-dealer subsidiaries from repaying borrowings from TD Bank, paying cash dividends, making loans to us or affiliates, or otherwise entering into transactions which would result in a significant reduction in their regulatory capital position, without prior notification and/or approval of the broker-dealer’s principal regulator. Our capital structure is designed to provide each entity and business with capital and liquidity consistent with their business and regulatory requirements.

It is currently anticipated that our available cash resources and credit facilities will be sufficient to meet anticipated working capital, capital expenditures and regulatory capital requirements for at least the next twelve months.

Recently Issued Accounting Standards

~~SFAS~~Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued in 1998 and, as amended, became effective for all fiscal years which began after June 15, 2000. This standard requires us to recognize all derivatives as either assets or liabilities in our financial statements and to measure such instruments at their ~~fair~~face values. Hedging activities must be redesignated and documented pursuant to the provisions of this standard. ~~This~~We ~~standard~~adopted ~~becomes~~the ~~effective~~provisions ~~for all fiscal quarters~~of this ofstandard ~~fiscal~~on ~~years which begin after June~~November 151, 2000. AtThe ~~this time,~~effect ~~we do not believe that adoption~~ of this adoption ~~standard~~was ~~will~~not ~~have a~~ material ~~impact~~to on our financial condition ~~and~~or results of of operations.

In ~~December~~September ~~1999~~2000, the ~~Securities~~Financial ~~and~~Accounting ~~Exchange~~Standards ~~Commission~~Board ~~staff~~(“FASB”) ~~released~~issued ~~Staff~~SFAS ~~Accounting Bulletin (SAB)~~ No. ~~101~~140, Accounting for Transfers ~~Revenue~~and ~~Recognition~~Servicing inof Financial ~~Statements~~Assets and Extinguishments of Liabilities – a Replacement of FASB Statement No. 125, which revises the standards for accounting for ~~provides~~transfers ~~guidance~~of onfinancial ~~the~~assets ~~recognition~~and collateral. In addition, specific ~~presentation~~implementation ~~and~~guidelines ~~disclosure~~have been established to further ofdistinguish ~~revenue~~transfers inof financial ~~statements~~assets that are sales from transfers that are secured borrowings. AtSFAS ~~this~~No. 140 ~~time~~is effective for transfers occurring after March 13, ~~management~~2001 and ~~does~~for ~~not~~disclosures ~~believe~~relating ~~that~~to ~~SAB~~collateral for fiscal years ended after December 15, 2000. We intend to adopt the provisions of SFAS No. ~~101~~140 in 2001. We do not believe that adoption of this standard will have a material ~~effect~~ impact on ~~the~~our ~~Company’s~~ financial condition orand results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Market~~On ~~risk~~January 28, ~~generally~~1997, ~~represents~~ the ~~risk~~SEC ofadopted ~~loss~~new ~~that~~rules ~~may result~~(Securities Act ~~from~~Release ~~the~~No. ~~potential~~7386) ~~change~~that inrequire ~~the~~disclosure ~~value~~about ofthe ~~a financial instrument~~policies used asto aaccount ~~result~~for ofderivatives ~~fluctuations~~and incertain ~~interest~~quantitative ~~rates~~ and qualitative information about market ~~prices~~risk exposures. WeMarket ~~have~~risk generally ~~not~~represents ~~traded~~the orrisk ~~otherwise~~of ~~transacted~~loss inthat ~~derivatives~~may ~~nor~~result dofrom the potential wechange ~~expect to~~ in the ~~future.~~value Weof ~~have~~a ~~established~~financial ~~policies, procedures~~instrument ~~and~~as ~~internal~~a result ~~processes governing our management~~ of ~~market~~ ~~risks~~fluctuations in ~~the~~interest ~~normal~~rates ~~course~~and ofmarket ~~our business operations~~prices.

