Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- two continuing funds have different investment objectives than terminating fund and one continuing fund have different fee structure than terminating fund, all mergers not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act, tailored document has been sent to securityholders instead of complete current prospectus and financial statements as been sent upon request by a securityholders of terminating funds provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds ss. 5.5(1)(b), 5.6.

March 16, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUEBEC AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FÉDÉRATION DES CAISSES

DESJARDINS DU QUÉBEC

(the Manager)

AND

DESJARDINS NORTHWEST SPECIALTY

GLOBAL HIGH YIELD BOND FUND,

DESJARDINS ENHANCED ALTERNATIVE

INVESTMENTS FUND,

DESJARDINS NORTHWEST

SPECIALTY EQUITY FUND AND

DESJARDINS FIDELITY TRUE NORTH® FUND

(each, a Terminating Fund and collectively,

the Terminating Funds,

and with the Manager, the Filers)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (Legislation) for approval under subsection 5.5(1)(b) of National instrument 81-102 Mutual Funds (NI 81-102) of the mergers (Mergers) of the Terminating Funds into the applicable Continuing Funds (defined below) (Approval Sought).

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

(a) the Autorité des marchés financiers is the principal regulator for this application;

(b) the Manager 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, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, the Yukon Territory and Nunavut Territory; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

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. The following additional terms shall have the following meanings:

Continuing Funds means Desjardins Alternative Investments Fund, Desjardins Canadian Small Cap Equity Fund and Desjardins Canadian Equity Fund;

Current Simplified Prospectus means the simplified prospectus dated January 15, 2009, as amended by amendments dated June 2, 2009 and January 13, 2010 and for which the Funds obtained an extension of their lapse date to March 8, 2010;

Fund or Funds means, individually or collectively, the Terminating Funds and the Continuing Funds;

IRC means the independent review committee for the Funds;

Materially Changed Continuing Fund means Desjardins Canadian Equity Fund;

NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds;

Offering Documents means the simplified prospectus and annual information form dated January 15, 2009, as amended by amendments dated June 2, 2009 and January 13, 2010 and for which the Funds obtained an extension of their lapse date to March 8, 2010; and

Tax Act means the Income Tax Act (Canada).

Representations

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

1. The manager is a corporation incorporated under the laws of the Province of Quebec, with its head office in Montreal, Quebec.

2. The Manager is the manager and the trustee of each of the Funds.

3. The Funds are open-ended mutual fund trusts established under the laws of Québec pursuant to a declaration of trust.

4. Securities of the Funds are currently qualified for sale in each province and territory of Canada under the Offering Documents.

5. Each of the Funds is a reporting issuer under applicable securities legislation of each province and territory of Canada. None of the Funds or the Manager are in default of securities legislation in any province or territory of Canada.

6. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established by the Decision Makers.

7. The net asset value of each class of the Funds is calculated on a daily basis in accordance with the valuation policy of the Funds as described in the Offering Documents.

8. The Manager intends to reorganize the Funds as follows:

(a) Desjardins Northwest Specialty Global high Yield Bond Fund will merge into Desjardins Alternative Investments Fund;

(b) Desjardins Enhanced Alternative Investments Fund will merge into Desjardins Alternative Investments Fund;

(c) Desjardins Northwest Specialty Equity Fund will merge into Desjardins Canadian Small Cap Equity Fund;

(d) Desjardins Fidelity True North® Fund will merge into Desjardins Canadian Equity Fund.

9. The Merger of Desjardins Fidelity True North® Fund into Desjardins Canadian Equity Fund will be a material change for the Continuing Fund, as the net asset value of the Continuing Fund is smaller than the net asset value of the Terminating Fund.

10. A press release announcing the proposed Mergers was issued and filed on January 13, 2010 and amendments to the Offering Documents of the Funds and a material change report with respect to the proposed Mergers were filed via SEDAR also on January 13, 2010.

11. As required by securities regulation, the Manager presented the conflict of interest matters inherent to the proposed Mergers to the IRC. In the context of its mandate and of NI 81-107, the IRC issued a favourable recommendation with respect to the proposed Mergers. Specifically, the IRC has advised the Filers that, after reasonable inquiry, it has concluded that the Mergers do not create any conflict of interest issues that have not been adequately addressed and, on that basis, achieve a fair and reasonable result for the Funds.

