Sentry Select Capital Inc. and Sentry Select 40 Split Income Trust

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- continuing fund has different investment objectives and fee structure than terminating fund -- merger is not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act -- securityholders of terminating funds provided with timely and adequate disclosure regarding the mergers -- financial statements and simplified prospectus of continuing fund not required to be sent to unitholders of the terminating fund in connection with the current merger and future mergers provided the unitholders receive a tailored simplified prospectus and the information circular sent for unitholder meeting clearly discloses the various ways unitholders can access the financial statements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6.

May 29, 2009

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

SENTRY SELECT CAPITAL INC.

(the Filer)

AND

SENTRY SELECT 40 SPLIT INCOME TRUST

(the Terminating Fund)

DECISION

Background

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

(a) approval of the merger of the Terminating Fund into Sentry Select Canadian Income Fund (the Continuing Fund) (the Merger) under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102); and

(b) relief from the simplified prospectus and financial statements delivery requirements contained in subsection 5.6(1)(f)(ii) of NI 81-102 in respect of:

(i) the Merger; and

(ii) all future mergers of mutual funds managed by the Filer (the Prospectus and Financial Statement Relief)

(collectively, the Requested Relief).

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

(a) the Ontario Securities Commission is the principal regulator (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, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, the Yukon Territory and Nunavut.

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:

The Filer

1. The Filer is a corporation incorporated under the laws of the Province of Ontario and is the manager and trustee of each of the Terminating Fund and the Continuing Fund (each a Fund and collectively, the Funds). The Filer is registered in Ontario as a dealer in the category of Mutual Fund Dealer and as an adviser in the categories of Investment Counsel and Portfolio Manager under the Securities Act (Ontario), and as an adviser in the category of Commodity Trading Manager under the Commodity Futures Act (Ontario). The Filer is also registered in Alberta as an adviser in the category of Portfolio Manager and Investment Counsel under the Securities Act (Alberta).

2. The head office of the Filer is located in Ontario.

The Funds

3. Each Fund was established pursuant to a declaration of trust under the laws of the Province of Ontario.

4. The Terminating Fund and the Continuing Fund are mutual funds for the purposes of the Legislation.

5. The Terminating Fund offered its capital units (Capital Units) and preferred securities (Preferred Securities) in all of the provinces and territories of Canada pursuant to a final prospectus dated December 13, 2006 and the Capital Units were, until November 24, 2008, listed on the Toronto Stock Exchange (the TSX). The Preferred Securities matured and were repaid on December 1, 2008. On December 2, 2008, the Terminating Fund converted to an open-end mutual fund in accordance with the provisions of its declaration of trust. The Terminating Fund does not currently intend to qualify any additional units for distribution.

6. The Continuing Fund offers its series A units (Series A Units), series F units and series I units in all of the provinces and territories of Canada on a continuing basis pursuant to a simplified prospectus dated August 20, 2008.

7. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada and are not on the list of defaulting reporting issuers maintained under such securities legislation.

8. Unless an exemption has been obtained, each of the Funds follows the standard investment restrictions and practices established by the securities regulatory authorities in each province and territory of Canada.

9. The net asset value (NAV) for units of each Fund is calculated on a daily basis on each day that the TSX is open for trading.

The Mergers

10. The Filer intends to merge the Terminating Fund (and Select 50 S-1 Income Trust, Sentry Select Focused Growth & Income Trust, Multi Select Income Trust, Pro-Vest Growth & Income Fund (the Terminating Closed-end Funds)) into the Continuing Fund (the Mergers), which will involve the transfer of assets of the Terminating Fund (and the Terminating Closed-end Funds) in exchange for Series A Units of the Continuing Fund. The units of the Terminating Fund (and the Terminating Closed-end Funds) will be exchanged or transferred on a NAV basis for Series A Units of the Continuing Fund.

11. The board of directors of the Filer approved the Mergers on March 23, 2009 and press releases and material change reports in respect of the Mergers were filed on SEDAR in March 2009.

12. Unitholders of the Terminating Fund approved the Merger at a special meeting of unitholders held on May 20, 2009 (the Meeting).

