Barclays Global Investors Canada Limited et al.

Decision

Headnote

National Policy 11-203 -- Existing and future commodity pools granted exemptions from National Instrument 81-102 Mutual Funds to invest in exchange-traded funds listed on the London Stock Exchange as if they were index participation units, subject to certain conditions and requirements -- Relief is necessary to implement the commodity pools' investment objectives and strategies -- Conditions imposed on composition and jurisdiction of the underlying funds.

Applicable Legislative Provisions

National Instrument 81-102, ss. 2.5(2), 19.1.

November 19, 2008

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

BARCLAYS GLOBAL INVESTORS CANADA LIMITED

(THE FILER OR BARCLAYS CANADA)

AND

IN THE MATTER OF

iSHARES CONSERVATIVE CORE PORTFOLIO

BUILDER FUND, iSHARES GROWTH CORE

PORTFOLIO BUILDER FUND, iSHARES GLOBAL

COMPLETION PORTFOLIO BUILDER FUND, AND

iSHARES ALTERNATIVES COMPLETION

PORTFOLIO BUILDER FUND

(the New iShares Funds)

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the New iShares Funds and such other commodity pools as the Filer may establish in the future that are operated on a similar basis to the New iShares Funds (together with the New iShares Funds, the Funds) for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Funds from the prohibition in section 2.5(2) of National Instrument 81-102 -- Mutual Funds (NI 81-102) to permit the Funds to invest in securities of Dublin iShares Funds (defined below) as if the securities of the Dublin iShares Funds were "index participation units" (IPUs) within the meaning of NI 81-102.

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 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 all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 -- Definitions, NI 81-102 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

"Alternative Asset Classes" means asset classes including, but not limited to, commodities, real estate investment trusts, income trusts, real return bonds, emerging market equity, emerging market bonds, high yield bonds, specialty equity, infrastructure and private equity.

"Basket" means in relation to a particular Fund, a group of iShares ETFs and/or other securities determined by Barclays Canada from time to time for the purpose of subscription orders, exchanges or redemptions or for other purposes.

"Canadian iShares Fund" means any ETF, other than a Fund, that is listed on a Canadian stock exchange and managed by Barclays Canada or an affiliate of Barclays Canada.

"Designated Brokers" means registered brokers and dealers that enter into agreements with the Funds to perform certain duties in relation to the Funds and "Designated Broker" means any one of them.

"Dublin iShares Fund" means any ETF that is listed on the London Stock Exchange and managed by an affiliate of Barclays Canada, including the iShares S&P Listed Private Equity Fund, iShares S&P Global Water Fund, and iShares Global Inflation-Linked Bond Fund.

"ETF" means an exchange-traded fund.

"iShares ETFs" means ETFs managed by Barclays Canada or an affiliate, including Canadian iShares Funds, Dublin iShares Funds and U.S. iShares Funds.

"Prescribed Number of Units" means, in relation to a Fund, the number of Units of the Fund determined by Barclays Canada from time to time for the purpose of subscription orders, exchanges or redemptions or for other purposes.

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

"Unit" means, in relation to a particular Fund, a unit of beneficial interest in that Fund.

"Unitholders" means registered holders of Units.

"U.S. iShares Fund" means any ETF that is listed on a recognized U.S. stock exchange and managed by an affiliate of Barclays Canada.

Representations

Filer and Funds

1. The Filer's head office is located in Toronto, Ontario.

2. Each Fund is, or will be, a mutual fund trust governed by the laws of Ontario and a reporting issuer under the laws of all of the Jurisdictions. Neither the Filer nor the Funds are in default of securities legislation in any of the Jurisdictions.

3. Each Fund is, or will be, a commodity pool subject to National Instrument 81-104 -- Commodity Pools (NI 81-104), in that each Fund has adopted, or will adopt, fundamental investment objectives that permit the Fund to use or invest in derivatives in a manner that is not permitted under NI 81-102.

4. Each Fund is, or will be, governed by NI 81-102, subject to exemptions for commodity pools outlined in NI 81-104 and subject to exemptive relief granted by the securities regulatory authorities.

5. Each Fund is, or will be, an ETF.

6. Units of each Fund will be listed on the Toronto Stock Exchange (the TSX) or another stock exchange recognized by the OSC. Barclays Canada has applied to list the Units of each New iShares Fund on the TSX.

7. The investment objective of each of the New iShares Funds, other than the iShares Alternatives Completion Portfolio Builder Fund, is to provide a specified investment result by optimizing the asset mix of its portfolio among multiple asset classes. The investment objective of the iShares Alternatives Completion Portfolio Builder Fund is to provide a specified investment result by optimizing the asset mix of its portfolio among one or more Alternative Asset Classes. It is expected that future Funds will have similar investment objectives.

