Horizons BetaPro Funds - MRRS Decision

Headnote

MRRS exemption granted to commodity pools from margin deposit limit contained in paragraph 6.8(2)(c) of National Instrument 81-102. Exemption granted to permit commodity pools to invest in derivatives in the U.S. through their portfolio manager that, in turn, will use U.S. dealers. Exemption conditional on the amount of margin deposited not exceeding 20% of the net assets of the fund and on all margin deposited with U.S. dealers being held in segregated accounts.

Rules Cited

National Instrument 81-102 - Mutual Funds, ss. 6.8(2)(c), 19.1

September 22, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, NEW BRUNSWICK,

NOVA SCOTIA, and PRINCE EDWARD ISLAND

(the "Jurisdictions")

AND

IN THE MATTER OF

NATIONAL INSTRUMENT 81-102 MUTUAL FUNDS (NI 81-102)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

HORIZONS BETAPRO FUNDS

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from BetaPro Management Inc. ("BetaPro") on behalf of Horizons BetaPro Funds (collectively, the "Funds" and individually, a "Fund") for a decision under the securities legislation of the Jurisdictions (the "Legislation") exempting the Funds from the margin deposit limit contained in paragraph 6.8(2)(c) of NI 81-102 (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 National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

1. The Funds, a complete list of which is attached as Schedule "A", consist of 10 open-end mutual funds trusts established under the laws of Ontario. The Funds are mutual funds under the Legislation.

2. On August 3, 2005, the Funds filed a preliminary prospectus in each of the Jurisdictions.

3. Each of the Funds is a "commodity pool" under Multilateral Instrument 81-104 as the Funds have adopted fundamental investment objectives that permit them to use or invest in specified derivatives in a manner that is not permitted under NI 81-102.

4. The investment objective of each Fund is to provide daily investment 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 particular index, security, currency or commodity (each an "Underlying Index").

5. In order to achieve its investment objective, each Fund may invest in equity and/or fixed income securities, currencies, commodities and/or financial instruments, including specified derivatives. Each Fund will apply leverage.

6. The Funds may be used by investors as part of an asset allocation or shorter term investment strategy or to create specified investment exposure (long or short) to a particular asset class or to attempt to hedge an existing investment within the portfolio. The Funds may be used independently or in combination with each other as part of an overall investment strategy.

7. BetaPro (the "Manager" or "Trustee") is the manager and trustee of the Funds, and is a corporation incorporated under the laws of Canada. The Manager's head office is located in Toronto, Ontario.

8. Jove Investment Management Inc. (the "Investment Manager") acts as the investment manager to the Funds and is a corporation incorporated under the laws of Ontario.

9. The Investment Manager has in turn retained ProFund Advisors LLC (the "Portfolio Manager"), a limited liability company organized under the laws of the State of Maryland, to make and execute investment decisions on behalf of the Funds.

10. With respect to investing that portion of the Funds' assets allocated to it by the Manager and Trustee, the Portfolio Manager primarily engages in specified derivative transactions outside of Canada.

11. Subject to the prior written approval of the Manager, the Portfolio Manager is authorized to establish, maintain, change and close brokerage accounts on behalf of the Funds. In order to facilitate specified derivatives transactions outside of Canada, the Funds have established, or intend to establish, accounts (each an "Account") with futures commissions merchants ("Dealers") in the United States of America.

12. All Dealers are registered with the Commodity Futures Trading Commission in the United States and are required to segregate all assets held on behalf of clients, including the Funds. The Dealers are subject to regulatory audits and have insurance to guard against employee fraud. The Dealers each have a net worth, determined from their most recent audited financial statements that have been made public, in excess of the equivalent of $50 million.

13. The Dealers are members of the clearing corporations and exchanges that the standardized futures in the portfolio of the Funds are primarily traded through. The clearing corporation is obliged to apply its surplus funds and the security deposits of its members to reimburse funds owed to clients from failed members.

14. The Dealers require, for each Account, that cash and/or government securities be deposited with the Dealer(s) as collateral for specified derivatives transactions ("Margin"). Margin represents the minimum amount of funds that must be deposited with a Dealer to initiate trading in specified derivatives transactions or to maintain the Dealer's open position in standardized futures.

15. Dealers are required to hold all Margin including cash and government securities in segregated accounts and the Margin is not available to satisfy claims against the Dealer made by parties other than the Funds.

16. Margin will be deposited with Dealers in respect of standardized futures traded on exchanges.

17. Levels of Margin are established at the Dealers discretion.

18. The use of Margin allows the Funds to use leverage to invest in standardized futures more extensively than if no leverage was used.

19. The use of leverage is in accordance with the investment objectives of, and the use of investment restrictions adopted by, the Funds.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make this decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted so long as:

(a) the amount of Margin deposited does not, when aggregated with the amount of Margin already held by the Dealer on behalf of a Fund, exceed 20% of the net assets of the Fund, taken at market value as at the time of the deposit; and

(b) all Margin deposited with Dealers is held in segregated accounts and is not available to satisfy claims against the Dealer made by parties other than BetaPro or the Funds.

SCHEDULE A