BMO Investments Inc. et al.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption granted from the requirements of paragraphs 2.5(2)(a), and 2.5(2)(c) of National Instrument 81-102 to allow four specified top NI 81-102 mutual funds to invest up to 10% of their net assets in bottom fund. Bottom fund is an Ontario-domiciled mutual fund that has Qualified Foreign Institutional Investor status in China. Relief is analogous to the exemption provided in paragraph 2.5(3)(b) of NI 81-102. Exemption granted on the basis that bottom fund will comply with Parts 2, 4 and 6 of NI 81-102 and Part 14 of NI 81-106, concentration restriction for top funds and bottom fund portfolio disclosure available to top fund securityholders.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a), 2.5(2)(c), 2.5(3)(3)(b), 19.1.

National Instrument 81-106 Investment Fund Continuous Disclosure.

June 14, 2012

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 INVESTMENTS INC. (the "Manager"),

BMO GREATER CHINA CLASS,

BMO EMERGING MARKETS FUND and

BMO HARRIS INTERNATIONAL EQUITY

PORTFOLIO and BMO HARRIS EMERGING

MARKETS EQUITY PORTFOLIO

(individually, a "Top Fund" and collectively, the

"Top Funds", together with the Manager, the "Filers")

DECISION

Background

1. The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Top Funds from the prohibition contained in paragraphs 2.5(2)(a) and (c) of National Instrument 81-102 Mutual Funds ("NI 81-102") to permit each Top Fund to invest in BMO China A-Share Fund (the "Pooled Fund"), a mutual fund trust that is governed under the laws of Ontario, the units of which will be offered for sale in reliance upon applicable prospectus exemptions (the "Exemption Sought").

2. The conditions contained in paragraphs 2.5(2)(a) and (c) of NI 81-102 prevent a mutual fund from investing in another mutual fund the securities of which are not, and never have been, offered under a simplified prospectus in accordance with NI 81-101 Mutual Fund Prospectus Disclosure ("NI 81-101") or that is not governed by NI 81-102.

3. Under the Process of Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission ("OSC") is the principal regulator for this application in accordance with section 4.2(a) of Multilateral Instrument 11-102 Passport System ("MI 11-102") and section 3.6(3)(a) of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions ("NP 11-203"); and

(ii) the Filers have provided notice that section 4.7(1) of MI 11-102 is intended to be relied upon in each of the other jurisdictions in which relief is sought, namely British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Exemption Requested

4. In keeping with its investment objective, any Top Fund wishing to gain indirect exposure to the China A-share market may do so by investing in units of the Pooled Fund, provided the Exemption Sought is granted.

Interpretation

5. Defined terms contained in National Instrument 14-101 Definitions, National Instrument 31-103 Registration Requirements and Exemptions and Ongoing Registration Obligations, the Securities Act (Ontario) (the "OSA") or the securities legislation of each of the provinces and territories of Canada (individually, a "Jurisdiction" and collectively, the "Jurisdictions") have the same meaning if used in this decision, unless otherwise defined.

Representations

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

BMO Investments Inc.

7. The Manager is a corporation amalgamated under the laws of Canada and is a wholly-owned indirect subsidiary of Bank of Montreal.

8. The Manager is registered as an investment fund manager in Ontario. It is registered as a mutual fund dealer in each jurisdiction of Canada and is a member of the Mutual Fund Dealers Association of Canada.

Top Funds

9. The Manager, or an affiliate of the Manager, is or will be the investment fund manager of the Top Funds and the trustee of the Top Funds that are organized as trusts. Unless it has received exemptive relief therefrom, each of the Top Funds complies with NI 81-102 and has prepared and filed fund facts, a simplified prospectus and an annual information form prepared in accordance with NI 81-101.

10. Securities of the various series of each of BMO Greater China Class and BMO Emerging Markets Fund are currently qualified for sale by fund facts, an amended and restated simplified prospectus, and amended and restated annual information form dated April 11, 2012 amended the fund facts, simplified prospectus and annual information form dated March 26, 2012 and the fund facts, simplified prospectus and annual information form dated May 28, 2012. Securities of the various series of each of the BMO Harris International Equity Portfolio and BMO Harris Emerging Markets Equity Portfolio are currently qualified for sale by fund facts, simplified prospectus and annual information form dated October 24, 2011, each as may be amended from time to time, and which have been filed and receipted in each jurisdiction of Canada.

11. Each of the Top Funds is a reporting issuer in each jurisdiction of Canada and is not in default under the securities legislation in force in any jurisdiction of Canada.

12. The investment objective of each of the Top Funds is set forth below:

BMO Greater China Class -- "to achieve long-term capital growth by investing primarily in equity securities of companies in Greater China, which includes the People's Republic of China, Hong Kong SAR and Taiwan, as well as in equity securities of companies that benefit from exposure to Greater China."

BMO Emerging Markets Fund -- "to increase the value of your investment over the long term by investing in companies located in countries undergoing rapid industrialization. As part of this fund's investment objective, it invests primarily in equities of companies in emerging countries like Brazil, Chile, Greece, India, Malaysia, Mexico, Pakistan, South Africa, South Korea, Taiwan and Turkey. It may also invest in fixed income securities."

BMO Harris International Equity Portfolio -- "to provide long-term capital appreciation by investing in a diversified portfolio of primarily equity securities of issuers throughout the world, other than in Canada and the United States."

BMO Harris Emerging Markets Equity Portfolio -- "to achieve long-term growth through capital appreciation through primarily investing in securities of companies in emerging markets or companies with a connection to emerging markets."

13. The Filers are seeking to permit the Top Funds to invest in the Pooled Fund.

14. Section 2.5 of NI 81-102 would permit the Top Funds to invest in the Pooled Fund, but for the fact that securities of the Pooled Fund are not qualified for distribution under NI 81-101 and the Pooled Fund is not governed by NI 81-102. However, the Pooled Fund will be fully compliant with Parts 2, 4 and 6 of NI 81-102. The Pooled Fund will not use derivatives which, were it governed by NI 81-102, would permit it to determine the series net asset value of its units on a weekly basis.

The Limits on Access to the Chinese Securities Markets

15. Historically, foreign investors interested in investing in China have only been able to invest in a very limited number of Hong Kong Stock Exchange listed securities.

16. By contrast, China's "A-share market" extends to both the Shanghai Stock Exchange and the Shenzhen Stock Exchange, which together offer the opportunity to invest in over 14 times as many listed companies.

17. The ability to invest in the securities ("A-shares") of locally-listed Chinese issuers will provide the Top Funds with much broader and more balanced exposure to the Chinese economy.

Qualified Foreign Institutional Investor Status

18. Foreign fund management institutions, insurance companies, securities companies and other asset management institutions may be permitted to invest in the China A-share market by applying to the China Securities Regulatory Commission ("CSRC") to be licensed as a Qualified Foreign Institutional Investor ("QFII") and applying to the State Administration of Foreign Exchange ("SAFE") for an investment quota ("Investment Quota").

19. Under the QFII regulations, a QFII may invest in shares listed and traded on a stock exchange, bonds listed and traded on a stock exchange, securities, investment funds, warrants listed and traded on a stock exchange and other financial instruments approved by the CSRC.

20. The Manager has obtained a QFII licence from CSRC and has been granted an Investment Quota by SAFE. The majority of the Pooled Fund's assets will be invested through this Investment Quota.

21. By providing indirect access to the A-Share market and other securities that are available only to those able to invest under a QFII licence, an investment in the Pooled Fund provides the Top Funds with an unique investment opportunity in a foreign jurisdiction that imposes significant investment restrictions on other foreign investors, making this situation analogous to the one contemplated in the exemption from paragraphs 2.5(2)(a) and (c) that is set out in paragraph 2.5(3)(b) of NI 81-102.

The QFII Program

22. A QFII is required to remit the entire investment principal for its Investment Quota into an account held in the People's Republic of China ("PRC") with a local Chinese sub-custodian bank within six months of the Investment Quota approval date. Following such remittance, the current practice under the QFII program, for an open-ended fund, imposes a period of three months during which the investment principal may not be repatriated (the "Repatriation Restriction Period") commencing from the day when the full amount equal to the Investment Quota is remitted into the PRC. Thereafter, repatriations are possible subject to the PRC laws and practice affecting a QFII's ability to move the proceeds of its investments outside of the PRC. Throughout the Repatriation Restriction Period, and thereafter, the Pooled Fund may freely trade the A-Shares of any issuer providing the proceeds are reinvested in A-Shares of another issuer.

23. Net realized profits for any fiscal year of a QFII fund can be repatriated at calendar year end provided that an annual audit is undertaken by a Chinese certified public accountant on the QFII's transaction history at the local Chinese sub-custodian bank and subject to payment of all applicable taxes and SAFE approval. The purpose of the audit is solely to determine the amount of the QFII fund's net realized profits that may be repatriated. All repatriations of gains and income on A-shares and other investment products (if any) require the approval of SAFE. The Manager will address this issue through the overall investment strategies of the Pooled Fund.

Investment Restrictions of the QFII Program

24. QFIIs are also subject to the following investment restrictions:

(a) A QFII may not acquire more than 10% of the outstanding shares of the same kind of a single issuer;

(b) The total holdings of the A-shares of a single issuer by all QFIIs under common control may not exceed 20% of such issuer's total issued shares; and

(c) A QFII may not make investments for the purpose of exercising control or management.

