Jones Heward Investment Counsel Inc. - MRRS Decision

February 26, 2007

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption to allow dealer managed mutual funds to invest in securities of an issuer during the 60 days after completion of the offering for which an affiliate of the dealer managers acted as an underwriter -- The conflict of interest 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.

February 26, 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

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

JONES HEWARD INVESTMENT COUNSEL INC.

(the "Applicant")

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 Applicant (or "Dealer Manager"), for and on behalf of the Funds listed in Appendix A (the "Funds" or "Dealer Managed Funds") for whom the Applicant acts as portfolio advisor, 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 Funds to invest in the common shares (the "Common Shares") of Theratechnologies Inc. (the "Issuer") on the Toronto Stock Exchange (the "TSX") during the 60-day period following the completion of the distribution (the "Prohibition Period") of the Offering (defined below) notwithstanding that the Dealer Manager or its associates or affiliates act or have acted as an underwriter in connection with the offering of the Issuer's Common Shares pursuant to a short form prospectus (the "Offering") (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 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 Funds, and each Dealer Managed Fund is a "dealer managed mutual fund", as such term is defined in section 1.1 of NI 81-102.

2. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses that have been prepared and filed in accordance with their respective securities legislation.

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

4. The Offering is being underwritten, subject to certain terms, by a syndicate which includes BMO Nesbitt Burns Inc. (the "Related Underwriter"), an affiliate of the Dealer Manager, among others (the Related Underwriters and any other agents, which are now or may become part of the syndicate prior to closing, the "Underwriters").

5. The Issuer is a Canadian biopharmaceutical company that discovers or acquires novel therapeutic products for development and commercialization. The Issuer targets unmet medical needs in commercially attractive specialty markets where all or part of the commercial rights can be retained. The Issuer is concentrating its resources on the development of TH9507 in HIV-associated lipodystrophy ("TH9507").

6. According to the Issuer's Preliminary Prospectus dated February 12, 2007 (the "Preliminary Prospectus") and the Issuer's Final Prospectus (the "Final Prospectus") dated February 19, 2007, the Offering is expected to consist of 6,250,000 Common Shares at a price of $8.40 per Common Share with gross proceeds of $52,500,000. The Offering is expected to close on February 27, 2007 (the "Closing Date").

7. The Issuer has granted to the Underwriters an option (the "Over-Allotment Option") exercisable at any time until 30 days following the Closing Date, to purchase up to 625,000 additional Common Shares at $8.40 per Common Share. If the Over-Allotment Option is exercised in full, the gross proceeds will be $57,750,000.

8. According to the Preliminary Prospectus and the Final Prospectus, the Issuer will use the net proceeds of the Offering primarily to finance TH9507 and for working capital purposes.

9. According to the Preliminary Prospectus and the Final Prospectus, the Issuer's outstanding Common Shares are listed on the TSX under the symbol "TH". The Issuer has applied to list the Common Shares offered pursuant to the Offering on the TSX. Listing will be subject to the Issuer fulfilling all the listing requirements of the TSX.

10. The Preliminary Prospectus and the Final Prospectus do not disclose that the Issuer is a "related issuer" or "connected issuer" as defined in National Instrument 33-105 -- Underwriting Conflicts ("NI 33-105"), of the Related Underwriter.

11. Despite the affiliation between the Dealer Manager and the Related Underwriter, they operate independently of each other. 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 an up to date restricted-issuer list 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.

12. The Dealer Managed Funds are not required or obligated to purchase any Common Shares during the Prohibition Period.

13. The Dealer Manager may cause the Dealer Managed Funds to invest in Common Shares during the Prohibition Period. Any purchase of the Common Shares will be consistent with the investment objectives of the Dealer Managed Funds 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 Funds.

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

I. in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for its Dealer Managed Funds and Managed Accounts, and

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

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

16. 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 its 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 Dealer Manager.

17. 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 Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

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

19. The Dealer Manager has not been involved in the work of its 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 Funds will purchase Common Shares during the Prohibition Period.

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 under the Legislation is that the Requested Relief is granted, notwithstanding that the Related Underwriter acts or has acted as underwriter in the Offering provided that, in respect of the Dealer Manager and its Dealer Managed Funds, the following conditions are satisfied:

I. At the time of each purchase (the "Purchase") of Common Shares by a 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, each 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 two or more Dealer Managed Funds 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 its Related Underwriter for the Purchase of Common Shares for the Dealer Managed Fund;

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

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

VI. 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;

VII. The Dealer Managed Funds do 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 VI above;

VIII. The Dealer Managed Funds do 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 VI above;

IX. The cost of any indemnification or insurance coverage paid for by 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 Funds 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 VI above is not paid either directly or indirectly by the Dealer Managed Funds;

X. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of the Dealer Managed Funds, 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 the Common Shares;

(iv) if the Common Shares were purchased for two or more Dealer Managed Funds 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 the 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;

(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 the 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;

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

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

(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 Dealer Manager or a portfolio manager of the Dealer Managed Funds, in response to the determinations referred to above;

XII. Each Purchase of Common Shares during the Prohibition Period is made on the TSX; and

XIII. An underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in Ontario Securities Commission Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.

"Leslie Byberg"

Manager, Investment Funds Branch

Appendix A

THE MUTUAL FUNDS

BMO Mutual Funds (consolidated)

BMO Canadian Equity Class

BMO Equity Fund

BMO Special Equity Fund