T.E. Investment Counsel Inc. et al.

Headnote

NP 11-203 -- Top funds proposing to invest a portion of their net assets in underlying commodity pools -- Investment not complying with requirements of paragraph 2.5(2)(a) of NI 81-102 -- Top funds unable to rely on statutory exemption in subsection 2.5(7) of NI 81-102 providing relief from mutual fund conflict of interest investment restrictions and mutual fund conflict of interest reporting requirements -- Top funds may, either alone or together with other related mutual funds, become substantial security holders of the underlying commodity pools -- Substantial security holder of manager of top fund may make a seed capital investment in underlying commodity pool which would represent a significant interest in those commodity pools -- Manager of top funds or affiliate may have common officers and directors with underlying funds - Top funds exempted from mutual fund conflict of interest investment restrictions and manager of top funds exempted from mutual fund conflict of interest reporting requirements, subject to compliance with certain conditions -- Securities Act (Ontario).

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(2)(c)(ii), 111(3), 113, 117(1)(a), 117(1)(d), 118(2)(a), 121(2)(a)(ii).

Rules Cited

National Instrument 81-102 Mutual Funds, ss. 2.5, 2.5(7).

June 24, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Ontario Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

T.E. INVESTMENT COUNSEL INC.

(TEIC)

AND

IN THE MATTER OF

JOVFUNDS MANAGEMENT INC.

(JOV)

AND

IN THE MATTER OF

THE FUNDS REFERENCE IN SCHEDULE A

(THE EXISTING FUNDS)

DECISION

Background

The principal regulator in the Ontario Jurisdiction has received an application from TEIC and Jov (each an Applicant) on each Applicant's behalf and on behalf of the Existing Funds established and/or managed by that Applicant, as set out in Schedule B, and such other mutual funds as that Applicant or an affiliate of that Applicant may establish and/or manage in the future (together with the Existing Funds, the Funds and individually, a Fund) for a decision under the securities legislation of the Ontario Jurisdiction of the principal regulator (the Legislation) exempting:

1. the Funds from:

(a) the investment restriction in paragraph 111(2)(b) of the Securities Act (Ontario) (the Act) which prohibits a mutual fund from knowingly making an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder;

(b) the investment restriction in clause 111(2)(c)(ii) of the Act which prohibits a mutual fund from knowingly making an investment in an issuer in which any person or company who is a substantial security holder of the mutual fund, its management company or its distribution company, has a significant interest;

(c) the investment restriction in subsection 111(3) of the Act which prohibits a mutual fund, its management company or its distribution company from knowingly holding an investment described in paragraphs (a) or (b) above; and

(d) the investment restriction in clause 118(2)(a) of the Act which prohibits a portfolio manager from knowingly causing any investment portfolio managed by it from investing in any issuer in which a responsible person or an associate of a responsible person is an officer or a director unless the specific fact is disclosed to the client and the written consent to the investment is obtained before the purchase (this paragraph (d) together with paragraphs (a), (b) and (c) above are together referred to in this decision as the Mutual Fund Conflict of Interest Investment Restrictions); and

2. each Applicant, and/or an affiliate of that Applicant, from the management company reporting requirement in paragraphs 117(1)(a) and 117(1)(d) of the Act which require that a management company file a report of every transaction of purchase or sale of securities between a mutual fund it manages and any related person or company, and any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, the mutual fund is a joint participant with one or more of its related persons or companies (the Mutual Fund Conflict of Interest Reporting Requirements, and together with the exemption sought from the Mutual Fund Conflict of Interest Investment Restrictions, the Exemption Sought)

in connection with investments by the Funds in securities of the Horizons BetaPro ETFs (HBP ETFs) and Horizons BetaPro Funds (the HBP Funds, and together with the HBP ETFs and such other similar funds established and/or managed by BetaPro Management Inc. (BetaPro) in the future, each a HBP Pool). The existing HBP Pools are listed in Schedule B of this decision.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

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

(ii) the Applicants have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Québec, Nova Scotia and New Brunswick (together with Ontario, the Jurisdictions, and individually a Jurisdiction).

Interpretation

Terms defined in the Act, 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 Applicants:

Previous Decision

1. The Exemption Sought supersedes and replaces the relief previously granted to Jov on May 16, 2008 by the OSC and certain of the other Canadian securities regulatory authorities, which is substantially the same as the Exemption Sought, except that, unlike the Exemption Sought, such relief did not apply in Québec.

Other Decision

2. The Applicants and the Funds have simultaneously applied for relief from the Jurisdictions from the requirements of paragraph 2.5(2)(a) of National Instrument 81-102 Mutual Funds (NI 81-102) to enable each Fund to invest up to 10% of its net assets, in aggregate at the time of purchase, in securities of the HBP Pools, subject to certain conditions (the Other Decision).

