Mackenzie Financial Corporation et al.
Headnote
NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because the mergers did not meet the criteria for pre-approved re-organizations and transfers in National Instrument 81-102 -- terminating funds and continuing funds have different investment objectives -- three mergers not a "qualifying transaction" or a tax-deferred transaction under the Income Tax Act -- securityholders of terminating funds provided with timely and adequate disclosure regarding the merger.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1), 5.7(1)(b) and 19.1.
July 26, 2013
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 Manager)
AND
MACKENZIE SENTINEL MANAGED RETURN CLASS
MACKENZIE MAXXUM MONTHLY INCOME FUND
MACKENZIE ALL-SECTOR CANADIAN BALANCED FUND
MACKENZIE CUNDILL GLOBAL BALANCED FUND
MACKENZIE MAXXUM ALL-CANADIAN DIVIDEND CLASS
MACKENZIE IVY ALL-CANADIAN CLASS
MACKENZIE UNIVERSAL ALL-CANADIAN GROWTH CLASS
MACKENZIE UNIVERSAL CANADIAN SHIELD FUND
MACKENZIE CUNDILL AMERICAN CLASS
MACKENZIE UNIVERSAL HEALTH SCIENCES CLASS
MACKENZIE UNIVERSAL TECHNOLOGY CLASS
MACKENZIE UNIVERSAL U.S. EMERGING GROWTH CLASS
MACKENZIE SAXON MICROCAP FUND
MACKENZIE CUNDILL GLOBAL DIVIDEND FUND
MACKENZIE UNIVERSAL WORLD REAL ESTATE CLASS
MACKENZIE CUNDILL INTERNATIONAL CLASS
MACKENZIE FOCUS INTERNATIONAL CLASS
MACKENZIE FOCUS JAPAN CLASS
MACKENZIE FOCUS FAR EAST CLASS
(EACH, A TERMINATING FUND AND COLLECTIVELY,
THE TERMINATING FUNDS,
AND WITH THE MANAGER, THE FILERS)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) approving the mergers (the Mergers, as defined below) of the Terminating Funds into the Continuing Funds (defined below) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Mutual 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 Manager 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 the province of Ontario (Other 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 Funds means Mackenzie Sentinel Bond Fund, Mackenzie Saxon Balanced Fund, Symmetry Balanced Portfolio, Mackenzie Cundill Canadian Balanced Fund, Mackenzie Saxon Dividend Income Class, Mackenzie Saxon Stock Class, Mackenzie Universal U.S. Blue Chip Class, Mackenzie Universal North American Growth Class, Mackenzie Ivy Enterprise Class, Mackenzie Saxon Small Cap Class, Mackenzie Universal Global Infrastructure Income Fund, Mackenzie Universal International Stock Class and Mackenzie Universal Emerging Markets Class;
Corporation means Mackenzie Financial Capital Corporation;
Fund or Funds means, individually or collectively, the Terminating Funds and the Continuing Funds;
Grandfathering Mergers means the following Mergers, where the series of securities of the Continuing Funds are being created solely to facilitate the Mergers, will not be qualified for distribution under a prospectus and will not be available for purchase subsequent to the Mergers:
Terminating Fund
Continuing Fund
Mackenzie Maxxum Monthly Income Fund -- Series E
Mackenzie Saxon Balanced Fund -- Series E
Mackenzie Cundill International Class -- Series SI
Mackenzie Universal International Stock Class -- Series SI
Series I Mergers means the following Mergers, where series I securities of the Continuing Funds are no longer offered for purchase and are no longer qualified for distribution under a prospectus, as is the case with the series of securities of the Terminating Funds merging into series I of the Continuing Funds:
Terminating Fund
Continuing Fund
Mackenzie Ivy All-Canadian Class -- Series I
Mackenzie Saxon Stock Class -- Series I
Mackenzie Universal All-Canadian Growth Class -- Series I
Mackenzie Saxon Stock Class -- Series I
Mackenzie Universal Health Sciences Class -- Series I and U
Mackenzie Universal North American Growth Class -- Series I
Mackenzie Universal Technology Class -- Series I
Mackenzie Universal North American Growth Class -- Series I
Mackenzie Universal U.S. Emerging Growth Class -- Series I
Mackenzie Ivy Enterprise Class -- Series I
Mackenzie Cundill International Class -- Series I
Mackenzie Universal International Stock Class -- Series I
Mackenzie Focus International Class -- Series D
Mackenzie Universal International Stock Class -- Series I
