[Federal Register Volume 80, Number 99 (Friday, May 22, 2015)]
[Notices]
[Pages 29775-29778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12381]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31603; 812-14370]


BMO Funds, Inc. and BMO Asset Management Corp.; Notice of 
Application

May 15, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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Summary of Application: Applicants request an order that would permit 
them to enter into and materially amend sub-advisory agreements with 
Wholly-Owned Sub-Advisers (as defined below) and non-affiliated sub-
advisers without shareholder approval and would grant relief from 
certain disclosure requirements.

Applicants: BMO Funds, Inc. (the ``Company'') and BMO Asset Management 
Corp. (the ``Adviser'').

Filing Dates: The application was filed October 10, 2014, and amended 
on January 30, 2015, and May 8, 2015.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on June 9, 2015 and should be accompanied by proof of service on 
the applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 of the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, 111 East Kilbourn 
Avenue, Suite 200, Milwaukee, WI 53202.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811, or Danielle Marchesani, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Company is organized as a Wisconsin corporation and is 
registered under the Act as an open-end management investment company. 
The Company currently has, or intends to introduce, at least one series 
of shares (each, a ``Series''), with its own distinct investment 
objective, policies and restrictions, that would operate under a multi-
manager structure. The Adviser is a Delaware corporation and is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (``Advisers Act'').\1\ The Adviser is an indirect wholly-owned 
subsidiary of the Bank of Montreal, a Canadian bank holding company.
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    \1\ Applicants request that the relief apply to applicants, as 
well as to any future Series and any other existing or future 
registered open-end investment management company or series thereof 
that: (a) Is advised by the Adviser; (b) uses the multi-manager 
structure described in the application (``Multi-Manager 
Structure''); and (c) complies with the terms and conditions of the 
application (``Sub-Advised Series''). All registered open-end 
investment companies that currently intend to rely on the requested 
order are named as applicants. Any entity that relies on the 
requested order will do so only in accordance with the terms and 
conditions contained in the application. If the name of any Sub-
Advised Series contains the name of a sub-adviser (as defined 
below), the name of the Adviser that serves as the primary adviser 
to the Sub-Advised Series, or a trademark or trade name that is 
owned by or publicly used to identify that Adviser, will precede the 
name of the sub-adviser.
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    2. Each Series has, or will have, as its investment adviser, the 
Adviser, or an entity controlling, controlled by or under common 
control with the Adviser or its successors (included in the term, the 
``Adviser'').\2\ An Adviser serves, or will serve, as the investment 
adviser to each Series pursuant to an investment advisory agreement 
with the Company (the ``Investment Management Agreement''). Each 
Investment Management Agreement has been or will be approved by the 
board of directors (the ``Board''),\3\ including a majority of the 
members of the Board who are not ``interested persons,'' as defined in 
section 2(a)(19) of the Act, of the Series, or the Adviser 
(``Independent Board Members''), and by the shareholders of the 
relevant Series as required by sections 15(a) and 15(c) of the Act and 
rule 18f-2 thereunder. The terms of these Investment Management 
Agreements comply or will comply with section 15(a) of the Act.
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    \2\ Each Adviser is, or will be, registered with the Commission 
as an investment adviser under the Advisers Act. For the purposes of 
the requested order, ``successor'' is limited to an entity that 
results from a reorganization into another jurisdiction or a change 
in the type of business organization.
    \3\ The term ``Board'' also includes the board of trustees or 
directors of a future Sub-Advised Series.
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    3. Under the terms of each Investment Management Agreement, the 
Adviser, subject to the supervision of the Board, will provide 
continuous investment management of the assets of each Series. The 
Adviser will periodically review a Series' investment policies and 
strategies, and based on the need of a particular Series may recommend 
changes to the investment policies and strategies of the Series for 
consideration by the Board. For its services to each Series under the 
applicable Investment Management Agreement, the Adviser will receive an 
investment management fee from that Series. Each Investment Management 
Agreement provides that the Adviser may, subject to the approval of the 
Board, including a majority of the Independent Board Members, and the 
shareholders of the applicable Sub-Advised Series (if required), 
delegate portfolio management responsibilities of all or a portion of 
the assets of a Sub-Advised Series to one or more Sub-Advisers.\4\
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    \4\ A ``Sub-Adviser'' is (a) an indirect or direct ``wholly-
owned subsidiary'' (as such term is defined in the Act) of the 
Adviser for that Series; (b) a sister company of the Adviser for 
that Series that is an indirect or direct ``wholly-owned 
subsidiary'' (as such term is defined in the Act) of the same 
company that, indirectly or directly, wholly owns the Adviser (each 
of (a) and (b), a ``Wholly-Owned Sub-Adviser'' and collectively, the 
Wholly-Owned Sub-Advisers''), or (c) an investment sub-adviser for 
that Series that is not an ``affiliated person'' (as such term is 
defined in section 2(a)(3) of the Act) of the Series, or the 
Adviser, except to the extent that an affiliation arises solely 
because the sub-adviser serves as a sub-adviser to one or more 
Series (each, a ``Non-Affiliated Sub-Adviser'').

