Securities Law & Instruments

Headnote

NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from s. 13.5(2)(b) of NI 31-103 to permit inter-fund trades between public mutual funds, non-redeemable investment funds, pooled funds and managed accounts -- inter-fund trades will comply with conditions in s. 6.1(2) of NI 81-107 including IRC approval or client consent -- trades involving exchange-traded securities are permitted to occur at last sale price as defined in the Universal Market Integrity Rules - relief also subject to pricing and transparency conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5, 15.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1(2), 6.1(4).

June 10, 2010

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.

AND

SENTRY SELECT INVESTMENTS INC.

(collectively, the Filers and individually, a Filer)

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) providing an exemption from section 13.5(2)(b) of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) (the Trading Prohibition) that prohibits an adviser from knowingly causing an investment portfolio managed by it (including an investment fund for which it acts as an adviser) to purchase or sell the securities of any issuer from or to the investment portfolio of an associate of a responsible person or any investment fund for which a responsible person acts as an adviser, such that the following purchases and sales (each purchase or sale, an Inter-Fund Trade) are permitted:

(i) an existing mutual fund or future mutual fund of which a Filer or one of its affiliates is the manager and to which National Instrument 81-102 -- Mutual Funds (NI 81-102) applies (each, a NI 81-102 Fund and, collectively, the NI 81-102 Funds) is permitted to enter into Inter-Fund Trades of securities with any NI 81-102 Fund, an existing Canadian non-redeemable investment fund or future Canadian non-redeemable investment fund managed by a Filer or one of its affiliates (each, a Closed-End Fund and, collectively, the Closed-End Funds), an existing Canadian mutual fund or future Canadian mutual fund managed by the Filer to which NI 81-102 does not apply (each, a Pooled Fund and, collectively, the Pooled Funds) or a fully managed account managed by a Filer or one of its affiliates for a client that is not a responsible person (each, a Managed Account and, collectively, the Managed Accounts);

(ii) a Closed-End Fund is permitted to enter into Inter-Fund Trades of securities with a NI 81-102 Fund, a Closed-End Fund, a Pooled Fund or a Managed Account;

(iii) a Pooled Fund is permitted to enter into Inter-Fund Trades of securities with another Pooled Fund, a NI 81-102 Fund, a Closed-End Fund or a Managed Account; and

(iv) a Managed Account is permitted to enter into Inter-Fund Trades of securities with a NI 81-102 Fund a Closed-End Fund or a Pooled Fund; and

(v) the transactions listed in (i) to (iv) are permitted to be executed at the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the Last Sale Price) in lieu of the closing sale price (the Closing Sale Price) contemplated by the definition of "current market price of the security" in section 6.1(1)(a)(i) of National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) on that trading day where the securities involved in the Inter-Fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities),

(collectively, the Exemption Sought).

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

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

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (the Passport Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 81-102, NI 81-107 and NI 31-103 have the same meanings if used in this decision unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

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

2. Sentry Select Capital Inc. (SSCI) is a corporation incorporated under the laws of the Province of Ontario. It is registered with the Principal Regulator as an adviser in the category of portfolio manager and as a dealer in the category of mutual fund dealer. SSCI is also registered with the Alberta Securities Commission (ASC) as an adviser in the category of portfolio manager.

3. Sentry Select Investments Inc. (SSII) is a corporation incorporated under the laws of the Province of Ontario and is registered with the Principal Regulator as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer. SSII is also registered with each of the ASC and the British Columbia Securities Commission as a dealer in the category of exempt market dealer.

4. The Filers are each wholly-owned subsidiaries of Sentry Select Capital Corp., an Ontario private corporation.

5. Each of the NI 81-102 Funds, Closed-End Funds and Pooled Funds (each, a Fund and collectively, the Funds) is or will be an investment fund established as a trust, corporation or limited partnership under the laws of Canada or a jurisdiction of Canada.

6. The securities of the NI 81-102 Funds are, or will be, qualified for distribution pursuant to simplified prospectuses and annual information forms that have been, or will be, prepared and filed in accordance with securities legislation of Ontario and one or more of the Passport Jurisdictions.

7. Each of the NI 81 102 Funds is, or will be, a reporting issuer in Ontario and one or more of the Passport Jurisdictions.

8. The securities of each of the Closed-End Funds are, or will be, qualified for distribution pursuant to prospectuses that have been, or will be, prepared and filed in accordance with the securities legislation of Ontario and one or more of the Passport Jurisdictions.

9. Each of the Closed-End Funds is, or will be, a reporting issuer in Ontario and one or more of the Passport Jurisdictions.

