RBC Bond Trust

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from section 2.1(1) of National Instrument 81-102 -- Mutual Funds to permit global bond mutual funds to invest more than 10 percent of net assets in debt securities issued by a foreign government or supranational agency subject to conditions.

Applicable Legislative Provisions

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

October 17, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

RBC BOND TRUST

(the Filer)

AND

IN THE MATTER OF

SUCH OTHER GLOBAL AND/OR INTERNATIONAL

BOND MUTUAL FUNDS OF WHICH RBC GLOBAL

ASSET MANAGEMENT INC. ACTS AS THE

INVESTMENT FUND MANAGER IN THE FUTURE

THAT ARE SUBJECT TO NATIONAL INSTRUMENT

81-102 -- MUTUAL FUNDS (NI 81-102)

(the Future Funds and, together with the Filer, the Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) of the principal regulator granting exemptive relief to the Funds from the requirement in section 2.1 of NI 81-102 to permit each Fund to invest:

(a) up to 20% of the Fund's net asset value at the time of purchase, in evidences of indebtedness of any one issuer that are issued or guaranteed as to principal and interest by any government or supranational agency (other than a government of Canada or a province or territory thereof or of the United States, in which an investment by the Fund is unrestricted), provided that the evidences of indebtedness have a minimum of AA rating from Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. (Standard & Poor's) or the equivalent rating from any other approved credit rating organization (as defined in NI 81-102); and

(b) up to 35% of the Fund's net asset value at the time of purchase, in evidences of indebtedness of any one issuer that are issued or guaranteed as to principal and interest by any government or supranational agency (other than a government of Canada or a province or territory thereof or of the United States, in which an investment by the Fund is unrestricted), provided that the evidences of indebtedness have a minimum AAA rating from Standard & Poor's or the equivalent rating from any other approved credit rating organization (as defined in NI 81-102),

provided that clauses (a) and (b) cannot be combined for any one issuer (collectively, the Exemption Sought).

The evidences of indebtedness described in clauses (a) and (b) are collectively referred to herein as Foreign Government Securities.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with the Jurisdiction, the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

1. RBC Global Asset Management Inc. (RBC GAM) is a corporation formed by amalgamation pursuant to articles of amalgamation dated November 1, 2010 under the federal laws of Canada and its head office is located in Toronto, Ontario.

2. RBC GAM is an indirect, wholly-owned subsidiary of the Royal Bank of Canada.

3. RBC GAM is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the securities legislation of each of the Passport Jurisdictions and is registered under the Securities Act (Ontario) as an investment fund manager.

4. RBC GAM acts or will act as the investment fund manager of each Fund.

5. RBC GAM, or an affiliate thereof, acts or will act as portfolio manager to the Funds.

6. RBC GAM is not in default of any of its obligations under the securities legislation of any Passport Jurisdiction.

7. Each Fund will be:

(a) an open-end mutual fund established under the laws of a Passport Jurisdiction;

(b) a reporting issuer under the securities laws of one or more Passport Jurisdictions;

(c) governed by the provisions of NI 81-102; and

(d) qualified for distribution in one or more Passport Jurisdictions under a simplified prospectus and annual information form prepared in accordance with National Instrument 81-101 -- Mutual Fund Prospectus Disclosure and filed with and receipted by the securities regulators in the applicable Passport Jurisdiction(s).

8. The investment objective of the Filer will be to provide long-term total returns consisting of interest income and moderate capital growth. The Filer will invest primarily in high-quality fixed-income securities issued by Canadian governments and corporations. The Filer may also invest in similar securities outside of Canada.

9. The Funds are permitted to use specified derivatives for hedging purposes to protect against losses or reduce volatility resulting from changes in interest rates, market indices or foreign exchange rates and to reduce the Funds' exposure to changes in the value of foreign currencies relative to the Canadian dollar. The Filer may also use specified derivatives for non-hedging purposes, as a substitute for direct investment, provided the use of such derivatives is consistent with the Filer's investment objective and strategies. When specified derivatives are used for non-hedging purposes, the Filer will be subject to the cover requirements of NI 81-102. The Filer may use specified derivatives in accordance with exemptive relief obtained by the Filer, other than the relief described herein.

10. The concentration restriction set forth in section 2.1 of NI 81-102 (the Concentration Restriction) prevents a mutual fund from purchasing a security of an issuer, entering into a specified derivatives transaction or purchasing index participation units if, immediately after the transaction, more than 10% of its net asset value would be invested in securities of any one issuer.

11. The Exemption Sought enhances the ability of the Funds to pursue and achieve their investment objectives as it provides the Funds with more flexibility and more favourable prospects when investing in evidences of indebtedness issued by issuers outside of Canada and the United States and may allow the Funds to benefit from investment efficiencies and reduced transaction costs.

12. In certain jurisdictions, evidences of indebtedness of supranational agencies or governments may be the only liquid or rated debt available for investment by the Funds.

13. Certain benchmarks, such as the Citibank World Government Bond Index, may have an index weighting of greater than 10% with respect to an issuer of high-quality government bonds such as the federal government of Germany. As a result, such benchmarks may not be accurately tracked by the Funds without the Exemption Sought.

14. The risks and liquidity characteristics of Foreign Government Securities are similar to the risks and liquidity characteristics of the evidences of indebtedness that fall within the meaning of "government security" in NI 81-102. As such, a limited increase in the maximum percentage of the net asset value of a Fund that can be invested in Foreign Government Securities will not result in a material increase in risks related to the Fund.

15. The Filer is not in default of any of its obligations under the securities legislation of any Passport Jurisdiction.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that, in respect of each Fund:

(a) clauses 1(a) and 1(b) of the Exemption Sought shall not be combined for any one issuer;

(b) the evidences of indebtedness that are acquired pursuant to the Exemption Sought are traded on a mature and liquid market;

(c) the acquisition of the evidences of indebtedness acquired pursuant to the Exemption Sought is consistent with the fundamental investment objective of the Fund;

(d) the simplified prospectus of the Fund discloses the additional risks associated with the concentration of assets of the Fund in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risks, of investing in the country in which that issuer is located; and

(e) the simplified prospectus of the Fund discloses, in the investment strategy section, the details of the Exemption Sought along with the conditions imposed and the evidences of indebtedness covered by the Exemption Sought.