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[[Page 29776]]

    4. Applicants request an order to permit the Adviser, subject to 
the approval of the Board, including a majority of the Independent 
Board Members, to, without obtaining shareholder approval: (i) Select 
Sub-Advisers to manage all or a portion of the assets of a Series and 
enter into Sub-Advisory Agreements (as defined below) with the Sub-
Advisers, and (ii) materially amend Sub-Advisory Agreements with the 
Sub-Advisers.\5\ The requested relief will not extend to any sub-
adviser, other than a Wholly-Owned Sub-Adviser, that is an affiliated 
person, as defined in section 2(a)(3) of the Act, of the Sub-Advised 
Series, or the Adviser, other than by reason of serving as a sub-
adviser to one or more of the Sub-Advised Series (``Affiliated Sub-
Adviser'').
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    \5\ Shareholder approval will continue to be required for any 
other sub-adviser changes (not otherwise permitted by application, 
law or rule) and material amendments to an existing sub-advisory 
agreement with any sub-adviser other than a Non-Affiliated Sub-
Adviser or a Wholly-Owned Sub-Adviser (all such changes and 
amendments referred to as ``Ineligible Sub-Adviser Changes'').
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    5. Pursuant to each Investment Management Agreement, the Adviser 
has overall responsibility for the management and investment of the 
assets of each Sub-Advised Series. These responsibilities include 
recommending the removal or replacement of Sub-Advisers, determining 
the portion of that Sub-Advised Series' assets to be managed by any 
given Sub-Adviser and reallocating those assets as necessary from time 
to time.
    6. The Adviser may enter into sub-advisory agreements with various 
Sub-Advisers (``Sub-Advisory Agreements'') to provide investment 
management services to the Sub-Advised Series. The terms of each Sub-
Advisory Agreement comply or will comply fully with the requirements of 
section 15(a) of the Act and have been or will be approved by the 
Board, including a majority of the Independent Board Members and the 
initial shareholder of the applicable Sub-Advised Series, in accordance 
with sections 15(a) and 15(c) of the Act and rule 18f-2 thereunder. The 
Sub-Advisers, subject to the supervision of the Adviser and oversight 
of the Board, will determine the securities and other investments to be 
purchased or sold by a Sub-Advised Series and place orders with brokers 
or dealers that they select. The Adviser will compensate the Sub-
Advisers out of the fee paid to the Adviser under the Investment 
Management Agreement.\6\
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    \6\ A Sub-Advised Series also may pay advisory fees directly to 
a Sub-Adviser.
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    7. Sub-Advised Series will inform shareholders of the hiring of a 
new Sub-Adviser pursuant to the following procedures (``Modified Notice 
and Access Procedures''): (a) Within 90 days after a new Sub-Adviser is 
hired for any Sub-Advised Series, that Sub-Advised Series will send its 
shareholders either a Multi-manager Notice or a Multi-manager Notice 
and Multi-manager Information Statement; \7\ and (b) the Sub-Advised 
Series will make the Multi-manager Information Statement available on 
the Web site identified in the Multi-manager Notice no later than when 
the Multi-manager Notice (or Multi-manager Notice and Multi-manager 
Information Statement) is first sent to shareholders, and will maintain 
it on that Web site for at least 90 days. In the circumstances 
described in the application, a proxy solicitation to approve the 
appointment of new Sub-Advisers provides no more meaningful information 
to shareholders than the proposed Multi-manager Information Statement. 
Applicants state that the Board would comply with the requirements of 
