First Asset Investment Management Inc. and First Asset Morningstar Emerging Markets Composite Bond Index ETF

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from subsection 2.1(1) and paragraphs 2.5(2)(a) and (c) of NI 81-102 to permit an exchange traded mutual fund to enter into forward agreements providing exposure to the portfolio of a reference fund -- Reference fund is not subject to NI 81-101 and NI 81-102, nor qualified for distribution in the same jurisdictions as the exchange traded mutual fund, contrary to paragraphs 2.5(2)(a) and (c) of NI 81-102 -- Exchange traded mutual fund prohibited by subsection 2.1(1) from being 100% exposed to the portfolio of the reference fund through the forward agreement -- Units of the reference fund sold only to the counterparty under the forward agreement on an exempt basis -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 2.5(2)(a) and (c), 19.1.

June 18, 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

FIRST ASSET INVESTMENT MANAGEMENT INC.

(the Filer)

AND

IN THE MATTER OF

FIRST ASSET MORNINGSTAR EMERGING MARKETS

COMPOSITE BOND INDEX ETF

(the Fund)

DECISION

Background

The securities regulatory authority or regulator in the Jurisdiction (Decision Maker) has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption under section 19.1 of the National Instrument 81-102 -- Mutual Funds (NI 81-102) from sections 2.1(1), 2.5(2)(a) and 2.5(2)(c) of NI 81-102 in respect of one or more forward purchase and sale agreements to be entered into for the purpose of providing the Fund with exposure to the portfolio of First Asset Morningstar Emerging Markets Bond Fund (the Reference Fund) (the Exemption Sought).

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

(a) the Ontario Securities Commission (OSC) is the principal regulator for the application herein; 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, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon (the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 -- Definitions, MI 11-102 and NI 81-102 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. The Filer is a corporation governed by the laws of Ontario and is the investment fund manager, trustee and portfolio manager of the Fund and is the investment fund manager, trustee and portfolio manager of the Reference Fund. The head office of the Filer is located in Toronto, Ontario. The Filer is registered as an investment fund manager, a portfolio manager and an exempt market dealer under the Securities Act (Ontario).

The Fund

2. The Fund is organized as a trust and is a mutual fund within the meaning of the Legislation and similar legislation in each Passport Jurisdiction. The Fund is subject to NI 81-102, subject to any exemptions therefrom that have been, or may in the future be, granted by the securities regulatory authorities.

3. The Fund is qualified by a long form prospectus dated January 19, 2012. Upon the issuance of a receipt on January 20, 2012 for its final long form prospectus, the Fund became a reporting issuer in the Province of Ontario and each Passport Jurisdiction.

4. Pursuant to an amended and restated declaration of trust dated June 4, ,2012 and an amendment to the prospectus of the Fund dated June 5, 2012, the Fund changed its name from "XTF Morningstar Emerging Markets Composite Bond Index ETF" to "First Asset Morningstar Emerging Markets Composite Bond Index ETF".

5. The Fund is, and is generally described as, an exchange-traded fund. The units of the Fund are listed on the Toronto Stock Exchange.

6. Neither the Filer nor the Fund is in default of any of its obligations under the Legislation or similar legislation in any Passport Jurisdiction.

7. The Fund's investment objective is to provide investors with economic exposure, to the extent possible, to the performance of the Morningstar Emerging Market Composite Bond Index, net of expenses.

8. The Fund will seek to achieve its investment objective by investing the net proceeds of its continuous offering in a portfolio of common shares of Canadian public companies listed on the TSX that qualify as "Canadian securities" for purposes of the Tax Act (the "Common Share Basket"). The Fund will gain exposure to the portfolio of the Reference Fund by selling the Common Share Basket forward pursuant to one or more forward purchase and sale agreements (collectively, the Forward Agreement) with a Canadian chartered bank or an affiliate thereof (the Counterparty) with an approved credit rating, as defined in NI 81-102. Generally, the Forward Agreement will provide 100% exposure to the portfolio of the Reference Fund such that the return to the Fund and its unitholders is based on the return of the portfolio of the Reference Fund.

The Reference Fund

9. The Reference Fund is organized as a trust and is qualified by a non-offering long form prospectus dated May 4, 2012 filed with the OSC and Autorité des marchés financiers. Upon the issuance of a receipt on May 9, 2012 for its final non-offering prospectus, the Reference Fund became a reporting issuer in the Province of Ontario and Québec.

10. The Reference Fund does not intend to list its units on a stock exchange. Units of the Reference Fund will only be offered in reliance on exemptions from the applicable prospectus requirements. The only holder of units of the Reference Fund will be the Counterparty to the Forward Agreement with the Fund.

11. The Reference Fund is a mutual fund within the meaning of the Legislation and similar legislation in each Passport Jurisdiction because the holder of its units is entitled to receive, on demand, an amount computed by reference to the net asset value of the Reference Fund.

12. The Reference Fund is not in default of any of its obligations under the Legislation or similar legislation in any Passport Jurisdiction.

13. The Reference Fund does not and will not distribute any units under its final non-offering prospectus. Accordingly, the Reference Fund is a mutual fund to which National Instrument 81-106 -- Investment Fund Continuous Disclosure (NI 81-106) applies, but will not be subject to the requirements of either National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101). or NI 81-102.

14. The Reference Fund's investment objective is to replicate, to the extent possible, the Morningstar Emerging Markets Composite Bond Index, net of expenses. Accordingly, the investment objective and strategy of the Reference Fund is consistent with the Fund's investment objective.

15. Although the Reference Fund is a mutual fund for the purposes of Ontario and Québec securities law, it is not subject to NI 81-102 but will make investments as if it were subject to NI 81-102, subject to any exemptions therefrom that have been, or may in the future be, granted by the securities regulatory authorities to the Fund.

16. In the absence of the Exemption Sought, the Fund would not be permitted to invest through the Forward Agreement in the Reference Fund because:

a. the indirect investment by the Fund of more than 10% of its net assets in securities of the Reference Fund would be contrary to the requirement in s. 2.1(1) of NI 81-102;

b. the Reference Fund is not subject to NI 81-101 or NI 81-102, contrary to the requirement of 2.5(2)(a) of NI 81-102; and,

c. the securities of the Reference Fund are not listed on any stock exchange and are not qualified for distribution in the Jurisdiction and the Passport Jurisdictions, contrary to the requirement in s. 2.5(2)(c) 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 under the Legislation is that the Exemption Sought is granted, provided that:

(a) the exposure of the Fund to the portfolio of the Reference Fund is in accordance with the fundamental investment objective of the Fund;

(b) the indirect investment by the Fund in securities of the Reference Fund is made in compliance with the requirements of NI 81-102 other than the requirements of sections 2.1(1), 2.5(2)(a) and 2.5(2)(c) of NI 81-102;

(c) the Reference Fund is a reporting issuer in the Jurisdiction and in Quebec subject to the requirements of NI 81-106;

(d) the Fund is subject to NI 81-102 and the Reference Fund operates in accordance with NI 81-102;

(e) the prospectus of the Fund discloses that the Fund will obtain exposure to securities of the Reference Fund and, to the extent applicable, the risks associated with such an investment; and

(f) no securities of the Reference Fund are distributed in Canada other than to the Counterparty under the Forward Agreement.