Headnote NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund merger – approval required because the merger will not meet the criteria for pre-approval – fee structures of terminating funds and corresponding continuing funds not substantially similar – relief also granted to permit delivery of a ‘tailored’ simplified prospectus to securityholders of the Terminating Fund – the tailored prospectus will include the current Part A and Part B of the Continuing Fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss 5.5(1)(b), 5.6(1)(b) and 5.6(1)(f)(ii).
May 17, 2012
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 SAXON EXPLORER CLASS
(THE TERMINATING FUND)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction (the Legislation):
(a) approving the proposed reorganization of the Terminating Fund with the Continuing Fund (as defined below), whereby investors of the Terminating Fund would become investors of the Continuing Fund, 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 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.
“Continuing Fund” means the portfolio of assets owned by Capitalcorp that is referable to Mackenzie Universal North American Growth Class.
“Effective Date” means on or about June 15, 2012, the anticipated date of the Proposed Reorganization.
“Fund” or “Funds” means, individually or collectively, the Continuing Fund and the Terminating Fund.
“Mackenzie” or “The Filer” means Mackenzie Financial Corporation, the manager of the Funds.
“Proposed Reorganization” means the following proposed reorganization:
Terminating Fund
Continuing Fund
Mackenzie Saxon Explorer Class
Mackenzie Universal North American Growth Class
“SP Delivery Requirements” means the requirement to deliver the simplified prospectus or the most recently filed fund facts document of the Continuing Fund to investors of the Terminating Fund in connection with the Proposed Reorganization, 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.
“Terminating Fund” means the portfolio of assets owned by Capitalcorp that is referable to Mackenzie Saxon Explorer Class.
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 portfolio manager and exempt market dealer in all of the provinces and territories of Canada. The Filer is also registered in Ontario as an investment fund manager and under the Commodity Futures Act (Ontario) in the category of Commodity Trading Manager.
The Filer is the manager and portfolio manager of the Funds.
Each Fund is referable to a class of shares of Capitalcorp, a corporation formed under the Business Corporations Act (Ontario).
Capitalcorp qualifies as a “mutual fund corporation” under the Income Tax Act (Canada).
The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada. Neither the Filer nor the Funds are in default of securities legislation in any province or territory of Canada.
Each of the Funds is a mutual fund that is subject to the requirements in NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure. 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.
Pursuant to the Proposed Reorganization, investors of the Terminating Fund would become investors of the Continuing Fund.
Approval of the Proposed Reorganization is required because the Proposed Reorganization does 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 Fund and the Continuing Fund to be substantially similar;
(b) contrary to subsection 5.6(1)(f)(ii) of NI 81-102, the Filer proposes sending to investors of the Terminating Fund a Tailored Prospectus in respect of the Continuing Fund.
Except as noted above, the Proposed Reorganization will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The portfolio and other assets of the Terminating Fund that will become assets of the Continuing Fund are acceptable to the portfolio advisor of the Continuing Fund and are consistent with the investment objectives of the Continuing Fund. To the extent that a particular security may be unsuitable or undesirable for the Continuing Fund, that security will be sold prior to the Proposed Reorganization.
As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Independent Review Committee (the IRC) has been appointed for the Funds. The Filer presented the terms of the Proposed Reorganization to the IRC for a recommendation. The IRC reviewed the Proposed Reorganization and provided a positive recommendation for the Proposed Reorganization, having determined that the Proposed Reorganization, if implemented, would achieve a fair and reasonable result for each of the Funds.
Investors of the Terminating Fund will be asked to approve the Proposed Reorganization at a special meeting of investors scheduled to be held on or about June 12, 2012. The Filer will pay the costs of holding the special meetings and solicitation of proxies in connection with the Proposed Reorganization.
If the approval of investors of a Terminating Fund is not received in its special meeting, then that Proposed Reorganization will not proceed.
If the necessary approvals are obtained, Mackenzie will carry out the following steps to complete the Proposed Reorganization:
a. The directors of Capitalcorp will designate one of the authorized, but unissued classes of mutual fund shares of Capitalcorp as the “Mackenzie Universal North American Growth Class” (the “Continuing Class”).
b. Capitalcorp will cause the Continuing Class to adopt the investment objectives, investment strategies and fee structure of the class of shares of the Continuing Fund.
c. Capitalcorp will combine the net assets that are referable to the Terminating Fund with the net assets that are referable to the Continuing Fund and will cause the combined net assets to become the net assets that are referable to the Continuing Class.
d. The articles of Capitalcorp will be amended to exchange all outstanding Capitalcorp shares that are referable to the Terminating Fund and the Continuing Fund for corresponding series of shares of the Continuing Class and all such outstanding Capitalcorp shares that are referrable to the Terminating Fund and the Continuing Fund will then be cancelled.
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 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.
The Filer believes that the Proposed Reorganization is beneficial to securityholders of the Funds for the following reasons:
a. Superior performance of the Continuing Fund. The Continuing Fund has demonstrated better historical performance over most time periods than the Terminating Fund. Accordingly, the Proposed Reorganization will allow securityholders of the Terminating Fund to be part of a better performing fund and to possibly benefit from the potential for improved future performance of their investments.
b. Portfolio management team with resources dedicated to managing North American equities. The Proposed Reorganization will allow investors in the Terminating Fund to benefit from a portfolio management team that has proven expertise and more resources dedicated to managing North American equities in the Continuing Fund; and
c. Larger Size: The Continuing Fund will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities than within the applicable Terminating Fund.
Relief from the SP 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 Reorganization as it is not a pre-approved reorganization pursuant to section 5.6 of NI 81-102, a condition of that relief.
A Tailored Prospectus, management information circular and proxy in connection with the Proposed Reorganization describing how a Terminating Fund investor can access or obtain the most recent interim and annual financial statements of the Continuing Fund will be both filed on SEDAR and mailed to investors of record of the Terminating Fund, as at May 11, 2012, on or about May 17, 2012.
If the Proposed Reorganization is approved, the reorganization will be implemented after close of business on the Effective Date and the costs of the reorganization will be borne by the Filer.
Following the reorganization, the Continuing Fund will continue as a publicly offered open-ended mutual fund.
Following the reorganization, a material change report and amendment to the simplified prospectus and annual information form of the Terminating Fund in respect of the reorganization will be filed.
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 Delivery Requirements, the Filer sends to investors of the Terminating Fund a Tailored Prospectus;
(b) the management information circular sent to investors in connection with the Proposed Reorganization:
i) prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the Continuing Fund by accessing the SEDAR website at www.sedar.com, by accessing the Filer’s website, by calling the Filer’s toll-free telephone numbers or by submitting (by fax or mail) a request to the Filer; and
ii) provides sufficient information about the Proposed Reorganization to permit securityholders to make an informed decision about the Proposed Reorganization;
(c) upon a request by a securityholder of the Terminating Fund for financial statements, the Filer will make best efforts to provide the securityholder with financial statements of the Continuing Fund in a timely manner so that the securityholder can make an informed decision regarding the Proposed Reorganization; and
(d) each of the Terminating Fund and the Continuing Fund have an unqualified audit report in respect of their last completed financial period.
“Raymond Chan”
Raymond Chan
Manager, Investment Funds Branch
Ontario Securities Commission
SEDAR # 1892632.
Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund merger – approval required because the merger will not meet the criteria for pre-approval – fee structures of terminating funds and corresponding continuing funds not substantially similar – relief also granted to permit delivery of a ‘tailored’ simplified prospectus to securityholders of the Terminating Fund – the tailored prospectus will include the current Part A and Part B of the Continuing Fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss 5.5(1)(b), 5.6(1)(b) and 5.6(1)(f)(ii).