10. The securities of each of the Pooled Funds (which may be organized as a limited partnership or a mutual fund trust managed by SSII) are, or will be, distributed on a private placement basis pursuant to the Legislation and the Pooled Funds will not be reporting issuers.

11. The Filer, or an affiliate of the Filer, is, or will be the manager and/or adviser (Manager) of each of the Funds.

12. The Filer, or an affiliate of the Filer, is or will be, the adviser of a Managed Account.

13. A Filer, or an affiliate of a Filer is, or may be, the trustee of the Funds that are created as trusts.

14. A Fund may be an associate of a Filer, or of an affiliate of a Filer, that is a responsible person in respect of another Fund or a Managed Account.

15. The Filers, or an affiliate of a Filer that relies upon this decision, and each of the existing Funds are not in default of securities legislation in any of the Jurisdictions.

16. The Manager of each NI 81-102 Fund and each Closed-End Fund has established, or will establish, an independent review committee (IRC) in respect of each NI 81-102 Fund and each Closed-End Fund in accordance with the requirements of NI 81-107.

17. Each of the Filers have established, or will establish an IRC (which may also be the IRC in respect of the NI 81-102 Funds) in respect of each Pooled Fund. The mandate of the IRC of a Pooled Fund will include the approval of Inter-Fund Trades.

18. The IRC of the Pooled Funds was, or will be, composed by the Manager of the Pooled Funds in accordance with section 3.7 of NI 81-107 and the IRC complies, or will comply, with the standard of care set out in section 3.9 of NI 81-107. The IRC of the Pooled Funds will not approve an Inter-Fund Trade involving a Pooled Fund unless it has made the determination set out in section 5.2(2) of NI 81-107. Inter-Fund Trades involving a NI 81-102 Fund will be referred to the relevant IRC of such NI 81-102 Fund under section 5.2(1) of NI 81-107.

19. The investment management agreement or other documentation in respect of a Managed Account will contain the authorization of the client for the Filer on behalf of the Managed Account to engage in Inter-Fund Trades with the Funds.

20. At the time of an Inter-Fund Trade, each Filer, or an affiliate of a Filer, will have in place policies and procedures to enable the Funds and/or Managed Accounts to engage in Inter-Fund Trades with the Funds.

21. The Filer, or an affiliate of a Filer, will comply with the following procedures when entering into Inter-Fund Trades between Funds and/or between Funds and Managed Accounts:

(a) The portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a purchase or a sale of a security by a Fund or Managed Account (Portfolio A) to a trader on a trading desk of the Filer or affiliate of the Filer;

(b) The portfolio manager of the Filer or affiliate of the Filer will deliver the trade instructions in respect of a sale or a purchase of a security by a Fund or Managed Account (Portfolio B) to a trader on a trading desk of the Filer or an affiliate of the Filer;

(c) The trader on the trading desk will have the discretion to execute the trade as an Inter-Fund Trade between Portfolio A and Portfolio B in accordance with the requirements of paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 provided that for exchange-traded securities the Inter-Fund Trade may be executed at the Last Sale Price of the security prior to the execution of the trade;

(d) The policies applicable to the trading desk of the Filer or affiliate of the Filer will require that all Inter-Fund Trade orders are to be executed on a timely basis; and

(e) The trader on a trading desk will advise the portfolio manager(s) of Portfolio A and Portfolio B of the price at which the Inter-Fund Trade occurs.

22. The Filers cannot rely on the exemption from the Trading Prohibition in subsection 6.1(4) of NI 81-107 unless the parties to the Inter-Fund Trade are both reporting issuers and the Inter-Fund Trade occurs at the current market price which, in the case of exchange-traded securities, includes the Closing Sale Price but not the Last Sale Price.

23. Each of the Filers has determined that it would be in the best interests of the Funds and the Managed Accounts to receive the Exemption Sought.

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 Exemption Sought is granted provided that:

(a) the Inter-Fund Trade is consistent with the investment objective of the Fund or the Managed Account;

(b) the Filer or affiliate of the Filer refers the Inter-Fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107 and the Filer or affiliate of the Filer and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions an IRC provides in connection with the Inter-Fund Trade;

(c) in the case of an Inter-Fund Trade between Funds:

(i) the IRC of each Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of section 5.2(2) of NI 81-107; and

(ii) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.

(d) in the case of an Inter-Fund Trade between a Managed Account and a Fund:

(i) the IRC of the Fund has approved the Inter-Fund Trade in respect of such Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(ii) the investment management agreement or other documentation in respect of the Managed Account authorizes the transaction; and

(iii) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the current market price of the security may be the Last Sale Price.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission