BetaPro Management Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from the requirement that the renewal prospectus of certain exchange traded investment funds in continuous distribution include annual and interim financial statements and certain selected financial information -- Relief to incorporate the financial statements by reference into the prospectus -- Inclusion of previously publicly disclosed financial information in the renewal prospectus of the pools would not provide any additional disclosure to investors that is not already publicly available on SEDAR.

Applicable Ontario Statutory Provisions

Ontario Securities Commission Rule 41-501 General Prospectus Requirements, ss. 4.1, 4.6, 4.7, 4.8.

Form 41-501F1 -- Information Required in a Prospectus.

October 4, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND, AND

NEWFOUNDLAND AND LABRADOR

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BETAPRO MANAGEMENT INC.

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. (the "Filer" or the "Manager") as the manager of the exchange traded funds (the "Existing ETFs" or individually an "Existing ETF") and the commodity pools the (the "Existing Funds" or individually an "Existing Fund") listed on Schedule A (the Existing ETFs and the Existing Funds are together referred to as the "Existing Pools" or individually an "Existing Pool") and any additional exchange traded funds (the "Future ETFs" or individually a "Future ETF" and the Future ETFs and the Existing ETFs are together referred to as the "ETFs" or individually an "ETF") or commodity pools (the "Future Funds" or individually a "Future Fund" and the Future Funds and the Existing Funds and together referred to as the "Funds" or individually a "Fund") which the Manager may establish in the future and which are operated on a similar basis as the Existing Pools (the Future ETFs and the Future Funds are together referred to as the "Future Pools" and the Future Pools are together with each Existing Pool referred to as the "Pools" or individually a "Pool") for a decision under the securities legislation (the "Legislation") of the Jurisdictions providing an exemption (the "Requested Relief") for each Pool from the requirements in the Legislation that the renewal prospectus of each Pool include:

1. the annual financial statements of that Pool;

2. the interim financial statements of that Pool; and

3. the auditor's report on the annual financial statements of that Pool.

(collectively, the "Prospectus Financial Disclosure Requirements")

Under the Mutual Reliance Review System for Exemptive Relief Applications (the "MRRS"):

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

2. this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Terms defined in National Instrument 14-101 Definitions and National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") have the same meaning in this decision unless they are defined in this decision.

Representations

This MRRS decision document is based on the following facts represented by the Filer, the trustee and manager of each Pool:

1. Each Pool is, or will be, a mutual fund trust governed by the laws of Ontario and a reporting issuer in each Jurisdiction.

2. Each Pool is, or will be, a commodity pool as such term is defined in section 1.1 of National Instrument 81-104 Commodity Pools ("NI 81-104"), in that each Pool has adopted or will adopt fundamental investment objectives that permit that Pool to use or invest in specified derivatives in a manner that is not permitted under National Instrument 81-102 Mutual Funds ("NI 81-102").

3. Each Pool is, or will be, subject to NI 81-102, subject to the exceptions relating to commodity pools, as such exceptions are outlined in NI 81-104.

4. Each Pool is, or will be, subject to NI 81-106 and each Pool is, or will be, subject to other rules applicable to mutual funds, including National Instrument 81-107 -- Independent Review Committee for Investment Funds.

5. The Existing Funds are qualified for distribution pursuant to a prospectus dated September 28, 2006. A pro forma prospectus dated August 29, 2007 has been filed in respect of the fourteen Existing Funds with the securities regulatory authorities in each of the Jurisdictions.

6. The eight Existing ETFs are qualified for distribution pursuant to prospectuses dated January 5, 2007 and June 7, 2007.

7. Securities of each ETF are, or will be, listed on the Toronto Stock Exchange or another stock exchange recognized by the OSC.

8. Each Pool'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 an index, security, currency or commodity.

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

10. JovInvestment Management Inc. ("JovInvestment"), a corporation incorporated under the laws of Ontario, acts, or will act, as the investment manager of each Pool. JovInvestment is registered in the categories of investment counsel and portfolio manager under the Securities Act (Ontario) (the ("OSA") and as a commodity trading manager under the Commodity Futures Act (Ontario).

11. JovInvestment has retained, or will retain, ProShare Advisors LLC ("ProShare"), a limited liability company organized under the laws of the state of Maryland, or an affiliate of ProShare, to act as a sub-adviser on behalf of each ETF to make and execute investment decisions on behalf of each ETF. ProShare is registered as an investment advisor with the U.S. Securities and Exchange Commission and is exempt from registration as a commodity pool operator and commodity trading advisor.

12. JovInvestment has retained, or will retain, ProFund Advisors LLC ("ProFund"), a limited liability company organized under the laws of the state of Maryland, or an affiliate of ProFund, to act as a sub-adviser on behalf of each Fund to make and execute investment decisions on behalf of each Fund. ProFund is registered as an investment advisor with the U.S. Securities and Exchange Commission and is exempt from registration as a commodity pool operator and commodity trading advisor.

13. Securities of each Pool are, or will be, offered on a continuous basis in each Jurisdiction. Each Pool must therefore file a renewal prospectus on an annual basis in each Jurisdiction in accordance with Section 62 of the OSA and similar provisions in force in the other Jurisdictions.

14. Section 1.3(b) of National Instrument 81-101 Mutual Fund Prospectus Disclosure ("NI 81-101") provides that NI 81-101 does not apply to commodity pools. As each Pool is a commodity pool, in qualifying and offering its securities for distribution, the Pools can not therefore rely on the form of simplified prospectus described at section 2.1 of NI 81-101 (the "Simplified Prospectus Form"). Rather, each Pool offers, or will offer, its securities by way of a long form prospectus prescribed by the Legislation (each a "Long Form Prospectus").

15. Section 3.1 of NI 81-101 permits an issuer to incorporate by reference financial and other information relating to such issuer.

16. Financial information of an issuer can not be incorporated by reference into a Long Form Prospectus. As a result, absent the Requested Relief, the Pools can not incorporate by reference the financial information required by the Prospectus Financial Disclosure Requirements into the renewal prospectus by which its securities are, or will be, offered.

17. The initial prospectuses of the Existing Pools included audited opening statements of net assets relating to such Existing Pools.

18. The initial prospectuses of the Future Pools will each include audited opening statements of net assets of such Future Pools.

19. Each Pool intends to comply with the filing requirements in respect of financial statements required by NI 81-106 (the "Investment Fund Financial Disclosure Requirements"). All financial disclosure prepared in accordance with the Investment Fund Financial Disclosure Requirements is, and will be, publicly available for examination by existing and potential unitholders of the Pools on the system for electronic document analysis and retrieval ("SEDAR") and on the Internet at www.hbpfunds.com and www.hbpetfs.com.

20. By complying with the Investment Fund Financial Disclosure Requirements, the Pools will have filed on SEDAR or publicly disseminated (in respect of quarterly portfolio disclosure) all relevant financial information for all periods that would, absent the Requested Relief, be reflected in the financial disclosure that would otherwise be required to be included as part of the renewal prospectuses of the Pools pursuant to the Prospectus Financial Disclosure Requirements.

21. The Filer expects that, in the absence of the Requested Relief, a significant quantity of previously disclosed financial information will be required to be included in renewal prospectuses of the Pools. As noted in representations 5 and 6, there are currently fourteen Existing Funds and eight Existing ETFs. Further, the quantity of previously disclosed financial information in the renewal prospectuses of the Pools will continue to increase as Future Pools are added. The Filer and the Pools would be required to allocate a significant amount of resources in preparing and including this large volume of financial information in the renewal prospectuses. This financial information would not provide any additional disclosure to investors that would not already be publicly available. Rather, this financial information would make the renewal prospectus of the Pools unnecessarily lengthy and cumbersome, and likely less "user friendly" for investors.

