Securities Law & Instruments


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 mergers will not be a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act – 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), 19.1(2).

January 18, 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 ALL CAP DIVIDEND FUND,
MACKENZIE CANADIAN ALL CAP DIVIDEND CLASS,
SHORT TERM BOND FUND (PORTICO),
REAL RETURN BOND FUND (PORTICO),
CANADIAN EQUITY CLASS,
NORTH AMERICAN SPECIALTY CLASS,
U.S. AND INTERNATIONAL EQUITY CLASS,
U.S. AND INTERNATIONAL SPECIALTY CLASS AND
U.S. VALUE FUND (LONDON CAPITAL)
(collectively, the Terminating Funds and, each 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 reorganization of each of the Terminating Funds with applicable Continuing Funds (each as defined below), pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Requested Relief).

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.

“Closed and Exempt Mergers” means the following Merger (as defined herein), which involves Series PWX of the Terminating Fund and the Continuing Fund listed below, which is not currently offered for purchase and is not currently qualified for distribution under a simplified prospectus:

Terminating Fund

Continuing Fund

Mackenzie Canadian All Cap Dividend Class Series PWX

Mackenzie Canadian Large Cap Dividend Class Series PWX


“Continuing Funds”
means, collectively, Mackenzie Canadian Large Cap Dividend Fund, Mackenzie Canadian Large Cap Dividend Class, Money Market Fund, Core Bond Fund (Portico), Canadian Dividend Class (Laketon), Mackenzie US Mid Cap Growth Class, Global All Cap Equity Class (Setanta) and U.S. Value Fund (Putnam).

“Effective Date” means on or about February 8, 2019, the anticipated effective date of the Proposed Reorganizations.

“Funds” means, 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 Canadian All Cap Dividend Fund B-Series

Mackenzie Canadian Large Cap Dividend Fund B-Series

Mackenzie Canadian All Cap Dividend Fund Investor Series

Mackenzie Canadian Large Cap Dividend Fund Investor Series

Mackenzie Canadian All Cap Dividend Fund Series J

Mackenzie Canadian Large Cap Dividend Fund Series GJ

Mackenzie Canadian All Cap Dividend Fund Series O

Mackenzie Canadian Large Cap Dividend Fund Series GO

Mackenzie Canadian All Cap Dividend Fund Series O6

Mackenzie Canadian Large Cap Dividend Fund Series GO5

Mackenzie Canadian All Cap Dividend Class Series J

Mackenzie Canadian Large Cap Dividend Class Series GJ

Mackenzie Canadian All Cap Dividend Class Series O

Mackenzie Canadian Large Cap Dividend Class Series GO

Mackenzie Canadian All Cap Dividend Class Series O6

Mackenzie Canadian Large Cap Dividend Class Series GO5

Mackenzie Canadian All Cap Dividend Class Series PWX8

Mackenzie Canadian Large Cap Dividend Class Series PWX8


“Proposed Reorganizations”
means each of the proposed mergers of the Terminating Funds into the applicable Continuing Funds.

“Taxable Mergers” means the following Mergers:

a) the merger of Mackenzie Canadian All Cap Dividend Class into Mackenzie Canadian Large Cap Dividend Class;

b) the merger of Short Term Bond Fund (Portico) into Money Market Fund;

c) the merger of Real Return Bond Fund (Portico) into Core Bond Fund (Portico);

d) the merger of Canadian Equity Class into Canadian Dividend Class (Laketon);

e) the merger of North American Specialty Class into Mackenzie US Mid Cap Growth Class;

f) the merger of U.S. and International Equity Class into Global All Cap Equity Class (Setanta);

g) the merger of U.S. and International Specialty Class into Global All Cap Equity Class (Setanta); and

h) the merger of U.S. Value Fund (London Capital) into U.S. Value Fund (Putnam).

