Mackenzie Financial Corporation et al.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – approval of investment fund mergers – approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds – certain terminating funds and continuing funds do not have substantially similar fundamental investment objectives – certain continuing funds do not have recently filed simplified prospectuses and fund facts documents – mergers to otherwise comply with pre-approval criteria, including securityholder vote, IRC approval – securityholders provided with timely and adequate disclosure regarding the mergers.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 5.7(1)(b), and 19.1(2).
June 13, 2019
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
MACKENZIE FINANCIAL CORPORATION
(the Filer)
AND
MACKENZIE CANADIAN BALANCED FUND
AND
MACKENZIE US STRATEGIC INCOME FUND
(collectively, the Terminating Funds and individually, a Terminating Fund)
DECISION
BACKGROUND
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds, for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed mergers (collectively, the Mergers and individually, a Merger) of each of the Terminating Funds with applicable Continuing Funds (each as defined below), pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval 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 each of the provinces and territories of Canada, other than Ontario (together with Ontario, the Canadian 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. The following additional terms shall have the following meanings:
Continuing Fund means each of Mackenzie Strategic Income Fund and Mackenzie Global Strategic Income Fund (collectively, the Continuing Funds);
Effective Date means on or about August 16, 2019, the anticipated date of the Mergers;
Exempt Merger means the Merger of Mackenzie Canadian Balanced Fund into Mackenzie Strategic Income Fund, where the Series S units of Mackenzie Strategic Income Fund will be offered only on an exempt distribution basis;
Funds means collectively, the Terminating Funds and the Continuing Funds;
Grandfathering Merger means the Merger of Mackenzie Canadian Balanced Fund into Mackenzie Strategic Income Fund, where the Series DZ units of Mackenzie Strategic Income Fund will be created solely to facilitate the Merger, will not be qualified for distribution under a prospectus and will not be available for sale subsequent to the Merger; and
New Series Mergers means the Merger of Mackenzie Canadian Balanced Fund into Mackenzie Strategic Income Fund, where the D8 Series, H8 Series, HW8 Series, L8 Series and N8 Series units of Mackenzie Strategic Income Fund will be created to facilitate the Merger.
REPRESENTATIONS
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation governed by the laws of Ontario and is registered as follows: as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; as a portfolio manager and exempt market dealer in the Canadian Jurisdictions; as an adviser in Manitoba; and as a commodity trading manager in Ontario.
2. The Filer, with its head office in Toronto, Ontario, is the trustee and manager of the Funds.
The Funds
3. The Funds are unit trusts established under the laws of Ontario. Each of the Funds are reporting issuers under the securities legislation of the Canadian Jurisdictions. Neither the Filer nor the Funds are in default of securities legislation in any of the Canadian Jurisdictions.
4. Other than circumstances in which the securities regulatory authority of a Canadian Jurisdiction has expressly exempted a Fund therefrom, the Funds follow the standard investment restrictions and practices established under NI 81-102.
5. Units of the Funds are generally qualified for sale under one or more of the simplified prospectus, annual information form and fund facts documents each dated:
(i) September 28, 2018, as amended;
(ii) June 28, 2018, as amended; and
(iii) November 23, 2018
(collectively, the Offering Documents).
Series S units of Mackenzie Canadian Balanced Fund are, and Series S units of Mackenzie Strategic Income Fund will only be, offered on an exempt distribution basis.
Series DZ units of Mackenzie Canadian Balanced Fund are not qualified for distribution under a prospectus. Further, Series DZ units of Mackenzie Strategic Income Fund will be created solely to facilitate the Mergers, will not be qualified for distribution under a prospectus and will not be available for sale subsequent to the Mergers.
D8 Series, H8 Series, HW8 Series, L8 Series and N8 Series units of Mackenzie Strategic Income Fund will be newly created to facilitate the Mergers and will be qualified for distribution under a prospectus.
6. The net asset value for each series of the Funds is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the applicable Offering Documents.
Reasons for the Approval Sought
7. Approval of the Mergers is required because each Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.1 of NI 81-102. The pre-approval criteria are not satisfied in the following ways:
(i) the fundamental investment objectives of the Continuing Funds are not, or may be considered not to be, “substantially similar” to the investment objectives of their corresponding Terminating Funds; and
(ii) the materials sent to applicable unitholders of Mackenzie Canadian Balanced Fund in respect of the Exempt Merger, the Grandfathering Merger and the New Series Mergers did not include the current simplified prospectuses or the most recently filed fund facts document(s) for the corresponding series of Mackenzie Strategic Income Fund.
