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Sentry Investments Inc.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement in s.3.2.01 of NI 81-101 to pre-deliver a fund facts document to investors who purchase mutual fund securities of series only sold under an initial sales charge pursuant to automatic switches from certain series only sold under deferred sales charge options -- Mutual fund securities of series that are only sold under deferred sales charge options will, after a minimum holding period, be automatically switched to the initial sales charge series -- Upon the automatic switch, investors will benefit from lower management fees as well as from possible tiered management fee reductions -- Automatic switches between series of a fund triggering a distribution of securities attracting the requirement to deliver a fund facts -- Relief granted from requirement to pre-deliver a fund facts upon the automatic switch subject to compliance with certain notification and prospectus/fund facts disclosure requirements -- Relief to allow re-designated series to show performance and financial information from predecessor series in simplified prospectus, fund facts and sales communications.
May 30, 2016
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 INVESTMENTS INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of each existing mutual fund listed in Schedule "A" (each, a Trust Fund and collectively, the Trust Funds) and Schedule "B" (each, a Corporate Fund and collectively, the Corporate Funds, and together with the Trust Funds, the Existing Funds) and any mutual fund that the Filer may establish in the future (each, a Future Fund and collectively, the Future Funds, and together with the Existing Funds, the Funds and each, a Fund) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Funds from the requirement in subsection 3.2.01(1) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for a dealer to deliver or send the most recently filed fund facts documents (the Fund Facts) to a purchaser before the dealer accepts an instruction from the purchaser for the purchase of a security of a mutual fund (the Fund Facts Delivery Requirement) in respect of purchases of Series A securities and Series T securities (as defined below) of the Funds that are made pursuant to the Automatic Switches (as defined below) (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 the Application; and
(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, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (together with Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of the province of Ontario with its head office in Toronto, Ontario.
2. The Filer is registered as a dealer in the categories of mutual fund dealer and exempt market dealer in each of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, as an adviser in the category of portfolio manager in each of Ontario and Alberta and as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. The Filer is also registered as an adviser in the category of commodity trading manager in Ontario.
3. The Filer is the manager, promoter and portfolio manager of the Funds and is the trustee of the Trust Funds.
4. The Filer is not in default of securities legislation in any of the Jurisdictions.
The Funds
5. Each Fund is, or will be, an open-end mutual fund trust or an open-end mutual fund that is a class of shares of a mutual fund corporation.
6. Each Fund is, or will be, a reporting issuer under the laws of the Jurisdictions and subject to National Instrument 81-102 Investment Funds (NI 81-102). The securities of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus, Fund Facts and annual information form that have been, or will be, prepared and filed in accordance with NI 81-101. The securities of the Existing Funds except for Sentry U.S. Growth and Income Currency Neutral Class (the New Fund, and the Existing Funds excluding the New Fund are the Pre-April 2016 Funds) are currently offered under a simplified prospectus dated June 8, 2015, as amended. Sentry U.S. Growth and Income Currency Neutral Class is currently offered under a simplified prospectus dated April 12, 2016.
7. Each of the Pre-April 2016 Funds currently offers Series A, Series B, Series F, Series O and Series I securities. Certain of the Pre-April 2016 Funds also offer Series T4, Series T5, Series T6, Series T7, Series T8 (collectively, Series T), Series B4, Series B5, Series B6 Series B7, Series B8 (collectively, Series BT), Series FT4, Series FT5, Series FT6, Series FT7, Series FT8 and Series O8 securities. The New Fund currently offers Series A, Series B, Series F, Series O and Series I securities and may in the future offer Series T and Series BT securities. The Future Funds may offer Series A, Series T, Series B and Series BT securities.
