Mackenzie Financial Corporation and Mackenzie Sentinel Tactical Global Bond Fund - MRRS Decision

Headnote

MRRS - Approval of fund merger on the basis that the simplified prospectus and financial statements of the continuing fund need not be delivered to unitholders of the terminating fund but instead a tailored simplified prospectus be delivered to unitholders of the terminating fund -- approval was needed because the merger did not meet the pre-approval requirements - unitholders will still be able to obtain financial statements from the fund manager's website or Sedar - clause 5.5(1)(b) of National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1)(f)(ii), 5.7(1)(b).

April 21, 2006

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, YUKON TERRITORY,

NORTHWEST TERRITORY AND NUNAVUT TERRITORY

(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

IN THE MATTER OF

MACKENZIE SENTINEL TACTICAL GLOBAL BOND FUND

("TACTICAL FUND")

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 and Tactical Fund (the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting approval of the proposed merger (the "Proposed Merger") of Tactical Fund into Mackenzie Sentinel RRSP Global Bond Fund ("RRSP Fund") under s. 5.5(1)(b) of National Instrument 81-102 Mutual Funds on the basis that the simplified prospectus and financial statements of the RRSP Fund need not be delivered to unitholders of Tactical Fund but instead a tailored simplified prospectus be delivered to unitholders of Tactical Fund (the "Requested Approval").

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 governed by 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 with the Ontario Securities Commission 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.

2. Mackenzie is the manager and trustee of the Tactical Fund and RRSP Fund (collectively referred to as the "Funds" and individually referred to as "the "Fund") each of which is an open-ended mutual fund trust governed under the laws of Ontario.

3. Series A, F, I, and O units of the Funds and are offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated November 30, 2005, as amended, for the Mackenzie Canadian and Global Mutual Funds.

4. Unitholders of Tactical Fund have been asked to approve the Proposed Merger at a special meeting scheduled to occur on April 21, 2006, conditional upon a majority of RRSP Fund's investors having first voted in favour of revising RRSP Fund's investment objectives at a special meeting of that Fund taking place concurrently and described in a management information circular for investors in both Funds. Implicit in the approval of unitholders of the Proposed Merger is the adoption by Tactical Fund of the revised investment objectives and strategies, and fee structure of RRSP Fund. Mackenzie will pay the costs of holding the special meeting in connection with the Proposed Merger and for soliciting proxies.

5. If the approval of investors of the Funds is not received in their respective special meetings, then the Proposed Merger will not proceed.

6. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada and are not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Authorities.

7. Other than where the Decision Makers have exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established by the Authorities.

8. The net asset value for each series of units of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for trading.

9. Investors of Tactical Fund will continue to have the right to redeem units of the Fund for cash at any time up to the close of business on the business day immediately preceding the effective date of the Proposed Merger.

10. The Proposed Merger will be carried out on a taxable basis. It will not be a "qualifying exchange" or a tax deferred transaction under the Income Tax Act (Canada). As at February 28, 2006 RRSP Fund has unused capital losses in the current year and carried forward from prior years totaling $78.6 million. If the merger is carried out on a tax-deferred or rollover basis, all of RRSP Fund's unused tax losses would expire and could not be used to shelter capital gains it realizes in future years. Carrying out the merger on a taxable basis will preserve these tax losses for future use by the Fund.

11. Carrying out the merger on a taxable basis will cause unitholders of Tactical Fund who hold their units outside of a registered plan to realize any accrued gains or losses. As at February 3, 2006 there were 880 unitholders of Tactical Fund who held their units outside of a registered plan. Of those 880 non-registered investors, only seven had an accrued gain. Thus, only a few unitholders in Tactical Fund are expected to realize a taxable gain as a result of the Proposed Merger.

12. The Funds have the same fee structure and valuation procedures and, except as noted, meet all other conditions necessary for mutual funds to complete a merger without regulatory approval as enumerated under subsection 5.6(1) of National Instrument 81-102 Mutual Funds ("NI 81-102").

13. The fundamental investment objectives of Tactical Fund are compatible with that of RRSP Fund's, but a reasonable person may consider the fundamental investment objectives to be less than substantially similar.

Tactical Fund is a foreign bond fund that has an investment objective of pursuing long-term capital growth through active management of long-term fixed income securities issued or guaranteed by governments. The Fund's investments come primarily from six specific countries - the United States, the United Kingdom, France, Germany, Switzerland and Japan.

RRSP Fund is a foreign bond fund that will, conditional on investor approval, have an investment objective of aiming 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.

14. Following the Proposed Merger, RRSP Fund will continue as a publicly offered open-ended mutual fund.

15. A material change report, press release and amendment to the simplified prospectus and annual information form of the Mackenzie Canadian and Global Mutual Funds in respect of the Proposed Merger have been filed.

