Mackenzie Financial Corporation and Quadrus Investment Services Ltd.

National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from the requirement in s.3.2.01 of NI 81-101 to deliver a fund facts document to investors who purchase mutual fund securities of a high net worth series pursuant to switches from a regular retail series upon meeting certain eligibility requirements based on the amount of the investor’s investments – High net worth series securities are identical to regular retail series securities except that the high net worth series have lower combined management and administration fees – Investment fund manager initiating switches on behalf of investors when their investments satisfy eligibility requirements of high net worth series – Switches between series of a fund triggering a distribution of securities attracting the requirement to deliver a fund facts – Relief granted from requirement to deliver a fund facts to investors for purchases of high net worth series securities made pursuant to such switches subject to compliance with certain notification and prospectus/fund facts disclosure requirements – National Instrument 81-101 Mutual Fund Prospectus Disclosure.

Applicable Legislative Provisions

National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2.01, 6.1.

July 4, 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
MACKENZIE FINANCIAL CORPORATION
(the Filer)

AND

IN THE MATTER OF
QUADRUS INVESTMENT SERVICES LTD.
(the Dealer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer and the Dealer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement in the Legislation for a dealer to deliver or send the most recently filed fund facts documents (the Fund Facts) in the manner as required under the Legislation (the Fund Facts Delivery Requirement) in respect of purchases of High Net Worth Series (as defined below) securities of the Quadrus Funds (as defined below) that are made pursuant to Lower Fee Switches (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 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (the 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.

Representations

This decision is based on the following facts represented by the Filer:

1.             The Filer is a corporation amalgamated under the laws of the Province of Ontario. The Filer is registered under the Securities Act (Ontario) (the Act) as a portfolio manager, exempt market dealer and investment fund manager, registered as a portfolio manager and exempt market dealer in the Other Jurisdictions, as well as an investment fund manager in each of Quebec and Newfoundland & Labrador. The manager is also registered under the Commodity Futures Act (Ontario) as a commodity trading manager.

2.             The head office of the Filer is located in Toronto, Ontario. The Filer is not in default of the securities legislation of any Jurisdictions.

3.             The Filer is the manager of mutual funds (the Existing Funds), each of which is subject to the requirements of National Instrument 81-102 – Mutual Funds (NI 81-102). The Filer may in the future become the manager of additional mutual funds that are subject to the requirements of NI 81-102 (the Future Funds, and together with the Existing Funds, the Funds).

4.             Certain of the Funds (the Quadrus Funds) are or will be available for purchase only through the Dealer, which is the principal distributor for the Quadrus Funds.

5.             The Dealer is registered as a dealer in each of the Jurisdictions. The head office of the Dealer is located in London, Ontario.

6.             Each Quadrus Fund is, or will be, an open-end mutual fund trust created under the laws of the Province of Ontario or an open-end mutual fund that is a class of shares of a mutual fund corporation.

7.             Each Quadrus Fund is, or will be, a reporting issuer under the laws of all of the provinces and territories of Canada. The securities of the Quadrus Funds are, or will be qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts that have been, or will be, prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101).

8.             Securities of the Quadrus Funds (the Securities) are currently offered under simplified prospectuses, annual information forms and Fund Facts dated June 26, 2015 and November 27, 2015.

9.             The Quadrus Funds currently offer up to 14 series of Securities – Quadrus series, D5 series, D8 series, H series, H5 series, H8 series, L series, L5 series, L8 series, N series, N5 series, N8 series, RB series and Series R.

10.          L series, L5 series and L8 series securities of the Quadrus Funds (the High Net Worth Series) have lower combined management and administration fees than Quadrus series, D5 series and D8 series securities of the Quadrus Funds (the Retail Series) and are only available to investors who have invested at least $100,000 in High Net Worth Series securities and who also have a minimum total holdings of $500,000 across a group of accounts of which the investor is a member, including segregated accounts with the London Life Insurance Company (London Life).

11.          D5 series and D8 series securities have the same attributes as Quadrus series securities, except that those series are designed to provide tax efficient cash flow to investors by making monthly distributions of an amount comprised of a return of capital and/or income. L5 series and L8 series securities have the same attributes as L series securities except that those series are designed to provide tax efficient cash flow to investors by making monthly distributions of an amount comprised of a return of capital and/or income.

