BMO Nesbitt Burns Inc. et al.

Headnote

NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund reorganization pursuant to section 5.5(1)(b) of NI 81-102 required because the reorganization does not meet criteria for pre-approval -- reorganization undertaken in connection with changes to the Income Tax Act (Canada) which eliminated certain tax benefits associated with character conversion transactions.

Upon reorganization, portfolio assets of converting fund to continue as portfolio assets of continuing Fund -- continuing Fund to have same investment objectives, investment strategies, management fees, portfolio investment manager, and, at effective date of conversion, same portfolio assets as the converting funds -- Financial data of converting fund is significant information that can assist investors in making decision to purchase or hold shares of continuing fund.

Exemption from sections 15.3(2.1), 15.6(a)(ii), 15.6(b), 15.6(d), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of NI 81-102 to permit the continuing funds to use the performance data of the converting funds in sales communications and reports to securityholders -- Exemption from section 4.4 of NI 81-106 and Items 3.1(1), 3.1(7), 3.1(8), 4.1(1), 4.1(2), 4.2(1), 4.2(2) and 4.3(1)(a) of Part B of Form 81-106F1 and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the continuing fund to include in their annual and interim management reports of fund performance the financial highlights and past performance of the converting fund.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 19.1.

National Instrument 81-106 Investment Fund Continuous Disclosure, s. 17.1.

January 13, 2016

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 NESBITT BURNS INC. (the "Filer") AND IN THE MATTER OF STAR PORTFOLIO CORP. (the "Converting Fund") AND IN THE MATTER OF STAR YIELD MANAGERS TRUST (the "Continuing Fund" and collectively with the Converting Fund, the "Funds")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction (the "Legislation") for an exemption from (collectively, the "Requested Relief"):

(a) subsection 5.5(1)(b) of National Instrument 81-102 -- Investment Funds ("NI 81-102") for the conversion (the "Conversion") of the Converting Fund into the Continuing Fund, which will result in the shareholders of the Star Yield Managers Class shares of the Converting Fund becoming unitholders of the Continuing Fund (the "Conversion Relief"); and

(b) sections 15.3(2.1), 15.6(a)(ii), 15.6(b), 15.6(d), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of NI 81-102 to permit the Continuing Fund to use performance data and information derived from the financial statements (collectively, "Financial Data") of the Converting Fund in sales communications and other communications to securityholders (the "Past Performance Relief").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

1. the Ontario Securities Commission is the principal regulator (the "Principal Regulator") for this application; and

2. 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 each of the other provinces and territories of Canada (collectively with Ontario, the "Jurisdictions").

Interpretation

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

Representations

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

1. The Filer is the administrator of the Converting Fund. The Filer is incorporated under the laws of Canada and is an indirect subsidiary of the Bank of Montreal, a bank listed in Schedule 1 of the Bank Act (Canada). The Filer is a member of IIROC and is registered as an investment dealer (or equivalent) with the securities regulatory authorities in each province and territory of Canada. The Filer is registered as an "investment fund manager" in the province of Ontario, with its head office located in Toronto, Ontario.

2. The Converting Fund is a corporation incorporated under the Business Corporations Act (Ontario) (the "OBCA"), and is a non-redeemable investment fund and qualifies as a "mutual fund corporation" under the Income Tax Act (Canada) (the "Tax Act").

3. The Star Yield Managers Class shares (the "Shares") is the only class of publicly held shares of the Converting Fund and the Shares are listed on the Toronto Stock Exchange.

4. The Converting Fund has 2,039,248 Shares outstanding. The Shares of the Converting Fund were qualified for distribution pursuant to a prospectus dated September 28, 2010, that was filed in accordance with the securities legislation of all the provinces and territories of Canada. Accordingly, the Converting Fund is a reporting issuer or the equivalent in each province and territory of Canada.

5. The Converting Fund has, and the Continuing Fund will have, an independent review committee (the "IRC") as required by National Instrument 81-107 Independent Review Committee for Investment Funds ("NI 81-107").

6. The Converting Fund is, and the Continuing Fund will be following the Conversion, subject to the requirements of NI 81-102 and NI 81-107, subject to any exemptions therefrom that may be available under applicable securities legislation or granted by the securities regulatory authorities.

7. Neither the Filer nor the Converting Fund is in default of securities legislation in any jurisdiction.

8. The Continuing Fund will be established as a unit trust governed by the laws of the Province of Ontario, specifically for the purpose of effecting the Conversion and will be a non-redeemable investment fund governed by NI 81-102 following the Conversion.

9. The Filer will be the manager and administrator of the Continuing Fund.

10. The Continuing Fund will be authorized to issue an unlimited number of units of the Continuing Fund (the "Units"). The number of Units outstanding upon completion of the Conversion will be identical to the number of Shares outstanding immediately prior to the Conversion. The net asset value per Unit upon completion of the Conversion will be identical to the net asset value per Share immediately prior to the Conversion.

11. The Converting Fund and the Continuing Fund have substantially similar investment objectives, investment strategies, valuation procedures and fee structures.

