BMO Investments Inc. (Re), 2021 CanLII 109018

November 2, 2021

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 INVESTMENTS INC. (the Filer)

and

BMO Global Growth & Income Fund

(the Terminating Fund)

DECISION

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 (the Legislation) approving the proposed merger (the Merger) of the Terminating Fund into BMO Global Equity Fund (the Continuing Fund) pursuant to paragraph 5.5(1)(b) of NI 81-102 (the Approval Sought).

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 Filer has provided notice that section 4.7(2) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Canadian 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 additional terms shall have the following meanings:

Fund or Funds means, individually or collectively, the Terminating Fund and the Continuing Fund;

IRC means the independent review committee for the Funds;

NI 81-102 means National Instrument 81-102 Investment 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 and the Funds

1. The Filer is a corporation amalgamated under the laws of Canada with its head office in Toronto, Ontario.

2. The Filer is the manager of the Funds and is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, and as a mutual fund dealer in Ontario and the Other Jurisdictions.

3. Each Fund is an open‑ended mutual fund established as a trust under the laws of Ontario.

4. Units of the Funds are currently qualified for sale under a simplified prospectus, annual information form and fund facts each dated May 26, 2021, as amended (collectively, the Offering Documents).

5. Each of the Funds is a reporting issuer under the applicable securities legislation of the Canadian Jurisdictions.

6. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under NI 81-102.

7. The net asset value for each series of the Funds is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the Offering Documents.

8. The Continuing Fund has substantially similar valuation procedures to those of the Terminating Fund.

9. Units of the Continuing Fund are qualified investments under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax free savings accounts (collectively, the Registered Plans).

10. Neither the Filer nor the Funds is in default under the applicable securities legislation of the Canadian Jurisdictions.

Reason for Approval Sought

11. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 (the Pre-Approval Criteria). The Merger does not satisfy the Pre-Approval Criteria in the following ways:

(a) the fundamental investment objective of the Continuing Fund is not, or may be considered not to be, “substantially similar” to the investment objective of the Terminating Fund; and

(b) the fee structure of the Continuing Fund is not, or may be considered not to be, “substantially similar” to the fee structure of the Terminating Fund.

12. Except as described in this decision, the proposed Merger complies with all of the other Pre-Approval Criteria.

The Proposed Merger and Unitholder Disclosure

13. Effective on or about November 19, 2021, if all required approvals for the Merger are obtained, it is proposed that the Terminating Fund will merge into the Continuing Fund, with each series of the Terminating Fund merging into an equivalent series of the Continuing Fund. The Continuing Fund will continue as a publicly offered open‑end mutual fund.

14. In accordance with NI 81-106, a press release announcing the proposed Merger was issued and filed via SEDAR on August 26, 2021. A material change report was filed via SEDAR on August 26, 2021 and amendments to the Offering Documents were filed via SEDAR on August 27, 2021 with respect to the proposed Merger.

15. As required by NI 81-107, an IRC has been appointed for the Funds. The Filer presented the potential conflict of interest matters related to the proposed Merger to the IRC for a recommendation. On August 12, 2021, the IRC reviewed the potential conflict of interest matters related to the proposed Merger and provided its positive recommendation for the Merger, after determining that the proposed Merger, if implemented, would achieve a fair and reasonable result for each Fund.

16. Unitholders of the Terminating Fund were asked to approve the Merger at a special meeting to be held on November 5, 2021. As disclosed in the Circular (defined below), in light of the dangers associated with the coronavirus pandemic, the Filer is holding the meetings solely as a virtual (online) meeting which will be conducted by way of live video webcast and teleconference. Unitholders will not be able to attend the meeting in person, but all unitholders of the Terminating Funds and duly appointed proxyholders, regardless of geographic location, will have an equal opportunity to participate, engage with the Filer as well as other investors in real time, and to vote at the meeting.

17. The Filer, as manager of the Continuing Fund, is of the view that the Merger will not be a “material change” for the Continuing Fund.

18. By way of order dated December 8, 2016, the Filer was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of NI 81-106, to send a printed management information circular to unitholders while proxies are being solicited, and, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such unitholders.

19. Pursuant to the requirements of the Notice-and-Access Relief, a notice-and-access document and applicable proxies in connection with the special meeting, along with the fund facts of the relevant series of the Continuing Fund were mailed to unitholders of the Terminating Fund commencing on October 5, 2021 and were concurrently filed via SEDAR. The management information circular (the Circular), to which the notice-and-access document provides a link, was also filed via SEDAR at the same time.