8. The Series A and Series T securities of the Pre-April 2016 Funds, other than Sentry Money Market Fund and Sentry Money Market Class (the Money Market Funds), were previously offered under four different purchase options: an initial sales charge option (the ISC Option); a deferred sales charge option (the DSC Option); a low load deferred sales charge option (the Low Load Option); and a low load 2 deferred sales charge option (the Low Load 2 Option, and together with the DSC Option and the Low Load Option, the Deferred Sales Charge Options). Under the ISC Option, investors may have had to pay a negotiated commission to their dealer at the time they purchase securities, while under the Deferred Sales Charge Options, no commission was paid by the investor at the time of purchase, but the investor would have been required to pay a redemption fee if he or she redeemed within a certain period of time from the date of purchase. With respect to Series A and Series T securities purchased or held under one of the Deferred Sales Charge Options, following the expiry of the applicable redemption schedule, such Series A and Series T securities were switched into Series A and Series T securities of the same Fund under the ISC Option (unless an investor otherwise directed in writing). Series A and Series T securities of the Money Market Funds were only offered under the ISC Option.
9. The Existing Funds are not in default of securities legislation in any of the Jurisdictions.
Series B and Series BT Securities and Automatic Switches
10. The Filer had previously implemented changes to the Pre-April 2016 Funds to allow investors who have purchased Series A and Series T securities of such Funds under the ISC Option to benefit from tiered management fee reductions, including for investments in securities of certain of the Funds under $100,000. These changes were reflected in amendments to the simplified prospectus of the Pre-April 2016 Funds dated December 7, 2015.
11. In connection with the foregoing amendments and in order to simplify the number of series offered by each Pre-April 2016 Fund, the Filer made the following changes (the Changes), effective from and as of April 1, 2016 (the Implementation Date):
(i) separated the Series A and Series T securities held under the ISC Option from securities of these series held under the Deferred Sales Charge Options. All outstanding Series A and Series T securities purchased or held under a Deferred Sales Charge Option were re-designated as Series B or Series BT securities, as the case may be. As of and after the Implementation Date, Series A and Series T securities are only available for purchase under the ISC Option; and
(ii) provided for the automatic switch of each Series B and Series BT security to a Series A or Series T security, respectively, of the same Fund after the applicable redemption schedule has finished for each Series B and Series BT security (an Automatic Switch and collectively, the Automatic Switches). For Series B or Series BT securities held or purchased under the DSC Option, the Automatic Switches will occur after investors have held their securities for a period of six years, for Series B or Series BT securities held or purchased under the Low Load Option, the Automatic Switches will occur after investors have held their securities for a period of three years and for Series B or Series BT securities held or purchased under the Low Load 2 Option, the Automatic Switches will occur after investors have held their securities for a period of two years (each, a Minimum Period). Each Automatic Switch of any eligible securities will be effected on the last business day of the calendar quarter following the date upon which the securities became eligible for the Automatic Switch.
12. At a special meeting of the securityholders of each Corporate Fund except for the New Fund, each held on March 24, 2016, the Filer sought and received the necessary approvals to effect the above-mentioned re-designations. An information circular was sent to those securityholders of record on February 22, 2016 in each Corporate Fund except for the New Fund. As the declaration of trust or trust agreement, as the case may be, of each Trust Fund permitted the above-mentioned re-designations to be effected without securityholder approval, special meetings of the Trust Funds were not called by the Filer. Securityholders of Sentry U.S. Growth and Income Fund, Sentry Energy Fund and Sentry Global Monthly Income Fund were provided with prior written notice of the above-mentioned re-designations as required pursuant to their respective declaration of trusts or trust agreements. Such notice was not required to be given with respect to any other Trust Fund.
13. Effective from and as of the Implementation Date:
(i) Series B and Series BT securities of the Funds became available for purchase only under the Deferred Sales Charge Options;
(ii) the attributes of the Series B and Series BT securities of the Funds provided for the Automatic Switches after investors have held their securities for the applicable Minimum Period (the Automatic Switch Feature);
(iii) existing Series A and Series T securities that were purchased or held under a Deferred Sales Charge Option were re-designated as Series B and Series BT securities of the same Fund and are held under the same Deferred Sales Charge Option; and
(iv) Series A and Series T securities of the Funds became available for purchase only under the ISC Option.
14. There was no increase in charges to investors who continued to hold Series A and Series T securities of the Pre-April 2016 Funds that were purchased under the ISC Option as a result of the Changes.
15. There was no increase in charges to investors who previously held Series A and Series T securities of the Pre-April 2016 Funds purchased or held under a Deferred Sales Charge Option, which were, on the Implementation Date, re-designated as Series B and Series BT securities, respectively, as a result of the Changes. Such investors, along with any investors who purchased or will purchase Series B and Series BT securities after the Implementation Date, after they have held their securities for the applicable Minimum Period, will be automatically switched, on the last business day of the calendar quarter following the date upon which the securities became eligible for the Automatic Switch, to Series A and Series T securities of the same Fund and thereafter potentially benefit from tiered management fee reductions that are available to investors in Series A and Series T securities.
16. Investors who previously held Series A and Series T securities of the Pre-April 2016 Funds purchased or held under a Deferred Sales Charge Option, which were, on the Implementation Date, re-designated as Series B and Series BT securities, respectively, continue to hold securities of the same Fund with the same underlying pool of assets, the same investment objectives and investment strategies and the same valuation procedures and continue to have the same rights as securityholders as they did prior to the Changes, except for the Automatic Switch Feature and the Series Differences (as defined below).
17. The only differences (the Series Differences) between Series A and Series B securities of a Fund and between Series T and Series BT securities of the same Fund, in addition to the Automatic Switch Feature, are that:
(i) Series A and Series T securities are available for purchase and are sold only under the ISC Option, while Series B and Series BT securities are available for purchase and are sold only under the Deferred Sales Charge Options;
(ii) the management fees for Series A and Series T securities are lower than the respective management fees for Series B and Series BT securities;
(iii) investors in Series A and Series T securities are able to potentially benefit from tiered management fee reductions, which do not apply to Series B and Series BT securities;
(iv) investors in Series A and Series T securities are able to participate in the Filer's account linking service, which does not apply to Series B and Series BT securities; and
(v) prior to the expiry of the applicable redemption schedule for Series B and Series BT securities, the trailing commissions of Series B and Series BT securities may be different than the respective trailing commissions of Series A and Series T securities. Following the expiry of the applicable redemption schedule for Series B and Series BT securities and before the Automatic Switch, the trailing commissions of Series B and Series BT securities will become the same as the respective trailing commissions of Series A and Series T securities.
18. Implementation of the Changes had no adverse tax consequences on investors under current Canadian tax legislation.
19. Each Automatic Switch entails a redemption of Series B or Series BT securities, immediately followed by a purchase of Series A or Series T securities of the same Fund. Each purchase of securities done as part of the Automatic Switch is a "distribution" under the Legislation that triggers the Fund Facts Delivery Requirement.
20. On April 1, 2016, the Filer obtained relief from the requirement in the Legislation for a dealer to deliver or send the most recently filed Fund Facts document at the same time and in the same manner as otherwise required for the prospectus (the Previous Fund Facts Delivery Requirement) in respect of purchases of Series A or Series T securities made pursuant to the Automatic Switches (the April 2016 Relief). The decision granting the April 2016 Relief also included exemptive relief from certain requirements in NI 81-102, Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) and Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3) relating to the inclusion of performance and financial information of Series A and Series T in the simplified prospectus, Fund Facts and sales communications of Series B and Series BT (the Performance Relief).
