Fees and Mutual Fund Investing: The Facts

I n s i g h t s i n t o t h e V a l u e o f A d v i c e

Dear investor,

In 1932, Canadians were introduced to a new investment tool called a mutual fund. Suddenly, investorsof all types had a convenient, secure and affordable way to diversify their investments across a broadrange of securities, sectors, and markets, all managed by an experienced, professional financial expert.

They never looked back.

Today, half of all adult Canadians invest in mutual funds, and they do so for the very same reasons theydid seventy years ago: convenience, security, affordability, diversification and expert management.

Recently, there’s been some attention focused on the fees investors pay to mutual fund companies andfinancial advisors.

This booklet is designed to give you the straight facts, in simple language, about how mutual fund feeswork. We’ll cover the different types of fees, who gets them, and why. Most importantly, we’ll explainwhat you get for the fees you pay. It’s your money, and you deserve to know.

I hope you find this booklet useful, and invite you to discuss it with your financial advisor as you movetoward your financial goals. I also invite you to visit our website, www.mackenziefinancial.com for moreinformation.

David FeatherPresidentMackenzie Financial Services Inc.

PS: Be sure to check out the enclosed insert, “How does Mackenzie stack up?” for a review of our largest funds’performance over the long term. In partnership with your advisor, we aim to continue to choose wisely on your behalf.

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3 Building an investment portfolio is like building a home

5 Understanding fees paid to your mutual fund company6 What is an MER?6 What does an MER include?7 Why do MERs vary from fund to fund?8 How are MERs stated?9 A closer look at operating expenses10 A final thought on MERS

11 Understanding fees paid to your financial advisor12 How is your financial advisor paid?13 Commissions16 Service fees

17 What’s in it for you?18 What you get from your mutual fund company19 What you get from your financial advisor

21 Thoughts on successful investing23 Stick to a focused and disciplined financial plan25 Maintain a long-term view27 Resist the temptation to chase short-term performance28 Seek professional advice

29 Other questions & answers about mutual fund investing

How does Mackenzie stack up? – Insert in pocket (back cover)

C O N T E N T S

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Building an investment portfolio is like building a home

In many ways, building an investment portfoliois a lot like building a home. If designed skillfully,both provide comfort, protection, security andeventually, a solid return on investment. And just as the ongoing care, upkeep and

improvements to your home over time helpgrow its value, the ongoing improvements andadditions to your portfolio help you realize yourfinancial and lifestyle goals and pave the waytowards a long and happy retirement.

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Some people are very comfortable managingtheir investments. They have identified theirfinancial goals and have the time, knowledgeand motivation to research, construct and tracktheir investment portfolios.

However, if you’re like most Canadians, youdon’t have the time or the expertise to navigatethrough a growing range of investment options,or make the decisions without help. In this case,seeking the help of a financial professionalmight prove to be the most important invest-ment decision you’ll ever make.

In fact, research shows that the majority of peo-ple who work with financial advisors express sat-isfaction with the quality of service and advicethey receive1.

1From the Financial Planners Standards CouncilConsumer Survey, Sept. 2003

To return to the example of building a house for amoment, just as you would expect to pay fees toyour builders and architects for their expertise, sotoo do you pay fees with the people that manage,and advise you on, mutual funds.

And just as you would expect to know what youget for fees paid to a builder, you should alsounderstand the fees associated with mutual funds.

In the next two sections of this booklet, we’ll focus on the two types of mutual fund fees youtypically pay.

First, we’ll cover fees you pay to mutual fundcompanies that create and manage funds.

Second, we’ll cover the fees you pay to yourinvestment advisor who works with you todevelop a financial plan, and buys and sells fundsfor you.

Finally, and most importantly, we’ll cover the ben-efits you receive for paying these fees, from youradvisor and your mutual fund company.

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Understanding fees paid to your mutual fund company(otherwise known as MERs, or “management expense ratios”)

What is an MER (management expenseratio)?

When you invest in a mutual fund, there is abuilt-in fee that covers a variety of costs andservices. The term most commonly used todescribe this fee is management expense ratio,or MER.

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What does an MER include?

A fund’s MER is made up of three principal com-ponents:

1. A management fee. This covers the costs ofpaying the mutual fund company who decideshow, and in which securities, the fund willinvest. In many cases, it also covers compensa-tion to the investment dealer and the financialadvisor who sell you the fund.

2. Operating expenses. This covers the operat-ing expenses incurred by the funds, such asrecord keeping and reporting to investors,administration and legal costs and a custodianthat holds the fund assets and protects investorinterests. (See “A Closer Look at OperatingExpenses” on page 9 for more information).

