Sentry Select Capital Inc. and Sentry Select Global Real Estate Fund

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- closed-end fund to convert open-ended mutual fund prior to merger with a conventional open-ended mutual fund -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- continuing fund does not have substantially similar investment objectives and fee structure as terminating fund -- merger will not be a "qualifying exchange" or tax-deferred transaction under Income Tax Act -- securityholders of terminating fund provided with timely and adequate disclosure regarding the merger.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.5(3), 5.6, 5.7.

January 22, 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.

(the Filer)

AND

SENTRY SELECT GLOBAL REAL ESTATE FUND

(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 approval of the merger (the Merger) of the Terminating Fund into Sentry Select REIT Fund (the Continuing Fund) under paragraph 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) (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 (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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.

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. The Filer is registered in Ontario as a dealer in the category of mutual fund dealer and as an adviser in the category of 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 as an advisor in the category of portfolio manager under the Securities Act (Alberta).

2. The Filer is the manager and trustee of both the Terminating Fund and the Continuing Fund (each a Fund and collectively, the Funds).

3. The head office of the Filer is located in Toronto, Ontario.

The Funds

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

5. The Terminating Fund is a closed-end investment fund that offered its Listed units and Class F units in all of the provinces and territories of Canada (the Jurisdictions) pursuant to a simplified prospectus dated November 29, 2007. In terms of the declaration of trust of the Terminating Fund it is scheduled to convert into an open-end mutual fund on February 1, 2010 (the Conversion Date). The Terminating Fund's Listed units were previously listed on the Toronto Stock Exchange (the TSX) and were delisted on January 20, 2010.

6. Units of the Continuing Fund are currently offered for continuous sale under a simplified prospectus and annual information form dated June 15, 2009 in the Jurisdictions.

7. The Funds are reporting issuers under the applicable securities legislation of the Jurisdictions 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 under the Legislation.

9. The net asset value (NAV) for units of the Continuing Fund is calculated on a daily basis on each day that the TSX is open for trading and units of the Continuing Fund are generally redeemable on a daily basis. Absent the Merger, the NAV for units of the Terminating Fund would be calculated daily and be redeemable daily on the same basis effective the Conversion Date.

The Merger

10. The Filer intends to merge the Terminating Fund into the Continuing Fund which will involve the transfer of the assets of the Terminating Fund into the Continuing Fund in exchange for units of the Continuing Fund.

11. The board of directors of the Filer approved the proposed Merger on November 12, 2009 and a press release and material change report in connection with the Merger were issued and filed on SEDAR on November 13, 2009 and November 18, 2009 respectively.

12. As required by NI 81-107 an independent review committee (the IRC) has been appointed for the Funds. The Filer presented the terms of the Merger to the IRC for a recommendation on December 17, 2009. The IRC reviewed the proposed Merger and recommended that it be put to unitholders of the Terminating Fund for their consideration on the basis that the Merger would achieve a fair and reasonable result for the Funds.

13. Regulatory 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 is not "substantially similar" to the fundamental investment objective of the Continuing Fund,

(b) each Fund has a different fee structure, and

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

14. A management information circular in connection with the Merger was filed on SEDAR and was mailed to unitholders of the Terminating Fund on December 22, 2009 (the Circular).

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

16. In accordance with relief from the prospectus and financial statement delivery requirements of paragraph 5.6(1)(f)(ii) of NI 81-102, granted to the Filer on May 29, 2009, in respect of future mergers of mutual funds managed by it, the Filer, in connection with the Merger:

(a) delivered the current Part A and Part B of the simplified prospectus of the Continuing Fund to Unitholders of the Terminating Fund with the Circular; and

(b) prominently disclosed in the Circular where Unitholders of the Terminating Fund can obtain the most recent interim and annual financial statements of the Continuing Fund.

17. The Filer will pay all costs and expenses associated with the Merger and relating to the solicitation of proxies.

18. Unitholders of the Terminating Fund approved the Merger at a special meeting of unitholders held on January 15, 2010.

