Headnote
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions - Top funds proposing to make investments in securities of underlying fund under common management - Investments not complying with requirements of paragraph 2.5(2)(b) of NI 81-102 - Top funds unable to rely on statutory exemption in subsection 2.5(7) of NI 81-102 providing relief from mutual fund conflict of interest investment restrictions, mutual fund conflict of interest reporting requirements and self-dealing prohibition under the Securities Act - Top funds may, either alone or together with other related mutual funds, become substantial security holders of underlying fund - "Responsible person" of the portfolio manager of the top fuinds would also be officers and directors of the underlying fund - Top funds exempted from mutual fund conflict of interest investment restrictions and manager/portfolio manager of top funds exempted from mutual fund conflict of interest reporting requirements and self-dealing prohibition, subject to compliance with certain conditions - Securities Act (Ontario).
Applicable Legislative Provisions
Securities Act,R.S.O. 1990, c.S.5, as am., sections 111(2)(b), 111(3), 113, 117(1)(a), 117(1)(d), 117(2), 118(2)(a) and 121(2)(a)(ii).
Rules Cited
National Instrument 81-102 Mutual Funds, paragraph 2.5(2)(b) and subsection 2.5(7).
September 24, 2008
In the Matter of the Securities Legislation of Ontario and Newfoundland and Labrador (the "Jurisdictions")
and
In the Matter of The Process for Exemptive Relief Applications in Multiple Jurisdictions
And
In the Matter of Mackenzie Financial Corporation (the "Filer" or "Mackenzie")
and
In the Matter of Symmetry Managed Return Class
DECISION
Background
The securities regulatory authority or regulator in Ontario (the "Passport Review Decision Maker") and in each of Ontario and Newfoundland and Labrador (together, the "Coordinated Review Decision Makers") has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") exempting:
the Symmetry Managed Return Class and other Symmetry mutual fund share classes of Mackenzie Financial Capital Corporation to be established by the Filer (together with the Symmetry Managed Return Class, the "Symmetry Top Funds") from the investment restrictions in the Legislation which prohibit a mutual fund from knowingly making and holding an investment in any person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder (referred to in this decision as the "Mutual Fund Conflict of Interest Investment Restrictions"),
the Filer from the management company reporting requirements in the Legislation which require that a management company file a report of every transaction of purchase or sale of securities between a mutual fund it manages and any related person or company, and any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, the mutual fund is a joint participant with one or more of its related persons or companies (referred to in this decision as the "Mutual Fund Conflict of Interest Reporting Requirements"), and
the Filer, when acting as portfolio manager, from the prohibition in the Legislation against the portfolio manager knowingly causing any investment portfolio managed by it to invest in any issuer in which a responsible person or an associate of a responsible person is an officer or director unless the specific fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase (referred to in this decision as the "Self-Dealing Prohibition" and, together with the Mutual Fund Conflict of Interest Reporting Requirements and Mutual Fund Conflict of Interest Investment Restrictions, the "Statutory Requirements"),
in connection with investments by the Symmetry Top Funds in securities of the Symmetry Managed Return Pool (the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this application,
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia,
(c) the decision is the decision of the principal regulator, and
(d) the decision evidences the decision of each of the Coordinated Review Decision Makers.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless they are otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Mackenzie is a corporation incorporated under the laws of Ontario. Its head office is in Toronto. Mackenzie is or will be the manager and portfolio manager of the Symmetry Top Funds and Symmetry Managed Return Pool.
Each Symmetry Top Fund is, or will be, a class of shares of Mackenzie Financial Capital Corporation. Symmetry Managed Return Pool will be a class of shares of Multi-Class Investment Corp.
Each Symmetry Top Fund will be a fund-of-funds that gains exposure to equity and fixed income investments by investing in underlying Symmetry mutual funds that are classes of shares of Multi-Class Investment Corp. To gain fixed income exposure, each Symmetry Top Fund will invest a prescribed percentage of its assets in Symmetry Managed Return Pool.
Symmetry Managed Return Pool is a Mackenzie managed mutual fund that seeks to achieve its investment objective by investing primarily in Canadian equity securities and by entering into forward contracts in order to provide the fund with a return determined with reference to the performance of a Canadian fixed income fund managed by Mackenzie, Symmetry Registered Fixed Income Pool. It is anticipated that the performance of Symmetry Managed Return Pool and Symmetry Registered Fixed Income Pool will differ only by the costs associated with the forward contracts.
