Ethical Funds Inc. et al. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- change of the manager of a mutual fund family -- new manager is a limited partnership and not an affiliate of the current manager -- no material impact to the securityholders -- exemption granted from the requirement to obtain prior securityholder approval for a change in the manager.

December 19, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, NUNAVUT AND YUKON

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ETHICAL FUNDS INC.

(EFI)

AND

IN THE MATTER OF

ETHICAL INCOME FUND

ETHICAL MONTHLY INCOME FUND

ETHICAL BALANCED FUND

ETHICAL CANADIAN DIVIDEND FUND

ETHICAL CANADIAN INDEX FUND

ETHICAL GROWTH FUND

ETHICAL SPECIAL EQUITY FUND

ETHICAL AMERICAN MULTI-STRATEGY FUND

ETHICAL GLOBAL EQUITY FUND

ETHICAL INTERNATIONAL EQUITY FUND

ETHICAL ADVANTAGE 2010 FUND

ETHICAL ADVANTAGE 2015 FUND

ETHICAL ADVANTAGE 2020 FUND

ETHICAL ADVANTAGE 2030 FUND

ETHICAL ADVANTAGE 2040 FUND

CREDENTIAL ENRICH INCOME POOL

CREDENTIAL ENRICH CANADIAN

EQUITY POOL

CREDENTIAL ENRICH US EQUITY POOL

CREDENTIAL ENRICH INTERNATIONAL

EQUITY POOL

CREDENTIAL MONEY MARKET FUND

CREDENTIAL SELECT

CONSERVATIVE PORTFOLIO

CREDENTIAL SELECT BALANCED PORTFOLIO

CREDENTIAL SELECT GROWTH PORTFOLIO

CREDENTIAL SELECT HIGH

GROWTH PORTFOLIO

EFI BALANCED GROWTH FUND

EFI CANADIAN STOCK FUND

(collectively, the Ethical Mutual Funds)

MRRS DECISION DOCUMENT

Background

1 The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from EFI, the manager of the Ethical Mutual Funds for a decision under the securities legislation of the Jurisdictions (the Legislation), exempting EFI from the requirement in Section 5.1(b) of National Instrument 81-102 Mutual Funds (NI 81-102) such that no approval of the securityholders of the Ethical Mutual Funds is required with respect to a transaction (the Transaction) involving the change of manager of the Ethical Mutual Funds from EFI to a limited partnership (the JVLP) 50% owned by the Credit Union Centrals of all provinces of Canada, except Québec and Newfoundland and Labrador (the Credit Union Centrals) and 50% owned by the Fédération des caisses Desjardins du Québec (Desjardins)(the Requested Relief).

2 Under the Mutual Reliance Review System (MRRS) for Exemptive Relief Applications:

(a) the British Columbia Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

3 Defined terms contained in NI 81-102 and National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

4 This decision is based on the following facts represented by EFI:

1. EFI is the trustee, manager and portfolio manager of the Ethical Mutual Funds. EFI's head office is located in Vancouver, British Columbia. EFI is owned by the Credit Union Centrals.

2. The Ethical Mutual Funds consist of the following groups of funds:

(a) the Ethical Funds (including the Ethical Advantage Funds, a fund-of fund product), which are offered by simplified prospectus in each of the Jurisdictions, and the EFI Funds, which are offered by simplified prospectus in British Columbia, Alberta, Manitoba and Ontario;

(b) the Credential Select Portfolios, which are offered by simplified prospectus in each of the Jurisdictions, except Québec, are asset allocation funds that invest in the Ethical Funds and third party funds; and

(c) the Credential EnRich Portfolios, which are offered by simplified prospectus in each of the Jurisdictions, except Québec, are pooled funds that offer strategic asset allocations for specific investor profiles.

3. Northwest Mutual Funds Inc. (NMFI) is the manager of the Northwest Mutual Funds. NMFI's head office is located in Toronto, Ontario. NMFI is a wholly-owned subsidiary of Northwest Asset Management Inc. (NAMI), the portfolio adviser of the Northwest Mutual Funds, which is a wholly-owned subsidiary of Desjardins.

4. The Northwest Mutual Funds currently consist of a family of open-ended mutual fund trusts and corporate open-ended funds, which are offered by simplified prospectus in each Jurisdiction.

5. The Credit Union Centrals and Desjardins want the Ethical Mutual Funds and the Northwest Mutual Funds to gain access to each other's distribution channel. The Credit Union Centrals and Desjardins would also like both families of funds to have the same manager, and to allow the securityholders of such funds to be able to switch between funds in both fund families on a cost free basis.

6. To accomplish this objective in a tax efficient manner, the Credit Union Centrals and Desjardins will establish a limited partnership, the JVLP, which will replace EFI and NMFI as the manager of the Ethical Mutual Funds and the Northwest Mutual Funds, respectively.

7. Following the Transaction, JVLP will be owned 50% by the Credit Union Centrals and 50% by Desjardins.

8. It is not expected that there will be any impact from the Transaction on the securityholders of Ethical Mutual Funds and Northwest Mutual Funds because both fund families will generally be managed in the same manner as they are managed today:

(a) the Ethical Mutual Funds and the Northwest Mutual Funds will each continue to be managed and operated as a separate distinct family of mutual funds and there is currently no intention to merge the two families of mutual funds;

(b) the senior management of the JVLP and its general partner will generally be comprised of the same individuals who are the senior management of EFI, NAMI and NMFI so the Ethical Mutual Funds and Northwest Mutual Funds will continue to be managed by the same senior personnel as they are currently managed today;

(c) the mid-management staff of the JVLP and its general partner will generally be comprised of the same individuals who are the mid-- management staff of EFI, NAMI and NMFI, and who currently provide management services to the Ethical Mutual Funds and the Northwest Mutual Funds; and

(d) investment advice to the Ethical Mutual Funds and the Northwest Mutual Funds will generally be given by the same individuals as who are providing such investment advice to the Ethical Mutual Funds and the Northwest Mutual Funds today and there is currently no intention to change the sub-advisors who provide advice to all of the Ethical Mutual Funds and to all of the Northwest Mutual Funds, except those mutual funds that use a fund of fund structure but even in the latter instance, there is currently no intention to make any significant changes to such personnel.

9. The JVLP will also become registered as an adviser in Ontario, and will replace EFI and NAMI as the adviser of the Ethical Mutual Funds and the adviser of the Northwest Mutual Funds, respectively.

10. The Transaction is expected to close on or about December 31, 2007.

11. Notice of the Transaction was mailed to the securityholders of the Ethical Mutual Funds and the securityholders of the Northwest Mutual Funds on or about October 15, 2007, at least 60 days in advance of the closing of the Transaction in accordance with the requirements of Section 5.8 of NI 81-102.

Decision

5 Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

6 The decision of the Decision Makers under the Legislation is that the Requested is granted.