Mutual Reliance Review System for Exemptive Relief Applications -- Approval required because merger does not meet the criteria for pre-approval outlined in section 5.6 of NI 81-102 -- As the continuing fund is new, no simplified prospectus or financial statements are available to send to terminating fund unitholders -- Terminating fund unitholders provided with prospectus-level disclosure with respect to the continuing fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1)(f)(ii), 5.7(1)(b).
July 3, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
YUKON TERRITORY, NORTHWEST TERRITORIES
AND NUNAVUT TERRITORY
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MACKENZIE FINANCIAL CORPORATION
QUADRUS TEMPLETON CANADIAN EQUITY FUND
(the "Terminating Fund")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from Mackenzie on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting approval for the proposed merger (the "Merger") of the Terminating Fund into a new fund named Quadrus Sionna Canadian Value Corporate Class (the "Continuing Fund", together with the Terminating Fund, the "Funds") under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") (the "Requested Relief").
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by Mackenzie:
1. Mackenzie is a corporation governed by the laws of Ontario and is the manager of the Terminating Fund and will be the manager of the Continuing Fund. The head office of Mackenzie is located in Ontario.
2. The Terminating Fund is an open-end mutual fund trust created under the laws of Ontario and is a member of the "Quadrus Group of Funds". The Terminating Fund offers the Quadrus Series of units and H Series of units in the Jurisdictions under a simplified prospectus and annual information form dated June 26, 2006, as amended (the "Prospectus"). The Terminating Fund also offers Series S units on a private placement basis under applicable prospectus exemptions.
3. The Terminating Fund is sold by Quadrus Investment Services Ltd. (the "Principal Distributor") in its capacity as the principal distributor of the Terminating Fund.
4. The Terminating Fund is a reporting issuer under the applicable securities legislation of each province of Canada and is not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Decision Makers.
5. Mackenzie filed a preliminary simplified prospectus and annual information form for the Continuing Fund on May 29, 2007 in the Jurisdictions. Mackenzie expects to launch the Continuing Fund on or about July 3, 2007 as a member of the "Quadrus Group of Funds". The Continuing Fund will be a separate class of shares of Quadrus Corporate Class Inc. ("Quadruscorp"), a mutual fund corporation, and will offer three series of shares (Quadrus series, H Series and N series) under a simplified prospectus and annual information form. The Continuing Fund will also offer Series S units on a private placement basis under applicable prospectus exemptions.
6. The Continuing Fund will be sold by the Principal Distributor.
7. Mackenzie proposes to merge the Terminating Fund into the Continuing Fund. A press release, material change report and an amendment to the Prospectus were filed on SEDAR in March 2007 in connection with the Merger.
8. Unitholders of the Terminating Fund will be asked to approve the Merger at a special meeting to be held on or about July 25, 2007.
9. A notice of meeting and management information circular (the "Circular") in connection with the Merger will be mailed to unitholders of the Terminating Fund on or about July 3, 2007.
10. Subject to the required approval of the Decision Makers and unitholders, the Merger will be implemented on or about July 27, 2007.
11. Following the Merger, the Continuing Fund will continue as a publicly offered open-end mutual fund and the Terminating Fund will be wound up as soon as reasonably practicable.
12. Neither the Terminating Fund nor the Continuing Fund will bear any of the costs and expenses of the merger, including brokerage commissions resulting from the need for portfolio realignment.
13. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund for cash at any time up to the close of business on the business day immediately preceding the effective date of the Merger.
14. Unless an exemption has been obtained, the Terminating Fund follows, or in the case of the Continuing Fund, will follow, the standard investment restrictions and practices established by the Decision Makers.
15. The net asset value for the Terminating Fund is, and for the Continuing Fund will be, calculated on a daily basis on each day that The Toronto Stock Exchange is open for trading.
16. The Merger will be structured as a tax-deferred transaction within the meaning of section 85(1) of the Income Tax Act (Canada).
17. The portfolio and other assets of the Terminating Fund to be acquired by the Continuing Fund in connection with the Merger are acceptable to the portfolio advisor of the Continuing Fund and are consistent with the investment objectives of the Continuing Fund.
18. Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 because:
(a) contrary to section 5.6(1)(a)(ii), a reasonable person may not consider the fee structure of the Continuing Fund to be substantially similar to the fee structure of the Terminating Fund; and
(b) contrary to section 5.6(1)(f)(ii) of NI 81-102, the current simplified prospectus and most recent annual and interim financial statements for the Continuing Fund will not be sent to the unitholders of the Terminating Fund.
19. Mackenzie cannot deliver the current simplified prospectus and the most recent annual and interim financial statements for the Continuing Fund as the Continuing Fund is new and does not yet have a simplified prospectus or financial statements. Instead of delivering these documents, Mackenzie has included a description of the Continuing Fund in the Circular as well as a description of the similarities and differences between the Terminating Fund and the Continuing Fund. In particular, the differences in the fee structure of the Terminating Fund and the Continuing Fund are disclosed in the Circular.
20. The information in the Circular, together with the information contained in the simplified prospectus of the Terminating Fund that unitholders in the Terminating Fund received when their initial investment was made, will provide unitholders with prospectus-level disclosure with respect to the Continuing Fund.
21. The Circular will also disclose that the simplified prospectus and annual information form regarding the Continuing Fund will be available on or about July 3, 2007, and that unitholders of the Terminating Fund can obtain such documents by calling the Principal Distributor at a toll-free telephone number or by accessing the SEDAR website. Upon request by a unitholder, the Principal Distributor will make best efforts to provide the unitholder with the simplified prospectus and annual information form in a timely manner so that the unitholder can make an informed decision regarding the Merger.
22. Mackenzie believes that the Merger is in the best interests of the unitholders of the Terminating Fund for the following reasons:
(a) the Terminating Fund has consistently underperformed its benchmark index and a merger into the Continuing Fund will provide investors with access to a portfolio manager with a strong track record of managing Canadian equity portfolios;
(b) the Merger will provide a tax advantaged structure for non-registered unitholders of the Continuing Fund; and
(c) unitholders of the Terminating Fund will become unitholders of a fund with greater long term viability.
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the unitholders of the Terminating Fund receive prospectus-level disclosure with respect to the Continuing Fund to enable them to make an informed decision about the Merger.