Claymore Investments, Inc. and Claymore Gold Bullion Fund

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to closed end fund convertible automatically into exchange traded fund offered in continuous distribution from 10% restriction on purchases of gold and certain mutual fund requirements and restrictions on: transmission of purchase or redemption orders, issuing units for cash or securities, calculation and payment of redemptions and date of record for payment of distributions -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.3(c), 9.1, 9.4(2), 10.2, 10.3, 14.1, 19.1.

May 28, 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 FUND

(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 exempts the Fund from:

1. Clause 2.3(e) of National Instrument 81-102 -- Mutual Funds ("NI 81-102"), to permit the Fund to invest up to 100% of its net assets, taken at market value at the time of purchase, in physical gold bullion, of which no more than 10% of its net assets, taken at market value at the time of purchase, may be invested in permitted gold certificates;

2. Sections 9.1 and 10.2 of NI 81-102, to permit purchases and sales of Common Units (as defined below) of the Fund on the Toronto Stock Exchange (the "TSX");

3. Subsection 9.4(2) of NI 81-102, to permit the Fund to accept a combination of cash and physical gold bullion as subscription proceeds for Common Units;

4. Section 10.3 of NI 81-102, to permit the Fund to redeem less than the Prescribed Number of Common Units (as defined below) at a discount to their market price, instead of at their net asset value; and

5. Section 14.1 of NI 81-102, to permit the Fund to establish a record date for distributions in accordance with TSX Rules,

(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

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 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 Claymore from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.

"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

The Fund and the Filer

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 long form prospectus in respect of the Fund was filed via SEDAR under project No. 1406917 on April 21, 2009. A final prospectus for the Fund was filed and receipted on May 20, 2009, at which time the Fund became 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 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.

The Fund's Investment Objective and Investment Restrictions

5. 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.

6. 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.

7. The Fund's investment restrictions provide that

(a) the Fund will hold a minimum of 90% of its net assets in physical gold bullion in 100 or 400 troy ounce international bar sizes.

(b) for working capital purposes, the Fund may hold no more than 10% of its net assets in:

a. permitted gold certificates, as defined in NI 81-102, and

b. cash and interest-bearing accounts, short-term government debt or short-term investment grade corporate debt.

8. 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.

The Fund Units and Warrants

9. The Filer has received conditional approval to list the Fund Units and Warrants on the TSX. The Filer has filed a final prospectus for the Fund and received a receipt therefor.

10. 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.

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").

Conversion of the Fund to an ETF

12. 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. 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.

13. 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.

14. In the event of the Conversion of the Fund to an ETF, 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.

The Fund's Bullion Custody Arrangements

15. All of the Fund's physical gold bullion will be held by the Bank of Nova Scotia, acting through its ScotiaMocatta division (the "Custodian"). The majority of the Fund's physical gold bullion will be held on an allocated and segregated basis in the vault facilities of the Custodian or an affiliate or a division thereof or a sub-custodian, in a location in Canada. The remaining portion of the physical gold bullion will be held on an allocated and segregated basis in the vault facilities of the Custodian or an affiliate or a division thereof or a sub-custodian, in London and/or New York. The custody arrangements between the Fund and the Custodian or an affiliate or a division thereof, or a sub-custodian, will be governed by the terms of a custodian agreement (the "Custodian Agreement"), or a sub-custodian agreement. After Conversion, the terms of the Custodian Agreement shall satisfy the custody provisions of Part 6 of NI 81-102, and the Custodian will comply with the requirements of Part 6 of NI 81-102, or the Fund shall apply for exemptive relief from these provisions prior to Conversion.

16. All gold bullion purchased by the Fund will be certified either "London Good Delivery" or "COMEX Good Delivery".

17. The Custodian maintains insurance as the Custodian deems appropriate against all risks of physical loss or damage except the risk of war, nuclear incident, terrorism events or government confiscation. The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate. The Fund is not a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage.

18. The Custodian is one of the largest providers of gold storage services in Canada. The Manager has determined that the Custodian would be the appropriate choice to provide custodial services to the Fund. The following are some of the factors which the Manager considered in making this determination:

(a) The Custodian is experienced in providing gold storage and custodial services and provides these services to two other large gold bullion funds in Canada, BMG Bullion Fund and Sprott Gold Bullion Fund;

(b) The Custodian has advised the Fund that it has sufficient storage space in Canada, New York and London to hold the physical gold bullion to be purchased by the Fund, which is the principal asset of the Fund. This is an important factor given the amount of physical gold bullion which the Fund expects to purchase in connection with the initial public offering of its Units and the potential for significant additional purchases if the Warrants are exercised;

(c) The Custodian is familiar with the unique requirements of ETFs as they relate to the physical handling and storage of gold bullion required in connection with the creation and redemption of Units. This is an important consideration in the event of a Conversion;

(d) The Custodian has indemnified the Fund in respect of all direct loss, damage or expense arising out of any negligence, wilful misconduct, fraud or lack of good faith by the Custodian or any subcustodian or sub-subcustodian; and

(e) The Custodian Agreement provides that the Custodian shall not cancel its insurance except upon 30 days prior written notice to the Manager.

19. The Custodian arranges for insurance coverage on the facilities and the contents therein in which the Custodian will store physical gold bullion on behalf of the Fund and other clients of the Custodian. The Manager has discussed the level of insurance coverage generally obtained by the Custodian and believes that the level of insurance will be sufficient.

20. As it is in the gold storage business, the Custodian is in the best position, using its business judgment, to determine and obtain the appropriate level of insurance that is required for the storage of gold bullion.

21. The Manager and the Fund believe that the Custodian has obtained and will provide adequate insurance and the Fund has disclosed in its final prospectus the details associated with that insurance arrangement.

22. The Fund's auditors will be present and will verify the physical count of all gold bullion held by the Fund at least once every year.

Arrangements From and After a Conversion

23. 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 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) 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.

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) The prospectus of the Fund contains disclosure regarding the unique risks associated with an investment in the Fund, including the risk that direct purchases of gold by the Fund may generate higher transaction and custody costs than other types of investments, which may impact the performance of the Fund;

(b) In respect of the relief granted from subsection 9.4(2), the acceptance of any physical gold bullion as payment for the issue price of Common Units is made in accordance with paragraph 9.4(2)(b); and

(c) In respect of the relief granted from section 14.1, the Fund complies with applicable TSX requirements in setting the record date for payment of distributions.