21. While the Filer initiates each trade done as part of the Automatic Switches, pursuant to the April 2016 Relief, the Filer does not currently deliver the Fund Facts to investors in connection with the purchase of Series A or Series T securities made pursuant to Automatic Switches, since such investors would have received a Fund Facts disclosing that, after the Series B or BT securities were held for the applicable Minimum Period, such securities would be switched to Series A or Series T securities of the same Fund. The investment of such investors will be in securities of the same Fund with the same underlying pool of assets, the same investment objectives and investment strategies and the same valuation procedures and will be otherwise identical, except for the Automatic Switch Feature and the Series Differences. The Fund Facts received by an investor prior to the initial purchase of Series B or Series BT securities will fully disclose the Series Differences, except for the difference in the ability to participate in the Filer's account linking service (which is not permitted to be disclosed in the Fund Facts under Form 81-101F3, but which is, or will be, fully disclosed in the simplified prospectus of the Funds). Investors receiving Series B or Series BT Fund Facts are informed pursuant to such Fund Facts that, upon an Automatic Switch, the Series A or Series T securities will not be subject to redemption fees, will have lower management fees (including the percentage rate of such fees) and will allow the investor to qualify for tiered management fee reductions.
22. As each investor who has received a Series B or Series BT Fund Facts has been fully informed of the Series Differences, there would be no benefit for such investor to receive a Fund Facts in connection with the purchase of Series A or Series T securities made pursuant to an Automatic Switch.
23. On May 30, 2016, the Previous Fund Facts Delivery Requirement was replaced under the Legislation by the Fund Facts Delivery Requirement. The Filer accordingly requires the Exemption Sought in order to continue making the Automatic Switches without having to deliver a Fund Facts in advance of each Automatic Switch.
24. The simplified prospectus and Series B and Series BT Fund Facts of the Funds discloses, or will disclose:
(i) that the Series B and Series BT securities will be automatically switched following the expiry of the applicable Minimum Period, on the applicable switch date, to Series A or T securities (which is an initial sales charge series), as the case may be, of the same Fund;
(ii) that such Series A or Series T securities will have a lower management fee than the corresponding Series B and Series BT securities, will qualify for tiered management fee reductions based on the level of assets invested and will not be subject to a deferred/low load sales charge with a redemption fee;
(iii) the rate of the management fee or Series A or Series T securities, as the case may be;
(iv) the trailing commission rates payable by the Filer in respect of the Series B or Series BT securities (a) prior to the expiry of the applicable Minimum Period and (b) after the expiry of the applicable Minimum Period before the Automatic Switch; and
(v) the trailing commission rates payable by the Filer in respect of the Series A or Series T securities upon the Automatic Switch.
25. The Filer has and will continue to deliver or arrange for the delivery of trade confirmations to investors in connection with each trade done further to the Automatic Switches. Details of any changes in series of securities held have been, and will continue to be, reflected in the account statements sent by each dealer to investors for the month in which the change occurred.
26. Prior to the Implementation Date, the Filer consulted with dealers about the Changes so that dealers were in a position to advise investors of the Changes.
27. Notice of the Changes were contained in a press release issued on January 13, 2016 and material change report dated January 14, 2016 and reflected in amendments to the simplified prospectus and annual information form and amended Fund Facts of the Pre-April 2016 Funds, each dated January 22, 2016.
28. The Filer filed amendments to the simplified prospectus and annual information form and amended Fund Facts of the Pre-April 2016 Funds, each dated March 24, 2016, to qualify the Series B and Series BT securities for distribution, reflect the reduction of the management fees charged in respect of Series A and Series T securities held under the ISC Option of each existing Fund and to reflect the adjustment of the tiered management fee reductions applicable to Series A and Series T securities held under the ISC Option of each existing Fund. These amendments also reflected the re-designation of Series A and Series T securities purchased or held under a Deferred Sales Charge Option to Series B and Series BT securities of the same Fund.
29. In the absence of the Exemption Sought, the Automatic Switches are not capable of being implemented without compliance with the Fund Facts Delivery Requirement.
