Jones Heward Investment Counsel Inc. and BMO Investments Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption to allow dealer managed mutual fund to invest in common shares of an issuer during the 60 days after the distribution period in which an affiliate of the dealer manager has acted as an underwriter in connection with the distribution of common shares of the issuer -- The conflict is mitigated by the oversight of an independent review committee -- Subsection 4.1(1) of National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.

June 25, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

THE NORTHWEST TERRITORIES, NUNAVUT

AND THE YUKON

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM (MRRS)

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

JONES HEWARD INVESTMENTCOUNSEL INC.

(the "Dealer Manager")

AND

BMO INVESTMENTS INC.

(the "Manager")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Manager and from the Dealer Manager (the Manager and the Dealer Manager together, the "Applicant") for and on behalf of the mutual fund named in Appendix "A" (the "Fund" or "Dealer Managed Fund"), for a decision under section 19.1 of National Instrument 81-102 - Mutual Funds (NI 81-102) for:

• an exemption from subsection 4.1(1) of NI 81-102 to enable the Dealer Managed Fund to invest in Common Shares (as defined below) of Celtic Exploration Ltd. (the "Issuer") during the 60-day period following the completion of the distribution (the "Prohibition Period") of the Offering (as defined below) of units (the "Units"), each Unit consisting of one common share (each a "Common Share") of the Issuer and one subscription receipt (each a "Receipt"), each Receipt entitling the holder to acquire one Common Share upon the completion of the Asset Acquisition (as defined below), notwithstanding that an associate or affiliate of the Dealer Manager and the Manager acts or has acted as an underwriter in connection with the offering (the "Offering") of Units on a private placement basis in British Columbia, Alberta, Saskatchewan, Ontario, Quebec, U.S. and other eligible foreign jurisdictions (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission (the "OSC") is the principal regulator for this application, and

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

It is the responsibility of each of the Decision Makers to make a global assessment of the risks involved in granting exemptive relief from subsection 4.1(1) of NI 81-102 in relation to the specific facts of each application.

Interpretation

Defined terms contained in National Instrument 14-101 - Definitions have the same meanings in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Applicant:

1. The Dealer Manager is a "dealer manager" with respect to the Dealer Managed Fund, and the Dealer Managed Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.

2. The Dealer Manager is the portfolio adviser of the Dealer Managed Fund.

3. The head office of the Dealer Manager is in Toronto, Ontario.

4. The securities of the Dealer Managed Fund are qualified for distribution in one or more of the provinces and territories of Canada pursuant to a simplified prospectus (the "Prospectus") that has been prepared and filed in accordance with their respective securities legislation.

5. The Manager is an indirect subsidiary of Bank of Montreal.

6. According to the Issuer's term sheet in respect of the Offering dated June 4, 2007 (the "Term Sheet"), the Offering will be underwritten, subject to certain terms, by a syndicate that includes, among others, BMO Nesbitt Burns Inc. (the "Related Underwriter"), an affiliate of each of the Dealer Manager and the Manager (the Related Underwriter and any other underwriters which are now or may become part of the syndicate, the "Underwriters").

7. As described in the Issuer's Annual Information Form dated March 30, 2007 (the "AIF"), the Issuer was incorporated in Alberta and is engaged in the exploration for, and the development of, oil and natural gas. The Issuer's current activities are focussed at various sites within Alberta.

8. As described in the Term Sheet, the Offering is to be comprised of 1,600,000 Units at a price of $28.70 per Unit with aggregates of $22,960,000 in Common Shares and $22,960,000 in Receipts. The Underwriters will be entitled to a commission of 4.5% of the total Offering. Should rights of first refusal be exercised in relation to the Asset Acquisition resulting in a reduction of greater than 25% of the production associated with the Asset Acquisition, the $22,960,006 in Receipts will be reduced on a proportionate basis relative to the reduction of production.

9. As described in the Term Sheet, the closing of the Offering is expected to occur on or about June 26, 2007 (the "Closing Date").

10. As disclosed in the Term Sheet, the proceeds of the Offering will be used by the Issuer to fund the acquisition of assets in the Kaybob South area of Alberta (the "Asset Acquisition"), to fund the Issuer's capital expenditure program and for general corporate purposes. If the Asset Acquisition does not close, the proceeds of the Offering derived from the offering of Common Shares will be used to fund the Issuer's capital expenditure program and for general corporate purposes.

11. The proceeds of the Offering derived from the Receipts will be held by a Canadian trust company or other escrow agent acceptable to the Issuer and the Underwriters under the guidelines of the Investment Dealers Association and the Canadian Investor Protection Fund and invested in short-term obligations, or guaranteed by, the Government of Canada (and other approved investments) pending the closing of the Asset Acquisition. Provided that the closing of the Asset Acquisition is completed on or before 5:00 p.m. (Calgary Time) August 31, 2007, the funds will be released and Common Shares will be issued to holders of Receipts. If the Asset Acquisition has not been completed by such time, the Issuer will refund the aggregate issue price of the Receipts plus any interest earned on such proceeds to subscribers.

12. As further disclosed in the AIF, the Issuer's outstanding Common Shares are listed on the Toronto Stock Exchange (the "TSX") under the symbol "CLT". The Common Shares which comprise a portion of the Units and the Common Shares to be issued upon exercise of the Receipts shall be listed for trading on the TSX.

13. The Term Sheet does not disclose that the Issuer is a "related issuer/connected issuer" as defined in National Instrument 33-105 -- Underwriting Conflicts.

