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 hold mutual fund securities of Series A and T6 that are only sold under the SCS option as at the Implementation Date, be automatically rollover to the Series SC and S6 of the Fund – Upon the automatic rollover, 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 rollover subject to compliance with certain notification and prospectus disclosure requirements.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, s. 3.2.01(1).
March 27, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
MACKENZIE FINANCIAL CORPORATION
IPC INVESTMENT CORPORATION
(the Representative Dealer)
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of Mackenzie North American Corporate Bond Fund (the Fund) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement in 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 document (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 or S6 securities of the Fund that are made pursuant to an Automatic Rollover (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).
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.
This decision is based on the following facts represented by 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 Fund.
4. The head office of the Filer is located in Toronto, Ontario.
5. The head office of the Representative Dealer is located in Mississauga, Ontario.
6. The Filer is not in default of the securities legislation in any of the Jurisdictions.
7. 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.
8. The Fund is an open-end mutual fund trust created under the laws of the Province of Ontario
9. The Fund is a reporting issuer under the laws of the Jurisdictions. The securities of the Fund have qualified for distribution pursuant to a simplified prospectus, Fund Facts and annual information form that have been prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101).
10. The units of the Fund are referred to herein, collectively, as the Securities. The Securities of the Fund are currently offered under simplified prospectus, Fund Facts and annual information form dated September 29, 2016.
11. The Fund currently offers Series A, D, DA, F, F6, FB, FB5, O, O6, PW, PWF, PWF8, PWX, PWX8 and T6 securities. The Filer may offer additional series in the future.
12. The Fund intends to offer Series PWFB, PWFB5, SC and S6 which will be qualified for distribution by way of an amendment to the simplified prospectus.
13. Series A and T6 securities of the Fund are offered under four different 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.
14. The Fund is not in default of securities legislation in any of the Jurisdictions.
15. The Filer is filing an amendment on or around March 10, 2017 whereby it will launch Series SC and S6 on the Fund. Series SC and S6 will only available for purchase under the SCS option. On April 3, 2017 (the Implementation Date) the Filer will do a one-time rollover and switch all Series A securities of the Fund held under the SCS option into Series SC of the Fund and all Series T6 securities of the Fund held under the SCS option into Series S6 of the Fund (the Automatic Rollover). As of the Implementation Date Series A and T6 securities of the Fund will only be available for purchase under the Deferred Sales Charge options.
16. Investors who previously held Series A and Series T6 securities purchased or held under the SCS option, which will be, on the Implementation Date, moved into Series SC and Series S6 securities, respectively, continue to hold securities of the same Fund with the same underlying pool of assets, the same investment objectives and investment strategies and the same valuation procedures and continue to have the same rights as securityholders as they did prior to the Automatic Rollover, except for the Series Differences (as defined below).
17. The only differences (the Series Differences) between Series A and Series SC securities of a Fund and between Series T6 and Series S6 securities of the same Fund after the Implementation Date, are that:
(a) Series SC and Series S6 securities are available for purchase and are sold only under the SCS Option, while Series A and Series T6 securities are available for purchase and are sold only under the Deferred Sales Charge Options; and
(b) the management fees for Series SC and Series S6 securities are lower than the respective management fees for Series A and Series T6 securities.
18. Implementation of the Automatic Rollover will have no adverse tax consequences on investors under current Canadian tax legislation.
19. The Automatic Rollover will entail (a) a redemption of the Series A and Series T6 securities of the Fund, immediately followed by a purchase of the Series SC and Series S6 securities, of the Fund. The purchase of Securities done as part of this Automatic Rollover will be a “distribution” under the Securities Act (Ontario), which triggers the Pre-Sale Fund Facts Delivery Requirement.
20. Pursuant to the Pre-Sale 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.
21. While the Filer will initiate the trade done as part of the Automatic Rollover, the Filer does not propose to deliver the Fund Facts to investors in connection with the purchase of Securities made pursuant to an Automatic Rollover for the following reasons:
(a) The investment of such investors will be in securities of the same Fund with the same underlying pool of assets;
(b) the Series SC and Series S6 securities allow investors to benefit from a lower management fee; and
(c) since the Series A and Series T6 securityholders would have received a simplified prospectus or Fund Facts disclosing the higher level of fees which applied to the Series A and Series T6 securities for which they initially subscribed, the investor would derive little benefit from receiving a further Fund Facts document for the Automatic Rollover.
22. The Automatic Rollover process is administrative in nature and is the only practical way to achieve the required result of moving investors from Series A and Series T6 to Series SC and Series S6 in order to allow them to benefit as soon as possible from lower fees. It would be impractical and time consuming to require each investor to request such a switch. In this scenario, there is a greater risk of investors not benefitting from the lower management fees available to investors in Series SC and Series S6 securities.
23. The simplified prospectus of the Fund includes disclosure that Series A and T6 securities of the Fund are only available for purchase under the Deferred Sales Charge options.
24. The Filer will deliver or will arrange for the delivery of trade confirmations to investors in connection with the trade done further to the Automatic Rollover. 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.
25. The Filer will communicate with dealers about the Automatic Rollover so that dealers will be equipped to appropriately notify existing Series A and Series T6 investors of the Fund of the changes applying to their Series A and Series T6 securities.
26. In the absence of the Exemption Sought, the Filer may not carry out the Automatic Rollover without compliance with the Pre-Sale Fund Facts Delivery Requirement.
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 the SCS option of Series A and Series T6 prior to the Implementation Date of the Automatic Rollover, the Filer will liaise with dealers to devise a notification plan for such investors regarding the Automatic Rollover that addresses the following:
(a) that their Series A and Series T6 securities will be automatically rolled over on the Implementation Date to the Series SC or Series S6, as the case may be, of the same Fund;
(b) that other than the Series Differences there are no other material differences between Series A and Series T6 and the Series SC and Series S6 securities of the same Fund;
(c) that they will not receive the Fund Facts when they are automatically rolled over, 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 Filer’s 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 SC or Series S6 securities made pursuant to the Automatic Rollover, 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.
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission