BMO Asset Management Inc.

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from paragraph 13.5(2)(b) of NI 31-103 to permit inter-fund trades between public mutual funds, pooled funds and managed accounts -- inter-fund trades will comply with conditions in subsection 6.1(2) of NI 81-107 including IRC approval or client consent -- trades involving exchange-traded securities are permitted to occur at last sale price as defined in the Universal Market Integrity Rules - relief also subject to pricing and transparency conditions. Exemption also granted from conflict of interest trading prohibition in paragraph 13.5(2)(b) of NI 31-103 to permit in-specie subscriptions and redemptions by separately managed accounts and pooled funds in pooled funds -- Portfolio manager of managed accounts is also portfolio manager of pooled funds and is therefore a "responsible person" -- Relief subject to certain conditions.

Applicable Legislative Provisions

National Instrument 31-103 -- Registration Requirements and Exemptions -- ss. 13.5, 15.1

National Instrument 81-107 -- Independent Review Committee for Investment Funds -- ss. 6.1(2) and 6.1(4).

July 22, 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 ASSET MANAGEMENT INC.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) providing an exemption from Paragraph 13.5(2)(b) of National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) (the Trading Prohibition) that prohibits an adviser from knowingly causing an investment portfolio managed by it (including an investment fund for which it acts as an adviser) to purchase or sell the securities of any issuer from or to the investment portfolio of an associate of a responsible person or any investment fund for which a responsible person acts as an adviser,

(a) to permit the following purchases and sales (each purchase or sale, an Inter-Fund Trade):

(i) an existing mutual fund or future mutual fund to which National Instrument 81-102 Mutual Funds (NI 81-102) applies of which the Filer, or an affiliate of the Filer, is the registered adviser (each, an NI 81-102 Fund and collectively, the NI 81-102 Funds), is permitted to enter into Inter-Fund Trades of securities with another NI 81-102 Fund, an existing Canadian mutual fund or future Canadian mutual fund to which NI 81-102 does not apply of which the Filer, or an affiliate of the Filer, is the registered adviser (each, a Pooled Fund and, collectively, the Pooled Funds) or a fully managed account managed by the Filer or one of its affiliates (each, a Managed Account and, collectively, the Managed Accounts);

(ii) a Pooled Fund is permitted to enter into Inter-Fund Trades of securities with another Pooled Fund, an NI 81-102 Fund or a Managed Account; and

(iii) a Managed Account is permitted to enter into Inter-Fund Trades of securities with an NI 81-102 Fund or a Pooled Fund; and

(iv) the transactions listed in (i) to (iii) are permitted to be executed at the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in Subparagraph 6.1(1)(a)(i) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) on that trading day where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities);

(b) to permit the following purchases and redemptions (each purchase and redemption, an In-Specie Transaction):

(i) the purchase by a Managed Account of securities of an NI 81-102 Fund or Pooled Fund, and the redemption of securities held by a Managed Account in an NI 81-102 Fund or Pooled Fund, and as payment:

(A) for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the NI 81-102 Fund or Pooled Fund; and

(B) for such redemption, in whole or in part, by the NI 81-102 Fund or Pooled Fund making good delivery of portfolio securities to the Managed Account; and

(ii) the purchase by an NI 81-102 Fund or Pooled Fund of securities of another NI 81-102 Fund or Pooled Fund and the redemption of securities held by an NI 81-102 Fund or Pooled Fund in another NI 81-102 Fund or Pooled Fund, and as payment for such purchase or redemption, in whole or in part, by making good delivery of portfolio securities that meet the investment criteria of that NI 81-102 Fund or Pooled Fund,

(collectively, 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,

(b) the Filer has provided notice that Subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (the Passport Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 81-102, NI 81-107 and NI 31-103 have the same meanings if used in this decision unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation incorporated under the laws of the Province of Ontario. It is registered as a portfolio manager in each of the provinces and territories of Canada (the Jurisdictions), as an exempt market dealer in Ontario and Newfoundland and Labrador and as commodity trading manager in Ontario.

2. The head office of the Filer is located in Toronto, Ontario.

3. The Filer is an indirect wholly-owned subsidiary of Bank of Montreal.

4. Each of the NI 81-102 Funds and Pooled Funds (each, a Fund and, collectively, the Funds) is or will be an investment fund established as a trust, corporation or limited partnership under the laws of Canada or a jurisdiction of Canada.

