BMO Investments Inc. et al. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted to permit portfolio manager, on behalf of mortgage funds, to purchase and sell mortgages from and to certain affiliates -- Section 7.2 of National Instrument 81-107 Independent Review Committee for Investment funds causes prior relief to expire on November 1, 2007 -- New relief now issued on revised conditions which contemplate IRC approval.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.2, 19.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 7.2.

March 25, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON AND NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BMO INVESTMENTS INC., BMO NESBITT BURNS INC.,

BMO HARRIS INVESTMENT MANAGEMENT INC. AND

MACKENZIE FINANCIAL CORPORATION

(the Filers)

AND

IN THE MATTER OF

BMO MORTGAGE AND SHORT TERM INCOME FUND,

BMO DIVERSIFIED INCOME FUND,

BMO SHORT-TERM INCOME CLASS,

BMO NESBITT BURNS BOND FUND,

BMO NESBITT BURNS BALANCED FUND,

BMO HARRIS CANADIAN BOND INCOME PORTFOLIO,

BMO HARRIS CANADIAN TOTAL RETURN BOND PORTFOLIO,

BMO HARRIS CANADIAN CORPORATE BOND PORTFOLIO

AND MACKENZIE SENTINEL SHORT-TERM INCOME FUND

(the Funds)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (Decision Maker) in each of the Jurisdictions received an application from the Filers on behalf of the Funds under section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102) for relief from the prohibition in Section 4.2 of NI 81-102 in connection with transactions in mortgages between a Related Party (as defined below) and the Funds (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications (MRRS):

(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and

(b) this MRRS decision document (Decision) represents the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions (NI 14-101) and in NI 81-102 have the same meaning in this Decision unless they are otherwise defined in this Decision. The following additional terms shall have the following meanings:

"NI 81-107" means National Instrument 81-107 Independent Review Committee for Investment Funds;

"Portfolio Manager" means each of Jones Heward Investment Counsel Inc. and Mackenzie Financial Corporation; and

"Related Party" means each of Bank of Montreal and/or MCAP Financial Corporation, Investors Group Trust Co. Ltd. and its affiliates and M.R.S. Trust Company.

Representations

1. BMO Investments Inc., BMO Nesbitt Burns Inc. and BMO Harris Investment Management Inc. are corporations incorporated under the laws of Canada. Mackenzie Financial Corporation is a corporation amalgamated under the laws of Ontario.

2. The Filers are the managers of the Funds listed on Schedule A. The Portfolio Manager and trustee (if applicable) of each Fund are also listed on Schedule A.

3. Each Filer is the manager of a Fund that has an investment objective that permits the Fund to invest in mortgages.

4. Each Fund is an open-end mutual fund, organized as either a trust or a class of a corporation, and is a reporting issuer under the legislation of each of the Jurisdictions, other than BMO Harris Canadian Bond Income Portfolio, BMO Harris Canadian Total Return Bond Portfolio and BMO Harris Canadian Corporate Bond Portfolio, which are not reporting issuers in any of the territories.

5. Each Filer has appointed an independent review committee (IRC) under NI 81-107 for its Funds.

6. Each Filer has appointed a Portfolio Manager to provide portfolio management and investment advisory services to the applicable Fund.

7. Each of the Related Parties is an associate or affiliate of a Fund's manager, portfolio manager or trustee. Each of the Funds may purchase the mortgages for their portfolios from such Related Party, as set forth on Schedule A.

8. Bank of Montreal and/or MCAP Financial Corporation have agreed to repurchase from their applicable Funds any mortgage that is in default or is not a valid first mortgage. M.R.S. Trust Company has agreed to repurchase from its applicable Fund any mortgage that is not a valid first mortgage.

9. Neither the Related Party, nor any of its directors, officers or employees participates in the formulation of investment decisions made on behalf of, or advice given to, the applicable Fund by its Portfolio Manager, and in circumstances where the Related Party holds mortgages beneficially on behalf of the Portfolio Manager of the Fund, no director, officer or employee actively involved in the formulation of investment decisions for the Fund by its Portfolio Manager is involved in the mortgage business of the Related Party. In all circumstances, the decisions to purchase mortgages for a Fund's portfolio from a Related Party are made based on the judgement of responsible persons uninfluenced by considerations other than the best interests of the Fund.

10. Section 4.2 of NI 81-102 prohibits a mutual fund from purchasing a security from or selling a security to an associate or affiliate of the manager, portfolio adviser or trustee of the mutual fund.

11. Each Fund is prohibited by section 4.2 of NI 81-102 from purchasing mortgages from or selling mortgages to its Related Parties.

12. The Funds are not able to rely on the exemption contained in paragraph 4.3(1) of NI 81-102 because purchases of mortgages will not be made on an exchange as required by paragraph 4.3(1) of NI 81-102.

13. The Funds are not be able to rely on the exemption contained in paragraph 4.3(2) of NI 81-102 because the mortgages will not be purchased from another mutual fund.

14. The Filers believe that some of the Funds received the Requested Relief previously (the Prior Relief). Section 7.2 of NI 81-107 terminated the Prior Relief.

15. The provisions of National Policy Statement No. 29 -- Mutual Funds Investing in Mortgages (NP 29) set out guidelines relating to the acquisition of mortgages by a mutual fund from lending institutions with whom such fund does not deal at arm's length and provide certain protections to the investing public.

16. The IRC of each Fund will consider the policies and procedures of the applicable Filer and will provide its approval on whether the proposed transactions in mortgages achieve a fair and reasonable result for the Fund in accordance with section 5.2(2) of NI-81-107.

17. To the extent that a Fund is purchasing mortgages from, or selling mortgages to, a Related Party, this fact is set out, and will continue to be set out, in the annual information form of the applicable Fund.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Makers with the jurisdiction to make the decision has been met.

The decision of the Decision Makers is that the Requested Relief is granted to each Filer and its Fund(s) on the conditions that:

(a) the purchase or sale is consistent with, or is necessary to meet, the investment objective of the Fund;

(b) the IRC of the Fund has approved the transaction in accordance with section 5.2(2) of NI 81-107;

(c) the Filer, as manager of the Fund, complies with section 5.1 of NI 81-107;

(d) the Filer, as manager of the Fund, and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;

(e) the Fund keeps the written records required by section 6.1(2)(g) of NI 81-107; and

(f) the mortgages are acquired from a Related Party or sold to a Related Party in accordance with NP 29 (or any successor policy or instrument) and disclosed in accordance with NP 29 (or any successor policy or instrument).

SCHEDULE "A"

List of Managers, Funds, Portfolio Managers, Trustees and Related Parties