PIMCO Canada Corp. et al.

Headnote

National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -- exemption from section 2.7(1)(a) of NI 81-102 to permit interest rate and credit derivative swaps and currency forwards with a remaining term to maturity of greater than 3 years -- exemption from section 2.8(1) of NI 81-102 to the extent that cash cover is required in respect of specified derivatives to permit the funds to cover specified derivative positions with: certain bonds, debentures, notes or other evidences of indebtedness -- exemption from sections 2.8(1)(d) and (f)(i) NI 81-102 to permit the funds when they open or maintain a long position in a standardized future or forward contract or when they enter into or maintain an interest rate swap position and during the periods when the Funds are entitled to receive payments under the swap, to use as cover, an option to sell an equivalent quantity of the underlying interest of the standardized future, forward or swap -- relief granted from section 2.6 of NI 81-102 to allow mutual fund to short sell up to 20% of net assets, subject to certain conditions -- exemption from section 2.1(1) of NI 81-102 to permit global bond mutual funds to investment more than 10 percent of net assets in debt securities issued by a foreign government or supranational agency.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 2.6(a), 2.6(c), 2.7(1), 2.8(1), 6.1(1).

January 7, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE JURISDICTION)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

PIMCO CANADA CORP.

(PIMCO CANADA)

AND

THE FUNDS LISTED IN SCHEDULE A

(COLLECTIVELY THE FILERS)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption relieving the funds set out in Schedule A (the New Funds) and future mutual funds managed by PIMCO Canada and sub-advised by an affiliate of PIMCO Canada that are subject to National Instrument 81-102 Mutual Funds (NI 81-102) (the Future Funds) (the New Funds and the Future Funds, respectively, together, the Funds and individually, a Fund) from the following sections of National Instrument 81-102 (NI 81-102):

(a) the requirement in section 2.7(1)(a) of NI 81-102, in order to permit the Funds to enter into interest rate swaps or credit default swaps and, if the transaction is for hedging purposes, currency swaps and forwards, in all cases with a remaining term to maturity of greater than three years;

(b) the requirement in section 2.8(1) of NI 81-102 in order to permit each of the Funds to cover specified derivative positions with:

(i) any bonds, debentures, notes or other evidence of indebtedness that are liquid (collectively, Fixed Income Securities) provided they have a remaining term to maturity of 365 days or less and have approved credit rating; or

(ii) floating rates evidences of indebtedness;

(c) the requirement in sections 2.8(1)(d) and 2.8(1)(f)(i) of NI 81-102 in order to permit each of the Funds when it

(i) opens or maintains a long position in a debt-like security that has a component that is a long position in a forward contract or in a standardized future or forward contract, or

(ii) enters into or maintains a swap position and during the periods when the Fund is entitled to receive payments under the swap,

to use as cover, a right or obligation to sell an equivalent quantity of the underlying interest of the standardized future, forward or swap;

(d) the requirement in sections 2.6(a), 2.6(c) and 6.1(1) of NI 81-102 in order to permit each of the Funds to:

(i) sell securities short;

(ii) provide a security interest over a Fund's assets; and

(iii) deposit any part of a mutual fund's assets with an entity other than the mutual fund's custodian;

(e) the requirement in section 2.1(1) in order to permit PIMCO Global Advantage Strategy Bond Fund (Canada) to invest:

(A) up to 20% of its net assets in securities issued or guaranteed as to principal and interest by any government or agency thereof (other than a government or agency of Canada or a province thereof or of the United States, in which investment by all of the Funds is unrestricted) or any permitted supranational agency (as defined in NI 81-102), provided that the securities have a minimum AA rating by Standard & Poor's Rating Service or the equivalent rating by any other rating agency listed in NI 81-102;

(B) up to 35% of its net assets in securities issued or guaranteed as to principal and interest by any government or agency thereof (other than a government or agency of Canada or a province thereof or of the United States, in which investment by all of the Funds is unrestricted) or by any permitted supranational agency (as defined in NI 81-102), provided that the securities have a minimum AAA rating by Standard & Poor's Rating Service or the equivalent rating by any other rating agency listed in NI 81-102;

provided that sub-paragraphs (A), (B) and (C) of this paragraph (e) cannot be combined for any one issuer.