16. A management information circular in connection with the Proposed Merger was filed on SEDAR and was mailed to the Funds' investors of record as at March 15, on March 31, 2006. Mackenzie inadvertently only additionally sent Tactical Fund investors a tailor-made simplified prospectus document, consisting of Part A, the Introduction to Part B and the Part B for RRSP Fund, and did not send the RRSP Fund's financial statements, but rather only indicated to such unitholders how the financial statements can be obtained. Mackenzie had done so as it then believed that it was permitted to pursuant to an earlier decision.

17. Subject to the required approvals of the Authorities and investors, the Proposed Merger will be implemented on or about April 21, 2006.

18. The Filer submits that the Proposed Merger will result in the following benefits:

a. Greater Investment Flexibility and Diversification: Mackenzie believes that RRSP Fund's wider range of investment choices and greater diversification will benefit Tactical Fund investors as RRSP Fund's portfolio managers are better able to tailor the Fund's investment choices to changes in market conditions and to take advantage of more foreign bond investment opportunities as they arise. Furthermore, as RRSP Fund will not invest up to 100% of its assets in any one issuer, the Fund is less likely than Tactical Fund to be subject to the greater risk and volatility of a concentrated portfolio.

b. Quarterly Distributions: Starting in June 2006, RRSP Fund investors will begin to receive variable quarterly distributions, which may at the investor's option be paid in cash. This will allow investors to draw a quarterly payment (compromised of income, return of capital and/or capital gains) from their investment. Distributions may for a time be comprised primarily of a return of an investor's capital.

Investors not wishing to receive this quarterly distribution may elect to have their distributions reinvested into the RRSP Fund, allowing their full investment to remain invested in the portfolio.

c. Improved Economies of Scale and Greater Operating Efficiency: As at March 15, 2006, Tactical Fund had approximate net assets of $13.55 million and RRSP Fund had approximate net assets of $90.18 million. Had the Funds merged on that date, the combined RRSP Fund would have had approximate net assets of $103.73 million. By combining the two portfolios, it is anticipated that RRSP Fund will be able to spread certain fixed operating costs of administering the Fund (audit fees, regulatory filing fees, etc.) across a larger pool of assets. This could potentially reduce RRSP Fund's management expense ratio for Series F, I and O units.

19. If the Proposed Merger is approved, the costs of the Proposed Merger will be borne by Mackenzie.

20. The current simplified prospectus of the Funds qualifies over 40 mutual funds and is a relatively large and heavy document. Rather than delivering the entire current simplified prospectus of RRSP Fund to Tactical Fund investors, Mackenzie delivered a tailored document, consisting of Part A, the Introduction to Part B and the Part B for RRSP Fund, as set out in the current simplified prospectus filed on SEDAR.

21. In Mackenzie's view, an investor is more likely to read the material, and is more likely to vote, if he or she is furnished only with the relevant information, rather than inundated with extraneous information. Further, sending only the tailor-made prospectus significantly reduced Mackenzie's mailing costs in the Proposed Merger.

22. Additionally, rather than delivering the most recent annual and interim financial statements of RRSP Fund to Tactical Fund investors, Mackenzie outlined to Tactical Fund investors the various ways that they can access these financial statements.

23. In Mackenzie's view, sending the financial statements only to investors who have requested them and explaining how the financial statements might be otherwise accessed is consistent with the financial statement delivery principles set out in National Instrument 81-106.

24. In Mackenzie's view, if a Tactical Fund investor is interested in reading the financial statements of RRSP Fund, he or she would take the time to access them by one of the means available. Mackenzie has or will make the financial statements of RRSP Fund available to the unitholders of the Terminating Funds through a number of means, including accessing the SEDAR or Mackenzie website or requesting a copy by calling a toll-free phone line.

25. Similar relief with respect to the prospectus and financial delivery requirements were granted to AIM Funds Management Inc. under a MRRS decision document dated May 8, 2003 and to Mackenzie under a MRRS decision document dated June 17, 2003.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Makers with the jurisdiction to make the decision has been met. The decision of the Decision Makers under the Legislation is that the Requested Approval is hereby granted, provided that:

(a) the information circular sent to Tactical Fund unitholders prominently disclose that they can obtain the most recent interim and annual financial statements of RRSP Fund by accessing the Mackenzie website at www.mackenziefinancial.com or the SEDAR website at www.sedar.com, by calling a toll-free telephone number (1-800-387-0614) or by submitting a request to Mackenzie; and

(b) the material sent to unitholders of Tactical Fund in connection with the approval of the Proposed Merger includes a copy of:

(i) the current Part A of the simplified prospectus of RRSP Fund; and

(ii) the current the Introduction to Part B and Part B of the simplified prospectus of RRSP Fund.