Securities Law & Instruments


Relief granted to mutual fund from prohibition against purchasing a specified derivative the underlying interest of which is a physical commodity other than gold - Mutual fund wanting to invest in standardized futures with underlying interests in oil and natural gas as a hedge against related oil and gas investments - Relief granted provided purchase of standardized future is effected through the NYMEX, the standardized future is traded only for cash or an offsetting standardized future contract, and the standardized future is sold at least one day prior to the date on which delivery of the underlying commodity is due under the standardized future - National Instrument 81-102 Mutual Funds.

Statutes Cited

National Instrument 81-102 Mutual Funds, ss. 2.3(h), 19.1.

November 29, 2007







(the Filer)







The Ontario Securities Commission (the Commission) has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of Ontario (the Legislation) exempting the Fund from the prohibition in paragraph 2.3(h) of National Instrument 81-102 -- Mutual Funds (NI 81-102) to enable the Fund to invest in standardized futures (as such term is defined in Section 1.1 of NI 81-102) with underlying interests in sweet crude oil (oil) or natural gas (gas) (the Requested Relief) in order to hedge the risks associated with the Fund's portfolio investments in oil and gas securities (the Proposed Strategy).


Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.


1. The Filer is a corporation amalgamated under 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 in Ontario 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. The Filer's head office is in Toronto, Ontario.

2. The Filer is the Fund's portfolio advisor, and directly handles purchase and sale decisions for the Fund's portfolio.

3. The Fund is an open-end class of shares of a mutual fund corporation established under the laws of Ontario of which the Filer is the manager.

4. The securities of the Fund are qualified for distribution in Ontario only pursuant to a simplified prospectus and annual information form that has been prepared and filed in accordance with the securities legislation of Ontario. The Fund is, accordingly, a reporting issuer in Ontario.

5. The investment objectives and investment strategies of the Fund permit portfolio investments in oil and gas securities. In addition, the Filer may choose to use derivatives to hedge against losses from changes in the prices of a Fund's investments.

6. Of late, the price of oil has been on a trend higher to reach record highs, whereas the price of natural gas has been trending lower. Canadian prices for natural gas have lost approximately half their value since their highs of late 2005, when they plummeted from their hurricane-assisted highs because of weak demand and high storage levels in North America. In light of both these trends, the Filer has determined that it would be in the best interests of the Fund and its investors for the Fund's portfolio advisor to have the ability to implement an appropriate risk management strategy to protect the Fund from fluctuations in the prices of oil and gas.

7. The Filer has considered a number of alternative strategies for risk management with respect to the prices of oil and gas, and has determined that the Proposed Strategy, for which the Requested Relief is sought, is optimal from a number of perspectives including in respect of liquidity, cost and complexity.

8. The Proposed Strategy would enable the Funds to trade in standardized futures contracts on the New York Mercantile Exchange (the NYMEX), where the underlying interests are oil and gas, as a hedge against the prices of related securities held by the Fund.

9. Under the Requested Relief, the Fund's portfolio advisor proposes to trade in standardized futures contracts for cash or an offsetting contract to satisfy its obligations in a standardized futures contract.


The Director of the Commission is satisfied that the test contained in the Legislation that provides the Director with the jurisdiction to make the decision has been met.

The decision of the Director under the Legislation is that the Requested Relief is granted provided that:

(a) the purchases, uses and sales of standardized futures which have underlying interests in oil or gas are made in accordance with the provisions otherwise relating to the use of specified derivatives for hedging purposes in NI 81-102 and the related disclosure otherwise required in National Instrument 81-101 -- Mutual Fund Prospectus Disclosure and National Instrument 81-106 -- Investment Fund Continuous Disclosure;

(b) a standardized future contract will be traded only for cash or an offsetting standardized future contract to satisfy the obligations under the standardized future and will be sold at least one day prior to the date on which delivery of the underlying commodity is due under the standardized future;

(c) the purchase of a standardized future will be effected through the NYMEX;

(d) the Fund will not engage in the Proposed Strategy under this decision unless and until its portfolio advisor making purchase and sale decisions for the Fund's portfolio has been granted registration as a Commodity Trading Manager under the Commodity Futures Act (Ontario) or been granted an exemption from this registration requirement;

(e) the Fund will not purchase a standardized future if, immediately following the purchase, all the standardized futures contracts purchased and then held by a particular Fund relate to barrels of oil and/or British Thermal Units of gas representing an aggregate value that would exceed 75% of the total net assets of the Fund at that time;

(f) the Fund will keep proper books and records of all such purchases and sales; and

(g) the Fund will provide disclosure in its simplified prospectus of the Proposed Strategy, the risks associated with the Proposed Strategy and the exemptive relief granted under this decision prior to implementing the Proposed Strategy.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission