Securities Law & Instruments

Headnote

Exemptions from the mutual fund self-dealingprohibitions of clauses 111(2)(a), 111(3) and 118(2)(a) of theSecurities Act (Ontario). Mutual funds allowed to make purchasesand sales of common shares of the Royal Bank of Canada, parentcompany of the manager and advisor of the mutual funds, andto retain those securities provided that a fund governance mechanismis used to oversee the holdings, purchases or sales of thesesecurities for the mutual funds and to ensure that such holdings,purchases or sales have been made free from any influence bythe Royal Bank of Canada or a related company and without takinginto account any consideration relevant to the Royal Bank ofCanada or a related company.

Statutes Cited

Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., 111(2)(a), 111(3), and 118(2)(a).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, ONTARIO,

QUEBEC, NOVA SCOTIA AND NEWFOUNDLANDAND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE SYSTEMFOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

RBC FUNDS INC. ("RBCFI")

RBC GLOBAL INVESTMENT MANAGEMENTINC. ("RBC GIM")

ROYAL CANADIAN T-BILL FUND

ROYAL CANADIAN MONEY MARKETFUND

ROYAL PREMIUM MONEY MARKETFUND

ROYAL $U.S. MONEY MARKET FUND

ROYAL CANADIAN SHORT-TERMINCOME FUND

ROYAL BOND FUND

ROYAL MONTHLY INCOME FUND

ROYAL GLOBAL BOND FUND

ROYAL BALANCED FUND

ROYAL TAX MANAGED RETURN FUND

ROYAL BALANCED GROWTH FUND

ROYAL GLOBAL BALANCED FUND

ROYAL SELECT CONSERVATIVEPORTFOLIO

ROYAL SELECT BALANCED PORTFOLIO

ROYAL SELECT GROWTH PORTFOLIO

ROYAL SELECT CHOICES CONSERVATIVEPORTFOLIO

ROYAL SELECT CHOICES BALANCEDPORTFOLIO

ROYAL SELECT CHOICES GROWTHPORTFOLIO

ROYAL SELECT CHOICES AGGRESSIVEGROWTH PORTFOLIO

ROYAL DIVIDEND FUND

ROYAL CANADIAN VALUE FUND

ROYAL CANADIAN EQUITY FUND

ROYAL CANADIAN GROWTH FUND

ROYAL ENERGY FUND

ROYAL PRECIOUS METALS FUND

ROYAL U.S. EQUITY FUND

ROYAL U.S. MID-CAP EQUITYFUND

ROYAL LIFE SCIENCE AND TECHNOLOGYFUND

ROYAL INTERNATIONAL EQUITYFUND

ROYAL EUROPEAN EQUITY FUND

ROYAL ASIAN EQUITY FUND

ROYAL GLOBAL EDUCATION FUND

ROYAL GLOBAL TITANS FUND

ROYAL GLOBAL COMMUNICATIONSAND MEDIA SECTOR FUND

ROYAL GLOBAL CONSUMER TRENDSSECTOR FUND

ROYAL GLOBAL FINANCIAL SERVICESSECTOR FUND

ROYAL GLOBAL HEALTH SCIENCESSECTOR FUND

ROYAL GLOBAL INDUSTRIALS SECTORFUND

ROYAL GLOBAL RESOURCES SECTORFUND

ROYAL GLOBAL TECHNOLOGY SECTORFUND

(collectively, "RoyalMutual Funds")

RBC ADVISOR GLOBAL TITANSCLASS

RBC ADVISOR GLOBAL COMMUNICATIONSAND MEDIA CLASS

RBC ADVISOR GLOBAL CONSUMERTRENDS CLASS

RBC ADVISOR GLOBAL FINANCIALSERVICES CLASS

RBC ADVISOR GLOBAL HEALTHSCIENCES CLASS

RBC ADVISOR GLOBAL INFRASTRUCTURECLASS

RBC ADVISOR GLOBAL RESOURCESCLASS

RBC ADVISOR GLOBAL TECHNOLOGYCLASS

RBC ADVISOR U.S. EQUITY CLASS

RBC ADVISOR GLOBAL SMALL CAPEQUITY CLASS

RBC ADVISOR EMERGING MARKETSEQUITY CLASS

RBC ADVISOR GLOBAL BALANCEDCLASS

RBC ADVISOR SHORT -TERM INCOMECLASS

RBC ADVISOR CANADIAN BONDFUND

RBC ADVISOR GLOBAL HIGH YIELDFUND

RBC ADVISOR BLUE CHIP CANADIANEQUITY FUND

(collectively, "RBC AdvisorFunds")

 

MRRS DECISION DOCUMENT

WHEREAS RBC FI and RBC GIM have madean application for a decision (the "Decision") ofthe local securities regulatory authority or regulator (the"Decision Maker") in each of the provinces of BritishColumbia, Alberta, Saskatchewan, Ontario, Quebec, Nova Scotiaand Newfoundland and Labrador (the "Jurisdictions")pursuant to the securities legislation of the Jurisdictions(the "Legislation") that the following provisionsof the Legislation do not apply so as to prevent the Royal MutualFunds, the RBC Advisor Funds or other mutual funds of whichRBC FI or RBC GIM is or may be the manager (individually, a"Fund", and, collectively, the "Funds")from investing in, or continuing to hold an investment in, commonshares of the Royal Bank of Canada ("Royal Bank"):

a. the provision prohibiting a mutual fundfrom knowingly making or holding an investment in any personor company which is a substantial security holder of themutual fund, its management company or distribution company;and

b. the provision prohibiting the portfoliomanager of an investment portfolio from causing the investmentportfolio or in British Columbia prohibiting a mutual fundor a responsible person from causing a mutual fund to investin an issuer in which a responsible person is a directoror an officer unless the specific fact is disclosed to theclient and the written consent of the client to the investmentis obtained before the purchase (the provisions of (a) and(b) being, collectively, the "Investment Restrictions");

AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;

AND WHEREAS it has been represented byRBC FI and RBC GIM to the Decision Makers that:

1. Each of the Funds is or will be a mutualfund within the meaning of the Legislation that is a reportingissuer subject to National Instrument 81-102 and that is notin default under the Legislation.

2. RBC GIM is or will be the adviser of theFunds and the portfolio manager of the Funds for purposesof the Legislation.

3. Securities of the Funds are or will beoffered in all provinces and territories in Canada.

4. RBC GIM is a wholly-owned subsidiary ofRoyal Bank and as a result Royal Bank is a substantial securityholder of RBC GIM.

5. Certain directors and/or officers of RBCGIM who are responsible persons in respect of the Funds areor may be also officers of Royal Bank.

6. RBC GIM is prohibited by the InvestmentRestrictions from causing the investment portfolios of theFunds to invest in common shares of Royal Bank because:

(i) Royal Bank is a substantial securityholder of the management company of the Funds; and

(ii) certain directors and/or officers ofRBC GIM are or maybe also officers of Royal Bank.

7. For purposes of the requirement of section11.3(b) of Part B of Form 81-101 FI - Contents of SimplifiedProspectus - under National Instrument 81-101, the broad basedsecurities market index which is relevant to comparing theperformance of many of the Funds is the S&P/TSX CompositeCapped Total Return Index (the "S&P/TSX Capped Index").In addition investors and/or their advisors may compare theperformance of a Fund to one or more of the S&P/TSX CompositeTotal Return Index (the "S&P/TSX Index"), theS&P/TSX 60 Index (the "S&P/TSX 60 Index"),and the S&P/TSX Financial Services Index (the "S&P/TSXFinancial Services Index").

8. The common shares of Royal Bank are representedin each of the indices referred to in paragraph 7 above inapproximately the following percentages as at July 31, 2002:

S&P/TSX Index

5.78%

S&P/TSX Capped Index

5.78%

S&P/TSX 60 Index

7.34%

S&P/TSX Financial Services Index

19.45%

9. The S&P/TSX Financial Services Indexis the largest industry sector sub-index of the S&P/TSXIndex, representing approximately 30% of the index. Bank securitiesrepresent approximately 60% of the S&P/TSX Financial ServicesIndex and approximately 20% of the S&P/TSX Index and theS&P/TSX Capped Index.

10. As demonstrated by the information setout in paragraphs 7, 8 and 9 above, in the context of theCanadian capital markets the ability to invest in common sharesof Royal Bank is extremely important to the Funds. Royal Bankis the largest issuer by market capitalization in any of theindices referred to above and it has a significant impacton the returns of each of such indices. It is not prudentfor a portfolio manager to arbitrarily exclude securitiesof such an issuer from the universe of securities availablefor investment.

11. RBC GIM considers that it would be inthe best interests of investors in the Funds if RBC GIM werepermitted to invest the portfolios of the Funds in commonshares of Royal Bank where such investment is consistent withthe investment objectives of the Funds.

12. RBC FI and RBC GIM have agreed to appointan independent committee (the "Independent Committee")to review the Funds' purchases, sales and continued holdingsof common shares of Royal Bank to ensure that they have beenmade free from any influence by Royal Bank and without takinginto account any consideration relevant to Royal Bank or anyassociate or affiliate of Royal Bank.

13. It is anticipated that the IndependentCommittee will be formed from the Board of Governors of theFunds that meets no less frequently than quarterly.

