September 5, 2018
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 ASSET MANAGEMENT INC.
(BMO AM)
AND
BMO ASCENTTM INCOME PORTFOLIO
BMO ASCENTTM CONSERVATIVE PORTFOLIO
BMO ASCENTTM BALANCED PORTFOLIO
BMO ASCENTTM GROWTH PORTFOLIO
BMO ASCENTTM EQUITY GROWTH PORTFOLIO
BMO SELECTCLASS® INCOME PORTFOLIO
BMO SELECTCLASS® BALANCED PORTFOLIO
BMO SELECTCLASS® GROWTH PORTFOLIO
BMO SELECTCLASS® EQUITY GROWTH PORTFOLIO
BMO SELECTTRUST® FIXED INCOME PORTFOLIO
BMO SELECTTRUST® INCOME PORTFOLIO
BMO SELECTTRUST® CONSERVATIVE PORTFOLIO
BMO SELECTTRUST® BALANCED PORTFOLIO
BMO SELECTTRUST® GROWTH PORTFOLIO
BMO SELECTTRUST® EQUITY GROWTH PORTFOLIO
(the Initial Top Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from BMO AM on behalf of the Initial Top Funds and such other mutual funds with similar investment objectives that are subject to National Instrument 81-102 Investment Funds (NI 81-102) as may be managed by BMO AM or an affiliate or successor of BMO AM (the Filer) from time to time (the Top Funds and individually, a Top Fund) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption, pursuant to section 19.1 of NI 81-102, from:
i. the prohibition contained in paragraph 2.5(2)(a) of NI 81-102 against a mutual fund investing in another mutual fund that is not subject to NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101); and
ii. the prohibition contained in paragraph 2.5(2)(c) of NI 81-102 against a mutual fund investing in another mutual fund’s securities where those securities are not qualified for distribution in the local jurisdiction
(together with paragraph (i) above, the Exemption Sought),
to permit each Top Fund to invest up to 10% of its net asset value, taken at market value at the time of the investment, in units of the Underlying Alternative Funds (as defined below).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the 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 Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and Yukon (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following term shall have the following meaning:
Underlying Alternative Funds means BMO AM Global Absolute Return Bond Fund and BMO AM Market Neutral Global Equity Fund.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
BMO AM is a corporation with its head office located in Toronto, Ontario.
BMO AM is registered as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador, as an exempt market dealer and a portfolio manager in each of the Jurisdictions and as a commodity trading manager in Ontario.
The Filer is not in default of securities legislation in any of the Jurisdictions.
The Filer is, or will be, the manager of each Top Fund and each Underlying Alternative Fund.
The Top Funds
Each Top Fund is, or will be, a “mutual fund”, as such term is defined under the Securities Act (Ontario) (the Act).
Each Top Fund has, or will have, a simplified prospectus, annual information form and fund facts document prepared in accordance with NI 81-101 or a prospectus prepared in accordance with National Instrument 41-101 General Prospectus Requirements, and securities of each Top Fund are, or will be, qualified for distribution in the Jurisdictions.
Each Top Fund is, or will be, a reporting issuer under the securities legislation of one or more Jurisdictions and is, or will be, subject to NI 81-102.
None of the existing Top Funds is in default of securities legislation in any of the Jurisdictions.
The Top Funds are, or will be, asset allocation funds whose investment objectives and strategies allow, or will allow, them to invest, directly or indirectly, in fixed income securities and/or equity securities and, as part of this asset allocation strategy, permit them to invest in securities of other mutual funds.
The investment objectives and strategies of each Top Fund permit the Top Fund to invest in units of the Underlying Alternative Funds, subject to being granted the Exemption Sought. Each Initial Top Fund has a specific target allocation to each of the asset classes in which the Underlying Alternative Funds primarily invest.
The Underlying Alternative Funds
The Underlying Alternative Funds are each a “mutual fund”, as such term is defined under the Act, formed as a trust under the laws of Ontario pursuant to a declaration of trust.
The Underlying Alternative Funds are not reporting issuers in any of the Jurisdictions and are not therefore subject to NI 81-102.
Units of the Underlying Alternative Funds are available for purchase only by investors that qualify to invest in the Underlying Alternative Funds pursuant to an exemption from the prospectus requirement, such as those that meet the definition of an “accredited investor” as set forth in National Instrument 45-106 Prospectus Exemptions and/or the Act.
The investment objective of BMO AM Global Absolute Return Bond Fund is to deliver a return through a combination of income and capital growth irrespective of market conditions by investing primarily in fixed income instruments from across the global fixed income universe. BMO AM Global Absolute Return Bond Fund invests primarily in a globally diversified multi-sector portfolio of fixed income instruments. It will typically have at least two thirds of its total assets invested in corporate bonds, with the remaining allocated amongst non-corporate bonds. It may use financial derivative instruments for hedging investment risk, reducing the impact of volatility on the fund and for investment purposes. Synthetic long positions and synthetic short positions may be taken through these financial derivatives instruments. Its strategies include the use of specified derivatives to provide leveraged investments.
The investment objective of BMO AM Market Neutral Global Equity Fund is to deliver capital growth, over the medium term by employing a global long/short market neutral equity strategy. BMO AM Market Neutral Global Equity Fund implements a long/short strategy by investing in specified derivatives on customised baskets of global equity securities. It invests primarily in a portfolio of high quality, short dated government bonds, cash OTC total return swaps and currency forwards. Its strategies include the use of specified derivatives to provide leveraged investments.
Investments in BMO AM Global Absolute Return Bond Fund
An investment by the Top Funds in BMO AM Global Absolute Return Bond Fund will be compatible with the investment objectives and strategies of those Top Funds that desire income and capital growth through investments in global fixed income securities.
The Filer believes that an investment in BMO AM Global Absolute Return Bond Fund will provide an efficient and cost effective way for the Top Funds to achieve diversification and maximize absolute returns while seeking to remove market risk. Allowing the Top Funds to