Proposed Transaction

12. The holders of the Shares of the Continuing Fund (the "Shareholders") having approved the Conversion, the Filer proposes to convert the Converting Fund from a "mutual fund corporation" to a "mutual fund trust" as a result of changes to the Tax Act as discussed below.

13. The Filer proposes to effect the Conversion by transferring, on or about the close of business on January 15, 2016 (the "Conversion Date"), all or substantially all of the assets of the Converting Fund to the Continuing Fund in exchange for Units and the assumption by the Continuing Fund of liabilities of the Converting Fund.

14. Immediately after the step above, and on the Conversion Date, the Converting Fund will redeem all the Shares (other than outstanding Shares, if any, of a Shareholder who dissents in respect of the Conversion) and will distribute the Units as payment "in kind" of the redemption price of the Shares immediately. Upon such distribution, the Shareholders whose Shares are redeemed will become direct unitholders of the Continuing Fund ("Unitholders").

15. As soon as practicable after the step above, the Units of the Continuing Fund will be listed on the Toronto Stock Exchange.

16. No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolio of the Converting Fund.

17. The Converting Fund and the Continuing Fund will elect that the transaction be a "qualifying exchange" as contemplated by section 132.2 of the Tax Act.

18. As soon as possible following the steps set out above, the Converting Fund will be wound up and dissolved.

Reasons for the Conversion

19. Prior to October 28, 2015, the Converting Fund was structured as a tax advantaged fund that provided returns to investors partially through economic exposure to a portfolio of securities (the "Aston Hill Portfolio") by virtue of a forward agreement (the "Forward Agreement") made as of October 29, 2010 with a Canadian chartered bank. The Forward Agreement was terminated on October 28, 2015. Star Yield Trust was established for the purpose of acquiring and holding the Aston Hill Portfolio.

20. In 2013, the Tax Act was amended to eliminate the tax advantages of character conversion transactions like those achieved via the Forward Agreement, subject to limited grandfathering for pre-existing agreements (the "DFA Rules"). As a result of these tax changes, if the Forward Agreement was extended past its termination date, the tax advantages of the Forward Agreement would have been lost.

21. The Filer therefore determined that it would be more efficient and less costly for the Converting Fund to seek to achieve its investment objectives with respect to the Aston Hill Portfolio by investing that portion of its assets directly in the same, or substantially the same, assets as those held by the Star Yield Trust.

22. The Filer therefore sought and received approval from Shareholders to amend the investment objectives and investment restrictions of the Converting Fund to permit the Converting Fund to directly hold the assets held by Star Yield Trust, and accordingly, settled the entire amount of the Forward Agreement on or before October 28, 2015.

23. As a result of the DFA Rules and the resulting composition of the Converting Fund's assets after the termination of the Forward Agreement, it is expected that the Converting Fund will incur non-refundable income tax under the Tax Act that it would not otherwise incur if it was structured as a "mutual fund trust". This is because the Converting Fund is currently structured as a "mutual fund corporation" and a mutual fund corporation is subject to non-refundable income tax on ordinary income. A mutual fund trust generally is not subject to tax on such income, provided it makes such income payable to its unitholders.

24. The Filer is therefore now proposing that the Converting Fund change its structure from a "mutual fund corporation" to a "mutual fund trust" to be more tax-efficient in light of the DFA Rules and the resulting composition of the Converting Fund's assets after the termination of the Forward Agreement.

Shareholder and IRC Approval

25. The Filer received approval of the Shareholders at a special meeting held on October 8, 2015 (the "Meeting"). The notice of the meeting and the management information circular of the Converting Fund (the "Circular") were mailed to Shareholders and filed in accordance with applicable securities legislation.

26. The Circular among other things, described:

(i) the Conversion and the Continuing Fund;

(ii) the income tax considerations applicable to the Conversion; and

(iii) the material differences between being a shareholder of the Converting Fund and being a unitholder of the Continuing Fund.

27. A press release in connection with the Meeting was issued on August 25, 2015 and a material change report was filed on September 2, 2015.

28. The IRC of the Converting Fund reviewed the proposed Conversion and the process to be followed in connection with the proposed Conversion, and have advised the Filer that in the IRCs' opinion, having reviewed the proposed Conversion as a potential conflict of interest, the Conversion achieves a fair and reasonable result for Shareholders. The decision of the IRC was included in the notice of meeting and the Circular.

Reasons for Seeking the Conversion Relief

29. In order to effect the Conversion without seeking the approval of the Principal Regulator, the Filer must be able to satisfy all of the provisions of section 5.6 of NI 81-102.

30. The Continuing Fund is not an investment fund to which NI 81-102 applies and is not a reporting issuer in Ontario, as required under section 5.6(1)(a)(iv) of NI 81-102. However, immediately upon completion of the Conversion, the Continuing Fund will become a reporting issuer or reporting issuer equivalent pursuant to applicable securities legislation in all the provinces and territories of Canada.

31. The Circular sent to Shareholders did not include references to the disclosure documents of the Continuing Fund, as required under section 5.6(1)(f)(iii) of NI 81-102, because such documents do not yet exist as the Continuing Fund is a new fund formed for the purposes of effecting the Conversion.