8. In order to achieve its investment objective, each New iShares Fund may invest in securities issued by iShares ETFs and may also invest directly in issuers and in derivatives such as options, futures contracts, forward contracts, swaps, debt-like securities and index options. Each New iShares Fund may also use derivatives to hedge, or protect, against changes in asset class prices or foreign exchange risks. The New iShares Funds may also invest in future contracts in order to provide market exposure for cash held by the New iShares Funds and may hold money market instruments or cash to meet their current obligations. It is expected that other Funds will use similar investment strategies.

9. The investment objective of each Fund, as well as its investment strategy, will be disclosed on an ongoing basis in the prospectus of the Fund.

10. Barclays Canada acts, or will act, as trustee and/or manager of the Funds. Barclays Canada is registered in the categories of portfolio manager and investment counsel (or the equivalent categories of registration) in all of the Jurisdictions. Barclays Canada is also registered as a Commodity Trading Manager and Limited Market Dealer in Ontario and as a Limited Market Dealer in Newfoundland and Labrador.

11. Units may only be subscribed for or purchased directly from the Funds by Underwriters or Designated Brokers and orders may only be placed for Units in the Prescribed Number of Units (or an integral multiple thereof) on any day when there is a trading session on the TSX and the primary market or exchange for the securities held by the Funds is open for trading.

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

13. Each Underwriter or Designated Broker that subscribes for Units must deliver, in respect of each Prescribed Number of Units to be issued, a Basket and cash in an amount sufficient so that the value of the Basket and cash delivered is equal to the net asset value of the Units next determined following the receipt of the subscription order. In the discretion of Barclays Canada, the Funds may also accept cash only subscriptions for Units in an amount equal to the net asset value of the Units next determined following the receipt of the subscription order.

14. The net asset value per Unit of each Fund will be calculated and published on any day when there is a trading session on the TSX.

15. Neither the Underwriters nor the Designated Brokers will receive any fees or commissions in connection with the issuance of Units to them. Barclays Canada may, at its discretion, charge an administration fee on the issuance of Units to the Designated Brokers or Underwriters.

16. Except as described in paragraphs 11 through 13 above, Units may not be purchased directly from the Funds. Investors are generally expected to purchase Units through the facilities of the TSX. However, Units may be issued directly to Unitholders upon the reinvestment of distributions of income or capital gains.

17. Unitholders that wish to dispose of their Units may generally do so by selling their Units on the TSX, through a registered broker or dealer, subject only to customary brokerage commissions. A Unitholder that holds a Prescribed Number of Units or an integral multiple thereof may exchange such Units with the Fund for Baskets and cash; Unitholders may also redeem their Units directly from the Fund for cash at a redemption price equal to 95% of the closing price of the Units on the TSX on the date of redemption.

18. As trustee, Barclays Canada will be entitled to receive a fee from each New iShares Fund (the trustee fee). In addition, Barclays Canada or an affiliate is entitled to receive a fee for acting as trustee or manager of an iShares ETF in which the New iShares Fund will invest (an underlying product fee). The trustee fee and the underlying product fee will not exceed the fixed annual percentage of the net asset value of each New iShares Fund that is disclosed in the preliminary prospectus dated October 6, 2008 (the Preliminary Prospectus). Each New iShares Fund will also pay certain fees and expenses disclosed in the Preliminary Prospectus. It is expected that the arrangements with respect to the payment of fees and expenses by other Funds will be similar.

Dublin iShares Funds

19. Securities of Canadian iShares Funds and U.S. iShares Funds are permitted investments for the Funds because they are IPUs within the meaning of NI 81-102. Barclays Canada also wishes to invest assets of the Funds in the Dublin iShares Funds provided that such investment is consistent with the investment objective of the Funds.

20. Each Dublin iShares Fund is, or will be, a portfolio, with segregated liability, of an umbrella open-ended investment company with variable capital. An investment company is, or will be, incorporated with limited liability under the Irish Companies Act, 1963 to 2006 (the Irish Companies Act) and is, or will be, authorized by the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 (the UCITS Regulations). Each Dublin iShares Fund is, or will be, "UCITS III" compliant.

21. A Dublin iShares Fund is, or will be, a "mutual find" within the meaning of applicable Canadian securities legislation.

22. Securities of a Dublin iShares Fund acquired by a Fund are, or will be, listed on the London Stock Exchange (the LSE). The LSE is subject to regulatory oversight by the UK Listing Authority which is part of the Financial Services Authority of the United Kingdom (the FSA). They may also be listed on one or more additional stock exchanges.

23. The investment objective of a Dublin iShares Fund is, or will be, to provide investors with a total return, taking into account both capital and income returns, which reflects the return of the applicable index which would be a "permitted index" within the meaning of NI 81-102.

24. A Dublin iShares Fund achieves, or will achieve, its investment objective by holding the component securities of the applicable index or otherwise investing in a manner that will enable the Dublin iShares Fund to replicate the performance of the applicable index in accordance with the rules on eligible assets prescribed by the UCITS Regulations.

25. As noted, a Dublin iShares Fund will be restricted to investments permitted by the UCITS Regulations or authorized by the Irish Financial Services Regulatory Authority (the Financial Regulator).

26. The Dublin iShares Funds are, or will be, "index mutual funds" within the meaning of NI 81-102 that track, or will track, indices in markets and asset classes which Canadian iShares Funds and U.S. iShares Funds do not track.

27. The following affiliates of Barclays Canada are involved in the management of the Dublin iShares Funds:

(a) Barclays Global Investors Ireland Limited (BGIIL) is the manager and has responsibility for the management and administration and the oversight of all service providers or other delegates including Barclays Global Investors Limited (BGIL). BGIIL is regulated by the Financial Regulator; and

(b) BGIL is the investment manager and has responsibility for the investment and re-investment of the assets. BGIL is regulated by the FSA.

28. The following third parties are involved in the management of the Dublin iShares Funds:

(a) Bank of Ireland Securities Services Ireland Limited is the administrator;

(b) Computershare Investor Services (Ireland) Limited is the registrar and transfer agent; and

(c) The Governor and Company of the Bank of Ireland is the custodian.

29. The Dublin iShares Funds are, or will be, operated in all material respects on an equivalent basis to the Canadian iShares Funds and the U.S. iShares Funds.

30. Securities of a Dublin iShares Fund are, or will be, offered in the primary market in a manner similar to the Funds, the Canadian iShares Funds and the U.S. iShares Funds pursuant to a prospectus for each investment company filed with the Financial Regulator.

31. A Fund, together with related mutual funds, will not hold more than 20% of the voting rights attached to all the voting securities of a Dublin iShares Fund.

32. A Fund will not invest in any Dublin iShares Fund if as a result of the investment the Fund would have more than 10% of its assets invested, directly or indirectly, in any one issuer that is not a mutual fund subject to NI 81-102 or the issuer of an IPU including a Dublin iShares Fund.

33. No director or officer of a Fund or of Barclays Canada or an associate of any of them will own beneficially more than 10% of the outstanding securities of a Dublin iShares Fund.

34. No person or company who owns more than 20% of the voting securities of an iShares Fund or of Barclays Canada will own beneficially more than 10% of the outstanding securities of a Dublin iShares Fund.

35. No director or officer of Barclays Canada and no associate of a director or officer of Barclays Canada will be a director or officer of a Dublin iShares Fund.

36. No director or officer of an affiliate of Barclays Canada who is a director or officer of a Dublin iShares Fund will participate in the formulation of investment decisions for a Fund, have access before implementation to information concerning investment decisions for a Fund or influence, other than through research reports generally available, investment decisions for a Fund.

37. A Fund will receive securities of a Dublin iShares Fund by the delivery of a Basket or Baskets from the Underwriters or Designated Brokers as subscription proceeds.

38. Pursuant to section 2.5(2) of NI 81-102, a Fund is not permitted to invest in securities of a Dublin iShares Fund unless the requirements of section 2.5(2) are satisfied.

39. If the securities of a Dublin iShares Fund were IPUs within the meaning of NI 81-102, a Fund would be permitted under the requirements of NI 81-102 to invest in such securities.

40. But for the requirement in the definition of IPU that a security be traded on a stock exchange in Canada or the United States, securities of a Dublin iShares Fund would be IPUs.

41. The regulatory regime, administration, operation, investment objectives and restrictions applicable to a Dublin iShares Fund are as rigorous as those applicable to the Canadian iShares Funds and U.S. iShares Funds.

42. The LSE is subject to equivalent regulatory oversight to securities exchanges in Canada and the United States.

43. The listing requirements to be complied with by the Dublin iShares Funds are consistent with the TSX listing requirements.

44. Barclays Canada considers that investments in Dublin iShares Funds provide a very cost effective way to obtain exposure to the markets and asset classes in which the Dublin iShares Funds invest and in which the investment objectives and strategies of the Funds contemplate investment.

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) any Dublin iShares Fund in which a Fund invests is:

(i) a portfolio, with segregated liability, of an investment company incorporated with limited liability under the Irish Companies Act;

(ii) authorized by the UCITS Regulations;

(iii) UCITS III compliant;

(iv) an index mutual fund;

(v) operated in a manner substantially similar to the manner described above;

(b) the securities of any Dublin iShares Fund purchased by a Fund are:

(i) listed on the LSE;

(ii) securities which, but for the requirement that securities be traded on a stock exchange in Canada or the United States, would be IPUs; and

(c) the other provisions of section 2.5(2) and of other sections of NI 81-102 that apply to an investment in securities of a mutual fund that are IPUs apply in respect of an investment in securities of a Dublin iShares Fund.

"Vera Nunes"
Assistant Manager, Investment Funds
Ontario Securities Commission