Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- exemption granted to permit a fund to change the basis of the calculation of the fund expenses without prior approval of securityholders -- relief not prejudicial to the public interest because the securityholders will be given notice and permitted to redeem their units prior to the change taking effect without paying a commission -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.1(a), 19.1.

March 27, 2007

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 (Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS (MRRS)

AND

IN THE MATTER OF

RBC ASSET MANAGEMENT INC. (the Filer)

AND

IN THE MATTER OF

RBC CANADIAN SHORT-TERM INCOME FUND,

RBC MONTHLY INCOME FUND,

RBC $U.S. INCOME FUND,

RBC GLOBAL BOND FUND,

RBC GLOBAL CORPORATE BOND FUND,

RBC CASH FLOW PORTFOLIO,

RBC BALANCED GROWTH FUND,

RBC SELECT CONSERVATIVE PORTFOLIO,

RBC SELECT BALANCED PORTFOLIO,

RBC SELECT GROWTH PORTFOLIO,

RBC SELECT CHOICES CONSERVATIVE PORTFOLIO,

RBC SELECT CHOICES BALANCED PORTFOLIO,

RBC SELECT CHOICES GROWTH PORTFOLIO,

RBC SELECT CHOICES AGGRESSIVE GROWTH PORTFOLIO,

RBC CANADIAN EQUITY FUND,

RBC O'SHAUGHNESSY CANADIAN EQUITY FUND,

RBC NORTH AMERICAN VALUE FUND,

RBC NORTH AMERICAN GROWTH FUND,

RBC U.S. EQUITY FUND,

RBC U.S. EQUITY CURRENCY NEUTRAL FUND,

RBC U.S. MID-CAP EQUITY FUND,

RBC U.S. MID-CAP EQUITY CURRENCY NEUTRAL FUND,

RBC INTERNATIONAL EQUITY FUND,

RBC EUROPEAN EQUITY FUND,

RBC ASIAN EQUITY FUND,

RBC GLOBAL ENERGY FUND,

RBC GLOBAL CONSUMER AND FINANCIALS FUND,

RBC GLOBAL HEALTH SCIENCES FUND,

RBC GLOBAL RESOURCES FUND, AND

RBC GLOBAL TECHNOLOGY FUND,

RBC SELECT AGGRESSIVE GROWTH PORTFOLIO,

RBC O'SHAUGHNESSY ALL-CANADIAN EQUITY FUND

(each, a Fund and, collectively, the Funds)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (Decision Maker) in each of the Jurisdictions received an application (the Application) from the Filer on behalf of each Fund under section 19.1 of National Instrument 81-102 -- Mutual Funds (NI 81-102) for relief from the requirement in section 5.1(a) of NI 81-102 to obtain the approval of the security holders of Advisor Series Units of the Fund in respect of a change in the basis of the calculation of the operating expenses that are charged to the Fund (the Requested Relief).

Under the MRRS:

(i) the principal regulator for the Application is the Ontario Securities Commission (the OSC); and

(ii) this Decision Document represents the decision of each of the Decision Makers.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions (NI 14-101), in NI 81-102, and in National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meaning in this MRRS Decision Document unless they are otherwise defined in this Decision Document.

Representations

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

The Funds

1. The Filer is a corporation governed by the Canada Business Corporations Act. The Filer is registered as an investment counsel and portfolio manager, or the equivalent, in each of the Jurisdictions and as a limited market dealer in Ontario and Newfoundland and Labrador. The Filer is the manager of the Funds. The Filer's head office is in Toronto, Ontario.

2. Each of the Funds is a reporting issuer in each of the Jurisdictions.

3. Advisor Series Units of each of the Funds as well as Advisor Series, Series A, Series F, Series I and Series O Units of other mutual funds of which the Filer is the manager are offered under a simplified prospectus and annual information form (the Prospectus) dated July 4, 2006 or in the case of the RBC O'Shaughnessy All-Canadian Equity Fund and the RBC Select Aggressive Growth Portfolio (the New Funds) a prospectus dated January 12, 2007.

4. Advisor Series Units of each of the Funds and of other mutual funds of which the Filer is the manager are distributed through authorized dealers and are sold under an initial sales charge, deferred sales charge or low-load sales charge option.

5. Series A, Series F, Series I and Series O Units of the Funds and of other mutual funds of which the Filer is the manager are distributed on a "no-load" basis.

Change in the Basis of the Calculation of Operating Expenses

6. Currently each Fund pays its own operating expenses including account administration costs, recordkeeping fees, custody, fund valuations, audit and legal fees, regulatory filing fees, fees associated with financial reporting and recurring simplified prospectus and annual information form costs. Operating expenses not directly attributable to a single fund or a particular series of a fund are allocated by the Filer among each of the funds it manages and among the series of the funds in a fair and equitable manner.

7. Each Fund pays an annual management fee in respect of each Series that is a fixed percentage of the net assets of the Fund attributable to the Series.

8. The Filer has previously determined that the annual management expense ratio (MER) in respect of the Advisor Series Units of each Fund will not exceed a specified percent. If the operating expenses and management fees in respect of Advisor Series Units would result in an MER in excess of the specified percent, then the Filer absorbs the excess expenses.

