Strategic Energy Fund Releases 2004 Year-End Results.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- Strategic Energy Management Corp. is pleased to announce the results of Strategic Energy Fund (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :SEF SEF Search Engine Friendly SEF Serviço de Estrangeiros e Fronteiras (Portugal; Portuguese Immigration and Border Control Office) SEF Symantec Enterprise Firewall SEF Straits Exchange Foundation (China) .UN) for the year 2004. Highlights The Fund highlights include: - The Fund's net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. were $43,925,640 on December December: see month. 31, 2004, an increase from $40,270,293 at September September: see month. 30, 2004, and $33,829,601 at December 31, 2003. - On a per unit basis, the net asset value (NAV See navigation system and navigation bar. ) increased to $13.14 at December 31, 2004, from $11.97 at September 30, 2004 and $9.66 at December 31, 2003 - Strategic Energy Management Corp. also announced that Strategic Energy Fund would be increasing its monthly distribution to Unitholders from $0.06 per unit to $0.07 per unit beginning with the March 2005 distribution. - On a total return basis, using the market price and including the reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. of distributions at the prevailing market price, the Fund's Units had a return of approximately 39 per cent from December 31, 2003 to December 31, 2004. - The net asset value for Strategic Energy Fund as at February February: see month. 23, 2005 was $14.40 per unit. - The closing price for Strategic Energy Fund on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. as at February 24, 2005 was $12.70 per unit. Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial Portfolio Commentary The following is a brief discussion of the main segments of the portfolio, focusing primarily on activity in the fourth quarter. The percentages are based on the total portfolio, net of borrowings and excluding cash. Private Issuers - 16.2% The conversion of small private companies into publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. is part of the lifecycle in the oil and gas sector. The Fund is constantly on the lookout for in search of; looking for. See also: Lookout new private opportunities, and invested in six new companies in the fourth quarter. The new private positions include Anderson Anderson, river, Canada Anderson, river, c.465 mi (750 km) long, rising in several lakes in N central Northwest Territories, Canada. It meanders north and west before receiving the Carnwath River and flowing north to Liverpool Bay, an arm of the Arctic Energy Ltd., Argent ar·gent n. 1. Heraldry The metal silver, represented by the color white. 2. Archaic Silver or something resembling it. Energy Inc., Highpine Oil and Gas Ltd., Revolve re·volve v. re·volved, re·volv·ing, re·volves v.intr. 1. To orbit a central point. 2. To turn on an axis; rotate. See Synonyms at turn. 3. Energy Inc., Standard Energy Inc. and Timber Rock Energy Ltd. Publicly Traded Issuers - 42.6% Smaller oil and gas companies enjoyed a strong period in the fourth quarter. The Fund reduced its weighting to that sector by selling off a number of positions. The Fund's largest holding at September 30, Fairborne Energy Ltd., was sold in the fourth quarter. This was one of the Fund's first holdings (as a private company) and the sale realized a gain of more than 500 per cent on the initial investment. The only new company in this segment of the portfolio is Cinch Energy (TSX: CNH CNH Carteira Nacional de Habilitação CNH Centro Nacional de Huracanes (Spanish) CNH California Nevada Hawaii (a district of Kiwanis International) CNH Club Náutico Hacoaj ), formerly a private holding which began trading on the Toronto Stock Exchange in November November: see month. . Three other public companies announced changes to their structure in the quarter, following the popular trend of converting mature properties into trusts and spinning off exploration and development properties into smaller operations. Bear Creek Bear Creek may refer to: Communities
Oil and Gas Related Income Trusts - 41.2% The Fund expanded its position in oil and gas trust operations in the final quarter. This includes new positions in a number of conventional oil and gas trusts such as Acclaim Energy Trust, Peyto Energy Trust and Viking Viking Either of two unmanned U.S. spacecraft launched by NASA in 1975. After nearly yearlong journeys, Vikings 1 and 2 entered orbits around Mars and released landers that touched down on the planet and relayed measurements of properties of its atmosphere and soil, as well Energy Royalty Trust royalty trust An ownership interest in certain assets, generally crude oil or gas production and real estate. Unlike the usual corporate organization, a trust arrangement permits income and tax benefits to flow through to the individual owners. . It also includes positions in other trusts that derive revenues from oil and gas operations apart from production, such as Inter Pipeline Fund and Phoenix Technical Services. These operations are more dependent on volumes than prices, and so they benefit from high activity levels in the oil and gas sector, and are less exposed to commodity price fluctuations. The third source of the increased exposure to this segment of the oil and gas market is the conversion of many companies into trusts, often in conjunction with a merger or acquisition. Outlook The forces that drove commodity prices higher are still at work. Global demand continues to grow, most notably from Asia. Production is still constrained con·strain tr.v. con·strained, con·strain·ing, con·strains 1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force. 2. , near capacity in many current oil fields This list of oil fields includes major fields of the past and present. The list is incomplete; there are more than 40,000 oil and gas fields of all sizes in the world[1]. . New production requires development - OPEC OPEC: see Organization of Petroleum Exporting Countries. OPEC in full Organization of the Petroleum Exporting Countries Multinational organization established in 1960 to coordinate the petroleum production and export policies of its cannot simply flip a switch to bring new Middle East fields into production. That tightness will support prices, and any production disruption disruption /dis·rup·tion/ (dis-rup´shun) a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process. could shoot spot prices higher. Natural gas markets are also tight. Production has not grown, despite record levels of drilling activity. New discoveries typically feature sharp production decline rates. As with oil prices, the potential for price spikes spikes see peplomer. exists. The strong commodity price environment will result in strong cash flows for larger Canadian producers, including income trusts. These strong cash flows should allow trusts to reduce debt, make sensible acquisitions, develop new properties and most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , maintain steady distributions to investors. This should support valuations throughout the sector. The Fund is well positioned to follow the growing industry trend. Medium-sized Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized operating companies operating company A business that engages in transactions with outsiders. are amalgamating into new enterprises, converting the established properties into trusts and the exploration properties into new smaller companies. Increasingly focused on trusts and small private companies, Strategic Energy Fund's portfolio is positioned to prosper from this opportunity. Commodity Commentary Crude Oil Crude oil prices continued their ascent ASCENT Interventional cardiology A clinical trial–ACS Stent Clinical Equivalence in de Novo lesions Trial through the early weeks of the fourth quarter before weakening weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. in the final months of the year.
