Bank of Montreal and BMO Subordinated Notes Trust - OSC Rule 13-502 Fees

Headnote

Application by bank (the Bank) and capital trust subsidiary (the Trust) for an order granting the Trust relief from the requirement in OSC Rule 13-502 Fees (the Fees Rule) to pay participation fees - Bank has paid, and will continue to pay, participation fees applicable to it under s. 2.2 of the Fees Rule, and Bank includes capitalization of Trust in its fee calculation - relief analogous to relief for "subsidiary entities" contained in s. 2.9(2) of the Fees Rule - Trust may not, from a technical accounting perspective, be considered to be a "subsidiary entity" of the Bank for Canadian GAAP purposes and may not be entitled to rely on the exemption in s. 2.9(2) of the Fees Rule - Trust and Bank satisfy conditions of exemption in s. 2.9(2) of the Fees Rule but for the definition of "subsidiary entity" - Trust exempt from requirement to pay participation fees, subject to conditions.

Rules Cited

Ontario Securities Commission Rule 13-502 Fees.

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION

RULE 13-502 FEES

AND

IN THE MATTER OF

BANK OF MONTREAL AND

BMO SUBORDINATED NOTES TRUST

ORDER

WHEREAS the Director has received an application from Bank of Montreal (the "Bank") and BMO Subordinated Notes Trust (the "Trust") for an order, pursuant to Section 6.1 of OSC Rule 13-502 - Fees (the "Fees Rule"), that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, subject to certain terms and conditions.

AND WHEREAS the Bank and the Trust have represented to the Ontario Securities Commission (the "OSC") that:

1. The Trust is a closed-end trust established under the laws of the Province of Ontario by Computershare Trust Company of Canada as trustee (the "Trustee"), pursuant to a declaration of trust dated August 28, 2007.

2. The Trust has a financial year-end of December 31.

3. The Trust is a reporting issuer in Ontario and, to its knowledge, is not in default of any requirement under the securities legislation of the Province of Ontario.

4. The Bank is the administrative agent of the Trust pursuant to an administration agreement pursuant to which the Trustee has delegated to the Bank certain of its obligations in relation to the administration of the Trust, including the day-to-day operations of the Trust and such other matters as may be requested from time to time by the Trustee.

5. The outstanding securities of the Trust consist of (i) $800,000,000 principal amount of 5.75% subordinated notes due September 26, 2022 representing subordinated indebtedness of the Trust (the "BMO TSNs -- Series A") and (ii) 1,000 voting securities of the Trust ("Voting Trust Units"). The BMO TSNs -- Series A are fully and unconditionally guaranteed on a subordinated basis by the Bank. All outstanding Voting Trust Units are held by the Bank and the Bank has agreed that it will hold all of the outstanding Voting Trust Units for as long as any BMO TSNs -- Series A are outstanding. The Trust distributed the BMO TSNs -- Series A in a public offering pursuant to a prospectus dated September 19, 2007 (the "Prospectus"). Subject to certain conditions, the Trust may redeem the outstanding BMO TSNs -- Series A. Upon the occurrence of a Loss Absorption Event or a Non-Deductibility Event (in each case as defined in the Prospectus), the BMO TSNs -- Series A will be exchanged, without the consent of the holders, into subordinated debt of the Bank.

6. No securities of the Trust are currently listed on a marketplace as defined in National Instrument 21-101 Marketplace Operation.

7. The Trust's only business is to invest its assets and its objective is to acquire and hold Trust Assets (as defined in the Prospectus) that will generate income for payment of principal, interest and other amount in respect of its securities, including the BMO TSNs -- Series A. The Trust does not carry on any independent business activities other than to acquire and hold assets to generate income as described above.

