Phillips, Hager & North Investment Management Ltd.

Decision

Headnote

Relief granted to permit the portfolio managers to purchase non-exchange traded short-term debt securities issued by a related issuer in a primary distribution or treasury offering for client portfolios over which the portfolio managers have discretionary authority, following the closing of a proposed transaction in which the Royal Bank of Canada and its related issuers and connected issuers will become related issuers or connected issuers, as applicable, of the portfolio managers.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., s. 118(2)(a), 121(2)(a)(ii).

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

May 23, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO, ALBERTA, SASKATCHEWAN, QUÉBEC,

NEW BRUNSWICK, NOVA SCOTIA 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)

 

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer on behalf of the Filer and its affiliates, Phillips, Hager & North Investment Management Limited Partnership (PH&N LP) and BonaVista Asset Management Ltd. (BonaVista and collectively, with the Filer and PH&N LP, the Portfolio Managers) for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief (the Exemptive Relief Sought) from the prohibition in the Legislation of the Jurisdictions that prohibits a portfolio manager from investing the portfolio managed by it in any issuer (a Related 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 judgment unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase (the Related Issuer Prohibition), in order to permit the Portfolio Managers to purchase non-exchange traded short-term debt securities issued by a Related Issuer in a primary distribution or treasury offering (a Primary Offering) for client portfolios over which the Portfolio Managers have discretionary authority, following the closing of a proposed transaction in which RBC and its related issuers and connected issuers will become related issuers or connected issuers, as applicable, of the Portfolio Managers.

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

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

(b) the decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.

Interpretation

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

Representations

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

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

2. Each of the Portfolio Managers 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 Legislation of the other Jurisdictions; in addition, the Filer is registered under the Legislation in Ontario as a dealer in the category of mutual fund dealer, and BonaVista is registered under the Legislation in Ontario as a dealer in the category of limited market dealer.

3. Each of the Portfolio Managers provide discretionary portfolio management services through proprietary mutual funds managed by the Filer or one of the other Portfolio Managers and/or through segregated portfolios of securities (Segregated Accounts) for certain clients (Segregated Account Clients); all Segregated Account Clients enter into a discretionary investment management agreement with the applicable Portfolio Manager.

4. As at April 18, 2008, the Portfolio Managers had discretionary authority over approximately 476 Segregated Accounts; of these Segregated Accounts, approximately 172 are related to different institutions, such as multi-employer and/or union sponsored pension plans, trusts, endowments or foundations.

5. On February 21, 2008, RBC entered into an agreement with the Filer and the shareholders of the Filer pursuant to which RBC agreed to purchase, through a wholly-owned subsidiary, all of the issued and outstanding shares of the Filer (the Transaction); the Filer currently anticipates closing the Transaction on or about May 1, 2008 (the Closing Date), subject to receipt of regulatory approvals and other customary closing conditions; upon closing of the Transaction, RBC and its related issuers and connected issuers will become related issuers or connected issuers, as applicable, of the Portfolio Managers, as a result of RBC becoming an influential securityholder of the Portfolio Managers.

6. Following the closing of the Transaction, the Portfolio Managers will continue to operate their respective businesses in a manner that is substantially similar to their present manner, in particular, the Portfolio Managers intend to continue to manage the assets of all clients, including those in the Segregated Accounts, in the same manner as they are currently managed and do not intend to change the organizational structure of the Filer as it relates to investment decisions affecting the Segregated Accounts; while the Filer 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.

7. As a result of the Transaction, the Exemptive Relief Sought will be required because effective on and after the Closing Date the Portfolio Managers may wish to acquire and/or hold non-exchange traded short-term debt securities of a Related Person issued in a Primary Offering for a Segregated Account.

8. Pursuant to section 6.2 of NI 81-107 and exemptive relief granted to the Filer by order dated April 29, 2008 the Portfolio Managers are, or will be, permitted to purchase for Segregated Accounts, among other things, exchange traded debt securities of a Related Person and non-exchange traded debt securities of a Related Person in the secondary market subject to the terms and conditions set out therein.

9. The Segregated Accounts currently hold non-exchange traded short-term debt securities issued by RBC and its affiliates and associates that were acquired in a Primary Offering; the Portfolio Managers consider that the Segregated Accounts 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.