The Pooled Fund

25. The Pooled Fund is an Ontario-domiciled mutual fund trust in which the Top Funds would invest to obtain indirect exposure to the China A-share market.

26. The portfolio manager of the Pooled Fund will be Fullgoal Fund Management Co., Ltd. ("Fullgoal"), a company in which Bank of Montreal owns a minority interest. Fullgoal is a limited liability company formed in accordance with the Company Law of the PRC, the Securities Investment Fund Law of the PRC, the Procedures for the Administration of Securities Investment Fund Management Companies, the Guidelines (Trial) for Corporate Governance of Securities Investment Fund Management Companies and other relevant PRC laws and regulations as well as the relevant requirements of the CSRC. Its head office is located in Pudong New Area, Shanghai. Fullgoal is one of the first ten fund companies established in China and has significant experience and expertise managing investments in the PRC. It will be offering its investment advisory services in reliance upon the international adviser exemption set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

27. The Pooled Fund's investment objective is to achieve long-term capital appreciation through investing primarily in the securities of issuers established in, operating in, or that derive the majority of their revenue from with the People's Republic of China.

28. It is expected that the Pooled Fund's portfolio will be broadly diversified. The Pooled Fund will invest primarily in A-shares listed and quoted on the Shanghai and Shenzhen Stock Exchanges and other QFII eligible investments, including Chinese government and corporate debt securities. The Pooled Fund may invest the balance of its net assets in H-shares and Red Chip shares listed and quoted on the Hong Kong Stock Exchange and in cash and cash equivalents.

29. The Manager has entered into an investment advisory agreement with Fullgoal that requires Fullgoal to exercise its professional judgment (i.e., the degree of care, diligence and skill of a reasonable and prudent investment adviser) in carefully selecting investments for the Pooled Fund and the agreement provides for ongoing compliance and oversight of Fullgoal's activities by the Manager. Consistent with its oversight of the portfolio managers of all of the mutual funds it manages, the Manager has robust policies and procedures that it will apply in performing regular due diligence reviews of Fullgoal and monitoring the holdings of the Pooled Fund, to ensure compliance with the NI 81-102 investment restrictions and the QFII investment restrictions.

30. Units of the Pooled Fund will be offered to, among others, institutional and high net worth investors, open-ended retail mutual funds, exempt offered mutual funds and managed accounts managed by the Manager or by an affiliate of the Manager maintained for persons who constitute accredited investors or permitted purchasers as well as various BMO entities.

31. The Pooled Fund's units will be redeemable on each valuation day for the Pooled Fund (which is expected to be daily) in accordance with the provisions of the Pooled Fund's Declaration of Trust and as will be disclosed in the offering memorandum that will be provided to prospective investors in the Pooled Fund.

32. A redemption discount of 5% will be imposed if units are redeemed within the Repatriation Restriction Period. This redemption discount will be disclosed to prospective investors in the offering memorandum.

Rationale for the Exemption Requested

33. The Manager believes that it is in the best interests of the Top Funds to permit them to make investments in units of the Pooled Fund in order to gain indirect exposure to locally-listed Chinese stocks. Through the Pooled Fund's purchase of A-Shares the Top Funds will benefit from investment opportunities that they would not otherwise be able to access.

34. The investment objectives and strategies of the Pooled Fund make it a suitable investment option for the Top Funds.

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 Pooled Fund will comply with Parts 2, 4 and 6 of NI 81-102 and Part 14 of National Instrument 81-106 Investment Fund Continuous Disclosure;

(b) The Pooled Fund will make available to securityholders of the Top Funds, upon request and without charge, the top twenty-five holdings of the Pooled Fund as at the end of the first and third quarters of the financial year of the Pooled Fund, and the full investment portfolio of the Pooled Fund as at the end of the second quarter and the end of the financial year of the Pooled Fund.

(c) The Top Funds will comply with the conditions set out in section 2.5 of NI 81-102 in investing in the Pooled Fund, except for paragraphs 2.5(2)(a) and (c) and will include the disclosure mandated for mutual funds investing in other mutual funds in their respective prospectuses;

(d) A Top Fund will not invest in the Pooled Fund if, immediately after the investment, more than 10% of its net assets, taken at market value at the time of investment, would be invested in the Pooled Fund; and

(e) During the Repatriation Restriction Period, the Top Funds will treat the investment in the Pooled Fund as being an "illiquid asset" for the purposes for determining compliance with section 2.4 of NI 81-102.

"Daren McKall"
Manager, Investment Funds Branch
Ontario Securities Commission