Securities Law & Instruments

Headnote

MI 11-102 and NP 11-203 -- Exemptive relief granted to closed-end fund convertible into exchange-traded fund for initial and continuous distribution of units upon conversion, including: relief from dealer registration requirements to permit promoter to disseminate sales communications promoting the Fund subject to compliance with Part 15 of NI 81-102, relief to permit the Fund's prospectus to not contain an underwriter's certificate, and relief from take-over bid requirements in connection with normal course purchases of units on the Toronto Stock Exchange as the declaration of trust provides that no unitholder can exercise voting rights beyond the 20% threshold.

Applicable Legislative Provisions

Securities Act , R.S.O. 1990, c. s.5, as amended, ss. 25(1), 59(1), 74(1), 95, 96, 97, 98, 100, 104(2)(c) and 147.

Rules Cited

National Instrument 81-102 - Mutual Funds -- Part 15.

May 15, 2009

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.

(the "Filer")

AND

IN THE MATTER OF

CLAYMORE GOLD BULLION TRUST

(the "Fund")

 

DECISION

Background

The principal regulator in the Jurisdiction 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 a decision that:

1. The dealer registration requirement does not apply to the Filer in connection with the dissemination of sales communications relating to the distribution of Common Units (as defined below) of the Fund;

2. In connection with the distribution of Common Units of the Fund pursuant to a prospectus or any renewal prospectus, the Fund be exempt from the requirement that its prospectus or renewal prospectus contain a certificate of the underwriter or underwriters who are in a contractual relationship with the issuer whose securities are being offered; and

3. Purchasers of Common Units of the Fund be exempted from the Take-over Bid Requirements,

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

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

The following terms shall also have the meanings ascribed below:

"Common Units" means the trust units of the Fund, after Conversion (as defined below).

"Designated Brokers" means registered brokers and dealers that enter into agreements with the Fund to perform certain duties in relation to the Fund.

"Prescribed Number of Common Units" means the number of Common Units of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.

"Take-over Bid Requirements" means the requirements of the Legislation relating to take-over bids, including the requirement to file a report of a take-over bid and the accompanying fee in with each applicable jurisdiction, in respect of take-over bids for the Fund.

"Underwriters" means registered brokers and dealers that have entered into underwriting agreements with the Fund and that subscribe for and purchase Common Units from the Fund, and "Underwriter" means any one of them.

"Unitholders" means beneficial and registered holders of Common Units.

Representations

1. The Fund is a closed-end investment trust (a non-redeemable investment fund under the Legislation) governed by the laws of Ontario. A preliminary prospectus in respect of the Fund was filed via SEDAR under project No. 1406917 on April 21, 2009. Once a final prospectus for the Fund is filed and receipt is obtained, the Fund will be a reporting issuer under the securities legislation of each province and territory of Canada. The final prospectus will qualify the issuance of redeemable, transferable trust units of the Fund ("Fund Units") and Fund Unit purchase warrants ("Warrants"). Each Warrant will entitle its holder to purchase one Fund Unit at an exercise price of $10.00 at any time before 4:00 p.m. (Toronto time) on the date that is 6 months following the closing of the Fund's initial public offering (the "Expiry Time"). Any Warrant that is not exercised by the Expiry Time will be void and of no value.

2. The Filer is the trustee and manager of the Fund and is a registered investment counsel, portfolio manager and limited market dealer in Ontario and is registered as an investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. The Filer is a wholly-owned subsidiary of Claymore Group, Inc., a financial services and asset management company based in Chicago, Illinois.

3. The principal office of the Filer and the Fund is located at 200 University Avenue, 13th Floor, Toronto, Ontario, M5H 3C6.

4. Neither the Filer nor the Fund is in default of the securities legislation of any province or territory of Canada.

5. The Filer has applied to list the Fund Units and Warrants on the TSX. The Filer will not file a final prospectus for the Fund until the TSX has conditionally approved the listing of the Fund Units and Warrants.

6. The investment objective of the Fund is to replicate the performance of the price of gold bullion, less the Fund's expenses and fees. The Fund does not anticipate making regular distributions.

7. The net proceeds of the Fund's initial public offering (the "Offering") will be used to purchase physical gold bullion (the "Portfolio") in accordance with the investment objective, strategy, policies and restrictions of the Fund.

8. The Fund has been created to provide holders of Units with an exposure to physical gold bullion with a currency hedge against the US dollar ("USD"). The Manager believes that the Fund will provide a secure, low-cost and convenient alternative to investors interested in holding gold bullion. Given that gold bullion is priced in USD, the Fund will hedge substantially all of the Fund's USD currency value back to the Canadian dollar.

9. Commencing in 2010, Fund Units may be surrendered annually for redemption during the period from May 1 until 5:00 p.m. (Toronto time) on the 20th business day before the last business day in June in each year (the "Notice Period") subject to the Fund's right to suspend redemptions in certain circumstances. Fund Units surrendered for redemption during the Notice Period will be redeemed on the second last business day of June of each year (the "Annual Redemption Date") and Unitholders will receive payment on or before the 15th day following the Annual Redemption Date. Redeeming Unitholders will receive a redemption price per Fund Unit equal to the net asset value ("NAV") per Fund Unit determined as of the Annual Redemption Date less any costs and expenses incurred by the Fund in order to fund such redemption. Fund Units are also redeemable monthly for a redemption price determined by reference to the trading price of the Fund Units.

10. The Fund is structured such that commencing after six months following the closing of the Offering, if for a period of 10 consecutive trading days, the daily weighted average trading price (or, in the event there has been no trading on a particular day, the average of the closing bid and ask prices) of the Fund Units reflects a discount of greater than 2% of NAV per Fund Unit for that day, there will be an automatic conversion (a "Conversion") of the Fund to an open-ended exchange-traded fund ("ETF"). In the event of a Conversion, the Fund's investment objective, investment strategy and investment restrictions will remain the same.

11. Neither Fund Units nor Common Units issued by the Fund will be Index Participation Units within the meaning of National Instrument 81-102 -- Mutual Funds ("NI 81-102"). After a Conversion, the Fund will be generally described as an ETF and would become a "mutual fund" under the Legislation and accordingly, would be subject to the provisions of NI 81-102.

12. At the time of a Conversion, the Fund will prepare and file a preliminary prospectus of the Fund relating to the proposed continuous distribution of Common Units issuable after Conversion and enter into the necessary designated broker and underwriting agreements in connection with such offerings. The Fund will not commence continuous distribution of the Common Units at least until the final prospectus in respect of such distribution has been receipted.

13. In the event of the Conversion of the Fund to an ETF such annual redemptions will no longer be available and Unitholders will be able to exchange and redeem their Common Units. After Conversion, on any trading day, Unitholders may exchange the Prescribed Number of Common Units (or an integral multiple thereof) for baskets of physical gold bullion and cash. Also after Conversion, on any trading day, Unitholders may redeem Common Units of the Fund for cash at a redemption price per Common Unit equal to 95% of the closing price for the Common Units on the TSX on the effective day of the redemption.

14. From and after a Conversion:

(a) Common Units may only be subscribed for or purchased directly from the Fund by Underwriters or Designated Brokers and orders may only be placed for Common Units in the Prescribed Number of Common Units (or an integral multiple thereof) on any day when there is a trading session on the TSX. Under Designated Broker and Underwriter agreements, the Designated Brokers and Underwriters agree to offer Common Units for sale to the public only as permitted by applicable Canadian securities legislation, which requires a prospectus to be delivered to purchasers buying Common Units as part of a distribution. Therefore, first purchasers of Common Units in the distribution on the TSX will receive a prospectus from the Designated Brokers and Underwriters.

(b) The Fund will appoint Designated Brokers to perform certain functions which include standing in the market with a bid and ask price for Common Units of the Fund for the purpose of maintaining liquidity for the Common Units.

(c) For each Prescribed Number of Common Units issued, a Designated Broker or Underwriter must deliver payment consisting of, in the Filer's discretion as manager of the Fund, (i) one basket of physical gold bullion (where a "basket of gold bullion" represents a preset amount of gold bullion that the Manager will determine and publish on its website following the close of business on each trading day) and cash in an amount sufficient so that the value of the physical gold bullion and the cash received is equal to the NAV of the Common Units next determined following the receipt of the subscription order; (ii) cash in an amount equal to the NAV of the Common Units next determined following the receipt of the subscription order; or (iii) a different combination of physical gold bullion than is represented by a basket of physical gold bullion and cash, as determined by the Manager, in an amount sufficient so that the value of the physical gold bullion and cash received is equal to the NAV of the Common Units next determined following the receipt of the subscription order.

