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

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- A pooled fund and its registered portfolio manager want relief from sections 111(2)(a), 111(2)(c)(ii), 111(3) and 118(2)(a) to allow the fund to purchase and hold long-term debt securities of their related entities acquired in primary distribution -- The purchase, sale or holding must be consistent with, or necessary to meet, the investment objectives of the mutual fund; the pooled fund has, or will establish, an IRC that will review and approve the transaction involving the perceived or actual conflict of interest; the IRC and the manager will comply with certain requirements of NI 81-107 as if that rule applied to the pooled fund; the primary offering will be at least $100 million and at least two independent purchasers will collectively purchase at least 20% of the offering; there are limits on the amount of its assets each pooled fund can invest in any one related person and how much all related pooled funds can purchase of any primary offering; the pooled fund provides disclosure to its unitholders about transactions with related parties and is required to file information about the transactions with the securities regulatory authorities.

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, 118(2)(a), 121(2)(a)(ii).

December 30, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION

(the 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 POOLED FUNDS LISTED IN

SCHEDULES A AND B TO WHICH

NATIONAL INSTRUMENT 81-102 MUTUAL FUNDS

(NI 81-102) DOES NOT APPLY (each, an Existing

Pooled Fund and collectively, the Existing Pooled

Funds) AND ANY POOLED FUND THAT MAY BE

ESTABLISHED IN THE FUTURE FOR WHICH

THE FILER OR AN AFFILIATE OR ASSOCIATE

OF THE FILER ACTS AS PORTFOLIO ADVISOR

AND/OR MANAGER (each, a Future Pooled Fund

and collectively, the Future Pooled Funds)

(collectively, the Pooled Funds)

DECISION

Background

1 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 the Pooled Funds for a decision under the securities legislations of the Jurisdictions (the Legislation) for relief (the Exemptive Relief Sought) from:

1. the prohibition in the Legislation of the Jurisdictions (the Related Shareholder Relief) 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 (each a Related Shareholder) in order to permit the Pooled Funds to purchase and hold non-exchange traded debt securities issued by a Related Shareholder in a primary distribution or treasury offering (a Primary Offering);

2. the prohibition in the Legislation of the Jurisdictions (the Related Party Relief) that prohibits a mutual fund from making or holding an investment in an issuer in which a Related Shareholder has a significant interest (each, a Related Party) in order to permit the Pooled Funds to purchase and hold non-exchange traded debt securities issued by a Related Party in a Primary Offering; and

3. the prohibition in the Legislation of the Jurisdictions (the Related Issuer Relief) that prohibits a portfolio manager or a mutual fund (depending on the Jurisdiction) from investing the portfolio of the mutual fund in any issuer in which a responsible person or an associate of a responsible person is an officer or director, or where his or her own interest might distort his or her judgement (each, a Related Issuer), unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase, in order to permit the Pooled Funds to purchase non-exchange traded debt securities issued by a Related Issuer in a Primary Offering.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):

(a) the British Columbia Securities Commission (the BCSC) 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

2 Defined terms contained 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 they are otherwise defined in this decision.

In this decision the term Related Person will be used to refer to a Related Shareholder, a Related Party or a Related Issuer depending on the provision that is being considered.

The Related Shareholder Relief, the Related Party Relief and the Related Issuer Relief will be collectively referred to as the Requested Related Person Securities Relief.

Representations

3 This decision is based on the following facts represented by the Filer in respect of the Filer and the Pooled 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 Pooled Funds are not in default of securities legislation in any jurisdiction;

4. the Filer or an affiliate or associate of the Filer is or will be the manager of the Pooled Funds listed on Schedule A (the Managed Pooled Funds); the Filer or an affiliate or associate of the Filer is expected to be the principal portfolio adviser of the Managed Pooled Funds;

5. the Filer or an affiliate or related entity of the Filer will be the sub-advisor of any Pooled Funds listed on Schedule B, which are advised but not managed by the Filer or an affiliate or related entity of the Filer (the Advised Pooled Funds);

6. investors in the Pooled Funds are primarily sophisticated investors such as pension plans, foundations, crown agencies, other institutions and high net worth individuals; the Pooled Funds are primarily used to execute discretionary investment mandates for these investors;

7. units in the Pooled Funds are sold primarily in reliance on the accredited investor exemption, the minimum amount exemption, and the additional investment in investment funds exemption contained in National Instrument 45-106 Prospectus and Registration Exemptions;

8. the Filer or an affiliate or associate of the Filer, or, in the case of an Advised Fund, the manager of the Advised Fund will provide written disclosure regarding the Filer's relationship with the Related Person and the Filer's intention to invest in securities of the Related Person to (i) existing investors prior to relying on this relief; and (ii) new investors at the time of the new investor's initial investment in a Pooled Fund;

9. the independent review committee of the mutual funds managed by the Filer or its affiliate and associates which are subject to NI 81-102 (the IRC) has also been appointed as the IRC of the Managed Pooled Funds and oversees certain transactions with respect to the Managed Pooled Funds;

10. the investment strategies of each of the Pooled Funds that relies on the Requested Related Person Securities Relief permit or will permit it to invest in the securities purchased;

