Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from the requirements contained in paragraphs 2.5(2)(a) and 2.5(2)(c) of National Instrument 81-102 Mutual Funds to permit mutual funds to invest up to 10% of net assets in leveraged ETFs, gold ETFs and leveraged gold ETFs traded on Canadian or US stock exchanges, subject to certain conditions.

August 2, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

IA CLARINGTON INVESTMENTS INC.

(the Filer)

AND

THE FUNDS

(as defined below)

DECISION

BACKGROUND

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption (the Exemption Sought) relieving the existing mutual funds (Existing Funds) and future mutual funds (Future Funds) managed by the Filer that are subject to National Instrument 81-102 Mutual Funds (NI 81-102), other than money market funds as defined in NI 81-102 (the Existing Funds and the Future Funds, respectively, together, the Funds and individually, a Fund), from the prohibitions contained in paragraphs 2.5(2)(a) and (c) of NI 81-102, to permit each Fund to purchase and hold securities of:

(a) exchange-traded funds (ETFs) that seek to provide daily results that replicate the daily performance of a specified widely-quoted market index (the Underlying Index) by a multiple of 200% (Leveraged Bull ETFs) or an inverse multiple of 200% (Leveraged Bear ETFs, which together with Leveraged Bull ETFs are referred to collectively in this decision as Leveraged ETFs);

(b) ETFs that seek to replicate the performance of gold or the value of a specified derivative the underlying interest of which is gold on an unlevered basis (Gold ETFs); and

(c) ETFs that seek to provide daily results that replicate the daily performance of gold or the value of a specified derivative the underlying interest of which is gold on an unlevered basis (the Underlying Gold Interest), by a multiple of 200% (Leveraged Gold ETFs),

(Leveraged ETFs, Gold ETFs, and Leveraged Gold ETFs are referred to collectively in this decision as the Underlying ETFs).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

1. the Autorité des marchés financiers is the principal regulator for this application;

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 British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon Territory and Nunavut; and

3. the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

INTERPRETATION

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

REPRESENTATIONS

The Filer and the Funds

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

1. The Filer is a corporation governed under the Canada Business Corporations Act and is registered as a portfolio manager in the provinces of Canada.

2. The Filer has its head office located in Québec, Québec.

3. Each Existing Fund is managed by the Filer and each Future Fund will be managed by the Filer.

4. Each Existing Fund is, and each Future Fund will be: (a) an open-ended mutual fund organized under the laws of a jurisdiction of Canada, (b) governed by the provisions of NI 81-102, and (c) a reporting issuer under the laws of some or all of the provinces and territories of Canada.

5. Securities of each Existing Fund are, and securities of each Future Fund will be, qualified for distribution in some or all of the provinces and territories of Canada under a simplified prospectus and annual information form prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and filed with and receipted by the securities regulators in the applicable jurisdiction(s).

6. Neither the Filer nor any of the Existing Funds are in default of securities legislation in any of the jurisdictions.

The Underlying ETFs

7. Each Leveraged ETF will be rebalanced daily to ensure that its performance and exposure to its Underlying Index will not exceed +/-200% of the corresponding daily performance of its Underlying Index.

8. Each Leveraged Gold ETF will be rebalanced daily to ensure that its performance and exposure to its Underlying Gold Interest will not exceed +200% of the corresponding daily performance of its Underlying Gold Interest.

Investment in IPUs and the Underlying ETFs

9. Each Existing Fund is, and each Future Fund will be, permitted, in accordance with its investment objectives and investment strategies, to invest in ETFs.

10. In addition to investing in ETFs that qualify as index participation units as defined in NI 81-102 (IPUs), the Funds propose to have the ability to invest in the Underlying ETFs, whose securities are not IPUs.

11. The amount of the loss that can result from investment by a Fund in an Underlying ETF will be limited to the amount invested by the Fund in securities of the Underlying ETF.

12. Each Fund will only purchase gold, permitted gold certificates and specified derivatives with such underlying interests (including Gold ETFs and Leveraged Gold ETFs), if immediately after the purchase, no more than 10% of the net assets of the Fund, taken at market value at the time of the purchase, would consist of such assets in aggregate.

13. The Underlying ETFs are attractive investments for the Funds, as they provide an efficient and cost effective means of achieving diversification and exposure.

14. The Filer is not currently related to any Underlying ETF, it is not the manager of an Underlying ETF and it does not currently expect to be so related in the near future.

15. An investment by a Fund in securities of an Underlying ETF will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.

16. Absent the Exemption Sought, an investment by a Fund in an Underlying ETF that is a mutual fund would be prohibited by paragraphs 2.5(2)(a) and (c) of NI 81-102 because:

(a) none of the Underlying ETFs are or will be subject to NI 81-101;

(b) some of the Underlying ETFs are not, or will not be, subject to NI 81-102; and

(c) some of the Underlying ETFs may not be qualified for distribution in each jurisdiction in which the Funds are or will be qualified for distribution.

Decision

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

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

(a) the investment by a Fund in securities of an Underlying ETF is in accordance with the fundamental investment objectives of the Fund;

(b) a Fund does not short sell securities of an Underlying ETF;

(c) the securities of the Underlying ETFs are traded on a stock exchange in Canada or the United States;

(d) the securities of the Underlying ETFs are treated as specified derivatives for the purposes of Part 2 of NI 81-102;

(e) a Fund does not purchase securities of an Underlying ETF if, immediately after the purchase, more than 10% of the net assets of the Fund in aggregate, taken at market value at the time of the purchase, would consist of securities of the Underlying ETFs;

(f) a Fund does not enter into any transaction if, immediately after the transaction, more than 20% of the net assets of the Fund, taken at market value at the time of the transaction, would consist of, in aggregate, securities of Underlying ETFs and all securities sold short by the Fund; and

(g) the prospectus of each Fund discloses, or will disclose the next time it is renewed after the date hereof, (i) in the Investment Strategy section of the prospectus, the fact that the Fund has obtained relief to invest in the Underlying ETFs together with an explanation of what each Underlying ETF is, and (ii) the risks associated with investments in the Underlying ETFs.

"Josée Deslauriers"
Director Investment Funds and Continuous Disclosure
Autorité des marchés financiers