Exemption Orders (Discretionary)

ROYAL MUTUAL FUNDS INC.

COR#98/247

Headnote:

National Application System - relief from mutual fund conflict of interest requirements in connection with the establishment of indexed-based mutual funds

Applicable British Columbia Provisions

Securities Act, R.S.B.C. 1996, c. 418, sections 121(2)(a) and 123(a) of the Act

IN THE MATTER OF
THE CANADIAN SECURITIES LEGISLATION
OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO,
NOVA SCOTIA AND NEWFOUNDLAND

AND

IN THE MATTER OF
THE NATIONAL APPLICATION SYSTEM

AND

IN THE MATTER OF ROYAL MUTUAL FUNDS INC.
AND
ROYAL CANADIAN INDEX FUND,
ROYAL U.S. INDEX FUND,
ROYAL U.S. RSP INDEX FUND,
ROYAL INTERNATIONAL RSP INDEX FUND,
ROYAL PREMIUM CANADIAN INDEX FUND,
ROYAL PREMIUM U.S. INDEX FUND


DECISION DOCUMENT

WHEREAS an application has been received by the British Columbia Securities Commission; Alberta Securities Commission; Saskatchewan Securities Commission; Ontario Securities Commission; Nova Scotia Securities Commission; and the Department of Government Services and Lands (Newfoundland and Labrador) (the “Commissions”) from Royal Mutual Funds Inc. ("RMFI") in its capacity as manager of each of Royal Canadian Index Fund, Royal U.S Index Fund, Royal U.S. RSP Index Fund, Royal International RSP Index Fund, Royal Premium Canadian Index Fund and Royal Premium U.S. Index Fund (collectively, the "Existing Royal Index Funds"), for a decision pursuant to the securities legislation of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the “Legislation”) exempting the Royal Index Funds (as hereinafter defined) from the provisions of the Legislation which prohibit a mutual fund from making investments in a person or company who is a substantial security holder of that mutual fund, its manager or distributor;

AND WHEREAS pursuant to the National Application System (the “NAS”), the Ontario Securities Commission is the principal jurisdiction for this Application;

AND WHEREAS it has been represented by RMFI to the Commissions that:

1. Each of the Existing Royal Index Funds will be an open-ended unincorporated mutual fund trust governed by the laws of the province of Ontario and established by way of an amended and restated master declaration of trust effective December 29, 1995, as further amended on November 22, 1996, June 27, 1997 and July 2, 1998 and regulations to be made pursuant thereto.

2. RMFI will be the manager and principal distributor of the Existing Royal Index Funds. RMFI is a corporation incorporated under and governed by the laws of Canada and is registered as a mutual fund dealer or equivalent under the securities legislation of each province and territory of Canada (the "Jurisdictions").

3. RMFI will appoint Royal Bank Investment Management Inc. (“RBIM”) as the investment advisor of the Existing Royal Index Funds. RBIM is registered in Alberta, British Columbia, Nova Scotia and Quebec as an investment counsel/portfolio manager; in Manitoba as an investment counsel/broker dealer; and in Ontario as an investment counsel/portfolio manager, limited market dealer and commodity trading manager.

4. The Royal Trust Company (“Royal Trust”) will be the trustee and custodian of the Royal Index Funds.

5. Royal Trust and RMFI are direct wholly-owned subsidiaries of Royal Bank. RBIM is an indirect, wholly-owned subsidiary of Royal Bank.

6. RMFI and RBIM will appoint State Street Global Advisors, Ltd. (“State Street”) as the investment sub-advisor to provide investment advice in respect of the Existing Royal Mutual Funds. State Street is registered in Quebec as an adviser and is an extra-provincial adviser registered in Ontario in the categories of investment counsel/portfolio manager. State Street is not a member of the Royal Bank group of companies.

7. Units of each of the Existing Royal Index Funds will be offered for sale on a continuous basis in each Jurisdiction pursuant to a combined simplified prospectus and annual information form, the preliminary forms of which are dated July 31, 1998 and have been filed with the Principal Jurisdiction and the securities regulatory authorities of the other Jurisdictions.

8. The Royal Index Funds will use an index-based investment management strategy. Index investing is a passive strategy which selects securities based on their representation in a particular index. As the object of index investing is to provide returns similar to those of a selected index, the Royal Index Funds will generally change securities held by them in response to a change in the composition of their benchmark index.

