Claymore Investments, Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from the requirement that the renewal prospectus of certain exchange traded investment funds in continuous distribution include annual and interim financial statements and certain selected financial information - Relief required in order to incorporate the financial statements by reference into the prospectus - Inclusion of previously publicly disclosed financial information in the renewal prospectus of the funds would not provide any additional disclosure to investors that is not already publicly available on SEDAR - Sections 4.1, 4.6, 4.7 and 4.8 of OSC Rule 41-501 and Item 8 of OSC Form 41-501F1.

Applicable Ontario Statutory Provisions

Ontario Securities Commission Rule 41-501 General Prospectus Requirements, ss. 4.1, 4.6, 4.7, 4.8.

Form 41-501F1 - Information Required in a Prospectus.

April 13, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, YUKON,

NUNAVUT AND THE NORTHWEST TERRITORIES

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CLAYMORE INVESTMENTS, INC.

AND

THE FUNDS LISTED IN SCHEDULES A & B

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from Claymore Investments, Inc. (the "Filer" or the "Manager") as the manager of the existing exchange-traded mutual funds listed on Schedule A (the "Schedule A Funds") and the pending exchange-traded funds listed on Schedule B (the "Schedule B Funds" and together with the Schedule A Funds, the "Existing Funds") and any additional exchange-traded funds which the Manager may establish after the date of this decision and which are operated on a similar basis to the Existing Funds (the "Future Funds"), for a decision under the securities legislation of the Jurisdictions (the "Legislation") providing an exemption from the requirements under the Legislation that each renewal prospectus (or, in the case of Claymore Canadian Fundamental Index ETF, the preliminary prospectus and each renewal prospectus) of the Existing Funds and the Future Funds (collectively, the "Funds") include the following financial disclosure (collectively, the "Prospectus Financial Disclosure Requirements"):

(i) the annual financial statements of the Funds for the past three years;

(ii) the interim financial statements of the Funds;

(iii) additional financial information about the Funds that was publicly disclosed after the date of the financial statements referred to in paragraphs (i) and (ii) above;

(iv) the auditor's report on the annual financial statements referred to in paragraph (i) above; and

(v) selected consolidated financial information including:

(a) summary financial information with respect to the annual financial statements referred to in paragraph (i);

(b) summary financial information with respect to the four most recently completed six month periods ended at the end of the most recently completed financial year for which financial statements are included in the prospectus;

(c) the Funds' dividend policy; and

(d) management's discussion and analysis for the annual financial statements referred to in paragraph (i) above,

(collectively, the "Requested Relief").

Under the Mutual Reliance Review System ("MRRS") for Exemptive Relief Applications,

(i) the Ontario Securities Commission ("OSC") is the principal regulator for this application, and

(ii) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Terms defined in National Instrument 14-101 Definitions and National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") have the same meaning in this decision unless they are defined in this decision.

Representations

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

1. Each of the Existing Funds is, and it is expected that each of the Future Funds will be, a mutual fund trust governed by the laws of Ontario.

2. The Schedule A Funds are reporting issuers under the laws of Ontario and each of the other Jurisdictions where such status exists. Common Units and Advisor Class Units of the Schedule A Funds are qualified for distribution pursuant to prospectuses dated February 15, 2006, August 15, 2006 and February 27, 2007. A preliminary prospectus dated January 8, 2007 has been filed in respect of Common Units and Advisor Class Units of the Schedule B Funds with the securities regulatory authority in each of the Jurisdictions. The Schedule B Funds will be reporting issuers under the laws of Ontario and each of the other Jurisdictions where such status exists upon the issuance of a final receipt for their prospectus. Each of the Future Funds will similarly be reporting issuers under the laws of Ontario and each of the other Jurisdictions where such status exists.

3. The Claymore Canadian Fundamental Index ETF (formerly ClaymorETF FTSE RAFI Canadian Index Fund), a Schedule A Fund, is a reporting issuer under the laws of Ontario and each of the other Jurisdictions where such status exists. Common Units of such exchange-traded fund were qualified for distribution pursuant to a prospectus dated February 15, 2006. As of February 15, 2007, Claymore Canadian Fundamental Index ETF had not filed a renewal prospectus and as a result must file a preliminary prospectus in order to continue distribution of its Common Units.

4. Securities of each of the Funds are, or will be, listed on the Toronto Stock Exchange or another stock exchange recognized by the OSC under the Securities Act (Ontario).

