Mackenzie Financial Corporation et al.

Decision

Headnote

NP 11-203 Process for Exemptive Relief Applications in Mutliple Jurisdictions -- Approval of mutual fund merger -- approval required because merger does not meet the criteria for pre-approval -- fee structure of merging funds not substantially similar -- some mergers are taxable events -- filer providing access, rather than sending, most recent annual and interim financial statements to shareholders of terminating fund.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, s. 5.5(1)(b).

September 26, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATION IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

MACKENZIE FINANCIAL CORPORATION

(the "FILER")

AND

IN THE MATTER OF

PUTNAM CANADIAN MONEY MARKET FUND,

PUTNAM CANADIAN BOND FUND,

PUTNAM CANADIAN BALANCED FUND,

PUTNAM U.S. VOYAGER FUND,

PUTNAM U.S. VALUE FUND, AND

PUTNAM INTERNATIONAL FUND

(collectively, the "TERMINATING FUNDS")

AND

IN THE MATTER OF

MACKENZIE SENTINEL MONEY MARKET FUND,

MACKENZIE SENTINEL BOND FUND,

MACKENZIE MAXXUM CANADIAN

BALANCED FUND,

MACKENZIE UNIVERSAL U.S. GROWTH

LEADERS CLASS (UNHEDGED),

MACKENZIE UNIVERSAL U.S. BLUE CHIP CLASS,

AND MACKENZIE FOCUS INTERNATIONAL CLASS

(collectively, the "CONTINUING FUNDS")

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for approval of the proposed mergers of the Terminating Funds into the respective Continuing Funds (the "Proposed Mergers") pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") (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; and

(b) Mackenzie has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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:

The Filer

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 Terminating Funds, each of which is an open-ended mutual fund trust governed under the laws of Ontario.

3. Mackenzie is the manager and trustee of the Continuing Funds, of which Mackenzie Sentinel Money Market Fund, Mackenzie Sentinel Bond Fund and Mackenzie Maxxum Canadian Balanced Fund are open-ended mutual fund trusts governed under the laws of Ontario and of which, Mackenzie Universal U.S. Growth Leaders Class (Unhedged), Mackenzie Universal U.S. Blue Chip Class, and Mackenzie Focus International Class are classes of shares of Mackenzie Financial Capital Corporation ("Capitalcorp"), a mutual fund corporation governed by the laws of Ontario. (The Terminating Funds and Continuing Funds are collectively referred to as the "Funds" and each may be referred to as a "Fund".)

The Funds

4. Series A, D and F units of the Terminating Funds are available and are offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated April 8, 2008, as amended.

5. Series A, B, G and I units of the Mackenzie Sentinel Money Market Fund; Series A, F, G, I, O and M units of Mackenzie Sentinel Bond Fund; Series A, F, I, O, P T6, and T8 units Mackenzie Maxxum Canadian Balanced Fund; Series A, F, I and O shares of Mackenzie Universal U.S. Growth Leaders Class (Unhedged); Series A, F, I and O shares of Mackenzie Universal U.S. Blue Chip Class and Series A, F, I and O shares of Mackenzie Focus International Class are available and are offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated November 14, 2007, as amended. In addition, Series F of Mackenzie Sentinel Money Market Fund, Series D of Mackenzie Maxxum Canadian balanced Fund, Series D of Mackenzie Universal U.S. Growth Leaders Class, Series D of Mackenzie Universal U.S. Blue Chip Class and Series D of Mackenzie Focus International Class are being created and will be qualified by way of a prospectus amendment prior to the effective date of the mergers by September 26, 2008.

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 Decision Makers.

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.

The Mergers

9. The Filer proposes to merge the Terminating Funds into the Continuing Funds. A press release, material change report, and amendment to the simplified prospectus and annual information form of the Terminating Funds and the Continuing Funds were filed on SEDAR on or about June 30, 2008, in respect of the Proposed Mergers.

10. A management information circular (the "Circular"), in connection with the Proposed Mergers was filed on SEDAR and mailed to the Terminating Funds' investors of record, as at August 11, 2008, on or about August 26, 2008.

11. As required by National Instrument 81-107, an Independent Review Committee (the "IRC") has been appointed for the Funds. Mackenzie presented the terms of the Proposed Mergers to the IRC for a recommendation. The IRC reviewed the Proposed Mergers and recommended that it be put to shareholders of the Funds for their consideration on the basis that the Proposed Mergers would achieve a fair and reasonable result for the Funds.