9. The Filer is proposing to change the basis of calculating the operating expenses that are charged to a Fund by establishing a fixed administration fee in respect of the Advisor Series Units of each Fund. The Filer will be responsible for and pay the Fund's actual operating expenses and these expenses will not be charged to the Fund. The fee will be an annual percentage based on the daily net assets of the Advisor Series Units of the Fund.

10. Excluded from the fixed administration fee will be taxes (including, but not limited to GST), borrowing costs, costs associated with new government or regulatory requirements and costs of a Fund's independent review committee. The fixed administration fee will be charged on the same basis as the management fee.

11. Costs associated with portfolio transactions, including brokerage commissions, research and execution costs are not currently included in operating expenses or the calculation of a Fund's MER. These costs will continue to be charged to each Fund and will not be included in the fixed administration fee.

12. The fixed administration fee that will be charged in respect of operating expenses of Advisor Series Units of each Fund will result in an MER that will be lower than the actual percentage for the financial year ended December 31, 2006 (except in the case of the New Funds which have not completed a financial year). However, it is possible that the change to the basis of calculating the operating expenses could result in an increase in charges that would have otherwise been payable by the Advisor Series Units of each Fund. This is because while the Filer will bear the costs of any increase in operating expenses, it may in turn benefit from any future cost efficiencies.

13. The Filer is proposing to make similar changes to the basis of calculating the operating expenses that are charged in respect of all other Series of the Funds and of other mutual funds that are managed by the Filer.

Notice of Change to Security Holders

14. Paragraph 5.1(a) of NI 81-102 requires prior approval of security holders if the basis of the calculation of an expense charged to a mutual fund is changed in a way that could result in an increase in charges to the mutual fund.

15. A change in the basis of calculating the operating expenses in respect of Series A, Series F, Series I and Series O Units of the Funds or of other mutual funds that are managed by the Filer does not require security holder approval pursuant to paragraph 5.1 (a) of NI 81-102 if the requirements of paragraph 5.3(1)(b) of NI 81-102 are satisfied. These requirements in respect of Units other than Advisor Series Units will be satisfied in that:

(a) the Units are distributed on a "no-load" basis;

(b) the Prospectus provides that security holders will be sent a written notice at least 60 days before the effective date of any change in the basis of calculating a fee or expense that could result in an increase in charges to the funds; and

(c) the Filer intends to send to security holders the written notice referred to in paragraph (b) in respect of the change in the basis of calculating the operating expenses.

16. Advisor Series Units of the Funds and of other mutual funds that are managed by the Filer are not distributed on a "no-load" basis. Accordingly, paragraph 5.3(1)(b) of NI 81-102 is not available in respect of a change in the basis of calculating the operating expenses that are charged.

17. The Filer is proposing to hold meetings of the security holders of Advisor Series Units of other mutual funds managed by the Filer to approve the change in the basis of calculating the operating expenses of the Advisor Series Units of such mutual funds. However, the Filer has determined that it is not appropriate to hold meetings of the security holders of Advisor Series Units of the Funds because:

(a) there are fewer than 150 security holders of Advisor Series Units of each Fund and the cost of holding meetings for such a small number of security holders is not warranted. In cases where there are fewer than 150 security holders of Advisor Series units, these security holders represent less than one and one-half percent of the Fund's total security holders; and

(b) with fewer than 150 security holders of Advisor Series Units of a Fund it is quite possible that there would be no quorum present to conduct the meeting even if it were called.

18. The Filer understands that the reason that security holders are not required to vote under paragraph 5.1(a) of NI 81-102 when the conditions in section 5.3 (b) of NI 81-102 are satisfied is, primarily, that security holders who have purchased securities on a "no-load" basis are not financially prejudiced if they receive notice of a proposed change and they are given sufficient time to dispose of their securities prior to the effective date of the change. Accordingly, the Filer will:

(a) provide security holders of Advisor Series Units of each Fund with at least 60 days prior written notice of the change in the basis of calculating operating expenses of the Fund;

(b) provide in the written notice referred to in paragraph (a) information advising security holders of Advisor Series Units of each Fund that if they wish to redeem their units prior to the effective date of the change, the Filer will reimburse or waive any sales commission associated with Advisor Series Units of the Fund; and

(c) include in the written notice referred to in paragraph (a) the information contained in paragraph 12 above.

19. The Filer has, in accordance with section 5.1 of NI 81-107, referred the proposed change in the basis of calculation of the operating expenses to the independent review committee (IRC) of the Funds and requested the recommendation of the IRC pursuant to section 5.3 of NI 81-107. The Filer has obtained a positive recommendation of the IRC and such recommendation will be included in the written notice referred to in paragraph 18(a) above.

Decision

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

The decision of the Decision Makers is that the Requested Relief is granted on the condition that:

(a) the Filer provides security holders of Advisor Series Units of each Fund with at least 60 days prior written notice of the change in the basis of calculating operating expenses of the Fund; and

(b) the written notice referred to in paragraph (a) advises security holders of Advisor Series Units of each Fund that if they wish to redeem their units prior to the effective date of the change, the Filer will reimburse or waive any sales commission associated with Advisor Series Units of the Fund.

"Rhonda Goldberg"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission