Strategic Energy Management Corp.
Headnote
NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted to allow the transfer of securities to the account of a responsible person of an investment fund -- transfer is conditional on approval by investment fund's independent review committee and documentation of the determination of the value of the securities being transferred.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(4), 118(1), 118(2)(b).
NI 81-107 Independent Review Committee for Investment Funds, s. 5.2(2).
February 20, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO AND NEWFOUNDLAND
AND LABRADOR
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
STRATEGIC ENERGY MANAGEMENT CORP
(the "Filer")
DECISION
Background
The securities regulatory authority or regulator in Ontario has received an application from the Filer as manager of Strategic Energy Fund (the "Fund") for a decision under the securities legislation of the jurisdiction of the principal regulator (the "Legislation") for an exemption from the restrictions on transactions with responsible persons in order to permit a transaction proposed as part of the conversion of the Fund from a closed-end fund to an open ended mutual fund as described below (the "Conversion");
The securities regulatory authority or regulator in Newfoundland and Labrador (the "Jurisdiction") ("Coordinated Exemptive Relief Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") for an exemption from the restrictions on transactions with responsible persons in order to permit the Conversion (the "Coordinated Exemptive Relief").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):
(a) the Ontario Securities Commission is the principal regulator for this application,
(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 British Columbia, Alberta, Saskatchewan, Quebec, Nova Scotia, New Brunswick and Prince Edward Island,
(c) the decision is the decision of the principal regulator, and
(d) the decision evidences the decision of the Coordinated Exemptive Relief Decision Maker.
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 Filer:
1. The Fund is a closed-end investment trust established on February 14, 2002 under the laws of the Province of Ontario.
2. The Filer is a corporation incorporated under the laws of Ontario. The registered head office of the Filer is located in Toronto, Ontario.
3. The Filer is responsible for all aspects of the management and administration of the Fund. The Filer hired Sentry Select Capital Corp., an affiliate of the Filer, as the investment advisor to the Fund.
4. A material change report and press release were filed via SEDAR on November 14, 2008, with respect to the Conversion. A notice of meeting, management information circular and proxy concerning the Conversion were sent to unitholders ("Unitholders") of the Fund on or about December 15, 2008.
5. Unitholders approved the Conversion at a special meeting held on January 19, 2009 (the "Meeting"). Approximately 98.5% of Fund units represented at the Meeting voted to approve the Conversion.
6. In connection with the Conversion, the Fund will transfer all the securities of private issuers held by the Fund (the "PI Securities") and $3,000,000 in cash (collectively, the "NF Property") to a newly-established closed-end investment fund known as SEF Private Issuers Trust (the "New Fund").
7. In exchange for the acquisition of the NF Property, the New Fund will issue units to the Fund, which will then be distributed to Unitholders, and assume certain indemnity obligations of the Fund.
8. The Filer referred certain conflict of interest issues in connection with the Conversion to the independent review committee (the "IRC") of the Fund, established pursuant to NI 81-107 -- Independent Review Committee for Investment Funds ("NI 81-107"). The IRC considered the conflict of interest issues and provided a positive recommendation to the Fund on the basis that the actions proposed by the Filer in dealing with such conflict of interest issues achieve a fair and reasonable result for the Fund and the New Fund.
9. It is anticipated that Sentry Select Capital Inc. ("Sentry Select") will be the trustee and manager of the New Fund.
10. The New Fund will be managed by Sentry Select for the sole purposes of facilitating the Conversion, the liquidation of the PI Securities in an orderly manner, and finalization of the litigation in connection with the indemnity obligations assumed by the New Fund. Upon consultation with the Investment Advisor, the Filer is of the view that liquidation of the PI Securities may take up to three years to complete. It is anticipated that the litigation in connection with the indemnity obligations assumed by the New Fund will also be finalized within the same period.
11. Clause 118(2)(b) of the Legislation prohibits a portfolio manager from knowingly causing any portfolio managed by it to purchase or sell the securities of any issuer from or to the account of a responsible person, any associate of a responsible person or the portfolio manager.
12. Sentry Select and the Filer are "affiliates" as defined in subsection 1(4) of the Legislation, as the Filer and Sentry Select are controlled directly or indirectly by John F. Driscoll and upon the Conversion, Sentry Select will be a "responsible person" as defined in subsection 118(1) of the Legislation.
13. The existing units of the Fund will be redesignated as Series X Units and it is proposed that new series of Units will be qualified for distribution to the public.
14. In the absence of the requested relief, the transfer of the PI Securities to the New Fund would be prohibited under clause 118(2)(b) of the Legislation and the Conversion could not be completed as contemplated.
15. The New Fund is, or is deemed to be, a reporting issuer in each of the provinces and territories of Canada other than Ontario. An order that the New Fund is a reporting issuer in Ontario is currently being sought.
Decision
The decision of the Principal Regulator under the Legislation is that the Passport Application is granted provided that:
a) the Filer has obtained the approval of the IRC of the Fund consistent with section 5.2(2) of NI 81-107 in respect of the transfer of the NF Property to the New Fund as part of its review of the Conversion; and
b) the Fund and the New Fund maintain a record of the determination of the fair value of the PI Securities at the time of the transfer and the reasons supporting that determination until the later of three years from the date of the Conversion or the termination of the New Fund.