Harvest Portfolios Group Inc. and Harvest Bitcoin Enhanced Income ETF

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from section 2.5 to permit alternative mutual fund to invest in US listed bitcoin ETF -- investment in US ETF would not result in fund having exposure to assets or investment strategies it would not be permitted to seek through direct investment -- fund to benefit from economies of scale through investment in larger US fund including lower management fees and expense.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.5(2)(a.1) and (c), and 19.1.

March 24, 2025

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

IN THE MATTER OF
HARVEST BITCOIN ENHANCED INCOME ETF
(the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the following:

(a) paragraph 2.5(2)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Fund to purchase securities (IBIT Shares) of iShares® Bitcoin Trust ETF (IBIT) even though IBIT is not subject to NI 81-102 and does not comply with the provisions of NI 81-102 applicable to an alternative mutual fund; and

(b) paragraph 2.5(2)(c) of NI 81-102 to permit the Fund to purchase IBIT Shares even though IBIT is not a reporting issuer in a Jurisdiction,

(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 all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-102 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:

The Filer

1. The Filer is a corporation incorporated under the laws of the Province of Ontario, with its head office located at 610 Chartwell Road, Suite 204 in Oakville, Ontario.

2. The Filer is registered as an investment fund manager and portfolio manager in the province of Ontario and as an investment fund manager in the provinces of Newfoundland and Labrador and Québec.

3. The Filer will be the registered investment fund manager and registered portfolio manager of the Fund.

4. The Filer is not in default of the securities legislation in any of the Jurisdictions.

The Fund

5. The Fund will be an exchange-traded mutual fund that is an "alternative mutual fund" (as defined in NI 81-102) subject to NI 81-102 and will be established as a trust governed by the laws of the Province of Ontario.

6. The Fund will file and distribute its securities pursuant to a long form prospectus prepared and filed in accordance with National Instrument 41-101 -- General Prospectus Requirements and Form 41-101F2 -- Information Required in an Investment Fund Prospectus, subject to any exemptions therefrom that have been, or may in the future be, granted by the applicable securities regulatory authorities.

7. The Fund will be subject to and will be governed by NI 81-102, subject to any exemptions therefrom that have been, or may in the future be, granted by the applicable securities regulatory authorities.

8. The Fund will be a reporting issuer under the laws of one or more of the Jurisdictions.

9. Units of the Fund (the Units) will be, subject to satisfying the original listing requirements of the exchange, listed on a stock exchange recognized by the OSC.

10. The fundamental investment objective of the Fund will be to seek to provide unitholders with (i) long-term capital appreciation through purchasing and holding, on a levered basis, an exchange traded fund or portfolio of exchange traded funds which provide exposure to the underlying price movements of the U.S. dollar price of bitcoin, and (ii) high monthly cash distributions.

11. As an "alternative mutual fund" (as defined in NI 81-102), the Fund may use leverage in accordance with NI 81-102 and the Filer currently expects to target leverage of up to 33% of the net asset value (NAV) of the Fund.

12. The Fund also intends to write covered call options in accordance with NI 81-102. The proportion of covered call options written will vary depending on market conditions, subject to a maximum 50% write level on the securities held in the portfolio of the Fund.

Overview of IBIT

13. IBIT is a Delaware statutory trust that issues IBIT Shares representing fractional undivided beneficial interests in its net assets.

14. IBIT is governed by the provisions of a Second Amended and Restated Trust Agreement (the Trust Agreement) executed as of December 28, 2023, as amended from time to time, by the Sponsor, the Trustee and the Delaware Trustee (each as defined below).

15. IBIT seeks to reflect generally the performance of the price of bitcoin, before payment of IBIT's expenses and liabilities, by investing directly in bitcoin. The assets of IBIT consist solely of bitcoin and cash.

16. IBIT Shares are distributed in the United States pursuant to a prospectus dated August 8, 2024, as amended and supplemented from time to time, that is part of a registration statement on Form S-1 under the United States Securities Act of 1933 (the '33 Act) that was filed in respect of IBIT with the United States Securities and Exchange Commission (the SEC).

17. IBIT Shares are listed and traded on The Nasdaq Stock Market LLC (Nasdaq) under the ticker symbol "IBIT". IBIT has net assets in excess of USD$23 billion as of September 30, 2024.

18. IBIT issues IBIT Shares on a continuous basis. IBIT issues and redeems IBIT Shares only in blocks of a specific number of IBIT Shares (called a Basket), or integral multiples thereof, based on the quantity of bitcoin attributable to each IBIT Share (net of accrued but unpaid renumeration due to the Sponsor and any accrued but unpaid expenses or liabilities). IBIT may change the number of IBIT Shares in a Basket. These transactions take place in exchange for cash.

19. Baskets are offered continuously by IBIT at the NAV per IBIT Share multiplied by the Shares in a Basket. Only registered broker-dealers that become authorized participants by entering into a contract with the Sponsor and the Trustee (Authorized Participants) may purchase or redeem Baskets. Authorized Participants deliver only cash to create IBIT Shares and receive only cash when redeeming IBIT Shares.

20. IBIT is an "investment fund" within the meaning of applicable Canadian securities legislation. IBIT is not registered, and is not required to be registered, as an "investment company" under the United States Investment Company Act of 1940, as amended (the '40 Act).

21. The sponsor (the Sponsor) of IBIT is iShares Delaware Trust Sponsor LLC, a Delaware limited liability company and an indirect subsidiary of BlackRock, Inc. (Blackrock).

22. The Sponsor arranged for the creation of IBIT, the registration of the IBIT Shares for their public offering in the United States and the listing of the IBIT Shares on the Nasdaq. The Sponsor has certain marketing and administrative duties in respect of IBIT and is responsible for the oversight and overall management of IBIT but has delegated day-to-day administration of IBIT to the Trustee (as defined below) under the Trust Agreement.

23. The trustee (the Trustee) of IBIT is BlackRock Fund Advisors, an indirect, wholly-owned subsidiary of BlackRock.

24. The Trustee is responsible for the day-to-day administration of IBIT. The Trustee has delegated certain day-to-day responsibilities to the Trust Administrator (as defined below).

25. The Bank of New York Mellon serves as the trust administrator (Trust Administrator) of IBIT. The Trust Administrator has been engaged to provide certain administrative services, including, but not limited to, arranging for the computation of the NAV of IBIT; preparing IBIT's financial statements and annual and quarterly reports; and recording payment of fees and expenses on behalf of IBIT. The Bank of New York Mellon is also the custodian for IBIT's cash holdings.

26. Coinbase Custody Trust Company, LLC (the Bitcoin Custodian) is the custodian for IBIT's bitcoin holdings. The Bitcoin Custodian has represented that it is a fiduciary under Section 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the '40 Act.

27. The Bitcoin Custodian satisfies the criteria for a sub-custodian for assets held outside Canada in Section 6.3 of NI 81-102.

Reasons for Exemption Sought

28. Absent the Exemption Sought, an investment by the Fund of up to 100% of its NAV in IBIT Shares would be prohibited by:

a. paragraph 2.5(2)(a.1) of NI 81-102 because IBIT is not subject to NI 81-102 and does not comply with the provisions of NI 81-102 applicable to an alternative mutual fund or a non-redeemable investment fund; and

b. paragraph 2.5(2)(c) of NI 81-102 because IBIT is not a reporting issuer in any Jurisdiction.

29. An investment by the Fund in IBIT Shares would not qualify for the exception in paragraph 2.5(3)(a) of NI 81-102.

30. The Exemption Sought is therefore needed for the Fund to be permitted to invest up to 100% of its NAV in IBIT Shares in furtherance of its investment objectives.

Generally

31. IBIT's investment objectives and strategies are consistent with the investment restrictions in NI 81-102. The Fund's investment in IBIT Shares will not cause the Fund to indirectly invest in assets or have access to investment strategies that it would be prohibited to have directly. There are currently several Canadian public investment funds that directly invest in bitcoin in a manner similar to IBIT (the Canadian Bitcoin Funds).

32. IBIT is regulated by the SEC as a reporting issuer under the '33 Act. IBIT Shares are registered with the SEC under the '33 Act and are offered in the primary market in a manner similar to the Fund pursuant to a prospectus filed with the SEC which discloses a description of IBIT's properties and business, a description of the IBIT Shares being offered for sale, information about the management of IBIT and financial statements certified by independent accountants, similar to the disclosure requirements under NI 41-101 and Form 41-101F2.

33. IBIT prepares key investor information documents which provide disclosure that is substantially similar to the disclosure required to be included in the ETF facts document required by Form 41-101F4 Information Required in an ETF Facts Document.

34. IBIT is subject to continuous disclosure obligations which are substantially similar to the disclosure obligations under National Instrument 81-106 Investment Fund Continuous Disclosure. IBIT is required to update information of material significance in its prospectus, to prepare management reports and an unaudited set of financial statements at least quarterly, and to prepare management reports and an audited set of financial statements annually.

35. IBIT operates in a manner that is substantially similar to an exchange traded fund in Canada.

36. IBIT Shares are listed and traded on the Nasdaq, a National Securities Exchange (as defined in the United States Securities Exchange Act of 1934) in the United States.

37. The investment in IBIT Shares by the Fund is an efficient and cost-effective alternative to investing in bitcoin directly. The investment objectives, investment strategies, investment restrictions and risk factors applicable to the Fund and IBIT will be substantially the same, other than the use of leverage and a covered call option strategy by the Fund. IBIT's investment objectives and strategies are consistent with the investment restrictions in NI 81-102.

38. The Filer will review IBIT's ongoing filings to ensure that IBIT is being managed in a manner consistent with the investment restrictions of NI 81-102.

39. The Fund's prospectus will provide appropriate disclosure about the Fund's investment in IBIT, including risk factors associated therewith and the particulars of the Exemption Sought.

40. The Fund's investment in IBIT Shares will otherwise comply with the investment restrictions in Part 2 of NI 81-102, except to the extent any discretionary relief has been granted to the Fund therefrom.

41. An investment by the Fund in IBIT Shares will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.

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 is that the Exemption Sought is granted, provided that:

(a) The Fund will only invest in IBIT Shares so long as IBIT continues to be a reporting issuer, and IBIT Shares continue to be distributed in the United States in accordance with all applicable SEC requirements;

(b) The Fund's investment in IBIT Shares is in accordance with the Fund's investment objectives;

(c) The Fund will not invest in IBIT Shares if, at the time of acquisition, IBIT holds more than 10% of its NAV in securities of any other investment fund other than securities of a "money market fund" or a fund that issues "index participation units" as those terms are defined in NI 81-102;

(d) The Fund's investment in IBIT Shares will otherwise remain consistent with the investment restrictions in Part 2 of NI 81-102, as they apply to alternative mutual funds, except to the extent discretionary relief from such requirements has been granted to the Fund; and

(e) The Fund's final prospectus discloses that the Fund may invest in IBIT Shares including the material terms of the Exemption Sought.

"Darren McKall"
Manager, Investment Management Division
Ontario Securities Commission

Application File #: 2025/0079
SEDAR+ File #: 6240747