5. The securities issued by the Funds may be index participation units within the meaning of National Instrument 81-102 -- Mutual Funds ("NI 81-102") and the Funds are, or will be, generally described as exchange-traded funds ("ETFs").

6. The Funds are, or will be, subject to NI 81-102 and NI 81-106 and are, or may be, subject to other rules applicable to mutual funds, including National Instrument 81-107 -- Independent Review Committee for Investment Funds.

7. The Manager or an affiliate of the Manager is, or will be, the manager of the Funds.

8. The simplified prospectus form prescribed in section 2.1 of National Instrument 81-101 -- Mutual Fund Prospectus Disclosure ("NI 81-101") does not apply to the Funds because they are ETFs. Section 1.3(c) of NI 81-101 provides that NI 81-101 does not apply to mutual funds that are listed and posted for trading on a stock exchange. As a result, the prospectus of the Funds is a long-form prospectus in the form prescribed by the Legislation.

9. Under section 3.1 of NI 81-101, mutual funds that use the simplified prospectus are required to incorporate by reference the following documents in their prospectus:

(a) the most recently filed comparative annual financial statements of the mutual fund, together with the accompanying report of the auditor, filed either before or after the date of the simplified prospectus of the mutual fund;

(b) the most recently filed interim financial statements of the mutual fund that were filed before or after the date of the simplified prospectus and that pertain to a period after the period to which the annual financial statements then incorporated by reference in the prospectus pertain;

(c) the most recently filed annual management report of fund performance of the mutual fund that was filed before or after the date of the simplified prospectus; and

(d) the most recently filed interim management report of fund performance of the mutual fund that was filed before or after the date of the simplified prospectus and that pertains to a period after the period to which the annual management report of fund performance then incorporated by reference in the simplified prospectus pertains;

10. Because the Funds do not use the simplified prospectus, they are not required to incorporate by reference the above financial information into their prospectuses but must include financial information required by the Legislation.

11. Securities of the Funds are, or will be, offered on a continuous basis in the Jurisdictions. Therefore, the Funds must file a renewal prospectus on an annual basis in each Jurisdiction under the Legislation.

12. The initial prospectus of each Future Fund will include an audited opening Statement of Net Assets for each Future Fund.

13. The Funds comply with the following requirements to prepare, file and disseminate financial disclosure (the "Investment Fund Financial Disclosure Requirements"):

(a) preparation and filing of audited annual financial statements in accordance with sections 2.1 and 2.2 of NI 81-106;

(b) preparation and filing of interim financial statements in accordance with sections 2.3 and 2.4 of NI 81-106;

(c) preparation of financial statements in accordance with Canadian GAAP and Canadian GAAS in accordance with sections 2.6 and 2.7 of NI 81-106;

(d) delivery to unitholders of audited annual financial statements and interim financial statements in accordance with Part 5 of NI 81-106;

(e) preparation, filing and delivery to unitholders of annual and interim Management Reports of Fund Performance ("MRFPs") in accordance with Parts 4 and 5 of NI 81-106; and

(f) preparation and dissemination to unitholders of quarterly portfolio disclosure in accordance with Part 6 of NI 81-106.

14. All financial disclosure prepared in accordance with the Investment Fund Financial Disclosure Requirements is publicly available on the System for Electronic Document Analysis and Retrieval ("SEDAR") and on the web site of the Manager at www.claymoreinvestments.ca for examination by existing and potential unitholders.

15. By complying with the Investment Fund Financial Disclosure Requirements, the Funds will have already filed on SEDAR or publicly disseminated (in respect of quarterly portfolio disclosure) relevant financial information for all periods that would, absent the Requested Relief, be reflected in the financial disclosure that would be included in the renewal prospectuses of the Funds pursuant to the Prospectus Financial Disclosure Requirements. The renewal prospectuses of the Funds will not include any new financial information relating to the Funds.

16. The Filer expects that, in the absence of the Requested Relief, a significant quantity of previously disclosed financial information will be required to be included in renewal prospectuses of the Funds. The quantity of previously disclosed financial information in the renewal prospectuses of the Funds will continue to increase as Future Funds are added. The Filer and the Funds would be required to allocate a significant amount of resources in preparing and including this large volume of financial information in the renewal prospectuses. This financial information would not provide any additional disclosure to investors that would not already be publicly available. Rather, this financial information would make the renewal prospectus of the Funds unnecessarily lengthy and cumbersome, and likely less "user friendly" for investors.