3. Taxes. GST is paid on the management fee,and certain operating costs within the fund andis therefore included in the MER.

While MERs vary with each type of fund, youcan always find out what they are in the fund’sprospectus, or ask your financial advisor.

Why do MERs vary from fund to fund?

Generally, MERs are lower for bond and moneymarket funds and higher for equity funds. Theprimary reason for this is that compared to bondand money market funds, equity funds requiremore active involvement by their fund man-agers, who continuously research, monitor, andconsider buying or selling securities for the fundto maximize its financial return for investors.

Foreign equity funds typically require even fur-ther involvement than Canadian funds. In thiscase, fund managers are often required to travelto other countries to visit the companies thatthey are considering investing in. Sometimes, itmay be necessary for a fund company to openforeign offices or hire outside local expertise(also known as sub advisors) to assist withresearch and security selection in other countries.

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How do they vary?

Type of fund Average MER

Canadian money market funds 0.71%

Canadian bond funds 1.45%

Canadian balanced funds 2.12%

Canadian equity funds 2.44%

Global equity funds 2.51%

Source: Globe HySales. Average MERs shown aresimple averages of the largest 25 funds by assets ineach category at Dec. 31, 2003.

How are MERs calculated and stated?

An MER is expressed as a percentage of thefund’s total assets. For example, if you hadinvested $10,000 in Mackenzie Ivy CanadianFund on July 1st, 20022, a fund with a 2.51%MER, the fund would have paid $251 in man-agement fees and operating fees for the year.

The fund returns you see listed in the newspa-per or on your statements are what you get afterthe fund has paid the MER. So, for example, ifyour statement says that a fund has delivered areturn of 10% over a period of time, and thatfund has an MER of 2.5%, the total returnbefore paying the MER was actually 12.5%.

The following chart illustrates how the fees youpay are calculated, and put to work.

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The 2% management fee represents 80% of thetotal 2.51% MER. However, out of managementfee revenue, the advisor’s dealer firm is paid com-pensation

**49% of Mackenzie management fees are paid out todealers in some form of compensation: trailers,commissions, co-op marketingThis information is based on figures contained incalendar-year 2003 Mackenzie prospectuses

operating expenses

$35

GST $16

Mackenzie component of

management fee $102

management fee

dealer component of

management fee** $98

40.8%

39.2%

6%

14%

2Please see insert in pocket for full performance data ofMackenzie Ivy Canadian Fund

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A Closer Look at Operating Expenses

The operating expenses of a mutual fund varyfrom fund to fund and are included in the man-agement expense ratio (MER). Here are thekinds of expenses you’re paying for, and whatyou get:

Transfer agency

Each time you and your financial advisor decideto buy or sell fund units, a transfer agentprocesses the transactions and maintainsrecords of those transactions. The transfer agentalso processes and pays dividends and distribu-tions to investors on behalf of the mutual fundcompany. Transfer agents specialize in theseactivities, leaving fund companies and financialadvisors free to focus on maximizing yourreturns.

Custodian services

In Canada, securities law requires that an inde-pendent custodian hold a fund’s assets, maintain-ing them separately to protect investor assets.

This virtually ensures that the entire current mar-ket value of your investment is protected againstbusiness failure. Thus, if any fund company wereto fail in Canada, the current value of your hold-ings with that company would essentially be safein the hands of the independent custodian.

Administration

Administration fees generally cover the time andcosts incurred by employees, and external serviceproviders, who work on the funds, including fundadministration, daily valuation and accounting,book keeping, legal and finance.

Production, printing and mailing costs

Producing, printing and mailing account state-ments, prospectuses, fund financial statementsand other important information to investors is anexpensive but essential undertaking. It’s alsorequired by law. Mackenzie is constantly exploringnew technologies to help minimize these costs,such as eDelivery through AccountAccess atmackenziefinancial.com.

A final thought on MERs

Get all the facts

Many discussions about MERs don’t always dis-tinguish between the fund company’s manage-ment fee and the fund’s expenses, such as auditfees, taxes, the cost of communications toinvestors and other critical activities that are partof managing a mutual fund. This can create theimpression that the MER is straight profit for thefund company, which is not the case.

Speak with your financial advisor when you readcommentaries in the media relating to mutualfund fees. With so many investment productsavailable, even the most seasoned experts willagree that it is difficult to draw broad conclu-sions about fees.

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Understanding fees paid to your financial advisor

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How is your financial advisor paid?

