Vanguard Investments Canada Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to ETF offered in continuous distribution from certain mutual fund requirements and restrictions on: transmission of purchase or redemption orders, issuing units for cash or securities, calculation and payment of redemptions, date of record for payment of distributions, and borrowing from custodian and, if necessary, provision of a security interest to the custodian to fund distributions payable under the fund's distribution policy. -- Relief also granted to allow brokerage commissions be payable by the ETFs in relation to trades of the securities of a related exchange traded funds, subject to compliance with all requirements of section 2.5 of NI 81-102, except paragraph 2.5(2)(e) -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(e), 2.6(a), 9.1, 9.4(2), 10.2, 10.3, 14.1, 19.1.

October 26, 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

VANGUARD INVESTMENTS CANADA INC.

(the Filer)

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 (the Legislation) for exemptive relief from the following provisions of National Instrument 81-102 Mutual Funds (NI 81-102) (the Exemption Sought):

(a) Section 2.5(2)(e) to permit Vanguard Canadian Aggregate Bond Index ETF, Vanguard Canadian Short-Term Bond Index ETF, Vanguard MSCI Canada Index ETF, Vanguard MSCI U.S. Broad Market Index ETF (CAD-hedged), Vanguard MSCI EAFE Index ETF (CAD-hedged) and Vanguard MSCI Emerging Markets Index ETF (the Proposed Funds) and any additional exchange-traded funds of which the Filer, or an affiliate or associate of the Filer, may be the trustee and/or manager and which operate on a similar basis as the Proposed Funds (the Future Funds, which together with the Proposed Funds are collectively referred to as the Funds and each is singularly referred to as a Fund) to pay brokerage commissions to purchase underlying exchange-traded funds managed by the Filer or an affiliate or associate of the Filer;

(b) Section 2.6(a)(i) to permit each Fund to borrow cash from the custodian of the Fund (the Custodian) and, if required by the Custodian, to provide a security interest over any of its portfolio assets as a temporary measure to fund the portion of any distribution payable to Unitholders that represents, in the aggregate, amounts that are owing to, but not yet been received by, the Fund;

(c) Sections 9.1 and 10.2 to permit purchases and sales of units (Units) of the Funds on the Toronto Stock Exchange (TSX);

(d) Section 9.4(2) to permit the Funds to accept a combination of cash and securities as subscription proceeds for Units;

(e) Section 10.3 to permit the Funds to redeem less than the Prescribed Number of Units (as defined below) at a discount to their market price, instead of at their net asset value; and

(f) Section 14.1 to permit the Funds to establish a record date for distributions in accordance with the rules of the TSX.

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

(a) the OSC 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (collectively, the Passport Jurisdictions).

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.

Basket of Securities means (i) a group of the specific securities of the issuers included from time to time in the applicable Index ("Constituent Securities") held, to the extent reasonably possible, in approximately the same proportion as they are reflected in the applicable Index; (ii) a broadly diversified subset of Constituent Securities and/or other securities selected by the sub-advisor of the applicable Fund from time to time that, in the aggregate, approximates the applicable Index in terms of primary risk factors and other key index characteristics; or (iii) securities of one or more Underlying Vanguard ETFs.

Designated Broker means a registered dealer that has entered into a designated broker agreement with the Filer, on behalf of one or more of the Funds, to perform certain duties in relation to the Funds.

Dealer means a registered broker or dealer that has entered into a continuous distribution dealer agreement with the Filer, on behalf of one or more of the Funds, and that subscribes for and purchases Units from the Funds.

Index means the benchmark or index that is used by a Fund in relation to that Fund's investment objective.

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

Underlying Vanguard ETF means an exchanged-traded share class of a fund managed by the Filer or an affiliate or associate of the Filer that either seeks to track the applicable Index or an unhedged version of the applicable Index or that has a similar investment objective or strategies.

Unitholders means beneficial or registered holders of Units, as applicable.

Units means the redeemable, transferable units of the Funds.

Representations

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

1. The Funds will be mutual fund trusts governed by the laws of Ontario and will be reporting issuers under the laws of each of the Jurisdiction and Passport Jurisdictions. The Filer is not, and the Funds will not be, in default of securities legislation in any of the Jurisdiction or Passport Jurisdictions.

2. The Filer will apply to list the Units of the Proposed Funds on the TSX. The Filer will not file a final prospectus for any of the Funds until the TSX or another recognized stock exchange has conditionally approved the listing of Units.

