Claymore Investments, Inc. and the Claymore ETFs

Headnote

National Policy 11-203 -- Process for Exemptive Relief applications in Multiple Jurisdictions -- Mutual funds granted relief from certain restrictions in National Instrument 81-102 Mutual Funds on securities lending transactions, including (i) the 50% limit on lending; (ii) the requirement to use the fund's custodian or sub-custodian as lending agent; and (iii) the requirement to hold the collateral during the course of the transaction -- Mutual funds invest their assets in a basket of Canadian equity securities that are pledged to a Counterparty for performance of the funds' obligations under forward contracts giving the funds exposure to underlying interests -- Mutual funds wanting to lend 100% of the basket of Canadian equity securities -- not practical for custodian to act as securities lending agent as it does not have control over the Canadian equity securities -- counterparties must release its security interest in the Canadian equity securities in order to allow the funds to lend such securities, provided the funds grant the Counterparties a securities interest in the collateral held by the fund for the loaned securities -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.12(1)1, 2.12(1)2, 2.12(1)12, 2.12(3), 2.15, 2.16, 6.8(5), 19.1.

March 5, 2012

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

CLAYMORE INVESTMENTS, INC.

AND

THE CLAYMORE ETFs

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Claymore Investments, Inc. (the "Filer" or "Claymore") as the manager of certain exchange-traded mutual funds (the "Existing Forward-using Funds") listed on Schedule A and any additional forward agreement using exchange-traded funds (the "Future Forward-using Funds" and together with the Existing Forward-using Funds, the "Funds", and individually a "Fund") which the Filer may establish and which are operated on a similar basis to the Existing Forward Using Funds, for a decision under the securities legislation of the Jurisdiction under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions for relief from Subsections:

1. 2.12(1)1 of National Instrument 81-102 Mutual Funds ("NI 81-102"), to permit the Funds to enter into securities lending transactions that will not be in compliance with all of the requirements of Sections 2.15 and 2.16 of NI 81-102;

2. 2.12(1)2 of NI 81-102, to permit the Funds to enter into securities lending transactions that do not fully comply with the requirements of Section 2.12 of NI 81-102;

3. 2.12(1)12 of NI 81-102, to permit any Fund with a Canadian Share Portfolio (defined herein) to enter into securities lending transactions in which the aggregate market value of securities loaned by the Fund exceeds 50% of the total assets of the Fund;

4. 2.12(3) of NI 81-102, to permit any Fund, during the term of a securities lending transaction, to pledge the collateral delivered to it as collateral in the transaction to the Counterparty (defined herein);

5. 2.15 of NI 81-102, to permit any Fund to appoint an agent, other than the custodian or sub-custodian of the Fund, as agent for administering the securities lending transactions entered into by the Fund;

6. 2.16 of NI 81-102, to the extent this section contemplates that securities lending transactions be entered into through an agent appointed under Section 2.15 of NI 81-102; and

7. 6.8(5) of NI 81-102, to permit the collateral, cash proceeds or purchased securities delivered to any Fund in connection with a securities lending, repurchase or reverse repurchase agreement to be held by a party other than the custodian or sub-custodian of the Fund;

(collectively, the "Exemption Sought").

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

(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 Multinational Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in the jurisdictions of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, Northwest Territories and Nunavut.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 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. Each of the Existing Forward-using Funds is, and it is expected that each of the Future Forward-using Funds will be, a mutual fund trust governed by the laws of Ontario or Alberta.

2. Each of the Funds is, or will be, a reporting issuer under the laws of Ontario and each of the other Jurisdictions.

3. 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) (the "OSA") and the Funds are, or will be, generally, described as exchange traded funds.

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

5. The Filer or an affiliate of the Filer is, or will be, the manager of the Funds. The principal office of the Filer is located in Toronto, Ontario.

6. 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 in accordance with Section 62 of the OSA and similar provisions in force in the other Jurisdictions.

7. Initially, in order to obtain exposure to the performance of the applicable index or reference portfolio, the Funds will invest the net proceeds of their continuous offerings in a portfolio of common shares of Canadian public companies listed on the TSX that qualify as "Canadian securities" for purposes of the Income Tax Act (Canada) (the "Canadian Share Portfolio"). Each Fund will enter into one or more forward purchase and sale agreements (collectively, the "Forward Contract") with a Canadian chartered bank or an affiliate thereof (the "Counterparty") pursuant to which the Fund will agree to sell securities in the Canadian Share Portfolio to the Counterparty from time to time in exchange for a purchase price determined by reference to the Canadian dollar value (the "Forward Amount") of the performance of the applicable index or of a fund that invests in or obtains exposure to the applicable index or the constituent securities thereof or reference portfolio. However, neither the Funds, nor their unitholders by virtue of their investment in units, will have any ownership interest in the applicable index, securities or any other financial instrument, if any, the Counterparty chooses to hedge its exposure under the Forward Contract.

8. Currently, either National Bank of Canada or TD Global Finance acts as Counterparty in respect of the Existing Forward-using Funds.