19. It is anticipated that the Merger will be implemented on or about February 1, 2010 (the Merger Date) which is also the Conversion Date.

20. Under the terms of the Terminating Fund's declaration of trust, Unitholders of the Terminating Fund will have the right to redeem units of the Terminating Fund at their net asset value on January 29, 2010, which is the last business day immediately before the Merger Date.

21. Following the Merger, the Continuing Fund will continue as a publicly offered open-end mutual fund and the Terminating Fund will be wound up as soon as reasonably possible following the Merger.

22. Implicit in the approval by unitholders of the Merger is the adoption by the Terminating Fund of the fundamental investment objective of the Continuing Fund and the acceptance by unitholders of the Terminating Fund of the fee structure of the Continuing Fund.

23. The portfolio assets of the Terminating Fund to be acquired by the Continuing Fund under the Merger

(a) may be acquired by the Continuing Fund in compliance with NI 81-102; and

(b) are acceptable to the portfolio adviser of the Continuing Fund and consistent with its fundamental investment objectives.

24. The proposed Merger will be structured substantially as follows:

(a) On the Merger Date, the Terminating Fund will transfer all of its assets to the Continuing Fund in exchange for Series A sales charge option and Series F units of the Continuing Fund. The Series A sales charge option units and the Series F units of the Continuing Fund received by the Terminating Fund will have an aggregate NAV equal to the NAV of the assets attributable to the Listed units and Class F units respectively of the Terminating Fund, as of the close of business on the business day prior to the Merger Date, and will be issued at the NAV per Series A sales charge option units and Series F units respectively of the Continuing Fund as of the close of business on the Merger Date.

(b) Immediately thereafter, the Series A sales charge option units and Series F units of the Continuing Fund received by the Terminating Fund will be distributed to the unitholders that previously held Listed units and Class F units respectively of the Terminating Fund. Each unitholder will receive Series A or Series F 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. While the distribution of units of the Continuing Fund to unitholders of the Terminating Fund will occur immediately following the Merger, it is not expected that the Series A and Series F units will immediately appear in the individual unitholder's account.

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

(a) unitholders of the Terminating Fund are expected to enjoy improved economies of scale and lower proportionate fund operating expenses (which are borne indirectly by unitholders) as part of a larger combined Continuing Fund. Due to the smaller size of the Terminating Fund, the administrative and regulatory costs of operating the Terminating Fund as a stand-alone mutual fund would be higher per unitholder and could increase significantly if the Terminating Fund continues to decrease in asset size;

(b) the Continuing Fund's larger portfolio and similar investment mandate should offer improved portfolio diversification to unitholders of the Terminating Fund;

(c) the Manager believes that the interests of unitholders of the Terminating Fund will be better served by being invested in a larger Continuing Fund. The global investment objective and strategy of the Terminating Fund cannot continue to be fully optimized if the Terminating Fund were to convert to a stand-alone mutual fund on February 1, 2010, as originally scheduled, and not be merged with the Continuing Fund, due to the significant redemptions out of the Terminating Fund anticipated by the Manager associated with the redemption right exercisable by Unitholders on January 29, 2010 and ongoing redemptions post-conversion;

(d) due to its smaller size, the Terminating Fund may be required to sell certain securities at inopportune times to fund redemptions. This is less likely to occur in the much larger Continuing Fund;

(e) the Merger will permit unitholders of the Terminating Fund to transition their assets smoothly into a growing, more viable investment fund; and

(f) if the Merger is approved and implemented, unitholders of the Terminating Fund will benefit from the flexibility to switch seamlessly from one series to another within the Continuing Fund on a non-taxable basis and, on a taxable basis, from the Continuing Fund to any other fund managed by Sentry Select within the Sentry Select Group of Funds.

26. In the event that the Merger is not implemented, the Manager intends to terminate the Terminating Fund on or about February 1, 2010. Unitholders of the Terminating Fund were advised thereof by notice mailed to them on November 27, 2009.

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.