Mutual Reliance Review System for Exemptive Relief Applications -- exemption from unitholder approval requirement in clause 5.1(c) of NI 81-102 - mutual fund permitted to change its investment objective without seeking unitholder approval - all unitholders of the fund have entered into discretionary investment management agreements giving full discretionary authority to portfolio manager - convening of unitholder meeting represents unnecessary cost.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.1(c), 19.1.
September 14, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
BMO HARRIS INVESTMENT MANAGEMENT INC.
IN THE MATTER OF
BMO HARRIS DIVERSIFIED TRUST PORTFOLIO
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer, on behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Fund from the requirement contained in clause 5.1(c) of National Instrument 81-102 Mutual Funds (NI 81-102) requiring a mutual fund to obtain the prior approval of its securityholders before the fundamental investment objective of the fund is changed (the Requested Relief).
Under the Mutual Reliance Review System (MRRS) for Exemption 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.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation established under the laws of Ontario and is the manager of and investment advisor to the Fund. An affiliate of the Filer, BMO Trust Company, is the trustee of the Fund.
2. The Fund is an open-end mutual fund trust established under the laws of the Province of Ontario.
3. The Fund is a reporting issuer in all of the provinces of Canada and distributes securities under a simplified prospectus and annual information form and is otherwise subject to NI 81-102. The Fund and other funds managed by the Filer are collectively referred to as the BMO Harris Funds.
4. The Filer is registered as an investment counsel/portfolio manager or the equivalent in all of the Jurisdictions.
5. The Filer offers fully discretionary investment management services to clients in the Jurisdictions, including all of the investors in the Fund.
6. The BMO Harris Funds were established as an efficient and cost effective means of providing discretionary investment management services to many of its clients, including all of the investors in the Fund, as an alternative to segregated account management.
7. The Filer has determined that it is appropriate to change the fundamental investment objective of the Fund from:
"The Portfolio's investment objective is to provide tax advantaged cash distribution from income producing assets by primarily investing in oil and gas royalty trusts, real estate investment trusts, limited partnerships and income trusts. Capital gains, although a consideration, will be a secondary concern to preservation of capital."
"The Portfolio's investment objective is to provide income by investing primarily in a diversified portfolio of Canadian securities."
8. The current investment objective of the Fund is very focused on investments that are structured as income trusts. The Filer is proposing to change the fundamental investment objective of the Fund having regard to Bill C-52 (the act to implement the provisions of the budget pertaining to income trust taxation) which creates a disincentive for a business enterprise to retain the legal structure of an income trust. The change in investment objective will allow the Fund to continue to invest in the same businesses it currently invests in without regard to their legal structure. The Filer believes that this change is in the best interests of the Fund's unitholders.
9. Clause 5.1(c) of NI 81-102 requires that unitholder approval be obtained for any change to the fundamental investment objective of the Fund. The Filer believes that, in the circumstances, a unitholder meeting convened for the purpose of obtaining unitholder approval to change the fundamental investment objective of the Fund is not desirable and represents an unnecessary cost and inconvenience to the Filer, the Fund and the unitholders of the Fund.
10. The Filer is authorized under its discretionary investment management agreements with each client who is an investor in the Fund to make any investment on behalf of the client (provided such investment is consistent with the mandate established by that client). This would include buying and selling securities of the Fund in favour of another security without obtaining the client's approval. The unitholders of the Fund are relying entirely on the Filer to make investment decisions for them and, in these circumstances, the change of a fundamental investment objective is analogous to the unitholder changing from one BMO Harris Fund to another, which change does not require unitholder approval, but which change would, for tax purposes, be a disposition.
11. The declaration of trust governing the Fund does not require unitholder approval in order for the Filer to change the fundamental investment objective of the Fund.
12. If the Requested Relief is granted, the Filer proposes to amend the Fund's simplified prospectus and annual information form, issue a press release and file a material change report announcing the change.
13. The proposed change of the fundamental investment objective is neutral to the unitholders of the Fund from a fee and expense perspective.
14. If the Requested Relief is granted, coincident with the implementation of the change of investment objective the name of the Fund will be changed to BMO Harris Diversified Yield Portfolio.
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted to the Fund.