RBC Asset Management Inc. and Phillips, Hager & North Investment Management Ltd.

Headnote

National Policy 11-203, Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from conflict of interest provisions to allow mutual funds to purchase equity securities pursuant to offerings made in the United States in which a related dealer acts as underwriter -- relief required as growing status of filer's related dealers in equity underwriting activities in the United States was limiting ability of funds to acquire securities in the United States pursuant to a distribution -- impact of this created a "market necessity" for relief -- all purchases subject to independent review committee approval and securities must be distributed pursuant to prospectus qualified in the United States or by private placement of securities of a reporting issuer in the United States.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds , ss. 4.1, 19.1.

July 30, 2010

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

RBC ASSET MANAGEMENT INC. AND

PHILLIPS, HAGER & NORTH INVESTMENT

MANAGEMENT LTD.

(each, a Filer and, collectively, the Filers)

AND

IN THE MATTER OF

THE FUNDS

(as defined below)

DECISION

Background

The principal regulator in the Jurisdiction received an application (the Application) from the Filers on behalf of existing mutual funds and additional or future mutual funds to which National Instrument 81-102 -- Mutual Funds (NI 81-102) applies (each, a Fund and, collectively, the Funds) for which a Filer, or an affiliate of a Filer, acts as the manager or portfolio adviser for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Funds from the prohibition in Section 4.1(1) of NI 81-102 to permit the Funds to make an investment in a class of equity securities (Securities) of an issuer during the period of the distribution (the Distribution) or during the period of 60 days after the Distribution (the 60-Day Period), notwithstanding that an associate or affiliate of a Filer acts as an underwriter in the Distribution.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the principal regulator for the Application; and

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

Interpretation

Terms defined in the securities legislation of Ontario and the Passport Jurisdictions (the Jurisdictions), National Instrument 14-101 -- Definitions, NI 81-102 or National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meanings in this Decision. Certain other defined terms have the meanings given to them above or below under "Representations".

Representations

1. The Filers and the Funds are not in default of securities legislation in any of the Jurisdictions.

2. Each of the Funds is, or will be, an open-ended mutual fund trust or corporation established under the laws of the Province of Ontario or another Jurisdiction.

3. Each of the Funds is, or will be, a dealer managed mutual fund that is a reporting issuer in each of the Jurisdictions.

4. A Filer, or an affiliate of a Filer, is, or will be, the manager or portfolio adviser of each of the Funds.

5. An independent review committee (the IRC) has been, or will be, appointed for each of the Funds under NI 81-107.

6. Each Filer is currently an affiliate of RBC Dominion Securities Inc. and RBC Capital Markets Corporation (each, a Related Dealer), either of which may act as an underwriter in a Distribution.

7. Each Filer and each Related Dealer is an affiliate of the Royal Bank of Canada (RBC) which is a global financial institution. RBC may also act as an underwriter in a Distribution. (RBC and each Related Dealer are, collectively, the Related Dealers.)

8. The Related Dealers currently carry on their investment banking businesses in many countries outside of Canada, but primarily in the United States.

9. The Related Dealers may, from time to time, expand their investment banking businesses such that a Filer, or an affiliate of a Filer, may become an affiliate or associate of additional dealers (also, each, a Related Dealer and, collectively with RBC, the Related Dealers), any of which may act as an underwriter in a Distribution.

10. Each Fund relying on the Exemption Sought will have an investment objective that permits it to invest in Securities of issuers that are not reporting issuers in a Jurisdiction.

11. The Filers have implemented policies and procedures and obtained the approval and standing instructions from the IRC of the Funds in order to rely on Section 4.1(4)(c) of NI 81-102 where the issuer has filed a prospectus in Canada. RBC AM has also referred this matter to its IRC in anticipation of the RBC Funds receiving exemptive relief to participate in Distributions in the United States. The RBC AM IRC voted unanimously to give its approval (subject to complying with the terms and conditions of applicable exemptive relief) to permit the RBC Funds to act in accordance with the same policies and procedures applicable to situations where Related Dealers act as an underwriter in a Distribution of an issuer who has filed a prospectus in a jurisdiction in Canada. The PHN IRC provided a similar approval.

12. Since November 1, 2007 there have been several Distributions in the United States in which a Related Dealer acted as an underwriter and in which the Funds could not purchase Securities in the Distribution or during the 60-Day Period because the Distribution was not made by a prospectus filed with one or more securities regulatory authorities or the issuers were not reporting issuers in a Jurisdiction and, accordingly, neither Section 4.1(4) of NI 81-102 nor the Decision could be relied upon.

