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Mackenzie Financial Corporation and International Bond Fund (CLI)
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from section 2.1(1) of National Instrument 81-102 Investment Funds to permit an open-ended mutual fund 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 Investment Funds, ss. 2.1(1), 19.1.
May 25, 2016
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 INTERNATIONAL BOND FUND (CLI) (the Fund)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption (the Exemption Sought) 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 the 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 Rating Services (Canada) (S&P) or its DRO affiliate (as defined in NI 81-102), or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; 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 its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates
(such evidences of indebtedness 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:
1. The Filer is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.
2. 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.
3. The Filer is the manager, trustee and portfolio manager of the Fund.
4. The Fund is an open-ended mutual fund trust established under the laws of Ontario.
5. The Fund offers Series R securities only. Series R securities are only available for purchase by other mutual funds managed by the Filer and may not be purchased by retail investors.
6. Securities of the Fund are offered by way of a simplified prospectus dated November 27, 2015 filed in all of the provinces and territories in Canada and, accordingly, the Fund is a reporting issuer in all of the provinces and territories of Canada.
7. Since the Fund is only available for purchase by other mutual funds managed by the Filer, it has only been qualified by prospectus initially and going forward, will only be sold on an exempt distribution basis.
8. The Filer is not in default of securities legislation in any jurisdiction of Canada.
9. The Fund's investment objective is as follows: "The Fund seeks to provide interest income with the potential for capital appreciation by investing primarily in fixed-income securities issued by governments, international agencies and corporations anywhere in the world."
10. To achieve its investment objectives, the Fund is expected to employ a flexible approach in investing substantially all of its assets in corporate, international agency and government fixed-income securities. The weighted average credit rating of the Fund's fixed income securities will be "A" or higher as established by Standard & Poor's Corporation or an equivalent bond rating service.
11. As part of the Fund's investment strategies, the Fund's portfolio manager would like to invest a portion of its assets in Foreign Government Securities. Although the Fund aims to invest primarily in a diversified portfolio of fixed-income securities, depending on market conditions, the Fund's portfolio managers seek the discretion to gain exposure to any one issuer of Foreign Government Securities in excess of the Concentration Restriction.
12. Section 2.1(1) of NI 81-102 prohibits the Fund from purchasing a security of an issuer, other than a "government security" as defined in NI 81-102, if immediately after the transaction more than 10% of the net asset value of the Fund would be invested in securities of the issuer.
13. The Foreign Government Securities do not meet the meaning of "government securities" as such term is defined in NI 81-102.
14. 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 asset value 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 DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and
b. the mutual fund has been permitted to invest up to 35% of its net asset value 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 its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates.
15. The Fund seeks the Exemption Sought to enhance its ability to pursue and achieve its 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 Exemption Sought is granted provided that:
1. paragraphs (a) and (b) of the Exemption Sought cannot be combined for any one issuer;
2. any security that may be purchased under the Exemption Sought is traded on a mature and liquid market;
3. the acquisition of the securities purchased pursuant to this decision is consistent with the fundamental investment objectives of the Fund;
4. the annual information form of the Fund will include a summary of the nature and terms of the Exemption Sought, as required by Item 4(2) of Form 81-101F2 -- Contents of Annual Information Form, along with the conditions imposed and the type of securities covered by this decision;
5. if the Fund is qualified by simplified prospectus in the future, the simplified prospectus of the Fund will disclose the additional risks associated with the concentration of net asset value of the Fund in securities of fewer issuers, including the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risks, of investing in the country in which the issuer is located; and
6. if the Fund is qualified by simplified prospectus in the future, the simplified prospectus of the Fund will include a summary of the nature and terms of the Exemption Sought under the investment strategies section, along with the conditions imposed and the type of securities covered by this decision.
"Vera Nunes"
Manager,
Investment Funds and Structured Products Branch
Ontario Securities Commission