Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from section 2.1(1) of NI 81-102 to permit mutual funds to invest more than 10 percent of net assets in debt securities issued by a foreign government or supranational agency. Mutual funds include European and foreign equity funds. Since the relief was novel, additional conditions were imposed.

Applicable Legislative Provisions

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

September 19, 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

NATIONAL INSTRUMENT 81-102 MUTUAL FUNDS

("NI 81-102")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

I.G. INVESTMENT MANAGEMENT, LTD.

("IGIM")

AND

IG MACKENZIE IVY EUROPEAN FUND,

IG MACKENZIE IVY EUROPEAN CLASS AND

IG MACKENZIE IVY FOREIGN EQUITY CLASS

(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 IGIM, on behalf of IG Mackenzie Ivy European Fund ("Ivy European Fund"), IG Mackenzie Ivy European Class ("Ivy European Class") and IG 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 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 Manitoba 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. IGIM is a corporation continued under the laws of Ontario and is registered as an advisor in the categories of investment counsel and portfolio manager (or the equivalent registration) in Ontario, Manitoba and Quebec. IGIM is the portfolio advisor, manager and/or trustee of the Funds. IGIM's head office is in Winnipeg, Manitoba.

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. The Funds are sub-advised by Mackenzie Financial Corporation ("Mackenzie"), an IGIM affiliate.

3. The investment objective of the Ivy European Fund and Ivy European Class is to seek long term capital growth of capital by investing primarily in equity securities of European companies. They seek to achieve their objectives through strategies that include, but are not limited to, investing a portion of their assets in fixed income securities.

4. The investment objective of Ivy Foreign Class is to seek long-term capital growth consistent with protection of capital by investing in equity securities worldwide. The Fund's investments are not limited geographically, but generally do not include emerging markets. It seeks to achieve its objectives through strategies that include, but are not limited to, investing a portion of its assets in fixed income securities. Its strategies also place emphasis on preservation of capital.

5. 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.

6. 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.

7. IGIM 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 and their foreign investment mandate of investing either globally or primarily in Europe, and 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 short-term foreign government fixed income securities as cash equivalents may also yield higher returns than Canadian or American short-term government fixed income alternatives.

8. 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 objectives 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 outlined in paragraphs (a) and (b) above along with the conditions imposed and the type of securities covered by this Decision;

6. the purchase of evidences of indebtedness by each Fund under the Requested Relief be restricted to purchases of evidences of indebtedness of the foreign government of a sovereign state that qualify as cash equivalents under NI 81-102; and

7. each Fund shall respectively not purchase additional evidences of indebtedness issued by any one foreign government of a sovereign state, if:

a) in the case that such evidence of indebtedness is rated "AA", 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 the foreign government of that sovereign state; and

b) in the case that such evidence of indebtedness is rated "AAA", 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 the foreign government of that sovereign state.

"Bob Bouchard"
Director, Corporate Finance
The Manitoba Securities Commission