AlphaPro Management Inc. and the Top Funds

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from subsection 2.1(1) and paragraphs 2.5(2)(a), (b) and (c) of NI 81-102, the fund on funds restrictions, to permit commodity pools to enter into a forward agreement providing exposure to commodity pools investing in, or gaining exposure to exchange traded mutual funds tracking the performance of, physical commodities. Also relief granted allowing payment of brokerage commission in relation to the sales and purchases of securities of the related underlying fund(s), provided that the requirements of section 2.5 of NI 81-102, except for paragraph 2.5(2)(e) -- National Instrument 81-102 Mutual Funds are complied with.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a) and (e), 19.1.

National Instrument 81-104 Commodity Pools.

June 27, 2012

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

THE TOP FUNDS

(as defined below)

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 of the principal regulator (the Legislation) for an exemption (the Exemption Sought) relieving the existing mutual funds listed at Schedule "A" (the Existing Top Funds) and such mutual funds that may be managed by the Filer or its affiliates in the future (the Future Top Funds, and together with the Existing Top Funds, the Top Funds and individually, a Top Fund) that are subject to National Instrument 81-102 -- Mutual Funds (NI 81-102), from the prohibitions in:

(a) paragraph 2.5(2)(a) of NI 81-102 to permit each Top Fund to invest in exchange traded mutual funds that are not subject to National Instrument 81-101 -- Mutual Fund Prospectus Disclosure (NI 81-101); and

(b) paragraph 2.5(2)(e) of NI 81-102 to permit each Top Fund to pay brokerage commissions in relation to its purchase and sale on a recognized exchange of securities of exchange traded mutual funds that are managed by the Filer, or an affiliate or associate of the Filer

(collectively, the Exemption Sought)

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

(a) the Ontario Securities Commission (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 each of the other provinces and territories of Canada.

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.

Representations

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

About the Filer

1. The Filer is a corporation incorporated pursuant to the laws of Canada.

2. The Filer, or an affiliate of the Filer, acts as, or will act as, the investment fund manager of the Top Funds.

3. The Filer is not in default of the securities legislation of any of the provinces or territories of Canada.

About the Top Funds

4. The Top Funds are, or will be, open end mutual funds established as trusts under the laws of the Province of Ontario.

5. The Top Funds are, or will be, governed by the provisions of NI 81-102; or NI 81-102 and National Instrument 81-104 -- Commodity Pools (NI 81-104).

6. Each Top Fund distributes, or will distribute, securities pursuant to a simplified prospectus and annual information form prepared under NI 81-101 or to a long form prospectus prepared under Form 41-101F2 -- Information Required in an Investment Fund Prospectus (Form 41-101F2).

7. The Top Funds are, or will be, reporting issuers in some or all of the provinces and territories of Canada.

8. The Existing Top Funds are not in default of any requirements of the securities legislation of any province or territory of Canada.

9. The Filer would like to be able to invest the assets of the Top Funds in the exchange traded funds set out in Schedule "B" (the Existing Underlying ETFs) and such other exchange traded mutual funds that may be established by the Filer or its affiliates or associates in the future (the Future Underlying ETFs, and together with the Existing Underlying ETFs, the Underlying ETFs or individually an Underlying ETF).

10. The investment by a Top Fund in securities of an Underlying ETF will be made in accordance with the fundamental investment objective of the Top Fund and will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Top Funds.

About the Underlying ETFs

11. The Filer or an affiliate is or will be the investment fund manager of the Underlying ETFs.

12. Each Underlying ETF is, or will be:

(a) an open end mutual fund subject to NI 81-102 and National Instrument 41-101 -- General Prospectus Requirements (NI 41-101);

(b) a reporting issuer in each of the provinces and territories of Canada; and

(c) listed on the Toronto Stock Exchange (the TSX) or another "recognized exchange" in Canada as that term is defined in securities legislation.

13. The Existing Underlying ETFs are not in default of any requirements of the securities legislation of any province or territory of Canada.

14. Each Underlying ETF distributes, or will distribute, its securities pursuant to a long form prospectus prepared under Form 41-101F2.

15. Each Underlying ETF does not or will not, at the time of purchase by a Top Fund, hold more than 10% of the market value of its net assets in securities of any other mutual fund other than the securities of a money market fund or a mutual fund that issues index participation units.

16. Each Underlying ETF issues, or will issue, units which are qualified for distribution in each of the provinces and territories of Canada.

17. The Underlying ETFs do not or will not issue "index participation units" as defined in NI 81-102.

18. No Underlying ETF has, or will have, a net market exposure greater than 100% of its net asset value.

19. Each Underlying ETF does not or will not pay management or incentive fees which to a reasonable person would duplicate a fee payable by the Top Funds for the same service.

20. Where the investment fund manager of a Top Fund (the Top Fund Manager) determines that the management fees and incentive fees (the Fees) payable by an Underlying ETF to its investment fund manager (the Underlying ETF Manager) would duplicate a fee payable by the Top Fund for the same service, either

(a) The Underlying ETF Manager will pay a management fee rebate to the Top Fund that is equal to the Fees paid to it by that Underlying ETF and the Top Fund Manager will pay an amount equal to those Fees to the Underlying ETF Manager; or

(b) The Top Fund Manager will pay to the Top Fund an amount equal to the Fees payable to the Underlying ETF Manager in respect of the Top Fund's investment in the Underlying ETF.