11. Related Persons of the Filer are significant issuers of securities;

12. the Filer obtained Related Shareholder Relief, Related Party Relief and Related Issuer Relief to permit the Filer on behalf of the Pooled Funds to purchase Related Person debt securities in the secondary market in a Passport Decision dated April 28, 2008;

13. the Filer also received relief to purchase debt securities of Related Persons on behalf of the Pooled Funds in a Primary Offering in a Passport Decision dated May 2, 2008; this relief expires on December 31, 2008;

14. Related Persons of the Filer are issuers of highly rated commercial paper and other debt instruments; the Filer considers that the Pooled Funds should have access to such securities for the following reasons:

(a) there is currently and has been for several years a very limited supply of highly rated corporate debt;

(b) diversification is reduced to the extent that a Pooled Fund is limited with respect to investment opportunities; and

(c) to the extent that a Pooled Fund is trying to track or outperform a benchmark it is important for the Pooled Fund to be able to purchase any securities included in the benchmark. Debt securities of Related Persons of the Filer are included in most of the Canadian debt indices;

15. the Filer is seeking the Requested Related Person Securities Relief to permit the Pooled Funds to purchase and hold non-exchange traded securities that are debt securities with a term to maturity of 365 days or more issued by a Related Person in a Primary Offering, other than asset backed commercial paper securities;

16. each non-exchange traded security purchased by a Pooled Fund pursuant to the Requested Related Person Purchase Relief will be a debt security issued by a Related Person that has been given and continues to have, at the time of purchase, an "approved credit rating" by an approved credit rating organization; and

17. each non-exchange traded debt security purchased by a Pooled Fund pursuant to the Requested Related Person Purchase Relief will be purchased in a Primary Offering where the terms of the Primary Offering, such as the size and the pricing, will be a matter of public record as evidenced in a prospectus, offering memorandum, press release or other public document.

Decision

4 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:

1. the Requested Related Person Securities Relief is granted to permit the Filer to purchase and hold non-exchange traded debt securities with a term to maturity of 365 days or more, other than asset backed commercial paper securities, issued by a Related Person in a Primary Offering on behalf of the Pooled Funds, provided that:

(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Pooled Fund and represents the business judgment of the portfolio manager of the Pooled Fund uninfluenced by considerations other than the best interests of the Pooled Fund or in fact is in the best interests of the Pooled Fund;

(b) an IRC has been established in respect of the Pooled Fund that is composed in accordance with the requirements of section 3.7 of NI 81-107 and is expected to comply with the standard of care set out in section 3.9 of NI 81-107, as if NI 81-107 applied to the Pooled Fund;

(c) the mandate of the IRC established in respect of the Pooled Fund includes reviewing and approving purchases and sales by the Pooled Fund with Related Persons;

(d) at the time of each purchase, the IRC of the Pooled Fund has approved the purchase on the same terms as are required under section 5.2(2) of NI 81-107 as if NI 81-107 applied to the Pooled Fund;

(e) the manager of the Pooled Fund complies with section 5.1 of NI 81-107 as if NI 81-107 applies to the Pooled Fund;

(f) the manager and the IRC of the Pooled Fund comply with section 5.4 of NI 81-107 as if NI 81-107 applies to the Pooled Fund for any standing instructions the IRC provides in connection with the purchase;

(g) not less than annually, the IRC completes the review and assessment required by section 4.2(1) of NI 81-107 as if NI 81-107 applies to the Pooled Fund in connection with all the purchases in that period, the related policies and procedures established by the manager, and any related standing instructions provided or conditions imposed by the IRC;

(h) if the IRC becomes aware of an instance where the manager of a Pooled Fund did not comply with the terms of this decision or with a condition imposed by the IRC in its approval, the IRC must, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under the laws of which the Pooled Fund is organized;

(i) the size of the Primary Offering is at least $100 million;

(j) at least two purchasers who are independent, arm's-length purchasers, which may include "independent underwriters" within the meaning of National Instrument 33-105 Underwriting Conflicts, collectively purchase at least 20% of the Primary Offering;

(k) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund would have more than 5% of its net assets invested in non-exchange traded debt securities of the Related Person;

(l) no Pooled Fund shall participate in the Primary Offering if following its purchase the Pooled Fund together with related Pooled Funds will hold more than 20% of the securities issued in the Primary Offering;

(m) the price paid for the securities by the Pooled Fund in the Primary Offering shall be no higher than the lowest price paid by any of the arm's length purchasers who participate in the Primary Offering; and

(n) on or before the 90th day after the end of each financial year of the Pooled Fund, the Filer, or an affiliate or associate of the Filer, or in the case of an Advised Pooled Fund, the manager of the Advised Pooled Fund files with the securities regulatory authority or regulator in the jurisdiction under the laws of which the Pooled Fund is organized the particulars of any investments made in reliance on this relief; and

2. this decision will expire on the coming into force of any securities legislation relating to fund purchases of related party debt securities in a Primary Offering.

Schedule A

List of Managed Pooled Funds

Schedule B

List of Advised Pooled Funds

None currently.