Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approval -- The merger is not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act -- securityholders of terminating fund provided with timely and adequate disclosure regarding the merger.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, s. 5.5(1)(b).

July 30, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTION

AND

IN THE MATTER OF

BMO INVESTMENTS INC.

(the Filer or BMO)

AND

BMO INTERNATIONAL EQUITY 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 merger (the Merger) of the Terminating Fund into BMO International Value Class (the Continuing Fund) pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) (the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.

Representations

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

1. BMO is a corporation governed by the laws of Canada and is the manager of each of the Terminating Fund and the Continuing Fund (each a Fund and collectively, the Funds).

2. The Terminating Fund is an open-end mutual fund trust established under the laws of the Province of Ontario by declaration of trust dated May 14, 1992, as amended on February 25, 1999, March 31, 2000 and September 12, 2007 and as amended and restated into the Master Declaration of Trust dated November 6, 2007, together with amended and restated Schedule A dated February 4, 2009.

3. The Continuing Fund is a class of special shares of BMO Global Tax Advantage Funds Inc., a mutual fund corporation incorporated by articles of incorporation under the laws of Canada dated September 5, 2000, as amended on September 28, 2000, October 25, 2000, November 28, 2003, October 1, 2004, April 30, 2007, January 25, 2008, May 9, 2008, September 30, 2008 and October 23, 2008.

4. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada and are not on the list of defaulting reporting issuers maintained under such securities legislation.

5. Unless an exemption has been obtained, each of the Funds follows the standard investment restrictions and practices established by the securities regulatory authorities in each province and territory of Canada.

6. The net asset value for securities of each of the Funds is calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading.

7. Series A securities, series I securities and BMO Guardian International Equity Fund Series F securities of the Terminating Fund and series A securities and series I securities of the Continuing Fund are offered for sale pursuant to a simplified prospectus dated May 8, 2009.

8. BMO Guardian International Value Class Advisor Series securities, BMO Guardian International Value Class Series F securities and BMO Guardian International Value Class Series H securities of the Continuing Fund are offered for sale pursuant to a simplified prospectus dated October 29, 2008.

9. As required by National Instrument 81-107, an Independent Review Committee (the IRC) has been appointed for the Funds. BMO presented the terms of the Merger to the IRC for a recommendation. The IRC reviewed the proposed Merger and recommended that it be put to securityholders of the Funds for their consideration on the basis that the Merger would achieve a fair and reasonable result for the Funds.

10. A press release, material change report and amendments to the current simplified prospectuses of the Funds have been filed on SEDAR under SEDAR project #s 1402935 and 1322437 on July 8, 2009 in connection with the Merger in accordance with the Funds' continuous disclosure obligations set forth in Part 11 of National Instrument 81-106 Investment Fund Continuous Disclosure.

11. Securityholders of the Terminating Fund and securityholders of the Continuing Fund will be asked to approve the Merger at special meetings of securityholders each scheduled to be held on or about July 30, 2009.

12. A management information circular in connection with the Merger was filed on SEDAR on July 8, 2009 under SEDAR #s 1402935 and 1322437 and was otherwise mailed to securityholders of each Fund on or about July 3, 2009.

13. BMO will pay all costs and expenses relating to the solicitation of proxies and the holding of the securityholder meetings in connection with the Merger.

14. Subject to the required approval of the principal regulator and securityholder of each of the Funds, the Merger is expected to occur on or about July 31, 2009, or such later date as may be determined by BMO (which shall be no later than December 31, 2009).

15. The Merger will be a material change for the Continuing Fund as the net asset value of the Continuing Fund is smaller than the net asset value of the Terminating Fund merging into it.

16. Securities of the Terminating Fund will continue to be available for sale until the close of business on July 24, 2009, following which time the distribution of new securities will cease, except under a continuous savings plan or similar systematic plan established prior to July 24, 2009.

17. Securityholders of the Terminating Fund will continue to have the right to redeem securities of the Terminating Fund for cash at any time up to the close of business on the business day immediately preceding the effective date of the Merger.

18. Following the Merger, the Continuing Fund will continue as a publicly offered open-end mutual fund and the Terminating Fund will be wound up as soon as reasonably practicable.

19. Pursuant to the Merger, securityholders of series A securities and series I securities of the Terminating Fund will receive series A securities and series I securities of the Continuing Fund, respectively. Securityholders of BMO Guardian International Equity Fund Series F securities of the Terminating Fund will receive BMO Guardian International Value Class Series F securities of the Continuing Fund (offered pursuant to a separate simplified prospectus). No sales charge will be payable in connection with such BMO Guardian International Value Class Series F securities.

20. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approval reorganizations and transfers as set out in section 5.6 of NI 81-102 because the Merger will not be structured as a "qualifying exchange" or a tax-deferred transaction in accordance with the Income Tax Act (Canada) as contemplated in subsection 5.6(1)(b) of the NI 81-102.

21. The Filer has determined that the loss of tax losses by the Terminating Fund is not a material consideration for unitholders.

22. Following the liquidation of certain assets, if necessary, the portfolio of assets of the Terminating Fund to be acquired by the Continuing Fund arising from the Merger will be acceptable to the portfolio adviser of the Continuing Fund prior to the effective date of the Merger and will be consistent with the respective investment objectives of the Continuing Fund.

23. The following steps will be carried out to effect the Merger:

(a) prior to the date of the Merger, 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;

(b) the value of the Terminating Fund's portfolio and other assets will be determined at the close of business on the effective date of the Merger in accordance with its declaration of trust;

(c) the Continuing Fund will acquire the portfolio assets and other assets of the Terminating Fund in exchange for securities of the Continuing Fund;

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

(e) the securities of the Continuing Fund received by the Terminating Fund will have an aggregate net asset value equal to the value of the Terminating Fund's portfolio assets and other assets that the Continuing Fund is acquiring, which securities will be issued at the applicable series net asset value per security as of the close of business on the effective date of the Merger;

(f) the Terminating Fund will distribute a sufficient amount of its income and capital gains, if any, to ensure that the Terminating Fund will not be liable for income tax. Currently, it is not expected that distributions will be required;

(g) immediately thereafter, the securities of the Continuing Fund received by the Terminating Fund will be distributed to securityholders of the Terminating Fund on a dollar for dollar and series by series basis in exchange for their securities in the Terminating Fund; and

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

24. On October 14, 2003, in connection with a prior fund merger, BMO received exemptions from the requirement to deliver:

(a) the current simplified prospectus of the continuing fund to securityholders of terminating funds in connection with all future mergers of mutual funds managed by BMO (the Future Mergers) pursuant to paragraph 5.6(1)(f)(ii) of NI 81-102; and

(b) the most recent annual and interim financial statements of the continuing fund to securityholders of the terminating funds in connection with all Future Mergers pursuant to paragraph 5.6(1)(f)(ii) of NI 81-102.

(The relief outlined in (a) and (b) is collectively referred to as the Prospectus and Financial Statement Delivery Relief.)

25. In accordance with the Prospectus and Financial Statement Delivery Relief, the material that will be sent to securityholders of the Terminating Fund will include a tailored simplified prospectus consisting of:

(a) the current Part A of the simplified prospectus of the Continuing Fund, and

(b) the current Part B of the simplified prospectus of the Continuing Fund.

26. In accordance with the Prospectus and Financial Statement Delivery Relief:

(a) the management information circular sent to securityholders provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;

(b) the management information circular sent to securityholders with respect to the Merger prominently discloses that securityholders can obtain the financial statements of the applicable continuing fund by accessing the SEDAR website at www.sedar.com, by accessing BMO's or its affiliate's website, by calling BMO's or its affiliate's toll-free telephone numbers servicing securityholders both in English and French or by submitting (by fax or mail) a request to BMO;

(c) upon request by a securityholder for financial statements, BMO or its affiliates will make best efforts to provide the securityholder with financial statements of the Continuing Fund in a timely manner so that the securityholder can make an informed decision regarding the Merger; and

(d) each of the Terminating Fund and Continuing Fund has an unqualified audit report in respect of its last completed financial period.

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 Requested Relief is granted.

"Rhonda Goldberg"
Manager, Investment Funds
Ontario Securities Commission