Blackrock Investments Canada Inc. et al.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from s. 4.1(2) of NI 81-102, following the acquisition of the manager by another organization, to permit mutual funds to purchase securities of related entities on secondary market -- Relief also granted from self-dealing provisions in s. 4.2 of NI 81-102 to permit funds to conduct inter-fund trades with pooled funds -- Relief subject to conditions including IRC approval and pricing requirements -- inter-fund transfers will comply with conditions in s. 6.1(2) of NI 81-107.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.1(2), 4.2(1), 4.3, 19.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).

July 20, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

BLACKROCK INVESTMENTS CANADA INC.

(BlackRock Investments),

BLACKROCK ASSET MANAGEMENT CANADA LIMITED

(BlackRock Canada) AND

BLACKROCK INSTITUTIONAL TRUST COMPANY, N.A.

(BTC) (each, a Filer and, collectively, the Filers)

AND

IN THE MATTER OF

THE NI 81-102 FUNDS (as defined below)

DECISION

Background

The securities regulatory authority or regulator in Ontario received an Application (the Application) on behalf of the Filers and on behalf of the existing mutual funds and future mutual funds of which BlackRock Investments is the investment fund manager to which National Instrument 81-102 -- Mutual Funds (NI 81-102) applies (each, an NI 81-102 Fund and, collectively, the NI 81-102 Funds) for a decision under section 19.1 of NI 81-102 providing the following relief:

Transactions in Securities of Related Issuers

(a) from the requirement in section 4.1(2) of NI 81-102 that prohibits a dealer managed mutual fund from knowingly making an investment in a class of securities of an issuer (a Related Issuer) of which a partner, director, officer or employee of the dealer manager of the mutual fund, or a partner, director, officer or employee of an affiliate or associate of the dealer manager, is a partner, director or officer, unless the partner, director, officer or employee

(A) does not participate in the formulation of investment decisions made on behalf of the dealer managed mutual fund;

(B) does not have access before implementation to information concerning investment decisions made on behalf of the dealer managed mutual fund; and

(C) does not influence, other than through research, statistical and other reports generally available to clients, the investment decisions made on behalf of the dealer managed mutual fund;

(the foregoing individuals being referred to as Access Persons)

in order to permit an NI 81-102 Fund to purchase certain exchange-traded securities and non-exchange-traded debt securities of a Related Issuer in the secondary market;

Transactions with Related Parties

(b) from the requirement in section 4.2(1) of NI 81-102 that prohibits a mutual fund from purchasing a security from or selling a security to any of the following acting as principal:

(i) the manager, portfolio adviser or trustee of the mutual fund;

(ii) a partner, director or officer of the mutual fund or of the manager, portfolio adviser or trustee of the mutual fund;

(iii) an associate or affiliate of a person or company referred to in (i) or (ii);

(iv) a person or company, having fewer than 100 security holders of record, of which a partner, director or officer of the mutual fund or of the manager or portfolio adviser of the mutual fund, is a partner, director, officer or security holder;

in order to permit an NI 81-102 Fund to purchase debt securities from or sell debt securities to an existing mutual fund or a future mutual fund of which BlackRock Canada is the investment fund manager and to which NI 81-102 does not apply, (each, a BlackRock Canada Pooled Fund and, collectively, the BlackRock Canada Pooled Funds) and to an existing mutual fund or a future mutual fund of which BlackRock Investments is the investment fund manager to which NI 81-102 does not apply (each aBlackRock Investments Pooled Fund and, collectively, the BlackRock Investments Pooled Funds),

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the principal regulator for the Application; and

(b) the Filers have 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, Price Edward Island, Newfoundland & Labrador, Northwest Territories, Yukon and Nunavut (the Passport Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 -- Definitions, NI 81-102 or National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meanings if used in this Decision, unless otherwise defined.

Representations

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

General

1. The head office of BlackRock Canada and BlackRock Investments is located in Toronto, Ontario. The head office of BTC is located in San Francisco, California.

2. BlackRock Canada is registered as a portfolio manager, investment fund manager and exempt market dealer in Ontario and in each of the Passport Jurisdictions (together, the Jurisdictions) and as a commodity trading manager in Ontario.

