RBC Global Asset Management Inc. et al.

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund reorganizations -- approval required because reorganizations do not meet the criteria for per-approval -- reorganizations are not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- securityholders provided with timely and adequate disclosure regarding the reorganization.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.5(3), 5.6, 5.7, 19.1.

August 13, 2014

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 GLOBAL ASSET MANAGEMENT INC. (the Filer) AND IN THE MATTER OF RBC BOND CAPITAL CLASS, PHILLIPS, HAGER & NORTH TOTAL RETURN BOND CAPITAL CLASS and RBC HIGH YIELD BOND CAPITAL CLASS (collectively, the Capital Classes) AND IN THE MATTER OF RBC SELECT VERY CONSERVATIVE CLASS, RBC SELECT CONSERVATIVE CLASS, RBC SELECT BALANCED CLASS, RBC SELECT GROWTH CLASS and RBC SELECT AGGRESSIVE GROWTH CLASS (collectively, the Select Classes, and, together with the Capital Classes, the Terminating Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for approval pursuant to subsection 5.5(1)(b) of National Instrument 81-102 -- Mutual Funds (NI 81-102) in connection with the reorganization and termination (each, a Reorganization Transaction and collectively, the Reorganization Transactions) of each Terminating Fund into the corresponding continuing fund set opposite such Terminating Fund's name in Schedule A hereto (the Continuing Fund(s) and, together with the Terminating Funds, the Funds) (theRequested Relief).

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 (collectively, 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. The Filer is a corporation amalgamated under the Canada Business Corporations Act. The head office of the Filer is located in Toronto, Ontario.

2. The Filer 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 the Jurisdiction and each Passport Jurisdiction, and is registered under the Securities Act (Ontario) as an investment fund manager.

3. The Filer is the investment fund manager of the Funds.

4. None of the Filer or the Funds is in default of its obligations under the securities legislation of the Jurisdiction or any Passport Jurisdiction.

5. Each Fund is a reporting issuer under the securities legislation of the Jurisdiction and each Passport Jurisdiction.

6. Each Fund is subject to all of the requirements of NI 81-102, National Instrument 81-106 -- Investment Fund Continuous Disclosure and National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107), subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities.

7. Each Terminating Fund is a class of shares of RBC Corporate Class Inc. (the Corporation), a mutual fund corporation incorporated under the laws of Canada.

8. The Filer is of the view that following the change to the investment objectives of each Capital Class described in the Circular (defined below) which was approved by shareholders on June 20, 2014, the fundamental investment objectives of each Terminating Fund will be "substantially similar" to the fundamental investment objectives of the respective Continuing Fund.

9. Each Continuing Fund is a trust established under the laws of the Jurisdiction or British Columbia. The Filer or an affiliate thereof is the trustee of each Continuing Fund.

10. The Capital Classes and applicable Select Classes currently provide tax-efficient fixed income offerings within the Corporation by investing in corresponding limited partnerships (the Underlying Funds) which use forward contracts (each, a Forward Agreement) to gain exposure to the economic returns of reference funds (the Reference Funds) that invest in fixed income securities, as set out in Schedule A. The favorable tax treatment for forward contracts will be eliminated by new rules in the Income Tax Act (Canada), enacted on December 12, 2013, that affect the tax treatment of returns earned under "derivative forward agreements". In response to the change in tax treatment, the Filer has decided to reorganize and terminate the Capital Classes and the Select Classes.

11. In connection with the termination of the Reference Funds, each Reference Fund will sell its portfolio securities to its corresponding Continuing Fund for cash in compliance with applicable law, including NI 81-107, and each counterparty, as sole owner of units of the Reference Fund, will tender for redemption the units of the Reference Fund held by it for cash.

12. In connection with the termination of the Underlying Funds, each Underlying Fund will settle its Forward Agreement, selling the securities owned by it to each counterparty for cash. On termination, the assets (i.e., cash) of the Underlying Fund will be distributed to its partners (the Capital Classes and applicable Select Classes being the sole limited partners of each Underlying Fund).

13. In connection with the termination of the Capital Classes, each Capital Class will subscribe for units of its corresponding Continuing Fund. (The Capital Class will obtain the cash to fund its subscription obligations by virtue of the termination of its corresponding Underlying Fund.) On termination, the Capital Class will redeem its outstanding mutual fund shares.

14. In connection with the termination of the Select Classes, each Select Class will tender for redemption the units of the mutual funds, including the Underlying Funds, held by it for cash and subscribe for units of its corresponding Continuing Fund. On termination, the Select Class will redeem its outstanding mutual fund shares.

15. The mutual fund shares of each Terminating Fund will be redeemed at their net asset value. The redemption price for such shares will be satisfied by delivering to mutual fund shareholders of each Terminating Fund units of the corresponding series of the Continuing Fund having an equal aggregate net asset value as the shares being redeemed as of the Effective Date (as defined below).

16. As soon as reasonably possible following the Reorganization Transactions, the Terminating Funds will be wound up and the Continuing Funds will continue as a publicly offered open-end mutual fund existing under the laws of the Jurisdiction or British Columbia, as the case may be.

17. The Terminating Funds and the Continuing Funds have substantially similar valuation procedures.

18. The Reorganization Transactions will not constitute a material change for the Continuing Funds.

19. The Reorganization Transactions were approved by shareholders of the Terminating Funds at special meetings of shareholders held on June 20, 2014, in accordance with section 5.1(f) of NI 81-102.

20. Subject to necessary regulatory approval, the Reorganization Transactions are expected to occur on or about September 12, 2014 (the Effective Date).

21. If necessary regulatory approval required for the Reorganization Transactions in respect of a Terminating Fund is not obtained, it is the intention of the Filer to terminate such Terminating Fund, in accordance with the articles of incorporation governing the Terminating Fund and applicable securities laws.

22. A notice of meeting, a management information circular dated May 15, 2014 (the Circular), a proxy in connection with the Reorganization Transactions and a copy of the most recently filed fund facts for the applicable Continuing Funds were mailed to the shareholders of the Funds in accordance with applicable securities laws. The Circular contains a description of the proposed Reorganization Transactions, information about the Terminating Funds and the Continuing Funds and income tax considerations for shareholders of the Terminating Funds. The Circular also contains information regarding the proposed change to the investment objectives of each of the Capital Classes to enable each Capital Class to purchase units of its corresponding Continuing Fund. The Circular discloses that shareholders of the Terminating Funds may obtain in respect of the Continuing Funds, at no cost, the most recent annual and interim financial statements, the current simplified prospectus, annual information form and fund facts and the most recent management report on fund performance that have been made public by contacting the Filer or by accessing the website of the Funds or the System for Electronic Document Analysis and Retrieval (SEDAR), which are also incorporated by reference in the Circular.

23. The Manager will pay for the costs and expenses associated with the Reorganization Transactions, including the cost of holding the meetings in connection with the Reorganization Transactions and of soliciting proxies, including costs of mailing the Circular and accompanying materials. The Funds will bear none of the costs and expenses associated with the Reorganization Transactions.

24. As required by NI 81-107, the terms of the Reorganization Transactions were presented to the independent review committee (the Independent Review Committee) of the Funds for its review and recommendation. After considering the potential conflict of interest matter related to the Reorganization Transactions, the Independent Review Committee provided its positive recommendation for the Reorganization Transactions on March 21, 2014.

25. Shares of the Terminating Funds will continue to be redeemable by shareholders on a daily basis up to the business day immediately prior to the Effective Date of the Reorganization Transactions.

26. The cash acquired by each Continuing Fund in connection with the Reorganization Transactions will be acquired and invested in accordance with the investment objectives, strategies, and restrictions of such Continuing Fund and NI 81-102.

27. The management fee payable to the Filer for acting as manager of the Terminating Funds and the Continuing Funds, and the trailing commission payable to dealers whose clients hold Series A, Advisor Series, Series H or Series D units/shares of the Terminating Funds, are the same as those of the respective Continuing Fund.

28. The reorganization and termination of the Terminating Funds will benefit securityholders of the Terminating Funds in the following ways:

(a) Securityholders will receive a more tax-efficient version of a fund with substantially similar investment objectives.

(b) Management fees and trailing commissions will remain the same.

(c) The risk profile of each Continuing Fund is the same as that of the corresponding Fund, except that the additional risk and cost associated with forward contracts is not borne by the Continuing Fund.

(d) No costs will be incurred by any securityholders of any funds in connection with the reorganization and termination of the Terminating Funds.

(e) The Filer will not receive any compensation in respect of the acquisition, sale or redemption of the units of mutual fund trusts delivered upon the terminations.

(f) Following the reorganization and termination of the Terminating Funds, all optional services (pre-authorized purchase plans, auto switch investment plans, and systematic withdrawal plans) will continue to be available to securityholders, who will be automatically enrolled in comparable plans with respect to units of the applicable Continuing Fund unless they advise otherwise.

(g) Securityholders are receiving prior notice of the reorganization and termination of the Terminating Funds and may redeem their securities prior to the terminations, should they wish to do so, and will continue to have the right to redeem their securities up to the close of business on the last business day before the Effective Date of the terminations. The Filer will waive any sales commission, redemption fees or other fees associated with such redemptions.

29. Approval of the Reorganization Transactions is required under section 5.7 of NI 81-102 because the Reorganization Transactions do not satisfy one of the criteria for pre-approved reorganizations under section 5.6 of NI 81-102; namely, the Reorganization Transactions will not be a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) (the Tax Act) or a tax deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act. The Reorganization Transactions may not be implemented on a tax deferred rollover basis under the Tax Act and accordingly will occur on a taxable basis. The Circular provides a summary of certain Canadian federal tax considerations applicable to certain securityholders of the Terminating Funds.

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 is that the Requested Relief is granted.

"Darren McKall"

Manager,

Investment Funds and Structured Products

Ontario Securities Commission

 

SCHEDULE A

TERMINATING FUND	UNDERLYING FUND	REFERENCE FUND	CONTINUING FUND
Capital Classes
RBC Bond Capital Class	RBC Bond LP	RBC Bond Trust	RBC Bond Fund
Phillips, Hager & North Total Return Bond Capital Class	Phillips, Hager & North Total Return Bond LP	Phillips, Hager & North Total Return Bond Trust	Phillips, Hager & North Total Return Bond Fund
RBC High Yield Bond Capital Class	RBC High Yield Bond LP	RBC High Yield Bond Trust	RBC High Yield Bond Fund
Select Classes
RBC Select Very Conservative Class	RBC Bond LP	RBC Bond Trust	RBC Select Very Conservative Portfolio
	Phillips, Hager & North Total Return Bond LP	Phillips, Hager & North Total Return Bond Trust
RBC Select Conservative Class	RBC Bond LP	RBC Bond Trust	RBC Select Conservative Portfolio
RBC Select Balanced Class	N/A	N/A	RBC Select Balanced Portfolio
RBC Select Growth Class	N/A	N/A	RBC Select Growth Portfolio
RBC Select Aggressive Growth Class	N/A	N/A	RBC Select Aggressive Growth Portfolio