Canada Life Investment Management Ltd. et al.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from NI 81-102 seed capital requirements for new continuing funds following reorganizations -- relief from NI 81-101 and NI 81-106 to allow new continuing funds to use performance data from existing funds in its offering documents and continuous disclosure -- subject to conditions.
Applicable Legislative Provisions
National Instrument 81-101 -- Mutual Fund Prospectus Disclosure, ss. 2.1 and 6.1(1).
National Instrument 81-102 -- Investment Funds, ss. 3.1, 15.1.1 and 15.3(2), 15.6(1)(a)(i)(A), 15.6(1)(b), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2) 19.1(1).
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.1 and 17.1(1).
March 17, 2021
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 CANADA LIFE INVESTMENT MANAGEMENT LTD. MACKENZIE FINANCIAL CORPORATION (collectively, the Filers) AND CANADA LIFE FLOATING RATE INCOME FUND CANADA LIFE STRATEGIC INCOME FUND CANADA LIFE GLOBAL BALANCED FUND CANADA LIFE CANADIAN DIVIDEND FUND CANADA LIFE CANADIAN FOCUSED GROWTH FUND CANADA LIFE US ALL CAP GROWTH FUND CANADA LIFE FOREIGN EQUITY FUND (collectively, the Continuing Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers, on behalf of the Continuing Funds, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption from:
(a) section 3.1 of National Instrument 81-102 -- Investment Funds (NI 81-102) to permit the filing of a simplified prospectus for the Continuing Funds (the Simplified Prospectus), notwithstanding that the initial investment required in respect of each of the Continuing Funds (the Seed Capital Requirement) will not be provided (the Seed Capital Relief);
(b) section 2.1 of National Instrument 81-101 -- Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the following exemptions sought from Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) and Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3);
(i) Item 5(b) of Part B of Form 81-101F1 to permit the Continuing Funds to disclose the series start dates of the Existing Funds as its series start dates in the simplified prospectus;
(ii) Item 9.1(b) of Part B of Form 81-101F1 to permit the Continuing Funds to use the performance history of the Existing Funds to calculate its investment risk rating in the simplified prospectus;
(iii) Item 13.2 of Part B of Form 81-101F1 to permit the Continuing Funds to use the financial data of the Existing Funds in making the calculation required under the subheading "Fund Expenses Indirectly Borne by Investors" in the simplified prospectus;
(iv) Item 2 of Part I of Form 81-101F3 to permit the Continuing Funds to use the management expense ratio (the MER) and the start date of each series of the Existing Funds in the "Management expense ratio (MER)" and "Date series started" boxes, respectively, of the Quick Facts table in the fund facts documents of each series of the Continuing Funds (the Fund Facts Documents);
(v) Item 3 of Part I of Form 81-101F3 to permit the Continuing Funds to show the investments of the Existing Funds in the "Top 10 investments" and "Investment mix" tables in the Continuing Funds' initial fund facts documents;
(vi) Item 4 of Part I of Form 81-101F3 to permit the Continuing Funds to use the performance history of the Existing Funds to calculate its investment risk rating in its fund facts documents;
(vii) Item 5 of Part I of Form 81-101F3 to permit the Continuing Funds to use the performance data of the Existing Funds in the "Average return", "Year-by-year returns" and "Best and worst 3-month returns" sections in its fund facts documents; and
(viii) Item 1.3 of Part II of Form 81-101F3 to permit the Continuing Funds to use the MER, trading expense ratio (the TER) and fund expenses of the Existing Funds in the "Fund expenses" section of its fund facts documents;
(c) subsections 15.3(2), 15.6(1)(a)(i)(A), 15.6(1)(b), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2) of NI 81-102 to permit the Continuing Funds to use the performance data of the Existing Funds in sales communications and reports to securityholders of the Continuing Fund (collectively, the Fund Communications);
(d) section 15.1.1 of NI 81-102 to permit the Continuing Funds to calculate its investment risk level using the performance history of the Existing Funds (together with paragraphs (b) and (c) above, the Past Performance Relief); and
(e) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure for relief from the requirements of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) set out below, to permit each Continuing Fund to include in its annual and interim management reports of fund performance (MRFPs) the performance data and information derived from the financial statements and other financial information (collectively, the Financial Data) of the Existing Fund as follows:
(i) Items 3.1(1), 3.1(7), 3.1(7.1) and 3.1(8) of Part B of Form 81-106F1 to permit each Continuing Fund to use the financial highlights of the corresponding Existing Fund in its Form 81-106F1;
(ii) Items 4.1(1), 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(1)(b) of Part B of Form 81-106F1 to permit each Continuing Fund to use the past performance data of the corresponding Existing Fund in its Form 81-106F1; and
(iii) Items 3(1) and 4 of Part C of Form 81-106F1 to permit each Continuing Fund to use the financial highlights and past performance data of the corresponding Existing Fund in its Form 81-106F1 (the Continuous Disclosure Relief, and together with the Seed Capital Relief and Past Performance Relief, 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;
(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 each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (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.