8. The Trust has received an exemption from the requirements (the "Continuous Disclosure Exemption") contained in the securities legislation of the Province of Ontario and in other applicable jurisdictions (collectively, the "Legislation") to:

(a)

(i) file interim financial statements and audited annual financial statements and deliver same to the security holders of the Trust, pursuant to Sections 4.1, 4.3 and 4.6 of National Instrument 51-102 - Continuous Disclosure Obligations ("NI 51-102");

(ii) file interim and annual management's discussion and analysis ("MD&A") of the financial conditions and results of operations and deliver same to the security holders of the Trust pursuant to Section 5.1 and 5.6 of NI 51-102; and

(iii) file an annual information form pursuant to Section 6.1 of NI 51-102;

(the obligations set out in paragraph (a) are collectively defined as the "Continuous Disclosure Obligations"); and

(b) file interim and annual certificates contained in Sections 2.1 and 3.1 of Multilateral Instrument 52-109 - Certification of Disclosure in Issuer's Annual and Interim Filings ("MI 52-109") (the "Certification Obligations").

9. The Trust was established by the Bank in order to comply with the regulatory requirements of the Office of the Superintendent of Financial Institutions ("OSFI") relating to the issuance of Tier 2B innovative capital instruments (as contained in OSFI's Principles Governing Inclusion of Innovative Instruments in Tier 1 Capital (the "OSFI Guidelines")).

10. OSFI maintains strict guidelines and standards with respect to the capital adequacy requirements of federally regulated financial institutions, including the Bank, and, in particular, specifies minimum required amounts of regulatory capital to be maintained by such institutions. Tier 1 capital primarily consists of common shareholders' equity, qualifying non-cumulative perpetual preferred shares, qualifying innovative instruments and qualifying non-controlling interests while Tier 2 capital primarily consists of subordinated debt, qualifying innovative instruments, and the allowable portion of the Bank's general allowance. Innovative instruments, such as the BMO TSNs -- Series A, must satisfy the detailed requirements of the OSFI Guidelines to be included in the Bank's regulatory capital. Accordingly, BMO TSNs -- Series A were issued by a special purpose vehicle (the Trust), whose primary purpose is to raise innovative Tier 2B capital. Utilizing the Trust generated cost-effective capital for the Bank. OSFI approved the inclusion of the BMO TSNs -- Series A as Tier 2B capital of the Bank.

11. As a result of the Trust having received an exemption from the Continuous Disclosure Obligations and the Certification Obligations, no continuous disclosure documents concerning only the Trust will be filed with the OSC.

12. The Trust is a "Class 2 reporting issuer" under the Fees Rule and would be required (but for this Order) to pay participation fees under such rule.

13. The Bank, as a legal and factual matter, controls the Trust though its ownership of the Voting Trust Units issued by the Trust and its role as administrative agent of the Trust. The Bank has paid, and will continue to pay, participation fees applicable to it under section 2.2 of the Fees Rule.

14. The Fees Rule includes an exemption for "subsidiary entities" in subsection 2.9(2) of the Fees Rule. The Bank and the Trust meet all of the substantive requirements to rely on the exemption in subsection 2.9(2) of the Fees Rule, but for the definition of "subsidiary entity". The Fees Rule defines "subsidiary entity" by reference to the accounting definition under Canadian generally accepted accounting principles ("Canadian GAAP"), rather than by reference to a legal definition based on control.

15. On November 1, 2004, the Canadian Institute of Chartered Accountants adopted Guideline 15, Consolidation of Variable Interest Entities. Accordingly, the Trust may not, from a technical accounting perspective, be considered to be a "subsidiary entity" of the Bank for Canadian GAAP purposes and may not be entitled to rely on the exemption in subsection 2.9(2) of the Fees Rule.

THE ORDER of the OSC under the Fees Rule is that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:

(i) the Bank and the Trust continue to satisfy all of the conditions contained in the Continuous Disclosure Exemption; and

(ii) the capitalization of the Trust represented by the BMO TSNs -- Series A and any additional securities of the Trust that may be issued, from time to time, by the Trust is included in the participation fee calculation applicable to the Bank and the Bank has paid the participation fee calculated on this basis.

DATED at Toronto this 10th day of January, 2008