BMO Investments Inc. and BMO U.S. Dollar Bond Fund - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- NI 81-102 Mutual Funds, s.5.7 -- approval for the merger of the Terminating Fund into the Continuing Fund -- Merger does not meet the criteria for pre-approval outlined in s. 5.6 of NI 81-102 -- Securityholders have received timely and adequate disclosure regarding the merger and the merger is not detrimental to securityholders or the public interest.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, s. 5.7.
May 4, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR AND
NORTHWEST TERRITORIES, NUNAVUT
AND THE YUKON
(the Jurisdictions)
AND
IN THE MATTER OF
NATIONAL INSTRUMENT 81-102
MUTUAL FUNDS (NI 81-102)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BMO INVESTMENTS INC. (BMO)
AND
BMO U.S. DOLLAR BOND FUND
(the Terminating Fund)
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from BMO and the Terminating Fund (the Filers) for a decision under the securities legislation of the Jurisdictions (the Legislation) for approval of the merger of the Terminating Fund into the Continuing Fund (as defined below) as set out in paragraph 8 below.
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision. The following additional terms shall have the following meanings:
Continuing Fund means BMO U.S. Dollar Monthly Income Fund;
Fund and Funds means, individually or collectively, the Terminating Fund and the Continuing Fund;
Tax Act means the Income Tax Act (Canada);
Representations
This decision is based on the following facts represented by the Filers:
1. BMO is a corporation existing under the laws of Canada and is registered as a mutual fund dealer in all of the provinces and territories of Canada.
2. BMO is the manager of each of the Funds. The registered office of BMO is located in Toronto and, accordingly, Ontario has been selected as the principal jurisdiction for the application.
3. Each of the Funds is an open end mutual fund trust established under the laws of the Province of Ontario by declaration of trust.
4. Units of the Funds are offered for sale under a simplified prospectus and annual information form dated April 21, 2005, as amended. Units of the Funds are offered in all of the provinces and territories of Canada.
5. Each of the Funds is a reporting issuer under the Legislation of each Jurisdiction and is not on the list of defaulting reporting issuers maintained under the Legislation.
6. Other than circumstances in which the securities regulatory authority of a Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established by the Decision Makers.
7. The net asset value for each Fund is calculated on each day that the Toronto Stock Exchange is open for business.
8. BMO proposes that the Terminating Fund be merged into the Continuing Fund.
9. No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolio of the Terminating Fund.
10. Unitholders 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 effective date of the merger.
11. A material change report, press release and amendments to the simplified prospectus and annual information form of the Terminating Fund were filed via SEDAR on March 17, 2006 with respect to the proposed merger.
12. The anticipated benefits of the merger are as follows:
(a) unitholders of the Terminating Fund may have the potential to enjoy increased economies of scale with respect to administrative expenses, as well as profile in the marketplace as part of a larger continuing fund;
(b) the potential for portfolio diversification is expected to improve through the management of a larger fund with broader investment objectives; and
(c) by merging the Terminating Fund instead of terminating it, there may be a savings for the Terminating Fund in brokerage charges associated with the liquidation of the Terminating Fund's portfolio on a wind-up because, in the case of the merger these charges will be borne by BMO.
13. A notice of meeting, a management information circular and a proxy in connection with a meeting of unitholders were mailed to unitholders of the Terminating Fund and have been filed via SEDAR on March 30, 2006.
14. Unitholders of the Terminating Fund will be asked to approve the merger at a meeting to be held on or about May 3, 2006.
15. The Terminating Fund will merge into the Continuing Fund on or about the close of business on May 5, 2006 and the Continuing Fund will continue as a publicly offered open-end mutual fund.
16. The Terminating Fund will be wound up as soon as reasonably possible following the merger.
17. BMO will pay for the costs of the merger. These costs consist mainly of legal, proxy solicitation, printing, mailing, brokerage costs and regulatory fees.
18. Approval of the merger is required because the merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:
(a) the investment objectives and portfolio assets of the Terminating Fund are not consistent with the fundamental investment objectives of the Continuing Fund;
(b) the fee structure of the Terminating Fund is not substantially similar to the structure of the Continuing Fund; and
(c) the merger will not be a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada).
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make this decision has been met.
The decision of the Decision Makers under the Legislation is that the mergers are approved.