Mackenzie Financial Corporation and the Mutual Funds Listed in Schedule A

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to mutual funds subject to NI 81-102, to invest in standardized futures the underlying interest of which is oil or natural gas -- relief conditions include the condition that the purchase of a standardized future be effected through the NYMEX or ICE Europe, 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 -- individual limits on net asset value assigned on a per fund basis.

Applicable Legislative Provisions

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

October 3, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE JURISDICTION)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

MACKENZIE FINANCIAL CORPORATION

(THE FILER)

AND

IN THE MATTER OF

THE MUTUAL FUNDS LISTED

IN SCHEDULE A

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the mutual funds listed in Schedule "A" (the Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for:

(a) an exemption from the prohibition in paragraph 2.3(h) of National Instrument 81-102 Mutual Funds (NI 81-102) to enable each 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) in order to hedge the risks associated with each Fund's portfolio investments in oil and gas securities (the Requested Relief); and

(b) revocation of the Decision Documents granted by the principal regulator on November 29, 2007 and November 14, 2007 (the Existing Decisions) granted in favour of certain of the Funds (the Revocation Relief).

The Requested Relief and the Revocation Relief are collectively, the Exemption Sought.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (a passport application):

(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and

(b) the Filer 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 (the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation governed by the laws of Ontario and is registered as a portfolio manager and exempt market dealer in each Canadian jurisdiction, and has applied for registration in Ontario as an investment fund manager. The Filer is also registered in Ontario under the Commodity Futures Act (Ontario) in the category of commodity trading manager.

2. The Funds' portfolio manager is either the Filer or another portfolio manager registered under the Commodity Futures Act (Ontario) or subject to an exemption from that Act.

3. Each Fund is an open-end mutual fund trust or a class of shares of a mutual fund corporation established under the laws of Ontario and managed by the Filer. Each Fund is currently subject to NI 81-102 and is a reporting issuer in all of the provinces and territories of Canada.

4. Neither the Filer nor any Fund is in default of securities legislation in any of the Jurisdictions.

5. The investment objectives and investment strategies of each Fund permit portfolio investments in oil and gas securities. The reference to "oil and gas securities" contemplated by the Requested Relief refers to equity securities of oil and gas companies. In addition, the respective portfolio manager of each Fund may choose to use derivatives to hedge against losses from changes in the prices of the Fund's respective investments.

6. The Funds listed in Schedule A with proposed hedging limits of 75% of net assets are classified as "natural resource" funds and have investment objectives focused on investments primarily in equity securities of companies engaged in the energy and natural resource industries. The Funds listed in Schedule A with proposed hedging limits of 10% and 20% of net assets are not classified as resource funds, but have investment objectives generally focused on investments in global, Canadian or U.S. equity securities. The different hedging limits per Fund set out in Schedule A are reflective of each Fund's expected long position in oil and gas securities.

7. The Funds' portfolio managers have determined that it would be in the best interest of the Funds and their securityholders for the Funds' portfolio managers to have the ability to implement an appropriate risk management strategy to protect the Funds from fluctuations in the prices of oil and gas.

8. 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 a hedging strategy which enables each Fund to invest in standardized futures (as such term is defined in section 1.1 of NI 81-102) with underlying interests in oil or gas in order to hedge the risks associated with each Fund's portfolio investments in oil and gas securities (the Proposed Strategy), is optimal from a number of perspectives including in respect of liquidity, cost and complexity. Accordingly, the Filer seeks the Requested Relief to enable each Fund to engage in the Proposed Strategy.

9. The Proposed Strategy would enable the Funds to trade on the New York Mercantile Exchange (the NYMEX) and ICE Futures Europe (ICE Europe), where the underlying interests are oil and gas, as a hedge against the prices of related securities held by the Funds.

10. The Filer considers investments in oil and gas standardized futures traded on the NYMEX and ICE Europe to be a means of reducing the volatility that can result from the changing prices of securities of issuers in the oil and gas sector. The Filer proposes to trade standardized futures contracts for cash or an offsetting contract to satisfy the obligations in a standardized futures contract.

11. The Filer has ongoing compliance monitoring in place to ensure that each Fund's long positions in oil and gas securities match the Fund's hedge positions in oil and gas standardized futures.

12. The Filer believes that the oil and gas standardized futures markets on the ICE Europe and NYMEX are highly liquid.

13. The Filer has ongoing monitoring and compliance procedures in place to ensure that there is an appropriate correlation between movements in the price of oil and gas commodities and the share price of related oil and gas securities held within a Fund's portfolio, and that any hedging is carried out in accordance with the requirements of NI 81-102.

