Invesco Canada Ltd. (formerly, Invesco Trimark Ltd.) and Powershares Tactical Bond Capital Yield Class

Decision

Headnote

National Policy 11-203 -- Process for Exemptive Relief applications in Multiple Jurisdictions -- Mutual funds granted relief from certain restrictions in National Instrument 81-102 Mutual Funds on securities lending transactions, including (i) the 50% limit on lending; (ii) the requirement to use the fund's custodian or sub-custodian as lending agent; and (iii) the requirement to hold the collateral during the course of the transaction -- Mutual funds invest their assets in a basket of Canadian equity securities that are pledged to a Counterparty for performance of the funds' obligations under forward contracts giving the funds exposure to underlying interests -- Mutual funds wanting to lend 100% of the basket of Canadian equity securities -- not practical for custodian to act as securities lending agent as it does not have control over the Canadian equity securities -- counterparties must release its security interest in the Canadian equity securities in order to allow the funds to lend such securities, provided the funds grant the Counterparties a securities interest in the collateral held by the fund for the loaned securities -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.12(1)1, 2.12(1)2, 2.12(1)12, 2.12(3), 2.15, 2.16, 6.8(5), 19.1.

October 31, 2011

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

INVESCO CANADA LTD.

(formerly, Invesco Trimark Ltd.)

(the "Filer")

AND

POWERSHARES TACTICAL BOND

CAPITAL YIELD CLASS

("Tactical Class")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for exemptive relief for Tactical Class, together with all other mutual funds now or in the future managed by the Filer in respect of which the representations set out below are applicable (collectively, the "Funds" and each a "Fund"), from the following provisions of National Instrument 81-102 Mutual Funds ("NI 81-102"):

1. subsection 2.12(1)1 of NI 81-102 to permit each Fund to enter into securities lending transactions that will not be administered in compliance with all the requirements of section 2.15 and 2.16 of NI 81-102;

2. subsection 2.12(1)2 of NI 81-102 to permit each Fund to enter into securities lending transactions that do not fully comply with all the requirements of section 2.12 of NI 81-102;

3. subsection 2.12(1)12 of NI 81-102 to permit each Fund to enter into securities lending transactions in which the aggregate market value of securities loaned by the Fund exceeds 50% of the total assets of the Fund;

4. subsection 2.12(3) of NI 81-102 to permit each Fund, during the term of a securities lending transaction, to not hold or to dispose of any non-cash collateral delivered to it as collateral in the transaction;

5. section 2.15 of NI 81-102 to permit each Fund to lend securities through an agent ("Agent") that is not the custodian or sub-custodian of the Fund;

6. section 2.16 of NI 81-102 to the extent this section contemplates that securities lending transactions be entered into through an agent appointed under section 2.15 of NI 81-102; and

7. subsection 6.8(5) of NI 81-102 to permit the collateral delivered to each Fund in connection with a securities lending transaction to not be held under the custodianship of the custodian or a sub-custodian of the Fund.

Paragraphs 1 through 7 are collectively referred to as the Exemption Sought.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission is the principal regulator for this application; and

(ii) the Filer has provided notice that subsection 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, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Interpretation

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

Representations

This decision is based on the following facts represented by the Filer on behalf of each Fund:

Facts

1. The head office of the Filer is located in Toronto, Ontario.

2. The Filer is or will be the manager of the Funds.

3. The Filer and the Funds are not in default of securities legislation in any province or territory of Canada.

4. Each Fund is or will be (a) an open-end mutual fund established under the laws of Ontario; (b) a reporting issuer under the securities laws of each of the provinces and territories of Canada; (c) qualified for distribution in all provinces and territories of Canada pursuant to a simplified prospectus and annual information form that has been prepared and filed in accordance with the securities legislation of Ontario; (d) a mutual fund to which NI 81-102 applies.

5. Each Fund's investment objectives includes or will include seeking the provision of tax-efficient returns similar to those of a specific type of investment. Each Fund's investment objectives states or will state that it may use specified derivatives to seek to provide these returns.

6. Each Fund pursues or will pursue its investment objectives by means of specified derivatives. Generally, each Fund invests or will invest its assets in Canadian equity securities (an "Equity Portfolio"). The Equity Portfolio of a Fund is generally a static portfolio that is not actively managed except in limited circumstances. Each Fund also enters into one or more forward contracts (each, a "Forward Contract") with one or more financial institutions (each a "Counterparty") to effectively replace the economic return on its Equity Portfolio with the economic return on an underlying interest (such as another mutual fund, one or more indices, or a notional basket of different securities) to achieve the Fund's investment objectives.

7. Each Fund pledges or will pledge its Equity Portfolio to its Counterparty (or the portion thereof that is subject to the relevant Forward Contract with that Counterparty) as collateral security for performance of the Fund's obligations under its Forward Contract with that Counterparty. The Equity Portfolio (or that portion thereof) is held by the Counterparty pursuant to that applicable Forward Contract.

8. The Filer proposes to engage in securities lending transactions on behalf of each Fund that may represent up to 100% of the net assets of that Fund, in order to earn additional returns for that Fund. The Filer proposes to arrange for the Equity Portfolio to be lent to one or more borrowers indirectly, through one or more Agents, other than the Funds' custodian or sub-custodian.

9. Each Agent shall be acceptable to the Fund and Counterparty and shall be either a Canadian financial institution (including a Counterparty) or an affiliate of a Canadian financial institution. It is not commercially practical for a Fund's custodian to act as Agent with respect to the Fund's securities lending transactions as the custodian will not have control over the Fund's Equity Portfolio for the reason set out in paragraph 7 above.

10. The Filer will ensure that any Agent through which a Fund lends securities maintains appropriate internal controls, procedures, and records for securities lending transactions as prescribed in subsection 2.16(2) of NI 81-102.

11. A Counterparty must release its security interest in the securities in the Equity Portfolio of a Fund in order to allow the Fund to lend such securities, but will generally only do so provided that the Fund grants the Counterparty a security interest in the collateral held by the Fund for the loaned securities.

12. To facilitate the Counterparty's release of its security interest in the securities of the Equity Portfolio of a Fund, securities in the Equity Portfolio will be loaned only to borrowers that are acceptable to the Fund and the Counterparty, and that have an "approved credit rating" as defined in NI 81-102 or whose obligations are unconditionally guaranteed by persons or companies that have such a credit rating.

13. A borrower may include an affiliate of the Counterparty. Whether a borrower is an affiliate or not an affiliate of the Counterparty or the Agent will not affect the revenues from the securities lending transactions paid to the Fund.

14. To facilitate the Counterparty's perfection of its security interest in the collateral held by the Fund for the loaned securities, the Filer will ensure that the Fund's collateral for the loan is held by an affiliate of the Counterparty, which will be a registered dealer and a member of the Investment Industry Regulatory Organization of Canada ("IIROC").

15. The collateral received by a Fund in respect of a securities lending transaction, and in which the Counterparty will have a security interest, will be in the form of cash, qualified securities and/or other collateral permitted by NI 81-102, other than collateral described in subsection 2.12(1)6(d) or in paragraph (b) of the definition of "qualified security".

16. The non-cash collateral received by a Fund in respect of a securities lending transaction, and in which the Counterparty will have a security interest, will not be re-invested in any other types of investment products.

17. The prospectus of each Fund discloses that the Fund may enter into securities lending transactions. Other than as set forth herein, any securities lending transactions on behalf of a Fund will be conducted in accordance with the provisions of NI 81-102.

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) with respect to the exemption from subsection 2.12(1)12 of NI 81-102, each Fund enters into a Forward Contract with an applicable Counterparty and grants that Counterparty a security interest in the securities subject to that Forward Contract and, in connection with a securities lending transaction relative to those securities,

(i) receives the collateral that

(A) is prescribed by subsections 2.12(1)3 to 6 of NI 81-102 other than collateral described in subsection 2.12(1)6(d) or in paragraph (b) of the definition of "qualified security";

(B) is marked to market on each business day in accordance with subsection 2.12(1)7 of NI 81-102;

(ii) has the rights set forth in subsections 2.12(1)8, 2.12(1)9 and 2.12(1)11 of NI 81-102;

(iii) complies with subsection 2.12(1)10 of NI 81-102; and

(iv) lends its securities only to borrowers that are acceptable to the Fund and the Counterparty, and that have an approved credit rating (as defined in NI 81-102) or whose obligations to the Fund are fully and unconditionally guaranteed by persons or companies that have such a credit rating;

(b) with respect to the exemption from subsection 2.12(3) of NI 81-102, each Fund provides a security interest to the applicable Counterparty in the collateral delivered to it as collateral pursuant to a securities lending transaction as described in representation 11;

(c) with respect to the exemption from section 2.15 of NI 81-102:

(1) each Fund enters into a written agreement with an Agent that complies with each of the requirements set forth in subsection 2.15(4) of NI 81-102, except as set out herein; and

(2) the Agent administering the securities lending transaction of each Fund:

(A) is in compliance with the standard of care prescribed in subsection 2.15(5) of NI 81-102; and

(B) shall be acceptable to the Fund and Counterparty and shall be either a bank or trust company described in paragraph 1 or 2 of section 6.2 of NI 81-102 or the investment bank affiliate of such bank or trust company that is registered as an investment dealer or in an equivalent registration category;

(d) with respect to the exemption from section 2.16 of NI 81-102, the Filer and the Funds comply with the requirements of section 2.16 of NI 81-102 as if the Agent appointed by the Filer were the agent contemplated in that section; and

(e) with respect to the exemption from subsection 6.8(5) of NI 81-102, each Fund:

(i) provides a security interest to the applicable Counterparty in the collateral delivered to it as collateral pursuant to a securities lending transaction as described in representation 11; and

(ii) the collateral delivered to the Fund pursuant to the securities lending transaction is held by an affiliate of the Counterparty, which will be a registered dealer and a member of IIROC, as described in representation 14.

"Chantal Mainville"
Acting Manager, Investment Funds Branch
Ontario Securities Commission