Securities Law & Instruments

Headnote

National Policy 11-203 -- relief granted from the requirement to obtain securityholder approval of merger under NI 81-102 Mutual Funds and approval granted for mutual fund merger -- securities of the mutual funds only available for purchase by unitholders who have entered into discretionary investment management agreements giving full discretionary authority to manager -- investment objectives of terminating fund and continuing fund substantially similar -- merger is neutral from fee and expense perspective -- costs of merger borne by manager -- convening unitholder meeting would represent an unnecessary expense.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.1(f), 5.5(1)(b), 5.6, 19.1.

July 27, 2010

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 HARRIS INVESTMENT MANAGEMENT INC.

(the Filer)

AND

BMO HARRIS GROWTH

OPPORTUNITIES PORTFOLIO

(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 of the principal regulator (the Legislation):

(a) exempting the Terminating Fund from subsection 5.1(f) of NI 81-102, which requires a mutual fund to obtain the prior approval of its unitholders before the mutual fund undertakes a reorganization with, or transfers its asset to, another mutual fund (the Unitholder Meeting Relief); and

(b) approving of the merger (the Merger) of the Terminating Fund into BMO Harris Canadian Growth Equity Portfolio (the Continuing Fund) pursuant to subsection 5.5(1)(b) of NI 81-102 (the Merger Approval)

(collectively, the Unitholder Meeting Relief and the Merger Approval shall be referred to as 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 and Prince Edward Island.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meanings in this decision unless they are defined in this decision. The following additional terms shall have the following meanings:

BMO Harris Funds means collectively the Terminating Fund, the Continuing Fund and other mutual funds managed by the Filer;

Current Simplified Prospectus means the simplified prospectus and annual information form dated November 4, 2009, as amended, that qualifies the BMO Harris Funds for sale;

IRC means the independent review committee for the Terminating Fund and the Continuing Fund;

NI 81-102 means National Instrument 81-102 Mutual Funds;

NI 81-106 means National Instrument 81-106 Investment Fund Continuous Disclosure;

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

Tax Act means the Income Tax Act (Canada).

Representations

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

The Filer

1. The Filer is a corporation established under the laws of Ontario. The head office of the Filer is located in Toronto, Ontario.

2. The Filer is the manager and portfolio manager of the Terminating Fund and the Continuing Fund. An affiliate of the Filer, BMO Trust Company, is the trustee of the Continuing Fund and Terminating Fund.

3. The Filer, an indirect, wholly-owned subsidiary of Bank of Montreal, is registered as a portfolio manager in each of the provinces and territories of Canada, as an exempt market dealer, commodity trading counsel and commodity trading manager in Ontario and as a derivatives portfolio manager in Quebec.

The Funds

4. Each of the Terminating Fund and the Continuing Fund is an open-ended mutual fund trust established under the laws of the Province of Ontario by declaration of trust.

5. Units of the BMO Harris Funds are qualified for sale in each jurisdiction in Canada by the Current Simplified Prospectus and each of the BMO Harris Funds is subject to NI 81-102.

6. The Terminating Fund and Continuing Fund are reporting issuers under the applicable securities legislation of each jurisdiction in Canada and are not on the list of defaulting reporting issuers maintained under such securities legislation.

7. Unless an exemption has been obtained, each of the Terminating Fund and the Continuing Fund follows the standard investment restrictions and practices established by the securities regulatory authorities in each jurisdiction in Canada.

8. The net asset value for securities of the Terminating Fund and the Continuing Fund is calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading.

9. The Filer proposes to merge the Terminating Fund into the Continuing Fund on or about September 24, 2010.

Unitholder Meeting Relief

10. The Filer offers fully discretionary investment management services to clients in each jurisdiction in Canada, including all of the investors in the BMO Harris Funds.

11. The BMO Harris Funds were established as an efficient and cost effective means of providing discretionary investment management services to many of the Filer's clients, including all of the investors in the Terminating Fund and the Continuing Fund, as an alternative to segregated account management.

12. The Filer has determined that it is appropriate to effect the Merger without obtaining unitholder approval.

13. The Filer believes that the Merger is in the best interests of the unitholders of the Terminating Fund and the Continuing Fund, as the Merger would result in unitholders being invested in a larger Continuing Fund that has increased portfolio diversification opportunities, and in the case of the Terminating Fund, there will be a savings in brokerage charges over a straight liquidation of its portfolio on a wind-up of the Fund.

14. The proposed Merger is neutral to the unitholders of each of the Terminating Fund and Continuing Fund from a fee and expense perspective.

