JovFunds Management Inc. and BetaPro Management Inc. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption granted from paragraph 2.5(2)(a) of National Instrument 81-102 - Mutual funds to permit a top fund to invest up to 10% of its net assets in aggregate in commodity pools, that use financial instruments that correlate to the performance of an Underlying Index, and that are not subject to National Instrument 81-101 - Mutual Fund Prospectus Disclosure. The commodity pools are qualified under a long form prospectus.

Applicable Legislative Provisions

National Instrument 81-101 Mutual Funds, ss. 2.5(2)(a), 19.1.

March 4, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, NUNAVUT AND THE

YUKON TERRITORY

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

JOVFUNDS MANAGEMENT INC.

(JFMI)

AND

IN THE MATTER OF

BETAPRO MANAGEMENT INC.

(BETAPRO)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from JFMI, the trustee, manager and promoter of Jov Talisman Fund, Jov Diversified Monthly Income Fund, Jov Leon Frazer Balanced Fund, Jov North American Momentum Fund, Jov Leon Frazer Dividend Fund, Jov BetaPro Short-Term Income Fund and Jov Winslow Global Green Growth Fund (each an Existing Fund), and such other mutual funds subject to National Instrument 81-102 Mutual Funds (NI 81-102) as JFMI or an affiliate of JFMI may establish in the future or become the manager of in the future (each a Future Fund and together with the Existing Funds, the JovFunds or individually, a JovFund), and BetaPro, the manager and trustee of the Horizons BetaPro Pools set out in Schedule A, including any similar funds established by BetaPro in the future, (each a HBP Pool) for exemptive relief from paragraph 2.5(2)(a) of NI 81-102 to permit each JovFund to invest in the HBP Pools (the Requested Relief).

Under the Mutual Reliance Review System 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 NI 81-102 and National Instrument 14-101 Definitions have the same meaning in this MRRS decision document unless they are defined in this MRRS decision document.

Representations

This decision is based on the following facts represented by JFMI on behalf of the JovFunds and by BetaPro on behalf of the HBP Pools:

JovFunds

1. JFMI, a corporation incorporated under the laws of Ontario, acts, or will act, as the trustee and manager of each JovFund. JFMI is an indirect, wholly-owned subsidiary of Jovian Capital Corporation (Jovian).

2. Each JovFund is, and will be, a mutual fund organized under the laws of Ontario and is, and will be, a reporting issuer under the laws of some or all of the Jurisdictions.

3. Securities of each JovFund are, and will be, distributed pursuant to a prospectus that has been filed with and receipted by the Decision Makers in the Jurisdictions.

BetaPro

4. BetaPro, a corporation incorporated under the laws of Canada, acts, or will act as, the trustee and manager of each HBP Pool. Jovian currently owns approximately 33% of the outstanding shares of BetaPro.

HBP ETFs

5. Each Horizons BetaPro exchange traded fund set out in Schedule A, including any similar exchange traded funds established by BetaPro in the future, (each an HBP ETF) is, and will be, a mutual fund organized under the laws of Ontario and is, or will be, a reporting issuer under the laws of some or all of the Jurisdictions.

6. Securities of each HBP ETF are, or will be, listed on the Toronto Stock Exchange (the TSX). BetaPro will not file a final prospectus for an HBP ETF unless the TSX has conditionally approved the listing of securities of the HBP ETF.

7. Each HBP ETF is, or will be, a commodity pool, as such term is defined in section 1.1(1) of National Instrument 81-104 Commodity Pools (NI 81-104), in that each HBP ETF has adopted, or will adopt, fundamental investment objectives that permit that HBP ETF to use or invest in financial instruments in a manner that is not permitted under NI 81-102.

8. Each HBP ETF's investment objective will be to provide daily results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to a multiple or the inverse (opposite) multiple of the daily performance of a "permitted index" as defined in NI 81-102 (the Underlying Index).

9. In order to achieve its investment objective, each HBP ETF will invest in equity securities and/or other financial instruments, including derivatives.

10. Each bull HBP ETF uses, or will use, financial instruments to track its Underlying Index by +200% on a daily basis. Each bear HBP ETF uses, or will use, financial instruments to track the inverse of its Underlying Index by 200% on a daily basis.