To return again to the house analogy, just as youpay a contractor to coordinate, supervise andadvise you on work being done to your home,your financial advisor receives a fee for provid-ing the same type of services to your portfolio.This fee is generally included in the manage-ment expense ratio (MER) you pay to themutual fund company.

This fee compensates the advisor for developingfinancial strategies that reflect your life goals andphilosophy on risk and reward, the time

involved in helping you choose the appropriatemutual fund or funds, tracking the progress ofyour investments and suggesting changes toyour portfolio as your financial needs and themarket changes.

Financial advisors are typically compensated formutual fund investing in two3 principle ways:commissions (known as loads) and service fees(or trailers). In the following section, we’llexplain loads and trailers, and what you needto know about each.

3Note: Some financial advisors and investors prefer afee-for-service arrangement, which can include avariety of services. If you are interested in exploringthis, speak to your financial advisor.

Commissions (known as “loads”)

What is a load?

A load is a one-time fee. Loads can be front-end(also known as sales charges) and back-end(also known as deferred sales charges or DSCs,or redemption fees).

Front-end loads (Sales charges)

If a mutual fund has a front-end load, you pay afee that is usually taken from your total purchaseamount. This fee generally ranges from 0% to5% of the amount invested. You can negotiatethis fee with your financial advisor based on thesize of the purchase and the level of service youwish your advisor to provide.

Back-end loads (Deferred sales charges orDSC)

When you purchase a fund back-end, themutual fund company pays your advisor’s firm afee on your behalf, typically 5% for an equityfund. The amount of this fee that you pay backto the mutual fund company depends on howlong you stay invested in the fund. Since mostmutual funds are managed to generate per-formance over the long term, you are encour-aged by the back-end arrangement to stayinvested for a set period of time (usuallybetween five and seven years). If you sell yourunits before the end of that period, you pay afee that typically declines each year that you stayinvested. If you stay invested for the full sched-ule, no fee applies when you sell your units.

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Front-end: how it works

Let’s say you buy $1,000worth of units front-end in afund and agree on a fee of2%. Your advisor’s firmreceives $20 (the advisorreceives a pre-determinedproportion of that amount)and $980 is deposited intothe fund.

Back-end: how it works

If you purchase a fund with aback-end load, or deferredsales charge (DSC), yourentire $1,000 investment isput to work immediately andyour advisor’s firm receivesa fee from the mutual fundcompany of about $50, ofwhich your advisor receivesa pre-determined propor-tion.

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Back-end Load Flexibilitywith Mackenzie Funds

Over the course of your life,there’s a strong chance yourinvestment goals and marketconditions will change.That’s why Mackenzie offerstwo valuable options forthose who buy mutual fundswith a back-end loadarrangement.

Different funds, sameschedule

If your investment goalschange, you may switchyour investment to anotherMackenzie fund and main-tain the existing schedule.

10% free option

To give you added flexibility,Mackenzie and most fundcompanies offer what iscalled a “10% free” option.This means that if you pur-chase your fund using aback-end arrangement, youcan sell up to 10% of yourunits annually without incur-ring a sales charge. It’s likegaining instant liquidity onceeach year for home repairs,a child’s education or otherplanned or unforeseenneeds. You may also movethat money to new funds tohelp diversify your portfolioto meet your changingneeds, or lock in profit.

Most Mackenzie equity funds carry a 5.5% feefor redemptions in the first year following pur-chase. This fee declines to zero after sevenyears.

The following is an example of redemptioncharges that apply to most equity funds offeredby Mackenzie.

First year 5.5%

Second year 5.5%

Third year 4.5%

Fourth year 4.0%

Fifth year 3.5%

Sixth year 2.5%

Seventh year 1.5%

Thereafter nil

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No loads

Some mutual fund companies offer “no-load”funds, which do not require you to pay any fee.However, there is usually a trade-off to consider.No-load funds are not always supported withthe investment advice you would receive fromyour financial advisor. This means that while youmay save paying a sales commission, you don’tget the expert advice that can protect and maxi-mize your investment in the long run. (See“What’s in it for you?” on Page 17 for more infor-mation)

How do I choose the right load?

Whether you purchase funds with front-end orback-end loads depends on the number ofinvestment years that lie ahead of you (oftendescribed as your “investment horizon”) andthe flexibility you desire. Talk to your financialadvisor about your options.

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Required reading: the mutual fund prospectus

The prospectus is a legaldocument that sets out theground rules for investing ina mutual fund.