Spot prices peaked at US$55 a barrel for the benchmark West Texas
Intermediate (WTI WTI West Texas IntermediateWTI Western Transportation Institute (Montana State University) WTI World Tribunal on Iraq WTI With The Idea (used in chess to point to the idea behind a specific move) ) crude in early October October: see month. . This was a continuation of an upward trend that started in the second quarter of 2003. These higher WTI prices reflect a number of forces. The single most important factor is that the world's demand for crude oil now approaches the current production limit for existing oil fields. Much of this demand growth in 2004 - the highest growth rate in 16 years - has originated in Asia. The amount of excess capacity is now so slim that any short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. event can create shortages that cause prices to spike A burst of extra voltage in a power line that lasts only a few nanoseconds. See power surge, power swell, sag and surge suppression. (jargon) spike - To defeat a selection mechanism by introducing a (sometimes temporary) device that forces a specific result. upward. For 2004, WTI averaged $41.44 per barrel, compared to $31.13 in 2003. For the fourth quarter, the WTI average was $48.44, much higher than $31.23 in the same period of 2003. For Canadian producers, the figures for PAR at Edmonton Edmonton (ĕd`məntən), city (1991 pop. 616,741), provincial capital, central Alta., Canada, on the North Saskatchewan River. The center of the largest metropolitan area in Alberta, Edmonton, known as the "Gateway to the North," is located (equivalent to the quality of WTI) show the same pattern. Prices averaged $52.84 in 2004, up from $43.41 in 2003. For the final quarter of 2004, prices averaged $47.97, up from $39.88 in 2003. Natural Gas Natural gas prices continue to be supported by a tight balance between supply and demand. Canadian and U.S. production have been flat or slightly lower in the past few years, even with a record number of gas-well completions in both countries. Both U.S. and Canadian production are believed to have declined in 2004. For 2004, prices at the U.S. Henry Hub Henry Hub is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX). It is a point on the natural gas pipeline system in Erath, Louisiana. It is owned by Sabine Pipe Line LLC. averaged US$5.86 per million British Thermal Units British thermal unit, abbr. Btu, unit for measuring heat quantity in the customary system of English units of measurement, equal to the amount of heat required to raise the temperature of one pound of water at its maximum density [which occurs at a temperature of 39. (mmbtu), up from US$5.47 in 2003. Fourth quarter prices averaged $6.27, up from $5.11 a year ago. Canadian prices at AECO AECO Aeromedical Evacuation Control Officer AECO Advance Engineering Change Order AECO Architecture, Engineering, Construction and Owner-operated averaged C$6.20 per gigajoule (about 93 per cent of the volume in one mmbtu), in 2004, down slightly from C$6.30 in 2004. For the fourth quarter, prices averaged $6.26 in 2004, up from $5.52 in 2003. Outlook Most forecasts call for continued strength in commodity prices. For nearly 20 years, OPEC nations have touted their massive proven reserves. The increasing global demand will require them to develop those reserves, and higher prices will make it economically feasible to do so. Whenever global demand reaches global production, prices will move higher, but also show greater volatility. Any production interruption INTERRUPTION. The effect of some act or circumstance which stops the course of a prescription or act of limitation's. 2. Interruption of the use of a thing is natural or civil. or fear of interruption - whether political, economic or natural catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). - could result in sharply higher prices. For OPEC to have the ability to moderate prices, it needs to rebuild some spare capacity into the worldwide oil market. Depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able of existing oil fields requires new production just to replace the normal declines. Continued growth from China and other Asian economies will boost demand for oil. North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. prices will reflect these higher world prices, as well as the higher premium that has developed recently. For the first time in more than 100 years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time world faces physical shortages of crude oil. Somewhat similar to the oil markets, tight natural gas markets mean there is little cushion Cushion In the context of project financing, the extra amount of net cash flow remaining after expected debt service. cushion See call protection. should the demand/supply situation change. In the coming years, a particularly harsh winter or hot summer could challenge supplies and lead to much higher spot prices. Financial Commentary Highlights - The Fund's net assets were $43,925,640 at December 31, 2004, up from $33,829,601 a year ago. - Net asset value per unit increased to $13.14 from $9.66 at December 31, 2003. - Distributions totalled $0.295 per unit in 2004. Portfolio Performance The Fund's net assets were $43,925,640 on December 31, 2004, an increase from $40,270,293 at September 30, 2004, and $33,829,601 at December 31, 2003. The growth in the size of the Fund's net assets over the past year is predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. the result of a net realized gain Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. on the sale of investments and unrealized appreciation of investments. Share prices for oil and gas companies, and Unit prices for energy trusts, were supported by robust commodity prices, merger and acquisition activity, and conversions of established producers into royalty trusts. On a per unit basis, the NAV increased to 13.14 at December 31, 2004, from $11.97 at September 30, 2004 and $9.66 at December 31, 2003. The Fund's private holdings are valued at cost unless a subsequent transaction establishes a different value for the shares, or a material change in the value of the company's shares occurs. Closed-end closed-end adj. Issuing a fixed number of shares that can be traded publicly but are not redeemable by the issuer: a closed-end investment company. trusts may trade above, at or below their net asset value per unit. The Fund's market value, as established by trading on the TSX, was $11.09 per unit at the close of trading on December 31, 2004. On a total return basis, using the market price and including the reinvestment of distributions at the prevailing market price at the end of each month, the Fund's Units had a return of approximately 39 per cent from December 31, 2003 to December 31, 2004. At December 31, 2004, with a NAV of $13.14, Units traded at a 15.6 per cent discount to NAV. Results from Operations The Fund began paying distributions to Unitholders in June June: see month. 