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 Ontario and the Other 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. Each of Mackenzie Canadian All Cap Dividend Class, Mackenzie Canadian Large Cap Dividend Class and Mackenzie US Mid Cap Growth Class (collectively, the Mackenzie Corporate Class Funds) are separate classes of securities of Mackenzie Financial Capital Corporation (Capitalcorp) and each of Canadian Equity Class, North American Specialty Class, U.S. and International Equity Class, U.S. and International Specialty Class, Canadian Dividend Class (Laketon) and Global All Cap Equity Class (Setanta) (collectively, the Quadrus Corporate Class Funds and, together with the Mackenzie Corporate Class Funds, the Corporate Class Funds) are separate classes of securities of Multi-Class Investment Corp. (Multi-Class Corp. and, together with Capitalcorp, the Corporations). The remaining Funds are unit trusts (collectively, the Trust Funds).

4. The Trust Funds are structured as unit trusts established under the laws of Ontario. The Corporate Class Funds are separate classes of securities of the Corporations, both mutual fund corporations governed by the laws of Ontario. The Terminating Funds and Continuing Funds are each reporting issuers under the securities legislation of the Jurisdictions. Neither the Filer nor the Funds are in default of securities legislation in the Jurisdictions, as applicable.

5. Other than circumstances in which the securities regulatory authority of a Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under NI 81-102.

6. 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, 2018, as amended (collectively, the Mackenzie Mutual Funds Offering Documents), the simplified prospectus, annual information form and fund facts each dated June 28, 2018, as amended (collectively, the Quadrus Offering Documents) and/or the simplified prospectus, annual information form and fund facts each dated November 23, 2017, 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, B-series and Series O and O6 securities of certain Funds have never been or are no longer qualified for distribution under a prospectus.

7. 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.

Reasons for the Requested Relief

8. Approval of the Proposed Reorganizations is required because:

(a) 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;

(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 sent to certain securityholders of the Terminating Funds in respect of certain Mergers did 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); or

(ii) the applicable series of the Continuing Funds are not currently offered for purchase and are not currently qualified for distribution under a prospectus, as is the case with the series of the Terminating Fund merging into these series (the Closed and Exempt Mergers).

9. Pursuant to the Proposed Reorganizations, securityholders of each of the Terminating Funds would become securityholders of the applicable Continuing Fund, as follows (each a Merger and collectively, the Mergers):

Terminating Fund

Continuing Fund

Mackenzie Canadian All Cap Dividend Fund

Mackenzie Canadian Large Cap Dividend Fund

Mackenzie Canadian All Cap Dividend Class

Mackenzie Canadian Large Cap Dividend Class

Short Term Bond Fund (Portico)

Money Market Fund

Real Return Bond Fund (Portico)

Core Bond Fund (Portico)

Canadian Equity Class

Canadian Dividend Class (Laketon)

North American Specialty Class

Mackenzie US Mid Cap Growth Class

U.S. and International Equity Class

Global All Cap Equity Class (Setanta)

U.S. and International Specialty Class

Global All Cap Equity Class (Setanta)

U.S. Value Fund (London Capital)

U.S. Value Fund (Putnam)


10. Except as noted above, the Proposed Reorganizations will comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

11. The Filer has determined that there are no Continuing Funds for which a Proposed Reorganization will be a “material change”. However, Continuing Fund securityholder approval is required for Mackenzie Canadian Large Cap Dividend Class, Canadian Dividend Class (Laketon), Mackenzie US Mid Cap Growth Class and Global All Cap Equity Class (Setanta) pursuant to section 170(1)(g) of the Business Corporations Act (Ontario).

12. 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 Proposed Reorganizations to the IRC for a recommendation. The IRC reviewed the Proposed Reorganizations and provided a positive recommendation for each of the Proposed Reorganizations, having determined that the Proposed Reorganizations, if implemented, would achieve a fair and reasonable result for each of the Funds and their respective securityholders.

13. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release describing the Proposed Reorganizations was issued and filed on SEDAR on September 21, 2018 for each of Mackenzie Funds, Quadrus Group of Funds and Laurentian Group of Funds. A material change report and a simplified prospectus and annual information form, or amendments to the applicable simplified prospectus and annual information form, as applicable, as well as revised fund facts of the Terminating Funds, which give notice of the Proposed Reorganizations, each dated September 28, 2018, were filed on SEDAR for each of Mackenzie Funds, Quadrus Group of Funds and Laurentian Group of Funds.