22. Given that the statements and information required by the Investment Fund Financial Disclosure Requirements will be publicly available on SEDAR, the Filer believes that there is no prejudice to investors by granting the Requested Relief. Furthermore, the Requested Relief will allow the Pools to provide the same level of financial disclosure in each renewal prospectus relating to a Pool as that of other mutual funds in continuous distribution that distribute securities using the Simplified Prospectus Form. The Pools will therefore be treated equally with other such mutual 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 the decision has been met.

The Decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

1. The initial prospectus of each Future Pool includes an audited opening statement of net assets of that Future Pool.

2. As of the date of the renewal prospectus of a Pool, the Pool has complied with the Investment Fund Financial Disclosure Requirements for all financial periods that would, absent the Requested Relief, otherwise be included in the renewal prospectus of the Pool.

3. The renewal prospectus of a Pool, by means of disclosure on the cover page and in the body of the prospectus, incorporates by reference the following:

(a) the most recently filed comparative annual financial statements of the Pool, together with the accompanying report of the auditor, filed either before or after the date of such prospectus; and

(b) the most recently filed interim financial statements of the Pool that pertain to a period after the period to which the annual financial statements then incorporated by reference in the prospectus pertain and that were filed either before or after the date of such prospectus.

4. The disclosure in the body of the prospectus referred to in paragraph 3 above, includes the following statement in substantially the following words and the disclosure on the cover page of the prospectus referred to in paragraph 3 above includes the following statement or an abbreviated version of the following statement with a cross-reference to the disclosure in the body:

"Additional information about the Pool is available in the following documents:

• the most recently filed annual financial statements [may specify the date of the annual financial statements, if appropriate];

• any interim financial statements filed after those annual financial statements [may specify the date of the interim financial statements, if appropriate].

These documents are incorporated by reference into this prospectus, which means that they legally form part of this document just as if they were printed as part of this document. You can get a copy of these documents, at your request, and at no cost, by calling [toll-free/collect] [insert the toll-free telephone number or telephone number where collect calls are accepted] or from your dealer.

[If applicable] These documents are available on the [Pool's/Pool family's] Internet site at [insert Pool's Internet site address], or by contacting the [Pool/Pool family] at [Pool's/Pool family's email address].

These documents and other information about the Pool are available on the Internet at www.sedar.com.".

5. An auditor's consent to the incorporation of the auditor's report on the comparative annual financial statements referred to under paragraph 3(a) above into the prospectus of a Pool is filed with such prospectus and filed with any subsequently filed comparative annual financial statements.

6. The certificate of a Pool that is required to be included in the renewal prospectus of such Pool pursuant to the Legislation states the following:

"To the best of our knowledge, information and belief, this prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of [insert name of each jurisdiction in which qualified]. [Insert the following additional language if offering made in Québec] For the purpose of the Province of Québec, to our knowledge, this prospectus, together with documents incorporated herein by reference and as supplemented by the permanent information record, contains no misrepresentation that is likely to affect the value or the market price of the securities to be distributed."

7. The renewal prospectus of each Pool discloses that the Pool has received exemptive relief in the Jurisdictions to permit the Pool, subject to certain terms and conditions, to incorporate certain publicly disclosed financial statements and information by reference into such renewal prospectus instead of including such financial statements and information in such renewal prospectus.

8. This decision expires upon the coming into force of a prospectus rule that replaces Ontario Securities Commission Rule 41-501 - General Prospectus Requirements ("Rule 41-501") or Ontario Securities Commission Rule 41-502 Prospectus Requirements for Mutual Funds ("Rule 41-502") or that varies Rule 41-501 or Rule 41-502 in a manner such that the Prospectus Financial Disclosure Requirements no longer apply.

SCHEDULE A

EXISTING POOLS

BetaPro ETFs

BetaPro Funds