Mackenzie Focus Japan Class -- Series I
Mackenzie Universal International Stock Class -- Series I
Mackenzie Focus Far East Class -- Series I and M
Mackenzie Universal Emerging Markets Class -- Series I
Series R and S Mergers means the following Mergers, where series R and/or series S securities of the Continuing Funds are or will be offered only on an exempt distribution basis, as is the case with the series R and/or S securities of the Terminating Funds merging into these series of the Continuing Funds:
Terminating Fund
Continuing Fund
Mackenzie Maxxum Monthly Income Fund -- Series R
Mackenzie Saxon Balanced Fund -- Series R
Mackenzie Cundill Global Balanced Fund -- Series R
Mackenzie Cundill Canadian Balanced Fund -- Series R
Mackenzie Universal Health Sciences Class -- Series S
Mackenzie Universal North American Growth Class -- Series S
Mackenzie Universal Technology Class -- Series R
Mackenzie Universal North American Growth Class -- Series R
Mackenzie Universal U.S. Emerging Growth Class -- Series R
Mackenzie Ivy Enterprise Class -- Series R
Mackenzie Saxon Microcap Fund -- Series R
Mackenzie Saxon Small Cap Class -- Series R
Mackenzie Cundill Global Dividend Fund -- Series R
Mackenzie Universal Global Infrastructure Income Fund -- Series R
Mackenzie Universal World Real Estate Class -- Series R and S
Mackenzie Universal Global Infrastructure Income Fund -- Series R and S
Mackenzie Cundill International Class -- Series R
Mackenzie Universal International Stock Class -- Series R
Mackenzie Focus Japan Class -- Series S
Mackenzie Universal International Stock Class -- Series S
Mackenzie Focus Far East Class -- Series S
Mackenzie Universal Emerging Markets Class -- Series S
Taxable Mergers means the following Mergers:
(a) the merger of Mackenzie Sentinel Managed Return Class into Mackenzie Sentinel Bond Fund;
(b) the merger of Mackenzie Universal World Real Estate Class into Mackenzie Universal Global Infrastructure Income Fund; and
(c) the merger of Mackenzie All-Sector Canadian Balanced Fund into Symmetry Balanced Portfolio.
Representations
This decision is based on the following facts represented by the Filers:
1. The Manager is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.
2. The Manager is the investment fund manager of the Funds 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 Ontario and the Other Jurisdictions; and as a commodity trading manager in Ontario.
3. The Funds are either open ended mutual fund trusts established under the laws of Ontario or separate classes of securities of the Corporation, a mutual fund corporation governed under the laws of Ontario.
4. Securities of the Funds are currently qualified for sale under one or more of the simplified prospectus, annual information form and fund facts each dated September 28, 2012, as amended (collectively, the Mackenzie Mutual Funds Offering Documents), the simplified prospectus, annual information form and fund facts each dated June 29, 2012, as amended (collectively, the Quadrus Offering Documents) and/or the simplified prospectus, annual information form and fund facts each dated November 28, 2012, as amended (collectively, the Laurentian Offering Documents, and, together with the Mackenzie Mutual Funds Offering Documents and the Quadrus Offering Documents, the Offering Documents). Certain securities of certain Funds are offered only on an exempt distribution basis or are no longer available for purchase; for example, Series R and S securities of the Funds are offered only on an exempt distribution basis and Series I securities of certain Funds are no longer qualified for distribution under a prospectus.
5. Each of the Funds is a reporting issuer under the applicable securities legislation of the Province of Ontario and the Other Jurisdictions.
6. Neither the Manager nor the Funds are in default under the applicable securities legislation of Ontario or the Other Jurisdictions.
7. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under NI 81-102.
8. The net asset value for each class or series of the Funds, as applicable, is calculated on a daily basis in accordance with the Funds' valuation policy and as described in the applicable Offering Documents.