2003 and paid regular monthly distributions of $0.0175 per unit through October 2004. On November 5, 2004, the Manager announced the Fund would increase its monthly distribution to $0.06 per unit ($0.72 annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. ), starting on November 30. This increase resulted from the strong performance of the portfolio, including the increased exposure to energy-related royalty and income trusts, several companies in the portfolio converting or announcing plans to convert to the trust structure, and a number of successful transactions that resulted in net realized capital gains. --------------------------------------------------------------------- Date of Payment Amount Record Date --------------------------------------------------------------------- 31-December-2004 $ 0.06 17-December-2004 30-November-2004 $ 0.06 16-November-2004 29-October-2004 $ 0.0175 15-October-2004 30-September-2004 $ 0.0175 16-September-2004 31-August-2004 $ 0.0175 17-August-2004 30-July-2004 $ 0.0175 16-July-2004 30-June-2004 $ 0.0175 16-June-2004 31-May-2004 $ 0.0175 14-May-2004 30-April-2004 $ 0.0175 16-April-2004 31-March-2004 $ 0.0175 17-March-2004 27-February-2004 $ 0.0175 13-February- 2004 30-January-2004 $ 0.0175 16-January-2004 -- -- -- --- ---------------------------------------------- Calendar 2004 $ 0.295 Calendar 2003 $ 0.1225 --------------------------------------------------------------------- Total $ 0.4175 Investment Approach and Risk Management The Fund invests in securities of oil and gas royalty and income trusts to provide income to make monthly cash distributions to Unitholders. The Fund also invests in start-up Start-up The earliest stage of a new business venture. and early stage energy companies with a focus on those that have strong, experienced management teams with proven track records of enhancing shareholder value and successfully executing exit strategies. The Fund will also invest in energy issuers where the portfolio manager believes the potential for capital appreciation exists. Individual oil and gas companies may face unforeseeable Un`fore`see´a`ble a. 1. Incapable of being foreseen. Adj. 1. unforeseeable - incapable of being anticipated; "unforeseeable consequences" unpredictable - not capable of being foretold production declines. The manager attempts to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·gation n. these risks by maintaining a
diversified diversified (di·verˑ·s portfolio. Smaller and early-stage companies may have low
trading volumes Trading volumeThe number of shares transacted every day. As there is a seller for every buyer, one can think of the trading volume as half of the number of shares transacted. That is, if A sells 100 shares to B, the volume is 100 shares. . Private companies present an additional liquidity risk. The Fund selects private companies whose business plans anticipate a public offering or other liquidity event within three to five years, thereby reducing this liquidity risk. Commodity prices also affect the value of the Fund's holdings. Commodity transactions (particularly oil) are largely priced in U.S. dollars, creating a currency risk. A change in value of the commodity prices, or the U.S. dollar, may affect the Fund's value. Mandatory Market Purchase Program The Fund has in place a mandatory market purchase program. Under this program, if the market price at which Unitholders are offering Units for sale is less than 90 per cent of the latest determined NAV, the Fund is obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to purchase Units at the prevailing market price. For the period April 1, 2003 to March 31, 2004, this program was subject to a maximum of 1.00 per cent of the number of Units outstanding at the beginning of such calendar quarter. In 2003, a total of 54,764 Units were purchased at an average price of $8.1039. For the period April 1, 2004 to March 31, 2005, this basis has been reduced to a maximum of 0.75 per cent per quarter. In 2004, a total of 72,588 Units were purchased at an average price of $9.4539. Units are repurchased for cancellation at market prices rather than at the NAV, thereby increasing the NAV for the remaining Units if the Units trade at a discount to NAV. Normal Course Issuer Bid The Fund had in place a normal course issuer bid program through the facilities of the TSX. Under the program in effect from November 28, 2003 to November 27, 2004, the Fund could purchase up to 296,900 Units at the prevailing market price, in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the by-laws BY-LAWS. Rules and ordinances made by a corporation for its own government. 2. The power to make by-laws is usually conferred by express terms of the charter creating the corporation, though, when not expressly granted, it is given by implication, and it is and rules of the TSX. Commencing November 28, 2004, there is no normal course issuer bid program in place. A similar program was in place from November 20, 2002 to November 19, 2003. Pursuant to this program, a total of 61,700 Units were purchased in 2003. Right of Redemption Right of redemption The right to recover property that has been attached by paying off the debt . Program The Fund has in place a redemption program (the "Right of Redemption Program"). Under this program, the Fund will redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. Units, at a price of 95 per cent of the NAV per Unit as at the last business day of March each year (the "Redemption Valuation Date"), up to a maximum of 2.5 per cent of the outstanding Units as at March 1 of such year. This program is restricted to those Units surrendered for redemption between March 1 and 5:00 p.m. (Eastern Time) on the fifth business day prior to March 31 (the "Notice Period"). As at March 31, 2003, 47, Units were redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. at a price of $8.45, for a total redemption amount of $397,911. In 2004, a total of 87,480 Units were redeemed at $10.05 for a total redemption amount of $879,174. Liquidity and Capital Resources The Fund is a closed-end investment Closed-End Investment When an investment company issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like common stock. Notes: Most mutual funds are open-end funds, not closed-end. trust. It funds additional investments through equity issues, supplemented by bank loans. The Fund does not consider substantial levels of debt financing Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay appropriate. The Fund has negotiated a revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility for investment and operating purposes, with a current limit of $7 million. The Fund may pledge up to 100 per cent of its assets (excluding private company securities) to secure a lower interest rate on borrowings, though the limit on the level of borrowings remains. As at December 31, 2004, $5.8 million of the credit facility was drawn down. The Fund derives substantially all its income from investment