9. Concurrent with entering into the Forward Contract, the Canadian Share Portfolio securities or other acceptable securities will be pledged to and may be held by the Counterparty as security for the obligations of the Fund under the Forward Contract.

10. Claymore proposes to engage in securities lending transactions on behalf of each applicable Fund that may represent in excess of 50% of the total assets of that Fund, in order to earn additional returns or offset expenses for that Fund. Claymore may lend the securities of a Fund to one or more borrowers indirectly through an agent, other than the custodian or sub-custodian of the Fund, which will be a Canadian financial institution or an affiliate thereof. It may not be practical for the custodian of a Fund to act as agent with respect to its securities lending transactions as it does not have control over the Fund's assets for the reasons set out above. It is expected that an affiliate of a Counterparty will act as an agent in this regard, which will be a registered dealer and a member of the Investment Industry Regulatory Organization of Canada ("IIROC").

11. The Counterparty will release its security interest in the securities in the Canadian Share Portfolio of such a Fund in order to allow the Fund to lend such securities, provided that the Fund grants the Counterparty a security interest in the collateral held by the Fund for the loaned securities. The collateral received by such a Fund in respect of a securities lending transaction will not be reinvested in any other types of investment products.

12. Claymore shall ensure that any agent through which a Fund lends securities shall maintain appropriate internal controls, procedures, and records for securities lending transactions as prescribed in Section 2.16(2) of NI 81-102.

13. A borrower may include an affiliate of the Counterparty. Whether the borrower is an affiliate of the Counterparty will not affect the revenues from the securities lending transactions paid to a Fund. Revenue generated from a Fund's securities lending transactions shall be paid to such Fund.

14. The prospectus of each Fund will contain disclosure about securities lending transactions before that Fund enters into such securities lending transactions. Other than as set forth herein, any securities lending transactions on behalf of a Fund will be conducted in accordance with the provisions of NI 81-102.

Decision

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

The decision of the principal regulator is that the Exemption Sought is granted subject to the following conditions:

1. with respect to the exemption from paragraph 2.12(1)12 of NI 81-102, each Fund enters into a Forward Contract with a Counterparty and grants that Counterparty a security interest in its Canadian Share Portfolio and, in connection with a securities lending transaction relating to such Canadian Share Portfolio,

(a) receives the collateral that

(i) is prescribed by paragraphs 2.12(1)3 to 6 of NI 81-102 other than collateral described in subparagraph 2.12(1)6(d) or in paragraph (b) of the definition of "qualified security"; and

(ii) is marked to market on each business day in accordance with paragraph 2.12(1)7 of NI 81-102;

(b) has the rights set forth in paragraphs 2.12(1)8, 2.12(1)9 and 2.12(1)11 of NI 81-102;

(c) complies with paragraph 2.12(1)10 of NI 81-102; and

(d) lends its securities only to borrowers that are acceptable to the Fund and the Counterparty, and that have an approved credit rating or whose obligations to the Fund are fully and unconditionally guaranteed by persons or companies that have such a credit rating;

2. with respect to the exemption from Section 2.12(3) of NI 81-102, each Fund, to the extent necessary, may provide a security interest to the applicable Counterparty in the collateral delivered to it as collateral pursuant to a securities lending transaction as described above;

3. with respect to the exemption from Section 2.15 of NI 81-102,

(a) the Filer and the Fund enter into a written agreement with the agent that complies with each of the requirements set forth in Subsection 2.15(4) of NI 81-102; and

(b) the agent administering the securities lending transactions of each Fund:

(i) is in compliance with the standard of care prescribed in Subsection 2.15(5) of NI 81-102; and

(ii) shall be acceptable to the Fund and the Counterparty and is a bank or trust company described in paragraph 1 or 2 of Section 6.2 of NI 81-102 or the investment bank affiliate of such bank or trust company that is registered as an investment dealer or in an equivalent registration category;

4. with respect to the exemption from Section 2.16, the Filer and the Fund comply with the requirements of Section 2.16 of NI 81-102 as if the agent administering the securities lending transactions of the Fund were the agent contemplated in that section; and

5. with respect to the exemption from Subsection 6.8(5) of NI 81-102:

(a) each Fund may provide a security interest to the applicable Counterparty in the collateral delivered to it as collateral pursuant to a securities lending transaction as described in representation 11; and

(b) the collateral delivered to the Fund pursuant to the securities lending transaction is held by an affiliate of the Counterparty, which will be a registered dealer and a member of IIROC, as described in representation 10.

SCHEDULE A

Existing Forward-using Funds

• Claymore Advantaged Canadian Bond ETF

• Claymore Advantaged High Yield Bond ETF

• Claymore Global Monthly Advantaged Dividend ETF

• Claymore Inverse 10 Yr Government Bond ETF

• Claymore Advantaged Short Duration High Income ETF

• Claymore Broad Commodity ETF

• Claymore Managed Futures ETF

• Claymore Advantaged Convertible Bond ETF