5. Each of the NI 81-102 Funds is, or will be, a reporting issuer and qualified for distribution in each of the Jurisdictions pursuant to a simplified prospectus and annual information form prepared and filed in accordance with securities legislation.

6. Each of the Pooled Funds is, or will be, qualified for distribution in the Jurisdictions pursuant to exemptions from the prospectus requirement and will not be a reporting issuer.

7. The Filer, or an affiliate of the Filer, is, or will be, the manager and/or portfolio manager of each of the Funds.

8. The Filer or an affiliate of the Filer, is or will be, the adviser of a Managed Account.

9. The Filer, or an affiliate of the Filer is, or may be, the trustee of certain of the Funds that are created as trusts.

10. A Fund may be an associate of the Filer, or of an affiliate of the Filer, that is a responsible person in respect of another Fund or a Managed Account.

11. The Filer, affiliates of the Filer seeking to rely upon this decision and each of the Funds are not, or will not be, in default of securities legislation in any of the Jurisdictions.

12. The Filer and its affiliates offer discretionary portfolio management services to clients (Clients) seeking wealth management or related services under a written agreement (Discretionary Management Agreement) in connection with the Managed Account of the Client with the Filer or an affiliate of the Filer.

13. Pursuant to the Discretionary Management Agreement entered into with each Client, the Filer (or its affiliate) makes investment decisions for each Managed Account and has full discretionary authority to trade in securities for each Managed Account without obtaining the specific consent or instructions of the Client to the trade.

14. The portfolio management services provided by the Filer (or its affiliate) to each Client consist of the following:

(a) each Client executes a Discretionary Management Agreement whereby the Client authorizes the Filer (or its affiliate) to supervise, manage and direct purchases and sales in the Client's Managed Account, at the Filer's (or affiliate's) full discretion on a continuing basis;

(b) qualified employees of the Filer (or affiliate) perform investment research, securities selection and portfolio management functions with respect to all securities, investments, cash and cash equivalents and other assets in the Managed Account;

(c) each Managed Account holds securities and other investments as selected by the Filer (or affiliate) in its sole discretion; and

(d) the Filer (or affiliate) retains overall responsibility for the advice provided to its Clients and has a designated senior officer to oversee and supervise the Managed Account.

15. The Filer's minimum Managed Account size is generally $10 million, which may be waived at the Filer's discretion.

In-Specie Transactions

16. Investments in individual securities may at certain times not be appropriate in certain circumstances for the Filer's Clients. Consequently, the Filer may, where authorized under the Discretionary Management Agreement, from time to time invest Client assets in securities of any one or more of the Funds in order to give its Clients the benefit of asset diversification and economies of scale regarding minimum commission charges on portfolio trades and generally to facilitate portfolio management.

17. The Filer wishes to be able to enter into transactions that permit payment, in whole or in part, for units or shares of a Fund (Fund Securities) purchased by a Managed Account to be made by making good delivery of portfolio securities, held by such Managed Account, to a Fund, provided those portfolio securities meet the investment criteria of the Fund.

18. Similarly, following a redemption of Fund Securities by a Managed Account, the Filer wishes to be able to enter into transactions that permit payment, in whole or in part, of redemption proceeds to be satisfied by making good delivery of portfolio securities held in the investment portfolio of a Fund to such Managed Account, provided those portfolio securities meet the investment criteria of the Managed Account.

19. The Filer anticipates that such In-Specie Transactions will typically occur following a redemption of Fund Securities where a Managed Account invested in such Fund has experienced a change in circumstances which results in the Managed Account being an ideal candidate for direct holdings of individual portfolio securities rather than Fund Securities, or vice versa.

20. In addition, the Filer wishes to be able to enter into In-Specie Transactions for purchases and redemptions of Fund Securities between two Funds. This will occur where, as part of its portfolio management, a Fund wishes to obtain exposure to certain investments or category of asset classes invested in by a second Fund by investing in Fund Securities of that second Fund. The Filer wishes to be able to enter into transactions that permit payment, in whole or in part, for the Fund Securities to be made by making good delivery of portfolio securities held by the Fund to the second Fund in which it seeks to invest. Similarly, following a redemption of Fund Securities, the Filer wishes to be able to enter into transactions that permit payment, in whole or in part, of the redemption proceeds to be satisfied by making good delivery of portfolio securities held in the investment portfolio of the Fund being redeemed, provided those portfolio securities meet the investment criteria of the Fund accepting those portfolio securities.