sources. Accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying are settled on a monthly or quarterly basis and accounts payable are settled on a monthly basis. Working capital liquidity is maintained through drawings or repayments on the revolving credit facility. Management Fees Management fees were $447,805 in 2004, up from to $256,026 in 2003. As these fees are related to the Fund's assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. , this increase reflects the growth of the Fund's assets under management over this time period. Fund Administration, Accounting and Audit Fees These fees were $823,184 in 2004, compared to $473,446 in 2003. The increases reflect incremental costs Costs which are additional costs to the Service appropriations that would not have been incurred absent support of the contingency operation. See also financial management. that are the result of operating and administering a larger fund. The Fund's investor relations Investor relations The process by which the corporation communicates with its investors. activity has also increased significantly in 2004. Incentive Fees The accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. incentive fee liability of the Trust increased by $298,532 in 2004. A total of $1,077,868 is payable at December 31, 2004. The incentive fee is earned when net capital gains earned by the Fund in respect of each realized investment exceeds what the Fund would have earned on such investment if the simple rate of return thereon there·on adv. 1. On or upon this, that, or it. 2. Archaic Following that immediately; thereupon. Adv. 1. thereon - on that; "text and commentary thereon" on it, on that had been equal to the simple rate of return of the S&P / TSX Oil and Gas Exploration and Production Index during the period from the date of acquisition of such investment up to and including the date of realization. This incentive fee payable may be reduced in the future when the rate of return on a realized investment is less than the simple rate of return on that Index during the period when the investment is held. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This disclosure includes statements about expected future events and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. financial results that are forward-looking in nature and subject to substantial risks and uncertainties. For those statements, Strategic Energy Fund cautions that actual performance will be affected by a number of factors, many of which are beyond its control. These include general economic conditions in Canada and the United States The United States and Canada share a unique legal relationship. U.S. law looks northward with a mixture of optimism and cooperation, viewing Canada as an integral part of U.S. economic and environmental policy. ; industry conditions including changes in laws and regulations; changes in income tax regulations; increased competition; and fluctuations in commodity prices, foreign exchange and interest rates. In addition, there are numerous risks and uncertainties associated with oil and natural gas operations and the evaluation of oil and natural gas reserves. As a result, future events and results may vary substantially from what Strategic Energy Fund currently foresees.
Strategic Energy Fund
Statements of Net Assets
As at December 31, 2004 and December 31, 2003 2004 2003
---------------------------------------------------------------------
Assets
Investments, at estimated fair value
(Note 2) $ 50,517,218 $ 31,657,644
Cash and short-term investments 329,377 3,400,195
Interest receivable and other assets 220,590 78,486
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51,067,185 35,136,325
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Liabilities
Management and servicing fees payable 85,813 66,039
Accrued incentive fee (Note 3) 1,077,868 779,336
Accounts payable and other accrued
liabilities 177,864 461,349
Bank loan payable (Note 6) 5,800,000 -
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7,141,545 1,306,724
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Net Assets $ 43,925,640 $ 33,829,601
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Number of Trust Units Outstanding 3,343,708 3,503,776
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Net Asset Value per Trust Unit $ 13.14 $ 9.66
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The accompanying notes are an integral part of these financial
statements.
Strategic Energy Fund
Statements of Operations
For the period ended For the period ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------
Investment Income
Distributions $ 1,094,768 $ 540,143
Interest 26,465 71,491
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1,121,233 611,634
Expenses (Note 3)
Management fees 447,805 256,026
Fund administration, accounting
and audit fees 823,184 473,446
Servicing fee 158,034 94,237
Loan Interest and fees 88,717 31,016
Transfer and custody fees 100,734 63,731
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1,618,474 918,456
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Net Investment Loss (497,421) (306,822)
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Net realized gain on sale
of investments 9,673,079 1,065,276
Return of capital (233,821) (150,534)
Change in unrealized appreciation
of investments 4,082,910 5,623,295
Incentive fee payable/paid
(Note 3) (732,767) (192,692)
Change in incentive fee provision
(Note 3) 434,235 (571,533)
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13,223,636 5,773,812
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Increase in Net Assets
from Operations $ 12,726,395 $ 5,466,990
---------------------------------------------------------------------
---------------------------------------------------------------------
Income per Trust Unit(a) $ 3.73 $ 2.30
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---------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
(a) Calculated by dividing the increase (decrease) in net assets from
operations by the weighted average outstanding Units during the
period.
Strategic Energy Fund
Statements of Net Realized Gain(Loss) on Sale of Investments
For the period ended For the period ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Proceeds from sale of
investments $ 32,084,481 $ 10,221,253
Cost of investments,
beginning of period 24,866,912 15,263,288
Return of capital (233,821) (150,534)
Cost of investments, purchased
during the period 37,421,887 18,910,135
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62,054,978 34,022,889
Cost of investments,
end of period 39,643,576 24,866,912
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Cost of investments sold,
during the period 22,411,402 9,155,977
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Net Realized Gain(Loss) on
Sale of Investments $ 9,673,079 $ 1,065,276
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The accompanying notes are an integral part of these financial
statements.
Strategic Energy Fund
Statements of Changes in Net Assets
For the period ended For the period ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------
Net Assets, beginning
of period $ 33,829,601 $ 17,852,847
Increase in Net Assets
from Operations
Net investment loss (497,241) (306,822.00)
Net realized gain on sale
of investments 9,673,079 1,065,276.00
Return of capital (233,821) (150,534.00)
Incentive fee payable/paid (732,767) (192,692.00)
Change in unrealized depreciation
of investments and incentive fee 4,517,145 5,051,761.00
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12,726,395 5,466,989
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Unitholder Transactions
Issuance of Units - 13,476,020
Cost of issuance of Units (63,798) (1,324,565)
Distributions to Unitholders (1,001,146) (307,386)
Redemption of Units (879,174) (397,911)
Repurchase of Units (686,238) (936,393)
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(2,630,356) 10,509,765
Net Increase in Net Assets 10,096,039 15,976,754
---------------------------------------------------------------------
Net Asset Value, end of period $ 43,925,640 $ 33,829,601
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---------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Strategic Energy Fund
Statement of Investment Portfolio
As at December 31, 2004
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Estimated
Shares Fair Value % of
Investments Held Average Cost (Note 2) Net Assets
---------------------------------------------------------------------
Private Issuers
Anderson Energy Ltd.,
Cl. B 182,000 1,001,000 1,001,000 2.28%
Argent Energy Inc. 1,000,000 1,000,000 1,000,000 2.27%
Citadel Resources
Inc. 750,000 750,000 750,000 1.71%
Ferus Gas Industries
Trust 100,000 250,000 250,000 0.57%
Highpine Oil & Gas
Ltd. 85,000 765,000 765,000 1.74%
Newpact Energy Corp. 385,000 500,500 500,500 1.14%
Revolve Energy Inc. 300,000 300,000 300,000 0.68%
Spry Energy Ltd. 250,000 500,000 825,000 1.88%
Standard Energy Inc.,
Common 666,666 999,999 999,999 2.28%
Stylus Exploration
Inc., Consolidated 450,600 638,250 901,200 2.05%
Timber Rock Energy
Ltd. 400,000 400,000 400,000 0.91%
Timing Energy Ltd. 500,000 500,000 500,000 1.14%
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7,604,749 8,192,699 18.65%
Shares Market % of
Investments Held Average Cost Value Net Assets
---------------------------------------------------------------------
---------------------------------------------------------------------
Small Energy Issuers
Arrow Energy Ltd. 476,000 499,800 354,620 0.81%
Bear Creek Energy
Ltd. 373,500 1,111,607 3,171,015 7.22%
Blue Mountain Energy
Ltd. 273,725 1,657,644 2,217,173 5.05%
Cinch Energy Corp. 266,400 499,500 650,016 1.48%
Cinch Energy,
Warrants 333,000 - 58,275 0.13%
Crispin Energy Inc. 562,500 618,750 762,188 1.74%
Cyries Energy Inc. 86,907 491,201 677,006 1.54%
Shares Market % of
Investments Held Average Cost Value Net Assets
Small Energy Issuers,
continued
Galleon Energy Inc.,
Cl. A 102,000 816,000 1,106,700 2.52%
Grand Banks Energy,
Warrants 263,160 - 10,526 0.02%
Hawk Energy Corp.
Cl. A 110,000 308,000 403,700 0.92%
Lightning Energy Ltd. 172,400 689,600 746,492 1.70%
Luke Energy Ltd. 295,000 427,750 967,600 2.20%
Midnight Oil
Exploration Ltd. 40,450 82,919 137,530 0.31%
Mustang Resources Inc. 65,000 416,000 526,500 1.20%
ProEx Energy Ltd. 46,321 260,819 393,729 0.90%
Tango Energy Inc. 1,266,540 759,924 747,259 1.70%
Tempest Energy
Corp., Cl. A 362,500 1,450,000 2,407,000 5.48%
Tiverton Petroleums
Ltd. 324,200 120,004 92,397 0.21%
Vaquero Energy Ltd. 110,000 291,500 519,200 1.18%
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10,501,018 15,948,926 36.31%
Junior Energy Issuers
Duvernay Oil Corp. 133,363 1,292,581 2,597,911 5.91%
NuVista Energy Ltd. 100,000 693,000 1,060,000 2.41%
StarPoint Energy Ltd. 105,000 283,415 556,500 1.27%
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2,268,996 4,214,411 9.59%
Senior Energy Issuers
Niko Resources Ltd. 20,000 723,800 1,009,400 2.30%
---------------------------------------------------------------------
723,800 1,009,400 2.30%
Other Issuers
Innicor Subsurface
Tech. Inc. 140,200 315,450 346,294 0.79%
---------------------------------------------------------------------
315,450 346,294 0.79%
Shares Market % of
Income Trusts Held Average Cost Value Net Assets
Acclaim Energy Trust 102,000 1,481,990 1,468,800 3.34%
ARC Energy Trust 87,500 1,224,678 1,566,250 3.57%
Atlantic Power Corp,
IPS Units 100,000 1,000,000 1,075,000 2.45%
Bonavista Energy Trust 74,000 1,668,737 2,005,400 4.57%
Crescent Point Energy
Trust 90,997 1,157,678 1,533,299 3.49%
Daylight Energy,
Exchangeable Shares 68,900 432,145 669,667 1.52%
Daylight Energy Trust 12,000 96,781 115,200 0.26%
Enerplus Resources
Fund 18,500 741,441 806,600 1.84%
Esprit Energy Trust,
Cl. B 101,200 1,279,913 1,253,868 2.85%
Inter Pipeline Fund 130,000 939,339 1,190,800 2.71%
Keyspan Facilities
Income Fund 500 6,443 7,195 0.02%
Paramount Energy Trust 90,000 1,456,714 1,434,600 3.27%
Peyto Energy Trust 37,300 1,558,535 1,784,059 4.06%
Phoenix Technical
Services Income
Trust 110,000 440,000 498,300 1.13%
Progress Energy Trust 100,000 1,290,099 1,352,000 3.08%
Vermilion Energy Trust 60,000 730,664 1,207,200 2.75%
Viking Energy Royalty
Trust 173,000 1,198,345 1,167,750 2.66%
Zargon Energy Trust 70,000 1,526,061 1,669,500 3.80%
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18,229,563 20,805,488 47.37%
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Total portfolio of
investments 39,643,576 50,517,218 115.01%
Net liabilities (6,591,578) -15.01%
---------------------------------------------------------------------
Total Net Assets 43,925,640 100.00%
---------------------------------------------------------------------
---------------------------------------------------------------------
Note: Percentage of net assets shown relates to investments at market
value to total net assets of the Trust.
The accompanying notes are an integral part of these financial
statements.