10. In the absence of the Exemptive Relief Sought, the Portfolio Managers would be required, as of the Closing Date, to adjust the investment strategies and alter the holdings of the Segregated Accounts 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 Portfolio Managers.

11. The Portfolio Managers are seeking the Exemptive Relief Sought from the Related Issuer Prohibition to permit the Portfolio Manager to purchase and hold non-exchange-traded short-term debt securities issued by a Related Person in a Primary Offering in the Segregated Accounts following the closing of the Transaction.

12. Each non-exchange traded short-term debt security purchased for a Segregated Account pursuant to the Exemptive Relief Sought that is a security issued by a Related Person will have been given, and will continue to have, an approved credit rating (as defined in NI 81-102) by an approved credit rating organization (as defined in NI 81-102).

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

14. Each of the Portfolio Managers has provided each Segregated Account Client with a notice describing the Transaction and the issuers that will become related issuers or connected issuers of the Portfolio Manager upon the closing of the Transaction, together with a request that each Segregated Account Client provide its written consent to the Portfolio Manager (a) purchasing and selling securities issued by RBC and its related issuers and connected issuers for the client, and (b) purchasing or selling securities from or to related parties of RBC.

15. As at April 18, 2008, the Portfolio Managers had obtained written consents from 332 of 476 Segregated Account Clients, representing approximately 69.7% of the total Segregated Account Clients.

16. The Portfolio Managers will diligently seek consents from each remaining Segregated Account Client prior to the Closing Date; however, given the relatively short time period between the announcement of the Transaction and the expected Closing Date, the significant number of Segregated Account Clients and the time required for certain institutional Segregated Account Clients to provide this type of authorization, the Filer has applied for the Exemptive Relief Sought in the likely instance that some consents are not duly executed and returned to the applicable Portfolio Manager prior to the Closing Date.

17. In the absence of the Exemptive Relief Sought, effective as of the Closing Date the Portfolio Managers would be prohibited from purchasing or selling short-term debt securities issued by RBC and its related issuers and connected issuers to or from a Segregated Account where the prior informed written consent of the applicable Segregated Account Client has not been obtained.

18. Any purchase or sale of securities issued by RBC and its related issuers and connected issuers to or from a Segregated Account will be consistent with, or necessary to meet, the investment objectives of the applicable Segregated Account Client, and will represent the business judgment of the Portfolio Manager uninfluenced by considerations other than the best interests of the applicable Segregated Account Client or in fact be in the best interests of the applicable Segregated Account Client.

19. The Portfolio Managers acknowledge that upon expiry of this decision the Portfolio Managers must ensure that the investment strategies of the Segregated Accounts conform with investment restrictions contained in the Legislation, or seek new exemptive relief to permit the types of transactions described in this decision.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemptive Relief Sought from the Related Issuer Prohibition is granted in respect of each Segregated Account with respect to non-exchange traded short-term debt securities of a Related Person issued in a Primary Offering, provided that at the time of each investment:

1. the purchase or holding is consistent with, or is necessary to meet, the investment objectives of the Segregated Account and represents the business judgment of the Portfolio Manager uninfluenced by considerations other than the best interests of the Segregated Account Client or in fact is in the best interests of the Segregated Account Client;

2. with respect to a Primary Offering of short-term debt securities with a term to maturity of less than 365 days,

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

(ii) the Segregated Account must obtain a certificate from the seller of the securities, in the form of quarterly certification, confirming that all transactions between the Segregated Account and the seller in the quarter have satisfied the requirement in subparagraph (i), and

(iii) the Segregated Account must not purchase short-term 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 Segregated Account being comprised of securities of the Related Persons;

3. at the time of a purchase or sale for a Segregated Account] the Portfolio Manager has not received notice from the applicable Segregated Account Client that it refuses to give its consent to purchasing and selling securities issued by RBC and its related issuers and connected issuers for the client;

4. the Portfolio Manager continues to diligently seek consent from each Segregated Account Client;

5. this relief expires on the date that is six months from the date of this Decision; and

6. if a Client's consent is not obtained for that Client's Segregated Account within six months of the date of this Decision, the Decision will cease to apply to that Client's Segregated Account.

"James E. A. Turner"
Commissioner
Ontario Securities Commission
 
"Margot C. Howard"
Commissioner
Ontario Securities Commission