Citadel Income Fund et al.

Headnote

Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, the funds and their manager are 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 funds, as the limited trading activities involve: i) the forwarding of short form prospectuses and the distribution of warrants to acquire units to existing holders of units and ii) the subsequent distribution of units to existing holders of warrants, upon their exercise of the warrants, through an appropriately registered dealer.

Applicable Legislative Provisions

Securities Act, R.S.O., 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.

National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.5.

August 2, 2013

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
CITADEL INCOME FUND (“CIF”)

AND

ENERGY INCOME FUND
(“EIF”, and together with CIF, the “Funds”)

AND

ARTEMIS INVESTMENT MANAGEMENT LIMITED
(the “Manager”) (collectively, 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) exempting the Filers from the dealer registration requirement in the Legislation in respect of certain trades (the Warrant Offering Activities) to be carried out by the Manager, on behalf of CIF, in connection with a proposed offering (the CIF Warrant Offering) of warrants (the CIF Warrants) to acquire units (the CIF Units) of CIF, to be made pursuant to a short-form (final) prospectus (the CIF Warrant Prospectus) and, on behalf of EIF, in connection with a proposed offering (theEIF Warrant Offering) of warrants (the EIF Warrants) to acquire units (the EIF Units) of EIF, to be made pursuant to a short-form (final) prospectus (the EIF Warrant Prospectus).

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. 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 by the Filer in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, 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. CIF is a trust established by a declaration of trust under the laws of the Province of Ontario.

2. EIF is a trust established by a declaration of trust under the laws of the Province of Ontario.

3. The Funds are reporting issuers in each of the provinces of Canada and are not in default of securities legislation in any jurisdiction.

4. The Manager acts as the trustee and manager of the Funds. The Manager was appointed manager of the Funds effective January 16, 2013.

5. The head office of each of the Filers is located in Toronto, Ontario.

6. The Funds are not considered to be mutual funds under the securities legislation of the provinces of Canada.

7. CIF is authorized to issue an unlimited number of CIF Units. The CIF Units are listed and posted for trading on the Toronto Stock Exchange (the TSX).

8. EIF is authorized to issue an unlimited number of EIF Units. The EIF Units are listed and posted for trading on TSX.

9. The investment objectives of CIF are to provide holders of CIF Units with a stable stream of monthly distributions and to preserve and potentially enhance the net asset value of CIF.

10. CIF's investment portfolio is invested in a diversified portfolio of securities with the focus on income generation consisting of: (i) equity securities of principally larger capitalization companies traded on a recognized stock exchange; (ii) debt securities with a focus on yield enhancement, with a minimum of 80% of debt securities invested in investment grade debt rated BBB or higher; and (iii) income funds, each of which has, at the date of investment by CIF, a market capitalization, excluding control positions, of $400 million, used to enhance yield in the portfolio.

11. CIF is subject to certain investment restrictions that, among other things, limit the securities that CIF may acquire for its investment portfolio.

12. The investment objectives of EIF are to provide holders of EIF Units with monthly cash distributions and to achieve a total return on the portfolio that is greater than the total return provided by the benchmark index, as selected by the Manager, from time to time, which currently is the S&P/TSX Capped Energy Trust Index.

13. EIF's investment portfolio is invested in a portfolio of securities, without reference to any specific issuer or security, among the following asset classes: (i) oil and gas trusts; (ii) energy securities; (iii) other resource securities; and (iv) cash and short term investments. For such purposes, the Manager, on the advice of any portfolio manager, determines which, if any, of the foregoing asset classes a particular portfolio security falls within and such determination is final.

14. EIF is subject to certain investment restrictions that, among other things, limit the securities that EIF may acquire for its investment portfolio.

15. The Funds do not engage in the continuous distribution of their securities.

16. All of the CIF Units and EIF Units are issued through and are held in the book-entry only system of CDS Clearing and Depository Services Inc.

17. In connection with the CIF Warrant Offering, CIF has filed a preliminary short form prospectus dated July 12, 2013, under the securities legislation of the Jurisdiction and each of the Passport Jurisdictions. Under the CIF Warrant Offering, each holder of CIF Units as at a specified record date, will be entitled to receive, for no consideration, one CIF Warrant for every one CIF Unit held by such holder.

18. Holders of CIF Warrants will be entitled, upon the exercise of such CIF Warrants, to subscribe for CIF Units, pursuant to subscription privileges provided for in the CIF Warrants, at a subscription price to be specified in the CIF Warrant Prospectus. Each CIF Warrant will entitle the holder to subscribe for one CIF Unit under a basic subscription privilege. Holders of CIF Warrants who exercise CIF Warrants under the basic subscription privilege may also subscribe, pro rata, for additional CIF Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The expiry date and time for the exercise of the CIF Warrants will be on or before the 180th day following the date of the CIF Warrant Prospectus.

19. In connection with the EIF Warrant Offering, EIF has filed a preliminary short form prospectus dated July 29, 2013, under the securities legislation of the Jurisdiction and each of the Passport Jurisdictions. Under the EIF Warrant Offering, each holder of EIF Units as at a specified record date, will be entitled to receive, for no consideration, one EIF Warrant for every one EIF Unit held by such holder.

20. Holders of EIF Warrants will be entitled, upon the exercise of such EIF Warrants, to subscribe for EIF Units, pursuant to subscription privileges provided for in the EIF Warrants, at a subscription price to be specified in the EIF Warrant Prospectus. Each EIF Warrant will entitle the holder to subscribe for one EIF Unit under a basic subscription privilege. Holders of EIF Warrants who exercise EIF Warrants under the basic subscription privilege may also subscribe, pro rata, for additional EIF Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The expiry date and time for the exercise of the EIF Warrants will be on or before the 180th day following the date of the EIF Warrant Prospectus.

21. CIF has applied to list the CIF Warrants, to be distributed under the CIF Warrant Prospectus, on the TSX.

22. EIF has applied to list the EIF Warrants, to be distributed under the EIF Warrant Prospectus, on the TSX.

23. The Warrant Offering Activities will consist of:

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

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

(c) the distribution of CIF Units to holders of CIF Warrants, upon the exercise of such CIF Warrants by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make such distribution; and

(d) the distribution of EIF Units to holders of EIF Warrants, upon the exercise of such EIF Warrants by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make such distribution.

24. The Funds are in the business of trading in securities by virtue of their respective portfolio investing and trading activities. As a result, capital raising activities, including the Warrant Offering Activities, would require the Filers to register as a dealer in the absence of this decision (or another available exemption from the dealer registration requirement).

25. Section 8.5 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides that the exemptions from the dealer registration requirements set out in section 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 the Funds, and the Manager acting on behalf of the Funds, are not subject to the dealer registration requirement in respect of the Warrant Offering Activities.

"Deborah Lechman"

Commissioner

Ontario Securities Commission

 

"James Turner"

Commissioner

Ontario Securities Commission