Securities Law & Instruments

Headnote

NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from requirement in section 2.1 of NI 81-101 and Item 5(b) of Form 81-101F1, Item 2 of Form 81-101F3, to permit existing funds to preserve their respective start dates once continued as mutual fund trust following the mergers -- Exemption from Item 4 of Form 81-101F3, to permit continuing funds to use information of existing funds for the average return and year-by-year return in the fund facts -- Exemption from sections 15.3(2), 15.8(a)(i), 15.6(b), 15.6(d), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of NI 81-102 to permit the continuing funds to use the performance data of the existing funds in sales communications and reports to securityholders -- Exemption from section 4.4 of NI 81-106 and Items 3.1(1), 3.1(7), 3.1(8), 4.1(1), 4.1(2), 4.2(2) and 4.3(1)(a) of Part B of Form 81-106F1 and Item 3(1) and 4 of Part C of Form 81-106F1 to permit the continuing funds to include in their annual and interim management reports of fund performance the financial highlights' and past performance of the existing funds -- continuing funds granted relief from seed capital requirements in section 3.1 of NI 81-102.

Applicable Legislative Provisions

National Instrument 81-101 Mutual Fund Prospectus Disclosure, s. 6.1.

National Instrument 81-102 Mutual Funds, s. 19.1.

National Instrument 81-106 Investment Fund Continuous Disclosure, s. 17.1.

December 10, 2013

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 NESBITT BURNS INC.,
BMO INVESTMENTS INC.
(collectively, the Filers)

AND

BMO NESBITT BURNS CANADIAN STOCK SELECTION FUND,
BMO NESBITT BURNS INTERNATIONAL EQUITY FUND,
BMO CANADIAN STOCK SELECTION FUND,
BMO INTERNATIONAL VALUE FUND
(collectively, the Funds)

DECISION

BACKGROUND

1. The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):

(a) for an exemption from

(i) section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the exemption sought from Form 81-101F1 -- Contents of Simplified Prospectus (Form 81-101F1) and for the purposes of the exemption sought from Form 81-101F3 -- Contents of Fund Facts Document (Form 81-101F3);

(ii) sections 15.3(2), 15.6(a)(i), 15.6(b), 15.6(d), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of National Instrument 81-102 Mutual Funds (NI 81-102) to permit the BMO Canadian Stock Selection Fund and BMO International Value Fund (collectively, the Continuing Funds) to use performance data of the BMO Nesbitt Burns Canadian Stock Selection Fund and BMO Nesbitt Burns International Equity Fund (collectively, the Existing Funds) in sales communications and other communications to securityholders (collectively, the Fund Communications);

(iii) item 5(b) of Part B of Form 81-101F1 to permit the Continuing Funds to disclose the Start Dates of the Existing Funds as their respective Start Dates in the simplified prospectus;

(iv) item 2 of Part 1 of Form 81-101F3 to permit the Continuing Funds to disclose the Date Fund Created dates of the respective Existing Funds as their Date Fund Created dates in the fund facts documents;

(v) item 4 of Part 1 of Form 81-101F3 to permit the Continuing Funds to use performance data of the respective Existing Funds in the Average Return and Year-by-Year Returns in the fund facts documents; and

(vi) item 13.2 of Part B of Form 81-101F1 to permit the Continuing Funds to use performance data of the respective Existing Funds in the Fund Expenses Indirectly Borne by Investors in the simplified prospectus,

(collectively, the Past Performance Relief), and,

(b) section 3.1 of NI 81-102 (the Seed Capital Relief and together with the Past Performance Relief, the Requested Relief) to permit the filing of a simplified prospectus for the Continuing Funds notwithstanding that the initial investment required in respect of each Continuing Fund under section 3.1 of NI 81-102 will not be provided.

2. 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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System is intended to be relied upon in each of the other provinces and territories of Canada.

II. INTERPRETATION

Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.

III. REPRESENTATIONS

The Filers and the Funds

1. The head office of each of the Filers is located in Toronto, Ontario.

2. The Filers are not in default of securities legislation in any jurisdiction in Canada.

3. The Filers are each corporations governed under the laws of Canada, and are registered as investment fund managers in Ontario, Quebec and Newfoundland and Labrador. The Filers are both indirect wholly-owned subsidiaries of Bank of Montreal.

4. BMO Nesbitt Burns Inc. (BMONB) is the manager of certain mutual funds known as the "BMO Nesbitt Burns Group of Funds", which include the Existing Funds. Units of the Existing Funds are currently qualified for sale in each of the provinces and territories of Canada pursuant to a simplified prospectus dated October 23, 2012 as amended by amendment no. 1 dated August 30, 2013 and amendment no. 2 dated September 27, 2013, and an annual information form dated October 23, 2012, as amended by amendment no. 1 dated August 30, 2013 and amendment no. 2 dated September 27, 2013. On October 17, 2013, BMONB was granted an exemption which extended the time limits pertaining to filing the renewal prospectus for the Existing Funds to December 17, 2013.

5. BMO Investments Inc. (BMOII) is the manager of certain mutual funds known as the "BMO Mutual Funds" and will be manager and trustee of the Continuing Funds.

6. The Filers have proposed to merge the Existing Funds with the Continuing Funds (the Mergers) on or about December 13, 2013 (the Merger Date).

7. The Continuing Funds are being created for purposes of implementing the Mergers, and therefore will have investment objectives and investment strategies that are substantially similar in all material respects to the investment objectives and investment strategies of the corresponding Existing Funds.

8. The Continuing Funds are being created for purposes of implementing the Mergers, and therefore:

(a) the unitholders of Existing Funds will have rights as unitholders of the Continuing Funds that are substantially similar in all material respects to the rights they had as unitholders of the Existing Funds;

(b) the unitholders of the Existing Funds will hold units of the equivalent series of the relevant Continuing Funds with the same aggregate net asset value as they held before as unitholders of the relevant Existing Fund;

(c) the Continuing Funds will have investment objectives and investment strategies that are substantially similar in all material respects to the investment objectives and investment strategies of the corresponding Existing Funds; and

(d) the Continuing Funds will have fee structures and valuation procedures that are identical to the fee structures and valuation procedures of the corresponding Existing Funds.

9. 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 Existing Funds have been managed.

10. The assets of the Existing Funds will be transferred to the Continuing Funds in connection with the implementation of the Mergers.

11. The Independent Review Committee of each of the Existing Funds approved the Mergers on August 19, 2013. The Mergers are expected to occur after the close of business on or about the Merger Date. Purchases of, and switches into, units of each of the Existing Funds will be suspended at the close of business on the fifth business day prior to the Merger Date.

12. BMOII filed a preliminary simplified prospectus and preliminary annual information form and preliminary fund facts documents on October 11, 2013, with respect to the Continuing Funds. BMOII anticipates filing a final simplified prospectus and final annual information form and final fund facts documents on or about December 12, 2013, with respect to the Continuing Funds.

13. The Existing Funds are, and the Continuing Funds will be, reporting issuers under the applicable securities legislation of each province and territory of Canada. The Existing Funds have been reporting issuers for at least 12 months.

14. The Existing Funds have operated, and the Continuing Funds will operate in accordance with NI 81-102, except for any exemptive relief that has been previously obtained.

15. Subject to receipt of the Seed Capital Relief, the Continuing Funds will not have any assets (other than a nominal amount to establish each Continuing Fund) or liabilities at the time of the Mergers.

16. BMOII will not begin distribution of units of the Continuing Funds prior to the Mergers.

17. Information regarding net assets (as of September 30, 2013), series offered and Start Dates for the Existing Funds are as follows:

Fund Name

Net Asset Value

Series currently offered by the Existing Funds

Date first offered for sale

Equivalent series to be offered by the Continuing Funds

BMO Nesbitt Burns Canadian Stock Selection Fund

$234 million{*}

Class A units

January 22, 1997

Series NBA units

 

 

 

Class F units

October 31, 2008

Series NBF units

 

 

 

Class I units

October 31, 2008

Series I units

 

BMO Nesbitt Burns International Equity Fund

$20 million{*}

Class A units

October 31, 2008

Series NBA units

 

 

 

Class F units

October 31, 2008

Series NBF units

{*} As at September 30, 2013

18. As BMONB intends to cease distribution of units of the Existing Funds at the close of business on December 9, 2013, it does not intend to renew the Continuing Funds' simplified prospectus and annual information form under subsection 62(2) of the Securities Act (Ontario).

Seed Capital

19. BMOII does not intend to subscribe for $150,000 of shares of each of the Continuing Funds as required by the seed capital requirement because the assets of the Existing Funds (which will become the assets of the Continuing Funds in connection with the implementation of the Mergers) are significantly in excess of the $150,000 seed capital requirement. Accordingly, the Filers are of the view that any seed capital injected into the Continuing Funds prior to the Mergers will not provide any additional benefit to unitholders.