21. Holders of units of an Underlying ETF may:

(a) sell units of an Underlying ETF on the TSX or another recognized exchange in Canada on which units of an Underlying ETF are listed for trading;

(b) redeem units of that Underlying ETF in any number for cash at a redemption price of 95% of the closing price for the unit on the applicable exchange on the effective day of redemption; or

(c) redeem or exchange a prescribed number of units (a PNU) of the Underlying ETF for cash or securities equal to the net asset value of each PNU tendered for redemption or exchange, respectively.

22. Each Underlying ETF may, from time to time, retain:

(a) National Bank Financial Inc., an associate of the Filer, to act as its designated broker, distributor and securities lending agent;

(b) Fiera Capital Corporation, an associate of an indirect minority shareholder of Filer, to act as portfolio sub-adviser; and

(c) Horizons Investment Management Inc., an affiliate of the Filer, to act as its manager, trustee, or portfolio manager.

23. The Existing Underlying ETFs primarily achieve, and Future Underlying ETFs will primarily achieve, their investment objectives through direct holdings of cash and securities and, in some circumstances, through investment in specified derivatives for hedging and non-hedging purposes, in accordance with their investment objectives and strategies and with NI 81-102.

24. All brokerage costs related to trades in securities of the Underlying ETFs will be borne by the Top Funds in the same manner as any other portfolio transaction made on an exchange.

25. If a Top Fund makes a trade in securities of an Underlying ETF with or through an affiliate or associate of the Filer acting as dealer, the Filer will comply with its obligations under National Instrument 81-107 Independent Review Committee for Investment Funds in respect of any proposed related party transactions. Lastly, all such related party transactions will be disclosed to securityholders of the relevant Top Fund in its management report of fund performance.

Reasons for the Exemption Sought

26. An investment in an Underlying ETF by a Top Fund is an efficient and cost effective alternative to administering one or more investment strategies directly or engaging a sub-adviser to implement an investment strategy for a Top Fund.

27. Absent the Exemption Sought, an investment by a Top Fund in an Underlying ETF would be prohibited by paragraph 2.5(2)(a) of NI 81-102 solely because the Underlying ETF is not governed by NI 81-101;

28. An investment by a Top Fund in an Underlying ETF would not qualify for the exemption in paragraph 2.5(3) of NI 81-102 from paragraph 2.5(2)(a) of NI 81-102 because the Underlying ETF does not issue index participation units.

29. The only material difference between the Underlying ETFs and any other mutual fund governed by NI 81-102 is the method of distribution. If the Exemption Sought is granted the Top Funds will be permitted to purchase units of a mutual fund that is listed on the TSX (or other recognized exchange) in the same manner that they are permitted to invest in a mutual fund that is not listed on the applicable exchange.

30. It is anticipated that many of the trades conducted by the Top Funds would not be of the size necessary for the Top Fund to be eligible to purchase or redeem a PNU directly from the Underlying ETF. As a result, it is anticipated that the majority of trading in respect of units of the Underlying ETFs will be conducted in the secondary market using the facilities of a recognized exchange.

31. Absent the Exemption Sought, when the Top Funds trade securities of an Underlying ETF on a recognized exchange, paragraph 2.5(2)(e) would not permit the Top Fund to pay any brokerage fees incurred in connection with the trade.

32. The original decision issued on June 25, 2012 ( the Original Decision) failed to include several funds that should have been listed as Current Top Funds or Current Underlying Funds and failed to note a change as to the portfolio sub-advisors of some of the Funds. It is intended that the Original Decision be revoked upon the issuance of this decision, in order to reflect these revisions.

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:

1) the Original Decision is revoked and replaced by this decision; and

2) the Exemption Sought is granted, provided that

(a) A Top Fund does not short sell securities of an Underlying ETF; and

(b) the Underlying ETFs do not rely on exemptive relief from

(i) the requirements of section 2.3 of NI 81-102 regarding the purchase of physical commodities;

(ii) the requirements of sections 2.7 and 2.8 of NI 81-102 regarding the purchase, sale or use of specified derivatives, with the exception of the relief from paragraphs 2.7(1)(a) and 2.8(1) of NI 81-102 granted to certain Underlying ETFs pursuant to the In the Matter of AlphaPro Management Inc. decision dated November 18, 2010; and

(iii) paragraphs 2.6(a) and (b) of NI 81-102 with respect to the use of leverage; and

(c) each Underlying ETF is not a commodity pool governed by NI 81-104.

SCHEDULE "A"

EXISTING TOP FUNDS

{1} Affiliate of the Manager

{2} Associate of an indirect minority shareholder of the Manager

SCHEDULE "B"

EXISTING UNDERLING ETFs

{1} Affiliate of the Manager

{2} Associate of an indirect minority shareholder of the Manager