Symmetry Managed Return Class and Symmetry Registered Fixed Income Pool are currently qualified for distribution in all provinces and territories of Canada pursuant to a simplified prospectus dated December 7, 2007. A meeting of investors of Symmetry Managed Return Class has been called for September 19, 2008 to approve a change of investment objective to permit it to invest solely in Symmetry Managed Return Pool.
Each Symmetry Top Fund and Symmetry Managed Return Pool is, or will be, an open-end mutual fund established under the laws of Ontario and is, or will be, a reporting issuer under the securities laws of each of the provinces and territories of Canada. Symmetry Managed Return Class is not in default of any requirements under applicable securities legislation.
The Symmetry Top Funds have been granted relief by a decision of the Director dated August 15, 2008 (the "NI 81-102 Relief") from the requirements of paragraph 2.5(2)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") to permit the Symmetry Top Funds to invest in Symmetry Managed Return Pool despite Symmetry Managed Return Pool investing more than 10% of its net assets, indirectly, in another mutual fund.
As a result of the NI 81-102 Relief, the Filer and each Symmetry Top Fund will not be entitled to rely on the statutory exemption from the Statutory Requirements in subsection 2.5(7) of NI 81-102 because reliance on that exemption is contingent on satisfaction of each of the conditions of section 2.5 of NI 81-102. Investments in Symmetry Managed Return Pool made by the Symmetry Top Funds in reliance on the NI 81-102 Relief will not satisfy each of the conditions of section 2.5 of NI 81-102.
In the absence of the Exemption Sought from the Mutual Fund Conflict of Interest Investment Restrictions, each Symmetry Top Fund would be prohibited from knowingly making or holding an investment in Symmetry Managed Return Pool if the Symmetry Top Fund, alone or together with one or more related mutual funds, would be a substantial security holder of Symmetry Managed Return Pool.
In the absence of the Exemption Sought from the Mutual Fund Conflict of Interest Reporting Requirements, the Filer would be required to file a report of every transaction by a Symmetry Top Fund involving securities of Symmetry Managed Return Pool, as well as a report of every transaction in which, by arrangement, a Symmetry Top Fund and Symmetry Managed Return Pool would be acting as joint participants.
As Mackenzie acts or will act as portfolio manager of the Symmetry Top Funds, Mackenzie and each of its directors and officers who participates in the formulation of, or who has access prior to implementation to, investment decisions made on behalf of those funds would be a "responsible person" under the Legislation.
Certain officers and directors of Mackenzie who are "responsible persons" under the Legislation are also officers and directors of Multi-Class Investment Corp., of which Symmetry Managed Return Pool is a class of shares.
In the absence of the Exemption Sought from the Self-Dealing Prohibition, the Filer would be prohibited from causing a Symmetry Top Fund from investing in securities of Symmetry Managed Return Pool unless this fact was disclosed to investors in the Symmetry Top Fund and the written consent of those investors to the investment was obtained before the purchase.
The Symmetry Top Funds' investments in securities of Symmetry Managed Return Pool will continue to be made in accordance with the requirements of section 2.5 of NI 81-102, except to the extent that the Symmetry Top Funds are permitted to deviate therefrom by the NI 81-102 Relief. Compliance with these requirements mitigate the conflicts of interest inherent in the Symmetry Top Funds' investments by ensuring that:
(a) no management fees or incentive fees are payable by a Symmetry Top Fund that, to a reasonable person, would duplicate a fee payable by the Symmetry Managed Return Pool for the same service;
(b) no sales fees or redemption fees are payable by a Symmetry Top Fund in relation to its purchases or redemptions of the securities of the Symmetry Managed Return Pool; and
(c) a Symmetry Top Fund does not vote the securities it holds of Symmetry Managed Return Pool, but may instead, if the Filer so chooses, arrange for all of the securities it holds of Symmetry Managed Return Pool to be voted by the beneficial holders of the Symmetry Top Funds.
- The investments by the Symmetry Top Funds in securities of Symmetry Managed Return Pool represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Symmetry Top Funds.
Decision
Each of the Passport Review Decision Maker and the Coordinated Review Decision Makers is satisfied that the decision meets the test set out in the Legislation for the relevant regulator or securities regulatory authority to make the decision.
The decision of the Passport Review Decision Maker and the Coordinated Review Decision Makers under the Legislation is that the Exemption Sought from the Statutory Requirements is granted to permit the Symmetry Top Funds to make and hold investments in securities of Symmetry Managed Return Pool provided that such investments are made in compliance with the requirements of section 2.5 of NI 81-102, except to the extent that the Symmetry Top Funds are permitted to deviate therefrom by the NI 81-102 Relief.
"Paul K. Bates" Commissioner Ontario Securities Commission
"Paulette Kennedy" Commissioner Ontario Securities Commission