12. The portfolios and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund arising from the Mergers are currently, or will be, acceptable, on or prior to the effective date of the Mergers, to the portfolio advisors of the applicable Continuing Fund and are or will be consistent with the investment objectives of the applicable Continuing Fund.

13. None of the Continuing Funds will assume the liabilities of the applicable Terminating Funds. Each Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the date of the Mergers.

14. Securityholders of each Terminating Fund will receive, on a dollar-for-dollar basis, and class-by-class basis, securities of the applicable Continuing Fund as they currently own in the Terminating Fund.

15. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of an applicable Terminating Fund.

16. Each Terminating Fund will merge into the applicable Continuing Fund on or about the close of business on May 7, 2010. Each Terminating Fund will be wound up as soon as reasonably possible following the Mergers and the Continuing Funds will continue as publicly offered open-end mutual funds.

17. Securityholders of a Terminating Fund will continue to have the right to redeem securities of the Terminating Fund for cash at any time up to the close of business on the business day immediately preceding the effective date of the Mergers.

18. A notice of meeting, a management information circular and a proxy in connection with meetings of securityholders (collectively, the Meeting Materials), describing the proposed Mergers and the IRC's recommendation under paragraph 11 above, was mailed to securityholders of the Terminating Funds and securityholders of the Materially Changed Continuing Fund, not later than February 15, 2010 and filed via SEDAR on February 15, 2010.

19. Securityholders of the Terminating Funds and of the Materially Changed Continuing Fund have approved the Mergers at meetings held on March 9, 2010.

20. The Manager will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.

21. Approval of the Mergers is required because each Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

(a) in each of the following Mergers, the Continuing Funds do not have substantially similar investment objectives to the relevant Terminating Fund:

(i) the Merger of Desjardins Northwest Specialty Global high Yield Bond Fund into Desjardins Alternative Investments Fund; and

(ii) the Merger of Desjardins Enhanced Alternative Investments Fund into Desjardins Alternative Investments Fund.

(b) In the following Merger, the Continuing Fund and the Terminating Fund do not have substantially similar fee structures:

(i) the Merger of Desjardins Northwest Specialty Global high Yield Bond Fund into Desjardins Alternative Investments Fund.

(c) each of the Mergers will not be a "qualifying exchange" within the meaning of section 132.2 of the Tax Act or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act;

(d) the Current Simplified Prospectus was not sent to securityholders of the Terminating Funds but, instead, the Manager sent such securityholders an excerpt of the Current Simplified Prospectus consisting of Part A and Part B for the relevant Continuing Fund; and

(e) the most recent annual and interim financial statements for the Continuing Funds were not sent to the securityholders of the Terminating Funds but, instead, the Manager prominently disclosed in the information circular sent to securityholders of the Terminating Funds that they can obtain the most recent interim and annual financial statements of the Continuing Funds by accessing the SEDAR website at www.sedar.com, by accessing the Manager's website or by calling a toll-free number.

22. The Manager will, except as noted above in paragraph 21, comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

23. The tax implications of the Mergers as well as the foregoing differences between the investment objectives and fee structures of the Terminating Funds and the Continuing Funds are described in the Meeting Materials so that the securityholders of the Terminating Funds may consider this information before voting on the Mergers. The Meeting Materials also described that: (a) the mergers involving the Continuing Fund Desjardins Alternative Investments Fund would not proceed unless the securityholders of such Fund approve a change to its investment objectives; (b) the various ways in which investors can obtain a copy of the annual information forms and the management reports of fund performance for the Continuing Funds.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Approval Sought is granted provided that:

(a) the information circular sent to securityholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;

(b) the information circular sent to securityholders in connection with a Merger prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by accessing the SEDAR website at www.sedar.com, by accessing the Manager's website or by calling the Manager's toll-free telephone number;

(c) upon request by a securityholder for financial statements, the Manager will make best efforts to provide the securityholder with financial statements of the applicable Continuing Fund in a timely manner so that the securityholder can make an informed decision regarding a Merger;

(d) each applicable Terminating Fund and the applicable Continuing Fund with respect to a Merger have an unqualified audit report in respect of their last completed financial period; and

(e) the material sent to securityholders of the Terminating Funds in respect of each Merger includes a tailored simplified prospectus consisting of:

(i) the Part A of the Current Simplified Prospectus; and

(ii) the Part B of the Current Simplified Prospectus of the applicable Continuing Fund.

Josée Deslauriers
Director
Investment Funds and Continuous Disclosure