The prospectus includes afund’s investment objectivesand associated fees andcosts you will incur whenyou invest. Remember: dif-ferent funds have differentsales charges and other fees,and the prospectus will fullyitemize those fees.

When you first purchaseunits in a mutual fund, you’llautomatically receive a copyof a fund prospectus. Youcan also get one in advancefrom your financial advisoror by visiting the fund com-pany’s web site.

Having trouble understand-ing all the terminology in aprospectus? Don’t worry,you’re not alone — prospec-tuses are extremely compre-hensive. But they areimportant, so make sure youdiscuss your questions withyour advisor.

Service Fees (known as “Trailers”)

What is a Trailer?

Depending on the fund type, at the end of eachmonth or quarter, your financial advisor alsoreceives compensation from the service fees,often called “trailers,” paid to his or her firm bythe mutual fund company. The amount of this“trailing commission” varies, and details can befound in the fund’s prospectus or from yourfinancial advisor.

Why are Trailers paid?

The trailing commission compensates your advi-sor for providing you with ongoing advice aboutthe mutual fund investment. Trailers generallyrange from 0.25% to 1% of your mutual fundportfolio and are paid as long as you remaininvested in the fund. Trailers are not an addi-tional fee; they are paid out of the overall man-agement fee built into the cost of the fund.

What’s in it for you?17

The benefits of mutual funds are as numerousas the many different types of investors who usethem. That’s why today, approximately 50% ofall adult Canadians are building their portfolioson the strength of mutual funds.

In this section, we’ll summarize the benefits youreceive from both mutual fund companies likeMackenzie and your financial advisor when youinvest in funds.

What You Get From Your Mutual FundCompany

As explained back on page 6, a management feepaid to the mutual fund company is included inthe management expense ratio (MER) you payon the funds you buy. The proceeds of the man-agement fee are used in several ways: to paycommissions to dealer firms and advisors, to runour business and to pay portfolio managers — inthe case of Mackenzie funds, some of the bestexperts from around the globe.

Some of the main benefits to you are:

Access to investment opportunities aroundthe world that are researched, purchased forthe fund and monitored by knowledgeableinvestment professionals within a well-regu-lated environment.Proven investment management expertisefrom world class professionals supported by adisciplined approach to investing.Performance potential as professional invest-ment managers work on your behalf to beattheir benchmark returns over the long term.

Cost efficiencies that allow you to invest in asophisticated range of domestic and foreignsecurities and markets easily and affordably. Itwould be extremely costly, time-consumingand in some cases, impossible for you toaccess a similar portfolio of investments on astand-alone basis.Flexibility in offering relatively low initial ormonthly purchase amount options, or both.Liquidity that allows you to readily redeemyour shares at current prices — plus any feesand charges payable upon redemptions — atany time.Technology to provide you with timely, accu-rate reporting on your investments.Educational information and tools for bothyou and your financial advisor to help withinvestment knowledge and planning. Forexample, fund information and planningtools, including investment calculators, areavailable throughwww.mackenziefinancial.com

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What You Get From Your FinancialAdvisor

As any financial advisor will tell you, no twoinvestors are alike. That’s why advisors are care-fully trained to expertly assess the unique needsof each investor and provide a strategic invest-ment plan that’s tailor-made for those needs.

Financial advice adds value in many ways:

Investment discipline. Money is an emo-tional issue, and perhaps the single greatestbenefit to using a financial advisor is theirindependent, impartial advice — free of familypolitics or an individual’s market jitters, andfirmly focused on the investor’s financialgoals, risk tolerance, and return.Consolidated information. Advisors consoli-date massive amounts of financial informa-tion to help investors stick to the basics (e.g. diversification) and watch the details(e.g. avoiding overlap in fund holdings). Just as important, by listening to clients talkabout their evolving financial situation, aninvestment advisor can help clients at variouslife stages and business cycles. An advisor isalso in a position to recommend other financial services providers, such as estate andtax advisors.

The value of time. An advisor enables busycareer people to focus on their careers andfamilies and saves them from having todevote time to becoming securities experts.Risk management. Advisors add value inmany ways that do not show up in client port-folio statements. This boils down simply tothe activity of preventing clients from takingon undue risk or pointing out a client’s self-destructive investment habits. The flipside ofcontrolling risk is ensuring that clients do takesome risks so they are positioned to partici-pate in good opportunities, particularly inequities.

Working with your advisor

If we go back to the house example, your financial advisor is the building contractor whowill set the foundations of a sound investmentstrategy that will provide peace of mind for yearsto come. It is very important to state your expectations before the foundation is pouredand work begins. As your portfolio grows, it’salso important to communicate. Chances are,the clearer the communication, the stronger therelationship.

Remember as well that each advisor’s level ofeducation, experience and area of expertise varies.Take the time to understand the value your advi-sor adds to make sure it fits your unique needs.

In the section “Thoughts on successful investing”,we show you how a financial advisor can help youstay focused on your investment strategy. Thisresearch shows that uninformed trading activitydamages your investment returns and thatinvestors with advisors consistently traded less.

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Thoughts on successful investing21

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While the abilities and advice of your financialadvisor and fund manager will have a directimpact on your success in reaching your financialgoals, your personal resolve to stay the courseand follow an investment strategy is also critical.

Here are some basic investing guidelines that willhelp you succeed over the long term:*

Stick to a focused and disciplined financial plan

Maintain a long-term view

Resist the temptation to chase short-termperformance

Seek professional advice

*US Research conducted by FRC “Financial ResearchCorporation” in 2001 and presented by IbbotsonAssociates appears in the following section to supportthese recommended guidelines.

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Stick to a focused and disciplinedfinancial plan

Uninformed trading activity damages yourinvestment returns

Do you sometimes feel that you’ve missed outon superior returns? To make up for lost time,you may be tempted to try to generate quickgains through frequent trading and random useof market timing strategies. The negative effectsof such strategies may not be clear immediately,but the long-term results could significantlydamage your investment portfolio. The hypo-thetical example from the U.S. here illustratesthe value of staying the course vs. sudden andfrequent trading.

Note: This example is for illustrative purposes only and is not indicative of any investment. Actual monthlyreturns in each Morningstar investment category from January 1990 through December 1999 were used tocalculate returns for one-, two-, and three-year holding periods. These returns were then totaled andaveraged to produce an average annualized unweighted Morningstar category return for the respectiveholding period. This can be viewed as a proxy for results if an investor had bought and held the funds acrossthe entire period. These figures were then weighted for the actual net flows that these funds attractedthroughout the period and can be viewed as a proxy for the annualized return that the average investoractually received based on their trading decisions. Mutual funds are investments involving risk and areavailable by prospectus only. Investment return and principal value will fluctuate so that upon redemptionyour investment may be worth more or less than the original cost. An investor should read the prospectuscarefully before investing. Past performance is no guarantee of future results.

Source: “Investors Behaving Badly,” Financial Research Corporation, 2001. Ibbotson Associates, Inc. 2003. All right reserved. Used with permission.

Hypothetical growth of $10,000

$133,428

$80,400

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

$160,000

0 2 4 6 8 10 12 14 16 18 20 22 24Years

Buy-and-holdActively traded

Effect of bad timing

Portf

olio

Val

ue

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Remember the power of compounding

Get time working for you. Through the power ofcompounding, even small amounts contributetowards reaching your financial goals.

Pay yourself first with pre-authorizedchequing

Setting up a pre-authorized chequing plan (PAC)is like paying yourself a salary. This simpleinvestment strategy lets you purchase units inmutual funds on a monthly, bi-monthly, quar-terly, or semi-annual basis, in a pre-determinedamount. These regular “pay cheques” can be assmall as $50 per month and are easily arrangedthrough your advisor.

Use dollar cost averaging

Another advantage of making monthly contribu-tions is the opportunity to participate in dollarcost averaging. Simply stated, dollar cost averag-ing is the strategy of building your position in amutual fund over time by investing a certaindollar amount regularly, regardless of marketups and downs.

By buying units in mutual funds in fixed dollaramounts at regular intervals, you can greatlyreduce the effects of volatility. Thus, as prices ofsecurities rise, fewer units are bought, and asprices fall, more units are bought. Using the dol-lar cost average method, you are less likely topurchase too much of a particular security at atime when its price is relatively high.

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Maintain a long-term view

Chasing a hot market is dangerous

During the bull market of the 1990s, investorsbegan to experience and expect high returns.Fear of missing good returns replaced fear ofexperiencing bad ones. Many investors whoconstructed their portfolios for long-term goalsbegan to trade more often to try and join in onthe market momentum.