8. Except as noted above, the Mergers will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Mergers
9. Pursuant to the Mergers, unitholders of each of the Terminating Funds would become unitholders of the applicable Continuing Fund, as follows:
|
Terminating Fund |
Continuing Fund |
|
Mackenzie Canadian Balanced Fund |
Mackenzie Strategic Income Fund |
|
Mackenzie US Strategic Income Fund |
Mackenzie Global Strategic Income Fund |
10. The Mergers do not require approval of unitholders of the Continuing Funds as the Filer has determined that the Mergers do not constitute material changes for any of the Continuing Funds.
11. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Independent Review Committee (IRC) has been appointed for the Funds. The Filer presented the terms of the Mergers to the IRC for a recommendation. The IRC reviewed the Mergers and provided a positive recommendation for each of the Mergers, having determined that the Mergers, if implemented, would achieve a fair and reasonable result for the Funds and their respective unitholders.
12. In accordance with National Instrument 81-106 — Investment Fund Continuous Disclosure (NI 81-106), a press release announcing the Mergers was issued and filed via SEDAR on April 26, 2019. A material change report and amendments to the Offering Documents with respect to the Mergers were filed in accordance with NI 81-106.
13. By way of order dated October 21, 2016, the Filer was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of NI 81-106 to send a printed management information circular to unitholders while proxies are being solicited. Subject to certain conditions, the Notice-and-Access Relief instead allows a notice-and-access document to be sent to such unitholders. Pursuant to the requirements of the Notice-and-Access Relief, the notice-and-access document, a form of proxy in connection with each special meeting of unitholders of the Funds, as well as the most recent fund facts document(s) for the applicable series of the Continuing Funds (other than in respect of the Exempt Merger, the Grandfathering Merger and the New Series Mergers) will be mailed to unitholders of the Terminating Funds commencing on or about June 18, 2019. The management information circular and forms of proxy (collectively, the Meeting Materials) in connection with special meetings of unitholders of the Funds will be posted on the Filer’s website at www.mackenzieinvestments.com, the Quadrus Group of Funds website at www.quadrusgroupoffunds.com, as applicable, and on the Laurentian Bank Group of Funds website at www.laurentianbank.ca/mackenzie, as applicable. The Meeting Materials will also appear on the SEDAR website at www.sedar.com.
14. The Meeting Materials describe all of the relevant facts concerning the Mergers relevant to each unitholder, including the differences between investment objectives, strategies of the Terminating Funds and the Continuing Funds, the IRC’s recommendations regarding the Mergers, and income tax considerations so that unitholders of the Terminating Funds may consider this information before voting on the Mergers. The Meeting Materials also describe the various ways in which unitholders can obtain a copy of the simplified prospectus and annual information form of the Continuing Funds, as well as the most recent interim and annual financial statements and management reports of fund performance for the Continuing Funds, at no cost.
15. Fund facts document(s) relating to the applicable series of each Continuing Fund were mailed to unitholders of the corresponding series of each Terminating Fund in all instances other than in respect of the Exempt Merger, the Grandfathering Merger and the New Series Mergers. In order to effect the Mergers relating to Series S and Series DZ of Mackenzie Canadian Balanced Fund, Series S and Series DZ units of Mackenzie Strategic Income Fund will be distributed to unitholders of Mackenzie Canadian Balanced Fund in reliance on the prospectus exemption contained in section 2.11 of National Instrument 45-106 Prospectus Exemptions.
16. In respect of the Exempt Merger and the Grandfathering Merger, because a current simplified prospectus and fund facts documents are not available for Series S and Series DZ of Mackenzie Strategic Income Fund, unitholders of Series S and Series DZ of Mackenzie Canadian Balanced Fund were sent a fund facts document relating to Series A units of Mackenzie Strategic Income Fund.
17. In respect of the New Series Mergers, because a current simplified prospectus and fund facts documents are not available for D8 Series, H8 Series, HW8 Series, L8 Series and N8 Series of Mackenzie Strategic Income Fund, unitholders of D8 Series, H8 Series, HW8 Series, L8 Series and N8 Series of Mackenzie Canadian Balanced Fund were sent a fund facts document relating to Quadrus Series units of Mackenzie Strategic Income Fund.
18. The Filer will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the trades that occur both before and after the date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees. There are no charges payable by unitholders of the Terminating Funds who acquire units of the corresponding Continuing Funds as a result of the Mergers.
19. Unitholders of each of the Terminating Funds will be asked to approve the Merger associated with that Terminating Fund at a special meeting of unitholders scheduled to be held on or about July 24, 2019.
20. Following the implementation of the Mergers, all systematic plans that will be established with respect to the Terminating Funds will be re-established in the Continuing Fund, either on a series-for-series basis or into a similar series with substantially similar fees, unless unitholders advise the Filer otherwise or unless otherwise noted in the information circular.
