AlphaPro Management Inc. and Horizons Seasonal Rotation ETF

Decision

Headnote

NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- a commodity pool subject to National Instrument 81-104 Commodity Pools granted exemptions from National Instrument 81-102 Mutual Funds to engage in short selling of securities up to 40% of net assets, subject to certain conditions and requirements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.6(a)(ii), 2.6.1(c)(ii), 2.6.1(c)(iii).

National Instrument 81-104 Commodity Pools.

February 26, 2013

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 SEASONAL ROTATION ETF

(the ETF)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the ETF for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the following requirements of the Legislation to permit the ETF to sell securities short in excess of the prescribed net asset value (NAV) thresholds and provide a security interest over the ETF's assets in connection with such short sales (the Requested Relief):

(a) the requirement under subsection 2.6(a)(ii) of National Instrument 81-102 Mutual Funds (NI 81-102) that no security interest is permitted over a mutual fund's portfolio assets unless the security interest is required to enable the mutual fund to effect a short sale of securities under NI 81-102;

(b) the requirement contained in subsection 2.6.1(c)(ii) of NI 81-102 limiting the aggregate market value of all securities of the issuer of the securities sold short by a mutual fund to 5% of the mutual fund's NAV; and

(c) the requirement contained in subsection 2.6.1(c)(iii) of NI 81-102 limiting the aggregate market value of all securities sold short by a mutual fund to 20% of the mutual fund's NAV.

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

(a) the Ontario Securities Commission 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 each of the provinces and territories of Canada other than the Jurisdiction (including 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 on behalf of itself and the ETF:

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

2. Horizons Investment Management Inc. (HIMI), which is registered under the Securities Act (Ontario) as a portfolio manager, is the portfolio advisor of the ETF.

3. None of the Filer, HIMI and the ETF are in default of securities legislation in any of the Jurisdictions.

4. The ETF is a reporting issuer in one or more of the provinces and territories of Canada. The ETF distributes its securities in such jurisdictions under a long form prospectus in the form of Form 41-101F2 (the Prospectus).

5. The ETF is a mutual fund that is subject to NI 81-102, and a commodity pool that is subject to National Instrument 81-104 Commodity Pools (NI 81-104).

6. The ETF has issued securities that are listed and posted for trading on the Toronto Stock Exchange, and that are not index participation units.

7. The investment practices of the ETF comply in all respects with the requirements of Part 2 of NI 81-102 as modified by NI 81-104, except to the extent that the ETF has received permission from the applicable securities regulatory authorities or regulators of the Jurisdictions to deviate therefrom.

8. Any short sales will be consistent with the investment objectives and strategies of the ETF.

9. As a commodity pool subject to NI 81-104, the ETF can take leveraged short positions using specified derivatives. The Requested Relief would allow the ETF to, in part, do directly what it can currently do indirectly using specified derivatives.

10. Any short sales will comply in all respects with the requirements of NI 81-102 as modified by NI 81-104, except to the extent that the ETF has received or may in the future receive permission from the applicable securities regulatory authorities or regulators of the Jurisdictions to deviate therefrom (including, without limitation, the Requested Relief).

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 Requested Relief is granted provided that:

(a) each short sale by the ETF will comply with its investment objectives;

(b) the aggregate market value of all securities sold short by the ETF does not exceed 40% of the ETF's NAV;

(c) the aggregate market value of all securities of a particular issuer sold short by the ETF, whether direct short positions or indirect short positions through specified derivatives, does not exceed 10% of the ETF's NAV;

(d) the ETF maintains appropriate internal controls regarding its short sales, including written policies and procedures, risk management controls, and proper books and records; and

(e) the security interest provided by the ETF over any of its assets that is required to enable the ETF to effect short sale transactions will be made in accordance with industry practice for that type of transaction and relate only to obligations arising under such short sale transactions.

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