As a part of our brokerage business, we hold short-term interest-earning assets (mainly margin loans to customers) totaling $97.65 billion and $68.58 billion at ~~July~~January 31, ~~2000~~ 2001 and October 31, ~~1999~~2000, respectively, of which $2.6 ~~billion~~ billion and $12.83 billion, respectively, were denominated in ~~foreign~~ foreign currencies, primarily the Canadian dollar. Our interest ~~earning~~ earning assets are financed by short-term interest-bearing liabilities in the form ~~of customer balances and deposits received for stock~~ ~~loaned. We earn a net interest spread on the difference between~~ amounts earned on customer margin loans and amounts paid on stock loan and customer credit balances. Since we establish the rate paid on customer cash balances, a substantial portion of our interest rate risk is under our direct management. We generally move rates earned on loans in lockstep with rates paid on credit balances to maintain a consistent net interest spread, and, therefore, do not anticipate that changes in interest rates will have a material adverse effect on our earnings and cash flows. Similarly, since we manage the assets and liabilities related to our brokerage business on a geographic basis and fund assets with liabilities denominated in the same currency as the assets, we do not anticipate that changes in foreign exchange rates will have a material adverse effect on our net interest revenues or cash flows.

16 ~~We held marketable securities (securities owned) at July 31,~~ ~~2000 and October 31, 1999, which were recorded at fair~~ value of $117.0 million and $342.0 million, respectively, and sold securities short (securities sold, not yet purchased) at July 31, 2000 and October 31, 1999 with a fair value of $8.4 million and

~~$3.6 million,~~of ~~respectively,~~customer ~~which~~balances ~~exposes~~and usdeposits toreceived ~~market~~for ~~price~~ stock ~~risk~~loaned. ~~This~~We earn ~~risk~~a isnet ~~estimated~~interest asspread on the ~~potential~~difference ~~loss~~between ~~in fair value~~amounts earned ~~resulting~~on ~~from~~customer amargin ~~hypothetical~~loans ~~10%~~and ~~adverse~~amounts ~~change~~paid inon ~~quoted~~stock loan ~~market~~and ~~prices~~customer ~~and~~credit ~~amounts~~balances. toSince ~~approximately~~we ~~$12.5 million~~establish ~~and~~the rate paid on ~~$34.6 million~~customer atcash ~~July 31~~balances, ~~2000~~a ~~and~~substantial ~~October 31, 1999,~~portion ~~respectively.~~of Ofour ~~these~~interest rate ~~positions,~~risk ~~approximately $24.6 million~~is ~~and~~under ~~$10.2 million~~our ofdirect ~~securities~~management. ~~owned~~We atgenerally move ~~July 31,~~rates ~~2000~~earned ~~and~~on ~~October 31,~~loans ~~1999,~~in ~~respectively,~~lockstep ~~and $8.0 million~~with ~~and~~rates ~~$3.4 million~~paid ofon ~~securities~~credit balances ~~sold~~to ~~short at~~maintain ~~July 31,~~a ~~2000~~consistent ~~and~~net ~~October 31,~~interest ~~1999~~spread, ~~respectively~~and, ~~were~~therefore, ~~denominated~~do innot ~~foreign~~anticipate ~~currencies,~~that ~~primarily~~changes ~~the~~in ~~Canadian~~interest rates will ~~dollar.~~have ~~Therefore,~~a wematerial ~~are~~adverse ~~also~~effect ~~exposed~~on toour ~~foreign~~earnings ~~currency~~and ~~risk~~cash flows. ~~This~~Similarly, ~~risk~~since iswe ~~estimated~~manage as the ~~potential~~assets ~~loss~~and inliabilities ~~fair~~related ~~value~~to ~~resulting~~our ~~from~~brokerage business on a ~~hypothetical~~geographic ~~10%~~basis ~~adverse~~and ~~change~~fund assets with liabilities denominated in ~~foreign~~the same currency as the assets, ~~exchange~~we ~~rates~~do ~~and~~not ~~amounts~~anticipate tothat ~~approximately~~changes ~~$3.3 million~~in ~~and~~foreign exchange rates will have ~~$1.4 million~~a atmaterial ~~July 31,~~adverse ~~2000~~effect ~~and~~on ~~October 31, 1999,~~our ~~respectively.~~net ~~Actual~~interest ~~results~~revenues ~~may~~or cash ~~differ~~flows.

