September 4, 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 STRATEGIC INCOME CLASS
AND MACKENZIE CANADIAN SHORT TERM YIELD CLASS
(collectively, 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) exempting the Funds from the requirement in subsection 5.1(c) of National Instrument 81-102 – Mutual Funds (NI 81-102) to obtain the approval of securityholders before changing the fundamental investment objectives of the Funds (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 (together with Ontario, the 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 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 the Provinces of Newfoundland and Labrador and Québec.
The Filer is the manager and portfolio manager of the Funds and the Reference Funds (defined below), and is the trustee of the Reference Funds.
Each of the Funds is a separate class of shares of Mackenzie Financial Capital Corporation (“Capitalcorp”), a mutual fund corporation incorporated under the laws of the Province of Ontario. Each Fund is subject to the provisions of NI 81-102.
Neither the Filer nor the Funds are in default of securities legislation in any of the Jurisdictions.
The securities of each of the Funds are qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts dated September 27, 2013 that was prepared and filed in accordance with the securities legislation of the Jurisdictions. Accordingly the Funds are each reporting issuers or the equivalent in each Jurisdiction. It is anticipated that a simplified prospectus, annual information form and Fund Facts in respect of the Funds will be filed via SEDAR in the Jurisdictions on or about September 29, 2014 (the “Final Prospectus”).
Under its current investment objectives and strategies,
a. Mackenzie Strategic Income Class may enter into derivative transactions (“Character Conversion Transactions”) in which it sells Canadian equity securities for prices determined with reference to Mackenzie Strategic Income Fund, and
b. Mackenzie Canadian Short Term Yield Class may invest in securities of another mutual fund that enters into Character Conversion Transactions in which it sells Canadian equity securities for prices determined with reference to Mackenzie Sentinel Canadian Money Market Fund.
Mackenzie Strategic Income Fund and Mackenzie Sentinel Canadian Money Market Fund are each referred to as a “Reference Fund”.
- The current investment objectives of each Fund are set out in the table below:
Fund
Investment Objectives
Mackenzie Strategic Income Class
The Fund seeks to provide tax-efficient returns similar to those of a diversified income fund managed by Mackenzie.
Generally, the Fund aims to achieve this objective by investing primarily in Canadian equity securities and by entering into forward contracts in order to provide the Fund with a return determined with reference to the performance of a diversified income fund managed by Mackenzie. The Fund may, however, instead invest directly in fixed income and/or income-oriented equity securities where the Fund considers it would be beneficial to shareholders to do so.
Mackenzie Canadian Short Term Yield Class
The Fund seeks to provide tax-efficient returns similar to those of a Canadian money market fund managed by Mackenzie.
The Fund aims to achieve this objective by investing primarily in securities of another mutual fund that invests in Canadian equity securities and enters into forward contracts in order to provide that mutual fund with a return determined with reference to the performance of a Canadian money market fund managed by Mackenzie.
The Fund may also invest directly in money market securities where the Fund considers it would be beneficial to securityholders to do so.
The Income Tax Act (Canada) (the “Tax Act”) has been amended following the Federal Minister of Finance’s budget proposal first introduced on March 21, 2013. The amendments to the Tax Act have eliminated the tax benefits associated with Character Conversion Transactions. The changes apply to Character Conversion Transactions entered into or amended after March 20, 2013.
On April 5, 2013, the Filer issued a press release announcing the temporary closing of the Funds to new investment. The Funds remain closed to new investors, except that, since May 31, 2013, the Filer has permitted investments in other Capitalcorp funds to be switched into Series A and Series F shares of Mackenzie Canadian Short Term Yield Class.
In connection with the Final Prospectus, the Filer wishes to reflect a future amendment to the investment objectives of each Fund whereby:
a. all references to the use of Character Conversion Transactions will be removed,
b. the Fund will be permitted to invest substantially all of its assets in securities of other mutual funds, and
c. the Fund will retain the ability to invest in securities similar to those held by its Reference Fund.
Each amendment would take effect following the delivery of a written notice to the relevant Fund’s securityholders. Thereafter, the revised investment objectives of each Fund will be set out as below:
Fund
Investment Objectives
Mackenzie Strategic Income Class
The Fund seeks income with the potential for long-term capital growth by investing primarily in:
fixed-income and/or income-oriented equity securities, and/or
securities of other mutual funds that invest in these securities.
Mackenzie Canadian Short Term Yield Class
The Fund pursues a steady flow of income with reasonable safety of capital and liquidity.
The Fund invests mainly in:
money market securities and bonds issued by Canadian governments and corporations, with maturities of up to one year, and in floating-rate notes and asset-backed securities; and/or
securities of other mutual funds that invest in these securities.
On the effective date of the change of investment objectives of Mackenzie Canadian Short Term Yield Class, this Fund’s name will change to Mackenzie Canadian Money Market Class. As a money market fund, Mackenzie Canadian Short Term Yield Class meets, and will continue to meet under its changed investment objective, the requirements of section 2.18 of NI 81-102.
A material change report and press release will be filed announcing the amendment to each Fund’s investment objectives pursuant to the Exemption Sought.
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, in respect of each Fund, securityholders of the Fund will be sent a written notice, at least 60 days before the effective date of the change to the investment objectives of the Fund, that sets out the change to the investment objectives, the reasons for such change and a statement that the Fund will no longer be able to distribute gains under forward contracts that are treated as capital gains for tax purposes.
“Vera Nunes”
Vera Nunes
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission