Mackenzie Financial Corporation et al. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- NI 81-102 Mutual Funds, -- approval of fund mergers -- mergers do not meet the criteria for pre-approval outlined in s.5.6 of NI 81-102 -- unitholders of terminating fund have received timely and adequate disclosure regarding the mergers, will be provided tailored version of continuing fund's simplified prospectus and will be able to obtain continuing fund's financial statements from the fund manager, fund manager 's website or SEDAR.

Applicable Legislative Provisions

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

November 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 SHORT-TERM BOND FUND

("SHORT-TERM BOND FUND")

AND

MACKENZIE SENTINEL MORTGAGE FUND

("MORTGAGE 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 Short-Term Bond Fund and Mortgage Fund (the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting approval for the proposed merger (the "Proposed Merger") of Short-Term Bond Fund into Mortgage Fund under s. 5.5(1)(b) of National Instrument 81-102 Mutual Funds (the "Requested Approval"). Short-Term Bond Fund and Mortgage Fund are collectively referred to as the "Funds" and individually as a "Fund".

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 and under the Commodity Futures Act (Ontario) in the categories of Commodity Trading Counsel and Commodity Trading Manager.

2. Mackenzie is the manager and trustee of the Funds, each of which is an open-ended mutual fund trust governed under the laws of Ontario and subject to the requirements of NI 81-102.

3. Series A, F, G, I, M and O units of Short-Term Bond Fund and Mortgage Fund 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.

4. 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.

5. Other than for exemptions granted by the Authorities to the Funds, the Funds follow the standard investment restrictions and practices established by the Authorities, including, in respect of Mortgage Fund, the investment restrictions and practices established under National Policy 29.

6. Mackenzie is proposing to merge Short-Term Bond Fund into Mortgage Fund.

7. Unitholders in Mortgage Fund will be asked to consider a change in the investment objectives of the Fund and unitholders of both Short-Term Bond Fund and Mortgage Fund will be asked to approve the Proposed Merger at special meetings scheduled to be held on November 22, 2006. Although the Proposed Merger generally would not constitute a material change for the larger Mortgage Fund, approval is being sought from its unitholders as the transaction will result in a substantial addition of assets to the Fund.

8. The Proposed Merger is conditional upon approval from unitholders of Mortgage Fund of its change of investment objectives. Conditional upon and coincidental with the change in the investment objectives of Mortgage Fund, there will also be a change in the investment strategies and in the name of the Fund to Mackenzie Sentinel Short-Term Income Fund. Implicit in the approval of the Proposed Merger is the adoption by unitholders of Short-Term Bond Fund of the amended investment objectives of Mortgage Fund.

9. Mackenzie will pay the costs of holding the special meeting in connection with the Proposed Merger and for soliciting proxies. The costs of holding the special meeting in connection with the change in investment objectives of Mortgage Fund and for soliciting proxies will be borne by Mortgage Fund.

10. The Short-Term Bond Fund's portfolio assets which will be acquired by Mortgage Fund will be acceptable to the portfolio adviser of Mortgage Fund and is consistent with the revised investment objectives of Mortgage Fund.

11. No sales charges will be payable in connection with the acquisition by Mortgage Fund of the investment portfolio of Short-Term Bond Fund.

12. If the approval of investors of Short-Term Bond Fund and Mortgage Fund are not received in the special meetings, then the Proposed Merger and the change in the investment objectives, strategies and change of name of Mortgage Fund will proceed in any case.

13. The Filers submit that the Proposed Merger will result in the following benefits to unitholders of the Funds:

(i) Increased economies of scale by being able to spread certain fixed operating costs across a larger pool of assets;

(ii) Consistency in management as Mackenzie is the manager of both the Short-Term Bond Fund and Mortgage Fund, and the individual principally responsible for portfolio investment for Short-Term Bond Fund is also the individual principally responsible for portfolio investment for Mortgage Fund;

(iii) Reduced volatility, since subject to investor approval, Mortgage Fund's new mandate will allow it to purchase short-term fixed income securities such as short-term bonds as well as mortgages; and

(iv) Consistency in Management Fees since subject to investor approval of the Proposed Merger, the management fees on Series A and Series I units of Mortgage Fund will be reduced to be consistent with the current management fee structure for the Short-Term Bond Fund. Investors who invested in Series F units of the Short-Term Bond Fund prior to the Proposed Merger will benefit from lower management fees for Series F units after the Proposed Merger.

14. 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.

15. Investors of Short-Term Bond 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.

16. Following the Proposed Merger, Short-Term Bond Fund will be wound up as soon as possible and Mortgage Fund will continue as a publicly offered open-ended mutual fund.

17. A material change report, press release and amendments to the simplified prospectus and annual information form of the Funds in respect of the change in investment objective and the Proposed Merger have been filed under SEDAR Project Nos. 998906, 997939 and 842703 respectively.

18. A management information circular (the "Circular") in connection with the Proposed Merger was filed on SEDAR and was mailed to Short-Term Bond Fund and Mortgage Fund unitholders of record as at October 20, 2006, on approximately October 27, 2006.

19. Subject to the required approval of investors and the Authorities, the change in investment objectives, strategies and change of name of Mortgage Fund to Mackenzie Sentinel Short-Term Income Fund will take effect on or about November 24, 2006 and the Proposed Merger will be implemented on or about November 24, 2006.

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

21. Mackenzie believes that the Proposed Merger would not satisfy all of the criteria for pre-approved organisations and transfers set forth in section 5.6 of NI 81-102 for the following reasons:

(a) the Proposed Merger will not be implemented as a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada);

(b) The Filers submit that a reasonable person would conclude that the Funds do not have substantially similar investment objectives; and

(c) A complete current simplified prospectus and the most recent annual and interim financial statements of the Continuing Fund will not be sent to unitholders of the Terminating Fund.

22. Rather than delivering Mortgage Fund's entire current simplified prospectus, which qualifies 42 mutual funds, it is proposed that Mackenzie deliver a tailored version to unitholders consisting of Part A, the Introduction to Part B and the Part B for Mortgage Fund as set out in the current simplified prospectus filed on SEDAR.

23. Additionally, rather than delivering the most recent annual and interim financial statements of Mortgage Fund, Mackenzie has disclosed in the management information circular sent to unitholders the various ways these statements can be accessed without cost to the investor.

24. The tax implications of the Proposed Merger as well as the differences between the Funds are described in the Circular so that the unitholders may consider this information before voting on the Proposed Merger.

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 Short-Term Bond Fund unitholders prominently disclose that they can obtain the most recent interim and annual financial statements of Mortgage 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 Short-Term Bond Fund in connection with the approval of the Proposed Merger includes a copy of:

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

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