32. The Converting Fund will bear the costs and expenses associated with the Conversion (consisting primarily of legal and regulatory costs), contrary to section 5.6(1)(h) of NI 81-102. The Filer has determined that it is appropriate for the Fund, rather than the Filer, to bear the costs and expenses, as (i) the sole consideration of the Filer to implement the Conversion is the best interests of the Shareholders, and the Conversion is in the best interests of the Shareholders since the change in structure is intended to be more tax-efficient, (ii) the Conversion is being undertaken for reasons of tax efficiency driven entirely as a result of changes to the Tax Act, and not for any other reason, (iii) the reorganization from a corporation to a trust might have been accomplished by a plan of arrangement or other means without section 5.1(f) or paragraph 5.5(1)(b) of NI 81-102 applying, but would not have been the most cost effective and efficient method for shareholders, (iv) if the Conversion is not implemented the Converting Fund could continue to meet its objectives effectively and would otherwise be viable on an ongoing basis, and (v) the Filer will not realize any benefits from the Conversion.

33. Shareholders will not be granted a specific redemption right prior to the Conversion as required under section 5.6(1)(j) of NI 81-102. However, shareholders have dissent rights under the OBCA, which entitle them to the net asset value of their Shares as at the day before the resolution approving the Conversion is adopted, which is similar to being granted a specific redemption right. Details with respect to the dissent rights were set forth in the Circular.

34. The Filer further submits that the proposed Conversion:

(i) will result in investors participating in the income and gains (or losses) of the Continuing Fund on a more tax efficient basis than is the case with the Converting Fund after the Forward Agreement was terminated;

(ii) will result in the Filer being able to provide its management services to the Continuing Fund on a more economically rational basis;

(iii) has received review and approval by the IRC and the Shareholders themselves to ensure that Shareholders are being dealt with fairly;

(iv) will be a "qualifying exchange" as defined in section 132.2 of the Tax Act and will occur on a tax-deferred basis under the Tax Act and Shareholders were provided with information about the income tax consequences of the Conversion in the Circular and had the opportunity to consider such information prior to voting on the proposed Conversion;

(v) will not result in substantial changes to the investment Shareholders made in the Converting Fund, as the investment objectives, strategies and restrictions of the Continuing Fund will be substantially the same as those of the Converting Fund; and

(vi) will not impact the net asset value, as the net asset value of the Shares will be equal to the net value of the Units immediately after the Conversion.

Reasons for Seeking the Past Performance Relief

35. The Filer is seeking to make the Conversion as seamless as possible for investors of the Converting Fund. Accordingly, the Filer submits that treating the Continuing Fund as a continuation of the Converting Fund would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the difference between the Converting Fund and the Continuing Fund.

36. The Filer submits that investors will not be misled if the Financial Data of the Continuing Fund reflect the Financial Data of the Converting Fund.

37. The Financial Data of the Converting Fund is significant information which can assist investors in determining whether to acquire units of the Continuing Fund in the market. In the absence of the relief requested herein, investors will have no financial information (such as past performance) on which to base such an investment decision.

38. The Continuing Fund will be a new fund. However, while the Continuing Fund will have the same assets and liabilities as the Converting Fund, it will not have its own Financial Data as at the Conversion Date.

39. The Continuing Fund will have a December 31 year end for financial reporting purposes.

40. The Continuing Fund will be indistinguishable from the Converting Fund since the investment objectives, investment strategies and management fees attached to the Continuing Fund will be the same as the Converting Fund.

41. In order for the Conversion to be as seamless as possible for shareholders of the Converting Fund, the Filer proposes that the Continuing Fund's sales communications and reports to securityholders will include the applicable performance data of the Converting Fund prepared in accordance with Part 15 of NI 81-102, including section 15(1) of NI 81-102.

42. The Filer has filed a separate application for exemptive relief from certain provisions of National Instrument 81-106 -- Investment Fund Continuous Disclosure to enable the Continuing Fund to include in its annual and interim management reports of fund performance the Converting Fund's historical financial data (the "NI 81-106 Relief").

Further Submissions

43. The Filer has determined that it would be in the best interests of the Shareholders and not prejudicial to the public interest to receive the Requested Relief.

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

With respect to the Conversion Relief, the decision of the Decision Maker under the Legislation is that the Conversion Relief is granted, provided that:

(a) if, following the Conversion, the Continuing Fund either conducts a subsequent offering or implements any of the transactions described in paragraphs 5.1(1)(f), (g), or (h) of NI 81-102, the Filer will reimburse the entirety of the costs and expenses associated with the Conversion to the Continuing Fund.

With respect to the Past Performance Relief, the decision of the Decision Maker under the Legislation is that the Past Performance Relief is granted, provided that:

(a) the Continuing Fund's sales communications and reports to securityholders include the applicable performance data of the Converting Fund prepared in accordance with Part 15 of NI 81-102, including section 15(1) of NI 81-102; and

(b) the Continuing Fund prepares its management reports of fund performance in accordance with the NI 81-106 Relief.

"Raymond Chan"

Manager

Investment Funds and Structured Products

Ontario Securities Commission