Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- approval required because merger does not meet the criteria for pre-approval -- the continuing fund does not have substantially similar fundamental investment objective or fee structure as compared to that of the terminating fund - terminating fund's unitholders provided with timely and adequate disclosure regarding the merger and prospectus-level disclosure regarding the continuing fund.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1).

June 28, 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

ALPHAPRO MANAGEMENT INC.

(the Filer)

AND

IN THE MATTER OF

HORIZONS ALPHAPRO MANAGED

S&P/TSX 60 ETF

(AlphaPro HAX)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of AlphaPro HAX for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting approval, pursuant to section 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) of the proposed merger of AlphaPro HAX into Horizons AlphaPro S&P/TSX 60 Equal Weight Index ETF (AlphaPro HEW) on a non-taxable basis (the Merger Transaction).

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

1. the Ontario Securities Commission (the OSC) is the principal regulator for this application; and

2. 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 each of the other provinces and territories of Canada (collectively, with Ontario, the Jurisdictions).

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:

1. The Filer is a corporation incorporated under the laws of Canada and is the trustee and manager of each of AlphaPro HAX and AlphaPro HEW (each an ETF). The Filer is not in default of securities legislation in any of the Jurisdictions.

2. The Filer's head office is located at 26 Wellington Street East, Suite 920, Toronto, Ontario M5E 1S2.

3. Each of the ETFs is a mutual fund trust established under the laws of Ontario and is a reporting issuer in the Jurisdictions.

4. AlphaPro HAX was established on December 31, 2008, and is currently governed by a master declaration of trust made as of December 31, 2008, and as amended and restated on November 10, 2009, January 11, 2010, February 3, 2010, July 9, 2010, November 15, 2010, February 9, 2011, March 8, 2011 and April 4, 2011 (the Declaration of Trust).

5. AlphaPro HEW was established on July 9, 2010, and is currently governed by the Declaration of Trust.

6. Each ETF is a reporting issuer in each of the Jurisdictions and is not in default of securities legislation in any of the Jurisdictions.

7. On March 28, 2011, the Filer issued a press release announcing the calling of a special meeting (the Meeting) of unitholders of AlphaPro HAX to consider the Merger Transaction. The press release was disseminated through CNW Group Ltd. and filed on SEDAR. A material change report dated March 28, 2011 and an amendment dated April 7, 2011 to AlphaPro HAX's long form prospectus dated January 19, 2011 was also filed on SEDAR.

8. The management information circular for the Meeting (the Circular) dated March 31, 2011, describes the tax implications of the Merger Transaction, the investment objectives and strategies of the ETFs, and the right of unitholders of AlphaPro HAX to redeem their units up to the Effective Date (as defined below) if they do not wish to participate in the Merger Transaction.

9. The Circular contained sufficient disclosure about the Merger Transaction to permit a unitholder of AlphaPro HAX to determine, based on their personal circumstances, if they wanted to participate in the Merger Transaction.

10. The Merger Transaction will be effected on the same business day and the unitholders of AlphaPro HAX will continue to have the right to redeem or sell their units at any time up to the close of business on the day the Merger Transaction is effected (the Effective Date).

11. Units of AlphaPro HAX will continue to be available for sale until three business days prior to the Effective Date.

12. The independent review committee (the IRC) of the ETFs has concluded that implementing the Merger Transaction achieves a fair and reasonable result for the ETFs. The decision of the IRC of the ETFs was included in the Circular.

13. AlphaPro HAX and AlphaPro HEW will jointly elect for tax purposes for the Merger Transaction to be completed as a "qualifying exchange" in accordance with the mutual fund merger rules in the Income Tax Act (Canada). Accordingly, the Merger Transaction will occur on a tax-deferred basis for AlphaPro HAX, AlphaPro HEW and their respective unitholders.

14. The costs of the Merger Transaction will be paid for by AlphaPro.

15. The Meeting was held on May 31, 2011, and at the Meeting, unitholders of AlphaPro HAX approved the Merger Transaction.

16. The Merger Transaction will be structured as follows:

(a) at the close of business on the Effective Date both ETFs will have their net asset value (NAV) per unit struck as normal;

(b) AlphaPro HEW will purchase the portfolio of AlphaPro HAX in exchange for units of AlphaPro HEW having an aggregate NAV equal to the value of the portfolio assets acquired. Immediately thereafter, AlphaPro HAX will redeem the units of each of its remaining unitholders at the NAV of such units by delivering to them units of AlphaPro HEW with an equal NAV;

(c) AlphaPro HEW will not assume any liabilities of AlphaPro HAX and AlphaPro HAX will retain sufficient assets after the foregoing transfers to satisfy its estimated liabilities, if any, as of the Effective Date;

(d) prior to the final NAV being struck by AlphaPro HAX and AlphaPro HEW, each of these ETFs will distribute a sufficient amount of its net income and net realized capital gains to its unitholders to ensure that it will not be subject to any tax for its current tax year ending on the Effective Date; and

(e) as soon as reasonably possible following the Merger Transaction, AlphaPro HAX will be wound up.

17. Approval of the Merger Transaction is required because the Merger Transaction does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

(a) a reasonable person would not consider AlphaPro HAX and AlphaPro HEW to have substantially similar fundamental investment objectives; and

(b) a reasonable person would not consider AlphaPro HAX and AlphaPro HEW to have a substantially similar fee structure.

18. Except as noted herein, the Merger Transaction will each otherwise comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

19. The Filer submits that the Merger Transaction will result in the following benefits:

(a) unitholders of AlphaPro HAX will enjoy increased economies of scale and lower fund operating expenses as a result of being part of a larger investment fund;

(b) there will be a savings in brokerage charges over a straight liquidation of the portfolio of securities of AlphaPro HAX if it were terminated;

(c) the Merger Transaction will eliminate the administrative and regulatory costs of operating AlphaPro HAX as a separate exchange-traded fund;

(d) following the Merger Transaction, AlphaPro HEW will have a portfolio of greater value, allowing for increased portfolio diversification opportunities; and

(e) AlphaPro HEW, as a result of its greater size, will benefit from a larger profile in the marketplace.

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 Merger Transaction is approved.

"Darren McKall"
Manager, Investment Funds Branch
Ontario Securities Commission