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 fund fees and expenses without prior approval of security holders - relief not prejudicial to the public interest because security holders will be given 60 days prior written 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.

September 19, 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 SELECT CONSERVATIVE PORTFOLIO,

RBC SELECT BALANCED PORTFOLIO,

RBC SELECT GROWTH PORTFOLIO,

RBC SELECT AGGRESSIVE GROWTH PORTFOLIO,

RBC SELECT CHOICES CONSERVATIVE PORTFOLIO,

RBC SELECT CHOICES BALANCED PORTFOLIO,

RBC SELECT CHOICES GROWTH PORTFOLIO,

RBC SELECT CHOICES AGGRESSIVE GROWTH PORTFOLIO,

RBC CASH FLOW PORTFOLIO, AND

RBC ENHANCED CASH FLOW PORTFOLIO

(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 has received an application from the Filer on behalf of each Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) granting relief from the requirement in section 5.1(a) of National Instrument 81-102 Mutual Funds (NI 81-102) to obtain the approval of the holders of Advisor Series Units of the Funds in respect of a change in the basis of the calculation of the management fees and operating expenses that are charged to the Funds (the Requested Relief).

Under the MRRS:

(i) the Ontario Securities Commission is the principal regulator for this application, and

(ii) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

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

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.

2. Each of the Funds is a reporting issuer in each of the Jurisdictions where such status exists.

3. The Funds consist of three groups: the RBC Cash Flow Portfolios, the RBC Select Portfolios and the RBC Select Choices Portfolios. The RBC Cash Flow Portfolios and the RBC Select Portfolios invest in other mutual funds managed by the Filer. The RBC Select Choices Portfolios invest in mutual funds managed by the Filer and mutual funds managed by external or "third-party" managers.

4. Series A and Advisor Series Units of the Funds are offered under a simplified prospectus and annual information form dated July 3, 2007 (collectively, the Prospectus).

5. Series A Units of each of the Funds are distributed on a "no-load" basis. Advisor Series Units of each of the Funds are distributed through authorized dealers and are sold under an initial sales charge, deferred sales charge or low-load sales charge option.

Change in the Basis of Calculation of Fees

6. Currently, the management expense ratio (MER) of Series A Units and Advisor Series Units of each Fund is equal to the aggregate of the weighted average of the MER of the units of the underlying funds that are held in the Fund and the portfolio advisory fee (if applicable), administration fee, taxes and fund costs in respect of the particular series as outlined in the Prospectus. A portfolio advisory fee (if applicable) is charged to replace the dealer compensation component of a management fee and/or a management fee that would have otherwise been paid indirectly where the Fund invests in an underlying fund for which management fees are lower or payable outside the underlying fund.

7. The Filer had previously determined that the annual MER in respect of the Series A and Advisor Series Units of each Fund would not exceed a specified percent as set out in the Prospectus. If the expenses that are borne directly and indirectly in respect of Series A and Advisor Series Units would result in an MER in excess of the specified percent, then the Filer absorbs the excess expenses.

8. Historically, the MER of each series of each Fund has fluctuated from year to year primarily as a result of the mix of underlying funds held by the Fund.

9. For the RBC Cash Flow Portfolios and the RBC Select Portfolios, the Filer is in the process of making changes to the mix of underlying funds in each Fund that would, if the MER of each of the underlying funds that will be held by each Fund does not change from the MER of such underlying fund for the financial year ended December 31, 2006, result in an increase in the MERs of each series of such Funds over the MERs of such series for the financial year ended December 31, 2006. As described in the Prospectus, the Filer has the discretion to make changes to the mix of underlying funds in each Fund without notice to or approval of unitholders of the Fund.

10. Because of the impact of the changes to the mix of underlying funds to each Fund's MER, the Filer is proposing to change the basis of calculating the fees that are charged to each Fund by establishing a fixed MER in respect of the Advisor Series Units of each Fund. In connection with this change, each Fund will pay to the Filer a fee which will be an annual percentage based on the daily net assets of the Advisor Series Units of the Fund. No other fees or expenses that would be included in the calculation of the MER will be charged.

11. In order to make the proposed change, the Filer will invest the assets of the Funds only in series of units of underlying funds where management fees are payable outside the underlying fund. The Filer will pay such management fees from its annual fee.

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

13. For the RBC Cash Flow Portfolios and RBC Select Portfolios, the fee that will be charged in respect of Advisor Series Units of each Fund will result in an MER that will be lower than the maximum specified percent set out in the Prospectus and lower than or equal to the "projected" MER (that would be payable if the Fund revised the mix of underlying funds and did not change the basis of charging fees). For the RBC Select Choices Portfolios, the fee that will be charged in respect of Advisor Series Units of each Fund will result in an MER that will be lower than both the maximum specified percent set out in the Prospectus and the MER for the financial year ended December 31, 2006.

14. It is possible that the change to the basis of calculating fees could result in an increase in charges that would have otherwise been payable by the Advisor Series Units of each Fund. This is because the fixed fee that will be charged in respect of the Advisor Series Units of a Fund could at future times result in an MER that will be higher than the MER that would have resulted under the existing structure.

15. The Filer is proposing to make similar changes to the basis of calculating the fees that are charged in respect of Series A of the Funds and of other mutual funds that are managed by the Filer.

Notice of Change to Security Holders

16. A change in the basis of calculating the fees in respect of Series A units of the Funds or of other mutual funds that are managed by the Filer does not require security holder approval pursuant to section 5.1(a) of NI 81-102 if the requirements of section 5.3(b) of NI 81-102 are satisfied. These requirements in respect of Series A 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 provide the written notice referred to in paragraph (b) in respect of the change in the basis of calculating the fees.

17. Advisor Series Units of the Funds are not distributed on a "no-load" basis. Accordingly, section 5.3(b) of NI 81-102 is not available in respect of a change in the basis of calculating the fees that are charged.

18. The nature of the proposed change is such that it can not be implemented for one series of a Fund unless it is implemented for all series of a Fund.

19. The Filer has determined that it is not appropriate to hold meetings of the holders of Advisor Series Units of the Funds because:

(a) there are fewer than 500 unitholders 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 500 unitholders of Advisor Series units, these unitholders represent less than 5 percent of the Fund's total unitholders; and

(b) with fewer than 500 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.

20. The Filer understands that the reason that securityholders are not required to vote under section 5.2(a) of NI 81-102 when the conditions in section 5.3(b) of NI 81-102 are satisfied is, primarily, that securityholders 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 holders of Advisor Series Units of each Fund with at least 60 days prior written notice of the change in the basis of calculating fees of the Fund; and

(b) provide in the written notice referred to in paragraph (a) information advising 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.

21. The Filer will refer the proposed change to the Board of Governors of the Funds and request their input and advice. In respect of the proposed change to the Advisor Series Units of each Fund, the Filer will not proceed with the proposed change without the positive recommendation of the Board of Governors. Additionally, the recommendation of the Board of Governors will be included in the written notice referred to in paragraph 20(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 holders of Advisor Series Units of each Fund with at least 60 days prior written notice of the change in the basis of calculating fees of the Fund; and

(b) the written notice referred to in paragraph (a) advises 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.

"Leslie Byberg"
Interim Director, Investment Funds Branch
Ontario Securities Commission