14. A notice and access document (including a notice of meeting), management information circular, proxy and fund facts of the applicable series (except as described in paragraph 17) of the Continuing Fund (Meeting Materials) were mailed or otherwise made available to securityholders of the Terminating Fund on December 17, 2018 and were filed on SEDAR on December 18, 2018.

15. The Meeting Materials describe all of the relevant facts concerning the Proposed Reorganizations relevant to each securityholder, including the differences between investment objectives, strategies and fee structures of the Terminating Funds and the Continuing Funds, the IRC’s recommendations of the Proposed Reorganizations, and income tax considerations so that securityholders of the Terminating Funds and, where applicable, the Continuing Funds, may consider this information before voting on a Proposed Reorganization. The Meeting Materials also describe the various ways in which securityholders 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.

16. 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 and the Closed and Exempt 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 Exemptions.

17. In respect of the Grandfathering Mergers and the Closed and Exempt 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.

18. The Filer will pay for the costs of the proposed Mergers. These costs consist mainly of brokerage charges associated with the trades that occur both before and after the date of the proposed Mergers and legal, proxy solicitation, printing, mailing and regulatory fees. There are no charges payable by securityholders of the Terminating Funds who acquire securities of the corresponding Continuing Funds as a result of the Proposed Reorganizations.

19. Securityholders of the Terminating Funds and, where applicable, of the Continuing Funds, will be asked to approve the Proposed Reorganizations at special meetings of securityholders scheduled to be held on or about January 21, 2019.

20. The Taxable Mergers will be effected on a taxable basis, which the Filer has determined will be in the overall best interests of the investors of the Terminating Funds and the Continuing Funds given the investment mandates and applicable portfolio management teams of the Continuing Funds. Effecting the Taxable Mergers on a taxable basis will preserve, where applicable, any unused tax losses of the Continuing Fund, which would otherwise expire upon implementation of the Taxable Merger on a tax deferred basis and therefore would not be available to shelter income and capital gains realized by the Continuing Fund in future years.

21. Following the implementation of the Proposed Reorganizations, all systematic plans that were 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 securityholders advise the Filer otherwise or unless otherwise noted in the management information circulars.

22. Securityholders may change or cancel any systematic plan at any time as long as the Filer receives at least three business days’ notice and securityholders 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 Proposed Reorganizations.

Proposed Reorganizations Steps

23. If the necessary approvals are obtained, the Filer will carry out the following steps to complete the Proposed Reorganizations:

(a) Procedure for the Merger of a Trust Fund into another Trust Fund:

(i) Prior to effecting the Mergers, if required, each Trust Fund that is a Terminating Fund (each, a Terminating Trust Fund) will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the applicable Continuing Fund that is a Trust Fund (each, a Continuing Trust Fund) and purchase other securities so that, as of the Effective Date, the portfolio of each Terminating Trust Fund is substantially similar to that of the applicable Continuing Trust Fund. As a result, some of the Terminating Trust 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 Mergers being effected.

(ii) The value of each Terminating Trust Fund’s portfolio and other assets will be determined at the close of business on the Effective Date in accordance with the constating documents of the applicable Terminating Trust Fund.

(iii) Each Continuing Trust Fund will acquire the investment portfolio and other assets of the applicable Terminating Trust Fund in exchange for securities of the Continuing Trust Fund.

(iv) Each Continuing Trust Fund will not assume any liabilities of the applicable Terminating Trust Fund and the Terminating Trust Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.

(v) Each Terminating Trust Fund will distribute a sufficient amount of its net income and net realized capital gains, if any, to securityholders to ensure that it will not be subject to tax under Part I of the Tax Act for its current tax year.

(vi) The securities of each Continuing Trust Fund received by the applicable Terminating Trust Fund will have an aggregate net asset value equal to the value of the portfolio assets and other assets that the Continuing Trust Fund is acquiring from the Terminating Trust Fund, and the securities of the Continuing Trust Fund will be issued at the applicable series net asset value per security as of the close of business on the Effective Date.

(vii) Immediately thereafter, securities of each Continuing Trust Fund received by the applicable Terminating Trust Fund will be distributed to securityholders of the Terminating Trust Fund, as proceeds of redemption of their securities in the Terminating Trust Fund on a dollar‑for‑dollar and series by series basis.

(viii) As soon as reasonably possible following the Mergers, the Terminating Trust Funds will be wound up.

