BMO Investments Inc. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to mutual funds investing, until May 1, 2010, underlying Exchange Traded Funds that track particular broad market indices, but are not Index Participation Units (IPUs). Relief granted allowing sales fees or redemption fees be payable by a mutual fund in relation to its purchases or redemptions of the securities of a related mutual fund that are IPUs, provided that the requirements of section 2.5 of NI 81-102, except for paragraph 2.5(2)(e) -- National Instrument 81-102 Mutual Funds are complied.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a) and (e), 19.1.

April 16, 2010

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption relieving the mutual funds managed by the Filer that are subject to National Instrument 81-102 Mutual Funds (NI 81-102) (the Current BMO Funds) and any future mutual funds managed by the Filer that are subject to NI 81-102 and any current or future mutual funds managed by an affiliate or associate of the Filer that are subject to NI 81-102 (together with the Current BMO Funds, individually, a Fund and, collectively, the Funds) from:

(a) paragraph 2.5(2)(a) of NI 81-102 in order to permit the Funds to invest in securities of Underlying ETFs (defined herein) that are not subject to National Instrument 81-101 Mutual Fund Prospectus Disclosure (N1 81-101) and do not meet the definition of an "index participation unit" (IPU) under NI 81-102 for a limited period of time; and

(b) paragraph 2.5(2)(e) of NI 81-102 in order to permit the Funds to pay brokerage fees associated with trades in securities of the Underlying ETFs (defined herein),

(collectively, the Exemption Sought).

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 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, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, the Yukon Territory and Nunavut Territory.

Interpretation

Terms defined in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Current BMO ETFs means exchange traded funds managed by the Filer or an affiliate or associate of the Filer and listed on Appendix "A".

Jones Heward means Jones Heward Investment Counsel Inc.

Underlying ETFs means exchange-traded funds managed by the Filer or an affiliate or associate of the Filer, which exist as of the date hereof or which may be created in the future.

Representations

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

1. The Filer is a corporation amalgamated under the laws of Canada with its head office in Toronto, Ontario. The Filer acts as the manager of the Current BMO Funds and as the trustee of the Current BMO Funds that are structured as trusts.

2. The Funds are or will be reporting issuers in each of the provinces and territories of Canada and are or will be open-end mutual funds that are structured as trusts or as classes of a mutual fund corporation or as mutual fund corporations.

3. The Current BMO ETFs are reporting issuers in each of the provinces and territories of Canada and are established as trusts under the laws of Ontario. In the future, the Filer or an affiliate or associate of the Filer may act as manager in respect of Underlying ETFs that are structured as trusts or as corporations.

4. The Underlying ETFs are or will be mutual funds, whose securities are listed and traded on the Toronto Stock Exchange in Canada, that attempt to replicate the performance of various indices.

5. All Current BMO ETFs meet the definition of an IPU under NI 81-102 with the exception of three Current BMO ETFs (as reflected on Appendix "A"), which fail to meet the IPU definition solely on the basis that the disclosure specifying the widely-quoted market indices that these Current BMO ETFs seek to replicate is effective following the close of trading on April 30, 2010.

6. Jones Heward acts as the manager and trustee of the Current BMO ETFs.

7. The Filer and Jones Heward are affiliates, as they are both wholly-owned subsidiaries of Bank of Montreal.

8. Either the Filer or an affiliate or associate of the Filer will be the manager of any future Funds or Underlying ETFs.

9. The Funds wish to be able to invest in securities of the Underlying ETFs in order to obtain exposure to the underlying indices represented by the Underlying ETFs in a cost efficient manner.

10. The Filer is in the process of creating new Funds that will invest in Underlying ETFs. In addition to investing in Underlying ETFs that qualify as IPUs, the Filer would like the new Funds to be able to invest in the Current BMO ETFs that are not IPUs.

11. The Funds' investment in securities of the Underlying ETFs will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Funds.

12. As each Underlying ETF is or will be a mutual fund, all investments by a Fund in an Underlying ETF must be made in compliance with section 2.5 of NI 81-102.

13. As certain Current BMO ETFs will not meet the IPU definition until their new disclosure specifying the underlying indices takes effect after the close of trading on April 30, 2010, and as these Current BMO ETFs are not subject to NI 81-101, the Funds are unable to make use of the exemption in subsection 2.5(3) from paragraph 2.5(2)(a) of NI 81-102 to invest in a non-IPU Underlying ETF.

14. As Jones Heward is an affiliate of the Filer, the Funds are prohibited by paragraph 2.5(2)(e) of NI 81-102 from purchasing securities of the Current BMO ETFs unless no sales or redemption charges are payable in connection with a purchase or redemption of such securities.

15. The majority of trading in securities of the Underlying ETFs occurs in the secondary market.

16. As is the case with the purchase or sale of any other equity security made on an exchange, dealers are typically paid a commission in connection with trading in securities of exchange-traded funds, such as the Underlying ETFs.

17. Securities of the Underlying ETFs may only be directly purchased or redeemed from an Underlying ETF in large blocks. It is anticipated that many of the trades conducted by the Funds would not be the size necessary for a Fund to be eligible to purchase securities directly from the Underlying ETF.

18. It is proposed that the Funds will purchase and sell securities of the Underlying ETFs on the applicable exchange and pay commissions to these dealers in connection with the purchase and sale of such securities.

19. If a Fund makes a trade with or through an affiliate or associate of the Filer acting as dealer, the portfolio manager of the Fund will comply with its "best execution" obligation under the Legislation. In addition, the Filer will comply with its obligations under National Instrument 81-107 Independent Review Committee for Investment Funds in respect of the proposed related party transactions. Lastly, all such related party transactions will be disclosed to securityholders of the relevant Fund in the management report of fund performance of the Fund.

20. Subsection 2.5(5) of NI 81-102 provides that the prohibition against the duplication of sales and redemption fees in paragraph 2.5(2)(f) does not apply to brokerage fees incurred by a mutual fund for the purchase or sale of an IPU issued by a mutual fund. The exemption provided in subsection 2.5(5) does not, however, also extend to the similar prohibition against the payment of sales and redemption fees in paragraph 2.5(2)(e), which applies when a mutual fund purchases or redeems securities of another mutual fund managed by an affiliate or associate of the manager of the mutual fund.

21. All investments by a Fund in an Underlying ETF will be made in compliance with section 2.5 of NI 81-102, with the exception of paragraph 2.5(2)(e) and, for a limited period of time where certain Current BMO ETFs do not yet meet the IPU definition, paragraph 2.5(2)(a).

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 Exemption Sought is granted provided that the Funds' investments in securities of the Underlying ETFs are made in compliance with the requirements of section 2.5 of NI 81-102, except paragraph 2.5(2)(e) and, until May 1, 2010 paragraph 2.5(2)(a) of NI 81-102.

Appendix "A"

BMO Mutual Funds (Current BMO Funds)

Current BMO ETFs

{•} Does not currently meet IPU definition under NI 81-102