14. Despite the affiliation between the Dealer Manager and the Related Underwriter, the Dealer Manager operates independently of the Related Underwriter. In particular, the investment banking and related dealer activities of the Related Underwriter and the investment portfolio management activities of the Dealer Manager are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:

(a) in respect of compliance matters (for example, the Dealer Manager and the Related Underwriter may communicate to enable the Dealer Manager to maintain up to date restricted-issuer lists to ensure that the Dealer Manager complies with applicable securities laws); and

(b) the Dealer Manager and the Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.

15. The Dealer Managed Fund is not required or obligated to purchase any Common Shares during the Prohibition Period.

16. The Dealer Manager may cause the Dealer Managed Fund to invest in Common Shares during the Prohibition Period. Any purchase of Common Shares by the Dealer Managed Fund will be consistent with the investment objectives of that Dealer Managed Fund and represent the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund or in fact be in the best interests of the Dealer Managed Fund.

17. To the extent that the same portfolio manager or team of portfolio managers of the Dealer Manager manages the Dealer Managed Fund and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), Common Shares purchased for them will be allocated:

(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for the Dealer Managed Fund and Managed Accounts, and

(b) taking into account the amount of cash available to each Dealer Managed Fund for investment.

18. Except as described above, the Dealer Manager has not been involved in the work of the Related Underwriter and the Related Underwriter has not been and will not be involved in the decisions of the Dealer Manager as to whether the Dealer Managed Fund will purchase Common Shares during the Prohibition Period.

19. There will be an independent committee (the "Independent Committee") appointed in respect of the Dealer Managed Fund to review the Dealer Managed Fund's investments in the Common Shares during the Prohibition Period.

20. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with the Manager, the Dealer Manager, the Dealer Managed Fund, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgment regarding conflicts of interest facing the Manager or the Dealer Manager.

21. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the respective Dealer Managed Fund and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

22. The Dealer Manager, in respect of the Dealer Managed Fund, will notify a member of staff in the Investment Funds Branch of the Ontario Securities Commission, in writing of any SEDAR Report (as defined below) filed on SEDAR, as soon as practicable after the filing of such a report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.

Decision

Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from subsection 4.1(1) of NI 81-102 and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated. Each of the Decision Makers is satisfied that the test contained in NI 81-102 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, notwithstanding that the Related Underwriter acts or has acted as underwriter in the Offering provided the following conditions are satisfied:

I. At the time of each purchase of Common Shares (a "Purchase") by the Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:

(a) the Purchase

(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or

(ii) is, in fact, in the best interests of the Dealer Managed Fund;

(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and

(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with the Related Underwriter.

II. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,

(a) there is compliance with the conditions of this Decision; and

(b) in connection with any Purchase,

(i) there are stated factors or criteria for allocating the Common Shares purchased for the Dealer Managed Fund and other Managed Accounts, and

(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria.

III. The Dealer Manager does not accept solicitation by the Related Underwriter for the Purchase of Common Shares for the Dealer Managed Fund.

IV. The Related Underwriter does not purchase Common Shares in the Offering for its own account except Common Shares sold by the Related Underwriter on closing.

V. The Dealer Managed Fund has an Independent Committee to review the Dealer Managed Fund's investments in Common Shares during the Prohibition Period.

VI. The Independent Committee has a written mandate describing its duties and standard of care which, at a minimum, sets out the applicable conditions of this Decision.

VII. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Fund and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

VIII. The Dealer Managed Fund does not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above.

IX. The Dealer Managed Fund does not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above.

X. The cost of any indemnification or insurance coverage paid for by the Manager, the Dealer Manager, any portfolio manager of the Dealer Managed Fund, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Fund to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above is not paid either directly or indirectly by the Dealer Managed Fund.

XI. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of the Dealer Managed Fund, no later than 30 days after the end of the Prohibition Period, that contains a certification by the Dealer Manager that contains:

(a) the following particulars of each Purchase:

(i) the number of Common Shares purchased by the Dealer Managed Fund;

(ii) the date of the Purchase and purchase price;

(iii) whether it is known whether any Underwriter or syndicate member has engaged in market stabilization activities in respect of Common Shares;

(iv) if the Common Shares were purchased for the Dealer Managed Fund and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and

(v) the dealer from whom the Dealer Managed Fund purchased the Common Shares and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;

(b) a certification by the Dealer Manager that the Purchase:

(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and

(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Fund, or

(iii) was, in fact, in the best interests of the Dealer Managed Fund;

(c) confirmation of the existence of the Independent Committee to review the Purchase of Common Shares by the Dealer Managed Fund, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review; and

(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Common Shares for the Dealer Managed Fund and each Purchase by the Dealer Managed Fund:

(i) was made in compliance with the conditions of this Decision;

(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and

(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or

(iv) was, in fact, in the best interests of the Dealer Managed Fund.

XII. The Independent Committee advises the Decision Makers in writing of:

(a) any determination by it that the condition set out in paragraph XI(d) has not been satisfied with respect to any Purchase of Common Shares by the Dealer Managed Fund;

(b) any determination by it that any other condition of this Decision has not been satisfied;

(c) any action it has taken or proposes to take following the determinations referred to above; and

(d) any action taken, or proposed to be taken, by the Managers or Dealer Manager of the Dealer Managed Fund, in response to the determinations referred to above.

XIII. Each Purchase of Common Shares is made on the TSX.

XIV. An Underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in OSC Rule 48-501, Trading During Distributions, Formal Bids d Share Exchange Transactions, has ended.

APPENDIX "A"

THE MUTUAL FUND

BMO Mutual Funds (consolidated)

BMO Resource Fund