Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from multi-layering prohibition in paragraph 2.5(2)(b) of NI 81-102 to permit Tactical Class to invest in Tactical Fund, which is more than 10% invested in underlying funds and ETFs -- The three-tier fund structure no more complex than current multi-layering exception in NI 81-102 -- Transparent investment portfolio and accountability for portfolio management -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

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

July 12, 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 INVESCO TRIMARK LTD.

(the "Filer")

AND

IN THE MATTER OF

POWERSHARES TACTICAL BOND CAPITAL

YIELD CLASS

("Tactical Class")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Tactical Class for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting Tactical Class from the restriction contained in section 2.5(2)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") that a fund not invest in another fund if the other fund holds more than 10% of the market value of its net assets in securities of other mutual funds (the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

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, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon (the "Other Jurisdictions").

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless they are defined in this decision.

Representations

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

Facts

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

2. The Filer is or will be the manager of Tactical Class, PowerShares Tactical Bond Fund ("Tactical Fund") and the mutual funds subject to NI 81-102 in which Tactical Fund will invest (the "Underlying Funds").

3. The Filer is not in default of securities legislation in any jurisdiction of Canada.

4. Tactical Class will be a class of shares of Invesco Corporate Class Inc. that seeks to achieve its investment objective by investing primarily in Canadian equity securities and by entering into forward contracts in order to provide the fund with a return determined with reference to the performance of Tactical Fund. It is anticipated that the performance of Tactical Class and Tactical Fund will differ only by the costs associated with the forward contracts.

5. Tactical Fund will be a fund-of-funds that invests in a combination of exchange traded funds ("ETFs") and Underlying Funds.

6. The ETFs are or will be mutual funds whose securities trade on a stock exchange in Canada or the United States and which attempt to replicate the performance of various widely quoted bond indices. As a result, each ETF will at the time of investment by Tactical Fund in such ETF, meet the definition of an "index participation unit" under section 1.1 of NI 81-102.

7. Tactical Class' investment in units of Tactical Fund will therefore result in a three-tier fund structure. This three-tier fund structure with respect to investments by Tactical Fund in Underlying Funds is contrary to the multi-layering restriction in section 2.5(2)(b) of NI 81-102. The three-tier fund structure with respect to investments by Tactical Fund in ETFs is permitted under section 2.5(4)(b)(ii) of NI 81-102.

8. A preliminary simplified prospectus and annual information form dated June 10, 2010 for Tactical Class and Tactical Fund was filed in all provinces and territories of Canada under SEDAR project #1595494.

9. Tactical Class, Tactical Fund and each Underlying Fund is or will be (a) an open-end mutual fund established under the laws of Ontario; (b) a reporting issuer under the securities laws of each of the provinces and territories of Canada; and (c) qualified for distribution in all provinces and territories of Canada.

10. An investment by Tactical Class in units of Tactical Fund and an investment by Tactical Fund in units of the Underlying Funds will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in section 2.5(2)(b). Tactical Fund's investment in units of ETFs will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in section 2.5(2)(e) and from which the Filer has received exemptive relief on May 8, 2008 to pay arm's length third party brokers brokerage commissions for executing trades in units of the ETFs.

11. The three-tier fund structure that will result from Tactical Class' investment in units of Tactical Fund will be akin to, and no more complex than, the three-tier fund structure currently permitted under sections 2.5(4)(a) and 2.5(4)(b)(ii) of NI 81-102.

12. The simplified prospectus of Tactical Class will disclose that it will link its returns to Tactical Fund through the use of forward contracts and that Tactical Fund invests directly in a combination of ETFs and Underlying Funds. It will therefore be clear to investors that accountability for portfolio management is at the level of the Tactical Fund. In addition, the Filer will comply with the requirements under National Instrument 81-106 Investment Fund Continuous Disclosure relating to top 25 disclosure in the Management Report of Fund Performance as if the Tactical Class were invested directly in the ETFs and Underlying Funds. This will provide transparency to investors relating to the investment portfolio.

13. An investment by Tactical Fund in units of the ETFs and Underlying Funds represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of Tactical Fund.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make a decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted to allow Tactical Class to link its returns to Tactical Fund, provided that such investments are made in compliance with all other requirements of section 2.5 of NI 81-102, except to the extent that discretionary relief has been granted from any such requirements.

"Rhonda Goldberg"
Deputy Director, Investment Funds Branch
Ontario Securities Commission