June 29, 2023
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 DIVIDEND OPPORTUNITIES FUND, BMO GLOBAL ENERGY FUND, BMO GLOBAL LOW VOLATILITY ETF FUND, AND BMO GREATER CHINA FUND
(collectively, the Continuing Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Continuing Funds, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption from:
(a) section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the following exemptions sought from Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) and Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3):
(i) item 8 of Part B of Form 81-101F1 to permit each Continuing Fund to use the date of formation of each series of the respective Terminating Fund in the disclosure required under “Name, Formation and History of the Mutual Fund” in the simplified prospectus for each Continuing Fund (the Simplified Prospectus)
(ii) item 2 of Part I of Form 81-101F3 to permit each Continuing Fund to use the management expense ratio (the MER) and the start date of each series of the respective Terminating Fund in the “Management expense ratio (MER)” and “Date series started” boxes, respectively, of the Quick Facts table in the fund facts documents of each series of the Continuing Funds (the Fund Facts);
(iii) item 3 of Part I of Form 81-101F3 to permit each Continuing Fund to show the investments of the respective Terminating Fund in the “Top 10 investments” and “Investment mix” tables in the Continuing Fund’s initial Fund Facts;
(iv) item 4 of Part I of Form 81-101F3 to permit each Continuing Fund to use the performance history of the respective Terminating Fund to calculate its investment risk rating in the Fund Facts;
(v) item 5 of Part I of Form 81-101F3 to permit each Continuing Fund to use the performance data of the respective Terminating Fund in the “Average return”, “Year-by-year returns” and “Best and worst 3-month returns” sections in the Fund Facts; and
(vi) item 1.3 of Part II of Form 81-101F3 to permit each Continuing Funds to use the MER, trading expense ratio (the TER) and fund expenses of the respective Terminating Fund in the “Fund expenses” section of the Fund Facts;
(b) sections 15.3(2), 15.6(1)(a)(i)(A), 15.6(1)(b), 15.6(1)(d)(i), 15.8(2)(a), 15.8(2)(a.1), 15.8(3)(a), 15.8(3)(a.1) and 15.9(2) of National Instrument 81-102 Investment Funds (NI 81-102) to permit each Continuing Fund to use the performance data of the respective Terminating Fund in sales communications and reports to securityholders of the Continuing Fund (the Fund Communications);
(c) section 15.1.1 of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 to permit each Continuing Fund to calculate its investment risk level using the performance history of the respective Terminating Fund (together with paragraphs (a) and (b) above, the Past Performance Relief);
(d) sections 2.1 and 2.3 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) to permit each Continuing Fund to file comparative annual and interim financial statements that include information that is derived from the financial statements of the respective Terminating Fund; and
(e) section 4.4 of NI 81-106 for relief from the requirements of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) set out below, to permit each Continuing Fund to include in its annual and interim management reports of fund performance (MRFPs) the performance data and information derived from the financial statements and other financial information (collectively, the Financial Data) of the respective Terminating Fund as follows:
(i) items 3.1(1), 3.1(7), 3.1(7.1), and 3.1(8) of Part B of Form 81-106F1 to permit each Continuing Fund to use the financial highlights of the respective Terminating Fund in its Form 81-106F1;
(ii) items 4.1(1), 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(1)(b) of Part B of Form 81-106F1 to permit each Continuing Fund to use the past performance data of the respective Terminating Fund in its Form 81-106F1; and
(iii) items 3(1) and 4 of Part C of Form 81-106F1 to permit each Continuing Fund to use the financial highlights and past performance data of the respective Terminating Fund in its Form 81-106F1
(together with paragraph (d) above, the Continuous Disclosure Relief, and collectively with the Past Performance Relief, the Exemption 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(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (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.
In addition, the following terms have the meanings set out below:
“Continuing Funds” means BMO Global Dividend Opportunities Fund, BMO Global Energy Fund, BMO Global Low Volatility ETF Fund, and BMO Greater China Fund.
“Terminating Funds” means BMO Global Dividend Class, BMO Global Energy Class, BMO Global Low Volatility ETF Class, and BMO Greater China Class.
“Funds” means the Continuing Funds and the Terminating Funds.
Representations
The decision is based on the following facts represented by the Filer on behalf of itself and the Funds:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Ontario. The Filer’s head office is located in Toronto, Ontario.
2. The Filer is the investment fund manager (IFM) of each Terminating Fund and is the investment fund manager and trustee of each Continuing Fund.
3. The Filer is registered as an IFM in each of Ontario, Québec and Newfoundland and Labrador, and as a mutual fund dealer in each of the Canadian Jurisdictions.