21. Each Discretionary Management Agreement or other documentation will contain the authorization of the Client for the Filer or its affiliate to engage in In-Specie Transactions on behalf of the Managed Account.

22. The Filer or its affiliate will value portfolio securities under an In-Specie Transaction using the same values to be used on that day to calculate the net asset value for the purpose of the issue price or redemption price of Fund Securities.

23. Each Fund will keep written records of the In-Specie Transactions, including records of each purchase and sale of portfolio securities and the terms thereof, for a period of five years commencing after the end of the financial year in which the trade occurred, the most recent two years in a reasonably accessible place.

24. Since the Filer or its affiliate is the portfolio manager of the Managed Accounts and the Funds, the Filer would be considered a "responsible person" within the meaning of NI 31-103.

25. Prior to entering into an In-Specie Transaction involving a Fund and/or Managed Account, the proposed transaction will be reviewed to determine that the transaction represents the business judgment of the Filer or its affiliate, uninfluenced by considerations other than the best interests of the Fund and/or Managed Account.

Inter-Fund Trades

26. The Filer wishes to be able to enter into Inter Fund Trades of portfolio securities between:

(a) an NI 81 102 Fund and another NI 81 102 Fund, a Pooled Fund or a Managed Account;

(b) a Pooled Fund and another Pooled Fund, an NI 81 102 Fund or a Managed Account; and

(c) a Managed Account and a Pooled Fund or an NI 81 102 Fund.

27. The manager of each NI 81-102 Fund has established, or will establish, an independent review committee (IRC) in respect of each NI 81-102 Fund in accordance with the requirements of NI 81-107.

28. Inter-Fund Trades involving an NI 81-102 Fund will be referred to the relevant IRC of such NI 81-102 Fund under Subsection 5.2(1) of NI 81-107 and the manager of such NI 81-102 Fund will comply with Section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade.

29. The manager of each Pooled Fund will establish an IRC in respect of each Pooled Fund. The mandate of the IRC of the Pooled Funds will be to approve Inter-Fund Trades between a Pooled Fund and another Fund.

30. The IRC of the Pooled Funds will be composed by the manager of the Pooled Funds in accordance with Section 3.7 of NI 81-107 and the IRC will be expected to comply with the standard of care set out in Section 3.9 of NI 81-107. The IRC of the Pooled Funds will not approve an Inter-Fund Trade involving a Pooled Fund unless it has made the determination set out in Subsection 5.2(2) of NI 81-107.

31. The Discretionary Management Agreement or other documentation in respect of a Managed Account will contain the authorization of the Client for the Filer (or its affiliate) on behalf of the Managed Account to engage in Inter-Fund Trades with the Funds.

32. At the time of an Inter-Fund Trade, the Filer (or its affiliate) will have in place policies and procedures to enable the Funds and/or Managed Accounts to engage in Inter-Fund Trades with the Funds.

33. The Filer, or an affiliate of the Filer, will comply with the following procedures when entering into Inter-Fund Trades between Funds or between Funds and Managed Accounts:

(a) the portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund or Managed Account (Portfolio A) to a trader on a trading desk of the Filer or affiliate of the Filer;

(b) the portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a sale or a purchase of a security by another Fund or Managed Account (Portfolio B) to a trader on a trading desk of the Filer or an affiliate of the Filer;

(c) the portfolio manager of the Filer or affiliate of the Filer will request the approval of the chief compliance officer of the Filer or affiliate of the Filer or his or her designated alternate during periods when it is not practicable for the chief compliance officer (CO) to address the matter to execute the trade as an Inter-Fund Trade;

(d) once the trader has confirmed the approval of the CO, the trader on the trading desk will have the discretion to execute the trade as an Inter-Fund Trade between Portfolio A and Portfolio B in accordance with the requirements of paragraphs (c) to (g) of Subsection 6.1(2) of NI 81-107 provided that, for exchange-traded securities, the Inter-Fund Trade may be executed at the Last Sale Price of the security, determined at the time of the receipt of the approval of the CO prior to the execution of the trade;

(e) the policies applicable to the trading desk of the Filer or affiliate of the Filer will require that all orders are to be executed on a timely basis; and

(f) the trader on a trading desk will advise the Filer or an affiliate of the Filer of the price at which the Inter-Fund Trade occurred.