9. The Manager intends to reorganize the Funds as follows:
(a) Mackenzie Sentinel Managed Return Class will merge into Mackenzie Sentinel Bond Fund;
(b) Mackenzie Maxxum Monthly Income Fund will merge into Mackenzie Saxon Balanced Fund;
(c) Mackenzie All-Sector Canadian Balanced Fund will merge into Symmetry Balanced Portfolio;
(d) Mackenzie Cundill Global Balanced Fund will merge into Mackenzie Cundill Canadian Balanced Fund;
(e) Mackenzie Maxxum All-Canadian Dividend Class will merge into Mackenzie Saxon Dividend Income Class;
(f) Mackenzie Ivy All-Canadian Class will merge into Mackenzie Saxon Stock Class;
(g) Mackenzie Universal All-Canadian Growth Class will merge into Mackenzie Saxon Stock Class;
(h) Mackenzie Universal Canadian Shield Fund will merge into Mackenzie Saxon Stock Class;
(i) Mackenzie Cundill American Class will merge into Mackenzie Universal U.S. Blue Chip Class;
(j) Mackenzie Universal Health Sciences Class will merge into Mackenzie Universal North American Growth Class;
(k) Mackenzie Universal Technology Class will merge into Mackenzie Universal North American Growth Class;
(l) Mackenzie Universal U.S. Emerging Growth Class will merge into Mackenzie Ivy Enterprise Class;
(m) Mackenzie Saxon Microcap Fund will merge into Mackenzie Saxon Small Cap Class;
(n) Mackenzie Cundill Global Dividend Fund will merge into Mackenzie Universal Global Infrastructure Income Fund;
(o) Mackenzie Universal World Real Estate Class will merge into Mackenzie Universal Global Infrastructure Income Fund;
(p) Mackenzie Cundill International Class will merge into Mackenzie Universal International Stock Class;
(q) Mackenzie Focus International Class will merge into Mackenzie Universal International Stock Class;
(r) Mackenzie Focus Japan Class will merge into Mackenzie Universal International Stock Class; and
(s) Mackenzie Focus Far East Class will merge into Mackenzie Universal Emerging Markets Class
(each a Merger and collectively, the Mergers).
10. The Manager has concluded that pre-approval for the Mergers under section 5.6 of NI 81-102 is not available because:
(a) the fundamental investment objectives of certain Continuing Funds are not, or may be considered not to be, "substantially similar" to the investment objectives of their corresponding Terminating Funds;
(b) certain Mergers will not be completed as a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada) (the Tax Act) (collectively, the Taxable Mergers); and
(c) as described below, the materials to be sent to certain securityholders of the Terminating Funds in respect of certain Mergers will not include the current simplified prospectus or the most recently filed fund facts documents for the series of the Continuing Funds into which the applicable series of the Terminating Funds are merging because either:
(i) the applicable series of the Continuing Funds are being 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 (the Grandfathering Mergers);
(ii) the applicable series of the Continuing Funds are no longer offered for sale and are no longer qualified for distribution under a prospectus, as is the case with the series of the Terminating Fund merging into these series (the Series I Mergers);
(iii) the applicable series of the Continuing Funds are or will be offered only on an exempt distribution basis, as is the case with the series of the Terminating Funds merging into these series (the Series R and S Mergers).
11. It is proposed that three of the Continuing Funds (Mackenzie Universal North American Growth Class, Mackenzie Ivy Enterprise Class and Mackenzie Universal Global Infrastructure Income Fund) change their investment objectives. These investment objective changes are subject to the approval of securityholders of these Continuing Funds, to be effective on or before the effective date of the Mergers. If securityholders of each such Continuing Fund do not approve the investment objective change, the applicable Merger will not proceed. If securityholders of each such Continuing Fund approve the investment objective change and securityholders of each applicable Terminating Fund approve the Merger, the applicable Merger will proceed.
12. In the Manager's view, the fee structure of each Terminating Fund is substantially similar to that of the corresponding Continuing Fund. In addition, it is expected that the MER of each series of each Terminating Fund will generally be similar to that of the corresponding series of the applicable Continuing Fund.
13. All of the Continuing Funds have substantially similar valuation procedures to those of their applicable Terminating Funds.
14. Securities of the Funds are qualified investments under the Tax Act for the following registered plans: RRSPs, RRIFs, RESPs, DPSPs, LIFs, LIRAs, LRIFs, LRSPs, PRIFs, RLIFs, RLSPs, RDSPs and TFSAs.
15. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of its applicable Terminating Fund.
16. The investment portfolio and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund in order to effect the Mergers are currently, or will be, on or prior to the effective date of the Mergers, acceptable to the portfolio manager(s) of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the applicable Continuing Fund.