Note: This is for illustrative purposes only and is not indicative of any investment. Monthly redemption rateswere calculated by dividing redemptions by starting assets for long-term mutual funds (excluding moneymarket funds) and then annualizing the data. Aggregate fund industry data on redemptions and assets werecompiled by Financial Research Corporation. Each redemption rate is translated into an implied holdingperiod. For instance, a 100% redemption rate translates to a 1-year implied holding period, a 50% rateimplies a 2-year holding period, and so on. Mutual funds are investments involving risk and are available byprospectus only. Investment return and principal value will fluctuate so that upon redemption yourinvestment may be worth more or less than the original cost. An investor should read the prospectuscarefully before investing. Past performance is no guarantee of future results.

Source: “Investors Behaving Badly,” Financial Research Corporation, 2001. Ibbotson Associates, Inc. 2003.All right reserved. Used with permission.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Mar-96 Mar-97 Mar-98 Mar-99 Mar-000

5

10

15

20

25

30

35

40%Holding PeriodRedemption Rates

Hold

ing

Perio

d (Y

ears

)

Rede

mpt

ion

Rate

(Ann

ual %

)

Mutual fund redemption rates andholding periods in U.S. 1996-2000

As redemptionsincreased, holdingperiods declined

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Long-term planning requires short-termdiscipline

During the late 1990s, many investors aban-doned their financial plans in hopes of making aquick buck in the overheated markets. This ledto sudden changes in portfolio holdings andhigh redemption rates among mutual funds. For example, the average holding period forlong-term mutual funds dropped from 5.5 yearsin 1996 to 2.9 years in 2000, neither of whichare reasonably considered long-term.

*Although there is no comparable Canadian data onholding periods, previous studies on the impact offinancial advice and the increased use of advisors inCanada suggest that the experience in Canada hasbeen somewhat better than that in the US.

While investors may have thought they wereonto something big, even if they got lucky, thiskind of non-disciplined approach has the poten-tial to markedly reduce returns due to increasedtax liability and transaction costs. Even thoughmany investors believe that they are adhering toa buy-and-hold philosophy, it is clear that theyare falling short by a wide margin*. This trendleft many investors unable to deal with the bearmarket that soon followed in the early 2000s.

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Resist the temptation to chase short-term performance

If there were only one basic rule for successfulinvesting, it would be to “buy low and sell high”.While making sense to most investors, few peo-ple actually practice this simple adage.

A 2001 study prepared by Financial ResearchCorporation showed that between 1990 and1999, mutual funds attracted the most inflows atthe conclusion of the best performing quarters.Investors were, in essence, chasing returns.

Returns shouldn’t be the only factorconsidered

Keep a clear head when evaluating potentialmutual fund investments. Last year’s returnsshouldn’t be your only criterion. Other things toconsider include fund type, risk level, managerexperience, and compatibility with your assetallocation. While this might seem like a blur offactors to evaluate, a qualified financial advisorcan help you sort through the information avail-able and make informed decisions.

Note: This is for illustrative purposes only and is not indicative of any investment. Quarterly mutual fundreturns and subsequent net sales from 1990-1999 were compiled. The quarterly returns were sorted and thefour periods with the highest and lowest returns were extracted. Finally, the net sales for the quarterfollowing these highs and lows were compared. Mutual funds are investments involving risk and areavailable by prospectus only. Investment return and principal value will fluctuate so that upon redemptionyour investment may be worth more or less than the original cost. An investor should read the prospectuscarefully before investing. Past performance is no guarantee of future results.

Source: “Investors Behaving Badly,” Financial Research Corporation, 2001. Ibbotson Associates, Inc. 2003.All right reserved. Used with permission.

$6.5

$91.0

0.0

20.0

40.0

60.0

80.0

$100.0

Flows after best quarters

Flows after worst quarters

in billions

Fund flows after best and worstquarters 1990–1999

Investors tend toinvest in fundsafter they haveappreciated

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Seek professional advice

Emotions can hamper investment decisions

With the increased availability of financial infor-mation and the advent of Internet trading, someindividuals have become more comfortable withmaking their own investment decisions.However, investors’ reactions to short-term mar-ket events can also lead to excessive trading.

An advisor may provide necessary focus

The image here illustrates that those investorswho sought professional assistance when pur-chasing mutual funds consistently traded less. Inaddition, those without a financial advisor mayhave faced higher costs associated with exces-sive trading and taxes.

13.8%15.0%

17.5%19.6%

25.4%

18.0% 18.5%20.6%

22.0%

30.5%

0%

5%

10%

15%

20%

25%

30%

35%

1996 1997 1998 1999 2000

With AdvisorWithout Advisor

Annu

alize

d Tu

rnov

er

Note: This is for illustrative purposes only and is not indicative of any investment. Monthly redemption rateswere calculated by dividing redemptions by starting assets for long-term mutual funds (excluding moneymarket funds) and then annualizing the data. Aggregate fund industry data on redemptions and assets bydistribution channel were compiled by Financial Research Corporation. Mutual funds are investmentsinvolving risk and are available by prospectus only. Investment return and principal value will fluctuate so thatupon redemption your investment may be worth more or less than the original cost. An investor should readthe prospectus carefully before investing. Past performance is no guarantee of future results.