Paragraph (a) is referred to as the Swap and Currency Derivatives Requested Relief, paragraph (b) is referred to as the Fixed Income and FRN Cover Requested Relief, paragraph (c) is referred to as the Put Option Cover Requested Relief, paragraph (d) is referred to as the Short Selling Requested Relief, and paragraph (e) is referred to as the Sovereign Government and Supranational Entity Concentration Requested Relief, and collectively, the Swap and Currency Derivatives Requested Relief, Cover Requested Relief, Short Selling Requested Relief and Sovereign Government and Supranational Entity Concentration Requested Relief shall be referred to as the Requested Relief.

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

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

(b) the Filers have provided notice that section 4.7 of Multilateral Instrument 11-102 Passport System (NI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decisions unless otherwise defined.

Representations

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

PIMCO Canada

1. PIMCO Canada is registered in the Province of Ontario as an investment fund manager (Manager), adviser in the category of portfolio manager, a commodity manager and an exempt market dealer. PIMCO Canada is an indirect, wholly owned subsidiary of Pacific Investment Management Company LLC (PIMCO). PIMCO is an adviser registered under the Investment Advisers Act in the US. PIMCO Canada's head office is in Toronto, Ontario.

2. PIMCO Canada is the Manager and the portfolio manager of the Funds. Under its agreement with the Funds, PIMCO Canada is authorized to, and will, appoint PIMCO as sub-adviser to the Funds in accordance with OSC Rule 35-502 Non-Resident Advisors, section 7.3.

3. PIMCO is one of the world's largest fixed income managers. Organized in 1971, PIMCO provides investment management and advisory services to private accounts of institutional and individual clients and to mutual funds around the world.

4. The Filers are not in default of securities legislation in any jurisdiction.

The Funds

5. The New Funds are mutual fund trusts being established under the laws of Ontario and any future Funds will be mutual fund trusts. The New Funds will be offered by an initial simplified prospectus in all the Jurisdictions, with the preliminary prospectus expected to be filed in November 2010 and future funds will also be offered by prospectus. As a result, all of the Funds will become reporting issuers and will be subject to the requirements of NI 81-102.

6. The investment objective and strategies of each Fund will be set out in the Fund's simplified prospectus. In most cases, the primary investment objective is to invest in, or gain exposure to, fixed income securities, such as bonds and debentures issued by governments, supranational entities and corporations, or a combination of fixed income and equities. In other cases, the investment objective is focused primarily on equities but the Fund retains the right to include a portion in fixed income either routinely or under conditions determined by PIMCO Canada.

7. In all cases, the Funds will be permitted to use specified derivatives to hedge against losses caused by changes in securities prices, interest rates, exchange rates and/or other risks. The Funds may also use specified derivatives for non-hedging purposes under their investment strategies in order to invest indirectly in securities or financial markets or to gain exposure to other currencies, provided the use of specified derivatives is consistent with the particular Fund's investment objective. When specified derivatives are used for non-hedging purposes, the Funds are subject to the cover requirements of NI 81-102.

Extended Term to Maturity for Interest Rate Swaps, Credit Default Swaps and currency Swaps or Forwards

8. Paragraph 2.7(1)(a) of NI 81-102 prohibits mutual funds from entering into swaps or currency forwards with terms to maturity of greater than three years, or greater than five years if the contract provides the fund with a right to eliminate its exposure within three years. PIMCO Canada seeks the ability to enter into interest rate swaps and credit default swaps for the Funds or, if the transaction is for hedging purposes, currency forwards on behalf of the Funds without a restriction as to term of the swap or forward.

9. In order to achieve adequate diversification at a reasonable cost while the Funds remain small, PIMCO Canada anticipates utilizing credit default swaps (CDS) on indexes of credit default swaps (CDX). CDX indexes are linked to the number of the most highly liquid CDS, and therefore permit quick and cost effective diversification to high yield and emerging market issuers.

10. Fixed income investments have risks which include (but are not limited to) interest rate risk, credit risk and currency risk. These risks can be controlled or mitigated through the use of over-the-counter (OTC) derivatives. Interest rate risk may be managed by interest rate swaps, credit risk is managed by credit default swaps and currency risk by currency swaps or forwards.

11. The term of a swap equals the maturity of its exposure, in contrast to other OTC derivatives transactions, such as options and certain other types of forwards, where the contract term and maturity of the underlying security are not related. As a result, there is no restriction under NI 81-102, for example, on a forward referencing an underlying interest having a term of 10 years whereas there is a restriction if the derivative is in the form of a swap.

12. Credit default swaps have a similar risk profile to their reference entity (corporate or sovereign bonds), or in the case of a CDX, to an average of all the reference entities in the CDX index. The term of a CDS imparts credit risk similar to that of a bond of the reference entity with the same term. The Funds will not be able to achieve the same sensitivity to credit risk as their underlying benchmarks by using CDSs with a maximum term of 3 years because their underlying benchmarks may have an average term of greater than 3 years. There is no term restriction in NI 81-102 when investing directly in the reference entities (corporate or sovereign bonds).

13. The term of a swap equals the maturity of its exposure, in contrast to other over-the-counter transactions, such as options and forwards, where the contract term and maturity of the underlying security are not related. There is no restriction under NI 81-102, for example, on a forward with an underlying interest having a term of 10 years whereas there is a restriction if the derivative is in the form of a swap.

14. The interest rate swap market, CDS market and currency forward and swap markets are very large and liquid.

15. With respect to foreign exchange, the Bank for International Settlements reported that the notional amount of outright forwards and foreign exchange swaps outstanding was U.S. $23 trillion as at December, 2009. For comparative purposes, the S&P 500 had an estimated market capitalization of U.S. $10.3 trillion on such date. The Bank for International Settlements also reported that the average daily turnover of OTC foreign exchange was U.S. $4 trillion during April 2010. The average daily turnover of outright forwards and foreign exchange swaps totaled U.S. $2 trillion during such period. For comparative purposes, the daily trading during April, 2010 was, in the case of the New York Stock Exchange, approximately U.S. $75 billion. In the case of the Toronto Stock Exchange, the most recent data shows average daily turnover of approximately CAD $5 billion. Daily trading is many times larger for currencies and currency forwards than for well-known equity exchanges.

16. It is also not market convention to have a transaction with a 5 year term (subject to a right to eliminate the exposure within 3 years) as required by NI 81-102 and, as a result, from time to time, this off-market feature may subject a fund to less efficient pricing.

17. The interest rate swap market, CDS markets and currency forward and swap markets are very large and liquid.

18. Although there is no exchange through which swap and forward contracts are traded, there is a very active OTC market in these contracts. In order to unwind a position, a counterparty could find a new counterparty willing to take over its contract at a fair market price and get the other counterparty to approve the new counterparty. Market participants can also unwind their positions in interest rate swaps and currency swaps or forwards by simply closing out the swap or forward with the counterparty at market value. In the case of CDS, the counterparty can either close out the CDS with the counterparty at market value or it can trade with another counterparty by assigning the swap to the other counterparty (with the consent of the original counterparty).

19. Credit risk exposure to a counterparty on an interest rate swap transaction is generally a small fraction of the underlying notional exposure, equal to the cumulative price change since the inception of the swap. Even that small risk will be mitigated because the counterparty will be required to have an approved credit rating prescribed by NI 81-102 and PIMCO Canada requires collateral transfer. In addition, in situations where the counterparty does not meet PIMCO Canada's own internal criteria, PIMCO Canada requires that credit support be provided by an entity meeting such criteria.

20. Potential credit exposure to a counterparty on a CDS or a CDX is equal to the notional exposure to any issuer in the index who has defaulted, or in the case of a single name CDS, equal to the full notional exposure. As is the case with interest rate swaps, this exposure is mitigated because the counterparty will be required to have an approved credit rating prescribed by NI 81-102, exposure to any individual counterparty is limited by NI 81-102 and PIMCO Canada requires collateral transfer. In addition, in situations where the counterparty does not meet PIMCO Canada's own internal criteria, PIMCO Canada requires that credit support be provided by an entity meeting such criteria.

21. By permitting the Funds to enter into swaps and forwards that have terms beyond 3 years they will have a broader set of investment, it increases the possibility for the Funds to (i) increase returns, due to the fact that the opportunities and (ii) to target exposures that might not otherwise be available in the cash bond markets or could not be achieved as efficiently as in the cash bond markets. Further, the use of swaps and forwards with terms beyond 3 years enables the Funds to effect hedging transactions that are more tailored which should help mitigate underlying investment risks associated with investing in fixed income investments, it enables the Funds to effect hedging transactions that are more efficient and tailored.

Using Fixed Incomes Securities and Floating Rate Debt as Cover

Cash Cover

22. The purpose of the cash cover requirement in NI 81-102 is to prohibit a mutual fund from leveraging its assets when using certain specified derivatives and to ensure that the mutual fund is in a position to meet its obligations on the settlement date. This is evident from the definition of "cash cover", which is defined as certain specific portfolio assets of the mutual fund that have not been allocated for specific purposes and that are available to satisfy all or part of the obligations arising from a position in specified derivatives held by the mutual fund. Currently, the definition of "cash cover" includes six different categories of securities, including certain evidences of indebtedness (cash equivalents and commercial paper) that generally have a remaining term to maturity of 365 days or less and that have an approved credit rating or are issued or guaranteed by an entity with an approved credit rating (collectively, short-term debt).

23. In addition to the securities currently included in the definition of cash cover, the Funds would also like to invest in Fixed Income Securities and/or floating rate evidences of indebtedness for purposes of satisfying their cash cover requirements.

Fixed Income Securities

24. While the money market instruments that are currently permitted as cash cover are highly liquid, these instruments typically generate very low yields relative to longer dated instruments and similar risk alternatives.

25. Other fixed income securities with remaining terms to maturity of less than 365 days and approved credit ratings are also highly liquid but provide the potential for higher yields.

26. The definition of cash cover addresses regulatory concerns of interest rate risk and credit risk by limiting the terms of the instruments and requiring the instruments to have an approved credit rating. It is submitted that by permitting the Funds to use for cash cover purposes Fixed Income Securities with a remaining term to maturity of 365 days or less and an approved credit rating, the regulatory concerns are met, since the term and credit rating will be the same as other short-term debt instruments currently permitted to be used as cash cover.

Floating Rate Evidences of Indebtedness

27. Floating rate evidences of indebtedness, also known as floating rate notes (FRNs), are debt securities issued by the federal or provincial governments, the Crown or other corporations and other entities with floating interest rates that reset periodically, usually every 30 to 90 days. Although the term to maturity of FRNs can be more than 365 days, the Funds propose to limit their investment in FRNs used for cash cover purposes to those that have interest rates that reset at least every 185 days.

28. Allowing the Funds to use FRNs for cash cover purposes could increase the rate of return earned by each of the Fund's investors without reducing the credit quality of the instruments held as cash cover. The frequent interest rate resets mitigate the risk of investing in FRNs as cash cover. For the purposes of money market funds under NI 81-102 meeting the 90 days dollar-weighted average term to maturity, the term of a floating rate evidence of indebtedness is the period remaining to the date of the next rate setting. If a FRN resets every 365 days, then the interest rate risk of the FRN is about the same as a fixed rate instrument with a term to maturity of 365 days.

29. Financial instruments that meet the current cash cover requirements have low credit risk. The current cash cover requirements provide that evidences of indebtedness of issuers, other than government agencies, must have approved credit ratings. As a result, if the issuer of FRNs is an entity other than a government agency, the FRNs used by the Funds for cash cover purposes will have an approved credit rating as required by NI 81-102.

30. Given the frequent interest rate resets, the nature of the issuer and the adequate liquidity of FRNs, the risk profile and the other characteristics of FRNs are similar to those of short-term debt, which constitute cash cover under NI 81-102.

Using Put Options as Cover for Long Positions in Futures, Forwards and Swaps

31. Sections 2.8(1)(d) and 2.8(1)(f)(i) of NI 81-102 do not permit covering the position in long positions in futures and forwards and long positions in swaps for a period when a fund is entitled to receive payments under the swap, in whole or in part with a right or obligation to sell an equivalent quantity of the underlying interest of the future, forward or swap. In other words, those sections of NI 81-102 do not permit the use of put options or short future positions to cover long future, forward or swap positions.

32. Regulatory regimes in other countries recognize the hedging properties of options for all categories of derivatives, including long positions evidenced by standardized futures or forwards or in respect of swaps where a fund is entitled to receive payments from the counterparty, provided they are covered by an amount equal to the difference between the market price of a holding and the strike price of the option that was bought or sold to hedge it. NI 81-102 effectively imposes the requirement to overcollateralize, since the maximum liability to the fund under the scenario described is equal to the difference between the market value of the long and the exercise price of the option. Overcollateralization imposes a cost on a fund.

33. Section 2.8(1)(c) of NI 81-102 permits a mutual fund to write a put option and cover it with buying a put option on an equivalent quantity of the underlying interest of the written put option. This position has similar risks as a long position in a future, forward or swap and therefore, PIMCO Canada submits that the Funds should be permitted to cover a long position in a future, forward or swap with a put option or short future position.

