Sentry Select Investments Inc. and Sentry Select Market Neutral RRSP Fund

Headnote

NP 11-203 -- Relief granted from mutual fund self dealing investment restrictions -- Relief granted for proposed fund-on-fund arrangements by pooled funds making investments in an underlying pooled fund under common management -- Relief granted subject to compliance with certain conditions -- Ss. 111(2) and 111(3), and 118(2)(a) of the Act

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(3), 118(2)(a), 113, 121.

December 23, 2008

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 INVESTMENTS INC.

(the Filer)

AND

SENTRY SELECT MARKET NEUTRAL RRSP FUND

(the First Top Fund)

DECISION

Background

The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer on its behalf and on behalf of the First Top Fund and any mutual fund which is not a reporting issuer and may be established, advised or managed by the Filer in the future (together with the First Top Fund, the Top Funds) which invests its assets in Sentry Select Market Neutral L.P. (the Underlying Fund) for a decision under the securities legislation of the principal regulator (the Legislation) exempting the Top Funds and the Filer from:

(a) the restriction in the Legislation which prohibits a mutual fund from knowingly making an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder;

(b) the restriction in the Legislation which prohibits a mutual fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) above; and

(c) the restriction in the Legislation which prohibits a portfolio manager from knowingly causing any investment portfolio managed by it from investing in any issuer in which a responsible person or an associate of a responsible person is an officer or a director unless the specific fact is disclosed to the client and the written consent to the investment is obtained before the purchase (this paragraph (c) together with paragraphs (a) and (b) above are together referred to in this decision as 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; 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 Alberta.

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:

Manager

1. The Filer is a corporation established under the laws of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered with the Ontario Securities Commission as an adviser in the category of investment counsel and portfolio manager and as a dealer in the category of limited market dealer.

3. The Filer is the investment manager for the Underlying Fund under the terms of an investment management agreement first made as of April 8, 2004 and amended and restated as of March 1, 2008 (the Investment Management Agreement). The Filer assists in the marketing of the Underlying Fund and acts as a distributor of the securities of the Underlying Fund not otherwise sold through another registered dealer.

4. The Filer will be the manager and trustee for the Top Funds and will be responsible for managing the business and affairs of the Top Funds. The Filer will also be responsible for making investment decisions on behalf of the Top Funds, assisting in the marketing of the Top Funds, and acting as a distributor of securities of the Top Funds not otherwise sold through another registered dealer.

5. The Filer is not a reporting issuer in any jurisdiction and is not, to its knowledge, in default of securities legislation in any jurisdiction.

Underlying Fund

6. The Underlying Fund is a limited partnership established under the laws of Ontario by declaration dated April 8, 2004.

7. The general partner of the Underlying Fund is Sentry Select Market Neutral GP Ltd. (the General Partner), an affiliate of the Filer, and is responsible for managing the ongoing business and administrative affairs of the Underlying Fund. The Manager has assumed the administrative responsibilities of the General Partner pursuant to the Investment Management Agreement.

8. The Underlying Fund was formed for the purpose of providing maximum capital return while seeking to limit exposure to market movements.

9. Securities of the Underlying Fund are sold under the terms and provisions of an offering memorandum in Canada's private placement markets in accordance with National Instrument 45-106 Prospectus and Registration Exemptions.

10. The Underlying Fund is not a reporting issuer in any jurisdiction and is not, to its knowledge, in default of securities legislation of any jurisdiction.

Top Funds

11. The Top Funds will be sold in Canada's private placement markets pursuant to prospectus exemptions and will not be reporting issuers in any jurisdiction.

12. The First Top Fund will be an investment trust established under the laws of Ontario in or around January 2009.

13. The First Top Fund will be formed for the purpose of providing a maximum capital return while seeking to limit exposure to market movements which will be achieved primarily by investing in securities of the Underlying Fund.

Fund-on-Fund Structure

14. The First Top Fund is being, and other Top Funds may be, created by the Filer to allow investors in the Top Funds to obtain indirect exposure to the investment portfolio of the Underlying Fund and its investment strategies through, primarily, direct investments by the Top Funds in securities of the Underlying Fund (the Fund-on-Fund Structure). Unlike the Underlying Fund, which is a limited partnership, the First Top Fund is being formed as a trust for the purpose of accessing a broader base of investors, including registered retirement savings plans and other investors that may not or wish not to invest directly in a limited partnership. Rather than running the First Top Fund's and the Underlying Fund's investment portfolios as separate pools, the Filer wishes to make use of economies of scale by managing only one investment pool, in the Underlying Fund.

15. For the purpose of implementing the Fund-on-Fund Structure, the Filer shall ensure that:

a. the arrangements between or in respect of each Top Fund and the Underlying Fund are such as to avoid the duplication of management fees or incentive fees;

b. no sales fees or redemption fees are payable by the Top Fund in relation to its purchases or redemptions of securities of the Underlying Fund;

c. the Filer will not vote the securities of the Underlying Fund held by a Top Fund at any meeting of holders of such securities;

d. the offering memorandum of each Top Fund will describe the Top Fund's intent, or ability, to invest in securities of the Underlying Fund and that the Filer is the investment adviser for the Underlying Fund; and

e. the offering memorandum of each Top Fund will contain information about how the investors in such Top Fund may obtain a copy of the Underlying Fund's offering memorandum or its annual or semi-annual financial statements.

16. Because of the proposed size of the investment by the Top Funds in the Underlying Fund, each Top Fund could, either alone or together with the other Top Funds, become a substantial security holder of the Underlying Fund.

Generally

17. In the absence of this Decision, the Top Funds would be precluded from implementing the Fund-on-Fund Structure due to certain investment restrictions contained in the Legislation.

18. The Fund-on-Fund Structure represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of each Top Fund.

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, in connection with each Top Fund:

(a) securities of the Top Fund are distributed in Canada's private placement markets pursuant to exemptions from the prospectus requirements;

(b) the investment by the Top Fund in the Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;

(c) no investment management fees or incentive fees are payable by the Top Fund that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service;

(d) no sales fees or redemption fees are payable by the Top Fund in relation to its purchases or redemptions of securities of the Underlying Fund;

(e) the Filer will not vote the securities of the Underlying Fund held by the Top Fund at any meeting of holders of such securities; and

(f) if available, the offering memorandum (or other similar document) of a Top Fund will disclose:

a. that the Top Fund may purchase units of the Underlying Fund;

b. the fact that the Filer is the investment adviser to both the Top Fund and the Underlying Fund; and

c. the approximate or maximum percentage of net assets of the Top Fund that it is intended be invested in securities of the Underlying Fund.