Harvest Portfolios Group Inc. (Re), 2015 CanLII 74337

November 9, 2015

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 HARVEST PORTFOLIOS GROUP INC. (the Filer)

AND

GLOBAL ADVANTAGED TELECOM & UTILITIES INCOME FUND (the Fund)

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 (the Legislation) for an exemption relieving the Fund from the requirement in subsection 5.1(1)(c) of NI 81-102 – Investment Funds (NI 81-102), which requires prior approval of the security holders of an investment fund before the fundamental objectives of the investment fund are changed (the Requested Relief).

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

1. the Ontario Securities Commission is the principal regulator for this application, and
2. 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 (together with the Jurisdiction, the Jurisdictions).

Interpretation

Unless otherwise defined herein, terms defined in National Instrument 14-101 – Definitions, MI 11-102 and NI 81-102 have the same meaning in this decision.

Representations

1. The Filer is a corporation governed by the laws of the Province of Ontario and is registered as a Portfolio Manager and Investment Fund Manager in Ontario and an Investment Fund Manager in Quebec and Newfoundland and Labrador. The head office of the Filer is located in Oakville, Ontario.

2. The Filer acts as manager and trustee of the Fund. The Filer retained Avenue Investment Management Inc. (the Investment Advisor) as the investment advisor for both the Fund and GTU Portfolio Trust, another investment fund.

3. The Fund is a non-redeemable investment fund. The Fund was established as an investment trust under the laws of the Province of Ontario pursuant to a declaration of trust dated February 25, 2011, as amended and restated as of March 22, 2011, and as further amended and restated as of September 22, 2014 (the Declaration of Trust).

4. Units of the Fund were qualified for distribution pursuant to a prospectus dated February 25, 2011 that was prepared and filed in accordance with the securities legislation of all the provinces and territories of Canada. Accordingly, the Fund is a reporting issuer or the equivalent in each province and territory of Canada. Units of the Fund are listed and traded on the Toronto Stock Exchange under the symbol HGI.UN.

5. Neither the Filer nor the Fund is in default of securities legislation in any Jurisdiction.

6. Under its current investment objectives and strategies, the Fund may enter into character conversion transactions. The Fund is a party to a forward purchase and sale agreement (the Forward Agreement) with a counterparty. The Forward Agreement provides the Fund with exposure to the returns of the securities of the GTU Portfolio Trust.

7. The current investment objectives of the Fund are to provide unitholders of the Fund (the Unitholders) with: (i) tax-advantaged monthly distributions; and (ii) capital appreciation. The prospectus of the Fund indicates that the Fund will obtain exposure through the Forward Agreement to a portfolio comprised primarily of equity securities of global telecom issuers and global utilities issuers.

8. The fundamental investment objective of the GTU Portfolio Trust is to provide its unitholders with capital appreciation. The portfolio of the GTU Portfolio Trust is comprised primarily of equity securities of global telecom issuers and global utilities issuers.

9. Through the use of the Forward Agreement, the Fund currently provides tax-advantaged distributions to its security holders because the Fund realizes capital gains (or capital losses) on the disposition of securities acquired under the Forward Agreement, rather than ordinary income. Ordinary income is subject to tax at a higher rate in Canada than capital gains.

10. The Forward Agreement is expected to terminate on or about March 23, 2016 in accordance with its terms (the Termination Date).

11. The Income Tax Act (Canada) (the Tax Act) was amended in December, 2013. The amendments implemented proposals first announced in the March 21, 2013 federal budget regarding the income tax treatment of character conversion transactions. Under these changes, the favourable tax treatment of character conversion transactions will be eliminated after prescribed dates, which for the Fund, will be the Termination Date.

12. As a result of these tax changes, it is anticipated that the Fund will no longer be able, after the Forward Agreement matures, to provide the same material tax efficiency to the security holders of the Fund. The Filer has determined that it will be more efficient and less costly for the Fund to terminate the Forward Agreement and seek to achieve its fundamental investment objectives by investing its assets using the same, or substantially the same, investment strategies as those currently employed by the GTU Portfolio Trust. The Filer has also determined that the Fund should own its portfolio of investments directly rather than through the GTU Portfolio Trust and that the GTU Portfolio Trust should be wound up. The Filer expects to effect an inter-fund transfer of the portfolio assets of the Reference Funds to the Funds in accordance with applicable securities laws.

13. The Declaration of Trust currently contemplates the Fund may invest directly in the GTU Portfolio Trust, equity securities of global telecom issuers, global utilities issuers and other issuers, and invest in securities that are not equity securities.

14. The Filer wishes to amend the investment objectives of the Fund to delete the references to “tax-advantaged” and delete the reference that the Fund will obtain exposure through the Forward Agreement to a portfolio comprised primarily of equity securities of global telecom issuers and global utilities issuers.

15. Following such amendment, the revised investment objectives of the Fund will be to provide Unitholders with: (i) monthly distributions; and (ii) capital appreciation.

16. The Filer has complied with the material change report requirements set out in Part 11 of National Instrument 81-106 Investment Fund Continuous Disclosure in connection with the Filer’s decision to make the changes to the investment objectives of the Fund set out above.

17. The Filer expects the proposed changes to take effect on or about December 15, 2015 (the Effective Date).

18. The Filer has determined that it would be in the best interests of the Fund and not prejudicial to the public interest to receive 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, at least 30 days before the effective date of the change in the investment objectives of the Fund, the Filer will send to each security holder of the Fund a written notice that sets out the change to the investment objectives, the reasons for such change and a statement that the Fund will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes.

“Raymond Chan”

Raymond Chan Manager, Investment Funds and Structured Products Branch Ontario Securities Commission

SEDAR Project No. 2398497