In addition, the following terms have the meanings set out below:
"CLIML" means Canada Life Investment Management Ltd.
"Existing Funds" means Mackenzie Floating Rate Income Fund, Mackenzie Strategic Income Fund, Mackenzie Ivy Global Balanced Fund, Mackenzie Canadian Dividend Fund, Mackenzie Canadian Growth Fund, Mackenzie US All Cap Growth Fund and Mackenzie Ivy Foreign Equity Fund.
"Funds" means the Continuing Funds and the Existing Funds.
"MFC" means Mackenzie Financial Corporation.
Representations
This decision is based on the following facts represented by the Filers:
The Filers, the Funds and the Reorganizations
1. The head office of MFC is located in Toronto, Ontario. MFC is a corporation governed under the laws of the Ontario.
2. MFC is registered as a portfolio manager and exempt market dealer in each province and territory of Canada and as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. MFC is also registered as a commodity trading manager in Ontario.
3. The head office of CLIML is located in is located in London, Ontario. CLIML is a corporation governed under the laws of Canada. CLIML is a wholly-owned investment management subsidiary of The Canada Life Assurance Company (Canada Life), and an affiliate of MFC.
4. CLIML is registered as a portfolio manager in each province and territory of Canada and as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. CLIML is registered as a commodity trading manager in Ontario.
5. The Existing Funds are open-ended mutual fund trusts governed under a declaration of trust under the laws of Ontario. MFC is the investment fund manager and trustee of each Existing Fund.
6. Each Existing Fund is a reporting issuer under the applicable securities legislation in each of the Canadian Jurisdictions, is subject to NI 81-102 and has been a reporting issuer for more than 12 months.
7. Each Continuing Fund is, or is expected on its creation to be, an open-ended trust established under the laws of Ontario. CLIML will be the investment fund manager and trustee of each of Continuing Fund.
8. Each Continuing Fund is being created for the purpose of implementing the applicable Reorganization. The Continuing Funds will be managed in a manner which is substantially similar in all material respects to the manner in which the Existing Funds have been managed. As the Continuing Funds are new, they will not have their own past performance data on the date the Reorganization is implemented.
9. MFC is the manager of certain mutual funds known as the "Canada Life Mutual Funds (formerly Quadrus Group of Funds)", which include the Existing Funds. Units of each Existing Fund are currently qualified for sale in the Canadian Jurisdictions under a simplified prospectus, annual information form and fund facts documents each dated January 4, 2021 (collectively, the Offering Documents), each of which has been prepared in accordance with NI 81-101.
10. Each Fund offers Q series, H series, L series, N series, QF series, QFW series and HW series of units. Mackenzie Strategic Income Fund, Mackenzie Ivy Global Balanced Fund, Mackenzie Canadian Dividend Fund, Mackenzie Canadian Growth Fund and Mackenzie Ivy Foreign Equity Fund also offer D5 series, H5 series, L5 series, N5 series, QF5 series, HW5 series and QFW5 series units under the Offering Documents. Mackenzie Strategic Income Fund also offers D8 series, H8 series, L8 series, N8 series and HW8 series units under the Offering Documents. Mackenzie Canadian Dividend Fund and Mackenzie Canadian Growth Fund also offers D8 series and L8 series securities under the Offering Documents. Mackenzie US All Cap Growth Fund also offers I series units under the Offering Documents. Each of the Existing Funds also offers Series S units, and each of Mackenzie Floating Rate Income Fund, Mackenzie Canadian Dividend Fund, Mackenzie US All Cap Growth Fund and Mackenzie Ivy Foreign Equity Fund offer Series CL units, on a prospectus-exempt basis and not under the Offering Documents. The foregoing series of units are referred to herein as the Subject Series. Additional series of units of the Existing Funds are offered under a simplified prospectus, annual information form and fund facts documents (the MFC Offering Documents, and will not be subject to the Reorganizations (as defined below) or the Exemption Sought contemplated hereby.
