Northwest & Ethical Investments L.P. and the Corporate Classes

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to permit corporate class funds to invest in underlying fund of funds -- Relief needed to facilitate creation of corporate class funds that seek to replicate performance of existing mutual fund trusts that invest in other funds -- Each corporate class to invest in one trust fund -- Investment objectives of corporate class will state the name of trust fund that it invests in -- fund of fund investing by corporate classes and trust funds will otherwise comply with section 2.5 of National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(b), 19.1.

July 29, 2014

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 NORTHWEST & ETHICAL INVESTMENTS L.P. (the Filer) AND IN THE MATTER OF THE CORPORATE CLASSES (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Corporate Classes for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Corporate Classes from paragraph 2.5(2)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) to permit each Corporate Class to purchase or hold securities of a Trust Fund (as defined below), which Trust Fund will hold more than 10% of its net asset value in, amongst other things, securities of one or more Underlying Funds (as defined below) (the Exemption Sought).

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

(a) the Ontario Securities Commission 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 each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless otherwise defined. The following additional terms shall have the following meanings:

Corporate Classes means the Existing Corporate Classes and any other future mutual funds managed by the Filer that will each be a class of a mutual fund corporation.

NI 81-101 means National Instrument 81-101 Mutual Fund Prospectus Disclosure.

Existing Corporate Classes means each of NEI Northwest Growth and Income Corporate Class, NEI Select Balanced Corporate Class Portfolio, NEI Select Conservative Corporate Class Portfolio, NEI Select Global Maximum Growth Corporate Class Portfolio, NEI Select Growth Corporate Class Portfolio.

Trust Funds means the existing and future mutual fund trusts managed by the Filer in which a Corporate Class may invest pursuant to the Exemption Sought.

Underlying Fund means each mutual fund in which a Trust Fund may invest from time to time in accordance with NI 81-102.

Representations

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

1. The Filer is a limited partnership established by the filing of a Declaration of Limited Partnership under the Limited Partnerships Act (Ontario) on September 28, 2007 with its head office in Toronto, Ontario.

2. The Filer is registered as an investment fund manager in British Columbia, Newfoundland and Labrador, Ontario and Quebec.

3. The Filer acts, or will act, as manager of each Corporate Class and each Trust Fund.

4. The Underlying Funds may be managed by the Filer, its affiliates and/or other investment fund managers unrelated to the Filer.

5. None of the Filer, the Existing Corporate Classes or the existing Trust Funds are in default of securities legislation in any of the Jurisdictions.

6. Each Existing Corporate Class is a class of a mutual fund corporation established under the laws of the Province of Ontario and each future Corporate Class will be a class of a mutual fund corporation established under the laws of one of the Jurisdictions or of Canada. Each Existing Corporate Class is a reporting issuer under the laws of each Jurisdiction subject to NI 81-102, and each future Corporate Class will be a reporting issuer under the laws of one or more Jurisdictions subject to NI 81-102, subject to any relief therefrom granted by applicable securities regulatory authorities.

7. Each Trust Fund is an open-end mutual fund trust established under the laws of the Province of Ontario, or will be an open-end mutual fund trust established under the laws of one of the Jurisdictions, and is a reporting issuer under the laws of each Jurisdiction subject to NI 81-102, or will be a reporting issuer under the laws of one or more Jurisdictions subject to NI 81-102, subject to any relief therefrom granted by applicable securities regulatory authorities.

8. The securities of each Corporate Class are distributed, or will be qualified for distribution, pursuant to a simplified prospectus, annual information form and Fund Facts that is, or will be, prepared and filed in accordance with NI 81-101. The securities of each Existing Corporate Class are distributed pursuant to a simplified prospectus, annual information form and Fund Facts dated June 26, 2014 (the Final Prospectus).

9. The securities of each Trust Fund have been offered, are offered, or will be offered under a simplified prospectus, annual information form and Fund Facts in accordance with NI 81-101. The securities of each existing Trust Fund are distributed under the Final Prospectus.

10. Each Corporate Class is intended to provide investors a version of a Trust Fund but with the flexibility to switch to another mutual fund that is a class of the same mutual fund corporation on a tax-deferred basis.

11. Each Trust Fund is or will be a fund-of-funds that invests or will invest in one or more Underlying Funds and may also invest directly in cash, bonds or other debt securities, fixed income securities, other income-producing securities and/or equity securities.

12. An investment by a Trust Fund in securities of the Underlying Funds is and will be made in accordance with the provisions of section 2.5 of NI 81-102 (or pursuant to an exemption therefrom), including the prohibition that no Underlying Fund will hold more than 10% of its net asset value in securities of other mutual funds unless otherwise permitted by NI 81-102.

13. Currently, each Existing Corporate Class is a fund-of-funds that invests in a portfolio substantially similar to the portfolio of the applicable Trust Fund, which includes one or more Underlying Funds, and may also invest directly in cash, bonds or other debt securities, fixed income securities, other income-producing securities and/or equity securities.

14. Through the Exemption Sought, each Existing Corporate Class seeks, and each future Corporate Class will seek, to achieve its investment objective by investing all or substantially all of its assets in units of the applicable Trust Fund. It may also invest directly in securities of the Underlying Funds and/or mutual funds similar to the Underlying Funds, based on similar weighting to that used by the Trust Fund.

15. The Filer has confirmed that the underlying portfolio exposure of the Existing Corporate Classes following the implementation of the Exemption Sought will be substantially similar to the current portfolio exposure of the Existing Corporate Classes.

16. The Filer has determined that, generally, it would be more efficient and less costly for each Corporate Class if the Corporate Class achieves its investment objectives by investing all, or substantially all, of its assets in units of the applicable Trust Fund, instead of investing directly in the same securities and in the same proportions in which the Trust Fund invests. However, the Filer has determined that under certain circumstances, it may be beneficial for a Corporate Class to invest directly in the applicable Underlying Funds and/or other mutual funds similar to those Underlying Funds based on a similar weighting to that of the Trust Fund.

17. An investment by a Corporate Class in units of its applicable Trust Fund will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirements in section 2.5(2)(b) of NI 81-102, as a Corporate Class' investment in units of its applicable Trust Fund would result in a multi-tier fund structure with respect to the Trust Fund's investment in one or more Underlying Funds.

18. The simplified prospectus of each Corporate Class will disclose (i) in the investment objective, the name of the applicable Trust Fund that the Corporate Class will invest in and (ii) in the investment strategies, the investment strategies of the Trust Fund. Accordingly, the simplified prospectus of each Corporate Class will disclose that the accountability for portfolio management is at the level of the Trust Fund with respect to the selection of Underlying Funds and any other securities.

19. The simplified prospectus of each Corporate Class and each Trust Fund discloses or will disclose that fees and expenses will not be duplicated as a result of investments in other mutual funds.

20. The Exemption Sought, which will result in a Corporate Class investing directly or indirectly in its Trust Fund, which in turn invests in one or more Underlying Funds, is akin to, and no more complex than, the three-tier structure currently permitted under section 2.5(4)(a) of NI 81-102.

21. Each Corporate Class will comply with the requirements under National Instrument 81-106 Investment Fund Continuous Disclosure relating to top 25 positions portfolio holdings disclosure in its management reports of fund performance and the requirements in Form 81-101F3 Contents of Fund Facts Document relating to top 10 positions portfolio holdings disclosure in its Fund Facts as if the Corporate Class were investing directly in the portfolio of the Trust Fund.

22. An investment by a Corporate Class in its applicable Trust Fund and by a Trust Fund in the applicable Underlying Funds represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Corporate Class and of the Trust Fund, respectively.

23. The Filer has determined that it would be in the best interests of the Corporate Classes and not prejudicial to the public interest to receive the Exemption Sought.

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 proposed investment of each Corporate Class in a Trust Fund is otherwise made in compliance with all other requirements of section 2.5 of NI 81-102, and

(b) the investment objectives of each Corporate Class as stated in the simplified prospectus, states the name of the Trust Fund in which the Corporate Class invests.

"Vera Nunes"
Manager, Investment Funds and Structure Products
Ontario Securities Commission