15. The investment objectives of the Terminating Fund and the Continuing Fund are substantially similar.

16. Clause 5.1(f) of NI 81-102 requires that the approval of the securityholders of a mutual fund be obtained before the mutual fund undertakes a reorganization with, or transfers its assets to, another mutual fund.

17. Units of the Terminating Fund are only available for purchase by investors who have entered into a discretionary investment management agreement with the Filer.

18. The Filer is authorized under its discretionary investment management agreement with each client who is an investor in a BMO Harris Fund to make any investment on behalf of the client (provided such investment is consistent with the mandate established by that client). This includes buying and selling any securities (including securities of a BMO Harris Fund) without obtaining the client's approval.

19. Under its discretionary investment management agreement with each client, the Filer or its affiliate is authorized to receive all securityholder materials relating to the securities held in the client's account, and to vote on behalf of the client on any matters relating to the securities held in the client's account (provided that such vote is in the best interests of the client.)

20. The unitholders of the Terminating Fund are relying entirely on the Filer to make investment decisions for them and, in these circumstances, the Merger is analogous to the Filer changing a client's investment from one BMO Harris Fund to another. As such investment changes do not require client approval, the Filer has determined that it is appropriate to effect the Merger without obtaining unitholder approval.

21. As every investor in the Terminating Fund has entered into a discretionary investment management agreement with the Filer, the Filer believes that sending meeting materials and convening unitholder meetings for the purpose of obtaining unitholder approval to effect the Merger is not desirable and represents an unnecessary cost and inconvenience to the Filer and the unitholders of the Terminating Fund.

22. Prior to, or shortly following, the implementation of the Merger, the Filer will communicate with each client that holds securities of the Terminating Fund to explain the changes to their account that will occur as a result of the Merger.

Merger Approval

23. The Filer has presented the terms of the Merger to the IRC for its approval. The IRC reviewed the proposed Merger, determined that the Merger would achieve a fair and reasonable result for the Terminating Fund and Continuing Fund and has provided its approval in respect of the Merger.

24. Upon the approval of the Merger by the board of directors of the Filer and BMO Trust Company, a press release was issued and filed and a material change report and amendment to the Current Simplified Prospectus in respect of the Merger were filed on SEDAR under Project # 1598987, 1598988 and 1482706 in accordance with the continuous disclosure obligations of the Terminating Fund set forth in Part 11 of NI 81-106.

25. Units of the Terminating Fund will continue to be available for sale until the close of business on September 22, 2010, following which time the distribution of new units will cease, except under a continuous savings plan or similar systematic plan established prior to September 22, 2010.

26. No sales charges will be payable in connection with the issuance of units of the Continuing Fund in exchange for the investment portfolio of the Terminating Fund.

27. The portfolio assets of the Terminating Fund to be acquired by the Continuing Fund arising from the Merger are currently, or will be, acceptable, on or prior to the effective date of the Merger, to the portfolio advisor of the Continuing Fund and are or will be consistent with the investment objectives of the Continuing Fund.

28. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund at any time up to the close of business on the business day immediately preceding the effective date of the Merger.

29. The Filer will bear the costs and expenses associated with the Merger, including all brokerage expenses incurred in respect of any required sale of portfolio assets of the Terminating Fund.

30. The Terminating Fund will merge into the Continuing Fund on or about September 24, 2010.

31. Pursuant to the Merger, holders of units of the Terminating Fund will receive units of the Continuing Fund.

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

33. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102 because:

(a) the Merger will not be structured as a "qualifying exchange" or a tax-deferred transaction in accordance with the Tax Act as contemplated in subsection 5.6(1)(b) of NI 81-102;

(b) approval of the Merger will not be obtained by the unitholders of the Terminating Fund as contemplated in subsection 5.6(1)(e)(i) of NI 81-102; and

(c) meeting materials will not be delivered to unitholders of the Terminating Fund in connection with such unitholder meetings as contemplated in subsection 5.6(1)(f) of NI 81-102 since no unitholder meetings will be held in connection with the Merger.

34. The Filer has determined that implementing the Merger on a taxable basis will enable the Continuing Fund to retain its tax losses. As investors in the Terminating Fund will become investors in the Continuing Fund, this preserves a tax benefit for all investors by reducing the tax liability of any gains from an investment in the Continuing Fund.

35. The Filer will, except as noted above, comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

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.

"Darren McKall"
Assistant Manager, Investment Funds
Ontario Securities Commission