Big Bank Big Oil Split Corp. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Exemptive relief granted to an exchange traded fund offered in continuous distribution from certain mutual fund requirements and restrictions on: borrowing, organizational costs, calculation and payment of redemptions, compliance reports and date of record for payment of distributions -- Since investors will generally buy and sell units through the facilities of the TSX, there are adequate protections and it would not be prejudicial to investors - National Instrument 81-102 Mutual Funds

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.6(a), 3.3, 10.3, 10.4(1), 12.1, 14.1 and 19.1

May 29, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, NORTHWEST TERRITORIES,

YUKON AND NUNAVUT (the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BIG BANK BIG OIL SPLIT CORP. (the "Filer")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the Application) from the Filer for a decision under Section 19.1 of National Instrument 81-102 - Mutual Funds (NI 81-102 or the Legislation) that the following sections of NI 81-102 (collectively the Requested Relief) will not apply to the Filer with respect to the Capital Shares and Preferred Shares (both defined below):

(a) subsection 2.6(a), which prohibits a mutual fund from borrowing cash or providing a security interest over any of its portfolio assets except in compliance with subsection 2.6(a);

(b) section 3.3, which prohibits a mutual fund or its securityholders from bearing the costs of incorporation, formation or initial organization of a mutual fund, or of the preparation and filing of any preliminary simplified prospectus;

(c) section 10.3, which requires that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value of a security of that class, or series of class, next determined after the receipt by the mutual fund of the order;

(d) subsection 10.4(1), which requires that a mutual fund shall pay the redemption price for securities that are the subject of a redemption order within three business days after the date of calculation of the net asset value per security used in establishing the redemption price;

(e) subsection 12.1(1), which requires a mutual fund that does not have a principal distributor to complete and file a compliance report, and accompanying letter of the auditor, in the form and within the time period mandated by subsection 12.1(1); and

(f) section 14.1, which requires that the record date for determining the right of securityholders of a mutual fund to receive a dividend or distribution by the mutual fund shall be calculated in accordance with section 14.1.

Under the Mutual Reliance Review System (MRRS) for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

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

The Filer

1. The Filer is a mutual fund corporation established under the laws of Ontario.

2. Claymore Investments, Inc. (the Manager) is the promoter and manager of the Filer and will perform administrative services on behalf of the Filer.

The Offerings

3. The Filer will be issuing class A preferred shares (the Preferred Shares) and class A capital shares (the Capital Shares, and together with the Preferred Shares, the Shares).

4. The offerings of Preferred Shares and Capital Shares (the Offerings) by the Filer are a one-time offering and the Filer will not continuously distribute the Shares.

5. The Filer's investment objectives are: (i) to provide holders of Preferred Shares with fixed cumulative preferential quarterly cash distributions in the amount of $0.13125 per Preferred Share representing a yield on the issue price of the Preferred Shares of 5.25% per annum; (ii) to return the original issue price to holders of Preferred Shares at the time of redemption of such shares on December 30, 2011; (iii) to provide holders of Capital Shares with regular monthly cash distributions targeted to be $0.05 per Capital Share representing a yield on the issue price of the Capital Shares of 4.00% per annum; and (iv) to provide holders of Capital Shares with the opportunity for growth in net asset value per Capital Share.

6. The net proceeds from the Offerings will be invested in an equally weighted portfolio consisting of common shares of the six largest Canadian banks and common shares of the ten largest Canadian oil and gas companies (the Portfolio).

7. The Filer will, from time to time, selectively write covered call options in respect of all or part of the securities in its Portfolio.

8. It is proposed that the initial costs of formation and organization of the Filer, including the preparation and filing of the Preliminary Prospectus and final Prospectus, be borne by the Filer rather than the promoter or manager of the Filer.

9. A preliminary prospectus of the Filer dated April 28, 2006 (the Preliminary Prospectus) has been filed with the securities regulatory authorities in each of the Provinces and Territories of Canada.

10. The Filer intends to establish a credit facility which may be used by the Filer for working capital purposes. The Filer expects that the maximum amount it borrows thereunder will be limited to 5% of NAV. The Filer may pledge Portfolio shares as collateral for amounts borrowed thereunder.

The Shares

11. The Shares are expected to be listed and posted for trading on the Toronto Stock Exchange (the TSX).

12. The Shares will be retractable at the option of the holder on a monthly and annual basis at a price computed by reference to the value of a proportionate interest in the net assets of the Filer. As a result, the Filer will be a "mutual fund" under applicable securities legislation.

13. The description of the retraction process in the Preliminary Prospectus contemplates that the retraction price for the Shares will be determined as of the valuation date, being the second last business day of the month (the Retraction Date). As requests for retractions may be made at any time during the month and are subject to a cut-off date (ten business days prior to the Retraction Date), and as the net asset value is calculated weekly, retractions may not be implemented at a price equal to the net asset value next determined after receipt of the retraction request.

14. The retraction procedures described in the Preliminary Prospectus provide that shareholders will receive payment within ten business days of the month following the Retraction Date.

15. The Preferred Shares have been provisionally rated Pfd-2 by Dominion Bond Rating Service Limited.

16. The Filer will make quarterly distributions to holders of the Preferred Shares and monthly distributions to holders of the Capital Shares. The record date for shareholders entitled to receive such distributions will be determined in accordance with the requirements of the TSX.

Decision

Each of the Decision Makers is satisfied that the tests contained in the Legislation that provide the Decision Makers with the jurisdiction to make the decisions have been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted on the following basis:

(a) Subsection 2.6(a) - to enable the Filer to obtain a credit facility for working capital purposes and provide a security interest over its assets, as stated in paragraph 10 above, so long as the outstanding amount of any such borrowings of the Filer does not exceed 5% of the net assets of the Filer taken at market value at the time of the borrowing;

(b) Section 3.3 - to permit the Filer to bear the expenses of the Offerings as described in paragraph 8 above;

(c) Section 10.3 - to permit the Filer to calculate the retraction price for the Capital Shares and Preferred Shares in the manner described in the Preliminary Prospectus and on the applicable Retraction Date as defined in the Preliminary Prospectus;

(d) Subsection 10.4(1) - to permit the Filer to pay the retraction price for the Capital Shares and the Preferred Shares on the Retraction Payment Date, as defined in the Preliminary Prospectus;

(e) Subsection 12.1(1) - to relieve the Filer from the requirement to file the prescribed compliance reports; and

(f) Section 14.1 - to relieve the Filer from the requirement relating to the record date for the payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.