3. BlackRock Investments is registered as a portfolio manager, investment fund manager and exempt market dealer in Ontario.

4. BTC is relying on a combination of the international adviser exemption in NI 31-103 in all of the Jurisdictions and the sub-adviser exemption in (i) OSC Rule 35-502 in Ontario, (ii) a blanket order in Quebec and (iii) discretionary exemptive relief in the other provinces of Canada.

5. BlackRock Investments is, or will be, the investment fund manager of each of the NI 81-102 Funds and the BlackRock Investments Pooled Funds, each of which is, or will be, organized under the laws of Ontario or Alberta.

6. BlackRock Canada is, or will be, the investment fund manager of each of the BlackRock Canada Pooled Funds, each of which is, or will be, organized under the laws of Ontario.

7. Each of the NI 81-102 Funds is or will be a reporting issuer in each of the Jurisdictions and is or will be listed on the Toronto Stock Exchange.

8. Each of the NI 81-102 Funds is, or will be, subject to NI 81-102 and may also be subject to National Instrument 81-104 -- Commodity Pools.

9. None of the BlackRock Investments Pooled Funds or BlackRock Canada Pooled Funds (each, a Pooled Fund and, collectively the Pooled Funds) are, or will be, a reporting issuer in any of the Jurisdictions except for certain BlackRock Investments Pooled Funds which will be reporting issuers in Quebec as a result of filing a non-offering prospectus in Quebec.

10. One or more of the NI 81-102 Funds and the Pooled Funds is, or will be, an index fund, the investment objective of which is to replicate the performance of an index.

11. BlackRock Investments is, or will be, the primary portfolio manager of each of the NI 81-102 Funds and the BlackRock Investments Pooled Funds and BlackRock Canada is, or will be, the primary portfolio manager of each of the BlackRock Canada Pooled Funds.

12. BTC or an affiliated or third party portfolio manager is, or may be, a sub-adviser of each of the NI 81-102 Funds and the Pooled Funds.

13. Each of the Filers is currently, indirectly, a subsidiary of BlackRock, Inc. (BlackRock).

14. With respect to the ownership of BlackRock:

(i) the PNC Financial Services Group, Inc. (PNC) holds, indirectly through its holding in BlackRock, approximately 21.0% of the outstanding voting securities of BlackRock Canada, BlackRock Investments and BTC and approximately 21.7% of the outstanding securities of BlackRock Canada, BlackRock Investments and BTC; and

(ii) the public, BlackRock employees and other investors will hold, indirectly through their holdings in BlackRock, the remaining outstanding voting securities and outstanding securities of BlackRock Canada, BlackRock Investments and BTC.

15. On March 7, 2012, BlackRock completed the acquisition of a 100% interest in Claymore Investments, Inc. (the "Transaction"). As a result of the Transaction, Claymore Investments, Inc. ("Claymore") became an indirect, wholly-owned subsidiary of BlackRock. Following the Transaction, Claymore was continued under the laws of the province of Alberta and changed its name to BlackRock Investments Canada Inc.

16. Each of BlackRock and PNC is a reporting issuer in the United States, the equity securities of which are listed on the New York Stock Exchange.

17. None of the Filers, the NI 81-102 Funds or the Pooled Funds is in default of securities legislation in any of the Jurisdictions.

Transactions in Securities of Related Issuers

18. BlackRock is a principal shareholder of a dealer. As a result BlackRock Investments and BTC will each be a dealer manager and the NI 81-102 Funds will be dealer managed mutual funds.

19. A director, officer or employee of BlackRock Investments, BlackRock Canada or BTC who is an Access Person may be a director or officer of BlackRock or another affiliate and a director, officer or employee of BlackRock or another affiliate who is an Access Person may be a director or officer of other issuers, including PNC which will result in BlackRock and such others being Related Issuers.

20. One or more directors of BlackRock may be a director or officer of other related entities including PNC. The directors and officers of such other issuers may be Access Persons as a result of the structure of the investment management activities of the Filers, BlackRock and its related entities, which will result in such other issuers being Related Issuers.