sections 15(a) and 15(c) of the Act before entering into or amending 
Sub-Advisory Agreements.
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    \7\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``1934 Act''), and specifically will, among 
other things: (a) Summarize the relevant information regarding the 
new Sub-Adviser (except as modified to permit Aggregate Fee 
Disclosure (as defined below)); (b) inform shareholders that the 
Multi-manager Information Statement is available on a Web site; (c) 
provide the Web site address; (d) state the time period during which 
the Multi-manager Information Statement will remain available on 
that Web site; (e) provide instructions for accessing and printing 
the Multi-manager Information Statement; and (f) instruct the 
shareholder that a paper or email copy of the Multi-manager 
Information Statement may be obtained, without charge, by contacting 
the Sub-Advised Series. A ``Multi-manager Information Statement'' 
will meet the requirements of Regulation 14C, Schedule 14C and Item 
22 of Schedule 14A under the 1934 Act for an information statement, 
except as modified by the requested order to permit Aggregate Fee 
Disclosure. Multi-manager Information Statements will be filed with 
the Commission via the EDGAR system.
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    8. Applicants also request an order exempting the Sub-Advised 
Series from certain disclosure obligations that may require each Sub-
Advised Series to disclose fees paid by the Adviser to each Sub-
Adviser. Applicants seek relief to permit each Sub-Advised Series to 
disclose (as a dollar amount and a percentage of the Sub-Advised 
Series' net assets): (a) The aggregate fees paid to the Adviser and any 
Wholly-Owned Sub-Advisers; (b) the aggregate fees paid to Non-
Affiliated Sub-Advisers; and (c) the fee paid to each Affiliated Sub-
Adviser (collectively, the ``Aggregate Fee Disclosure'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act states, in part, that is unlawful for 
any person to act as an investment adviser to a registered investment 
company ``except pursuant to a written contract, which contract, 
whether with such registered company or with an investment adviser of 
such registered company, has been approved by the vote of a majority of 
the outstanding voting securities of such registered company.'' Rule 
18f-2 under the Act provides that each series or class of stock in a 
series investment company affected by a matter must approve that matter 
if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires a registered 
investment company to disclose in its statement of additional 
information the method of computing the ``advisory fee payable'' by the 
investment company, including the total dollar amounts that the 
investment company ``paid to the adviser (aggregated with amounts paid 
to affiliated advisers, if any), and any advisers who are not 
affiliated persons of the adviser, under the investment advisory 
contract for the last three fiscal years.''
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to a registered investment company to comply with Schedule 14A under 
the Exchange Act. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 
22(c)(9) of Schedule 14A, taken together, require a proxy statement for 
a shareholder meeting at which the advisory contract will be voted upon 
to include the ``rate of compensation of the investment adviser,'' the 
``aggregate amount of the investment adviser's fee,'' a description of 
the ``terms of the contract to be acted upon,'' and, if a change in the 
advisory fee is proposed, the existing and proposed fees and the 
difference between the two fees.
    4. Regulation S-X under the Securities Act of 1933 sets forth the 
requirements for financial statements required to be included as part 
of a registered investment company's registration statement and 
shareholder