20 The Company’s subsidiary, TDW Canada, has entered into interest rate swaps to hedge interest rate risk arising from its investment of approximately $420 million in fixed rate mortgage backed securities, thereby generating floating interest rate income to match its floating rate cost of funds. The mortgaged backed securities are fully guaranteed by the Canadian Government. The Company is exposed to risk of credit loss in the event of nonperformance by its counterparty to the interest rate swap agreements. However, the Company does not anticipate nonperformance by its counterparty. We have established policies, procedures and internal processes governing our management of market risks in the normal course of our business operations.

We held marketable securities (securities owned) at January 31, 2001 and October 31, 2000, which were recorded at fair value of $542.6 million and $138.5 million, respectively, and sold securities short (securities sold, not yet purchased) at January 31, 2001 and October 31, 2000 with a fair value of $5.4 million and $6.4 million, respectively, which exposes us to market price risk. This risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in quoted market prices, excluding the $419.8 million investment in mortgage backed securities which are hedged, and amounts to approximately $12.8 million and $14.5 million at January 31, 2001 and October 31, 2000, respectively. Of these positions, approximately $437.4 million and $43.5 million of securities owned at January 31, 2001 and October 31, 2000, respectively, and $4.9 million and $6.1 million of securities sold short at January 31, 2001 and October 31, 2000, respectively, were denominated in foreign currencies, primarily the Canadian dollar. With respect to foreign exchange rate risk on investments denominated in foreign currencies, there continues to be no significant exposure to foreign exchange rate risk, as foreign currency assets are generally funded with liabilities in the same currency.

In addition, the Company invested structural capital in its international subsidiaries, exposing it to further foreign exchange risk. These investments, which are recorded at the historical cost in U.S. dollars, are subject to foreign currency risk. The total historical equivalent U.S. dollar investment in the Company’s international subsidiaries and joint ventures and cumulative retained earnings or share in retained earnings of the joint ventures at January 31, 2001 and October 31, 2000 was $497.6 million and $478.7 million, respectively. The foreign currency risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in foreign exchange rates and amounts to approximately $49.8 million and $47.9 million as at January 31, 2001 and October 31, 2000, respectively. Actual results may differ.

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

Many aspects of our business involve substantial risks of liability. In recent years, there has been an increasing incidence of litigation involving the securities brokerage industry, including class action suits that generally seek substantial damages, including in some cases punitive damages. Like other securities brokerage firms, we have been named as a defendant in lawsuits and from time to time we have been threatened with, or named as a defendant in, arbitrations and administrative proceedings. Compliance and trading problems that are reported to federal, state and provincial securities regulators, securities exchanges or other self-regulatory organizations by dissatisfied customers are investigated by such regulatory bodies, and, if pursued by such regulatory body or such customers, may rise to the level of arbitration or disciplinary action. We are also subject to periodic regulatory audits and inspections.

We are not, nor are our subsidiaries, currently a party to any litigation that we believe could have a material adverse effect on our business, financial condition or operating results.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

~~None~~The Company’s Annual Meeting of Stockholders was held on March 1, 2001, and a total of 360,873,318 shares were present in person or by proxy at the Annual Meeting. The Company’s stockholders voted upon the following proposals:

Proposal No. 1—Election of Three Directors:


			Shares
	Shares For		Withheld

Stephen D. McDonald		360,525,472	347,846




Lawrence M. Waterhouse, Jr.		360,555,978	317,340




Steven B. Dodge		360,630,042	243,276

There were no broker non-votes with respect to the election of directors.

Proposal No. 2—Approval of the TD Waterhouse Group, Inc. Covered Employee Cash Incentive Plan (the “Cash Incentive Plan”):


Shares For		Shares Against		Abstentions

	359,888,139		888,930		96,249

There were no broker non-votes with respect to the approval of the Cash Incentive Plan.

Proposal No. 3—Appointment of Independent Accountants:


Shares For		Shares Against		Abstentions

	360,754,238		83,975		35,105

There were no broker non-votes with respect to the appointment of the independent accountants.

Item 5. Other Information

None

2118

Item 6. Exhibits and ~~Reports~~Report on Form 8-K

(a) The following exhibits are filed as part of this quarterly report on Form 10-Q.