21. The securities of BlackRock, PNC or other Related Issuers may be included in an index which an NI 81-102 Fund or a BlackRock Investments Pooled Fund, which is an index fund, seeks to replicate.

22. BlackRock Investments may wish to invest the assets of the NI 81-102 Funds and the BlackRock Investments Pooled Funds in exchange-traded and non-exchange-traded securities of BlackRock, PNC or other Related Issuers in the secondary market.

23. The NI 81-102 Funds are permitted to invest in exchange-traded securities of Related Issuers in the secondary market pursuant to section 6.2 of NI 81-107. However, section 6.2 of NI 81-107 does not provide relief from section 4.1(2) of NI 81-102 and it does not provide an exemption for purchases of non-exchange-traded debt securities.

24. The investment strategies of an NI 81-102 Fund or a BlackRock Investments Pooled Fund that relies on the Exemption Sought permit, or will permit, the NI 81-102 Fund or BlackRock Investments Pooled Fund to invest in the securities purchased, either as a principal strategy in achieving its investment objective or as a temporary strategy pending the purchase of other securities.

25. Some of the Related Issuers are, or may be, issuers of non-exchange-traded debt securities that have an "approved credit rating" within the meaning of NI 81-102. The Filers consider that the NI 81-102 Funds should have access to such securities for the following reasons:

(a) there is currently and has been for several years a very limited supply of such securities; to limit the supply available to the NI 81-102 Funds even further by removing debt issued by a Related Issuer puts the NI 81-102 Funds at a competitive disadvantage and may increase the cost a fund pays for available securities;

(b) diversification is reduced to the extent that an NI 81-102 Fund is limited with respect to investment opportunities; and

(c) to the extent that an NI 81-102 Fund is trying to track or outperform a benchmark, it is important for the NI 81-102 Fund to be able to purchase any securities included in the benchmark; debt securities of the Related Issuers may be included in a number of debt indices.

26. The Filers are seeking the Exemption Sought because it may be appropriate for the NI 81-102 Funds to invest in non-exchange-traded debt and exchange-traded securities of BlackRock, PNC or other Related Issuers.

27. In respect of the NI 81-102 Funds which are index funds, the Exemption Sought is required because non-exchange-traded debt and exchange-traded securities of BlackRock, PNC or other Related Issuers may be included in an index which an NI 81-102 Fund seeks to replicate.

28. Each purchase of non-exchange-traded debt securities of a Related Issuer will occur in the secondary market and not under primary distributions or treasury offerings of a Related Issuer.

29. Each purchase of a non-exchange-traded debt security of a Related Issuer purchased by a NI 81-102 Fund or a Pooled Fund will have, at the time of the purchase, an "approved credit rating" by an "approved credit rating organization" within the meaning of those terms in NI 81-102.

30. If an NI 81-102 Fund's purchase of non-exchange-traded debt securities issued by a Related Issuer involves an inter-fund trade with another fund to which NI 81-107 applies, the provisions of section 6.1(2) of NI 81-107 will apply to such transactions.

Transactions with Related Parties

31. The Pooled Funds are associates of BlackRock Canada or BlackRock Investments.

32. BlackRock Investments may wish to cause an NI 81-102 Fund to purchase securities from or sell securities to an NI 81-102 Fund or a Pooled Fund.

33. Sections 4.3(1) and 4.3(2) of NI 81-102 permit an NI 81-102 Fund to purchase exchange-traded securities from or sell exchange-traded securities to an NI 81-102 Fund or a Pooled Fund and to purchase debt securities from or sell debt securities to an NI 81-102 Fund, provided the terms of sections 4.3(1) and 4.3(2) are complied with.

34. BlackRock Canada and BlackRock Investments cannot rely on section 4.3(2) of NI 81-102 to permit an NI 81-102 Fund to purchase non-exchange traded debt securities from or sell non-exchange-traded debt securities to a Pooled Fund because the Pooled Funds are not subject to NI 81-107.

35. BlackRock Investments has established, or will establish, an independent review committee (IRC) in respect of each NI 81-102 Fund in accordance with the requirements of NI 81-107.

36. BlackRock Canada or BlackRock Investments has established, or will establish, an IRC (the members of which may also be members of the IRC of the NI 81-102 Funds) in respect of the Pooled Funds which rely on the Exemption Sought.

