RBC Private Global Bond Pool and RBC Asset Management Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- exemption from subsection 2.1(1) of National Instrument 81-102 Mutual Funds to permit global bond fund to invest more than 10% of its net assets in debt securities issued by a foreign government or supranational agency.

Rules Cited

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 2.1(2), 19.1.

August 25, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON AND NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

RBC PRIVATE GLOBAL BOND POOL (Fund) and

RBC ASSET MANAGEMENT INC. (RBC AM)

(the Filers)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filers for a decision under section 19.1 of National Instrument 81-102 -- Mutual Funds (NI 81-102) providing exemptive relief from subsection 2.1(1) of NI 81-102 (the Concentration Restriction) such that the Fund may invest:

(a) up to 20 percent of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or fully and unconditionally guaranteed as to principal and interest, by supranational agencies or governments, other than the government of Canada, the government of a province or territory of Canada or the government of the United States, and are rated AA by Standard and Poor's, or the equivalent rating by one or more other approved credit rating organizations; and

(b) up to 35 percent of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer described in paragraph (a) if those securities are rated at least AAA by Standard and Poor's, or the equivalent rating by one or more other approved credit rating organizations.

Paragraphs (a) and (b) are herein referred to as the Requested Relief.

Under the Mutual Reliance Review System for Exemptive Relief Applications:

1. the Ontario Securities Commission is the principal regulator for this application; and

2. this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Terms defined in NI 81-102 or National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

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

1. RBC AM is registered as an investment counsel and portfolio manager in Ontario and in the same or an equivalent category in each of the other Jurisdictions. RBC AM is also registered as a limited market dealer in Ontario and Newfoundland.

2. RBC AM is the trustee, manager and portfolio adviser of the Fund.

3. The Fund is a mutual fund that is subject to NI 81-102 and is a reporting issuer in each of the Jurisdictions.

4. The investment objective of the Fund is to provide long-term total returns comprised mainly of interest income and some capital gains generated by interest rate and currency fluctuations. The Fund invests primarily in high-quality fixed-income securities denominated in foreign currencies. Primarily these securities will be issued by Canadian and foreign governments. They may also be issued by Canadian corporations and supranational agencies like the World Bank.

5. As a result of the Concentration Restriction the Fund is restricted from purchasing a security of an issuer or entering into a specified derivatives transaction if, immediately after the transaction, more than 10 percent of the net assets of the Fund would be invested in securities of any issuer. The Concentration Restriction does not apply, inter alia, to a purchase of a "government security".

6. "Government security" for purposes of the exemption from the Concentration Restriction means an evidence of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a province or territory of Canada or the government of the United States.

7. In pursuing the Fund's investment objective RBC AM, inter alia, generally invests in foreign currency denominated issues of Canadian governments, their agencies, Canadian corporations or supranational organizations. Further, no more than 10 percent of the market value of the Fund may be invested in securities rated below BBB by Standard and Poor's or the equivalent rating as defined by other recognized rating agencies.

8. RBC AM has determined that it would be in the interests of the Fund if, in pursuing the Fund's investment objective, RBC AM was not constrained by the Concentration Restriction with respect to investments in securities issued by foreign governments or supranational agencies with appropriate credit ratings. This would provide the Fund with more flexibility and more favourable prospects as it will be better able to compose a global portfolio that will best achieve the Fund's investment objectives.

9. The Fund currently invests more than 10 percent of its net assets in U.S. government securities and is therefore somewhat dependent on the performance of the U.S. economy. An exemption from the Concentration Restriction will enable the Fund to increase its exposure to securities issued by other developed countries as well as reduce its dependency on U.S. government securities. This would result in greater global diversification for the Fund.

10. In certain jurisdictions, the securities of supranational agencies or governments may be the only liquid or rated debts available for investment.

11. Permitting the Fund to invest more than 10 percent of its assets in any one issuer may help increased efficiencies and economics of scale which would result in reduced transaction costs for the Fund.

Decision

Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Maker with the jurisdiction to make the decision has been met.

The Decision of the Decision Makers under NI 81-102 is that the Requested Relief is granted provided that:

(a) paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;

(b) the securities that are purchased pursuant to this Decision are traded on a mature and liquid market;

(c) the acquisition of the securities purchased pursuant to this Decision is consistent with the investment objective of the Fund;

(d) the simplified prospectus of the Fund discloses the risks associated with the potential concentration of the net assets of the Fund in securities of fewer issuers and the risks associated with investing in the countries in which such issuers may be located; and

(e) the simplified prospectus of the Fund discloses details of the Requested Relief including the types of securities covered by this Decision.