Mackenzie Financial Corporation - MRRS Decision
Headnote
Revocation and replacement of MRRS decisiondocument dated April 17, 2001. New decision document providingexemptions from the mutual fund self-dealing prohibitions ofclauses 111(2)(a) and (c) and 111(3) of the Securities Act (Ontario).Mutual funds allowed to hold securities of companies that arerelated to the mutual funds and to make further purchases andsales of those securities and retain those securities providedthat a fund governance mechanism is used to oversee the holdings,purchases or sales of securities of related companies for themutual funds and to ensure that such holdings, purchases orsales have been made free from any influence by a related companyand without taking into account any consideration relevant toa related company.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., 111(2)(a) and (c) and 111(3) and 144.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN,
ONTARIO, NOVA SCOTIA AND
NEWFOUNDLAND AND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
MACKENZIE FINANCIAL CORPORATION("MACKENZIE")
MAXXUM PENSION FUND
MAXXUM CANADIAN VALUE FUND
MACKENZIE BALANCED FUND
MAXXUM DIVIDEND GROWTH FUND
MACKENZIE INCOME FUND
MACKENZIE IVY ENTERPRISE FUND
MACKENZIE IVY GROWTH AND INCOMEFUND
MACKENZIE IVY CANADIAN FUND
MACKENZIE HORIZON CAPITALCLASS
MACKENZIE IVY CANADIAN CAPITALCLASS
MACKENZIE IVY ENTERPRISE CAPITALCLASS
MACKENZIE PREMIER INTERNATIONALINVESTMENT CANADIAN EQUITY FUND
MACKENZIE UNIVERSAL FUTURECAPITAL CLASS
MACKENZIE UNIVERSAL SELECTMANAGERS CANADA CAPITAL CLASS
MACKENZIE UNIVERSAL CANADIANBALANCED FUND
MACKENZIE UNIVERSAL FUTUREFUND
MACKENZIE UNIVERSAL SELECTMANAGERS CANADA FUND
CLARICA SUMMIT EQUITY FUND
CLARICA SUMMIT GROWTH ANDINCOME FUND
CLARICA SUMMIT DIVIDEND GROWTHFUND
KEYSTONE AIM/TRIMARK CANADIANEQUITY FUND
KEYSTONE AGF EQUITY FUND
KEYSTONE SPECTRUM EQUITY FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the provinces of British Columbia, Alberta, Saskatchewan,Ontario, Nova Scotia and Newfoundland and Labrador (the "Jurisdictions")issued a decision on April 17, 2001 (the "Original Decision")pursuant to the securities legislation of the Jurisdictions(the "Legislation") that certain provisions of theLegislation did not apply so as to prevent Maxxum Pension Fund,Maxxum Canadian Value Fund, Mackenzie Balanced Fund, MaxxumDividend Growth Fund, Mackenzie Income Fund, Mackenzie Ivy EnterpriseFund, Mackenzie Ivy Growth and Income Fund, Mackenzie Ivy CanadianFund, Mackenzie Horizon Capital Class, Mackenzie Ivy CanadianCapital Class, Mackenzie Ivy Enterprise Capital Class, MackenziePremier International Investment Canadian Equity Fund, MackenzieUniversal Future Capital Class, Mackenzie Universal Select ManagersCanada Capital Class, Mackenzie Universal Canadian BalancedFund, Mackenzie Universal Future Fund, Mackenzie Universal SelectManagers Canada Fund, Clarica Summit Equity Fund, Clarica SummitGrowth and Income Fund, Clarica Summit Dividend Growth Fund,Keystone Aim/Trimark Canadian Equity Fund, Keystone AGF EquityFund, and Keystone Spectrum Equity Fund (individually a "CurrentFund" and collectively the "Current Funds") fromholding their investments in certain Related Companies (as hereinafterdefined) following the acquisition by Investors Group Inc. ("IG")of all the outstanding common shares of Mackenzie as a resultof a formal take-over bid (the "Transaction") providedthat such investments were subsequently disposed of;
AND WHEREAS the Decision Maker wishesto rescind the Original Decision made April 17, 2001;
AND WHEREAS Mackenzie has made a furtherapplication for a decision (the "Decision") pursuantto the Legislation as a result of the Transaction that the followingprovisions do not apply so as to prevent the Current Funds togetherwith such other funds as may be established and advised by Mackenziefrom time to time (individually a "Fund" and collectivelythe "Funds") from investing in, or continuing to holdan investment in, securities of the Related Companies:
(a) the provision prohibiting a mutual fundfrom knowingly making or holding an investment in any personor company who is a substantial security holder of the mutualfund, its management company or distribution company; and
(b) the provision prohibiting a mutual fundfrom knowingly making or holding an investment in an issuerin which a substantial security holder of the mutual fund,its management company or its distribution company has asignificant interest (the provisions of (a) and (b) beingcollectively, the "Investment Restrictions");
AND WHEREAS the CSA recently releasedfor comment its concept proposal 81-402 titled "Strikinga New Balance: A Framework for Regulating Mutual Funds and theirManagers" which contains, among other things, alternativesfor mutual fund governance. The comment period ended June 7,2002. The CSA has not yet developed a definitive model for mutualfund governance.