Derivative Policies and Risk Management

34. PIMCO Canada sets and reviews the investment objectives and overall investment policies of the Funds, which will allow for trading in derivatives. The derivative contracts entered into by or on behalf of the Funds must be in accordance with the investment objectives and strategies of each of the Funds and in compliance with NI 81-102.

35. Pursuant to its agreement with PIMCO appointing it as the portfolio adviser to the Funds, PIMCO Canada will permit PIMCO to use derivatives for the Funds under certain conditions and limitations in order to gain exposure to financial markets or to invest indirectly in securities or other assets. Such agreement will also require PIMCO to use risk management processes to monitor and measure the risks of all portfolio holdings within the Funds, including derivatives positions.

36. As manager of the Funds, PIMCO Canada will supervise and oversee PIMCO in the use of derivatives as investments within the Funds and PIMCO Canada will put in place policies and procedures which will set out supervision and oversight processes to ensure that the use of derivatives is adequately monitored and derivatives risk is appropriately managed.

37. The simplified prospectus and annual information form of the Funds will include disclosure of the nature of the exemptions granted in respect of the Funds.

38. Without these exemptions, the Funds will not have the flexibility to enhance yield and to manage more effectively the exposures under specified derivatives.

Short Selling

39. PIMCO Canada proposes that each Fund be authorized to engage in a limited, prudent and disciplined amount of short selling. PIMCO Canada is of the view that the Funds could benefit from the implementation and execution of a controlled and limited short selling strategy. This strategy would operate as a complement to the Funds' current primary discipline of buying securities with the expectation that they will appreciate in market value.

40. Short sales will be made only if they are consistent with each Fund's investment objectives.

41. In order to effect a short sale, a Fund will borrow securities from either its custodian or a dealer (in either case, a Borrowing Agent), which Borrowing Agent may be acting either as principal for its own account or as agent for other lenders of securities.

42. The Fund will be required to deposit Fund assets with the Borrowing Agent as security in connection with the short sale transaction in accordance with usual industry practice.

43. All short sales will be effected through market facilities through which the securities sold short are normally bought and sold and will be sold short within normal trade settlement periods for the market in which the short sale is effected. Securities will be sold short for cash only.

44. The securities sold short will not be "illiquid assets" as such term is defined in NI 81-102, and will be securities that are either:

(a) listed and posted for trading on a stock exchange; and

(i) the issuer of the security has a market capitalization of not less than CDN $100 million, or the equivalent thereof, at the time the short sale is effected; or

(ii) the Fund's portfolio advisor has pre-arranged to borrow the securities for the purpose of such sale; or

(b) bonds, debentures or other evidences of indebtedness of, or guaranteed by, any issuer.

45. Each Fund will hold cash cover (as defined in NI 81-102) to cover its obligations in relation to the short sale.

46. Each Fund will maintain appropriate internal controls regarding its short sales including written policies and procedures, risk management controls and proper books and records of all short sales and Fund assets deposited with Borrowing Agents as security.

Sovereign and Supranational Debt

47. The investment objective of PIMCO Global Advantage Strategy Bond Fund (Canada) (Global Advantage Fund) is to seek a total return which exceeds that of its benchmark consistent with prudent investment management.

48. Global Advantage Fund will invest primarily in non-Canadian fixed income securities, such as bonds and debentures issued by governments and corporations, mortgage and other asset-backed securities, obligations of international and supranational entities or by obtaining exposure to such securities.

49. The Concentration Restriction prevents Global Advantage Fund from purchasing a security of an issuer or entering into a specified derivatives transaction, if immediately after the transaction, more than 10 percent of the net assets of Global Advantage Fund would be invested in securities of any issuer.

50. The Concentration Restriction does not apply to a purchase of a "government security", which, under NI 81-102, means an evidence of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a jurisdiction or the government of the United States of America.

51. Prior to the adoption of the Euro, there were greater diversification opportunities as the European debt markets comprised several currency-denominated issuers (including well developed and liquid markets for Lira, Franc, and Mark issued debt securities), each impacted by national government monetary policies. In contrast, today the European debt markets are dominated by Euro-currency denominated debt which comprises approximately 40% of the world government bond market and the coordinated monetary policy followed by the members of the European Union has effectively reduced diversification opportunities.