17. Given that the statements and information required by the Investment Fund Financial Disclosure Requirements will be publicly available on SEDAR, the Filer believes that there is no prejudice to investors by granting the Requested Relief. Furthermore, the Requested Relief will allow the Funds to provide the same level of financial disclosure in their prospectus as, and therefore be treated equally with, other mutual funds in continuous distribution, namely those that file a simplified prospectus.

18. As the Claymore Canadian Fundamental Index ETF has an operating history, the preliminary prospectus that the Filer intends to file in order to continue the distribution of Common Units of that ETF would have to provide the lengthy financial information required by the Prospectus Financial Disclosure Requirements. Including such quantity of financial information in the preliminary prospectus would not provide any additional disclosure to investors that would not already be publicly available having regard to the fact that this ETF has complied with the Investment Fund Financial Disclosure Requirements. There will accordingly be no prejudice to granting to the Claymore Canadian Fundamental Index ETF the Requested Relief in connection with the filing of its preliminary prospectus and each subsequent renewal prospectus.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the Jurisdiction to make the decision has been met. The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) the initial prospectus of each Future Fund includes an audited opening Statement of Net Assets;

(b) as of the date of the prospectus of a Fund, the Fund has complied with NI 81-106 and the Investment Fund Financial Disclosure Requirements;

(c) the prospectus of a Fund, by means of disclosure on the cover page and in the body of the prospectus, incorporates by reference the following:

(i) the most recently filed comparative annual financial statements of the Fund, together with the accompanying report of the auditor, filed either before or after the date of the prospectus of the Fund;

(ii) the most recently filed interim financial statements of the Fund that were filed before or after the date of the prospectus and that pertain to a period after the period to which the annual financial statements then incorporated by reference in the prospectus pertain;

(iii) the most recently filed annual MRFP of the Fund that was filed before or after the date of the prospectus; and

(iv) the most recently filed interim MRFP that was filed before or after the date of the prospectus and that pertains to a period after the period to which the annual management report of fund performance then incorporated by reference in the prospectus pertains;

(d) the disclosure in the body of the prospectus referred to in paragraph (c) above, includes the following statement in substantially the following words and the disclosure on the cover page of the prospectus referred to in paragraph (c) above includes the following statement or an abbreviated version of the following statement with a cross-reference to the disclosure in the body:

"Additional information about the Fund is available in the following documents:

• the most recently filed annual financial statements [may specify the date of the annual financial statements, if appropriate];

• any interim financial statements filed after those annual financial statements [may specify the date of the interim financial statements, if appropriate];

• the most recently filed annual management report of fund performance [may specify the date of the annual management report of fund performance, if appropriate];

• any interim management report of fund performance filed after that annual management report of fund performance [may specify the date of the interim management report of fund performance, if appropriate].

These documents are incorporated by reference into this prospectus, which means that they legally form part of this document just as if they were printed as part of this document. You can get a copy of these documents, at your request, and at no cost, by calling [toll-free/collect] [insert the toll-free telephone number or telephone number where collect calls are accepted] or from your dealer.

[If applicable] These documents are available on the [Fund's/Fund family's] Internet site at [insert Fund's Internet site address], or by contacting the [Fund/Fund family] at [Fund's/Fund family's email address].

These documents and other information about the Fund are available on the Internet at www.sedar.com.";

(e) an auditor's consent to the incorporation of the auditor's report on the comparative annual financial statements referred to under paragraph (c)(i) above into the prospectus of the Fund is filed with the prospectus and filed with any subsequently filed comparative annual financial statements;

(f) the certificate of each Fund that is required to be included with a prospectus under the Legislation states the following:

"This prospectus, together with the documents incorporated by reference in this prospectus, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of [insert name of each jurisdiction in which qualified].";

(g) the prospectus of each Fund discloses that the Fund has received exemptive relief in the Jurisdictions to permit the Fund, subject to certain terms and conditions, to incorporate certain publicly disclosed financial statements and information by reference into the prospectus instead of including such financial statements and information in the prospectus; and

(h) this decision expires upon the coming into force of a prospectus rule that replaces Ontario Securities Commission Rule 41-501 General Prospectus Requirements ("Rule 41-501") or that varies Rule 41-501 with respect to any of the Prospectus Financial Disclosure Requirements.

SCHEDULE A

EXISTING FUNDS

SCHEDULE B

PENDING FUNDS