14. The Filer obtained relief similar to the Requested Relief in decision documents dated November 14, 2007 and November 29, 2007, respectively (the Previous Decisions). The Previous Decisions, however, excluded the Mackenzie Universal Canadian Shield Fund (now listed in Schedule A), included certain of the Funds under their prior names, and did not contemplate the ICE Europe as an exchange on which the Funds could pursue the Proposed Strategy.

15. The Filer has accordingly requested the Exemption Sought to revoke the Previous Decisions, to obtain a new decision which updates the list of Funds and percentage limits subject to the Requested Relief, and which includes the ICE Europe as an additional exchange on which the Funds may pursue the Proposed Strategy.

16. Upon obtaining the Exemption Sought, the Funds will not rely on the Previous Decisions.

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 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 futures 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 or ICE Europe;

d) a Fund will not purchase a standardized futures contract with underlying interests in oil or gas for hedging purposes if, immediately following the purchase, the aggregate of such investments would exceed or represent greater than the percentage of the total net assets of the particular Fund at that time, as set out below:

i. Mackenzie Universal Canadian Resource Fund: 75%;

ii. Mackenzie Universal Canadian Resource Class: 75%

iii. Mackenzie Universal World Resource Class: 75%

iv. Mackenzie Growth Fund: 20%

v. Mackenzie Sentinel Registered Strategic Income Fund (formerly Mackenzie Sentinel Registered Strategic Income Fund): 20%

vi. Mackenzie Universal U.S. Dividend Income Fund: 20%

vii. Mackenzie Universal North American Growth Class: 20%

viii. Mackenzie Universal Global Growth Class: 20%

ix. Mackenzie Universal Global Growth Fund: 20%

x. Mackenzie Saxon Explorer Class (formerly Mackenzie Maxxum Global Explorer Class): 20%

xi. Mackenzie Maxxum Dividend Class: 20%

xii. Mackenzie Maxxum Dividend Fund: 20%

xiii. Mackenzie Maxxum Dividend Growth Fund: 20%

xiv. Mackenzie Universal Canadian Value Class (formerly Mackenzie Maxxum Canadian Value Class): 20%

xv. Mackenzie Maxxum Monthly Income Fund: 20%

xvi. Symmetry Equity Class: 20%

xvii. Mackenzie Universal Canadian Shield Fund: 20%

xviii. Mackenzie Cundill Canadian Security Class: 10%

xix. Mackenzie Cundill Canadian Security Fund: 10%; and

xx. Mackenzie Cundill Canadian Balanced Fund: 10%.

e) Each Fund will keep proper books and records of all such purchases and sales concerning the Proposed Strategy; and

f) Each Fund will provide disclosure in its simplified prospectus of (i) the Proposed Strategy (ii) the risks associated with the Proposed Strategy and (iii) this exemptive relief prior to implementing the Proposed Strategy.

"Raymond Chan"
Manager, Investment Funds Branch
Ontario Securities Commission

 

SCHEDULE A

Mackenzie Universal Canadian Resource Fund: 75%;

Mackenzie Universal Canadian Resource Class: 75%

Mackenzie Universal World Resource Class: 75%

Mackenzie Growth Fund: 20%

Mackenzie Sentinel Registered Strategic Income Fund (formerly Mackenzie Sentinel Registered Strategic Income Fund): 20%

Mackenzie Universal U.S. Dividend Income Fund: 20%

Mackenzie Universal North American Growth Class: 20%

Mackenzie Universal Global Growth Class: 20%

Mackenzie Universal Global Growth Fund: 20%

Mackenzie Saxon Explorer Class (formerly Mackenzie Maxxum Global Explorer Class): 20%

Mackenzie Maxxum Dividend Class: 20%

Mackenzie Maxxum Dividend Fund: 20%

Mackenzie Maxxum Dividend Growth Fund: 20%

Mackenzie Universal Canadian Value Class (formerly Mackenzie Maxxum Canadian Value Class): 20%

Mackenzie Maxxum Monthly Income Fund: 20%

Symmetry Equity Class: 20%

Mackenzie Universal Canadian Shield Fund: 20%

Mackenzie Cundill Canadian Security Class: 10%

Mackenzie Cundill Canadian Security Fund: 10%; and

Mackenzie Cundill Canadian Balanced Fund: 10%.