Strategic Energy Fund
Notes to Financial Statements
December 31, 2004
NOTE 1 - ORGANIZATION OF THE FUND Strategic Energy Fund (the "Fund") is a closed-end investment trust established under the laws of the Province of Ontario pursuant to a trust agreement amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. and restated as of October 10, 2003 (the "Trust Agreement") and began operations on May 9, 2002. Strategic Energy Management Corp. (the "Manager"), a corporation incorporated under the laws of the Province of Ontario, is the manager of the Fund. Computershare Trust Company of Canada (the "Trustee") is the trustee of the Fund. The Fund's investment objectives are: i) to provide holders of the Units (the "Unitholders") with an opportunity for superior rates of return, principally in the form of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. capital appreciation; and ii) a cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. method of reducing investment risk through a diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. strategy focused on investment opportunities within the Canadian energy sector. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . The significant accounting policies of the Fund are as follows: Generally accepted accounting principles The Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. ("CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ") issued Section 1100, "Generally Accepted Accounting Principles ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ")" of the CICA Handbook
This article is about reference works. For the subnotebook computer, see .
investment assets - anything of material value or usefulness that is owned by a person or company industry are no longer considered GAAP. This section primarily impacts the disclosure of an investment fund's financial statements, and accordingly, has no impact on the valuation of a fund or in the calculation of the net asset value per unit of a fund. The Fund, in conjunction with other investment funds, continues to assess the impact of section 1100 on its financial statements. Valuation of investments The value of any security which is listed on a stock exchange or traded on an over-the-counter market over-the-counter market Trading in stocks and bonds that does not take place on stock exchanges. Such trading occurs most often in the U.S., where requirements for listing stocks on the exchanges are strict. will be the last sale price applicable to a board lot prior to the time of determination of net asset value (NAV) or if no such sale price is available at that time, but if bid and ask quotations are available, at the average of the bid and the ask price, rather than the quoted sale price. Securities which are listed on a stock exchange or traded over-the-counter and which are subject to a hold period or other trading restrictions will be valued as described above, with an appropriate discount as determined by the Manager, acting reasonably. The value of any security or other asset for which no published market exists, including securities of private issuers, will be determined by the Manager in accordance with the following: (i) such securities or other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. will normally be carried at cost unless: (a) there is an arm's length transaction Arm's Length Transaction A transaction in which the buyers and sellers of a product act independently of each other and have no relationship to each other. Notes: Such a transaction is absent of any pressure sales tactics or relationships among the various parties. which in the Manager's reasonable opinion establishes a different value, or (b) a material change in the value of an issuer occurs, including as a result of a writedown writedown A reduction in the value of an asset carried on a firm's financial statements. For example, the firm's accountants, believing the inventory is overvalued, may decide to take a writedown by reducing inventory valuation. of its assets on its audited balance sheet or the preparation of a valuation of the issuer or of a substantial portion of its assets by a qualified independent person, in which event the value will be increased or decreased, as appropriate, to the resulting fair value. The process of valuing investments for which no published market exists is based on inherent uncertainties and the resulting values may differ from values that would have been used had a ready market existed for the investments and may differ from the prices at which the investments may be sold. These differences could be material to the fair value of investments as a portfolio. The difference between the market or fair value and the average cost of the investments is recorded as an unrealized appreciation (depreciation) of investments. Investment transactions and income recognition Investment transactions are accounted for on a trade-date-plus-one-business-day basis. Distributions and royalty income, if any, are recorded on the ex-dividend date Ex-dividend date The first day of trading when the buyer of a stock is no longer entitled to the most recently announced dividend payment ( i.e. the trade will settle the day after the record date, too late for the buyer to appear on the shareholder record and receive the dividend. . Interest is recorded on an accrual basis A method of accounting that reflects expenses incurred and income earned for Income Tax purposes for any one year. Taxpayers who use the accrual method must include in their taxable income any money that they have the right to receive as payment for services, once it . Gains or losses arising from the sale of investments and unrealized appreciation or depreciation in value of investments are determined on an average-cost basis. Income taxes The Fund qualifies as a mutual fund trust under the provisions of the Income Tax Act (Canada) and, accordingly, is subject to tax on net income including net realized capital gains in the tax year, which is not paid or payable to Unitholders during the year. It is the intention of the Fund to distribute all of its net income and sufficient net realized capital gains so that the Fund will not be subject to income taxes other than foreign withholding taxes The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. , if applicable. Unit valuation The Units of the Fund are valued as of 4:15 p.m. (Eastern Time) on each Wednesday ("Valuation Date") during the year (or, if a Wednesday is a non-business day, the next business day following such Wednesday). Additional valuation days are the last business day of each quarter and December 31 of each year. The net asset value per unit is calculated as the value of the Fund's assets less its liabilities divided by the number of Units outstanding at the time. Use of estimates The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reported period. Actual results could differ from those estimates. NOTE 3 - MANAGEMENT FEES AND OPERATING EXPENSES Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. Management Fee The Manager of the Fund provides investment and administrative services to the Fund for which it receives a management fee payable, in cash, monthly at a rate of 1/12 of 1.10 per cent of the average Net Asset Value of each weekly published Valuation Date in the month. The Manager has retained Sentry Select Capital Corp., (the "Investment Advisor Investment Advisor 1. A person making investment recommendations in return for a flat fee or percentage of assets managed, known as a commission. 