21. Unitholders may change or cancel any systematic plan at any time and unitholders of the Terminating Funds who wish to establish one or more systematic plans in respect of their holdings in the Continuing Fund may do so following the implementation of the Mergers.
22. Each Merger will be completed as a tax‑deferred transaction under the Income Tax Act (Canada) (Tax Act). Unitholders of the Terminating Funds will be provided with information about the income tax consequences of the Mergers in the information circular and will have the opportunity to consider such information prior to voting on the Mergers.
Merger Steps
23. If the necessary approvals are obtained, the Filer will carry out the following steps to complete the Mergers:
(i) Prior to effecting a Merger, if required, each Terminating Fund will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the applicable Continuing Fund and purchase other securities so that, as of the effective date of the Merger, the portfolio of the Terminating Fund is substantially similar to that of the applicable Continuing Fund. As a result, some of the Terminating Funds may temporarily hold cash, money market instruments or investments that are not consistent with their investment objectives, and may not be fully invested in accordance with their investment objectives for a brief period of time prior to the Merger being effected.
(ii) The value of each Terminating Fund’s portfolio and other assets will be determined at the close of business on the effective date of each applicable Merger in accordance with the constating documents of the applicable Terminating Fund.
(iii) Each Continuing Fund will acquire the investment portfolio and other assets of the applicable Terminating Fund in exchange for units of the Continuing Fund.
(iv) Each Continuing Fund will not assume any liabilities of the applicable Terminating Fund and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.
(v) The Terminating Funds will distribute a sufficient amount of their net income and net realized capital gains, if any, to unitholders to ensure that they will not be subject to tax under Part 1 of the Tax Act for their current tax year.
(vi) The units of each Continuing Fund received by the applicable Terminating Fund will have an aggregate net asset value equal to the value of the portfolio assets and other assets that the Continuing Fund is acquiring from the Terminating Fund, and the units of the Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the effective date of the applicable Merger.
(vii) Immediately thereafter, units of each Continuing Fund received by the applicable Terminating Fund will be distributed to unitholders of the Terminating Fund, as proceeds of redemption of their units in the Terminating Fund on a dollar‑for‑dollar and series by series basis.
(viii) As soon as reasonably possible following each Merger, the applicable Terminating Fund will be wound up.
24. Unitholders in the Terminating Funds will continue to have the right to redeem their units or exchange their units for units of any other mutual fund of the Filer at any time up to the close of business on the business day before the Effective Date. Unitholders of the Terminating Fund that switch their units for units of other mutual funds of the Filer will not incur any charges other than switch fees, if applicable, as described in each Terminating Fund’s simplified prospectus. Unitholders who redeem units may be subject to redemption charges.
25. Following the implementation of the Mergers, the Continuing Funds will continue as publicly offered open-ended mutual funds offering units in the Canadian Jurisdictions.
26. Following the implementation of the Mergers, a press release and material change report announcing the results of the unitholder meetings in respect of the reorganization of the Terminating Funds will be issued and filed.
27. No sales charges will be charged by the Filer to investors or to the Terminating Fund or Continuing Fund in connection with the acquisition by a Continuing Fund of the investment portfolio of its applicable Terminating Fund.
28. The assets of each Terminating Fund to be acquired by the applicable Continuing Fund in order to effect the Mergers are currently, or will be, acceptable, on or prior to the effective date of the Mergers, to the portfolio manager(s) of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the Continuing Fund.
29. If the Mergers are approved, the reorganizations will be implemented after the close of business on the Effective Date. If either of the Mergers are not approved, the applicable Terminating Fund(s) will continue to be offered for distribution.
Merger Benefits
30. The Filer believes that the Mergers are beneficial to unitholders of the Terminating Funds for the following reasons:
(i) Superior Performance of the Continuing Funds: Each Continuing Fund has generated better past performance than the corresponding Terminating Fund (although past performance is not a guarantee of future returns and may not be repeated).
(ii) Better Future Return Potential: The Mergers are being proposed to reflect the Filer’s belief that the Continuing Funds will provide better return potential over the long term.
(iii) Same or Lower Fees: In each case, management fees and/or fixed administration fees will be the same or lower for the Continuing Funds.
(iv) More Viable Long-Term Investment Vehicle: In the case of the Merger of Mackenzie US Strategic Income Fund into Mackenzie Global Strategic Income Fund, the Filer believes that the Continuing Fund is a more viable long-term investment vehicle for existing and potential investors.
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 Approval Sought is granted, provided that the Filer obtains the prior approval of the unitholders of the Terminating Funds for the Mergers at a special meeting held for that purpose.
“Darren McKall”
Investment Funds and Structured Products
Ontario Securities Commission