37. The IRC of the Pooled Funds is, or will be, composed by BlackRock Canada or BlackRock Investments in accordance with section 3.7 of NI 81-107 and is, or will be, expected to comply with the standard of care set out in section 3.9 of NI 81-107.

38. The mandate of the IRC of a Pooled Fund will include:

(i) approving purchases and sales of securities between the Pooled Fund and an NI 81-102 Fund; and

(ii) approving purchases of securities issued by a Related Issuer;

on behalf of the Pooled Fund.

39. The IRC of the Pooled Funds will not provide any of the approvals referred to in paragraph 38 unless it has made the determination set out in section 5.2(2) of NI 81-107.

40. Purchases and sales of securities involving an NI 81-102 Fund will be referred to the IRC of the NI 81-102 Fund under section 5.2(1) of NI 81-107 for approval on behalf of the NI 81-102 Fund.

41. Each purchase and sale of securities between two NI 81-102 Funds and/or Pooled Funds will be consistent with the investment objective of the NI 81-102 Fund or the Pooled Fund, as the case may be.

42. If the IRC of an NI 81-102 Fund or a Pooled Fund becomes aware of an instance where BlackRock Canada or BlackRock Investments, as investment fund manager of the NI 81-102 Fund or Pooled Fund, did not comply with the terms of the relief, or a condition imposed by the IRC in its approval, the IRC of the NI 81-102 Fund or the Pooled Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the Jurisdiction under which the NI 81-102 Fund or Pooled Fund is organized.

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 Exemptions Sought are granted on the following conditions:

(a) In respect of the relief from section 4.1(2) of NI 81-102

(i) in respect of the purchase by an NI 81-102 Fund of exchange-traded securities of a Related Issuer in the secondary market:

(A) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the NI 81-102 Fund;

(B) the IRC of the NI 81-102 Fund has approved the transaction in accordance with section 5.2(2) of NI 81-107;

(C) the purchase is made on an exchange on which the securities are listed and traded;

(D) no later than the time the NI 81-102 Fund files its annual financial statements, BlackRock Investments files with the securities regulatory authority or regulator the particulars of any such investments; and

(ii) in respect of the purchase by an NI 81-102 Fund of non-exchange-traded debt securities of a Related Issuer in the secondary market:

(A) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the NI 81-102 Fund;

(B) the applicable IRC of the NI 81-102 Fund has approved the transaction in accordance with section 5.2(2) of NI 81-107;

(C) BlackRock Investments complies with section 5.1 of NI 81-107 and BlackRock Investments and the applicable IRC of the NI 81-102 Fund comply with section 5.4 of NI 81-107 for any standing instructions the applicable IRC provides in connection with the transaction;

(D) the price payable for the security is not more than the ask price of the security;

(E) the ask price of the security is determined as follows:

(1) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or

(2) if the purchase does not occur on a marketplace,

A. the NI 81-102 Fund may pay the price for the security at which an independent, arm's-length seller is willing to sell the security, or

B. if the NI 81-102 Fund does not purchase the security from an independent, arm's-length seller, consistent with Commentary 7 of section 6.1 of NI 81-107, the NI 81-102 Fund must pay the price quoted publicly by an independent marketplace or obtain, immediately before the purchase, at least one quote from an independent, arm's-length purchaser or seller and not pay more than that quote;

(F) the transaction complies with any applicable "market integrity requirements" as defined in NI 81-107; and

(G) no later than the time the fund files its annual financial statements, in the case of an NI 81-102 Fund, BlackRock Investments files with the securities regulatory authority or regulator the particulars of any such investments.

(b) In respect of the relief from section 4.2(1) of NI 81-102:

(A) the IRC of the NI 81-102 Fund has approved the transaction on behalf of the NI 81-102 Fund in accordance with the terms of sections 5.2(2) of NI 81-107;

(B) the IRC of the Pooled Fund has approved the transaction in respect of the Pooled Fund in accordance with the terms of sections 5.2(2) of NI 81-107; and

(C) the transaction complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107.

"Darren McKall"
Manager, Investment Funds
Ontario Securities Commission