April 1, 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 any mutual fund that the Filer may establish in the future (together with the Trust Funds and the Corporate 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 section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), such that the Funds may deviate from Items 3.1(7), 4.1(1) (in respect of the requirement to comply with subsections 15.3(2) and 15.3(4)(c) of National Instrument 81-102 Investment Funds (NI 81-102)), 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B and Items 3(1) and 4 of Part C of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) to permit the annual and interim management reports of fund performance of Series B and Series BT securities (as defined below) to show, as the financial highlights and past performance of the Series B and Series BT securities, the financial highlights and past performance of the corresponding Series A and Series T securities (as defined below) where the financial highlights and past performance for Series B and Series BT securities relate to the time period prior to the Implementation Date (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 the 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
The Filer is a corporation incorporated under the laws of the province of Ontario with its head office in Toronto, Ontario.
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.
The Filer is the manager, promoter and portfolio manager of the Funds and trustee of the Trust Funds.
The Filer is not in default of securities legislation in any of the Jurisdictions.
The Funds
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.
Each Fund is, or will be, a reporting issuer under the laws of the Jurisdictions and subject to 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 National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101). The securities of the existing Funds are currently offered under a simplified prospectus dated June 8, 2015, as amended.
Each of the Funds currently offers Series A, Series P, Series F, Series PF, Series O and Series I securities. Certain of the Funds also offer Series T4, Series T5, Series T6, Series T7, Series T8 (collectively, Series T), Series P8, Series FT4, Series FT5, Series FT6, Series FT7, Series FT8, Series PF8 and Series O8 securities.
The Series A and Series T securities of the Funds, other than Sentry Money Market Fund and Sentry Money Market Class (the Money Market Funds), are currently 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 to pay a negotiated commission to their dealer at the time they purchase securities, while under the Deferred Sales Charge Options, no commission is paid by the investor at the time of purchase, but the investor will be required to pay a redemption fee if he or she redeems 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 will be switched into Series A and Series T securities of the same Fund under the ISC Option (unless an investor otherwise directs in writing). Series A and Series T securities of the Money Market Funds are only offered under the ISC Option.
The existing Funds are not in default of securities legislation in any of the Jurisdictions.
Series B and Series BT Securities and Automatic Switches
The Filer has implemented changes to its Funds to allow investors who have purchased Series A and Series T securities of the 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 Funds dated December 7, 2015.
In connection with the foregoing amendments and in order to simplify the number of series offered by each Fund, the Filer proposes to make the following changes (the Changes):
(i) separate 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 will be re-designated as Series B or Series B4, Series B5, Series B6 Series B7, Series B8 (collectively, Series BT) securities, as the case may be. As of and after the Implementation Date (as defined below), Series A and Series T securities will only be available for purchase under the ISC Option; and
(ii) provide 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.
At a special meeting of the securityholders of each Corporate 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. 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.
In order to implement the Changes, effective from and as of April 1, 2016 (the Implementation Date):
(i) Series B and Series BT securities of the Funds will be available for purchase and will be sold only under the Deferred Sales Charge Options;
(ii) the attributes of the Series B and Series BT securities of the Funds will provide 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 will be re-designated as Series B and Series BT securities of the same Fund and will be held under the same Deferred Sales Charge Option; and
(iv) Series A and Series T securities of the Funds will be available for purchase and will be sold only under the ISC Option.
There will be no increase in charges to investors who continue to hold Series A and Series T securities of the Funds that were purchased under the ISC Option as a result of the Changes.
There will be no increase in charges to investors who hold Series A and Series T securities purchased or held under a Deferred Sales Charge Option (which will be re-designated as Series B and Series BT securities, respectively) as a result of the Changes. Such investors, 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.
Investors who hold Series A and Series T securities purchased or held under a Deferred Sales Charge Option (which will be re-designated as Series B and Series BT securities, respectively) will 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 will 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).
The only differences (the Series Differences) between Series A and Series B securities of a Fund and between Series T and BT securities of the same Fund, in addition to the Automatic Switch Feature, are that:
(i) Series A and Series T securities will be available for purchase and will be sold only under the ISC Option, while Series B and Series BT securities will be available for purchase and will be sold only under the Deferred Sales Charge Options;
(ii) the management fees for Series A and Series T securities will be 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 pursuant to the Filer’s Preferred Pricing Program, which will 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 will 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 will be lower 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.
Implementation of the Changes will have no adverse tax consequences on investors under current Canadian tax legislation.
Each Automatic Switch will entail 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 will be a “distribution” under the Legislation that triggers the requirement for a dealer to deliver or send the most recently filed fund facts documents (the Fund Facts) (the Fund Facts Delivery Requirement).
The Filer has filed a separate application for exemptive relief from the Fund Facts Delivery Requirement to enable the Funds to effect the Automatic Switches.
The Filer has filed amendments to the simplified prospectus and annual information form and amended Fund Facts of the existing 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 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 Fund. These amendments also reflect 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.
Series B and Series BT Start Dates, Expense Information, Performance Data and Financial Highlights
Each of the Series B and Series BT securities will be a new series of securities. Being new, Series B and Series BT securities will not have their own expense information, performance data and financial highlights derived from financial statements at their date of creation. However, as each Series B security, prior to the Implementation Date, was a Series A security (held under the same Deferred Sales Charge Option) of the same Fund and as each Series BT security, prior to the Implementation Date, was a corresponding Series T security (held under the same Deferred Sales Charge Option) of the same Fund, the expense information, performance data and financial highlights of the Series B and Series BT securities will be identical to the expense information, performance data and financial highlights of the corresponding Series A and Series T securities of the same Fund, from the date of creation of such Series A and Series T securities to the Implementation Date.
The Filer proposes to show:
(i) as the expense information for Series B and Series BT securities, in the section of the simplified prospectus of the Funds entitled “Fund Expenses Indirectly Borne by Investors”, the expense information of the corresponding Series A and Series T securities where the expense information for Series B and Series BT securities relates to the time period prior to the Implementation Date;
(ii) as the start date for Series B and Series BT securities in the simplified prospectus of the Funds and the Fund Facts, the start date of the corresponding Series A and Series T securities;
(iii) as the performance data for Series B and Series BT securities, in the sections of the Fund Facts entitled “Year-by-year returns”, “Best and worst 3-month returns” and “Average return”, the performance data of the corresponding Series A and Series T securities where the performance data for Series B and Series BT securities relates to the time period prior to the Implementation Date;
(iv) as the performance data for Series B and Series BT securities, in the sales communications of the Funds, the performance data of the corresponding Series A and Series T securities where the performance data for Series B and Series BT securities relates to the time period prior to the Implementation Date; and
(v) in the annual and interim management reports of fund performance of the Series B and Series BT securities of the Funds, the financial highlights and past performance of the corresponding Series A and Series T securities where the financial highlights and past performance for Series B and Series BT securities relate to the time period prior to the Implementation Date.
There will be no difference between the expense information, performance data and financial highlights of Series A and B securities and between Series T and Series BT securities of the same Fund, as the fees and expenses of Series B and Series BT securities upon the Implementation Date will be identical to the fees and expenses of Series A and Series T securities (prior to the Implementation Date) of the same Fund. As such, the management expense ratio (MER) of Series A securities (prior to the Implementation Date) will be directly applicable to Series B securities of the same Fund and the MER of Series T securities (prior to the Implementation Date) will be directly applicable to Series BT securities of the same Fund.
The expense information, performance data and other financial data of Series A and Series T securities are significant and meaningful pieces of information for existing investors holding Series A and Series T securities, which will be re-designated, upon the Implementation Date, as Series B and Series BT securities, and for prospective investors in Series B and Series BT securities.
Investors re-designated from Series A and Series T securities purchased or held under a Deferred Sales Charge Option to Series B and Series BT securities will 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. Such series of securities of the same Fund will be identical, except for the Automatic Switch Feature and the Series Differences.
The Filer submits that it is appropriate for the start dates of the Series B and Series BT securities to reflect the start dates of the corresponding Series A and Series T securities of the same Fund. It would be confusing to investors to show the Implementation Date as the start date of each Series B and Series BT security when the expense information, performance data and other financial data disclosed for each Series B and Series BT security is the expense information, performance data and other financial data of the corresponding Series A and Series T security of the same Fund for periods prior to the Implementation Date.
The Filer submits that investors will not be misled if the start dates, expense information, performance data and other financial data of Series A and Series T securities are shown for the corresponding Series B and Series BT securities of the same Fund.
The Filer has filed a separate application for exemptive relief from certain provisions of NI 81-101 and NI 81-102 to enable the Funds to show the start dates, expense information and performance data described in paragraphs 23(i), (ii), (iii) and (iv) above (the NI 81-102 and NI 81-101 Relief).
In absence of the Exemption Sought, the Funds’ annual and interim management reports of fund performance cannot include, as the financial highlights and past performance of the Series B and Series BT securities, the financial highlights and past performance of their corresponding Series A and Series T securities where the financial highlights and past performance for Series B and Series BT securities relate to the time period prior to the Implementation Date.
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, for any Series B or Series BT management reports of fund performance presenting information for a time period prior to the Implementation Date, the management report of fund performance:
(i) includes, as the expense information, performance data and other financial data for Series B and Series BT, the expense information, performance data and other financial data for the corresponding Series A and Series T securities of the same Fund where such information relates to the time period prior to the Implementation Date; and
(ii) discloses the re-designations of the Series A and Series T securities purchased or held under a Deferred Sales Charge Option to Series B and Series BT securities on the Implementation Date for the relevant time period(s).
“Vera Nunes”_____________
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 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.