Frank Russell Canada Ltd. et al. MRRS Decision

Headnote:

Exemptions from the mutual fund self-dealing prohibitions of clauses 111(2)(a) and 111(3) and from the reporting requirements of cause 117(1)(c) of the Securities Act (Ontario) to allow certain mutual funds to invest in issuers who are substantial security holders of the mutual funds' distribution companies.

Statutes Cited:

Securities Act (Ontario), R.S.O. 1990 c.S.5, as am., 111(2)(a), 111(3) and 117(1)(c).-

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") has received an application (the "Application") from Frank Russell Canada Limited ("FRC") and Sovereign Canadian Equity Pool, Sovereign US Equity Pool, Sovereign Overseas Equity Pool, Sovereign Global Equity RSP Pool, Sovereign Emerging Markets Equity Pool, Sovereign Canadian Fixed Income Pool and Sovereign Money Market Pool (the "Funds") for a decision (the "Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") exempting FRC and the Funds, as the case may be, from:

i. the provisions prohibiting a mutual fund from knowingly making and holding an investment in any person or company who is a substantial security holder of its distribution company (the "Investment Prohibition"); and

ii. the provision requiring a management company to file a report, within thirty days after each month end and in respect of each mutual fund to which it provides services, relating to every purchase or sale effected by such mutual fund through any related person or company with respect to which the related person or company received a fee either from the mutual fund or from the other party to the transaction or both (the "Reporting Requirement").

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS it has been represented by FRC to the Decision Makers that:

1. FRC is a corporation established under the laws of Canada with its head office in Toronto, Ontario.

2. The sole shareholder of FRC is Frank Russell Company (the "Parent") who is registered as an investment adviser with the Securities Exchange Commission ("SEC") and the State of Washington, as a commodity trading adviser and commodity pool operator with the National Futures Association on behalf of the Commodity Futures Trading Commission, and as a Commodity Trading Manager - Non-Resident with the Ontario Securities Commission.

3. The Funds are open-ended investment trusts established under the laws of the Province of Ontario. Each Fund is a reporting issuer in each of the provinces and territories of Canada where units (the "Units") of the Fund are sold pursuant to a prospectus accepted by the decision maker in such jurisdictions. Each Fund is not in default of any requirement of the Legislation except as stated in paragraphs 18 and 21.

4. Frank Russell Securities, Inc. ("FRS"), a Washington corporation, is an affiliate of FRC. It is a member of the National Association of Securities Dealers and is registered as a broker-dealer with the SEC.

5. Certain Units of the Funds are offered for sale to investors by RBC Dominion Securities Inc. ("RBC-DS"), as a distributor under a revised non-exclusive distributorship agreement with FRC dated August 22, 2000.

6. RBC-DS, a subsidiary of the Royal Bank of Canada ("RBC"), is a registered investment dealer and a member of The Toronto Stock Exchange (the "TSE").

7. RBC is a publicly listed Canadian chartered bank.

8. Certain Units of the Funds are also offered for sale to investors by TD Evergreen Investment Services, a division of TD Securities Inc. ("TDE"), as a distributor under a distributorship agreement with FRC dated November 11, 2000.

9. TDE, a subsidiary of The Toronto Dominion Bank ("TD"), is a registered investment dealer and a member of the TSE.

10. TD is a publicly listed Canadian chartered bank.

11. In addition to the distributorship agreements with RBC-DS and TDE, FRC intends to enter into distributorship agreements for the sale of Units of the Funds with a limited number of other registered investment dealers that have a publicly traded company as a substantial security holder (upon entering into such agreement with FRC, such dealer is referred to as an "Other Dealer" and such substantial security holder as an "Other Listed ParentCo").

12. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securities administrators pursuant to National Instrument 81-102, the investments by the Funds have been structured to comply with the investment restrictions of the Legislation and National Instrument 81-102.

13. Although FRC is the adviser for the Funds, neither FRC nor the Parent engages in the stock selection for the Funds or purchases or sells securities for the Funds, except as described in paragraphs 14 and 15 below. It is the practice of FRC to appoint and monitor various sub-advisers (the "Portfolio Advisers") who have the discretion to make the stock selections for the Funds. Neither FRC nor the Parent influences the decisions of the Portfolio Advisers as to the purchase or sale of specific securities or securities of a specific issuer or class or group of issuers. With the exception of the Parent, the Portfolio Advisers are not affiliates or associates of FRC and act on an arm's length basis with FRC.

14. Despite the statements in paragraph 13 above, FRC does provide advice respecting the purchase and sale of securities of the Funds with respect to Nortel Networks Corporation or any other issuer whose weighting exceeds 10% of the TSE Composite 300 Index. In addition, the Parent provides advice to the Funds with respect to the purchase and sale of index future contracts (together the "FRC Investments").

15. If at any time a Portfolio Adviser of a Fund resigns or is removed, FRC may make the investment decisions for such Fund that are within the mandate of the former Portfolio Adviser until the earlier of:

(a) the date when FRC appoints a replacement Portfolio Adviser for the Fund; and

(b) 60 days from the resignation or removal of the former Portfolio Adviser.

16. By employing a combination of qualitative and quantitative measurements, FRC selects the Portfolio Advisers which it believes have consistent ability to achieve superior results within specific asset classes and investment styles.

17. Each Portfolio Adviser has complete discretion to purchase and sell securities for its segment of the portfolio of a Fund, subject only to the Fund's investment objective, policies and restrictions.

18 Prior to January 29, 1997, the existing Funds were distributed by an independent investment dealer Richardson Greenshields of Canada Limited ("RGC"). On or about such date, RGC was acquired by RBC-DS. Certain of the Funds have continued to hold and make investments in securities of RBC after this date, as FRC erroneously believed that the prohibition against knowingly making an investment in a person or company who is a substantial security holder of the mutual fund's distribution company was inapplicable to the Funds.