13. The issue for the Funds continues to be significant as the Related Dealers expand their activities. It is anticipated that the Related Dealers will become increasingly active in 2010 and beyond due to the growing presence of RBC in the global equity markets, and in the United States in particular. As a result, the Funds will be restricted from a significantly larger number of underwritings in the United States. With respect to the United States, the number of Distributions that Related Dealers participated in during 2009 increased approximately 100% over the number in 2008. This increase had a direct impact on the Funds since they were restricted from investing in strategic U.S. equity issuers. In 2009, there were over 818 equity underwritings in the United States that were registered with the SEC and Related Dealers participated in 135. This represents an overall participation rate by value of 24%. However, on a monthly basis Related Dealers participated in as high as 49% of the United States equity underwritings based on value of transactions and as high as 47% of the United States equity underwritings based on number of transactions.

14. Each Filer considers that the Funds have been negatively impacted by not being able to purchase during a Distribution, or in the 60-Day Period, securities that are consistent with its investment objective. Forgoing participation in these investment opportunities represents a significant opportunity cost for the relevant Funds, as they are being denied access to investment opportunities as a result of the coincidental participation of a Related Dealer in the transaction, particularly when there is a regulatory and governance framework in place to oversee participation in similar transactions.

15. The Prohibition is detrimental for the Funds in so far as it also serves to prevent the Funds from supplementing existing positions, when issuers that the Funds may already hold securities in, are raising capital by distributing additional securities. This prevents the Funds from maintaining their strategic percentage holdings in a given issuer relevant to the overall portfolio holdings.

16. In almost all Distributions in respect of which the Exemption Sought is required, a Related Dealer's involvement as an underwriter in a particular Distribution will not be known by a Filer, or an affiliate of a Filer, sufficiently long enough in advance to make an application for relief on a case-by-case basis. In the case of the 2009 Distributions in the United States, a majority required a response within 12 hours. In the case of the remaining transactions the response time was often only one or two days, which did not permit an application either.

17. A Filer has generally, to date, been made aware of the Distribution and invited to participate on behalf of a Fund by an underwriter which is not a Related Dealer. For example, on May 8, 2009, RBC AM and the sub-advisers to the relevant Funds wished to participate in the Distribution of Wells Fargo common shares on behalf of certain Funds but, upon learning about the involvement of a Related Dealer in the underwriting, were unable to. This did not allow the Filer to add Wells Fargo to the existing positions of certain Funds in this security. As well, on May 12, 2009, RBC AM wished to participate in a Distribution of common shares of Ford Motor Company; however, RBC AM was unable to participate in the Distribution upon learning of the involvement of a Related Dealer in the underwriting even though RBC AM's intention was to supplement existing positions on behalf of certain Funds.

18. The prejudice that results for a Fund that is restricted from purchasing Securities is that the portfolio manager's discretion with respect to managing the portfolio is negatively impacted because if he/she can not make appropriate commitments or expressions of interest in respect of Securities, he/she can also not make appropriate decisions with respect to other securities of a Fund. The prejudice that results for a Fund also puts the Funds at a competitive disadvantage to almost all other Canadian funds since the Filers are among the few firms, if not the only firms, with a related party dealer that is involved on a frequent basis in these types of underwritings.

19. A Distribution in respect of which the Exemption Sought is requested will be made by means of a prospectus, or similar public offering document (a Public Offering), or by means of a private placement (a Private Placement) in the United States. The Securities issued in the Distribution will be listed on a stock exchange that is a "recognized stock exchange" within the meaning of section 248(1) of the Income Tax Act (Canada) (a Recognized Exchange).

20. A Distribution in respect of which the Exemption Sought is requested will be made by means of a Private Placement in the Jurisdictions in which the Distribution takes place.

21. Since the Funds are dealer-managed funds because of the relationship between a Filer and the Related Dealer, the Prohibition is applicable even in circumstances where a sub-advisor is exercising discretion with respect to a purchase if the sub-advisor has knowledge of the involvement of a Related Dealer.

Decision

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

The decision of the principal regulator is that the Exemption Sought is granted, provided that the following conditions are satisfied:

(a) the IRC of the Fund must approve the transaction in accordance with the requirements of subsection 5.2(2) of NI 81-107;

(b) the Distribution must be made by way of a Public Offering or a Private Placement in the United States;

(c) any Related Dealer that is involved in the Distribution must be regulated in respect of its underwriting activities in Canada or the United States;

(d) the Securities issued in the Distribution must be listed on a Recognized Exchange;

(e) if the Securities are acquired in the 60-Day Period, they must be acquired on a Recognized Exchange;

(f) no later than the time the Funds file their annual financial statements, the Filers file the particulars of each investment made by the Funds during their most recently completed financial year; and

(g) appropriate disclosure of the terms of the Exemption Sought is made.