20. The Circular contains information about the Merger for unitholders to consider before voting on the Merger, including:

(a) that the Merger will be effected on a tax-deferred basis;

(b) the differences between the investment objectives and fee structures of the Terminating Fund and the Continuing Fund;

(c) the IRC’s recommendation in respect of the Merger;

(d) the various ways in which investors may obtain a copy of the simplified prospectus, annual information form and fund facts for the Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance;

(e) the steps for implementing the Merger and the benefits of the Merger as summarized below;

(f) that unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund at any time up to the close of business on the business day immediately before the effective date of the Merger, subject to applicable redemption charges;

(g) that after the effective date of the Merger, unitholders of the Terminating Fund will be able to redeem or switch out of the units of the Continuing Fund that they acquire upon the Merger;

(h) that the existing standard deferred charge or low load deferred charge schedule applicable to units of the Terminating Fund will be carried over to the units of the Continuing Fund;

(i) that following the Merger, all optional plans, including continuous savings plans and systematic withdrawal plans, that have been established for the Terminating Fund will be re-established for the Continuing Fund, unless unitholders of the Terminating Fund advise otherwise;

(j) that no sales charges, redemption fees or other fees or commissions will be payable by unitholders of the Terminating Funds in connection with the Merger and all costs and expenses associated with the Merger will be borne by the Filer; and

(k) that the Filer does not currently intend to terminate the Terminating Fund if the required unitholder approval is not obtained, but may decide to do so in the future.

Merger Implementation

21. The Merger will be structured as follows:

(a) The Terminating Fund will jointly elect with the Continuing Fund that the Merger be treated as a “qualifying exchange”, as defined in subsection 132.2(1) of the Tax Act.

(b) Prior to effecting the Merger, if required, the Terminating Fund will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the Continuing Fund. As a result, the Terminating Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objectives for a brief period of time prior to the Merger being effected.

(c) Prior to effecting the Merger, the Terminating Fund will distribute a sufficient amount of its net income and net realized capital gains, if any, to unitholders to ensure that it will not be subject to tax for its current tax year. Any such distribution will be automatically reinvested in additional units of the Terminating Fund.

(d) On the effective date of the Merger, the value of the Terminating Fund’s portfolio and other assets will be determined at the close of business in accordance with the constating documents of the Terminating Fund.

(e) The Terminating Fund will sell its investment portfolio and other assets to the Continuing Fund in exchange for units of the Continuing Fund.

(f) The Continuing Fund will not assume liabilities of the Terminating Fund and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the Merger.

(g) The units of the Continuing Fund received by the Terminating Fund will have an aggregate net asset value equal to the value of the portfolio and other assets that the Continuing Fund is acquiring from the Terminating Fund, and the units of the Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the effective date of the Merger.

(h) Immediately thereafter, the units of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund in exchange for their units in the Terminating Fund on a dollar-for-dollar and series-by-series basis, as applicable.

(i) As soon as reasonably possible following the Merger, the Terminating Fund will be wound up.

22. Unitholders of the Terminating Fund will receive units of the equivalent series of the Continuing Fund as they currently own in the Terminating Fund upon implementation of the Merger.

23. The Filer will pay for the costs of the Merger. These costs consist mainly of brokerage charges associated with the Merger‑related trades that occur both before and after the effective date of the Merger and legal, proxy solicitation, printing, mailing and regulatory fees.

Benefits of the Merger

24. The Filer believes that the Merger will be beneficial to unitholders of the Terminating Fund for the following reasons:

(a) there is minimal demand for the Terminating Fund, as evidenced by declining assets under management (AUM) in the Terminating Fund, which may lead to portfolio diversification challenges in the Terminating Fund if AUM continues to decline;

(b) the Terminating Fund has variable operating expenses, which means its expenses are spread over a smaller asset base as the AUM of the Terminating Fund continues to decline, while the Continuing Fund uses a fixed administration fee model, which means a consistent expense is charged to the fund, even if the AUM of the Continuing Fund were to decline;

(c) the Merger will result in a more streamlined and simplified product line-up that is easier for investors to understand;

(d) the Continuing Fund has delivered stronger long term performance than the Terminating Fund;

(e) the Continuing Fund, as a result of its greater size following the Merger, may benefit from its larger profile in the marketplace to attract additional investors and thus remain a viable long term investment; and

(f) management fees in the Continuing Fund are the same as, or lower than, management fees in the Terminating Fund.

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 under the Legislation is that the Approval Sought is granted, provided that the Filer obtains the prior approval of the unitholders of the Terminating Fund at a special meeting held for that purpose.

“Darren McKall”_______________________________________

Darren McKall

Manager, Investment Funds & Structured Products Branch Ontario Securities Commission

Application # 2021/0478

SEDAR # 3294354