Headnote National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption from section 2.1(1) of National Instrument 81-102 – Mutual Funds to permit global bond 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 – Mutual Funds, sections 2.1(1) and 19.1
April 3rd, 2014
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 TACTICAL BOND FUND
AND MACKENZIE GLOBAL DIVERSIFIED INCOME FUND (the Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an 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 Fund to invest up to:
(a) 20% of the Fund's 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 guaranteed fully 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 (S&P), or have an equivalent rating by one or more other designated rating organizations; and
(b) 35% of the Fund's 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 guaranteed fully 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 have an equivalent rating by one or more other designated rating organizations.
(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:
The Filer is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.
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.
The Filer is, or will be, the manager, trustee and portfolio manager of the Funds
Each Fund is, or will be, an open-ended mutual fund trust established under the laws of Ontario.
Securities of the Funds are, or will be, offered by simplified prospectus filed in all of the provinces and territories in Canada and, accordingly each Fund is, or will be, a reporting issuer in one or more provinces and territories of Canada, In the case of Mackenzie Global Tactical Bond Fund, a preliminary simplified prospectus was filed for the Fund via SEDAR in all the provinces and territories on March 5, 2014 (the “Tactical Bond Simplified Prospectus”).
The Filer and the Funds are not in default of securities legislation in any jurisdiction of Canada.
Mackenzie Global Tactical Bond Fund’s investment objective is expected to be substantially as follows: “The Fund aims to generate income by investing primarily in a diversified portfolio of fixed-income securities issued by companies or governments of any size, anywhere in the world. The Fund also seeks to achieve long-term capital growth by investing in fixed-income securities and other investments.”
To achieve the investment objective of Mackenzie Global Tactical Bond Fund, it is expected that the investment team will employ a flexible approach, allocating assets across credit quality, structures, sectors, currencies and countries. The Fund can invest in all types of fixed-income securities from around the world.
As part of its investment strategies, Mackenzie Global Tactical Bond Fund’s portfolio managers would like to invest a portion of its assets in Foreign Government Securities.
Mackenzie Global Diversified Income Fund is holding an investor meeting on or about April 29, 2014 to consider and approve proposed changes to the investment objective of the Fund. The current investment objectives of the Fund provide investors with a diversified portfolio designed to provide regular cash flows and, secondarily, growth of capital over the longer term. In addition, the Fund invests primarily in securities of other mutual funds; however, it may also invest directly in securities. The investment objectives are proposed to be changed to substantially the following: “The Fund seeks income with the potential for long‑term capital growth by investing primarily in fixed income and/or income-oriented equity securities of issuers anywhere in the world” (the New Investment Objectives). If investor approval is obtained, the effective date for the New Investment Objectives will be on or about April 30, 2014.
The investment strategies of Mackenzie Global Diversified Income Fund as well as the name of the Fund are also expected to change if investor approval is obtained.
As part of Mackenzie Global Diversified Income Fund’s new investment strategies (the New Investment Strategies), the Fund’s portfolio managers would like to invest a portion of its assets in Foreign Government Securities.
If investor approval is obtained, the simplified prospectus for Mackenzie Global Diversified Income Fund (the Diversified Income Simplified Prospectus and together with the Tactical Bond Simplified Prospectus the Simplified Prospectuses) will be amended on or around April 30, 2014 to reflect the New Investment Objectives, New Investment Strategies and name change of the Fund.
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.
The Foreign Government Securities are not within the meaning of “government securities” as such term is defined in NI 81-102.
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 assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully 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 have an equivalent rating by one or more other approved credit rating organizations; and
b. the mutual fund has been permitted to invest up to 35% of its net assets, taken at market value at the time of purchase in evidences of indebtedness of any one issuer, if those evidences of indebtedness are issued, or guaranteed fully 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 have an equivalent rating by one or more other approved credit rating organizations.
Any security that may be purchased under the Requested Relief is traded on a mature and liquid market.
The Simplified Prospectuses for the Funds will disclose the risks associated with concentration of net assets of the Fund in securities of a limited number of issuers.
The Funds seek the Requested Relief to enhance their ability to pursue and achieve their investment objectives, and in the case of Mackenzie Global Diversified Income Fund its New 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:
Paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;
In the case of Mackenzie Global Diversified Income Fund, the Requested Relief is conditional on investors approving the New Investment Objectives for the Fund and the Filer implementing the New Investment Objectives;
Any security that may be purchased under the Requested Relief is traded on a mature and liquid market;
The acquisition of the securities purchased pursuant to this Decision is consistent with the fundamental investment objectives of Mackenzie Global Tactical Bond Fund and the New Investment Objectives of Mackenzie Global Diversified Income Fund;
The Simplified Prospectuses of the Funds disclose the additional risks associated with the concentration of the net assets 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
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.
“Vera Nunes”
_________________________
Vera Nunes, Manager, Investment Funds Branch, Ontario Securities Commission