Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of Mutual Fund Mergers – approval required because mergers do not meet the criteria for pre-approval – certain mergers have differences in investment objectives – certain mergers not a “qualifying exchange” or a tax-deferred transaction under Income Tax Act – financial statements of continuing funds not required to be sent to unitholders of the terminating funds in connection with the mergers provided the information circular sent for unitholder meeting clearly discloses the various ways unitholders can access the financial statements – tailored prospectus of continuing funds sent to unitholders of terminating funds instead of a simplified prospectus.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss 5.5(1)(b), 5.6(1)(b) and 5.6(1)(f)(ii)
June 4, 2009
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
Keystone Bissett Canadian Equity Fund, Keystone Saxon Smaller Companies Fund, Keystone Sceptre Canadian Large Cap Fund, Keystone Sceptre Canadian Small Cap Fund, Mackenzie Putnam Global Equity Fund, Mackenzie Universal Canadian Value Fund and Mackenzie Universal Global Property Income Fund
(each a TERMINATING FUND and collectively, the TERMINATING FUNDS)
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):
(a) approving the proposed mergers of the Terminating Funds into the corresponding Continuing Funds (as defined below) pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102); and
(b) exempting the Filer from the SP and FS Delivery Requirements (as defined below).
(collectively, the Exemption Sought)
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application (Principal Regulator); and
(b) The Filer has provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
Capitalcorp means Mackenzie Financial Capital Corporation.
Capitalcorp Funds means Mackenzie Ivy Foreign Equity Class (unhedged class), Mackenzie Universal Canadian Value Class and Mackenzie Universal World Real Estate Class, each a class of Capitalcorp.
Continuing Fund or Continuing Funds means, individually or collectively, Mackenzie Ivy Enterprise Fund, Mackenzie Maxxum Canadian Equity Growth Fund, Saxon Small Cap, Saxon Stock Fund and the Capitalcorp Funds.
Effective Date means on or about June 5, 2009, the anticipated date of the Proposed Mergers.
Fund or Funds means, individually or collectively, the Continuing Funds and the Terminating Funds.
Proposed Merger or Proposed Mergers means, individually or collectively, the Proposed Trust Mergers and Proposed Trust-Corp Mergers.
Proposed Trust Merger or Proposed Trust Mergers means, individually or collectively, the following proposed mergers:
Terminating Fund
Continuing Fund
Keystone Bissett Canadian Equity Fund
Saxon Stock Fund
Keystone Saxon Smaller Companies Fund
Saxon Small Cap
Keystone Sceptre Canadian Large Cap Fund
Mackenzie Maxxum Canadian Equity Growth Fund
Keystone Sceptre Canadian Small Cap Fund
Mackenzie Ivy Enterprise Fund
Proposed Trust-Corp Merger or Proposed Trust-Corp Mergers means, individually or collectively, the following proposed mergers:
Terminating Fund
Continuing Fund
Mackenzie Putnam Global Equity Fund
Mackenzie Ivy Foreign Equity Class (unhedged class)
Mackenzie Universal Canadian Value Fund
Mackenzie Universal Canadian Value Class
Mackenzie Universal Global Property Income Fund
Mackenzie Universal World Real Estate Class
SP and FS Delivery Requirements means the requirement to deliver the simplified prospectus and the most recent annual and interim financial statements of a corresponding Continuing Fund to investors of a Terminating Fund in connection with a Proposed Merger if such documents have not previously been sent to investors of the Terminating Fund pursuant to subsection 5.6(1)(f)(ii) of NI 81-102.
Tailored Prospectus means the current Part A and the Part B of the simplified prospectus of the Continuing Fund.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation governed by the laws of Ontario and is registered as an advisor in the categories of Investment Counsel and Portfolio Manager (or its equivalent) in Ontario, Manitoba and Alberta. The Filer is also registered in Ontario as a dealer in the category of Limited Market Dealer and is registered under the Commodity Futures Act (Ontario) in the category of Commodity Trading Manager.
