Phillips, Hager & North Investment Management Ltd. et al. - s. 19.1 of NI 81-102 Mutual Funds

Order

Headnote

Relief granted on a transitional basis to permit applicant funds to purchase securities of related entity under primary offerings of related entity - Relief subject to conditions including termination at year end, IRC approval and pricing requirements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, sections 4.1(2), 19.1.

National Instrument 81-107 Independent Review Committee for Investment Funds.

April 30, 2008

IN THE MATTER OF

NATIONAL INSTRUMENT 81-102 - MUTUAL FUNDS

(NI 81-102)

AND

IN THE MATTER OF

PHILLIPS, HAGER & NORTH INVESTMENT

MANAGEMENT LTD.

(the Applicant)

AND

IN THE MATTER OF

THE MUTUAL FUNDS LISTED IN SCHEDULE A

(each, a Fund and, collectively, the Funds)

 

ORDER

(s. 19.1 of NI 81-102)

Background

The Director of the Ontario Securities Commission has received an application (the Application) from the Applicant on behalf of each Fund for an order under section 19.1 of NI 81-102 for relief in Ontario (the Requested Relief) from the prohibition in section 4.1(2) of NI 81-102 (the Section 4.1(2) Prohibition) in order to permit the Funds to purchase non-exchange traded debt securities in a primary distribution or treasury offering (a Primary Offering) by an issuer (a Related Issuer) in which a partner, director, officer or employee of the dealer manager of the Fund or a partner, director, officer or employee of an affiliate or associate of the dealer manager of the Fund, is a partner, director or officer, notwithstanding that the partner, director, officer or employee:

(a) may participate in the formulation of investment decisions made on behalf of the dealer manager of the Fund;

(b) may have access before implementation to information concerning investment decisions made on behalf of the dealer manager of the Fund; and

(c) may influence, other than through research, statistical and other reports generally available to clients, the investment decisions made on behalf of the dealer manager of the Fund.

Interpretation

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 Order, unless they are otherwise defined in this Order.

Representations

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

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

2. The Applicant is registered under the Securities Act (Ontario) as an adviser in the categories of investment counsel and portfolio manager, and as a dealer in the category of mutual fund dealer.

3. Each of the Funds is an open-end mutual fund trust or mutual fund corporation. The manager of the Funds is SSHC Financial Inc. (the Manager). The head office of the Manager is located in Ontario.

4. To the best of the knowledge of the Applicant, the Funds are not in default of securities legislation in Ontario.

5. The Applicant, or an affiliate or associate of the Applicant, is a portfolio adviser, but not the manager, of each of the Funds listed on Schedule A.

6. The securities of each of the Funds are offered for sale pursuant to a prospectus filed in Ontario. Each of the Funds is a reporting issuer in Ontario. None of the Funds are reporting issuers in any other jurisdiction.

7. As a result of a share purchase transaction (the Transaction) with the shareholders of the Applicant and Royal Bank of Canada (RBC), the Requested Relief will be required because effective on and after the closing date (the Closing Date) of the Transaction the Applicant or an affiliate or associate may wish to acquire and/or hold non-exchange traded debt securities of a Related Issuer issued in a Primary Offering for a Fund.

8. Following the closing of the Transaction, the Applicant and its existing affiliates and associates will continue to operate their respective businesses in a manner that is substantially similar to their present manner. In particular, the Applicant and its affiliates and associates intend to continue to manage the assets of all the Funds in the same manner as they are currently managed and do not intend to change the organizational structure of the Applicant as it relates to investment decisions affecting the Funds. While the Applicant and RBC Asset Management Inc. (RBC AM) will share a common chief investment officer, both entities will continue to operate independently from RBC and its other affiliates and associates with respect to their investment decisions.

9. The Funds are subject to the oversight of an independent review committee (IRC) in accordance with the requirements of NI 81-107.

10. Pursuant to section 6.2 of NI 81-107 and exemptive relief granted to the Applicant by order dated April 28, 2008, the Funds are, or will be, permitted to purchase, among other things, exchange traded debt securities of a Related Issuer and non-exchange traded debt securities of a Related Issuer in the secondary market subject to the terms and conditions set out therein.