19. On December 27, 2000, FRC gave the Decision Makers an undertaking to divest the Funds of their holding in RBC and TD (the "Undertaking").

20. In the absence of this Decision, a Fund is prohibited by the Legislation from knowingly making and holding an investment in a person or company who is a substantial security holder of its distribution company.

21. Through inadvertence, FRC has not filed the reports required by the Legislation regarding the portfolio transactions effected through FRS, RBC-DS and TDE.

22. It would be costly and time consuming for FRC to provide the information required by the Legislation on a monthly and segregated basis.

23. In respect of portfolio transactions, the annual information form of the Funds has disclosed and will continue to disclose that:

(a) the individual Portfolio Advisers of each of the Funds have discretion to allocate brokerage business in any manner that they believe to be in the Fund's best interests;

(b) in allocating brokerage, consideration is given to commission rates and to research, execution and other services offered; and

(c) portfolio transactions may be executed by FRS, provided such transactions are made on terms and conditions comparable to those offered by unrelated brokers or dealers.

24. FRC has disclosed and will continue to disclose in the Funds' annual financial statements the amount of brokerage commissions paid by each Fund on trades with FRS, RBC-DS, TDE and each Other Dealer.

25. In the absence of this Decision, the Legislation requires FRC to file a report on a monthly basis in respect of every purchase or sale of securities effected through FRS, RBC-DS, TDE and each Other Dealer stating the issuer of the securities purchased or sold, the class or designation of the securities, the amount or number of securities, the consideration, the name of the related company receiving the fee, the name of the person that paid the fee to the related company and the amount of the fee received by the related company.

26. The investment by the Funds in securities of RBC, TD or an Other Listed ParentCo (each an "Issuer") and the purchase or sale of securities effected through FRS, RBC-DS, TDE or an Other Dealer represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Funds.

AND WHEREAS the Ontario Securities Commission held a hearing on this matter on January 31, 2001 and rendered a decision on February 6, 2001 that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of each Decision Maker;

AND UPON each of the Decision Makers being 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 pursuant to the Legislation is that the Investment Prohibition does not apply so as to prohibit the Funds from knowingly making or holding an investment in an Issuer,

PROVIDED THAT the Decision shall only apply if at the time a Fund makes or holds an investment in an Issuer the following conditions are satisfied:

(a) no affiliate or associate of the applicable Issuer acts as a Portfolio Adviser for the Fund with respect to such investment;

(b) no affiliate or associate of, or any person acting on a non-arm's length basis with, RBC-DS, TDE or Other Dealers acts as a Portfolio Adviser for the Fund with respect to such investment;

(c) FRC is not associated, affiliated or acting on a non-arm's length basis with RBC-DS, TDE or Other Dealers, or any of their respective affiliates or associates, with respect to such investment;

(d) the Portfolio Advisers are not associates or affiliates of FRC and act at arm's length with FRC;

(e) none of FRC, the Parent or any of their respective affiliates, associates or substantial security holders in fact influences or has taken any action to influence any investment decision of a Portfolio Adviser (other than the Parent) of the Fund with respect to the purchase, sale or holding of any securities of an Issuer except for the FRC Investments;

(f) there is no agreement, arrangement or understanding in effect that would enable RBC-DS, TDE or any Other Dealer, or their respective affiliates or associates, to influence any investment decision of any Portfolio Adviser of the Fund;

(g) none of FRC, the Parent or any of their respective affiliates, associates or substantial security holders makes or participates in making any investment decision with respect to the purchase, sale or holding by the Fund of any securities of an Issuer with the exception of:

(i) the FRC Investments; and

(ii) the investment decisions made by FRC for the Fund in the circumstances described in paragraph 15 above, except that no such decision shall involve the purchase of securities of an Issuer;

(h) the simplified prospectus of the Fund contains disclosure as to:

(i) all of the terms and conditions of this Decision;

(ii) the holdings and aggregate yearly purchases or sales by the Fund of securities of any Issuer and that FRC has determined that such investments and holdings satisfy the conditions of this Decision;

(iii) the issuing of a press release when any change is made to a Portfolio Adviser;

(iv) the website where a current list of Portfolio Advisers can be obtained;

(v) the sending of quarterly updates to all unitholders which describe any Portfolio Adviser changes which have been made; and

(vi) the ability of unitholders to receive a current list of Portfolio Advisers upon request, including how such requests can be made; and

(i) the Fund files an amendment to its simplified prospectus within 10 days after a Portfolio Adviser of the Fund is replaced by a new Portfolio Adviser or FRC hires an additional Portfolio Adviser for the Fund, naming the replacement or additional Portfolio Adviser of the Fund, if such new or additional Portfolio Adviser is an associate or affiliate of RBC-DS, TDE or any Other Dealer.

AND IT IS FURTHER DECIDED THAT the Reporting Requirement does not apply so as to require FRC to file a report on a monthly basis in respect of every purchase and sale of securities by a Fund which is effected through FRS, RBC-DS, TDE or an Other Dealer (each a "Related Company") and with respect to which a Related Company received a fee either from the Fund or from the other party to the transaction or both,

PROVIDED THAT the Decision shall only apply if the statement of portfolio transactions prepared and filed for the Fund in accordance with the applicable requirements of each Jurisdiction's Legislation discloses, in respect of every class or designation of securities of an issuer bought or sold during the period to which the statement of portfolio transactions relates:

(a) the name of the Related Company through which the transactions were effected;

(b) the amount of the fees paid to the Related Company; and

(c) the person or company that paid the fees.

DATED May 17, 2001.

"J. A. Geller" "K. D. Adams"