[[Page 29777]]

reports filed with the Commission. Sections 6-07(2)(a), (b), and (c) of 
Regulation S-X require a registered investment company to include in 
its financial statement information about the investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission by order 
upon application may conditionally or unconditionally exempt any 
person, security, or transaction or any class or classes of persons, 
securities, or transactions from any provisions of the Act, or from any 
rule thereunder, if such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Applicants state that their requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to the review and approval of the Board, to select the Sub-
Advisers who are in the best position to achieve the Sub-Advised 
Series' investment objectives. Applicants assert that, from the 
perspective of the shareholder, the role of the Sub-Advisers is 
substantially equivalent to the role of the individual portfolio 
managers employed by an investment adviser to a traditional investment 
company. Applicants believe that permitting the Adviser to perform the 
duties for which the shareholders of the Sub-Advised Series are paying 
the Adviser the selection, supervision and evaluation of the Sub-
Advisers without incurring unnecessary delays or expenses is 
appropriate in the interests of the Sub-Advised Series' shareholders 
and will allow such Sub-Advised Series to operate more efficiently. 
Applicants state that each Investment Management Agreement will 
continue to be fully subject to section 15(a) of the Act and rule 18f-2 
under the Act, and approved by the Board, including a majority of the 
Independent Board Members, in the manner required by sections 15(a) and 
15(c) of the Act. Applicants are not seeking an exemption with respect 
to the Investment Management Agreements.
    7. Applicants assert that disclosure of the individual fees that 
the Adviser would pay to the Sub-Advisers of Sub-Advised Series that 
operate under the multi-manager structure described in the application 
would not serve any meaningful purpose. Applicants contend that the 
primary reasons for requiring disclosure of individual fees paid to 
Sub-Advisers are to inform shareholders of expenses to be charged by a 
particular Sub-Advised Series and to enable shareholders to compare the 
fees to those of other comparable investment companies. Applicants 
believe that the requested relief satisfies these objectives because 
the advisory fee paid to the Adviser will be fully disclosed and, 
therefore, shareholders will know what the Sub-Advised Series' fees and 
expenses are and will be able to compare the advisory fees a Sub-
Advised Series is charged to those of other investment companies. 
Applicants assert that the requested disclosure relief would benefit 
shareholders of the Sub-Advised Series because it would improve the 
Adviser's ability to negotiate the fees paid to Sub-Advisers. 
Applicants state that the Adviser may be able to negotiate rates that 
are below a Sub-Adviser's ``posted'' amounts if the Adviser is not 
required to disclose the Sub-Advisers' fees to the public. Applicants 
submit that the relief requested to use Aggregate Fee Disclosure will 
encourage Sub-Advisers to negotiate lower subadvisory fees with the 
Adviser if the lower fees are not required to be made public.
    8. For the reasons discussed above, applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act. Applicants state that the operation of the Sub-Advised Series 
in the manner described in the application must be approved by 
shareholders of a Sub-Advised Series before that Sub-Advised Series may 
rely on the requested relief. In addition, applicants state that the 
proposed conditions to the requested relief are designed to address any 
potential conflicts of interest, including any posed by the use of 
Wholly-Owned Sub-Advisers, and provide that shareholders are informed 
when new Sub-Advisers are hired. Applicants assert that conditions 6, 
10 and 11 are designed to provide the Board with sufficient 
independence and the resources and information it needs to monitor and 
address any conflicts of interest with affiliated persons of the 
Adviser, including Wholly-Owned Sub-Advisers. Applicants state that, 
accordingly, they believe the requested relief is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions: \8\
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    \8\ Applicants will only comply with conditions 7, 8, 9 and 12 
if they rely on the relief that would allow them to provide 
Aggregate Fee Disclosure.
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    1. Before a Sub-Advised Series may rely on the order requested in 
the application, the operation of the Sub-Advised Series in the manner 
described in the application, including the hiring of Wholly-Owned Sub-
Advisers, will be, or has been, approved by a majority of the Sub-
Advised Series' outstanding voting securities, as defined in the Act, 
or, in the case of a new Sub-Advised Series whose public shareholders 
purchase shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering the Sub-Advised Series' shares to the public.
    2. The prospectus for each Sub-Advised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Sub-Advised Series will hold itself out to the public 
as employing the multi-manager structure described in the application. 
Each prospectus will prominently disclose that the Adviser has ultimate 
responsibility, subject to oversight by the Board, to oversee the Sub-
Advisers and recommend their hiring, termination, and replacement.
    3. The Adviser will provide general management services to each 
Sub-Advised Series, including overall supervisory responsibility for 
the general management and investment of the Sub-Advised Series' 
assets. Subject to review and approval of the Board, the Adviser will: 
(i) Set the Sub-Advised Series' overall investment strategies; (ii) 
evaluate, select and recommend Sub-Advisers to manage all or a portion 
of the Sub-Advised Series' assets; and (iii) implement procedures 
reasonably designed to ensure that Sub-Advisers comply with a Sub-
Advised Series' investment objectives, policies and restrictions. 
Subject to review by the Board, the Adviser will (i) when appropriate, 
allocate and reallocate the Sub-Advised Series' assets among multiple 
Sub-Advisers; and (ii) monitor and evaluate the performance of Sub-
Advisers.
    4. A Sub-Advised Series will not make any Ineligible Sub-Adviser 
Changes without the approval of the shareholders of the applicable Sub-
Advised Series.
    5. A Sub-Advised Series will inform shareholders of the hiring of a 
new Sub-Adviser within 90 days after the hiring of the new Sub-Adviser 
pursuant to the Modified Notice and Access Procedures.
    6. At all times, at least a majority of the Board will be 
Independent Board Members, and the selection and nomination of new or 
additional Independent Board Members will be