52. PIMCO Canada believes that the exemption sought will be in the best interests of Global Advantage Fund for the following reasons:

(a) it will provide more flexibility and more favourable prospects for Global Advantage Fund because Global Advantage Fund will be better able to compose a global fixed income portfolio that will best achieve its investment objectives;

(b) in certain jurisdictions, the securities of supranational agencies or governments may be the only liquid or rated debts available for investment; and

(c) higher concentration limits may allow Global Advantage Fund to benefit from investment efficiencies and reduced transaction costs as certain foreign government treasury offerings are more readily available for investment and trades can be completed faster in certain markets that are more readily accessible to foreign investment.

Decision

The principal regulator is satisfied that the decision meets the test contained in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided that:

1. in the case of the Fixed Income and FRN Cover Requested Relief:

(a) the Fixed Income Securities have a remaining term to maturity of 365 days or less and have an "approved credit rating" as defined in NI 81-102;

(b) the FRNs meet the following requirements:

(i) the floating interest rates of the FRNs reset no later than every 185 days;

(ii) the FRNs are floating rate evidences of indebtedness with the principal amounts of the obligations that will continue to have a market value of approximately par at the time of each change in the rate to be paid to the holders of the evidences of indebtedness;

(iii) if the FRNs are issued by a person or company other than a government or "permitted supranational agency" as defined in NI 81-102, the FRNs must have an "approved credit rating" as defined in NI 81-102;

(iv) if the FRNs are issued by a government or permitted supranational agency, the FRNs have their principal and interest fully and unconditionally guaranteed by (I) the government of Canada or the government of a jurisdiction in Canada; or (II) the government of the United States of America, the government of one of the states of the United States of America, the government of another sovereign state or a "permitted supranational agency" as defined in NI 81-102, if, in each case, the FRN has an "approved credit rating" as defined in NI 81-102; and

(v) the FRNs meet the definition of "conventional floating rate debt instrument" in section 1.1 of NI 81-102;

2. in the case of the Put Option Cover Requested Relief:

(a) when a Fund enters into or maintains a swap position for periods when the Fund would be entitled to receive fixed payments under the swap, the Fund holds:

(i) cash cover, Fixed Income Securities or FRNs (collectively, Cover), in an amount that, together with margin on account for the swap and the market value of the swap, is not less than, on a daily mark-to-market basis, the underlying market exposure of the swap;

(ii) a right or obligation to enter into an offsetting swap on an equivalent quantity and with an equivalent term and Cover that together with margin on account for the position is not less than the aggregate amount, if any, of the obligations of the Fund under the swap less the obligations of the Fund under such offsetting swap; or

(iii) a combination of the positions referred to in clauses (a) and (b) that is sufficient, without recourse to other assets of the Funds, to enable the Funds to satisfy its obligations under the swap; and

(b) when a Fund opens or maintains a long position in a debt-like security that has a component that is a long position in a forward contract, or in a standardized future or forward contract, the Fund holds:

(i) cash cover, Fixed Income Securities or FRNs (collectively, Cover), in an amount that, together with margin on account for the specified derivative and the market value of the specified derivative, is not less than, on a daily mark-to-market basis, the underlying market exposure of the specified derivative;

(ii) a right or obligation to sell an equivalent quantity of the underlying interest of the future or forward contract, and Cover that together with margin on account for the position, is not less than the amount, if any, by which the price of the future or forward contract exceeds the strike price of the right or obligation to sell the underlying interest; or

(iii) a combination of the positions referred to in subparagraphs a) and b) that is sufficient, without recourse to other assets of the Fund, to enable the Fund to acquire the underlying interest of the future or forward contract;

(c) a Fund will not (i) purchase a debt-like security that has an option component or an option, or (ii) purchase or write an option to cover any positions under section 2.8(1)(b), (c), (d), (e) and (f) of NI 81-102, if immediately after the purchase or writing of such option, more than 10% of the net assets of the Fund, taken at market value at the time of the transaction, would be in the form of (1) purchased debt-like securities that have an option component or purchased options, in each case, held by the Fund for purposes other than hedging, or (2) options used to cover any positions under section 2.8(1)(b), (c), (d), (e) and (f) of NI 81-102;

3. in the case of the Swap and Currency Derivatives Requested Relief, Fixed Income and FRN Cover Requested Relief, and the Put Option Cover Requested Relief, each of the Funds shall disclose the nature and terms of the Cover Requested Relief in the Fund's prospectus under the Investment Strategies section and in the Fund's annual information form;

