National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from the self-dealing provisions in section 4.2 of National Instrument 81-102 -- Mutual Funds to permit inter-fund trades in debt securities between mutual funds, pooled funds and closed-end funds managed by the same manager or an affiliate of the same manager -- inter-fund trades will comply with conditions in s. 6.1(2) of National Instrument 81-107 -- Independent Review Committee for Investment Funds, including the requirement for independent review committee approval.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.2(1), 4.3(1), 4.3(2), 19.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).
June 10, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
SENTRY SELECT CAPITAL INC.
SENTRY SELECT INVESTMENTS INC.
(collectively, the Filers and individually, a Filer)
THE NI 81-102 FUNDS
(as defined below)
The principal regulator in the Jurisdiction has received an application from the Filers on behalf of existing mutual funds and future mutual funds of which a Filer, or an affiliate of a Filer, is the manager and to which National Instrument 81-102 Mutual Funds (NI 81-102) applies (each, an NI 81-102 Fund and, collectively, the NI 81-102 Funds) for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the NI 81-102 Funds from the prohibition in Section 4.2(1) of NI 81-102 to permit an NI 81-102 Fund to purchase debt securities from or sell debt securities to (each purchase or sale of securities, an Inter-Fund Trade) existing and future investment funds managed by a Filer, or an affiliate of a Filer, to which NI 81-102 does not apply (each, an Investment Fund and, collectively, the Investment Funds).
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 Quebec, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon Territory (with Ontario, the Jurisdictions).
Terms defined in the Legislation, National Instrument 14-101 Definitions, NI 81-102 or National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meanings if used in this decision. Certain other defined terms have the meanings given to them above or below.
This decision is based on the following facts represented by the Filers:
1. 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.
2. 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.
3. The head office of each of the Filers is located in Toronto, Ontario.
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 and the Investment Funds (each, a Fund and collectively, the Funds) is or will be an investment fund established as a trust or corporation under the laws of Canada or a jurisdiction of Canada. A Filer, or an affiliate of a Filer, will be the manager and/or portfolio adviser of each Fund.
6. A Filer, or an affiliate of a Filer is, or may be, the trustee of the Funds that are created as trusts.
7. Each of the NI 81-102 Funds is, or will be, a reporting issuer whose securities are qualified for distribution in one or more of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form prepared and filed in accordance with the Legislation.
8. Each of the Investment Funds is either:
(a) a non-redeemable investment fund managed by SSCI, the securities of which have been qualified for distribution pursuant to a prospectus (individually, an Existing Closed-End Fund and collectively, Existing Closed-End Funds) or a prospectus-qualified non-redeemable investment fund that may be managed by a Filer, or an affiliate of a Filer, in the future (individually, a Future Closed-End Fund and collectively, Future Closed-End Funds and together with the Existing Closed-End Funds, the Closed-End Funds), or
(b) an open-end investment fund that is organized as a limited partnership or a mutual fund trust managed by SSII, the securities of which are sold solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) (individually, an Existing Pooled Fund and collectively, the Existing Pooled Funds) or an open-end investment fund that is organized as a limited partnership or a mutual fund trust, the securities of which are sold solely to investors in Canada pursuant to exemptions from the prospectus requirements in accordance with NI 45-106 and that may be managed by a Filer, or an affiliate of a Filer in the future (individually, a Future Pooled Fund and collectively, the Future Pooled Funds and together with the Existing Pooled Funds, the Pooled Funds).
9. Each of the Pooled Funds is not, and will not be, a reporting issuer.
10. The Filers and each of the existing Funds are not in default of securities legislation in any of the Jurisdictions.
11. A Fund may be an associate of a Filer, or of an affiliate of a Filer, that is the manager, portfolio adviser or trustee of an NI 81-102 Fund.
12. The Filers wish to be able to enter into Inter-Fund Trades of securities between an NI 81-102 Fund and a Closed-End Fund or a Pooled Fund.
13. 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.
14. The manager of each Pooled Fund will establish an IRC in respect of each Pooled Fund. The mandate of the IRC of a Pooled Fund will be to approve Inter-Fund Trades between a Pooled Fund and another Fund.
15. The IRC of the Pooled Funds will be composed by the manager of the Pooled Funds in accordance with section 3.7 of NI 81-107 and will be expected to 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.
16. Inter-Fund Trades involving an NI 81-102 Fund or a Closed-End Fund will be referred to the relevant IRC of the NI 81-102 Fund or the Closed-End Fund, as applicable, under section 5.2(1) of NI 81-107 and the manager and the IRC of the NI 81-102 Fund and the Closed-End Fund, as applicable, will comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade.
17. At the time of an Inter-Fund Trade, each Filer will have in place policies and procedures to enable the NI 81-102 Funds to engage in Inter-Fund Trades with Closed-End Funds or Pooled Funds.
18. Each Inter-Fund Trade will be consistent with the investment objective of the NI 81-102 Fund.
19. When a Filer, or an affiliate of a Filer, engages in an Inter-Fund Trade which involves the purchase and sale of securities between an NI 81-102 Fund and an Investment Fund it will follow the following procedures:
(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 (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 another Fund (Portfolio B) to a trader on a trading desk of the Filer or an affiliate of the Filer;
(c) each portfolio manager of the Filer or affiliate of the Filer will request the approval of the chief compliance officer of the Filer or affiliate of the Filer (or his or her designated alternate during periods when it is not practicable for the chief compliance officer to address the matter) (CO) to execute the trade as an Inter-Fund Trade;
(d) once the trader has confirmed the approval of the CO, 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;
(e) 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 will remain open only for 30 days unless the portfolio manager cancels the order sooner; and
(f) the trader on a trading desk will advise the Filer or an affiliate of the Filer of the price at which the Inter-Fund Trade occurred.
20. Each of the Filers has determined that it would be in the interests of the NI 81-102 Funds to receive the Exemption Sought for the following reasons:
(a) It will result in cost and timing efficiencies in respect of the execution of transactions for the NI 81-102 Funds; and
(b) It will result in less complicated and more reliable compliance procedures, as well as simplified and more efficient monitoring thereof, for a Filer, or an affiliate of a Filer, in connection with the execution of transactions on behalf of NI 81-102 Funds.
21. The Filers are unable to rely upon the exemption from Section 4.2(1) of NI 81-102 for inter-fund trades in debt securites codifed in subection 4.3(2) of NI 81-102 because (i) the Pooled Funds are not subject to NI 81-107 and (ii) the Closed End Funds, although subject to NI 81-107, are not mutual funds.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:
(a) 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
(b) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107.