NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of Mutual Fund Mergers -- approval required because the 2 proposed mergers do not meet the criteria for pre-approval -- fee structures of terminating funds and corresponding continuing funds not substantially similar -- one merger is 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), 5.6(1)(f)(ii).
August 31, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATION IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
MACKENZIE FINANCIAL CORPORATION
IN THE MATTER OF
MACKENZIE SAXON MONEY MARKET FUND AND
MACKENZIE SAXON BOND FUND
(collectively, the "TERMINATING FUNDS")
IN THE MATTER OF
MACKENZIE SENTINEL MONEY MARKET FUND AND
MACKENZIE SENTINEL BOND FUND
(collectively, the "CONTINUING FUNDS")
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 (the "Proposed Mergers" and the Terminating Funds and the Continuing Funds are collectively referred to as the "Funds" and each referred to as a "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 requirement to deliver the simplified prospectus and the most recent annual and interim financial statements of a corresponding Continuing Fund to unitholders of a Terminating Fund in connection with a Proposed Merger if such documents have not previously been sent to unitholders of the Terminating Fund pursuant to s.5.6(1)(f)(ii) of NI 81-102 (the "SP and FS Delivery Requirements").
(collectively, 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 (Principal Regulator); 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, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with the Principal Regulator, the "Decision Makers").
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.
This decision is based on the following facts represented by the Filer:
1. 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 in Ontario, Manitoba and Alberta. The Filer is registered in Ontario as a dealer in the category of Limited Market Dealer and is also registered under the Commodity Futures Act (Ontario) in the category of Commodity Trading Manager.
2. The Filer is the manager and trustee of the Funds, each of which is an open-ended mutual fund trust governed under the laws of Ontario.
3. Investor series and B- series units of the Mackenzie Saxon Money Market Fund and Investor series, B- series, F- series and Advisor series units of Mackenzie Saxon Bond Fund are available and are offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated May 25 2009, as amended.
4. Series A, Series B, Series F, Series G, Series I units of the Mackenzie Sentinel Money Market Fund and Series A, Series E, Series G, Series I, Series J, Series M and Series O units of Mackenzie Sentinel Bond Fund are available and are offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated November 19, 2008, as amended.
5. Investor Series and Series O units of the Mackenzie Sentinel Money Market Fund and Advisor Series, Investor Series, B- Series and F-Series units of the Mackenzie Sentinel Bond Fund will be newly created and offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form as of the Effective Date (as defined below).
6. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada and are not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Decision Makers.
7. 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.
8. The net asset value for each series of units of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for trading.
9. The Filer intends to merge the Terminating Funds into the Continuing Funds as follows:
Terminating Fund Continuing Fund Mackenzie Saxon Mackenzie Sentinel Money Market Fund Money Market Fund Mackenzie Saxon Mackenzie Sentinel Bond Fund Bond Fund
10. 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 fee structures of the Terminating Funds and their corresponding Continuing Funds to be substantially similar;
(b) contrary to subsection 5.6(1)(b) of NI 81-102, the merger of Mackenzie Saxon Money Market Fund into the Mackenzie Sentinel Money Market Fund will not be implemented on a tax deferred basis. The management information circular of the Funds discloses the tax implications of this Proposed Merger; and
(c) contrary to subsection 5.6(1)(f)(ii) of NI 81-102, the Filer proposes sending to unitholders of the Terminating Funds a tailored simplified prospectus consisting of the current Part A and the Part B of the simplified prospectus of the corresponding Continuing Fund ("Tailored Prospectus") and a management information circular that describes how unitholders may access or obtain the most recent interim and annual financial statements of the corresponding Continuing Funds.
11. 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.
12. The Filer proposes implementing the merger of Mackenzie Saxon Money Market Fund into the Mackenzie Sentinel Money Market Fund on a taxable basis as it will not result in the expiry of the corresponding Continuing Fund's capital loss carryforwards and accrued capital losses. It will also result in the realization of capital losses by a significant number of unitholders of Mackenzie Saxon Money Market Fund.
13. 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 unitholders of the Terminating Funds for their consideration on the basis that the Proposed Mergers would achieve a fair and reasonable result for the Terminating Funds.
14. The fundamental investment objectives of the Terminating Funds are compatible with those of the corresponding Continuing Funds.
15. Unitholders of the Terminating Funds will be asked to approve the Proposed Mergers at a special meeting of unitholders scheduled to be held on or about September 21, 2009. Implicit in the approval of unitholders of the Proposed Mergers is the adoption by the Terminating Funds of the investment objectives and strategies, and fee structure of the Continuing Funds.
16. The 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 Continuing Funds.
17. If the approval of unitholders of the Terminating Funds is not received in their respective special meeting, then that Proposed Merger will not proceed.
18. Subject to the required approvals of the Decision Makers and unitholders of the Funds, the Proposed Mergers will be implemented on or about September 25, 2009 (the "Effective Date").
19. Terminating Fund unitholders 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 unitholders that switch their securities for securities of other Mackenzie-sponsored mutual funds will not incur any charges. Unitholders who redeem securities may be subject to redemption charges.
20. 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 unitholders of record of the Terminating Funds, as at August 10, 2009, on or before August 28, 2009.
21. 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.
22. Following the Proposed Mergers, the Continuing Funds will continue as publicly offered open-ended mutual funds.
23. Following the Proposed Mergers, material change reports and amendments to the simplified prospectuses and annual information forms of the Funds in respect of the Proposed Mergers will be filed.
24. The Filer submits that the Proposed Mergers will result in the following benefits:
a. Greater certainty concerning operating expenses: The Filer bears the cost of most variable operating expenses for the Continuing Funds other than certain fund costs in exchange for a fixed rate administration fee that it charges to each series of each Continuing Fund. This ensures greater predictability and transparency of future expenses year to year.
b. Similar or lower management expense ratio: The management expense ratio ("MER") of the Continuing Funds is expected to be less than the Terminating Funds' MER for the same series.
c. Larger net assets: The Continuing Funds have significantly larger net assets than the Terminating Funds. Following the Proposed Mergers, unitholders of the Terminating Funds may enjoy enhanced liquidity of the portfolio and enhanced portfolio diversification due to the Continuing Funds' larger profiles in the marketplace.
25. The Filer will pay the costs of holding the special meetings and for soliciting proxies in connection with the Proposed Mergers.
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 unitholders of a Terminating Fund a Tailored Prospectus;
(b) the management information circular sent to unitholders of a Terminating Fund in connection with a Proposed Merger:
i) prominently discloses that unitholders 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 Mergers to permit unitholders to make an informed decision about the Proposed Mergers; and
(c) upon a request by a unitholder of a Terminating Fund for financial statements of a corresponding Continuing Fund, the Filer will make best efforts to provide the unitholder with the applicable financial statements in a timely manner so that the unitholder can make an informed decision regarding the Proposed Merger.