9. The investment objective of Royal Canadian Index Fund and Royal Premium Canadian Index Fund will be to provide long-term capital growth by investing primarily in Canadian equity securities. These funds will seek to achieve returns similar to a generally recognized index of Canadian equity market performance, currently being The Toronto Stock Exchange 300 Total Return Index. Royal Premium Canadian Index Fund will be available to investors which invest a minimum of $250,000 and maintain this minimum investment level.

10. The investment objective of Royal U.S. Index Fund and Royal Premium U.S. Index Fund will be to provide long-term capital growth by investing primarily in U.S. equity securities. These funds will seek to achieve returns similar to a generally recognized index of U.S. equity market performance, currently being the Standard & Poor’s 500 Total Return Index (the “S&P 500 Index”). Royal Premium U.S. Index Fund will be available to investors which invest a minimum of $250,000 and maintain this minimum investment level.

11. The investment strategy of each of Royal Canadian Index Fund, Royal Premium Canadian Index Fund, Royal U.S Index Fund and Royal Premium U.S. Index Fund dictates that each of these funds invests primarily in the same securities and in the same proportion as its benchmark index. The composition of each of these funds will be adjusted in line with any changes in the composition of the underlying benchmark index.

12. The investment objective of Royal U.S. RSP Index Fund is to provide long-term capital growth by investing in derivative instruments whose value is based on the performance of U.S. equity markets. This fund seeks to achieve returns similar to a generally recognized index of U.S. equity market performance, currently the S&P 500 Index. This fund may also invest directly in equity securities, index participation units and other similar instruments.

13. The investment objective of Royal International RSP Index Fund is to provide long-term capital growth by investing primarily in derivative instruments whose value is based on the performance of international equity markets. This fund seeks to achieve returns similar to a generally recognized index of international equity market performance, currently beingMorgan Stanley Capital International-Europe, Australia and Far East Index. This fund may also invest directly in equity securities, index participation units and other similar instruments.

14. In the future, RMFI may establish other index funds (“Future Royal Index Funds”, and collectively with the Existing Royal Index Funds, the “Royal Index Funds”) to complement and supplement the Existing Royal Index Funds. Units of a Future Royal Index Fund will be offered for sale to the public pursuant to the simplified prospectus and annual information form that qualifies units of other Royal Index Funds or by a separate simplified prospectus and annual information form receipted in each of the Jurisdictions.

15. Securities of Royal Bank may be among the securities included in the benchmark securities index tracked by a Royal Index Fund.

16. The benchmark securities index tracked by a Royal Index Fund may also include, from time to time, the securities of other persons or companies, which within the meaning of the relevant provisions of the legislation are substantial security holders of the Fund, its management company or distribution company (collectively, “Related Parties”).

17. The investment objectives and investment management strategy of each Royal Index Fund may dictate that a particular Royal Index Fund acquire the equity or debt securities of Royal Bank or a Related Party. Royal Bank is a substantial security holder of RMFI and Royal Trust. RBIM is an indirect, wholly-owned subsidiary of Royal Bank.

18. The proportion of a Royal Index Fund’s assets which may be invested, from time to time, in the securities of Royal Bank or a Related Party is not a matter to be determined at the discretion of the manager or investment advisors of the Fund. Rather, the proportion is determined according to the Royal Index Fund’s stated investment policies of tracking the performance of a particular benchmark index.

AND WHEREAS pursuant to the NAS, this Decision Document evidences the decision of the Commissions;


AND WHEREAS the Commissions are of the opinion that it would not be prejudicial to the public interest to grant this decision;

IT IS HEREBY DECIDED by the Commissions pursuant to the Legislation that the provisions which prohibit a mutual fund from making investments in a person or company who is a substantial security holder of that mutual fund, its manager or distributor, do not apply to the investment by a Royal Index Fund in equity or debt securities of Royal Bank or a Related Party provided that the proportion of the Royal Index Fund’s assets to be invested in such securities is determined according to the stated investment policies of the Royal Index Fund and not pursuant to the discretion of RMFI or the investment advisors of the Fund.


DATED at Toronto, Ontario this 30th day of September, 1998.

“Moreley P. Carscallen”_____	“J.F. Howard”______