2. For mutual fund companies, it is the individual who has the day-to-day responsibility of investing and monitoring the cash and ") a company controlled by the shareholder of the Manager, to provide investment advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal to the Fund for which it is paid an investment advisory fee by the Manager. Incentive fee The Incentive Fee is based on the relative performance of each of the Fund's realized investments and will be paid in cash. The Incentive Fee will be equal to 20 per cent of the difference, if positive, between the net capital gain earned by the Fund in respect of each realized investment and the amount that the Fund would have earned on such investment if the simple rate of return thereon had been equal to the simple rate of return of the S&P/TSX Oil & Gas Exploration and Production Index during the period from the date of acquisition of such investment up to and including the date of realization. The Manager will pay 25 per cent of any Incentive Fee received by it, plus applicable taxes, to dealers on a proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. basis according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the number of Fund Units held by their respective clients at the end of the month preceding the month in which the Incentive Fee is received. In the event that there is a loss on an investment in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or where there was a positive simple rate of return on the S&P/TSX Oil & Gas Exploration and Production Index during the applicable investment period, the amount of such loss plus the amount that the Fund would have earned on such investment if the simple rate of return thereon had been equal to the simple rate of return of the S&P/TSX Oil & Gas Exploration and Production Index during the period from the date of acquisition of such investment up to and including the date of realization will be carried forward, on a cumulative basis, to reduce the Incentive Fee payable in respect of subsequent gains. In the event that there is a loss on an investment in circumstances where there was a negative simple rate of return on the S&P/TSX Oil & Gas Exploration and Production Index during the applicable investment period, a portion of such loss will be carried forward, on a cumulative basis, to reduce the Incentive Fee payable in respect of subsequent gains. Such portion will be equal to the amount of the loss, if any, which exceeds the amount that the Fund would have lost on such investment if the negative simple rate of return thereon had been equal to the negative simple rate of return of the S&P/TSX Oil & Gas Exploration and Production Index during the period from the date of acquisition of such investment up to and including the date of realization. The Incentive Fee will be determined based upon the cash proceeds received by the Fund from the realization of an investment. In the event that the Fund receives non-cash proceeds (such as securities) upon the realization of an investment, the Incentive Fee will not be calculated or become payable until such non-cash proceeds are sold for cash. As at December 31, 2004, $732,767 was payable to the Manager under this Incentive Fee arrangement. As at December 31, 2003, $192,692 was paid to the Manager under this Incentive Fee arrangement. The Fund has accrued for an Incentive Fee that has accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and which is not payable, of $345,101 (2003 - $779,336). Other fees and expenses The Fund is responsible for paying a Servicing Fee to dealers, of 0.4 per cent of the NAV per annum Per annum Yearly. , calculated and payable at the end of each quarter. The Fund is responsible for payment of all expenses relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the operation and the carrying on of its business, including legal, audit, trustee, custodial and safekeeping Safekeeping The storage of assets or other items of value in a protected area. Notes: Individuals may use self-directed methods of safekeeping or the services of a bank or brokerage firm. fees, taxes, brokerage commissions, operating and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. , investor servicing, costs of financial and other reports and prospectuses of the Fund. The expenses incurred by the Manager and the Investment Advisor related to the provision of management and investment advisory services, including the cost of employing management and staff and the related general and administrative expenses, are for the account of such parties and not for the account of the Fund. The Fund will pay or reimburse re·im·burse tr.v. re·im·bursed, re·im·burs·ing, re·im·burs·es 1. To repay (money spent); refund. 2. To pay back or compensate (another party) for money spent or losses incurred. the Manager for all expenses incurred in connection with the operation and administration of the Fund. NOTE 4 - UNITS The authorized capital authorized capital n (COMM) → capital m autorizado or social authorized capital n (Comm) → capital social of the Fund consists of an unlimited number of Units. Each Unitholder in the Fund acquires Units, which represent an undivided interest undivided interest n. title to real property held by two or more persons without specifying the interests of each party by percentage or description of a portion of the real estate. in the net assets of the Fund. All Units are of the same class with equal rights and privileges and are entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to one vote at any meeting of the Unitholders and to equal participation in any distributions made by the Fund. On May 9, 2002 the Fund issued an initial 2,000,000 Units at a price of $10.00 per unit. Subsequently the Fund issued to the holders of its outstanding Trust Units of record at the close of business on March 13, 2003, rights to subscribe for Trust Units. Each Unitholder received one right for each Trust Unit held. Four rights entitled the holder to subscribe for one Trust Unit at a price of $7.00 per Trust Unit. A total of 354,860 Units (1,419,440 rights) were subscribed for. On November 6, 2003, the Fund issued 1,250,000 Units at $8.00 per unit for total gross proceeds of $10,000,000 pursuant to an offering. Pursuant to an over-allotment option, an additional 124,000 Units were issued for total gross proceeds of $992,000 in December 2003. The Fund has in place a redemption program (the "Right of Redemption Program"). Under this program, the Fund will redeem Units, at a price of 95 per cent of the net asset value per fund unit as at the last business day of March each year (the "Redemption Valuation Date"), up to a maximum of 2.5 per cent of the outstanding Fund Units as at March 1 of such year. This program is restricted to those Units surrendered for redemption between March 1 and 5:00 p.m. (Eastern Time) on the fifth business day prior to March 31 (the "Notice Period"). In 2003, a total of 47,090 Units were redeemed at $8.45, for a total redemption amount of $397,911. In 2004, a total of 87,480 Units were redeemed at $10.05, for a total redemption amount of $879,174. The Fund has in place a mandatory market purchase program (the "Mandatory Market Purchase Program"). Under this program, the Fund will be obligated, on a best efforts basis, to purchase Units at the prevailing market price, if the market price at which Unitholders are then offering their Units for sale is less than 90 per cent of the latest determined net asset value per unit. This program was subject to a maximum of 1.25 per cent of the number of Units outstanding at the beginning of such calendar quarter, until March 31, 2003. For the period April 1, 2003, to March 31, 2004, this program was subject to a maximum of 1.00 per cent per quarter. Pursuant to this program a total of 54,764 Fund Units were purchased at an average price of $8.1039 in 2003. For the period April 1, 2004 to March 31, 2005, this basis is reduced to a maximum of 0.75 per cent per quarter. Pursuant to this program, a total of 72,588 Units were purchased at an average price of $9.4539 in 2004. The Fund had in place a normal course issuer bid program (the "Normal Course Issuer Bid"). This program through the facilities of the Toronto Stock Exchange (the "TSX") was in effect from November 20, 2002 to November 19, 2003. Under this program, the Fund was able to purchase up to 175,500 Units at the prevailing market price, in accordance with the by-laws and rules of the TSX. Pursuant to this program a total of 61,700 Fund Units were purchased in 2003 at an average price of $7.9837. A subsequent Normal Course Issuer Bid was in effect from November 28, 2003 to November 27, 2004, under which the Fund was authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: to purchase up to 296,900 Fund Units. No Units were purchased through this subsequent Normal Course Issuer Bid. Commencing November 28, 2004, there is no Normal Course Issuer Bid currently in place. --------------------------------------------------------------------- Fund Units 2004 2003 --------------------------------------------------------------------- Balance, beginning of period 3,503,776 1,938,470 --------------------------------------------------------------------- Mandatory Market Purchase Plan (72,588) (54,764) --------------------------------------------------------------------- Normal Course Issuer Bid program - (61,700) --------------------------------------------------------------------- Redemption (87,480) (47,090) --------------------------------------------------------------------- March rights offering - 354,860 --------------------------------------------------------------------- November offering - 1,250,000 --------------------------------------------------------------------- December over-allotment - 124,000 --------------------------------------------------------------------- Balance, end of period 3,343,708 3,503,776 --------------------------------------------------------------------- NOTE 5 - DISTRIBUTIONS Pursuant to its Trust Agreement, the Fund is required to distribute at least 25 per cent of the net realized capital gains, if any, and at least 50 per cent of its net taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. , if any, to Unitholders on an annual basis. The Fund began to pay monthly distributions to Unitholders in June of 2003. The first distribution was $0.0175 per unit on June 30, 2003 to Unitholders of record on June 16, 2003. Each subsequent monthly distribution was also $0.0175 per unit until October 2004. On November 5, 2004 the Manager announced an increase to the monthly distribution from $0.0175 to $0.06 per unit. The first distribution paying $0.06 per unit had an ex-distribution date ex-distribution date The first day of trading when the seller, rather than the buyer, of a stock will be entitled to a recently announced distribution of an asset. of November 12, 2004, a record date of November 16 and was payable on November 30. Unitholders have the option of receiving their distributions either in cash or in the form of additional Fund Units by way of automatic reinvestment Automatic reinvestment See: Constant dollar plan. automatic reinvestment The automatic purchase of additional shares of an open-end investment company using any dividends and capital gains distributions that are made by the firm. . NOTE 6 - BANK LOAN The Fund has a secured $4 million, 364-day revolving credit facility due October 2005. The facility is secured by a Security Interest pledge of the Portfolio. On December 1, 2004 this facility was increased to $7 million. The facility bears interest at the prime rate, payable monthly. As at December 31, 2004, $5,800,000 of the credit facility was drawn down (2003 - nil). In 2004, $88,717 in interest was paid pursuant to this facility (2003 - $31,016). NOTE 7 - RISK FACTORS The following are certain considerations relating to an investment in Units that prospective investors should consider before purchasing such securities: Types of issuers The Fund invests in small and medium-sized issuers, many of which have limited or no operating history. Some of these investments may require a number of years in order to mature and generate expected returns Expected Return The average of a probability distribution of possible returns, calculated by using the following formula: and some might prove to be unsuccessful. Trading prices Trading price The price at which a security is currently selling. of the public issuers in which the Fund invests may be volatile, which may result in volatility in the NAV. Oil and gas companies may also experience unforeseen production declines. The Manager attempts to mitigate these risks by maintaining a diversified portfolio and by focusing on issuers with strong, experienced management teams that have proven track records. Investments in private issuers are focused upon issuers whose business plans anticipate a public offering or other liquidity event within four years, thereby reducing to some extent the liquidity risks associated with investments of this nature. Performance of issuers The NAV per unit will vary according to the value of the securities in which the Fund invests, which will depend, in part, upon the performance of the issuers of such securities. Additionally, external economic forces can affect the competitive strength and profitability of the businesses represented by these securities, which would significantly affect the value of such securities. The amount of distributions available for payment to Unitholders will depend in part on the amount of distributions paid by the issuers of the securities held by the Fund in the portfolio. The Fund cannot predict whether the securities of issuers held by it will trade at a discount from, a premium to, or at the net asset values of the issuers of such securities or when or if distributions on such securities will be made. It is possible that, due to declines in the market values of securities in the portfolio, the Fund will have insufficient assets to achieve in full its monthly distribution and capital preservation and enhancement objectives. The Fund may make investments in issuers that have low trading volumes. Accordingly, it may be difficult for the Fund to make trades in these issuers without adversely affecting the price of such issuers and consequently the NAV of the Fund. Interest rate fluctuations It is anticipated that the market price for the Units at any given time will be affected by the level of interest rates prevailing at such time. A rise in interest rates may have a negative effect on the market price of the Units. Commodity price and currency fluctuations The operations and financial condition of resource-based issuers in which the Fund will invest and, accordingly, the amount of distributions paid on their securities will be dependent on prices applicable to the commodities sold by such issuers. Prices for commodities may vary and are determined by supply and demand factors, including weather and general economic and political conditions and other conditions or circumstances beyond the control of the issuers of these securities. A decline in commodity prices could have an adverse effect on the operations and financial condition of such issuers and the value of, and amount of distributions paid on, their securities. In addition, energy prices are denominated generally in U.S. dollars. Accordingly, a decrease in the value of the U.S. dollar against the Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents could reduce the amount of distributions paid on such securities. NOTE 8 - INVESTMENTS IN RELATED PARTIES Pursuant to the Trust Agreement, the Fund is permitted to invest in other related trusts that are managed by the Manager or entities under common control as the Manager, subject to some restrictions. As at December 31, 2004, the Fund held 130,000 units of Inter Pipeline Fund having a market value of $1,190,800 that represents 2.71 per cent of the Trust's net asset value. NOTE 9 - PRIOR YEAR FIGURES Certain of the prior year's comparative figures have been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current year's presentation. NOTE 10 - SUBSEQUENT EVENT A preliminary prospectus Preliminary Prospectus A first draft registration statement filed by a firm prior to proceeding with an initial public offering of securities. The document, filed with the Securities & Exchange Commission, is intended to provide pertinent information to prospective shareholders for a rights offering was filed for the Fund on February 25, 2005. Each holder of Units on the Record Date will receive one right for each Unit held. The Exchange Tower 130 King Street West Suite 2850, P.O. Box 104 Toronto, Ontario M5X 1A4 Strategic Energy Fund (TSX:SEF.UN) |
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