Source: “Investors Behaving Badly,” Financial Research Corporation, 2001. Ibbotson Associates, Inc. 2003. All right reserved. Used with permission.

Investors with advisors consistently traded less1996-2000

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Other questions & answers about mutual fund investing

Why do financial advisors and mutualfund companies still get paid when Ilose money?

It’s easy to see why investors sometimes ask thisquestion, but there are some important consid-erations behind the fees you pay to financialadvisors and mutual fund companies.

The fixed costs don’t change

Financial advisors and mutual fund companiesprovide the same services to investors in upmarkets as they do in down markets. And theyalso must meet many fixed cost obligations thatcome up monthly.

World events do change

Mutual fund managers and financial advisorsstrive to help your investment portfolio performwell. However, performance can be affected bymany factors including business and worldevents that are beyond the control of your advi-sor or mutual fund company.

For example, in 1973 and 1974, the Standard &Poor’s (S&P) 500 lost a total of 37% of its valueand declined for 24 consecutive months. Likeinvestors, financial advisors and mutual fundcompanies were hurt by the decline, but mostresolved to stay in business. The bear marketended and markets returned to their formerstrength.

Softer landings

Even in down markets when most investmentsare under performing, it’s important to remem-ber that mutual fund companies and investmentadvisors can help provide a softer landing foryour portfolio.

Historically, markets have always bounced back,but in the meantime, your advisor and fundcompany are providing you with the impetus tostay the course and avoid hasty decisions thatcould cause serious damage to your investmentportfolio.

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Think long-term

An advisor or fund manager may decide to sellor invest in a stock based on the best informa-tion available and sometimes, despite that per-son’s professional training and expertise,hindsight confirms it would have been best todo the opposite. For an advisor or mutual fundmanager, these situations are the toughest partof the job. If you’re wondering whether financialservices professionals should get paid when youlose money, look at any fund or investmentportfolio with a strong, long-term track record.You’ll see periods of underperformance, withfew exceptions. That’s why it’s important toassess long-term performance when evaluatinga fund manager or financial advisor.

Advisor and fund companyinterests are aligned withyours

Investors are not the onlyones to feel the negativeeffects of market downturns.Financial advisors and fundcompanies see their incomefall as the total value of theassets they manage declines.

For advisors, this is partlybecause they receive trailerfees that are based on a per-centage of the total value ofthe assets managed by theadvisor. As the value ofassets invested in the unitsor shares of the fund com-pany fall, the value of thetrailer fees paid to advisorsdeclines accordingly.

The same is true for fundcompanies. As assetsdecline, the company’s man-agement fee revenuedecreases.

It’s clearly in the best inter-ests of both advisors andfund companies to see theirinvestors’ portfolios perform.

What about index funds? I’ll savemoney on commissions and enjoysuperior returns… right?

An index fund is a mutual fund whose portfoliomirrors a specific index. For example, aCanadian equity index fund aims to hold thesame stocks as the S&P/TSX Composite Index –a Canadian equity index. Other types of indexfunds might aim to hold the same componentsas a bond index, a foreign market index, or asmall-capitalization stock index.

Investors typically choose index funds for twomain reasons: First, because they're under theimpression they will at least match the market'sperformance and second, because they find thelower fees attractive. While an index fund maybe less expensive to administer, they are notcost-free. The index fund will still charge fees. Inother words, the best an index fund investor canhope to do, in virtually all cases, is earn less thanthe index itself. (On page 34, we show you anexample of a typical actively managed fund out-performing its index.)

32 It’s important to remember that while managedfunds come with higher fees, they also comewith professional advice. This advice could helpinsulate your investments in volatile markets andincrease your portfolio’s value in strong ones.Your advisor also weighs your personal risk tol-erance, investment goals and investment hori-zon when recommending investments.

Actively managed funds tend to outperformindex funds when the markets go down. Why?In part, because active managers can shedunder performing or falling stocks before the sit-uation becomes worse.

33

Active management

Provide the potential to outperformthe marketTends to outperform in down marketsdue to manager’s ability to adjustfund holdingsAllows for risk management within aportfolioInvolves higher fees owing tomanager’s role in deciding whichstocks to own, which sectors tooverweight, when to take profits,when to buy and other services.