12.          The Filer filed a renewal simplified prospectus, annual information and Fund Facts for the Quadrus Funds on June 29, 2016 and expects to be receipted on or about July 5, 2016 (the Implementation Date). Beginning on the Implementation Date, if an investor holding Quadrus series securities becomes eligible to hold L series securities, an investor holding D5 series securities becomes eligible to hold L5 series securities or an investor in D8 series securities becomes eligible to hold L8 series securities, as applicable, the Filer will switch the Quadrus series, D5 series or D8 series securities into the applicable High Net Worth Series securities (the Lower Fee Switches). If an investor holding High Net Worth Series securities ceases to be eligible to hold that series, the Filer may switch the High Net Worth Series securities into the applicable Retail Series securities (the Higher Fee Switches, and together with the Lower Fee Switches, the Switches).

13.          The Lower Fee Switches will generally take place when the investor purchases additional Securities or when positive market movement moves the investor into High Net Worth Series eligibility.

14.          The Higher Fee Switches may occur because of redemptions that decrease the amount of total investments with the Filer for purposes of calculating the investor’s eligibility for High Net Worth Series securities. However, in no circumstances will market value declines lead to Higher Fee Switches.

15.          The Filer will aggregate total investments across the group of eligible accounts in order to determine whether investors are eligible to purchase and to continue to hold High Net Worth Series securities. London Life, as a service provider to the Filer, will, on behalf of the Filer, monitor investors’ investments in each particular series and monitor the total investments across the group of eligible accounts in order to provide the Filer with the information necessary to determine whether investors are eligible to purchase and continue to hold High Net Worth Series securities. If an investor is no longer eligible to hold High Net Worth Series securities, the Filer may effect a Higher Fee Switch.

16.          Once an account has qualified for the High Net Worth Series, the account will continue to enjoy the benefit of lower management and administration fees associated with the applicable High Net Worth Series even if fund performance reduces the account value below the minimum eligibility requirements for that series.

17.          Investors may access High Net Worth Series securities of a Quadrus Fund by (a) initially investing in High Net Worth Series securities or (b) initially investing in Retail Series securities and then, upon meeting the eligibility requirements, having those Retail Series securities be switched into High Net Worth Series securities by way of a Lower Fee Switch.

18.          Investors may access Retail Series securities of a Quadrus Fund by (a) initially investing in Retail Series securities, or (b) initially investing in High Net Worth Series securities and then, upon no longer meeting the eligibility requirements for the High Net Worth Series securities, having those High Net Worth Series securities be switched into Retail Series securities by way of a Higher Fee Switch.

19.          Further to each Lower Fee Switch, an investor’s account would continue to hold Securities in the same Fund(s) as before the Switch, with the only material difference to the investor being that the combined management and administration fees charged for the High Net Worth Series securities will be lower than those charged for Retail Series securities.

20.          Further to each Higher Fee Switch, an investor’s account would continue to hold Securities in the same Fund(s) as before the Switch, with the only material difference to the investor being that the combined management and administration fees charged for the Retail Series securities will be higher than those charged for High Net Worth Series securities.

21.          The trailing commissions for the High Net Worth Series and Retail Series securities are identical.

22.          Although the maximum sales charge that may be charged upon an initial investment in Retail Series securities is higher than the maximum sales charge that may be charged upon an initial investment in High Net Worth Series securities, there are no sales charges, switch fees or other fees payable by the investor upon a Switch.

23.          Implementation of the Switches will have no adverse tax consequences on investors under current Canadian tax legislation.

24.          Each Switch will entail (a) a redemption of the Retail Series security, immediately followed by a purchase of the corresponding High Net Worth Series security, or (b) a redemption of the High Net Worth Series security immediately followed by a purchase of the corresponding Retail Series security. Each purchase of Securities done as part of a Switch will be a “distribution” under the Legislation, which triggers the Fund Facts Delivery Requirement.

25.          Pursuant to the Fund Facts Delivery Requirement, a dealer is required to deliver the most recently filed Fund Facts of a series of a fund to an investor before the dealer accepts an instruction from the investor for the purchase of securities of that series of the fund.

26.          While the Filer will initiate each trade done as part of a Switch, the Filer and the Dealer do not propose to deliver the Fund Facts to investors in connection with the purchase of High Net Worth Series securities made pursuant to a Lower Fee Switch for the following reasons:

(a)           at no time will an account that qualifies for High Net Worth Series securities pay combined management and administration fees at a rate higher than the rate of the combined management and administration fees of the Retail Series securities for which it initially subscribed; and

(b)           since Retail Series securityholders would have received a prospectus or Fund Facts disclosing the higher level of fees which applied to the Retail Series for which they initially subscribed, the investor would derive little benefit from receiving a further Fund Facts relating to the High Net Worth Series upon each Lower Fee Switch.