The Filer is the manager and trustee of the Funds, excluding the Capitalcorp Funds, each of which is an open-ended mutual fund trust governed under the laws of Ontario (Trust Funds).
The Filer is the manager of the Capitalcorp Funds.
Series A, D, F, G, I, O, R, T6 and T8 securities (as applicable) of the Terminating Funds are issued and outstanding. Certain series of the Terminating Funds are offered for sale in all provinces and territories of Canada under simplified prospectuses and annual information forms dated April 8, 2008, as amended (in the case of Mackenzie Keystone Canadian Large Cap and Mackenzie Keystone Canadian Small Cap Fund), May 30, 2008, as amended (in the case of Keystone Bissett Canadian Equity Fund and Keystone Saxon Smaller Companies Fund), January 26, 2009, as amended, (in the case of Saxon Stock Fund and Saxon Small Cap) and November 19, 2008, as amended, in the case of all other Funds.
The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada and are not in default of securities legislation in any province or territory of Canada.
Each of the Funds follows the standard investment restrictions and practices in NI 81-102, except pursuant to the terms of any exemption that has been previously obtained in respect of that Fund.
The net asset value for each series of securities of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for trading.
Approval of the Proposed Mergers is required because the Proposed Mergers do not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:
(a) contrary to subsection 5.6(1)(a)(ii) of NI 81-102, a reasonable person may not consider the fundamental investment objectives of the Terminating Funds and their corresponding Continuing Funds to be substantially similar for all of the Proposed Mergers except for the mergers of Keystone Saxon Smaller Companies Fund into Saxon Small Cap, and Keystone Bissett Canadian Equity Fund into Saxon Stock Fund;
(b) contrary to subsection 5.6(1)(b) of NI 81-102, the Proposed Trust Mergers will not be implemented on a tax deferred basis. The management information circular of the Trust Funds discloses the tax implications of the Proposed Trust Mergers; and
(c) contrary to subsection 5.6(1)(f)(ii) of NI 81-102, the Filer proposes sending to investors of a Terminating Fund a Tailored SP and a management information circular that describes how investors may access or obtain the most recent interim and annual financial statements of the corresponding Continuing Fund.
Except as noted above, the Proposed Mergers will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Filer proposes implementing the Proposed Trust Mergers on a taxable basis as it will not result in the expiry of the Continuing Funds’ capital loss carryforwards and accrued capital losses. It will also result in the realization of capital losses by a significant number of investors of the Terminating Funds.
As required by National Instrument 81-107 Independent Review Committee for Investment Funds, an Independent Review Committee (the IRC) has been appointed for the Funds. The Filer presented the terms of the Proposed Mergers to the IRC for a recommendation. The IRC reviewed the Proposed Mergers and recommended that it be put to investors of the Terminating Funds and Mackenzie Universal Canadian Value Class for their consideration on the basis that the Proposed Mergers would achieve a fair and reasonable result for the Terminating Funds and Mackenzie Universal Canadian Value Class.
Investors of the Terminating Funds and Mackenzie Universal Canadian Value Class will be asked to approve the Proposed Mergers at special meetings of investors scheduled to be held on or about June 1, 2009. Investors of Mackenzie Universal Canadian Value Class are being asked to approve the merger with Mackenzie Universal Canadian Value Fund as the merger will constitute a material change to that Continuing Fund. All other Proposed Mergers do not require investor approval of the Continuing Funds as the Filer has determined that the Proposed Mergers do not constitute a material change to the other Continuing Funds.
Investors of Mackenzie Universal Canadian Value Class are also being asked to approve a change of investment objectives.
Implicit in the approval of investors of the Proposed Mergers is the adoption by the Terminating Funds of the investment objectives and strategies of the Continuing Funds. The Filer will pay the costs of holding the special meetings and solicitation of proxies in connection with the Proposed Mergers.
If the approval of investors of a Terminating Fund or Mackenzie Universal Canadian Value Class is not received in its special meeting, then that Proposed Merger will not proceed.