20. On the Merger Date, unitholders of the Continuing Funds will hold units of the equivalent series of the relevant Continuing Fund with the same aggregate net asset value as they did before as unitholders of the relevant Existing Fund, and therefore, each Continuing Fund will have already received subscriptions aggregating not less than $500,000.

Past Performance

21. The Continuing Funds will be new funds. However, while the Continuing Funds will each have the same assets and liabilities as the corresponding Existing Funds, as new funds, they will not have their own performance data or information derived from financial statements (collectively, the Financial Data) as at the Merger Date.

22. The Financial Data of the Existing Funds is significant information which can assist investors in determining whether to purchase units of the Continuing Funds. In the absence of the relief requested herein, investors will have no financial information (such as past performance) on which to base such an investment decision.

23. The Filers propose to include the performance data of each of the Existing Funds in the corresponding Continuing Funds' Fund Communications and fund facts.

24. The Filers propose to incorporate by reference the following financial statements and management reports of fund performance of each Existing Fund in the simplified prospectus for the Continuing Funds (the Existing Fund Disclosure):

(a) the annual financial statements and management report of fund performance of each of the Existing Funds, for the year ended December 31, 2012; and

(b) the interim financial statements and management report of fund performance of each of the Existing Funds, for the period ended June 30, 2013,

until such Existing Fund Disclosure is superseded by more current financial statements and management reports of fund performance of each Continuing Fund.

25. The Filers propose to state that the start date in the "Fund Details" table in Part B of the simplified prospectus for each of the Continuing Funds is based upon the start date of the corresponding Existing Fund.

26. The Filers propose to state under the subheading "Date Fund Created" under the heading "Quick Facts" in the fund facts for each of the Continuing Funds, that each series of such Continuing Fund was created on the date such series of the corresponding Existing Fund was created.

27. The Filers propose to use information of the Existing Funds for purposes of calculating the information required under the subheading "Fund Expenses Indirectly Borne by Investors" in Part B of the Continuing Funds' simplified prospectus for each of the Continuing Funds.

28. Each Continuing Fund will be indistinguishable from its corresponding Existing Fund since the investment objectives, investment strategies and management fees attached to each continuing series of each Continuing Fund will be substantially similar in all material respects as the corresponding Existing Fund.

29. The Filers are seeking to make the Mergers as seamless as possible for investors of the Existing Funds. Accordingly, the Filers submit that treating each Continuing Fund as a continuation of the Existing Fund for purposes of the Start Date and Financial Data would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the difference between the Existing Funds and the Continuing Funds.

30. The Filers submit that investors will not be misled if the Start Date and Financial Data of each Continuing Fund reflect the actual Start Date and Financial Data of the corresponding Existing Fund.

31. The Filers have filed a separate application for exemptive relief from certain provisions of NI 81-106 Investment Fund Continuous Disclosure to enable the Continuing Funds to (i) prepare annual and interim management reports of fund performance using the Existing Funds' historical financial data and (ii) prepare annual and interim financial statements using the Existing Funds' historical financial data (NI 81-106 Relief).

IV. 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 Seed Capital Relief is granted.

The decision of the Decision Maker under the Legislation is that the Past Performance Relief is granted provided that in respect of the Past Performance Relief:

(a) the Continuing Funds' Fund Communications include the applicable performance data of the Existing Funds prepared in accordance with Part 15 of NI 81-102;

(b) the Continuing Funds' simplified prospectus:

(i) incorporates by reference the Existing Fund Disclosure, until such Existing Fund Disclosure is superseded by more current financial statements and management reports of fund performance of the Continuing Funds;

(ii) states that the Start Date for each series of the Continuing Funds is the Start Date of the corresponding series of the Existing Funds; and

(iii) discloses the Mergers where the Start Date for each series of the Continuing Funds is stated;

(c) the fund facts document of each series of the Continuing Funds:

(i) states that the Date Fund Created date for each series of the Continuing Funds is the Date Fund Created date of the corresponding series of the Existing Funds;

(ii) includes the performance data of the Existing Funds prepared in accordance with Part 15 of NI 81-102, including section 15.9(1) of NI 81-102; and

(iii) discloses the Mergers where the Date Fund Created date of each series of the Continuing Fund is stated; and

(d) the Continuing Funds prepare their respective management reports of fund performance in accordance with the NI 81-106 Relief.

"Vera Nunes"
Manager, Investment Funds Branch
Ontario Securities Commission