17. Securityholders of each Terminating Fund will continue to have the right to redeem securities of the Terminating Fund or exchange such securities for securities of any other mutual fund offered under the applicable Offering Documents at any time up to the close of business on the effective date of the Mergers. Terminating Fund securityholders that exchange their securities for securities of other mutual funds managed by the Manager will not incur any charges. Securityholders that redeem securities may be subject to redemption charges.
18. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the proposed Mergers was issued and filed via SEDAR on April 23, 2013. A material change report and amendments to the Offering Documents with respect to the proposed Mergers were filed via SEDAR on May 3, 2013.
19. A notice of meeting, a management information circular and a proxy (collectively, the Meeting Materials) in connection with special meetings of securityholders were mailed to securityholders of the Terminating Funds commencing on or about June 10, 2013 and will be concurrently filed via SEDAR.
20. The Meeting Materials describe all relevant facts concerning the Mergers, including the differences between the investment objectives, strategies and fee structures of the Terminating Funds and the Continuing Funds, the tax implications and other consequences of the Mergers, as well as the IRC's recommendation of the Mergers, so that securityholders of the Terminating Funds may consider this information before voting on the Mergers.
21. Fund facts relating to the applicable series of each Continuing Fund were mailed to securityholders of the corresponding series of each Terminating Fund in all instances other than in respect of the Grandfathering Mergers, the Series I Mergers and the Series R and S Mergers.
22. In respect of the Grandfathering Mergers, the Series I Mergers and the Series R and S Mergers, in order to effect the Mergers relating to these series of the Terminating Funds, securities of the applicable series of the Continuing Funds will be distributed to securityholders of the Terminating Funds in reliance on the prospectus exemption contained in section 2.11 of National Instrument 45-106 Prospectus and Registration Exemptions.
23. In respect of the Grandfathering Mergers, the Series I Mergers and the Series R and S Mergers, because a current simplified prospectus and fund facts document are not available for the applicable series of the Continuing Funds, securityholders of each of the corresponding series of the Terminating Funds were sent fund facts relating to series A securities of the applicable Continuing Fund, or, where appropriate, another series of securities of the applicable Continuing Fund.
24. Securityholders of the Terminating Funds will be asked to approve the Mergers at special meetings to be held on or about July 31, 2013.
25. If the necessary securityholder approval is obtained, each Terminating Fund will merge into the applicable Continuing Fund on or about the close of business on August 2, 2013 and the Continuing Funds will continue as publicly offered open-end mutual funds.
26. The Taxable Mergers will be effected on a taxable basis, which the Manager has determined will be in the overall best interests of the investors of the Terminating Funds and the Continuing Funds.
27. None of the costs and expenses associated with the Mergers will be borne by the Funds, including costs and expenses associated with the merger-related trades that occur both before and after the effective date of the Mergers. All such costs will be borne by the Manager. There are no charges payable by investors in the Terminating Funds who acquire securities of the corresponding Continuing Funds as a result of the Mergers.
28. Each Terminating Fund will be wound up as soon as reasonably possible following the applicable Merger.
29. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, an Independent Review Committee (the IRC) has been appointed for the Funds. The Manager presented the potential conflict of interest matters related to the proposed Mergers to the IRC for a recommendation. On April 18, 2013, the IRC reviewed the potential conflict of interest matters related to the proposed Mergers and provided its positive recommendation for each of the Mergers, after determining that each proposed Merger, if implemented, would achieve a fair and reasonable result for each applicable Fund.
30. The Manager has submitted that the Mergers will be beneficial to securityholders of each Terminating Fund and Continuing Fund for the following reasons:
(a) the Mergers are being proposed as part of a broader initiative by the Manager to make its product offering smaller and simpler, and therefore easier for investors to navigate; the proposals reflect the Manager's desire to deploy its portfolio managers as effectively as possible, in order to maximize return potential for fund investors;
(b) securityholders of a Terminating Trust Fund who become securityholders of a Corporate Class Fund will be able to switch between different funds that are classes of the Corporation without creating a disposition for income tax purposes;
(c) in certain cases, the Continuing Funds provide a substantially similar yet broader or more flexible mandate, with consistency of management, that the Manager believes provides those Continuing Funds with broader investment opportunities that can lead to increased diversification and return potential;
(d) in certain cases, the Continuing Funds have provided superior returns to investors (although past performance is not a guarantee of future returns and may not be repeated); and
(e) in certain cases, management fees and/or fixed administration fees will be lower for the Continuing Funds.
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.