The Funds
4. Each of the Terminating Funds is a class of shares of BMO Corporate Class Inc., a mutual fund corporation continued under the laws of Ontario.
5. Each of the Terminating Funds is a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions, is subject to NI 81-102 and has been a reporting issuer for more than 12 months.
6. Securities of the Terminating Funds are currently qualified for distribution in each of the Canadian Jurisdictions under a simplified prospectus and Fund Facts dated May 30, 2023, each of which has been prepared in accordance with NI 81-101.
7. Each of the Continuing Funds is an open-ended trust established under the laws of Ontario.
8. Each of the Continuing Funds is a “mutual fund” for purposes of the securities legislation of Ontario.
9. Securities of each of the Continuing Funds are currently qualified for distribution in each of the Canadian Jurisdictions under a simplified prospectus and Fund Facts dated May 30, 2023, each of which has been prepared in accordance with NI 81-101.
10. The Filer will not begin distributing securities of any Continuing Fund prior to the applicable Merger (as defined below).
11. Each Continuing Fund is a reporting issuer under the applicable securities legislation in each of the Canadian Jurisdictions and is expected to be subject to NI 81-102.
12. The Filer, the Terminating Funds and the Continuing Funds are not in default of securities legislation in any of the Canadian Jurisdictions.
13. Each Terminating Fund follows, and each Continuing Fund follows the standard investment restrictions and practices established under NI 81-102, except pursuant to the terms of any exemption that has been previously obtained.
The Mergers
14. The Filer proposes to merge each Terminating Fund into the corresponding Continuing Fund (the Mergers) on a tax-deferred basis after the close of business on or about August 25, 2023 (the Merger Date) as follows:
Terminating Fund
Continuing Fund
BMO Global Dividend Class
BMO Global Dividend Opportunities Fund
BMO Global Energy Class
BMO Global Energy Fund
BMO Global Low Volatility ETF Class
BMO Global Low Volatility ETF Fund
BMO Greater China Class
BMO Greater China Fund
15. The Mergers satisfy the pre-approval criteria set out in s. 5.6 of NI 81-102, and the Independent Review Committee (the IRC) of the Terminating Funds approved the Mergers. The IRC approved the Mergers at a meeting held on May 23, 2023.
16. As the Continuing Funds are new, the Continuing Funds will not have their own past performance data on the date each Merger is implemented.
17. The net assets (as at December 31, 2022) of the assets of each Terminating Fund are as follows:
Terminating Fund
Net Assets
BMO Global Dividend Class
$111,043,108
BMO Global Energy Class
$49,752,633
BMO Global Low Volatility ETF Class
$87,021,216
BMO Greater China Class
$84,478,345
18. Following its Merger, each Terminating Fund will be terminated on its Merger Date and will be dissolved as soon as reasonably possible thereafter.
19. Each Continuing Fund was created for the purpose of implementing the applicable Merger, and therefore:
(a) the securityholders of the Terminating Funds will have rights under securities legislation as securityholders of the Continuing Funds that are substantially similar in all material respects to the rights under securities legislation they had as securityholders of the Terminating Funds;
(b) the securityholders of the Terminating Funds will hold securities of the equivalent series of the corresponding Continuing Fund with the same aggregate net asset value that they held before as securityholders of the Terminating Funds;
(c) each Continuing Fund has an investment objective and investment strategies that are substantially similar to the investment objective and investment strategies of the corresponding Terminating Fund;
(d) with the exception of BMO Global Dividend Class and BMO Global Dividend Opportunities Fund, the portfolio manager and sub-adviser (if applicable) of each Terminating Fund is the same as the portfolio manager and sub-adviser (if applicable) of the corresponding Continuing Fund;
(e) each Continuing Fund has a valuation procedure that is identical to the valuation procedure of the corresponding Terminating Fund; and
(f) the total fees attached to each series of each Continuing Fund are the same, or lower, as the fees for each corresponding series of the corresponding Terminating Fund, and thus there will be either no change to, or a lowering of, the fee or expense structure as a result of the Merger, in each case neither will have a material impact on securityholders of a Terminating Fund who will become securityholders of the corresponding Continuing Fund.
20. As a result, notwithstanding the Mergers, the Continuing Funds will be managed in a manner which is substantially similar in all material respects to the manner in which the Terminating Funds have been managed.
21. The assets of the Terminating Funds will be transferred to the equivalent Continuing Funds in connection with the implementation of the Mergers.
22. Each Continuing Fund is a new fund. While it will have the same assets and liabilities as the corresponding Terminating Fund, as a new fund, it will not have its own Financial Data as at the Merger Date.
23. The Financial Data of the Terminating Funds are significant information which can assist investors in determining whether to purchase securities of the Continuing Funds. In the absence of the Exemption Sought, investors will have no historical financial or performance information (such as past performance) on which to base such an investment decision.
