Securities Law & Instruments

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from the self-dealing provisions in section 4.2 of National Instrument 81-102 -- Mutual Funds to permit inter-fund trades in debt securities between mutual funds and pooled funds managed by the same manager or an affiliate of the same manager -- inter-fund trades will comply with conditions in s. 6.1(2) of National Instrument 81-107 -- Independent Review Committee for Investment Funds, including the requirement for independent review committee approval.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.2(1), 4.3(1), 4.3(2), 19.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).

July 21, 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 ASSET MANAGEMENT INC.

(the Filer)

AND

THE NI 81-102 FUNDS

(as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of existing mutual funds and future mutual funds of which a Filer, or an affiliate of a Filer, is the manager and to which National Instrument 81-102 Mutual Funds (NI 81-102) applies (each, an NI 81-102 Fund and, collectively, the NI 81-102 Funds) for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction (the Legislation) exempting the NI 81-102 Funds from the prohibition in Subsection 4.2(1) of NI 81-102 to permit an NI 81-102 Fund to purchase debt securities from or sell debt securities to (each purchase or sale of securities, an Inter-Fund Trade) existing and future investment funds managed by a Filer, or an affiliate of a Filer, to which NI 81-102 does not apply (each, a Pooled Fund and, collectively, the Pooled Funds).

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,

(b) the Filer has provided notice that Subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (the Passport Jurisdictions).

Interpretation

Terms defined in the Legislation, National Instrument 14-101 Definitions, NI 81-102 or National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meanings if used in this decision. Certain other defined terms have the meanings given to them above or below.

Representations

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

1. The Filer is a corporation incorporated under the laws of the Province of Ontario. It is registered as a portfolio manager in each of the provinces and territories of Canada (the Jurisdictions), as an exempt market dealer in Ontario and Newfoundland and Labrador and as commodity trading manager in Ontario.

2. The head office of the Filer is located in Toronto, Ontario.

3. The Filer is an indirect wholly-owned subsidiary of Bank of Montreal.

4. Each of the NI 81-102 Funds and the Pooled Funds (each, a Fund and collectively, the Funds) is or will be an investment fund established as a trust or corporation under the laws of Canada or a jurisdiction of Canada. The Filer, or an affiliate of the Filer, will be the manager and/or portfolio adviser of each Fund.

5. The Filer, or an affiliate of the Filer is, or may be, the trustee of certain Funds that are created as trusts.

6. Each of the NI 81-102 Funds is, or will be, a reporting issuer and qualified for distribution in each of the Jurisdictions pursuant to a simplified prospectus and annual information form prepared and filed in accordance with securities legislation.

7. Each of the Pooled Funds is, or will be, qualified for distribution in the Jurisdictions pursuant to exemptions from the prospectus requirement and will not be a reporting issuer.

8. The Filer and each of the existing Funds are not in default of securities legislation in any of the Jurisdictions.

9. A Fund may be an associate of the Filer, or of an affiliate of the Filer, that is the manager, portfolio adviser or trustee of an NI 81-102 Fund.

10. The Filer wishes to be able to enter into Inter-Fund Trades of debt securities between an NI 81-102 Fund and a Pooled Fund.

11. The manager of each NI 81-102 Fund has established, or will establish, an independent review committee (IRC) in respect of each NI 81-102 Fund in accordance with the requirements of NI 81-107.

12. Inter-Fund Trades involving an NI 81-102 Fund will be referred to the relevant IRC of such NI 81-102 Fund under Subsection 5.2(1) of NI 81-107 and the manager of such NI 81-102 Fund will comply with Section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade.

13. The manager of each Pooled Fund will establish an IRC in respect of each Pooled Fund. The mandate of the IRC of the Pooled Funds will be to approve Inter-Fund Trades between a Pooled Fund and another Fund.

14. The IRC of the Pooled Funds will be composed by the manager of the Pooled Funds in accordance with Section 3.7 of NI 81-107 and the IRC will be expected to comply with the standard of care set out in Section 3.9 of NI 81-107. The IRC of the Pooled Funds will not approve an Inter-Fund Trade involving a Pooled Fund unless it has made the determination set out in Subsection 5.2(2) of NI 81-107.

15. At the time of an Inter-Fund Trade, the Filer (or its affiliate) will have in place policies and procedures to enable the NI 81-102 Funds to engage in Inter-Fund Trades with the Pooled Funds.

16. Each Inter-Fund Trade will be consistent with the investment objective of the NI 81-102 Fund.

17. The Filer, or an affiliate of the Filer, will comply with the following procedures when entering into Inter-Fund Trades between an NI 81-102 Fund and a Pooled Fund:

(a) the portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund (Portfolio A) to a trader on a trading desk of the Filer or affiliate of the Filer;

(b) the portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a sale or a purchase of a security by another Fund (Portfolio B) to a trader on a trading desk of the Filer or an affiliate of the Filer;

(c) the portfolio manager of the Filer or affiliate of the Filer will request the approval of the chief compliance officer of the Filer or affiliate of the Filer or his or her designated alternate during periods when it is not practicable for the chief compliance officer (CO) to address the matter to execute the trade as an Inter-Fund Trade;

(d) once the trader has confirmed the approval of the CO, the trader on the trading desk will have the discretion to execute the trade as an Inter-Fund Trade between Portfolio A and Portfolio B in accordance with the requirements of paragraphs (c) to (g) of Subsection 6.1(2) of NI 81-107;

(e) the policies applicable to the trading desk of the Filer or affiliate of the Filer will require that all orders are to be executed on a timely basis; and

(f) the trader on a trading desk will advise the Filer or an affiliate of the Filer of the price at which the Inter-Fund Trade occurred.

18. The Filer has determined that it would be in the interests of the NI 81-102 Funds to receive the Exemption Sought for the following reasons:

(a) it will result in cost and timing efficiencies in respect of the execution of transactions for the NI 81-102 Funds; and

(b) it will result in less complicated and more reliable compliance procedures, as well as simplified and more efficient monitoring thereof, for the Filer, or an affiliate of the Filer, in connection with the execution of transactions on behalf of NI 81-102 Funds.

19. The Filer is unable to rely upon the exemption from Subsection 4.2(1) of NI 81-102 for inter-fund trades in debt securities codified in Subsection 4.3(2) of NI 81-102 because the Pooled Funds are not subject to NI 81-107.

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:

(a) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with Subsection 5.2(2) of NI 81-107; and

(b) the Inter-Fund Trade complies with paragraphs (c) to (g) of Subsection 6.1(2) of NI 81-107.

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