11. CLIML and MFC entered into a Purchase and Sale Agreement dated August 4, 2020 (the PSA) pursuant to which MFC agreed to transfer, and CLIML agreed to acquire, MFC's rights to act as a trustee and/or manager and/or portfolio manager of certain mutual funds, including the portions of the assets of the Existing Funds attributable to the Subject Series.
12. To give effect the transactions contemplated by the PSA and the satisfaction of certain other conditions, the Filers have proposed to reorganize the Subject Series of each Existing Fund into the equivalent Subject Series of the corresponding Continuing Fund (each, a Reorganization) on or about April 16, 2021 (or, in the case of the Canada Life US All Cap Growth Fund, on or about March 26, 2021) (the Reorganization Date), as follows:
Existing Fund Name
Continuing Fund Name
Mackenzie Floating Rate Income Fund
Canada Life Floating Rate Income Fund
Mackenzie Strategic Income Fund
Canada Life Strategic Income Fund
Mackenzie Ivy Global Balanced Fund
Canada Life Global Balanced Fund
Mackenzie Canadian Dividend Fund
Canada Life Canadian Dividend Fund
Mackenzie Canadian Growth Fund
Canada Life Canadian Focused Growth Fund
Mackenzie US All Cap Growth Fund
Canada Life US All Cap Growth Fund
Mackenzie Ivy Foreign Equity Fund
Canada Life Foreign Equity Fund
13. The Subject Series of the Existing Funds are offered exclusively through Quadrus Investment Services Ltd. (Quadrus), the principal distributor for the Subject Series of the Existing Funds and Canada Life's proprietary distribution channel.
14. CLIML intends to file a final simplified prospectus, annual information form and fund facts documents in each of the Canadian Jurisdictions on or about March 17, 2021 with respect to the Continuing Funds. CLIML will not begin distributing securities of the Continuing Funds prior to the applicable Reorganization.
15. Each Continuing Fund is expected to be a reporting issuer under the applicable securities legislation in each of the Canadian Jurisdictions and is expected to be subject to NI 81-102.
16. Each Continuing Fund will offer the Subject Series of units.
17. Neither the Filers, nor any of the Existing Funds, are in default of securities legislation in any of the Canadian Jurisdictions.
18. Each Existing Fund follows, and each Continuing Fund will follow, the standard investment restrictions and practices established under NI 81-102, except pursuant to the terms of any exemption that has been previously obtained.
Seed Capital Relief
19. The Filer does not intend to subscribe for $150,000 of units of each Continuing Fund as required by the Seed Capital Requirement because the assets of the corresponding Existing Fund (which will become the assets of that Continuing Fund in connection with the implementation of the applicable Reorganization) are significantly in excess of the $150,000 Seed Capital Requirement. Accordingly, the Filers are of the view that any seed capital injected into a Continuing Fund prior to a Reorganization will not provide any additional benefit to unitholders.
20. On the relevant Reorganization Date, unitholders of a Continuing Fund will hold units of that Continuing Fund equal to the same net asset value as they did before as securityholders of the corresponding Existing Fund, and therefore, the Continuing Funds will each have already received subscriptions in excess of $150,000.
Past Performance Relief and Continuous Disclosure Relief
21. Subject to receipt of the Seed Capital Relief, the Continuing Funds will not have any assets (other than a nominal amount to establish it) or liabilities at the time of the applicable Reorganization.
22. The assets of the Subject Series of the Existing Funds will be transferred to the equivalent Subject Series of the Continuing Funds in connection with the implementation of the Reorganizations.
23. As the Filer intends to cease distribution of Subject Series of the Existing Funds at the close of business on the business day prior to the Reorganization Date, it does not intend to renew the Existing Fund's simplified prospectus and annual information form in respect of the Subject Series after the lapse date.
24. Each Continuing Fund will be a new fund. While each Continuing Fund will have the same assets and liabilities as the corresponding Existing Fund in respect of the Subject Series, as a new fund, it will not have its own Financial Data as at the Reorganization Date.
25. The Financial Data of the Existing Funds are significant information which can assist investors in determining whether to purchase securities of the Continuing Funds. In the absence of the Past Performance Relief and Continuous Disclosure Relief, investors will have no historical financial or performance information (such as past performance) on which to base such an investment decision.
26. Without the Past Performance Relief and Continuous Disclosure Relief, the sales communications pertaining to, and MRFPs of, the Continuing Funds cannot include Financial Data of the Existing Funds that relate to a period prior to the applicable Reorganization and the Continuing Funds cannot provide performance data in its sales communications until it has distributed securities under a simplified prospectus for at least 12 months.
27. The Filer proposes to:
(a) disclose the series start dates of the Existing Funds as the series start dates of the Continuing Funds:
(i) in the "Fund Details" table in Part B of the simplified prospectus; and
(ii) under the subheading "Date series started" under the heading "Quick Facts" in the fund facts documents;
(b) use the performance data of the Existing Funds to calculate the risk rating of the Continuing Funds in:
(i) the simplified prospectus; and
(ii) the fund facts documents;
(c) use the performance data of the Existing Funds in:
(i) the Fund Communications of the Continuing Funds; and
(ii) the "Average return", "Year-by-year returns" and "Best and worst 3-month returns" subsections of the fund facts documents for the Continuing Funds;
(d) use the MER of the Existing Funds for the purposes of calculating the information required under the subheading "Fund Expenses Indirectly Borne by Investors" in Part B of the simplified prospectus for the Continuing Funds;
(e) show the investments of the Existing Funds in the "Top 10 investments" and "Investment mix" tables in the initial fund facts documents for the Continuing Funds;
(f) use the MER, TER and fund expenses of the Existing Funds in the "Fund expenses" section of the fund facts documents for the Continuing Funds;
(g) prepare annual MRFPs for the Canada Life US All Cap Growth Fund commencing with the year ending March 31, 2021 and interim MRFPs for the Canada Life US All Cap Growth Fund commencing with the period ending September 30, 2021 using the Mackenzie US All Cap Growth Fund's financial highlights and past performance;
(h) prepare annual MRFPs for the Continuing Funds (other than the Canada Life US All Cap Growth Fund) commencing with the year ending March 31, 2022 and interim MRFPs for the Continuing Funds (other than the Canada Life US All Cap Growth Fund) commencing with the period ending September 30, 2021 using the Existing Funds' (other than the Mackenzie US All Cap Growth Fund) financial highlights and past performance;
(i) prepare comparative annual financial statements for the Canada Life US All Cap Growth Fund commencing with the year ending March 31, 2021 and interim financial statements for the Canada Life US All Cap Growth Fund commencing with the period ending September 30, 2021 using the Mackenzie US All Cap Growth Fund's financial highlights and past performance in respect to the Subject Series for that portion of the financial reporting period preceding the Reorganization Date; and
(j) prepare comparative annual financial statements for the Continuing Funds (other than the Canada Life US All Cap Growth Fund) commencing with the year ending March 31, 2022 and interim financial statements for the Continuing Funds (other than the Canada Life US All Cap Growth Fund) commencing with the period ending September 30, 2021 using the Existing Funds' (other than the Mackenzie US All Cap Growth Fund) financial highlights and past performance in respect to the Subject Series for that portion of the financial reporting period preceding the Reorganization Date.
28. The Filer is seeking to make the Reorganizations as seamless as possible for investors of the Existing Funds. Accordingly, the Filer submits that treating a Continuing Fund as fungible with the corresponding Existing Fund for purposes of the starting dates, investment holdings and Financial Data would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the difference between the Existing Funds and the Continuing Funds.
29. The Filer submits that investors will not be misled if the starting dates, investment holdings and Financial Data of a Continuing Fund reflects the starting dates, investment holdings and Financial Data of the corresponding Existing 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:
1. the Seed Capital Relief is granted;
2. the Past Performance Relief is granted, provided that:
(a) the Fund Communications include the applicable performance data of the Existing Funds prepared in accordance with Part 15 of NI 81-102;
(b) the simplified prospectus:
(i) states that the start date for each series of the Continuing Fund is the start date of the corresponding series of the Existing Fund; and
(ii) discloses the Reorganization where the start date for each series of the Continuing Fund is stated;
(c) the fund facts document of each series of the Continuing Fund:
(i) states that the "Date series started" date is the "Date series started" date of the corresponding series of the Existing Fund;
(ii) includes the performance data of the Existing Fund prepared in accordance with Part 15 of NI 81-102; and
(iii) discloses the Reorganization where the "Date series started" date is stated; and
(d) the Continuing Fund prepares its MRFPs in accordance with the Continuous Disclosure Relief; and
3. the Continuous Disclosure Relief is granted, provided that:
(a) the MRFPs for the Continuing Funds include the Financial Data of the Existing Funds pertaining to the corresponding series of the Existing Funds and disclose the Reorganization for the relevant time periods; and
(b) the Continuing Funds prepare their simplified prospectus, fund facts documents and other Fund Communications in accordance with the Seed Capital Relief and Past Performance Relief.