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The majority of Mackenzie’s revenues are earned from the management services it provides as fund manager to the Mackenzie mutual funds. In addition to Mackenzie’s retail priced mutual funds, it also offers various series of these funds with lower management fees that are designed for fee-based programs, large accounts and third party investment programs offered by banks, insurance companies and other investment dealers. In return for lower management fees, depending on the specific series of the mutual fund, Mackenzie is not required to pay trailer fees or selling commissions on these funds.
Management fees were $691.3 million for the year ended December 31, 2005, an increase of $45.8 million or 7.1% from $645.5 million in 2004. The increase in management fees was attributed to a 9.9% increase in Mackenzie’s average mutual fund assets under management from $35.4 billion in 2004 to $38.9 billion in the current year and the growth in its institutional accounts. The overall increase in management fees was less than the growth in assets under management because of the shift in asset mix from retail priced funds to non-retail priced funds, which results in a lower effective management fee rate.
Administration fees were $138.0 million for the year ended December 31, 2005, a decrease of $2.5 million from $140.5 million in 2004. Administration fees include the following main components:
- Operating expenses recovered from Mackenzie mutual funds and structured products.
- Fees earned from administering labour sponsored funds.
- Asset allocation fees.
- RSP clone fund counterparty revenue.
- Trustee and other administration fees generated from the MRS Group account administration business.
On June 29, 2005, tax legislation was enacted which eliminated the foreign property rule applicable to registered plans. As a result of this change in tax legislation, RSP clone funds were no longer necessary to achieve an appropriate level of foreign content in registered plans. Accordingly, Mackenzie’s and Investor Group’s RSP clone funds were terminated on July 8, 2005 and September 23, 2005 respectively and investors in these funds received the equivalent value of their investments in the corresponding underlying mutual funds. Prior to this change in tax legislation being enacted, M.R.S. Trust Company earned a fee for acting as the counterparty to the forward contracts that certain Mackenzie and Investors Group RSP clone funds purchased in order to create their registered plan eligibility. Accordingly, M.R.S. Trust will no longer have clone fund counterparty revenue as a source of administration fees.
During the second quarter, the VenGrowth labour sponsored funds terminated their administration agreements with Mackenzie. Mackenzie administered the VenGrowth Funds until November 18, 2005, at which time the completion of the transition to the successor administrator was complete.
Mackenzie earns distribution fee income upon redemption of mutual fund units sold on a deferred sales charge basis. Fees charged range from 5.5% in the first year and decrease to zero after seven years. Distribution fee income in the year ended December 31, 2005 was $34.0 million, a decrease of $1.6 million from $35.6 million last year. This decrease was due to a period over period decline in the absolute level of redemptions of units that are subject to a redemption fee.
The most significant component of net investment income and other is the net interest margin from M.R.S. Trust Company’s lending and deposit operations. Net investment income in 2005 was $19.0 million, an increase of $3.2 million as compared to $15.8 million in 2004. This increase is due to changes in the composition of M.R.S. Trust’s lending and deposit portfolios and the widening of the net interest margin.
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