(b) Procedure for the Merger of a Corporate Class Fund into another Corporate Class Fund:

(i) Prior to effecting the Mergers, if required, the Corporations will sell any securities in the portfolio of each Terminating Fund that is a Corporate Class Fund (each a Terminating Corporate Class Fund) that do not meet the investment objectives and investment strategies of the applicable Continuing Fund that is a Corporate Class Fund (each, a Continuing Corporate Class Fund) and purchase other securities so that, as of the effective date of the Mergers, the portfolio of each Terminating Corporate Class Fund is substantially similar to that of the applicable Continuing Corporate Class Fund. As a result, the portfolios of some of the Terminating Corporate Class 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 Mergers being effected.

(ii) Each Terminating Corporate Class Fund may pay taxable dividends and/or capital gains dividends to its securityholders, but only to the extent required to manage the tax liability of the Corporations in a manner that the Board of Directors of the Corporations, in consultation with the Filer, determines to be fair and reasonable.

(iii) The value of each Terminating Corporate Class Fund’s portfolio and other assets will be determined at the close of business on the Effective Date in accordance with the constating documents of the applicable Terminating Corporate Class Fund.

(iv) The value of each Continuing Corporate Class Fund’s portfolio and other assets will be determined at the close of business on the Effective Date in accordance with the constating documents of the applicable Terminating Corporate Class Fund.

(v) The Continuing Corporate Class Fund will not assume any liabilities of the applicable Terminating Corporate Class Fund and the Terminating Corporate Class Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the Effective Date.

(vi) All of the issued and outstanding securities of each Terminating Corporate Class Fund will be exchanged for securities of each applicable Continuing Corporate Class Fund on a dollar-for-dollar and series-by-series basis, so that securityholders of each Terminating Corporate Class Fund become securityholders of each applicable Continuing Corporate Class Fund.

(vii) As soon as reasonably possible following the Mergers, the Corporations will cancel the securities of the Terminating Corporate Class Funds.

24. Securityholders in the Terminating Funds will continue to have the right to redeem their securities or exchange their securities for securities 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. Securityholders of the Terminating Funds that switch their units for securities 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. Securityholders who redeem units may be subject to redemption charges.

25. Following the implementation of the Proposed Reorganizations, the Continuing Trust Funds will continue as publicly offered open-ended mutual funds offering securities in the Jurisdictions and the Continuing Corporate Class Funds will continue as classes of the Corporations.

26. Following the approval of the Proposed Reorganizations, a press release and material change report announcing the results of the securityholder 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 Funds or Continuing Funds in connection with the acquisition by the Continuing Funds of the investment portfolio of the applicable Terminating Funds.

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, to the portfolio manager(s) of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the Continuing Fund.

Proposed Reorganizations Benefits

29. The Filer believes that the Proposed Reorganizations are beneficial to securityholders of the Terminating Funds and the Continuing Funds for the following reasons:

(i) Flexible investment mandate of the Continuing Funds: In certain cases, the Continuing Funds provide a broader, more diversified and/or more flexible mandate that the Filer believes provides those Continuing Funds with broader investment opportunities that can lead to increased diversification, more balanced exposure and/or greater return potential.

(ii) Reduction of duplication: In certain cases, the Mergers are being proposed in part to reduce duplication because the Continuing Funds and the Terminating Funds have similar, but not substantially similar, investment objectives.

(iii) Better past performance of the Continuing Funds: In certain cases, the Continuing Funds have had better past performance (although past performance is not a guarantee of future returns and may not be repeated).

(iv) 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.

(v) Fees: The combined management fees and fixed administration fees will be the same or lower for the Continuing Funds.

General

30. If the Proposed Reorganizations are approved, they will be implemented after the close of business on the Effective Date. If the Proposed Reorganizations are not approved, the Terminating Funds will continue to be offered for distribution.

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 Requested Relief is granted, provided that the Filer obtains the prior approval of the securityholders of the Terminating Funds and, where applicable, the approval of securityholders of the Continuing Funds, for the Proposed Reorganizations at a special meeting held for that purpose.

“Stephen Paglia”
Manager, Investment Funds and Structured Products
Ontario Securities Commission