34. The Filer cannot rely on the exemption from the Trading Prohibition in Subsection 6.1(4) of NI 81-107 unless the parties to the Inter-Fund Trade are both reporting issuers and the Inter-Fund Trade occurs at the current market price which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.

35. The Filer has determined that it would be in the interests of the Funds and the Managed Accounts to receive 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 the Exemption Sought is granted provided that:

In-Specie Transactions:

(a) in connection with an In-Specie Transaction where a Managed Account acquires Fund Securities:

(i) the Filer (or its affiliate) obtains the prior written consent of the Client of the Managed Account before it engages in any In-Specie Transaction;

(ii) the Fund would, at the time of payment, be permitted to purchase the securities;

(iii) the securities are acceptable to the Filer (or its affiliate) as portfolio manager of the Fund and consistent with the Fund's investment objective;

(iv) the value of the securities is at least equal to the issue price of the Fund Securities of the Fund for which they are used as payment, valued as if the securities were portfolio assets of that Fund;

(v) the account statement next prepared for the Managed Account describes the securities delivered to the Fund and the value assigned to such securities; and

(vi) the Fund will keep written records of each In-Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered to the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(b) in connection with an In-Specie Transaction where a Managed Account redeems Fund Securities:

(i) the Filer (or its affiliate) obtains the prior written consent of the Client of the Managed Account before it engages in an In-Specie Transaction and such consent has not been revoked;

(ii) the securities are acceptable to the Filer (or its affiliate) as portfolio manager of the Managed Account and consistent with the Managed Account's investment objective;

(iii) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price;

(iv) the account statement next prepared for the Managed Account describes the securities delivered to the Managed Account and the value assigned to such securities; and

(v) the Fund will keep written records of each In-Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered by the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(c) in connection with an In-Specie Transaction where a Fund purchases Fund Securities:

(i) the Fund would, at the time of payment, be permitted to purchase the securities;

(ii) the securities are acceptable to the Filer (or its affiliate) as portfolio manager of the Fund and consistent with such Fund's investment objective;

(iii) the value of the securities is equal to the issue price of the Fund Securities of the Fund, valued as if the securities were portfolio assets of that Fund; and

(iv) the Fund will keep written records of each In-Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered to the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(d) in connection with an In-Specie Transaction where a Fund redeems Fund Securities:

(i) the securities are acceptable to the Filer (or its affiliate) as portfolio manager of the Fund and consistent with the Fund's investment objective;

(ii) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price; and

(iii) the Fund will keep written records of each In-Specie Transaction in a financial year of the Fund, reflecting details of the securities delivered by the Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(e) the Filer does not receive any compensation in respect of any In-Specie Transaction and, in respect of any delivery of securities further to an In-Specie Transaction, the only charges paid by the Managed Account or the applicable Fund is the commission charged by the dealer executing the trade (if any) and/or any administrative charges levied by the custodian;

Inter-Fund Trades:

(f) the Inter-Fund Trade is consistent with the investment objective of the Fund or Managed Account;

(g) the Filer, or an affiliate of the Filer, refers the Inter-Fund Trade involving a Fund to the IRC of that Fund in the manner contemplated by Section 5.1 of NI 81-107 and the manager and the IRC of the Fund comply with Section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;

(h) in the case of an Inter-Fund Trade between Funds:

(i) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of Subsection 5.2(2) of NI 81-107; and

(ii) the Inter-Fund Trade complies with paragraphs (c) to (g) of Subsection 6.1(2) of NI 81-107, except that for purposes of paragraph (e) of Subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price; and

(i) in the case of an Inter-Fund Trade between a Fund and a Managed Account:

(i) the IRC of the Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of Subsection 5.2(2) of NI 81-107;

(ii) the Discretionary Management Agreement or other documentation in respect of the Managed Account authorizes the Inter-Fund Trade; and

(iii) the Inter-Fund Trade complies with paragraphs (c) to (g) of Subsection 6.1(2) of NI 81-107, except that for purposes of paragraph (e) of Subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.