Securities Law & Instruments

Headnote

 

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption from section 2.1(1) of National Instrument 81-102 – Investment Funds to permit mutual funds to invest more than 10 percent of net assets in debt securities issued by a foreign government or supranational agency, subject to conditions.

 

Applicable Legislative Provisions

 

National Instrument 81-102 Investment Funds, ss. 2.1(1), 19.1.

 

March 22, 2017

 

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

MACKENZIE GLOBAL CREDIT OPPORTUNITIES FUND AND

MACKENZIE GLOBAL INFLATION-LINKED FUND

(the Funds)

 

DECISION

 

Background

 

The principal regulator in the Jurisdiction has received an amended application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption (the Requested Relief), pursuant to section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102) from subsection 2.1(1) of NI 81-102 (the Concentration Restriction) to permit each of the Funds to invest up to:

 

(a)           20% of its net asset value at the time of the transaction in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or fully guaranteed as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction in Canada, or the government of the United States of America, and are rated “AA” by Standard & Poor’s Rating Services (Canada) (S&P) or its DRO affiliate (as defined in NI 81-102), or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and

 

(b)           35% of its net asset value at the time of the transaction in evidences of indebtedness of any one issuer if those securities are issued, or fully guaranteed as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction in Canada, or the government of the United States of America, and are rated “AAA” by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates.

 

(such evidences of indebtedness are collectively referred to as Foreign Government Securities).

 


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 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:

 

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 all other Canadian provinces and territories and as an investment fund manager in Newfoundland and Labrador and Québec.

 

3.             The Filer will be the manager, trustee and portfolio manager of Mackenzie Global Credit Opportunities Fund, and is the manager, trustee and portfolio manager of Mackenzie Global Inflation-Linked Fund.

 

4.             Mackenzie Global Credit Opportunities Fund will be an open-ended mutual fund trust established under the laws of Ontario. Mackenzie Global Inflation-Linked Fund is an open-ended mutual fund trust established under the laws of Ontario.

 

5.             Securities of the Funds are, or will be, offered by simplified prospectus filed in all of the provinces and territories in Canada and, accordingly, the Funds are, or will be, reporting issuers in one or more provinces and territories of Canada. A preliminary simplified prospectus was filed for Mackenzie Global Credit Opportunities Fund via SEDAR in all the provinces and territories on February 15, 2017.

 

6.             Neither the Filer nor the Funds are in default of securities legislation in any jurisdiction of Canada.

 

7.             The investment objectives of Mackenzie Global Credit Opportunities Fund are expected to be substantially as follows: “The Fund seeks to generate a high level of income with the potential for long-term capital growth by investing primarily in higher yielding corporate and government fixed income securities and instruments of issuers anywhere in the world.”

 

8.             To achieve its investment objectives, Mackenzie Global Credit Opportunities Fund is expected to invest substantially all of its assets in global corporate and government fixed income securities. Although Mackenzie Global Credit Opportunities Fund aims to invest primarily in a diversified portfolio of fixed-income securities, depending on market conditions, its portfolio managers seek the discretion to gain exposure to any one issuer of Foreign Government Securities in excess of the Concentration Restriction.

 

9.             The investment objectives of Mackenzie Global Inflation-Linked Fund are as follows: “The Fund seeks to provide investors with a steady flow of interest income with some focus on capital preservation. The Fund will seek to accomplish its objectives by investing primarily in global fixed-income securities which are indexed to inflation levels of countries anywhere in the world.”

 

10.          To achieve its investment objectives, Mackenzie Global Inflation-Linked Fund invests substantially all of its assets in global corporate and government fixed income securities. Although Mackenzie Global Inflation-Linked Fund aims to invest primarily in a diversified portfolio of fixed-income securities, depending on market conditions, its portfolio managers seek the discretion to gain exposure to any one issuer of Foreign Government Securities in excess of the Concentration Restriction.

 

11.          Section 2.1(1) of NI 81-102 prohibits the Funds from purchasing a security of an issuer, other than a “government security” as defined in NI 81-102, if, immediately after the purchase, more than 10% of the net asset value of the Fund, taken at market value at the time of the purchase, would be invested in securities of the issuer.

 

12.          The Foreign Government Securities are not within the meaning of “government securities” as such term is defined in NI 81-102.

 

13.          In Companion Policy 81-102CP (the “Companion Policy”), the Canadian Securities Administrators state their views on various matters relating to NI 81-102. Subsection 3.1(4) of the Companion Policy indicates that relief from paragraph 2.04(1)(a) of National Policy 39, which was replaced by the Concentration Restriction, has been provided to mutual funds generally under the following circumstances:

 

a.             the mutual fund has been permitted to invest up to 20% of its net asset value in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or fully guaranteed as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction, or the government of the United States of America and are rated “AA” by S&P or its DRO affiliates, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and

 

b.             the mutual fund has been permitted to invest up to 35% of its net asset value in evidences of indebtedness of any one issuer, if those securities are issued, or fully guaranteed as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction, or the government of the United States of America and are rated “AAA” by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates.

 

14.          The simplified prospectuses of the Funds will disclose the risks associated with concentration of net assets of the Funds in securities of a limited number of issuers.

 

15.          The Funds seek the Requested Relief to enhance their ability to pursue and achieve their investment objectives.

 

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:

 

1.             Paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;

 

2.             Any security that may be purchased under the Requested Relief is traded on a mature and liquid market; and

 

3.             The acquisition of the securities purchased pursuant to this Decision is consistent with the fundamental investment objectives of the Fund.

 

4.             The simplified prospectuses of the Funds disclose the additional risks associated with the concentration of net asset value of the Funds in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Funds have so invested and the risks, including foreign exchange risks, of investing in the country in which the issuer is located; and

 

5.             The simplified prospectuses of the Funds will include a summary of the nature and terms of the Requested Relied under the investment strategies section along with the conditions imposed and the type of securities covered by this Decision.

 

“Darren McKall”

Investment Funds and Structured Products Branch

Ontario Securities Commission