27.          The Dealer will deliver the Retail Series Fund Facts to investors in connection with the purchase of Retail Series securities made pursuant to a Higher Fee Switch, as required by the Fund Facts Delivery Requirement.

28.          The Filer or the Dealer will deliver or will arrange for the delivery of trade confirmations to investors in connection with each trade done further to a Switch. Furthermore, details of the changes in series of securities held will be reflected in the account statements sent to investors for the quarter in which the change occurred.

29.          The Filer will (a) disclose the eligibility requirements and the management and administration fees applicable to the Retail Series and the High Net Worth Series in the simplified prospectus of the Quadrus Funds and (b) disclose a summary of the eligibility requirements and the fee discounts applicable to the High Net Worth Series in the Fund Facts of the Retail Series of the Quadrus Funds.

30.          The Filer will communicate extensively with the Dealer and London Life about the Switches so that they will be equipped to appropriately notify existing Retail Series investors of the changes applying to their Retail Series investments and appropriately advise new Retail Series investors about the Lower Fee Switches.

31.          In the absence of the Exemption Sought, the Filer may not carry out the Lower Fee Switches without compliance with the Fund Facts Delivery Requirement.

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:

1.             for investors invested in Retail Series prior to the Implementation Date, the Dealer will devise a notification plan for such investors regarding the Switches that addresses the following:

(a)           that their investment may be switched to a High Net Worth Series with lower fees upon meeting applicable eligibility requirements;

(b)           that, other than a difference in fees, there will be no other material difference between the Retail Series and the High Net Worth Series;

(c)           that if they cease to meet the eligibility requirements for High Net Worth Series, their investment will be switched into a series with higher management and administration fees which will not exceed the management and administration fees associated with the Retail Series; and

(d)           that they will not receive the Fund Facts when they purchase High Net Worth Series securities further to a Lower Fee Switch, but that:

(i)            they may request the most recently filed Fund Facts for the relevant series by calling a specified toll-free number or by sending a request via email to a specified address;

(ii)           the most recently filed Fund Facts will be sent or delivered to them at no cost;

(iii)          the most recently filed Fund Facts may be found either on the SEDAR website or on the Quadrus website; and

(iv)          they will not have the right to withdraw from an agreement of purchase and sale (a Withdrawal Right) in respect of a purchase of series securities made pursuant to a Lower Fee Switch, but they will have the right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into a simplified prospectus for the relevant series contains a misrepresentation, whether or not they request the Fund Facts;

2.             the Filer will incorporate disclosure in the simplified prospectus for the Retail Series and the High Net Worth Series that sets out:

(a)           the eligibility requirements for both the Retail Series and the High Net Worth Series;

(b)           the fees applicable to investments in both the Retail Series and the High Net Worth Series; and

(c)           that if investors cease to meet the eligibility requirements of a specified High Net Worth Series, their investment may be switched into a series with higher management and administration fees which will not exceed the Retail Series fees.

3.             each Fund Facts for the Retail Series will:

(a)           disclose a summary of the eligibility requirements and the fee discounts applicable to the High Net Worth Series;

(b)           disclose that if investors cease to meet the eligibility requirements of a specified High Net Worth Series, their investment may be switched into the corresponding Retail Series, with higher management and administration fees; and

(c)           contain a cross-reference to the more detailed disclosure in the simplified prospectus;

4.             the Retail Series Fund Facts containing the disclosure described in paragraph 3 above is delivered to investors at the time of first purchase of Retail Series securities in accordance with the Fund Facts Delivery Requirement;

5.             for Retail Series investors, the Filer sends these investors an annual reminder notice advising that they will not receive the Fund Facts when they purchase High Net Worth Series securities further to a Lower Fee Switch, but that:

(a)           they may request the most recently filed Fund Facts for the relevant series by calling a specified toll-free number or by sending a request via email to a specified address;

(b)           the most recently filed Fund Facts will be sent or delivered to them at no cost;

(c)           the most recently filed Fund Facts may be found either on the SEDAR website or on the Quadrus website; and

(d)           they will not have a Withdrawal Right in respect of a purchase of series securities made pursuant to a Lower Fee Switch, but they will have a right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into a simplified prospectus for the relevant series contains a misrepresentation, whether or not they request the Fund Facts; and

6.             for High Net Worth Series investors who cease to meet the eligibility requirements and who will be switched into the applicable Retail Series, the Fund Facts for the applicable Retail Series will be delivered in accordance with the Fund Fact Delivery Requirement.

“Darren McKall”
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission