Premium Income Corporation et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Investment funds and their manager exempted from the dealer registration requirement for certain limited trading activities to be carried out by these parties in connection with warrant offerings by the investment funds -- The limited trading activities involve: i) the forwarding of a short form (final) prospectus, and the distribution of warrants to acquire securities of the fund, to existing holders of fund securities, and ii) and the subsequent distribution of securities to holders of the warrants, upon their exercise of the warrants, through an appropriately registered dealer.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).

Multilateral Instrument 11-102 Passport System, s. 4.7(1).

National Instrument 45-106 Prospectus and Registration Exemptions, ss. 2.1, 3.1, 3.42, 8.5.

March 25, 2011

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

PREMIUM INCOME CORPORATION

(the PIC Fund)

AND

GOLD PARTICIPATION AND INCOME FUND

(the GPF Fund and, together with the PIC Fund,

the Funds)

AND

MULVIHILL CAPITAL MANAGEMENT INC.

(MCM and, together with the PIC Fund and

the GPF Fund, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the dealer registration requirements in the Legislation in respect of the following:

(a) certain trades (the PIC Warrant Offering Activities) to be carried out by MCM, on behalf of the PIC Fund, in connection with a proposed distribution (the PIC Warrant Offering) of warrants (the PIC Warrants) to acquire "units" (the PIC Units) of the PIC Fund, such distribution to be made in Ontario and each of the Passport Jurisdictions (as defined below) pursuant to a short form (final) prospectus (the PIC Warrant Prospectus); and

(b) certain trades (the GPF Warrant Offering Activities) to be carried out by MCM, on behalf of the GPF Fund, in connection with a proposed distribution (the GPF Warrant Offering) of warrants (the GPF Warrants) to acquire units (the GPF Units) of the GPF Fund, such distribution to be made in Ontario and each of the Passport Jurisdictions (as defined below) pursuant to a short form (final) prospectus (the GPF Warrant Prospectus) (the Exemption Sought).

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

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

(b) each 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador (collectively, the Passport Jurisdictions).

Interpretation

Terms defined 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 Filers:

1. The PIC Fund is a corporation incorporated under the laws of the Province of Ontario and the GPF Fund is an investment trust established under the laws of the Province of Ontario pursuant to a trust agreement dated as of July 27, 2009 between MCM and RBC Dexia Investor Services Trust. The Funds are reporting issuers in each province of Canada and are not in default of any of their respective obligations under securities legislation in any jurisdiction.

2. MCM acts as the manager and investment fund manager of each of the Funds. MCM is a corporation incorporated under the Canada Business Corporations Act. The head office of MCM is located at 121 King Street West, Standard Life Centre, Suite 2600, Toronto, Ontario, M5H 3T9. MCM is not in default of any of its obligations under securities legislation in any jurisdiction.

3. While the PIC Fund is technically considered a mutual fund under the securities legislation of the Province of Ontario and the Passport Jurisdictions, the PIC Fund is not a conventional mutual fund and has obtained exemptions from certain requirements of National Instrument 81-102 -- Mutual Funds. The GPF Fund is not a mutual fund under securities legislation of the Province of Ontario and the Passport Jurisdictions and, accordingly, is not subject to the requirements of National Instrument 81-102 -- Mutual Funds.

4. The authorized share capital of the PIC Fund consists of an unlimited number of preferred shares (the PIC Preferred Shares), an unlimited number of class A shares (the PIC Class A Shares), an unlimited number of class C shares, class D shares, class E shares, class C preferred shares, class D preferred shares, class E preferred shares and 1,000 class B shares. The PIC Preferred Shares and the PIC Class A Shares are listed and posted for trading on the Toronto Stock Exchange (the TSX).

5. The authorized share capital of the GPF Fund consists of an unlimited number of trust units (the GPF Units). The GPF Units are listed and posted for trading on the TSX.

6. Each Fund is subject to certain investment restrictions that, among other things, limit the securities it may acquire for its portfolio.

7. The investment objectives of the PIC Fund are: (a) to provide holders of its PIC Preferred Shares with cumulative preferential quarterly cash distributions in the amount of $0.215625 per PIC Preferred Share representing a yield on the original issue price of $15.00 per PIC Preferred Share of 5.75% per annum; (b) to provide holders of its PIC Class A Shares with quarterly cash distributions equal to the amount, if any, by which the net realized capital gains, dividends and option premiums (other than option premiums in respect of options outstanding at year-end) earned on the PIC Fund's portfolio in any year, net of expenses and loss carryforwards, exceed the amount of the distributions paid on the PIC Preferred Shares; and (c) to return the original issue price to holders of both PIC Preferred Shares and PIC Class A Shares at the time of redemption of such shares.

8. The investment objectives of the GPF Fund are: (a) to maximize total returns for holders of GPF Units including both long term appreciation in net asset value per GPF Unit and distributions and (b) to pay holders of GPF Units monthly distributions in an amount targeted to be 6.5% per annum on the net asset value of the GPF Fund.

9. The investment portfolio of the PIC Fund consists primarily of common shares of: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank (the Banks).

10. The GPF Fund invests 100% of its net assets in the gold sector. The GPF Fund may invest up to 50% in the gold shares of SPDR Gold Trust, an exchange-traded fund that seeks to track the price of gold by investing directly in gold bullion, and up to 75% in a portfolio (the Managed Gold Portfolio) of equity securities selected from the S&P/TSX Global Gold Index.

11. The PIC Fund may, from time to time, write covered call options in respect of all or part of the common shares in its portfolio. From time to time, the PIC Fund may also hold a portion of its assets in cash equivalents, which may be used to provide cover in respect of the writing of cash-covered put options in respect of securities in which the PIC Fund is permitted to invest. The PIC Fund may also hold short-term debt instruments issued by the Government of Canada or a province of Canada or by one or more of the Banks.

12. The GPF Fund may, from time to time, write covered call options on up to 25% of the GPF Fund's portfolio. The GPF Fund may also purchase put options on individual securities in the Managed Gold Portfolio, indexed put options or inverse exchange-traded funds in order to protect it from declines in the market prices of the individual securities in its portfolio or in the value of its portfolio as a whole. From time to time, the GPF Fund may purchase call options and put options with the effect of closing out existing call options and put options written by the GPF Fund. The GPF Fund, from time to time, may also hold a portion of its assets in cash equivalents and may write cash-covered put options to generate additional returns and to reduce the net cost of acquiring the securities subject to put options. Such cash-covered put options will only be written in respect of securities in which the GPF Fund is permitted to invest.

13. Each of the Funds has retained MCM, as its investment manager, to manage its investment portfolio and implement its investment strategy in accordance with its investment objectives and investment restrictions. MCM is registered as an Investment Fund Manager, Exempt Market Dealer, a Mutual Fund Dealer and a Portfolio Manager with the Ontario Securities Commission. All trades in securities in connection with the portfolio investing activities of the PIC Fund and the GPF Fund are conducted through registered dealers.

14. The PIC Fund filed a (final) prospectus dated October 17, 1996 under the securities legislation of the Province of Ontario and each Passport Jurisdiction in respect of its initial public offering of PIC Preferred Shares and PIC Class A Shares.

15. The GPF Fund filed a (final) prospectus dated July 27, 2009 under the securities legislation of the Province of Ontario and each Passport Jurisdiction in respect of its initial public offering of GPF Units.

16. Neither Fund engages in the continuous distribution of its securities.

17. In connection with the PIC Warrant Offering, the PIC Fund has filed a preliminary short form prospectus dated March 18, 2011 under the securities legislation of the Province of Ontario and each Passport Jurisdiction. Under the PIC Warrant Offering, each holder of a PIC Class A Share as at a specified record date will be entitled to receive, for no consideration, one PIC Warrant for each PIC Class A Share held by such holder.

18. In connection with the GPF Warrant Offering, the GPF Fund has filed a preliminary short form prospectus dated March 16, 2011 under the securities legislation of the Province of Ontario and each Passport Jurisdiction. Under the GPF Warrant Offering, each holder of a GPF Unit as at a specified record date will be entitled to receive, for no consideration, one GPF Warrant for each GPF Unit held by such holder.

19. Holders of the PIC Warrants will be entitled, upon the exercise of their PIC Warrants, to subscribe for PIC Units (each PIC Unit consisting of one PIC Preferred Share and one PIC Class A Share), pursuant to subscription privileges provided for in the PIC Warrants, at a subscription price to be specified in the PIC Warrant Prospectus. Two PIC Warrants will entitle the holder to subscribe for one PIC Unit under a basic subscription privilege. Holders of PIC Warrants who exercise their PIC Warrants under the basic subscription privilege may also subscribe, pro rata, for additional PIC Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The PIC Warrants (including both the basic subscription privilege and the additional subscription privilege) may be exercised only on December 15, 2011.

20. Holders of the GPF Warrants will be entitled, upon their exercise of the GPF Warrants, to subscribe for GPF Units, pursuant to subscription privileges provided for in the GPF Warrants, at a subscription price to be specified in the GPF Warrant Prospectus. Each GPF Warrant will entitle the holder to subscribe for one GPF Unit under a basic subscription privilege. Holders of GPF Warrants who exercise their GPF Warrants under the basic subscription privilege may also subscribe, pro rata, for additional GPF Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege.

21. The PIC Fund intends to apply to list the PIC Warrants, to be distributed under the PIC Warrant Prospectus, on the TSX.

22. The GPF Fund intends to apply to list the GPF Warrants, to be distributed under the GPF Warrant Prospectus, on the TSX.

23. The PIC Warrant Offering Activities will consist of:

(a) the distribution of the PIC Warrant Prospectus and the issuance of PIC Warrants to the holders of PIC Class A Shares (as at the record date specified in the PIC Warrant Prospectus), after the PIC Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of the Province of Ontario and each Passport Jurisdiction; and

(b) the distribution of PIC Units to holders of the PIC Warrants, upon the exercise of PIC Warrants by their holders, through registered dealers that are registered in categories that permit them to make such distributions.

24. The GPF Warrant Offering Activities will consist of:

(a) the distribution of the GPF Warrant Prospectus and the issuance of GPF Warrants to the holders of GPF Units (as at the record date specified in the GPF Warrant Prospectus), after the GPF Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of the Province of Ontario and each Passport Jurisdiction; and

(b) the distribution of GPF Units to holders of the GPF Warrants, upon the exercise of GPF Warrants by their holders, through registered dealers that are registered in categories that permit them to make such distributions.

25. The PIC Fund and the GPF Fund are in the business of trading securities by virtue of their portfolio investing activities. As a result, their capital raising activities, including the PIC Warrant Offering Activities and the GPF Warrant Offering Activities, would require them and MCM, acting on their behalf, to register as a dealer in the absence of the Exemption Sought (or another available exemption from the dealer registration requirements).

26. Section 8.5 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides that, after March 26, 2010, the exemptions from the dealer registration requirements set out in sections 3.1 [Rights offering] and section 3.42 [Conversion, exchange or exercise] of NI 45-106 no longer apply.

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:

(a) the PIC Fund, and MCM acting on behalf of the PIC Fund, are not subject to the dealer registration requirement in respect of the PIC Warrant Offering Activities; and

(b) the GPF Fund, and MCM acting on behalf of the GPF Fund, are not subject to the dealer registration requirement in respect of the GPF Warrant Offering Activities.