Passive management

Involves lower feesRequires no portfolio managerdecision makingAllows for no selection or riskmanagement. Portfolio simply mirrorsthe index.vs.

The Nortel story

During the summer of 2000, Nortel Networks, asuccessful Canadian company, representedmore than 30% of the total value of the TSE 300index. If you had held an index fund tied to theTSE 300 at that time, a significant portion of yourinvestment would have been tied to fortunes ofNortel. As Nortel’s value soared, your invest-ment in the index fund would have lookedgreat. But as the share price plummeted later,the managers of index funds holding Nortelcould not shed the stock, because it was stillincluded in the TSE 300 index due to the vastnumber of shares outstanding.

On the other hand, actively managed funds arenot allowed to invest more than 10% of theirassets in a single company, limiting investorexposure to sudden drops as experienced byNortel.

Thus while index funds are sometimes consid-ered to be safer investments than actively man-aged funds, in this instance, and many otherslike it, the opposite occurred.

Catch a rising star

As explained earlier, the managers of indexfunds can only buy certain securities (those inthe index their fund mirrors). While this meansthat the value of an index fund may never dipbelow the value of the market the fund mirrors,unfortunately, it also means the fund has nochance of ever doing any better for you, theinvestor.

On the other hand, using teams of researchers,analysts and years of experience and expertise,managers of actively managed funds can createvalue for you by investing your money in under-valued stocks, emerging markets and sectorsthat are poised for growth.

34

0

5,000

10,000

15,000

20,000

25,000

30,000

$35,000

Feb-

04

Feb-

03

Feb-

02

Feb-

01

Feb-

00

Feb-

99

Feb-

98

Feb-

97

Feb-

96

Feb-

95

Feb-

94

IndexFund Return

$24,991 Ivy Canadian9.6% return$24,294 S&P/TSX indexbenchmark return: 9.1%

Actively managed funds have the potentialto outperform the market. MERs help payfor that active management. If you invested$10,000 in Mackenzie Ivy Canadian Fund*on Feb 28, 1994, you would have enjoyed a9.6% net rate of return over the 10-yearperiod ended Feb 29, 2004. This exceedsthe 9.1% return achieved over the sameperiod by the Fund’s benchmark index, theS&P/TSX Composite Index.

Active management can outperform

*Please see the insert “How does Mackenziestack up?” for full performance data ofMackenzie Ivy Canadian Fund and otherMackenzie funds across different categoriesthat have exceeded their benchmark returnover the long term.

35

Mutual funds: still the best investment choicefor the average investor

In recent years, market volatility has hurt somemutual fund investors’ portfolios. This is disap-pointing, frustrating and stressful.

As hard as it is to accept adverse conditions anddown years, this was not the first time the mar-ket has dropped temporarily. And if history con-tinues to repeat itself, it won’t be the last.

Yet, despite challenging times — in fact, becauseof them — mutual funds remain arguably themost efficient and flexible option for investorswho want to participate in the rewards histori-cally enjoyed by long-term market investors.

Mutual Funds: The choice of most investors

**includes fund wraps, fee-based brokerage, advisor managed,inhouse managed wraps & separately managed wraps. Source: Investor Economics

Here is a look at the popularity ofother structured investment vehi-cles compared to mutual funds.Mutual fund investing remainsthe most popular investmentoption of the five.

Cana

dian

Ass

ets (

in b

illio

ns)

0

50

100

150

200

250

300

350

400

$450

Mutual funds

Fee-based programs**

Income trusts

Industry

Exchange traded funds

Hedge funds

(as of June, 2003)

36

The wide variety of mutual funds offered todaymeans that you and your financial advisor cancreate a portfolio that’s just right for you — whatever your income, investment goals or age.

Talk to your financial advisor about a plan thatincludes Mackenzie Mutual Funds. Becausebuilding financial independence doesn’t meanyou have to do it on your own.

Mackenzie Mutual Funds. Choose Wisely.

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MF3873 3/04

Choose Wisely.

About Mackenzie Financial Corporation

Mackenzie Financial Corporation is an investment management and financial services corporationfounded in 1967. Mackenzie’s core business is the management of mutual funds on behalf ofCanadian investors. The company manages approximately $40 billion for more than one millioninvestors through its family of mutual, segregated and pension funds. Mackenzie funds are soldthrough more than 40,000 independent financial advisors across Canada.

Visit www.mackenziefinancial.com for more information.