12. Unitholders of the Terminating Funds were asked to approve the Proposed Mergers at a special meeting of unitholders. Implicit in the approval of unitholders of the Proposed Mergers is the adoption by the Terminating Funds of the investment objectives and strategies, and fee structure of the Continuing Funds. The unitholders approved the Proposed Mergers on September 22, 2008.

13. Mackenzie will pay all of the expenses incurred in connection with the Proposed Mergers, including all brokerage commissions payable in connection with the acquisition by the Continuing Funds of the investment portfolio of the Terminating Funds, the costs of holding the special meeting, and of soliciting proxies.

14. Subject to the required approvals of the Authorities and investors, the Proposed Mergers will be implemented on or about September 26, 2008.

15. Investors of Terminating Funds will continue to have the right to redeem units of the Terminating Funds for cash at any time up to the close of business on the business day immediately preceding the effective date of the Proposed Mergers. Some investors may, if they choose to redeem their shares for cash, incur redemption charges and/or other fees.

16. Following the Proposed Mergers, the Continuing Funds will continue as publicly offered open-ended mutual funds.

17. Mackenzie has concluded that pre-approval of the Proposed Mergers is not available under subsection 5.6(1) of NI 81-102 because the fee structures of the Terminating Funds are not, or may be considered not to be, "substantially similar" to the fee structures of their corresponding Continuing Funds. Otherwise, the Proposed Mergers comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102, except for those criteria from which the Filer has previously obtained future relief.

18. The Filer has previously obtained relief from the simplified prospectus and financial statement delivery requirements in subparagraph 5.6(1)(f)(ii) of NI 81-102. The conditions set out in that relief have been met with respect to the Proposed Mergers.

19. The management expense ratios ("MERs") of the Continuing Funds are less than that of the pre-waiver MERs of the corresponding Terminating Funds. In many cases, the Filer waived or absorbed the fund operating expenses for a Terminating Fund to reduce the MER. The Filer intends to immediately discontinue this practice. The Filer will pay for all variable operating expenses and charge each Continuing Fund a fixed rate annual administration fee (the "Administration Fee"). In addition to the Administration Fee, the Continuing Funds will continue to be charged fund costs (the "Fund Costs") consisting of: interest and borrowing costs; all applicable taxes; all IRC fees and expenses; fees related to external services that are not commonly charged in the Canadian mutual fund industry as of June 15, 2007; and the costs of complying with any new regulatory requirements imposed after June 15, 2007.

20. The fundamental investment objectives of the Terminating Funds are compatible with those of the corresponding Continuing Funds.

21. Putnam Canadian Money Market Fund, Putnam Canadian Bond Fund, and Putnam Canadian Balanced Fund are mutual fund trusts, which are proposed to merge with other mutual find trusts. As a result, the Proposed Mergers for these three funds will be completed on a tax deferred basis.

22. Putnam U.S. Voyager Fund, Putnam U.S. Value Fund, and Putnam International Fund are each merging into a different class of shares of Capitalcorp. As a result, these transactions will be taxable events for investors who hold these Funds outside of a registered plan. For investors who hold these Funds within a registered plan, such as an RRSP, RRIF or RESP, there are no tax consequences to the Proposed Mergers. For taxable investors, Mackenzie will offer unitholders the opportunity to file an election to defer gains under Section 85(1) of the Income Tax Act. For investors who make such an election, there will be no immediate tax impact resulting from the Proposed Mergers. Capital gains or losses, if any, will only be realized once an investor redeems shares from Mackenzie Financial Capital Corporation. Until such time, taxable investors will benefit from the ability to exchange on a tax-deferred basis between all Capitalcorp funds.

23. Complete details of the tax election package will be sent to all taxable investors by Mackenzie upon completion of the Proposed Mergers.

24. The tax implications of the Proposed Mergers, as well as the differences between the Terminating Funds and Continuing Funds were described in the Circular so that investors of the Terminating Funds could consider this information before voting on the Proposed Mergers.

25. The Flier submits that the Proposed Mergers will result in the following benefits:

a. Superior Performance of the Continuing Funds: The Continuing Funds have demonstrated similar or better historical performance over most time periods (as of July 31st 2008),

b. Similar or Lower MER: In all cases, the MER charged to investors in the Continuing Fund is less than the pre-waiver MER charged to investors in the Terminating Fund.

c. Greater certainty concerning operating expenses: Mackenzie bears the cost of most variable operating expenses for the Continuing Funds other than Fund Costs in exchange for an Administration Fee that it charges to each series of each Continuing Fund. This ensures greater predictability and transparency of future expenses year to year.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted.

"R. Goldberg"
Manager, Investment Funds Branch
Ontario Securities Commission