24. Without the Exemption Sought, the sales communications pertaining to, and the MRFPs of, the Continuing Funds cannot include Financial Data of the Terminating Funds that relate to a period prior to the applicable Merger and each Continuing Fund cannot provide performance data in their sales communications until it has distributed securities under a simplified prospectus for at least 12 months.
25. The Filer proposes to:
(a) disclose the series start dates of the Terminating Funds as the series start dates of the Continuing Funds:
(i) under the heading “Name, Formation and History of the Fund” in the Simplified Prospectus;
(ii) in the “Fund Details” table in the fund-specific disclosure for each Continuing Fund in the Simplified Prospectus; and
(iii) under the subheading “Date series started” under the heading “Quick Facts” in the Fund Facts Documents;
(b) use the performance data of the Terminating Funds to calculate the risk rating of the Continuing Funds in the Fund Facts Documents;
(c) use the performance data of the Terminating Funds in:
(i) the Fund Communications of the Continuing Funds; and
(ii) the “Average return”, “Year-by-year returns” and “Best and worst 3- month returns” subsections of the Fund Facts Documents for the Continuing Funds;
(d) use the MER, TER and fund expenses of the Terminating Funds in the “Fund expenses” section of the Fund Facts Documents for the Continuing Funds;
(e) show the investments of the Terminating Funds in the “Top 10 investments” and “Investment mix” tables in the initial Fund Facts Documents for the Continuing Funds;
(f) incorporate by reference into the Simplified Prospectus the most recent annual financial statements and MRFPs of the Terminating Funds for the period ended September 30, 2022 and the most recent interim financial statements and MRFP of the Terminating Funds for the period ended March 31, 2023 (collectively, the Terminating Fund Disclosure), until such Terminating Fund Disclosure is superseded by more current financial statements and MRFPs of the Continuing Funds;
(g) prepare annual MRFPs for the Continuing Funds commencing with the year ending September 30, 2023 and interim MRFPs for the Continuing Funds commencing with the period ending March 31, 2024 using the Terminating Funds’ financial highlights and past performance; and
(h) prepare comparative annual financial statements for the Continuing Funds commencing with the year ending September 30, 2023 and interim financial statements for the Continuing Funds commencing with the period ending March 31, 2024 using the Terminating Funds’ financial highlights and past performance.
26. The Filer is seeking to make the Mergers as seamless as possible for investors of the Terminating Funds. Accordingly, the Filer submits that treating a Continuing Fund as fungible with the corresponding Terminating Fund for purposes of the starting dates, investment holdings and Financial Data would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the difference between the Terminating Funds and the Continuing Funds.
27. The Filer submits that investors will not be misled if the starting dates, investment holdings and Financial Data of a Continuing Fund reflects the starting dates, investment holdings and Financial Data of the corresponding Terminating Fund.
28. On the basis of the foregoing, the Filer submits that it would not be prejudicial to the public interest to grant the Exemption Sought.
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:
1. the Past Performance Relief is granted, provided that:
(a) the Fund Communications of each series of each Continuing Fund include the applicable past performance data of the corresponding series of the corresponding Terminating Fund prepared in accordance with Part 15 of NI 81-102;
(b) the Simplified Prospectus:
(i) incorporates by reference the Terminating Fund Disclosure, until such Terminating Fund Disclosure is superseded by more current financial statements and MRFPs of the Continuing Fund;
(ii) states that the start date for each series of the Continuing Fund is the start date of the corresponding series of the Terminating Fund; and
(iii) discloses the Merger where the start date for each series of the Continuing Fund is stated;
(c) the Fund Facts of each series of Continuing Fund:
(i) states that the “Date series started” date is the “Date series started” date of the corresponding series of the Terminating Fund;
(ii) includes the performance data of the corresponding series of the Terminating Fund prepared in accordance with Part 15 of NI 81-102; and
(iii) discloses the Merger where the “Date series started” date is stated; and
(d) the Continuing Fund prepares its MRFPs in accordance with the Continuous Disclosure Relief; and
2. the Continuous Disclosure Relief is granted, provided that:
(a) the MRFPs and financial statements for the Continuing Funds include the Financial Data of the Terminating Funds pertaining to the corresponding series of the Terminating Funds and disclose the Mergers for the relevant time periods; and
(b) the Continuing Funds prepare their Simplified Prospectus, Fund Facts, and other Fund Communications in accordance with the Past Performance Relief.
“Darren McKall”
Darren McKall, Manager Investment Funds & Structured Products
Ontario Securities Commission
Application #2023/0253
Sedar #: 3547273