13. In connection with the Meeting, the Filer sent to the unitholders of the Terminating Fund a notice of special meetings of unitholders and joint management information circular and a related form of proxy (collectively, the Meeting Materials). The joint management information circular in connection with the Mergers was filed on SEDAR and mailed to unitholders of the Terminating Fund (and the Terminating Closed-end Funds) on April 24, 2009 (the Circular).

14. Subject to the required approval of the Principal Regulator and unitholders of the Terminating Fund, the Merger is expected to occur on or about June 12, 2009 (the Merger Date).

15. As required by National Instrument 81-107 - Independent Review Committee for Investment Funds, an Independent Review Committee (IRC) has been appointed for the Funds and the Terminating Closed-end Funds, and the Filer presented the terms of the Mergers to the IRC for a recommendation. The IRC considered the proposed Mergers and provided a positive recommendation to the Filer on the basis that the Mergers would achieve a fair and reasonable result for each of the Funds and the Terminating Closed-end Funds.

16. The Merger is expected to take place using the following steps:

(a) on the Merger Date, the Terminating Fund will transfer all of its assets to the Continuing Fund in exchange for Series A Units of the Continuing Fund. The Series A Units of the Continuing Fund received by the Terminating Fund will have an aggregate NAV equal to the NAV of the assets of the Terminating Fund and will be issued at the NAV per Series A Unit of the Continuing Fund, in each case as of the close of business on the business day prior to the Merger Date.

(b) immediately thereafter, the Series A Units of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund. Each unitholder of the Terminating Fund will receive Series A Units of the Continuing Fund having the same aggregate NAV as the units they previously held in the Terminating Fund as of the close of business on the business day prior to the Merger Date.

(c) the Filer will issue a press release forthwith after the Merger is completed announcing the completion of the Merger and the ratio by which units of the Terminating Fund were exchanged for Series A Units of the Continuing Fund. The records of the broker or other intermediary through whom a unitholder holds his, her or its units should reflect the Merger within seven business days after the Merger (although the Filer has no control over this part of the process nor the timing involved).

17. The Terminating Fund and the Continuing Fund are, and are expected to continue to be at all material times, mutual fund trusts under the Income Tax Act (Canada) (Tax Act) and, accordingly, units of these Funds are "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax-free savings accounts.

18. Following the Merger, the Continuing Fund will continue as a publicly offered open-end mutual fund and the Terminating Fund will be wound up and terminated immediately.

19. The Filer will pay all costs and expenses relating to the solicitation of proxies and holding the Meeting as well as the costs of implementing the Merger. Neither the Terminating Fund nor the Continuing Fund will bear any of the costs and expenses (including sales charges, redemption fees or other fees or commissions) of the Merger.

20. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund at any time up to the close of business on the business day immediately preceding the effective date of the Merger.

21. Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102 because:

(a) the fundamental investment objective of the Terminating Fund may not be considered to be substantially similar to the fundamental investment objective of the Continuing Fund;

(b) the Funds do not have the same fee structure; and

(c) it is preferable to complete the Merger on a taxable basis.

22. The primary differences between the fundamental investment objective of the Terminating Fund and the Continuing Fund are that while the Terminating Fund is limited to investing in income funds that are listed and trading on a Canadian stock exchange (which consist of trusts, limited partnerships or other similar entities) and other high yielding securities (where a dividend is currently being paid), the Continuing Fund invests in a diversified portfolio of Canadian securities including equities, fixed-income instruments, real estate investment trusts and income trusts. Although both the Terminating Fund and the Continuing Fund seek to provide monthly distributions, the Continuing Fund also seeks to provide capital appreciation while the Terminating Fund seeks to preserve and enhance NAV.

23. The fee structure for the Terminating Fund and the Continuing Fund is different because the management fee for the units of the Terminating Fund is 0.85% of NAV plus a service fee of 0.50% while it is 2.25% of NAV (which includes a service fee of 1.25%) for the Series A Units of the Continuing Fund. Although the management fees of the Continuing Fund are higher than the Terminating Fund, the expenses associated with each Fund vary and the unitholders of the Continuing Fund are able to switch to other open-end funds managed by the Filer.

24. The tax implications of the Merger as well as the differences between the Terminating Fund and the Continuing Fund are described in the Circular so that unitholders of the Terminating Fund can consider this information before voting on the Merger.

25. Subsection 5.6(1)(f) of NI 81-102 requires that certain materials be sent to unitholders of the Terminating Fund in connection with the approval that must be obtained from those unitholders for the Merger. Specifically, the following documents must be sent:

(a) an information circular that describes the Merger, the characteristics of the Continuing Fund and any income tax considerations;

(b) if not previously sent, the current simplified prospectus and the most recent annual and interim financial statements for the Continuing Fund; and

(c) a statement describing how unitholders of the Terminating Fund may obtain the annual information form for the Continuing Fund.

26. The simplified prospectus of the Sentry Select Group of Funds dated as of August 20, 2008 is the relevant simplified prospectus for the Continuing Fund (the Current Simplified Prospectus). The Current Simplified Prospectus qualifies several other funds in addition to the Continuing Fund, and only the Continuing Fund is relevant to the unitholders of the Terminating Fund in connection with the Merger.

27. In accordance with section 5.3 of National Instrument 81-106 Investment Fund Continuous Disclosure, it has been the Filer's practice to annually solicit instructions from existing investors in the Filer's open-end mutual funds to request delivery of such financial statements. Unitholders in the Filer's open-end mutual funds have the opportunity to request to receive such documents on an annual basis.

28. The Filer believes that the Merger will be beneficial to unitholders of the Terminating Fund for the following reasons:

(a) The Continuing Fund's larger portfolio and broader investment mandate should offer improved portfolio diversification to unitholders of the Terminating Fund.

(b) Unitholders of the Terminating Fund are expected to enjoy increased economies of scale and lower proportionate fund operating expenses (which are borne indirectly by unitholders) as part of a larger combined Continuing Fund. As a fund's size decreases, unitholders bear an increased proportionate amount of operating expenses. For instance, the Terminating Fund has experienced a significant decrease in asset size which has resulted in unitholders of the Terminating Fund bearing increased proportionate operating costs;

(c) Changes to the tax treatment of income trusts have resulted in a reduction in the number of income trusts due to mergers and acquisition activity and conversions back into corporations. It is anticipated that this trend will continue. The Filer believes that the interests of the unitholders are better served by being invested in a larger Continuing Fund with a more flexible mandate, which is better suited to the changing income trust environment which will offer fewer quality income trusts as potential investments as time goes on;

(d) The Merger is expected to eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate investment fund which costs are borne by the Terminating Fund and, therefore, indirectly by the unitholders of the Terminating Fund;

(e) The Continuing Fund allows greater unitholder flexibility with respect to switches and conversions; and

(f) The Filer is proposing that the Merger take place on a taxable basis, because if it was effected on a non-taxable basis, the Continuing Fund may lose the benefit of its loss carry forwards for tax purposes.

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 Requested Relief is granted, provided that in respect of the Prospectus and Financial Statement Relief:

(a) in satisfaction of the simplified prospectus delivery requirement in subsection 5.6(1)(f)(ii) of NI 81-102, the Filer sends unitholders of a terminating fund a tailored simplified prospectus consisting of:

(i) the current Part A of the simplified prospectus of the applicable continuing fund; and

(ii) the current Part B of the simplified prospectus of the applicable continuing fund as it relates to the continuing fund;

(b) the information circular sent to unitholders in connection with a merger prominently discloses that unitholders can obtain the most recent interim and annual financial statements of the applicable continuing fund by accessing the SEDAR website at www.sedar.com, by calling the Filer's toll-free telephone number at 1-888-739-4623 or by writing to Sentry Select Capital Inc., The Exchange Tower, Suite 2850, 130 King Street West, Toronto, Ontario, M5X 1A4;

(c) upon a request by a unitholder of a terminating fund for financial statements, the Filer will make best efforts to provide the unitholder with financial statements of the applicable continuing fund in a timely manner so that the unitholder can make an informed decision regarding the applicable merger;

(d) each applicable terminating fund and the applicable continuing fund with respect to a merger have an unqualified audit report in respect of their last completed financial period; and

(e) the information circular sent to unitholders in connection with a merger provides sufficient information about the merger to permit unitholders to make an informed decision about the merger.