14. In reviewing the Funds' purchases, salesand continued holdings of common shares of Royal Bank, theIndependent Committee will take into account the best interestsof the unitholders of the Funds and no other factors.

15. Compensation to be paid to members ofthe Independent Committee will be paid on a per meeting plusexpenses basis and will be allocated among the Funds in amanner that is considered by the Independent Committee tobe fair and reasonable to the Funds.

AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the Jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers pursuantto the Legislation is that:

1. RBC GIM and the Funds are exempt from theInvestment Restrictions so as to enable the Funds to invest,or continue to hold an investment in, common shares of RoyalBank; and

2. the Decision, as it relates to the jurisdictionof a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that DecisionMaker dealing with mutual fund governance in a manner thatconflicts with or makes inapplicable any provision of thisDecision;

provided that:

a. RBC FI or RBC GIM has appointed the IndependentCommittee to review the Funds' purchases, sales and continuedholdings of common shares of Royal Bank;

b. the Independent Committee has at leastthree members and no member of the Independent Committeeshall be an associate of

(i) Royal Bank,

(ii) RBC FI,

(iii) RBC GIM or any other portfolio managerof the Funds, or

(iv) any associate or affiliate of RoyalBank, RBC FI, RBC GIM or any other portfolio manager ofthe Funds;

c. the Independent Committee has a writtenmandate describing its duties and standard of care which,at a minimum, sets out these conditions;

d. the members of the Independent Committeeexercise their powers and discharge their duties honestly,in good faith and in the best interests of investors inthe Funds and, in doing so, exercise the degree of care,diligence and skill that a reasonably prudent person wouldexercise in the circumstances;

e. none of the Funds relieves the membersof the Independent Committee from liability for loss thatarises out of a failure to satisfy the standard of careset out in paragraph (d);

f. none of the Funds indemnifies the membersof the Independent Committee against legal fees, judgmentsand amounts paid in settlement as a result of a breach ofthe standard of care set out in paragraph (d);

g. none of the Funds incurs the cost ofany portion of liability insurance that insures a memberof the Independent Committee for a liability for loss thatarises out of a failure to satisfy the standard of careset out in paragraph (d);

h. the cost of any indemnification or insurancecoverage paid for by RBC FI, RBC GIM, any portfolio managerof the Funds, or any associate or affiliate of RBC FI, RBCGIM or portfolio managers of the Funds to indemnify or insurethe members of the Independent Committee in respect of aloss that arises out of a failure to satisfy the standardof care set out in paragraph (d) is not paid either directlyor indirectly by the Funds;

i. the Independent Committee reviews theFunds' purchases, sales and continued holdings of commonshares of Royal Bank regularly, but not less frequentlythan quarterly or such shorter period as the IndependentCommittee may require;

j. the Independent Committee forms the opinionafter reasonable inquiry that the decisions made on behalfof each Fund by RBC GIM or the Fund's portfolio managerto purchase, sell or continue to hold common shares of RoyalBank were, and continue to be, in the best interests ofthe Fund and to:

(i) represent the business judgment ofRBC GIM or the Fund's portfolio manager, uninfluencedby considerations other than the best interests of theFund;

(ii) have been made free from any influenceby Royal Bank and without taking into account any considerationrelevant to Royal Bank or any associate or affiliate ofRoyal Bank; and

(iii) not exceed the limitations of theapplicable legislation.

k. the determination made by the IndependentCommittee pursuant to paragraph (j) above is included indetailed written minutes provided to RBC FI or RBC GIM notless frequently than quarterly;

l. the reports required to be filed pursuantto applicable legislation with respect to every purchaseand sale of common shares of Royal Bank are filed on SEDARin respect of the relevant Fund;

m. the Independent Committee advises theDecision Makers in writing of

(i) any determination by it that condition(j) has not been satisfied with respect to any purchase,sale or holding of common shares of Royal Bank,

(ii) any determination by it that anyother condition of this Decision has not been satisfied,

(iii) any action it has taken or proposesto take following the determinations referred to above,and

(iv) any action taken, or proposed tobe taken, by Royal Bank, RBC FI, RBC GIM or a portfoliomanager of the Funds in response to the determinationsreferred to above;

n. the existence, purpose, duties and obligationsof the Independent Committee, the names of its members,whether and how they are compensated by the Funds, and thefact that they meet the requirements of condition (b) aredisclosed

(i) in a press release issued, and a materialchange report filed, prior to reliance on the Decision;

(ii) in item 12 of Part A of the simplifiedprospectus of the Funds; and

(iii) on RBC FI's or RBC GIM's internetwebsite.

October 29, 2002.

"Howard I. Wetston"                    "HaroldP. Hands"