[[Page 29778]]

placed within the discretion of the then-existing Independent Board 
Members.
    7. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Board Members. 
The selection of such counsel will be within the discretion of the then 
existing Independent Board Members.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Sub-Advised Series basis. The information will reflect the impact 
on profitability of the hiring or termination of any sub-adviser during 
the applicable quarter.
    9. Whenever a sub-adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. Whenever a sub-adviser change is proposed for a Sub-Advised 
Series with an Affiliated Sub-Adviser or a Wholly-Owned Sub-Adviser, 
the Board, including a majority of the Independent Board Members, will 
make a separate finding, reflected in the Board minutes, that such 
change is in the best interests of the Sub-Advised Series and its 
shareholders and does not involve a conflict of interest from which the 
Adviser or the Affiliated Sub-Adviser or Wholly-Owned Sub-Adviser 
derives an inappropriate advantage.
    11. No director or officer of a Sub-Advised Series, or director or 
officer of the Adviser, will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by such 
person) any interest in a Sub-Adviser, except for (i) ownership of 
interests in the Adviser or any entity, other than a Wholly-Owned Sub-
Adviser that controls, is controlled by, or is under common control 
with the Adviser; or (ii) ownership of less than 1% of the outstanding 
securities of any class of equity or debt of a publicly traded company 
that is either a Sub-Adviser or an entity that controls, is controlled 
by, or is under common control with a Sub-Adviser.
    12. Each Sub-Advised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the application, the requested order will expire on the effective 
date of that rule.
    14. Any new Sub-Advisory Agreement or any amendment to a Sub-
Advised Series' existing Investment Management Agreement or Sub-
Advisory Agreement that directly or indirectly results in an increase 
in the aggregate advisory fee rate payable by the Sub-Advised Series 
will be submitted to the Sub-Advised Series' shareholders for approval.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12381 Filed 5-21-15; 8:45 am]
BILLING CODE 8011-01-P