Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from section 2.1(1) of National Instrument 81-102 Mutual Funds to permit mutual funds to investment more than 10 percent of net assets in debt securities issued by a foreign government or supranational agency -- mutual funds include global bond fund, European and global equity funds, and global balanced fund -- additional conditions imposed on European and global equity funds, and global balanced fund.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 19.1.

September 10, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON AND NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF THE

MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MACKENZIE FINANCIAL CORPORATION

(Mackenzie)

AND

MACKENZIE SENTINEL GLOBAL BOND FUND,

MACKENZIE IVY GLOBAL BALANCED FUND,

MACKENZIE IVY EUROPEAN CLASS,

MACKENZIE IVY FOREIGN EQUITY CLASS AND

MACKENZIE IVY FOREIGN EQUITY FUND

(collectively, the Filers)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application (the Application) from Mackenzie, on behalf of Mackenzie Sentinel Global Bond Fund (Sentinel Global Bond), Mackenzie Ivy Global Balanced Fund (Ivy Global Balanced), Mackenzie Ivy European Class (Ivy European), Mackenzie Ivy Foreign Equity Fund (Ivy Foreign) and Mackenzie Ivy Foreign Equity Class (Ivy Foreign Class) (individually each a Fund, and collectively, the Funds), for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption 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 percent 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 Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations; and

b. 35 percent 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 Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations.

(collectively, the "Requested Relief")

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this Application, and

(b) this MRRS decision document evidences the Decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filers:

1. Mackenzie is a corporation amalgamated under the laws of Ontario and is registered as an advisor in the categories of investment counsel and portfolio manager in Ontario, Manitoba and Alberta. Mackenzie is also registered in Ontario as a dealer in the category of Limited Market Dealer, as well as registered under the Commodity Futures Act (Ontario) in the categories of Commodity Trading Counsel & Commodity Trading Manager. Mackenzie is the portfolio advisor, trustee and/or manager of the Funds. Mackenzie's head office is in Toronto, Ontario.

2. Each Fund is a mutual fund that is subject to NI 81-102 and distributes its securities under a simplified prospectus and annual information form prepared in accordance with National Instrument 81-101 -- Mutual Fund Prospectus Disclosure. Each Fund is a reporting issuer in each of the Jurisdictions and is not on the list of defaulting reporting issuers maintained under the Legislation of the Jurisdictions.

3. The investment objective of Sentinel Global Bond is to achieve an above-average level of current income by investing primarily in a diversified portfolio of fixed income securities issued by foreign 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.

4. The investment objective of Ivy Global Balanced is to pursue long-term capital growth through a prudent balance of current income and capital appreciation. The Fund invests primarily in foreign equity securities, emphasizing companies that operate globally, and in foreign fixed income securities such as government and corporate debt obligations. The portfolio manager has the ability to move from 0% to 100% between equities and fixed income securities. However, the portfolio manager tends not to make dramatic changes to the asset mix and the portfolio is generally balanced except in response to unusual market conditions.

5. The investment objective of Ivy European is to seek long-term capital growth of capital by investing primarily in equity securities of European companies. The Fund seeks to achieve its objectives through strategies that include, but are not limited to, being permitted to invest a portion of its assets in fixed income securities. Its strategies also place emphasis on preservation of capital.

6. The investment objective of Ivy Foreign and Ivy Foreign Class is to seek long-term capital growth consistent with protection of capital by investing in equity securities worldwide. The Funds' investments are not limited geographically, but generally do not include emerging markets. The Funds seek to achieve these objectives through strategies that include, but are not limited to, investing a portion of fund assets in fixed income securities.

7. The Concentration Restriction prevents each Fund from purchasing a security of an issuer or entering into a specified derivatives transaction if, immediately after the transaction, more than 10 percent of the net assets of the Fund would be invested in securities of any issuer.

8. The Concentration Restriction does not apply to a purchase of a "government security", which, under NI 81-102, means an evidence of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a Jurisdiction or the government of the United States of America.

9. Mackenzie believes that the Requested Relief will be in the best interests of the Funds as it would provide each Fund with more flexibility to achieve their investment objectives as follows:

(a) Sentinel Global Bond -- The Requested Relief will enable the Fund to increase its exposure to highly rated fixed income securities issued by foreign governments and/or supranational agencies that offer higher yields and/or are undervalued and may be expected to generate capital growth over the long-term.

(b) Ivy Global Balanced, Ivy European, Ivy Foreign and Ivy Foreign Class -- Each of these Funds has a foreign investment mandate, and invests either globally or primarily in Europe. The Requested Relief would enable each Fund to expose the cash equivalents portion of its portfolio to foreign markets, consistent with each Fund's foreign investment mandate. Allowing each Fund to hold highly rated short term fixed income securities issued by foreign governments would enable each Fund to preserve capital in foreign markets during adverse market conditions. The increased flexibility to hold as cash equivalents short-term foreign government fixed income securities may also yield higher returns than Canadian or American short-term government fixed income alternatives.

10. In addition, the higher concentration limits may allow the Funds to benefit from investment efficiencies as certain foreign government treasury offerings are more readily available for investment (because of large, regular treasury offerings that match the maturity dates the Funds seek) and trades can be completed faster in certain markets that are more readily accessible to foreign investment.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(1) paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;

(2) the securities that are purchased pursuant to this Decision are traded on a mature and liquid market;

(3) the acquisition of the securities purchased pursuant to this Decision is consistent with the fundamental investment objective of each Fund;

(4) the simplified prospectus of each Fund discloses the additional risks associated with the concentration of the net assets of the Fund in securities of fewer issuers, such as 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 that issuer is located;

(5) the simplified prospectus of each Fund discloses, in the investment strategy section, the details of the Requested Relief above along with the conditions imposed and the type of securities covered by this Decision;

(6) the purchases of evidences of indebtedness by Ivy European, Ivy Foreign, Ivy Foreign Class and Ivy Global Balanced under the Requested Relief be restricted to purchases of evidences of indebtedness of the government of a sovereign state that qualify as cash equivalents under NI 81-102;

(7) Ivy European, Ivy Foreign, Ivy Foreign Class and Ivy Global Balanced shall respectively not purchase additional evidences of indebtedness rated "AA" issued by any one foreign government if, immediately after the transaction, more than 20 percent of the net assets of the Fund, taken at market value at the time of the transaction, would be invested in the evidences of indebtedness issued by that one foreign government; and

(8) Ivy European, Ivy Foreign, Ivy Foreign Class and Ivy Global Balanced shall respectively not purchase additional evidences of indebtedness rated "AAA" issued by any one foreign government if, immediately after the transaction, more than 35 percent of the net assets of the Fund, taken at market value at the time of the transaction, would be invested in the evidences of indebtedness issued by that one foreign government.

"Leslie Byberg"
Manager, Investment Funds Branch
Ontario Securities Commission