11. Each bull HBP ETF will be rebalanced daily to ensure that its exposure and performance will be +200% of its Underlying Index on each day on which it is valued and each bear HBP ETF will be rebalanced daily to ensure that its exposure and performance will only be -200% of its Underlying Index on each day on which it is valued.

HBP Funds

12. Each Horizons BetaPro Fund set out in Schedule A, including any similar funds established by BetaPro in the future, (each a HBP Fund) is, or will be, a mutual fund trust organized under the laws of Ontario and is, or will be, a reporting issuer under the laws of some or all of the Jurisdictions.

13. Securities of each HBP Fund are, and will be, distributed pursuant to a prospectus that has been filed with and receipted by the Decision Makers in the applicable Jurisdictions.

14. Each HBP Fund is, or will be, a commodity pool, as such term is defined in section 1.1(1) of NI 81-104, in that each HBP Fund has adopted, or will adopt, fundamental investment objectives that permit that HBP Fund to use or invest in financial instruments in a manner that is not permitted under NI 81-102.

15. Each HBP Fund's investment objective will be to provide daily results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to a multiple or the inverse (opposite) multiple of the daily performance of its Underlying Index.

16. In order to achieve its investment objective, each HBP Fund will invest in equity securities and/or other financial instruments, including derivatives.

17. Each bull HBP Fund uses, or will use, financial instruments to track its Underlying Index by +200% on a daily basis. Each bear HBP Fund uses, or will use, financial instruments to track the inverse of its Underlying Index by 200% on a daily basis.

HBP Pools

18. The maximum exposure of an investment by an investor in a HBP Pool will be the amount invested by the investor in securities of the HBP Pool.

19. The HBP Pools are attractive investments for the JovFunds as they provide an efficient and cost effective means of achieving diversification and exposure that would not otherwise be possible.

20. An investment by a JovFund in units of a HBP Pool will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the JovFund.

Decision

Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under NI 81-102 is that the Requested Relief is granted to the JovFunds provided that:

(a) no more than 10% of a JovFund's net assets, in the aggregate at the time of purchase, may be invested in securities of the HBP Pools;

(b) if a JovFund has obtained relief to use short selling it may invest up to, but no more than, 20% of its net assets in aggregate at the time of purchase in securities of the HBP Pools and the shorting of securities;

(c) the investment by a JovFund in securities of a HBP Pool is in accordance with the fundamental investment objective of the JovFund;

(d) the prospectus of a JovFund discloses, or will disclose the next time it is renewed after the date hereof, that the JovFund may invest in commodity pools that use financial instruments that correlate to the performance of an Underlying Index and, to the extent applicable, the risks associated with such an investment; and

(e) the JovFunds will not invest in an HBP Pool with an Underlying Index based on

i. a physical commodity other than gold, or

ii. a specified derivative of which the underlying interest is a physical commodity other than gold.

"Leslie Byberg"
Acting Director, Investment Funds
Ontario Securities Commission

 

Schedule A

List of HBP Pools

HBP ETFs
 
Horizons BetaPro S&P/TSX 60® Bull Plus ETF
Horizons BetaPro S&P/TSX 60® Bear Plus ETF
Horizons BetaPro S&P/TSX® Global Mining Bull Plus ETF
Horizons BetaPro S&P/TSX® Global Mining Bear Plus ETF
Horizons BetaPro COMEX® Gold Bullion Bull Plus ETF
Horizons BetaPro COMEX® Gold Bullion Bear Plus ETF
Horizons BetaPro S&P/TSX Capped Financials Bull Plus ETF
Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF
Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF
Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF
Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF
Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF
 
HBP Funds
 
Horizons BetaPro S&P/TSX 60® Bull Plus Fund
Horizons BetaPro S&P/TSX 60® Bear Plus Fund
Horizons BetaPro NASDAQ-100® Bull Plus Fund
Horizons BetaPro NASDAQ-100® Bear Plus Fund
Horizons BetaPro Canadian Bond Bull Plus Fund
Horizons BetaPro Canadian Bond Bear Plus Fund
Horizons BetaPro U.S. Dollar Bull Plus Fund
Horizons BetaPro U.S. Dollar Bear Plus Fund
Horizons BetaPro S&P 500® Bull Plus Fund
Horizons BetaPro S&P 500® Bear Plus Fund
Horizons BetaPro COMEX® Gold Bull Plus Fund
Horizons BetaPro COMEX® Gold Bear Plus Fund