Securities Law & Instruments

  • Headnote

    National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from the requirement in s. 3.2.01(1) of NI 81-101 to deliver a fund facts document to investors who purchase mutual fund securities of series that are only sold under deferred sales charge options will, after a minimum holding period, be automatically switched to the initial sales charge series – Upon the automatic switch, investors will benefit from lower management fees– Automatic 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 upon the automatic switch subject to compliance with certain notification and prospectus/fund facts disclosure requirements.

    Applicable Legislative Provisions

    National Instrument 81-101 Mutual Fund Prospectus Disclosure, s. 3.2.01(1).

    September 27, 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

    IPC INVESTMENT CORPORATION
    (the Representative Dealer)

    DECISION

    Background

    The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of each existing mutual fund listed in Schedule “A” (each, an Existing Fund and, collectively, the Existing Funds) and any mutual fund that the Filer may establish in the future (the Future Funds and, together with the Existing Funds, the Funds, and each, a Fund) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement in subsection 3.2.01(1) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for a dealer to deliver or send the most recently filed fund facts documents (Fund Facts) to a purchaser before a dealer accepts an instruction from a purchaser for the purchase of a security of a mutual fund (the Pre-sale Fund Facts Delivery Requirement) in respect of the purchases of Series SC, Series S6 and Series S8 securities of the Funds that are made pursuant to Automatic Switches (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, together with the Jurisdiction, the Jurisdictions).

    Interpretation

    Terms defined in NI 81-102, 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:

    The Filer

    1.             The Filer is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.

    2.             The Filer is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario. The Filer is also registered as a portfolio manager and exempt market dealer in the Other Jurisdictions and as an investment fund manager in Newfoundland and Labrador and Québec.

    3.             The Filer is the manager, promoter and portfolio manager of the Funds.

    4.             The head office of the Filer is located in Toronto, Ontario.

    5.             The Filer is not in default of the securities legislation in any of the Jurisdictions.

    6.             The Representative Dealer is registered as a mutual fund dealer in the Jurisdictions and registered as an exempt market dealer in Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Ontario and Saskatchewan.

    The Funds

    7.             Each 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.

    8.             Each Fund is, or will be, a reporting issuer under the laws of the Jurisdictions and subject to National Instrument 81-102 Investment Funds (NI 81-102). The securities of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus, Fund Facts and annual information form that have been prepared and filed in accordance with NI 81-101. The securities of the Existing Funds are currently offered under a simplified prospectus dated September 29, 2015, as amended.

    9.             All Existing Funds currently offer Series A, Series F, Series FB, Series PW, Series PWF, Series PWX and Series SC. Mackenzie Canadian Bond Fund also offers B-Series, Investor Series, Series AR, Series D, Series G, Series I, Series O, Series PWT8, and Series U. Mackenzie Canadian Money Market Fund also offers Investor Series, Series AR, Series C, Series DA, Series G, Series GP, Series I, Series O and Series SP. Mackenzie Canadian Short Term Income Fund also offers Series D, Series G, Series I, Series O and Series PWX8. Mackenzie Floating Rate Income Fund also offers Series AR, Series D, Series F6, Series FB5, Series O, Series O6, Series PWF8, Series PWT8, Series PWX8, Series S6 and Series T6. Mackenzie Global Tactical Bond Fund also offers Series AR, Series D, Series F6, Series FB5, Series O, Series PWF8, Series PWT8, Series PWX8, Series S6, Series T6 and Series U. Mackenzie Global Tactical Investment Grade Bond Fund also offers Series AR, Series D, Series F6, Series FB5, Series O, Series S6 and Series T6. Mackenzie Investment Grade Floating Rate Fund also offers Series AR, Series D, Series F6, Series FB5, Series O, Series S6 and Series T6. Mackenzie Strategic Bond Fund also offers Series AR, Series D, Series F6, Series FB5, Series O, Series O6, Series PWF8, Series S6 and Series T6. Mackenzie Unconstrained Fixed Income Fund Series AR, Series D, Series FB5, Series O, Series S8 and Series T8. Mackenzie USD Global Tactical Bond Fund also offers Series D, Series F6, Series FB5Series S6 and Series T6. Mackenzie USD Ultra Short Duration Income Fund also offers Series D.

    10.          The Filer offers four main purchase options: the sales charge purchase option (SCS option), the low-load 2 purchase option (LL2), the low-load 3 purchase option (LL3), and the redemption charge purchase option (RCS and, together with LL3 and LL2, the Deferred Sales Charge options). Under the SCS option, investors may have to pay a negotiated commission to their dealer at the time they purchase securities, while under the Deferred Sale Charge options, no commission is paid by the investor at the time of purchase, but the investor will be required to pay a redemption fee if he or she redeems within a certain period of time from the date of purchase.

    11.          The Existing Funds are not in default of securities legislation in any of the Jurisdictions.

    Automatic Switches

    12.          The Filer is starting a program on December 30, 2016 (the “Implementation Date”) whereby investors will be switched from the Deferred Sales Charge option to the SCS option upon expiry of their redemption charge schedule. The Funds do not offer both a Deferred Sales Charge option and a SCS option within the same series; therefore, the Filer will switch the investors series of securities into the SCS option of a different series of the same Fund.

    13.          The Filer believes this change will create greater transparency for investors as it has the benefit of reminding investors that their deferred sales charge schedule is now expired and they can trade freely without sales charges. Currently, even after the deferred sales charge schedule is expired, an investor’s statement would still note “deferred sales charge” in the security identifier, and so they have no way of easily knowing if any fee schedule still applies.

    14.          In order to implement this switch, the Filer proposes to make the following changes (Changes) and provide for the automatic switch of each Series A, Series T6 or Series T8 security to a Series SC, Series S6 or Series S8 security, respectively, of the same Fund once the applicable redemption schedule has finished for each Series A, Series T6 or Series T8 security (an Automatic Switch and, collectively, Automatic Switches). For each Series A, Series T6 or Series T8 securities held or purchased under the RCS option, the Automatic Switch will occur once investors have held their securities for a period of seven years, for Series A, Series T6 or Series T8 securities held or purchased under the LL3 option, the Automatic Switch will occur once investors have held their securities for a period of three years, and for Series A, Series T6 or Series T8 securities held or purchased under the LL2 option, the Automatic Switch will occur once investors have held their securities for a period of two years (each, a Minimum Period). Each Automatic switch of any eligible securities will be effected on the second Friday of the month following the date upon which the securities become eligible for the Automatic Switch.

    15.          The only differences (the Series Differences) between the Series A, Series T6 or Series T8 securities after the applicable Minimum Period and the corresponding Series SC, Series S6 or Series S8 securities, are:

    a.             Series A, T6 and T8 securities of the Existing Funds are available for purchase and are sold only under the Deferred Sales Charge options;

    b.             Series SC, S6 and S8 securities of the Existing Funds are available for purchase and are sold only under the SCS option;

    c.             For the majority of investors (those who purchased securities after February 13, 2006), the management fees for Series Series SC, Series S6 or Series S8 securities are lower than the respective management fees for Series A, Series T6 or Series T8 securities; and

    d.             For any investors that purchased Series A, Series T6 or Series T8 securities of the Existing Funds before February 13, 2006, the corresponding Series SC, Series S6 and Series S8 securities will have both a lower management fee and a higher trailing commission than their Series A, Series T6 or Series T8 securities. This is due to the fact that securities purchased prior to February 13, 2006 did not automatically have an increase in their trailing commission following the expiry of the redemption charge schedule.

    16.          Investors, once they have held their securities for the applicable Minimum Period, will be Automatically Switched to Series SC, Series S6 or Series S8 securities under the SCS option and thereafter will benefit from the lower management fees that are otherwise available to investors in Series SC, Series S6 and Series S8 securities.

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

    18.          Each Automatic Switch will entail a redemption of Series A, Series T6 or Series T8 securities, immediately followed by a purchase of Series SC, Series S6 or Series S8 securities of the same Fund. Each purchase of securities done as part of the Automatic Switch will be a “distribution” under the Legislation that triggers the Pre-sale Fund Facts Delivery Requirement.


    19.          While the Filer will initiate each trade done as part of the Automatic Switches, the Filer does not propose to deliver the Fund Facts to investors in connection with the purchase of Series SC, Series S6 or Series S8 securities made pursuant to Automatic Switches, since such investors would have received a Fund Facts disclosing that, once the Series A, Series T6 or Series T8 securities were held for the applicable Minimum Period, such securities would be switched to Series SC, Series S6 or Series S8 securities of the same Fund. The investment of such investors will be in securities of the same Fund with the same underlying pool of assets, same investment objectives and strategies and the same valuation procedures. Investors receiving Series A, Series T6 or Series T8 Fund Facts are informed pursuant to such Fund Facts that, upon an Automatic Switch, the Series SC, Series S6 or Series S8 securities will not be subject to redemption fees and will have lower management fees (including the percentage rate of such fees).

    20.          Each investor who receives a Series A, Series T6 or Series T8 Fund Facts will be fully informed of the Series Differences, therefore there would be no benefit for such investor to receive a Fund Facts in connection with the purchase of Series SC, Series S6 or Series S8 securities made pursuant to an Automatic Switch.

    21.          The simplified prospectus and Series A, Series T6 and Series T8 Fund Facts of the Funds discloses, or will disclose:

    (a)           That the Series A, Series T6 and Series T8 securities will be automatically switched following the expiry of the applicable Minimum Period, on the applicable switch date to the Series SC, Series S6 or Series S8 securities, as the case may be, of the same Fund;

    (b)           That such Series SC, Series S6 or Series S8 securities will have a lower management fee than the corresponding Series A, Series T6 and Series T8 securities and will not be subject to a deferred/low load sales charge with a redemption fee;

    (c)           The rate of the management fee for Series SC, Series S6 or Series S8 securities;

    (d)           The trailing commission rates payable by the Filer in respect of the Series A, Series T6 or Series T8 securities (a) prior to the expiry of the applicable Minimum period and (b) after the expiry of the applicable Minimum period before the Automatic Switch; and

    (e)           The trailing commission rates payable by the Filer in respect of the Series SC, Series S6 or Series S8 securities upon the Automatic Switch.

    22.          The Filer will continue to deliver or arrange for the delivery of transaction confirmations to investors in connection with each trade done further to Automatic Switches. Details of the changes in series of securities held will be reflected in the transaction confirmations sent to investors for the month in which the change occurred.

    23.          The Filer will discuss these Changes with dealers to ensure that dealers will be in a position to advise investors of the Changes.

    24.          In the absence of the Exemption Sought, the Automatic Switches are not capable of being implemented without compliance with the Pre-sale 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 who purchase Series A, Series T6 and Series T8 on and after the Implementation Date:

    (a)           The simplified prospectus and Series A, Series T6 and Series T8 Fund Facts of the Funds discloses, or will disclose:

    (i)            That the Series A, Series T6 and Series T8 securities will be automatically switched following the expiry of the applicable Minimum Period, on the applicable switch date to the Series SC, Series S6 or Series S8 securities, as the case may be, of the same Fund;

    (ii)           That such Series SC, Series S6 or Series S8 securities will have a lower management fee than the corresponding Series A, Series T6 and Series T8 securities and will not be subject to a deferred/low load sales charge with a redemption fee;

    (iii)          The rate of the management fee for Series SC, Series S6 or Series S8 securities;

    (iv)          The trailing commission rates payable by the Filer in respect of the Series A, Series T6 or Series T8 securities (a) prior to the expiry of the applicable Minimum period and (b) after the expiry of the applicable Minimum period before the Automatic Switch; and

    (v)           The trailing commission rates payable by the Filer in respect of the Series SC, Series S6 or Series S8 securities upon the Automatic Switch (collectively, with items (i), (ii), (iii) and (iv), the Series A, Series T6 and Series T8 Disclosure);

    (b)           The Fund Facts for Series A, Series T6 and Series T8, as the case may be, containing the Series A, Series T6 and Series T8 Disclosure will be delivered to prospective Series A, Series T6 and Series T8 investors before a dealer accepts an instruction from such investors to purchase Series A, Series T6 and Series T8 securities on or after the Implementation Date in accordance with the Pre-sale Fund Facts Delivery Requirement.

    (c)           The Filer incorporates the Series A, Series T6 and Series T8 Disclosure in the simplified prospectus of the Funds; and

    2.             For investors in Series A, Series T6 and Series T8 securities of the Funds, purchased or held under the Deferred Sales Charge options prior to the Implementation Date:

    (a)           The Filer will liaise with dealers to devise a notification plan for such investors regarding the Automatic Switches that addresses the following:

    (i)            That the Series A, Series T6 and Series T8 securities will be automatically switched following the expiry of the applicable Minimum Period, on the applicable switch date to the Series SC, Series S6 and Series S8 securities (which is an initial sales charge series), as they case may be, of the same Fund;

    (ii)           That other than the Automatic Switch and the Series Differences, there will be no other material differences between the Series A, Series T6 and Series T8 securities and the Series SC, Series S6 and Series S8 securities of the same Fund;

    (iii)          That they will not receive a Fund Facts upon an Automatic Switch, but that:

    1.             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 specified address or email address;

    2.             The most recently filed Fund Facts will be sent or delivered to them at no cost;

    3.             The most recently filed Fund Facts may be found either on the SEDAR website or on the Filer’s website; and

    4.             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 SC, Series S6 or Series S8 securities made further to an Automatic 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 Series SC, Series S6 or Series S8 securities, as applicable, contains a misrepresentation, whether or not they request the Fund Facts.

    3.             For investors in Series A, Series T6 and Series T8 securities, the Filer sends to such investors an annual reminder notice advising that they will not receive Fund Facts upon an Automatic 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 or email 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 SEDAR website or on the Filer’s website; and

    (d)           They will not have a Withdrawal Right in respect of a purchase of Series SC, Series S6 or Series S8 securities made further to an Automatic 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 Series SC, Series S6 or Series S8 securities, as applicable, contains a misrepresentation, whether or not they request the Fund Facts.

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


    Schedule A

    Fund

    Deferred Sales Charge purchase option Series

    Sales charge purchase option Series

    Mackenzie Canadian Bond Fund;
    Mackenzie Canadian Money Market Fund;
    Mackenzie Canadian Short Term Income Fund;
    Mackenzie USD Ultra Short-Duration Income Fund

    A

    SC

    Mackenzie Floating Rate Income Fund;
    Mackenzie Global Tactical Bond Fund;
    Mackenzie Global Tactical Investment Grade Bond Fund;
    Mackenzie Investment Grade Floating Rate Fund;
    Mackenzie Strategic Bond Fund;
    Mackenzie USD Global Tactical Bond Fund

    A
    T6

    SC
    S6

    Mackenzie Unconstrained Fixed Income Fund

    A
    T8

    SC
    S8