NP 11-203 – Exemptive relief granted to exchange-traded fund for initial and continuous distribution of units, including: relief from dealer registration requirement to permit promoter to disseminate sales communications promoting the funds subject to compliance with Part 15 of NI 81-102, relief to permit the funds’ prospectus to not contain an underwriter’s certificate, and relief from take-over bid requirements in connection with normal course purchases of units on the Toronto Stock Exchange subject to undertaking by unitholders not to exercise any votes attached to units which represent more than 20% of the votes attached to all outstanding units of the funds – Securities Act (Ontario).

Securities Act, R.S.O. 1990, c. s.5, as amended, Sections 25(1), 59(1), 74(1), 95-100, 104(2)(c) and 147.

National Instrument 81-102 Mutual Fund

January 6, 2009

(the Jurisdiction)

AND

IN THE MATTER OF ALPHAPRO Management Inc.

(the Filer)

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 from the Legislation (the Exemption Sought) so that:

the dealer registration requirement of the Legislation does not apply to the Filer, or an affiliate of the Filer, in connection with its dissemination of sales communications relating to the distribution of units (Units) of Horizons AlphaPro Managed S&P/TSX 60^® ETF (formerly known as Jov Talisman Fund) (the Existing ETF) and such other exchange traded funds as the Filer, or an affiliate of the Filer, may establish in the future (each a Future ETF and together with the Existing ETF, the ETFs or individually, an ETF) (the Registration Relief);
in connection with the distribution of securities of the ETFs pursuant to a prospectus, the ETFs be exempt from the requirement that the prospectus contain a certificate of the underwriter or underwriters who are in a contractual relationship with the issuer whose securities are being offered (the Underwriter Certificate Relief); and
purchasers of Units of the ETFs be exempted from the requirements of the Legislation related to take-over bids, including the requirement to file a report of a take-over bid and the accompanying fee with each applicable Jurisdiction, (the Take-over Bid Relief) in connection with purchases of Units of the ETFs in the normal course through the facilities of the Toronto Stock Exchange (the TSX).

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

the Ontario Securities Commission is the principal regulator for this application; and
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, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

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 a group of securities determined by JovInvestment from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.

Designated Broker means a registered broker or dealer that enters into an agreement with an ETF to perform certain duties in relation to the ETF.

JovInvestment means JovInvestment Management Inc., the investment manager of the Existing ETF.

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

Underwriter means a registered broker or dealer that has entered into an underwriting agreement with an ETF and that subscribes for and purchases Units of the ETF from the ETF.

Unitholder means a beneficial and registered holder of Units of an ETF.

Representations

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

The Existing ETF is, and each of the Future ETFs will be, a mutual fund trust governed by the laws of Ontario and a reporting issuer under the laws of the Jurisdiction.
The Existing ETF was previously offered by way of an amended and restated simplified prospectus dated August 20, 2008, as amended by amendment no. 1 dated October 22, 2008 and amendment no. 2 dated December 1, 2008 and will now be offered by way of a long form prospectus dated December 31, 2008.
On October 8, 2008, in accordance with applicable securities law, notice of a Unitholder’s meeting (the Meeting) of the Existing ETF was provided to the OSC. Notice of the Meeting, along with all required proxy voting material, was provided to holders of Series A, F, and I units of the Existing Fund in accordance with applicable securities law. At the Meeting, Unitholders approved a change to the current investment objective of the Existing ETF, as well as other necessary changes in order to convert the Existing ETF into an actively managed exchange traded fund.
On December 31, 2008, the Filer filed a final long form prospectus in respect of the Existing ETF for the purpose of qualifying Units for distribution in all the Provinces and Territories of Canada.
The Filer has also applied to list the Units on the TSX and will apply to list the Units of each Future ETF on the TSX. The Filer will not file a final prospectus for any ETF until the TSX has conditionally approved the listing of Units of such ETF.
The Existing ETF’s investment objective is to seek long-term capital growth by investing primarily in large capitalization equity, income trust and equity related securities that are constituents of the S&P/TSX 60 Index® or similar Canadian indices.
The Filer is a corporation incorporated under the laws of Ontario and it, or an affiliate, will act as the trustee and manager of each ETF. JovInvestment is the investment manager of the Existing ETF and is registered in the categories of investment counsel and portfolio manager under the Securities Act (Ontario) and as a commodity trading counsel and as a commodity trading manager under the Commodity Futures Act (Ontario).
Units of an ETF may only be subscribed for or purchased directly from the ETF by Underwriters or Designated Brokers and orders may only be placed for a Prescribed Number of Units (or a multiple thereof) of the ETF 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 Units for sale to the public only as permitted by applicable Canadian securities legislation. Designated Brokers and Underwriters will deliver a copy of the prospectus of the ETFs to the first purchasers of Units of the ETFs in the secondary market.
Each Underwriter or Designated Broker that subscribes for Units must deliver, in respect of each Prescribed Number of Units to be issued, a Basket of Securities and cash in an amount sufficient so that the value of the Basket of Securities and cash delivered is equal to the net asset value of the Units subscribed for next determined following the receipt of the subscription order. The ETFs may also accept subscriptions for Units in cash only in an amount equal to the net asset value of the Units next determined following the receipt of the subscription order.
All subscriptions and redemptions for Units of an ETF may be submitted on any day on which there is a trading session on the TSX and will settle on the third day after that date.
Each ETF will appoint a Designated Broker(s) to perform certain functions which include standing in the market with a bid and ask price for Units of that ETF for the purpose of maintaining liquidity for Units of that ETF.
The net asset value per Unit of each ETF will be calculated and published on each day on which there is a trading session on the TSX and will be made available on the Filer’s website.
Neither the Underwriters nor the Designated Brokers will receive any fees or commissions in connection with the issuance of Units of an ETF to them. The Filer may, at its discretion, charge an administration fee on the issuance of Units of an ETF to Underwriters or Designated Brokers.
Investors are generally expected to purchase Units of an ETF through the facilities of the TSX.
Because the Underwriters will not receive any remuneration for distributing Units of the ETFs, and because the Underwriters will change from time to time, it is not practical to require an underwriter’s certificate in the prospectus of the ETFs.
Units of an ETF may be issued directly to Unitholders of the ETF upon the reinvestment of distributions of income or capital gains.
Unitholders of an ETF that wish to dispose of their Units of the ETF may generally do so by selling their Units of the ETF 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 for Baskets of Securities and cash. Unitholders of an ETF may also redeem their Units of the ETF for cash at a redemption price equal to 95% of the closing price of the Units of the ETF on the TSX on the effective date of redemption.
As trustee and manager, the Filer will be entitled to receive a fixed annual fee from each ETF. Such annual fee will be calculated as a fixed percentage of the net asset value of the ETF. The Filer will be responsible for the payment of all expenses of the ETFs, except for the management fee, any expenses related to the implementation and on-going operation of an independent review committee under National Instrument 81-107 Independent Review Committee for Investment Funds, brokerage expenses and commissions, income taxes and withholding taxes and extraordinary expenses.
No investment dealer will act as a principal distributor of an ETF in connection with the distribution of Units of the ETF. The Underwriters will not receive any commission or other payment from the ETFs. As a result, the Filer will be the only entity desiring to foster market awareness and promote trading in Units of the ETFs through the dissemination of sales communications.
Unitholders of an ETF will have the right to vote at a meeting of Unitholders of the ETF prior to: any change in the fundamental investment objective of the ETF; any change to their voting rights; the introduction of a fee or expenses to be charged to the ETF or to Unitholders; or a change in the basis of the calculation of a fee or expenses charged to the ETF or Unitholders where such change could result in an increase in the amount of fees or expenses payable by the ETF or Unitholders.
Although Units of an ETF will trade on the TSX and the acquisition of Units of the ETF can therefore be subject to the Take-Over Bid Requirements:

(a) it will not be possible for one or more Unitholders of the ETF to exercise control or direction over the ETF as the master declaration of trust governing the ETF will ensure that there can be no changes made to the ETF which do not have the support of the Filer;

(b) it will be difficult for purchasers of Units of the ETF to monitor compliance with Take-Over Bid Requirements because the number of outstanding Units of the ETF will always be in flux as a result of the ongoing issuance and redemption of Units by the ETF; and

(c) the way in which Units of the ETF will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium, for outstanding Units of the ETF because pricing of a Unit of the ETF will depend on the performance of the portfolio of the ETF as a whole.

The application of the Take-Over Bid Requirements to an ETF would have an adverse impact upon liquidity of a Unit of the ETF because they could cause Underwriters, Designated Brokers and other large Unitholders of the ETF to cease trading Units of the ETF once prescribed take-over bid thresholds are reached.

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 so long as:

the Filer or its affiliate comply with Part 15 of National Instrument 81-102 Mutual Funds in connection with an ETF’s sales communications; and
in respect of the Take-over Bid Relief, prior to making any take-over bid for Units that is not otherwise exempt from the Take-over Bid Requirements, the Unit Purchaser, and any person or company acting jointly or in concert with the Unit Purchaser (a Concert Party), provides the Filer or its affiliate with an undertaking not to exercise any votes attached to the Units held by the Unit Purchaser and any Concert Party which represent more than 20% of the votes attached to all outstanding Units.

“Paulette Kennedy” “Wendell S. Wigle”

Paulette Kennedy Wendell S. Wigle

Headnote

Applicable Legislative Provisions