Funds

3. Either Applicant, or an affiliate of either Applicant, acts, or will act, as the trustee and/or manager of each Fund. A registered portfolio manager (the Portfolio Manager) acts, or will act, as portfolio manager for each Fund.

4. Each Fund is, and will be, a mutual fund organized under the laws of Canada or a Jurisdiction and is, and will be, a reporting issuer under the laws of one or more of the Jurisdictions.

5. Securities of each Fund are, and will be, distributed pursuant to a prospectus that has been filed with and receipted by the securities regulatory authorities in the applicable Jurisdictions.

6. Each Fund may purchase securities of other investment funds, including the HBP Pools, to gain exposure to markets or investments which may otherwise not be easily and economically available to that Fund, or where insufficient diversification would result from any other stock-specific investment strategy.

BetaPro

7. BetaPro, a corporation incorporated under the laws of Canada, acts, or will act as, the trustee and manager of each HBP Pool. Jovian Capital Corporation (Jovian) currently owns 45% of the issued and outstanding shares of BetaPro and this is expected to increase to 60% in the near future.

HBP Pools

8. Each HBP Pool set out in Schedule B, including any similar funds established and/or managed by BetaPro in the future, is, or will be, a mutual fund organized under the laws of Ontario and is, or will be, a reporting issuer under the laws of some or all of the Jurisdictions.

9. Securities of each HBP ETF are, or will be, listed on the Toronto Stock Exchange. Securities of each HBP Fund are not, or will not be, exchange traded.

10. Each HBP Pool is, or will be, a commodity pool, as such term is defined in subsection 1.1(1) of National Instrument 81-104 Commodity Pools, in that each HBP Pool has adopted, or will adopt, fundamental investment objectives that permit that HBP Pool to use or invest in financial instruments in a manner that is not permitted under NI 81-102.

11. Each HBP 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 a "permitted index" as defined in NI 81-102.

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

13. The HBP Pools are attractive investments for the Funds as they provide an efficient and cost effective means of achieving diversification and exposure that would not otherwise be possible.

14. An investment by a Fund in units of a HBP Pool will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.

Fund of Fund Investment

15. An investment by a Fund in units of a HBP Pool will in each case be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in paragraph 2.5(2)(a) of NI 81-102 that the HBP Pool be subject to NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure as the Funds have applied for relief from this provision pursuant to the Other Decision.

16. If the proposed investment by a Fund were made in accordance with each of the provisions of section 2.5 of NI 81-102, the Exemption Sought would not be required as subsection 2.5(7) of NI 81-102 provides relief from the Mutual Fund Conflict of Interest Investment Restrictions and the Mutual Fund Conflict of Interest Reporting Requirements to a mutual fund which purchases or holds securities of another mutual fund if the purchase or holding is made in accordance with section 2.5 of NI 81-102.

17. In the absence of an exemption from the Mutual Fund Conflict of Interest Investment Restrictions, each Fund would be prohibited from knowingly making or holding an investment in a HBP Pool if the Fund, alone or together with one or more related mutual funds, would be a substantial security holder of the HBP Pool.

18. Furthermore, Jovian may at times have a seed capital investment in a HBP Pool which would represent a significant interest in that fund. As Jovian is a substantial security holder of each Applicant, the Mutual Fund Conflict of Interest Investment Restrictions may prohibit a Fund from investing in a HBP Pool at a time where Jovian would hold a significant interest in that fund.

19. In addition, an officer or director of either Applicant or BetaPro could, due to Jovian's ownership interest in both Applicants and BetaPro and interest in the HBP Pools, be an officer or director of a HBP Pool. The same could be true of an affiliate of either Applicant or BetaPro or Jovian that is a responsible person or an associate of a responsible person of the applicable Funds for similar reasons. The Mutual Fund Conflict of Interest Investment Restrictions could prohibit the Portfolio Manager from causing such Funds to invest in a HBP Pool where either Applicant or BetaPro or Jovian, or an affiliate of those entities, would have common officers and directors with the HBP Pool.

20. In the absence of an exemption from the Mutual Fund Conflict of Interest Reporting Requirements, each Applicant, and/or an affiliate of that Applicant, could be required to file a report of every transaction by a Fund involving securities of a HBP Pool, as well as a report of every transaction in which, by arrangement, a Fund and a HBP Pool would be acting as joint participants.

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 Exemption Sought is granted in those Jurisdictions in which a Fund is a reporting issuer provided that an investment by the Fund in units of a HBP Pool is made in compliance with the requirements of section 2.5 of NI 81-102, as modified by the Other Decision.

Schedule A

List of Existing Funds

T.E. Investment Counsel Inc.

JovFunds Management Inc.

Schedule B

List of HBP Pools

HBP ETFs

HBP Funds