Terminating Fund investors will continue to have the right to redeem their securities or exchange their securities for securities of any other Mackenzie-sponsored mutual fund at any time up to the close of business on the business day immediately preceding the Effective Date. Terminating Fund investors that switch their securities for securities of other Mackenzie-sponsored mutual funds will not incur any charges. Investors who redeem securities may be subject to redemption charges.
A Tailored Prospectus and management information circulars describing the Proposed Mergers and how a Terminating Fund investor can access or obtain the most recent interim and annual financial statements of a corresponding Continuing Fund will be filed on SEDAR and will be mailed to investors of record of the Terminating Funds and Mackenzie Universal Canadian Value Class, as at April 30, 2009, on or before May 11, 2009.
Relief from the SP and FS Delivery Requirements was granted to the Filer for all future pre-approved mergers of mutual funds managed by the Filer in a decision dated June 17, 2003. However, such relief cannot be relied upon for the Proposed Mergers as they are not pre-approved mergers pursuant to section 5.6 of NI 81-102, a condition of that relief.
If the Proposed Mergers are approved, the mergers will be implemented after close of business on the Effective Date and the costs of the mergers will be borne by the Filer.
Following the mergers, the Continuing Funds will continue as publicly offered open-ended mutual funds.
Following the mergers, material change reports and amendments to the simplified prospectuses and annual information forms of the Funds in respect of the mergers will be filed.
The Filer submits that the Proposed Mergers will result in the following benefits:
(a) Larger net assets – All Terminating Funds other than Mackenzie Universal Canadian Value Fund: The Continuing Funds have significantly larger net assets than the Terminating Funds. Following the merger, investors of the Terminating Funds may enjoy enhanced liquidity of the portfolio and may also benefit from the Continuing Funds’ larger profiles in the marketplace. Certain of the Terminating Funds may also enjoy enhanced diversification as a result of the mergers.
(b) Superior performance of the Continuing Funds – All Terminating Funds other than Mackenzie Universal Canadian Value Fund and Mackenzie Universal Global Property Income Fund: The Continuing Funds have demonstrated similar or better historical performance over most time periods (as of April 13, 2009).
(c) Similar or lower management expense ratios (MERs) - All Terminating Funds other than Mackenzie Universal Canadian Value Fund and Mackenzie Universal Global Property Income Fund: In all cases, the MERs of the Continuing Funds by series are expected to be similar to or less than the MERs of the Terminating Funds for the corresponding series.
(d) Tax deferred switching – Terminating Funds merging into Capitalcorp Funds: Each Capitalcorp Fund is a class of shares of a mutual fund corporation, Capitalcorp. Generally each class of shares of Capitalcorp is a separate mutual fund. Investors may exchange their shares of a class for another class within Capitalcorp on a tax deferred basis.
(e) Tax efficient dividends – Terminating Funds merging into Capitalcorp Funds: For tax purposes, Capitalcorp and its classes are treated as a single taxable entity. Certain classes of Capitalcorp and certain series of classes of Capitalcorp have targeted dividend payments. The payment of capital gains dividends to these classes and series to satisfy the targeted dividend payments, reduces Capitalcorp’s need to pay capital gains dividends to other classes. Investors in these classes benefit as they receive fewer taxable capital gains dividends than they would receive if the fund was not part of Capitalcorp.
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:
(a) in satisfaction of the SP and FS Delivery Requirements, the Filer sends to investors of a Terminating Fund a Tailored Prospectus;
(b) the management information circular sent to investors in connection with a Proposed Merger:
i) prominently discloses that investors can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by contacting their dealer or by telephone toll free at 1-888-421-5111 or via internet at www.mackenziefinancial.com or by accessing the SEDAR website at www.sedar.com; and
ii) provides sufficient information about the Proposed Merger to permit investors to make an informed decision about the Proposed Merger; and
(c) upon a request by an investor of a Terminating Fund for financial statements of a corresponding Continuing Fund, the Filer will make best efforts to provide the investor with the applicable financial statements in a timely manner so that the investor can make an informed decision regarding the Proposed Merger.
“V. Nunes”
Vera Nunes,
Assistant Manager, Investment Funds Branch
Ontario Securities Commission