3. The Filer will be a registered investment fund manager, portfolio manager and commodity trading manager in Ontario. The Filer will be the trustee and the manager of the Funds and will be responsible for the administration of the Funds.

4. The Filer is a wholly-owned indirect subsidiary of The Vanguard Group, Inc., which in turn is wholly-owned by approximately 35 U.S. registered investment companies that are part of the Vanguard family of mutual funds.

5. Each Fund will seek investment results that seek to track the performance of an Index, net of fees and expenses, by investing, directly or indirectly, in the securities that constitute, from time to time, the applicable Basket of Securities.

6. In seeking to achieve its investment objective, a Fund may invest in an Underlying Vanguard ETF, provided that there will be no duplication of management fees chargeable in connection with a Fund and its investment in the Underlying Vanguard ETF.

7. The securities of each Underlying Vanguard ETF will be listed on a stock exchange in Canada, the United States or elsewhere.

8. A Fund's investment in securities of an Underlying Vanguard ETF will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of that Fund.

9. All investments of a Fund in an Underlying Vanguard ETF will be made in compliance with section 2.5 of NI 81-102, with the exception of clause 2.5(2)(e) of NI 81-102.

10. Securities of an Underlying Vanguard ETF may only be directly purchased or redeemed from the Underlying Vanguard ETF in large blocks called "creation units" by "authorized participants" that generally have entered into a contract with the Underlying Vanguard ETF to purchase and redeem such securities. Generally, such purchases and redemptions are done in cash or "in kind" through the deposit or receipt of a portfolio of securities included in the index that the Underlying Vanguard ETF seeks to track.

11. The vast majority of trading in securities of an Underlying Vanguard ETF will typically occur in the secondary market.

12. As is the case with the purchase or sale of any other equity security made on an exchange, brokers are typically paid a commission in connection with trading in securities of exchange-traded funds.

13. It is proposed that a Fund may purchase and sell securities of an Underlying Vanguard ETF on the applicable exchange using third-party brokers and that the Fund will pay commissions to these brokers in connection with the purchase and sale of such securities.

14. In each taxation year, each Fund must distribute sufficient net income and net realized capital gains so that it will not be liable to pay income tax under Part I of the Income Tax Act (Canada) (the Distribution Policy).

15. Amounts included in the calculation of net income and net realized capital gains of a Fund for a taxation year that must be distributed in accordance with the Distribution Policy sometimes include amounts that are owing to but have not actually been received by the Fund from the issuers of securities held in the Fund's portfolio (Issuers).

16. While it is possible for a Fund to maintain a portion of its assets in cash or to dispose of securities in order to obtain any cash necessary to make a distribution in accordance with the Distribution Policy, maintaining such a cash position or making such a disposition (which would generally be followed, when the cash is actually received from the Issuers, by an acquisition of the same securities) impacts the Fund's ability to achieve its investment objective of tracking the performance of the applicable Index. Maintaining assets in cash or disposing of securities means that a portion of the net asset value of the Fund is not invested on a basis that tracks the Index. Further, any transaction costs reduce the amount available to invest in the Index. Both of these result in some error in tracking the performance of the Index (referred to as tracking error).

17. The Filer is of the view that it is in the interests of a Fund to have the ability to borrow cash from the Custodian and, if required by the Custodian, to provide a security interest over its portfolio assets as a temporary measure to fund the portion of any distribution payable to Unitholders that represents, in the aggregate, amounts that are owing to, but have not yet been received by, the Fund from the Issuers. While such borrowing will have a cost, the Filer expects that it will reduce the tracking error that results from using the alternatives set out in paragraph 16.

18. Generally, units of the Funds may only be subscribed for or purchased directly from the Funds by Designated Brokers or Dealers and orders may only be placed for Units in the Prescribed Number of Units (or a multiple thereof) on any day where there is a trading session on the TSX.

19. 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 the Funds for the purpose of maintaining liquidity for the Units.

20. Each Designated Broker or Dealer that subscribes for Units agrees to deliver, in respect of each Prescribed Number of Units to be issued, a Basket of Securities and/or cash in an amount sufficient so that the value of the securities and/or the cash received is equal to the aggregate net asset value per Unit of the Prescribed Number of Units next determined following the receipt of the subscription order.

21. The net asset value per Unit of a Fund will be calculated and published daily on the Filer's website.

22. The Filer may from time to time and, in any event not more than once quarterly, require a Designated Broker to subscribe for Units of a Fund in cash in an amount not to exceed 0.30% of the net asset value of the Fund or such other amount established by the Filer and disclosed in the prospectus of the Funds.

23. Neither the Designated Brokers nor the Dealers will receive any fee or commission in connection with the issuance of Units of the Funds to them. On the issuance of Units of a Fund, the Filer or the Fund may, in the Filer's discretion, charge a fee to a Designated Broker or a Dealer to offset the expenses incurred in issuing the Units.

24. Except as described in paragraphs 18 through 23 above, Units may not be purchased directly from the Funds. Persons that are not Designated Brokers or Dealers are generally expected to purchase Units through the facilities of the TSX. However, Units may be issued directly to all Unitholders upon the reinvestment of distributions.

25. Unitholders that are not Designated Brokers or Dealers that wish to dispose of their Units may generally do so by selling their Units on the TSX, through a registered dealer, subject only to customary brokerage commissions. A Unitholder that holds a Prescribed Number of Units or a multiple thereof may exchange such Units for Baskets of Securities and/or cash, in the Fund's discretion. Unitholders may also redeem their Units for cash at a redemption price equal to 95% of the closing price of the Units on the TSX on the effective date of redemption.

26. As manager, the Filer receives a fixed management fee from the Funds. Such management fee is calculated as a fixed percentage of the net asset value of each Fund. As manager, the Filer is responsible for all costs and expenses of the Funds except the management fee and certain operating expenses, which include any fees and expenses related to the implementation and on-going operation of an independent review committee under National Instrument 81-107, brokerage expenses and commissions, the fees under any derivative instrument used by the Funds, the cost of complying with new government or regulatory requirements, extraordinary expenses, any goods and services or harmonized sales taxes on these expenses and any income, withholding or other taxes. The Filer may, in its discretion, reimburse the Funds for certain expenses payable by them.

27. Unitholders will have the right to vote at a meeting of Unitholders in respect of the matters prescribed by 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 is that the Exemption Sought is granted, provided that:

(a) a Fund's investments in securities of an Underlying Vanguard ETF are made in compliance with the requirements of section 2.5 of NI 81-102, except paragraph 2.5(2)(e) of NI 81-102;

(b) in respect of borrowing cash and providing a security interest over a Fund's portfolio assets as a temporary measure to fund the portion of any distribution payable to Unitholders that represents, in the aggregate, amounts that are owing to, but not yet been received by, the Fund:

(i) the borrowing by the Fund in respect of a distribution does not exceed the portion of the distribution that represents, in the aggregate, amounts that are payable to the Fund but have not been received by the Fund from the Issuers and, in any event, does not exceed five percent of the net assets of the Fund;

(ii) the borrowing is not for a period longer than 45 days;

(iii) any security interest in respect of the borrowing is consistent with industry practice for the type of borrowing and is only in respect of amounts owing as a result of the borrowing;

(iv) the Fund does not make any distribution to Unitholders where the distribution would impair the Fund's ability to repay any borrowing to fund distributions; and

(v) the final prospectus of the Fund discloses the potential borrowing, the purpose of the borrowing and the risks associated with the borrowing.

For greater certainty, the Exemption Sought in respect of sections 9.1, 10.2, 9.4(2), 10.3 and 14.1 of NI 81-102 is granted as follows:

(a) Sections 9.1 and 10.2 -- to enable the purchases and sales of Units of the Funds on the TSX, which precludes the transmission of purchase or redemption orders to the order receipt offices of the Funds;

(b) Section 9.4(2) -- to permit payment for the issuance of Units of the Funds to be made partially in cash and partially in securities, provided that the acceptance of securities as payment is made in accordance with sections 9.4(2)(b)(i) and 9.4(2)(b)(ii).

(c) Section 10.3 -- to permit the redemption of less than the Prescribed Number of Units at a price equal to 95% of the closing price of the Units of a Fund on the TSX; and

(d) Section 14.1 -- to relieve the Funds from the requirement relating to the record date for the payment of distributions, provided that the Funds comply with applicable TSX requirements.

The Exemption Sought with respect to sections 2.5(2)(e), 9.1, 9.4(2), 10.2, 10.3 and 14.1 of NI 81-102 shall terminate upon the coming into force of any legislation or rule of the principal regulator dealing with the matters referred to in each of such subsections.