Exhibit
Number		Description
	2.1	~~Form of~~ Transfer and Assumption Agreement between TD Bank and TD Waterhouse Investor Services (Canada) Inc. (Incorporated by reference to Exhibit 2.1 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	2.2	~~Form of~~ Transfer and Assumption Agreement between TD Securities Inc. and TD Waterhouse Investor Services (Canada) Inc. (Incorporated by reference to Exhibit 2.2 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	2.3	~~Form of~~ Share Transfer Agreement between TD Bank and TD Waterhouse (Incorporated by reference to Exhibit 2.3 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	3.1	~~Form of~~ Amended and Restated Certificate of Incorporation of TD Waterhouse (Incorporated by reference to Exhibit 3.1 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	3.2	~~Form of~~ By-~~laws~~Laws of TD Waterhouse (Incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, Registration No. 333-77521).
	4.1	Specimen common stock certificate (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1, Registration No. 333-77521).
	4.2	Amended and Restated Support and Exchange Agreement, dated April 13, 2000, by and among TDthe ~~Waterhouse Group~~Company, ~~Inc.,~~ TD Waterhouse ~~Investor Services (~~Canada~~) Inc.~~, TD Waterhouse Holdings, Inc., TD Securities Inc., CT Financial Services Inc. and ~~The~~TD ~~Toronto-Dominion~~ Bank (Incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2000).
	4.3	~~Form of~~ Exchangeable Preference Share Terms of TD Waterhouse Investor Services (Canada), Inc. (Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-1, Registration No. 333-77521).
	4.4	~~Form of~~ Certificate of Designation creating Special Voting Preferred Stock ofon TD Waterhouse. (Incorporated by reference to Exhibit 4.4 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	4.5	Specimen Special Voting Preferred stock certificate (Incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-1, Registration No. 333-77521).
	10.1	1999 TD Waterhouse Group, Inc. Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8, Registration No. 333-40236).
	10.2	The Toronto-Dominion Bank 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-1, Registration No. 333-77521).
	10.3	~~Form of~~ Master Services Agreement between TD Waterhouse and TD Bank dated June 28, 1999, as amended. (Incorporated by reference to Exhibit 10.3 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	10.4	~~Form of~~ Tax Sharing Agreement between TD Waterhouse and TD Waterhouse Holdings, Inc. (Incorporated by reference to Exhibit 10.4 of the Company’s ~~Registration~~Annual ~~Statement~~Report on Form S10-1,K ~~Registration~~for ~~No.~~the ~~333-77521~~fiscal year ended October 31, 2000).
	10.5	TD Bank Long Term Capital Plan. (Incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 1999).
	10.6	Employment Agreement, dated as of October 1, 1999 between Stephen D. McDonald and the Company. (Incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 1999).

2219

Exhibit
Number		Description
	10.7	Employment Agreement, dated as of October 1, 1999 between Frank J. Petrilli and the Company. (Incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 1999).
	10.8	Employment Agreement, dated as of October 1, 1999 between John G. See and the Company. (Incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 1999).
	27.1	Financial Data Schedule
	10.9	Employment Agreement, dated as of June 1, 2000 between Bharat B. Masrani and the Company. (Incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000).
	10.10	Employment Agreement, dated as of October 31, 1999 between Richard J. Rzasa and the Company. (Incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000).
	10.11	The Toronto-Dominion Bank 2000 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000).
	10.12	Amendment to the Master Services Agreement between TD Bank and TD Waterhouse effective as of June 28, 1999. (Incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000).
	10.13	Amendment to the Master Services Agreement between TD Bank and TD Waterhouse dated April 13, 2000. (Incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000).
	10.14	TD Waterhouse Group, Inc. Covered Employee Cash Incentive Plan (Incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2000).

(b) Reports on Form 8-K

None

2320

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: ~~September~~March 1415, ~~2000~~2001


	TD WATERHOUSE GROUP, INC.


	By:	/s/ STEPHEN D. MCDONALD _______________________________________ Stephen D. McDonald


	Chief Executive Officer and Deputy Chairman


	By:	/s/ B. KEVIN STERNS _______________________________________ B. Kevin Sterns


	Executive Vice President
	and Chief Financial Officer
	(Principal Financial and Accounting Officer)

2421

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