Phillips, Hager & North Investment Management Ltd. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- A portfolio manager requires relief from self-dealing requirements in connection with its acquisition by another organization - Related party debt securities were purchased under the conditions of a temporary relief order, which required controls to be in place to ensure unbiased pricing and limitations on the number of related party debt securities that could be purchased and held by a fund - The Canadian and international capital markets have been extremely volatile over recent months - Requiring the mutual funds to sell the related party debt in this volatile market during the short period before the expiry of the temporary relief could have a negative impact on the funds.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(a), 111(2)(c)(ii), 111(3), 113.

December 18, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ONTARIO, AND NEWFOUNDLAND

AND LABRADOR

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

PHILLIPS, HAGER & NORTH INVESTMENT

MANAGEMENT LTD.

(the Filer)

AND

IN THE MATTER OF

THE MUTUAL FUNDS LISTED IN SCHEDULES

A AND B TO WHICH NATIONAL INSTRUMENT

81-102 -- MUTUAL FUNDS (NI 81-102) APPLIES

(each, an NI 81-102 fund and, collectively,

the NI 81-102 funds) AND THE POOLED FUNDS

LISTED IN SCHEDULES A AND B TO WHICH

NI 81-102 DOES NOT APPLY (each, a private fund

and, collectively, the private funds) OF WHICH

THE FILER OR AN AFFILIATE OR ASSOCIATE OF

THE FILER IS THE MANAGER OR A

PORTFOLIO ADVISER

DECISION

Background

The securities regulatory authority or regulator in each of British Columbia and Ontario (Dual Exemption Decision Makers) and in each of British Columbia and Newfoundland and Labrador (Coordinated Exemptive Relief Decision Makers) has received an application from the Filer in respect of each NI 81-102 Fund and each Private Fund (each a Fund, and collectively the Funds) for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief (the Exemptive Relief Sought) from:

1. the prohibition in the Legislation (the Related Shareholder Prohibition) that prohibits a mutual fund from making or holding an investment in any person or company who is a substantial security holder of the mutual fund, its management company or distribution company (a Related Shareholder), in order to permit the NI 81-102 Funds and Private Funds to continue to hold non-exchange traded debt securities issued by a Related Shareholder in a primary distribution or treasury offering (a Primary Offering) and acquired by a NI 81-102 Fund or a Private Fund on or before December 31, 2008; and

2. the prohibition in the Legislation (the Related Party Prohibition) that prohibits a mutual fund from making or holding an investment in an issuer in which a Related Shareholder has a significant interest (a Related Party), in order to permit the NI 81-102 Funds and Private Funds to continue to hold non-exchange traded debt securities issued by a Related Party in a Primary Offering and acquired by a NI 81-102 Fund or a Private Fund on or before December 31, 2008.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the British Columbia Securities Commission is the principal regulator for this application,

(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 Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia,

(c) the decision is the decision of the principal regulator and the decision evidences the decision of the securities regulatory authority or regulator in Ontario, and

(d) the decision evidences the decision of each Coordinated Exemptive Relief Decision Maker.

Interpretation

Terms defined in National Instrument 14-101 Definitions, in NI 81-102 and in National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meaning in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer in respect of the Filer and the Funds:

1. the Filer is a company organized under the laws of British Columbia having its head office located in Vancouver, British Columbia;

2. the Filer is registered under the Legislation of British Columbia as an adviser in the categories of investment counsel and portfolio manager (and in equivalent categories under the securities legislation in the other Jurisdictions); in addition, the Filer is registered under the Legislation of Ontario as a dealer in the category of mutual fund dealer;

3. the Filer and the Managed Mutual Funds and Managed Pooled Funds (defined below) are not in default of securities legislation in any jurisdiction; to the best of the knowledge of the Filer, the Advised Mutual Funds and the Advised Pooled Funds are not in default of securities legislation in any jurisdiction;

4. the Filer or an affiliate or associate of the Filer is the manager of the NI 81-102 Funds listed in Schedule A (the Managed Mutual Funds) and the Private Funds listed in Schedule A (the Managed Pooled Funds); the Filer or an affiliate or associate of the Filer is expected to be a portfolio adviser of the Managed Mutual Funds and Managed Pooled Funds;

5. the Filer or an affiliate or associate of the Filer is a portfolio adviser, but not the manager, of the Mutual Funds listed in Schedule B (the Advised Mutual Funds) and the Private Funds listed in Schedule B (the Advised Pooled Funds);

6. each of the NI 81-102 Funds and Private Funds is a mutual fund established under the laws of British Columbia or of another jurisdiction;

7. the securities of the NI 81-102 Funds are offered for sale pursuant to a prospectus filed in one or more of the Jurisdictions; the NI 81-102 Funds are reporting issuers in one or more of the Jurisdictions;

8. the securities of the Private Funds are offered for sale in one or more of the Jurisdictions under an exemption from the prospectus requirement;

9. pursuant to the terms of a share purchase transaction (the Transaction) with the shareholders of the Filer, Royal Bank of Canada (RBC) became, indirectly, a substantial securityholder of the Filer on May 1, 2008;

10. at the time of the Transaction, the Funds held non-exchange traded debt securities issued by RBC and its affiliates and associates that were acquired in a Primary Offering; following the Transaction, the Funds would no longer be able to hold these non-exchange traded debt securities as a result of the Related Shareholder Prohibition and the Related Party Prohibition and would no longer be able to purchase these non-exchange traded debt securities from RBC and its affiliates and associates as a result of these prohibitions and other conflict of interest prohibitions in the Legislation (the Related Issuer Prohibition);

11. on May 2, 2008, the Filer was granted temporary exemptive relief (the Existing Relief) from the Related Issuer Prohibition, the Related Shareholder Prohibition and the Related Party Prohibition to permit the Filer and the Funds to purchase and hold non-exchange traded debt securities issued by RBC and its affiliates and associates in a Primary Offering;

12. the Existing Relief expires on December 31, 2008;

13. in reliance on the Existing Relief, the Funds currently hold non-exchange traded debt securities issued by RBC and its affiliates and associates that were acquired in a Primary Offering;

14. in the absence of the Exemptive Relief Sought, the Filer and its affiliates and associates would be required, as of the expiry of the Existing Relief, to adjust the investment strategies and alter the holdings of the Funds to conform with the investment restrictions contained in the Legislation, in connection with the new relationship between RBC and its affiliates and associates and the Filer and its affiliates and associates; and

15. the Canadian and international capital markets have been extremely volatile over recent months; the Filer is concerned that requiring it to sell RBC long-term debt before December 31, 2008 could have a significant negative impact on the Funds' portfolios, given the unusually large bid/ask spreads and extremely limited liquidity for these types of debt instruments that have resulted from recent market volatility; the Filer believes that it will be in a Fund's best interest to allow existing short-term debt holdings to mature to avoid costs associated with further transactions.

Decision

Each of the principal regulator, the securities regulatory authority or regulator in Ontario and the Coordinated Exemptive Relief Decision Makers is satisfied that the decision meets the test set out in the Legislation for the relevant regulator or securities regulatory authority to make the decision.

The decision of the Dual Exemptive Decision Makers and the Coordinated Exemptive Relief Decision Makers under the Legislation is that the Exemptive Relief Sought is granted.

Schedule A

Managed Mutual Funds

Managed Pooled Funds

Schedule B

Advised Mutual Funds

Advised Pooled Funds

None currently.