11. Debt securities issued by a Related Issuer issued in a Primary Offering that are not listed and traded on an exchange may be appropriate securities for a Fund to purchase, sell or hold.

12. The Funds currently hold non-exchange traded debt securities issued by RBC and its affiliates and associates that were acquired in a Primary Offering. The Applicant considers that the Funds should continue to have access to such securities for a temporary period following the completion of the Transaction because there is currently and has been for several years a very limited supply of highly rated corporate debt and securities issued by RBC comprise a significant portion of the available supply.

13. In the absence of the Requested Relief, the Applicant and its affiliates and associates would be required, as of the Closing Date, 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 Applicant and its affiliates and associates. Time is required to address the investment restrictions in the Legislation in a manner which will mitigate any negative impact the restrictions may have on the Funds.

14. The Applicant is seeking the Requested Relief from the Section 4.1(2) Prohibition to permit the Funds to purchase and hold non-exchange-traded debt securities issued by a Related Issuer in a Primary Offering for a temporary period following the closing of the Transaction.

15. Each non-exchange traded debt security purchased by a Fund pursuant to the Requested Relief that is a security issued by a Related Issuer will have been given, and will continue to have, an approved credit rating by an approved credit rating organization.

16. Where a related underwriter acts as an underwriter in a Primary Offering, the related underwriter will be required to comply with the provisions of NI 33-105 Underwriting Conflicts.

17. The Applicant acknowledges that upon expiry of this decision, the Applicant and its affiliates and associates must ensure that the investment strategies of the Funds conform with investment restrictions contained in the Legislation, or seek new exemptive relief to permit the types of transactions described in this decision.

18. The Applicant has the authority to bring the application on behalf of the Funds.

ORDER

The Director is satisfied that it would not be prejudicial to the public interest to grant the Requested Relief in respect of each Fund so long as the following conditions are satisfied:

1. at the time of each investment, the purchase or holding is consistent with, or is necessary to meet, the investment objective of the Fund and represents the business judgment of the portfolio manager of the Fund uninfluenced by considerations other than the best interests of the Fund or in fact is in the best interests of the Fund;

2. at the time of each investment, the IRC of the Fund has approved the purchase in accordance with Section 5.2(2) of NI 81-107;

3. the manager of the Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the purchase;

4. not less than quarterly, the IRC completes the review and assessment required by section 4.2(1) of NI 81-107 in connection with all the purchases in that quarter, the related policies and procedures established by the manager, and any related standing instructions provided or conditions imposed by the IRC;

5. with respect to each purchase in a Primary Offering of debt securities with a term to maturity of 365 days or more,

(i) at least two other investors at arm's length to the Fund, the Applicant and its affiliates and associates as at April 30, 2008 are purchasing the security in the same Primary Offering, and

(ii) the Fund, together with other Funds and the Applicant and its affiliates and associates as at April 30, 2008, do not purchase more than 20% of the securities issued under the Primary Offering;

6. with respect to each purchase in a Primary Offering of debt securities with a term to maturity of less than 365 days,

(i) the Fund must not pay more than an independent, arm's length purchaser is willing to pay for a similar security,

(ii) the Fund must obtain quarterly certificates from the seller of the securities confirming that all transactions between the Fund and the seller in the quarter have satisfied the requirement in subparagraph (i),

(iii) in the event that such certificate cannot be obtained or contains material errors, the manager of the Fund must report such fact to the IRC of the Fund immediately, and

(iv) the Fund must not purchase debt securities in a Primary Offering if, immediately after the transaction, the purchase would result in more than 10% of the net assets of the Fund being comprised of securities of the Related Issuer; and

7. no later than the time the Fund files its annual financial statements, the manager of the Fund, files with the securities regulatory authority or regulator the particulars of any investments made in reliance on this relief.

The Director further orders that the Requested Relief terminates on December 31, 2008.

" Rhonda Goldberg"
Manager -- Investment Funds
Ontario Securities Commission

 

SCHEDULE A

1. Social Housing Canadian Money Market Fund
2. Social Housing Canadian Short-Term Bond Fund
3. Social Housing Canadian Bond Fund
4. Social Housing Canadian Equity Fund