(d) The net asset value per Common Unit of the Fund will be calculated and published daily and the investment portfolio of the Fund will be made available daily on the Filer's website.

(e) Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker will subscribe for Common Units in cash in an amount not to exceed 0.3% of the NAV of the Fund, or such other amount established by the Filer and disclosed in the prospectus of the Fund, next determined following delivery of the notice of subscription to that Designated Broker.

(f) Neither the Underwriters nor the Designated Brokers will receive any fees or commissions in connection with the issuance of Common Units to them. The Filer may, at its discretion, charge an administration fee on the issuance of Common Units to the Designated Brokers or Underwriters.

(g) Except as described in subparagraphs (a) through (e) above, Common Units may not be purchased directly from the Fund. Investors are generally expected to purchase Common Units through the facilities of the TSX. However, Common Units may be issued directly to Unitholders upon the reinvestment of distributions of income or capital gains and in accordance with the distribution reinvestment plan of the Fund, as disclosed in the Fund's final prospectus.

(h) Unitholders that wish to dispose of their Common Units may generally do so by selling their Common Units on the TSX, through a registered broker or dealer, subject only to customary brokerage commissions. A Unitholder that holds a Prescribed Number of Common Units or an integral multiple thereof may exchange such Common Units for baskets of physical gold bullion and cash at an exchange price equal to the NAV per Common Unit on the effective day of the exchange request. Unitholders may also redeem their Common Units for cash at a redemption price equal to 95% of the closing price of the Common Units on the TSX on the date of redemption.

(i) As manager, the Filer receives a fixed annual fee from the Fund. Such annual fee is calculated as a fixed percentage of the NAV of the Fund. As manager, the Filer is responsible for all costs and expenses of the Fund except the management fee, any expenses related to the implementation and on-going operation of an independent review committee under National Instrument 81-107, brokerage expenses and commissions, custodian settlement fees, income taxes and withholding taxes and extraordinary expenses.

(j) No investment dealers will act as principal distributors for the Funds in connection with the distribution of Common Units. The Underwriters will not receive any commission or payment from the Fund or the Filer in connection with the distribution of Common Units. As a result, the Filer will be the only entity desiring to foster market awareness and promote trading in the Common Units through the dissemination of sales communications.

(k) Because Underwriters will not receive any remuneration for distributing Common Units, and because Underwriters will change from time to time, it is not practical to require an underwriters' certificate in the prospectus of the Fund.

(l) Unitholders will have the right to vote at a meeting of Unitholders in respect of the Fund in certain circumstances, including prior to any change in the investment objective of the Fund, any change to their voting rights and prior to any increase in the amount of fees payable by the Fund.

15. Although Common Units will trade on the TSX, and the acquisition of Common Units can therefore be subject to the Take-over Bid Requirements:

(a) it will not be possible for one or more Unitholders to exercise control or direction over the Fund as the declaration of trust in respect of the Fund will ensure that there can be no changes made to the Fund which do not have the support of the Filer and also will ensure that a Unitholder cannot exercise the votes attached to Common Units which represent 20% or more of the votes attached to all outstanding Common Units;

(b) it will be difficult for purchasers of Common Units to monitor compliance with Take-over Bid Requirements because the number of outstanding Common Units will always be in flux as a result of the ongoing issuance and redemption of Common Units by the Fund; and

(c) the way in which Common Units will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium, for outstanding Common Units because Common Unit pricing will be dependent upon the performance of the Portfolio of the Fund as a whole.

Decision

The principal regulator is satisfied that the decision meets the tests 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) In respect of the relief granted from the dealer registration requirement, the Filer complies with Part 15 of NI 81-102; and

(b) The purchase of Common Units by a person or company in the normal course through the facilities of the TSX is exempt from the Take-over Bid Requirements from the time the Fund becomes and for so long as the Fund remains an ETF.

"James Turner"
Commissioner
 
"Margot Howard"
Commissioner

ONTARIO SECURITIES COMMISSION