Headnote National Policy 11-203 – relief granted from the requirement to obtain securityholder approval of merger under NI 81-102 Mutual Funds and approval granted for mutual fund merger – securities of the mutual funds only available for purchase by unitholders who have entered into discretionary investment management agreements giving full discretionary authority to manager – investment objectives of terminating fund and continuing fund substantially similar – merger is neutral from fee and expense perspective – costs of merger borne by manager – convening unitholder meeting would represent an unnecessary expense.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.1(f), 5.5(1)(b), 5.6 and 19.1.
July 27, 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
BMO Harris Investment Management Inc.
(the Filer)
and
BMO Harris Growth Opportunities Portfolio
(the Terminating Fund)
DECISION DOCUMENT
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
(a) exempting the Terminating Fund from subsection 5.1(f) of NI 81-102, which requires a mutual fund to obtain the prior approval of its unitholders before the mutual fund undertakes a reorganization with, or transfers its asset to, another mutual fund (the Unitholder Meeting Relief); and
(b) approving of the merger (the Merger) of the Terminating Fund into BMO Harris Canadian Growth Equity Portfolio (the Continuing Fund) pursuant to subsection 5.5(1)(b) of NI 81-102 (the Merger Approval)
(collectively, the Unitholder Meeting Relief and the Merger Approval shall be referred to as the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Prince Edward Island.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings in this decision unless they are defined in this decision. The following additional terms shall have the following meanings:
BMO Harris Funds means collectively the Terminating Fund, the Continuing Fund and other mutual funds managed by the Filer;
Current Simplified Prospectus means the simplified prospectus and annual information form dated November 4, 2009, as amended, that qualifies the BMO Harris Funds for sale;
IRC means the independent review committee for the Terminating Fund and the Continuing Fund;
NI 81-102 means National Instrument 81-102 Mutual Funds;
NI 81-106 means National Instrument 81-106 Investment Fund Continuous Disclosure;
NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds; and
Tax Act means the Income Tax Act (Canada).
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation established under the laws of Ontario. The head office of the Filer is located in Toronto, Ontario.
The Filer is the manager and portfolio manager of the Terminating Fund and the Continuing Fund. An affiliate of the Filer, BMO Trust Company, is the trustee of the Continuing Fund and Terminating Fund.
The Filer, an indirect, wholly-owned subsidiary of Bank of Montreal, is registered as a portfolio manager in each of the provinces and territories of Canada, as an exempt market dealer, commodity trading counsel and commodity trading manager in Ontario and as a derivatives portfolio manager in Quebec.
The Funds
Each of the Terminating Fund and the Continuing Fund is an open-ended mutual fund trust established under the laws of the Province of Ontario by declaration of trust.
Units of the BMO Harris Funds are qualified for sale in each jurisdiction in Canada by the Current Simplified Prospectus and each of the BMO Harris Funds is subject to NI 81-102.
The Terminating Fund and Continuing Fund are reporting issuers under the applicable securities legislation of each jurisdiction in Canada and are not on the list of defaulting reporting issuers maintained under such securities legislation.
Unless an exemption has been obtained, each of the Terminating Fund and the Continuing Fund follows the standard investment restrictions and practices established by the securities regulatory authorities in each jurisdiction in Canada.
The net asset value for securities of the Terminating Fund and the Continuing Fund is calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading.
The Filer proposes to merge the Terminating Fund into the Continuing Fund on or about September 24, 2010.
Unitholder Meeting Relief
The Filer offers fully discretionary investment management services to clients in each jurisdiction in Canada, including all of the investors in the BMO Harris Funds.
The BMO Harris Funds were established as an efficient and cost effective means of providing discretionary investment management services to many of the Filer’s clients, including all of the investors in the Terminating Fund and the Continuing Fund, as an alternative to segregated account management.
The Filer has determined that it is appropriate to effect the Merger without obtaining unitholder approval.
The Filer believes that the Merger is in the best interests of the unitholders of the Terminating Fund and the Continuing Fund, as the Merger would result in unitholders being invested in a larger Continuing Fund that has increased portfolio diversification opportunities, and in the case of the Terminating Fund, there will be a savings in brokerage charges over a straight liquidation of its portfolio on a wind-up of the Fund.
The proposed Merger is neutral to the unitholders of each of the Terminating Fund and Continuing Fund from a fee and expense perspective.
The investment objectives of the Terminating Fund and the Continuing Fund are substantially similar.
Clause 5.1(f) of NI 81-102 requires that the approval of the securityholders of a mutual fund be obtained before the mutual fund undertakes a reorganization with, or transfers its assets to, another mutual fund.
Units of the Terminating Fund are only available for purchase by investors who have entered into a discretionary investment management agreement with the Filer.
The Filer is authorized under its discretionary investment management agreement with each client who is an investor in a BMO Harris Fund to make any investment on behalf of the client (provided such investment is consistent with the mandate established by that client). This includes buying and selling any securities (including securities of a BMO Harris Fund) without obtaining the client’s approval.
Under its discretionary investment management agreement with each client, the Filer or its affiliate is authorized to receive all securityholder materials relating to the