AND WHEREAS the CSA has a strategy fordealing with important matters on a timely basis even thoughthey may be part of a larger comprehensive policy study by theCSA .
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this Application;
AND WHEREAS it has been represented byMackenzie to the Decision Makers that:
1. The Funds are open-ended mutual fund trustsestablished, or mutual fund corporations incorporated, underthe laws of the Province of Ontario.
2. Mackenzie is the trustee, manager and registrarof each of the Current Funds, except Clarica Summit EquityFund, Clarica Summit Growth and Income Fund and Clarica SummitDividend Fund, for which it is retained as advisor, and Mackenziewill also be the advisor to the Funds and may also be themanager or trustee of the Funds.
3. The securities of the Funds are or willbe offered for sale in all of the provinces and territoriesof Canada. Each of the Funds is or will be a reporting issuerunder the Legislation and is not on a list of defaulting issuersmaintained under the Legislation.
4. On April 17, 2001, IG purchased all ofthe outstanding common shares of Mackenzie.
5. Power Corporation of Canada ("PPC")owns more than 67% of the outstanding common shares of PowerFinancial Corporation ("PFC"). PFC owns more than67% of the outstanding common shares in the capital of IG.PFC also owns 65% of the outstanding voting securities ofGreat-West Lifeco Inc. ("Lifeco"), and has an 80.2%economic interest therein. IG owns 100% of the outstandingcommon shares of Mackenzie.
6. As of April 17, 2001, each of the CurrentFunds owned voting securities of one or more of PCC, PFC orLifeco (collectively, the "Related Companies").
7. The Funds have not made any investmentin securities of the Related Companies since the Transaction.
8. At the time the securities of the RelatedCompanies were purchased, the Related Companies were not affiliatedwith the Current Funds or Mackenzie, and each investment bythe Current Funds in the securities of the Related Companiesrepresented the business judgment of professional portfolioadvisers uninfluenced by considerations other than the bestinterests of the investors of the Current Funds.
9. As a result of the Original Decision bythe Decision Makers dated April 17, 2001, the Current Fundsare required to divest all securities of the Related Companiesand are not permitted to purchase additional securities ofthe Related Companies.
10. The Current Funds have been divestingtheir securities of the Related Companies and, in the opinion,of Mackenzie the divestiture is not in the best interestsof the investors in the Current Funds. Rather, it is in thebest interests of investors in the Current Funds to retainthe investments in the securities of Related Companies andto be able to continue to invest in securities of the RelatedCompanies up to the limits allowed by applicable Legislation.
11. Mackenzie believes that it would be inthe best interests of investors of the Funds to be permittedto invest in securities of the Related Companies, in keepingwith the investment objectives of the Funds, though only upto the limit allowed by applicable Legislation.
12. Mackenzie will create an Independent ReviewCommittee (the "Independent Committee"), comprisedentirely of individuals who are wholly independent of Mackenzie,to oversee the holdings, purchases or sales of securitiesof Related Companies for the Funds.
13. The Independent Committee shall reviewthe holdings, purchases or sales of securities of the RelatedCompanies to ensure that they have been made free from anyinfluence by a Related Company and without taking into accountany consideration relevant to a Related Company.
14. The Independent Committee will take intoconsideration the best interests of unitholders of the Fundsand no other factors.
15. Compensation to be paid to members ofthe Independent Committee will be paid by the Funds basedon the relative size of holdings of the Related Companiesin a Fund.
AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that:
1. the Original Decision is hereby rescinded;
2. the Funds are exempt from the InvestmentRestrictions so as to enable the Funds to invest, or continueto hold an investment in, securities of a Related Company;and
3. this Decision, as it relates to the jurisdictionof a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that DecisionMaker dealing with mutual fund governance in a manner thatconflicts with or makes inapplicable any provision of thisDecision;
provided that:
(a) Mackenzie has appointed the IndependentCommittee to review the Funds' purchases, sales and continuedholdings of securities of a Related Company;
(b) the Independent Committee has at leastthree members, none of whom is an associate of (i) Mackenzie,(ii) any portfolio manager of the Funds; or (iii) any associateor affiliate of Mackenzie or the portfolio managers of theFunds;
(c) the Independent Committee has a writtenmandate describing its duties and standard of care which,as a minimum, sets out the conditions of this Decision;
(d) the members of the Independent Committeeexercise their powers and discharge their duties honestly,in good faith and in the best interests of investors inthe Funds and, in doing so, exercise the degree of care,diligence and skill that a reasonably prudent person wouldexercise in the circumstances;
(e) none of the Funds relieves the membersof the Independent Committee from liability for loss thatarises out of a failure to satisfy the standard of careset out in paragraph (d);
(f) none of the Funds indemnifies the membersof the Independent Committee against legal fees, judgmentsand amounts paid in settlement as a result of a breach ofthe standard of care set out in paragraph (d);
(g) none of the Funds incurs the cost ofany portion of liability insurance that insures a memberof the Independent Committee for a liability for loss thatarises out of a failure to satisfy the standard of careset out in paragraph (d);
(h) the cost of any indemnification or insurancecoverage paid for by Mackenzie, any portfolio manager ofthe Funds, or any associate or affiliate of Mackenzie orthe portfolio managers of the Funds to indemnify or insurethe members of the Independent Committee in respect of aloss that arises out of a failure to satisfy the standardof care set out in paragraph (d) is not paid either directlyor indirectly by the Funds;
(i) the Independent Committee reviews theFunds' purchases, sales and continued holdings of securitiesof a Related Company on a regular basis, but not less frequentlythan every three months;
(j) the Independent Committee forms theopinion, after reasonable inquiry, that the decisions madeon behalf of each Fund by Mackenzie or the Fund's portfoliomanager to purchase, sell or continue to hold securitiesof a Related Company were and continue to be in the bestinterests of the Fund, and to:
(i) represent the business judgement ofMackenzie or the Fund's portfolio manager, uninfluencedby considerations other than the best interests of theFund;
(ii) have been made free from any influenceby a Related Company and without taking into account anyconsideration relevant to a Related Company; and
(iii) not exceed the limitations of theapplicable legislation.
(k) the determination made by the IndependentCommittee pursuant to paragraph (j) is included in detailedwritten minutes provided to Mackenzie not less frequentlythan every three months;
(l) the reports required to be filed pursuantto the Legislation with respect to every purchase and saleof securities of a Related Company are filed on SEDAR inrespect of the relevant mutual fund;
(m) the Independent Committee advises theDecision Makers in writing of:
(i) any determination by it that the conditionset out in paragraph (j) has not been satisfied with respectto any purchase, sale or holding of securities of a RelatedCompany;
(ii) any determination by it that anyother condition of this Decision has not been satisfied;
(iii) any action it has taken or proposesto take following the determinations referred to above;and
(iv) any action taken, or proposed tobe taken, by Mackenzie or a portfolio manager of the Fundsin response to the determinations referred to above; and
(n) the existence, purpose, duties and obligationsof the Independent Committee, the names of its members,whether and how they are compensated by the Funds, and thefact that they meet the requirements of the condition setout in paragraph (b) are disclosed:
(i) in a press release issued, and a materialchange report filed, prior to reliance on the Decision;
(ii) in item 12 of Part A of the simplifiedprospectus of the Funds; and
(iii) on Mackenzie's internet website.
July 26, 2002.
"Paul M. Moore" "D.A. Brown"