4. in the case of the Short Selling Requested Relief:

(a) any short sales made by the Fund will be subject to compliance with the investment objectives of the Fund;

(b) any short sales will be effected through market facilities through which the securities sold short are normally bought and sold;

(c) the security sold short is sold for cash;

(d) no proceeds from short sales by the Fund will be used by the Fund to purchase long positions in securities other than cash cover;

(e) the Short Selling Requested Relief will not apply to a Fund that is classified as a money market fund;

(f) the aggregate market value of all securities sold short by the Fund does not exceed 20% of the total net assets of the Fund on a daily marked-to-market basis;

(g) the aggregate market value of all securities of an issuer that are sold short by the Fund shall not exceed 5% of the total net assets of the Fund on a daily marked-to-market basis;

(h) the Fund will hold "cash cover" (as defined in NI 81-102) in an amount, including the Fund assets deposited with Borrowing Agents as security in connection with short sale transactions, that is at least 150% of the aggregate market value of all securities sold short by the Fund on a daily marked-to-market basis;

(i) except where the Borrowing Agent is the Fund's custodian, where the Fund deposits Fund assets with a Borrowing Agent as security in connection with a short sale transaction, the amount of Fund assets deposited with the Borrowing Agent does not, when aggregated with the amount of the Fund assets already held by the Borrowing Agent as security for outstanding short sale transactions of the Fund, exceed 10% of the total net assets of the Fund, taken at market value as at the time of the deposit;

(j) for short sale transactions in Canada, every dealer that holds Fund assets as security in connection with short-sale transactions by the Fund shall be a registered dealer in Canada and a member of a self-regulatory organization that is a participating member of the Canadian Investment Protection Fund;

(k) for short sale transactions outside of Canada, every dealer that holds Fund assets as security in connection with short sale transactions by the Fund shall:

(i) be a member of a stock exchange, and, as a result, is subject to a regulatory audit; and

(ii) have a net worth in excess of the equivalent of $50 million determined from its most recent audited financial statements that have been made public;

(l) the security interest provided by a Fund over any of its assets that is required to enable the Fund to effect short sale transactions, is made in accordance with industry practice for that type of transaction and relates only to obligations arising under such short sale transactions;

(m) the Fund will maintain appropriate internal controls regarding its short sales including written policies and procedures, risk management controls and proper books and records;

(n) prior to conducting any short sales, the Fund discloses in its simplified prospectus a description of: (i) short selling, (ii) how the Fund intends to engage in short selling, (iii) the risks associated with short selling, and (iv) in the Investment Strategy section of the simplified prospectus, the Fund's strategy and this exemptive relief;

(o) prior to conducting any short sales, the Fund discloses in its annual information form the following information:

(i) that there are written policies and procedures in place that set out the objectives and goals for short selling and the risk management procedures applicable to short selling;

(ii) who is responsible for setting and reviewing the policies and procedures referred to in the preceding paragraph, how often the policies and procedures are reviewed, and the extent and nature of the involvement of the board of directors of PIMCO Canada in the risk management process;

(iii) whether there are trading limits or other controls on short selling in place and who is responsible for authorizing the trading and placing of limits or other controls on the trading;

(iv) whether there are individuals or groups that monitor the risks independent of those who trade; and

(v) whether risk measurement procedures or simulations are used to test the portfolio under stress conditions;

(p) prior to conducting any short sales, either the Fund's initial simplified prospectus and annual information form and each renewal thereof has included the disclosure in the Fund's simplified prospectus and annual information form as outlined in paragraphs (n) and (o) above or the Fund has provided to its securityholders not less than 60 days' written notice that discloses the Fund's intent to begin short selling transactions and such disclosure in the Fund's simplified prospectus and annual information form;

5. in the case of the Sovereign Government and Supranational Entity Debt Concentration Requested Relief:

(a) the securities that are purchased pursuant to this Relief are traded on a mature and liquid market;

(b) the acquisition of the securities purchased pursuant to this Relief is consistent with the fundamental investment objective of each Fund;

(c) the simplified prospectus of the Fund discloses the additional risks associated with the concentration of net assets of the Funds in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risks, of investing in the country in which that issuer is located; and

(d) the simplified prospectus of the Funds discloses, in the investment strategy section, the details of the Sovereign Government and Supranational Entity Debt Concentration Requested Relief along with the conditions imposed and the type of securities covered by this Relief.

SCHEDULE A