30. For greater clarity, the Performance Relief remains in full force and effect and is unaffected by the granting of 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:
1. for investors who purchase Series B or Series BT securities on and after the Implementation Date:
(a) each Fund Facts for Series B or Series BT securities discloses:
(i) that the Series B and Series BT securities will be automatically switched following the expiry of the applicable Minimum Period, on the applicable switch date, to Series A or T securities (which is an initial sales charge series), as the case may be, of the same Fund;
(ii) that such Series A or Series T securities will have a lower management fee than the corresponding Series B and Series BT securities, will qualify for tiered management fee reductions based on the level of assets invested and will not be subject to a deferred/low load sales charge with a redemption fee;
(iii) the rate of the management fee or Series A or Series T securities, as the case may be;
(iv) the trailing commission rates payable by the Filer in respect of the Series B or Series BT securities (a) prior to the expiry of the applicable Minimum Period and (b) after the expiry of the applicable Minimum Period before the Automatic Switch; and
(v) the trailing commission rates payable by the Filer in respect of the Series A or Series T securities upon the Automatic Switch (collectively, with items (i), (ii), (iii) and (iv), the Series B and Series BT Disclosure);
(b) the Fund Facts for Series B or Series BT securities, as the case may be, containing the Series B and Series BT Disclosure is delivered to prospective Series B investors or Series BT investors before a dealer accepts an instruction from such investors to purchase Series B or Series BT securities on or after the Implementation Date in accordance with the Fund Facts Delivery Requirement;
(c) the Filer incorporates the Series B and Series BT Disclosure in the simplified prospectus of the Funds; and
2. for investors in Series B or Series BT securities, the Filer sends to such investors an annual reminder notice advising that they will not receive the Fund Facts upon an Automatic Switch, but that:
(a) they may request the most recently filed Fund Facts for the relevant series by calling a specified toll-free number or by sending a request via email to a specified address or email address;
(b) the most recently filed Fund Facts will be sent or delivered to them at no cost;
(c) the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer's website; and
(d) they will not have the right to withdraw from an agreement of purchase and sale in respect of a purchase of Series A or Series T securities made further to an Automatic Switch, but they will have the right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into a simplified prospectus for the Series A or Series T securities, as applicable, contains a misrepresentation, whether or not they request the Fund Facts.
"Vera Nunes"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
Schedule "A"
Sentry All Cap Income Fund
Sentry Canadian Income Fund
Sentry Diversified Equity Fund
Sentry Global Growth and Income Fund
Sentry Global Infrastructure Fund
Sentry Global Mid Cap Income Fund
Sentry Growth and Income Fund
Sentry Small/Mid Cap Income Fund
Sentry U.S. Growth and Income Fund
Sentry Energy Fund
Sentry Global REIT Fund
Sentry Precious Metals Fund
Sentry Alternative Asset Income Fund
Sentry Conservative Balanced Income Fund
Sentry Conservative Monthly Income Fund
Sentry Global Monthly Income Fund
Sentry U.S. Monthly Income Fund
Sentry Canadian Bond Fund
Sentry Corporate Bond Fund
Sentry Global High Yield Bond Fund
Sentry Money Market Fund
Schedule "B"
Sentry Canadian Income Class*
Sentry Diversified Equity Class*
Sentry Global Growth and Income Class*
Sentry Small/Mid Cap Income Class*
Sentry U.S. Growth and Income Class*
Sentry U.S. Growth and Income Currency Neutral Class*
Sentry Canadian Resource Class*
Sentry Global REIT Class*
Sentry Precious Metals Class*
Sentry Conservative Balanced Income Class*
Sentry Corporate Bond Class*
Sentry Global High Yield Bond Class*
Sentry Money Market Class*
Sentry Growth Portfolio*
Sentry Growth and Income Portfolio*
Sentry Balanced Income Portfolio*
Sentry Conservative Income Portfolio*
* A class of shares of Sentry Corporate Class Ltd.
* A class of shares of Sentry Corporate Class Ltd.