Northwest & Ethical Investments L.P.

December 18, 2020

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval of investment fund mergers -- approval required because the mergers do not meet all the pre-approval criteria in National Instrument 81-102 Investment Funds -- mergers are not a "qualifying exchange" -- continuing funds and terminating funds do not have substantially similar investment objectives -- securityholders of the terminating funds provided timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 5.6(1), 5.7(1)(b) and 19.1(2).

December 18, 2020

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 or the Manager) AND IN THE MATTER OF THE FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) approving (the Approval Sought) the proposed mergers of the Terminating Funds (as defined below) with the Continuing Funds (as defined below) (the Proposed Mergers) pursuant to clause 5.5(1)(b) of National Instrument 81-102 -- Investment Funds (NI 81-102).

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

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision. The terms below have the following meanings:

Circular

means the joint management information circular of the Terminating Funds.

Continuing Funds

means each of NEI U.S. Equity RS Fund, NEI International Equity RS Fund, NEI Select Income RS Portfolio, NEI Select Income & Growth RS Portfolio, NEI Select Balanced RS Portfolio, NEI Select Growth & Income RS Portfolio, NEI Select Growth RS Portfolio, NEI Select Maximum Growth RS Portfolio, and NEI Balanced Yield Portfolio.

Fund or Funds

means the Terminating Funds and the Continuing Funds.

IRC

means the Independent Review Committee of the Funds.

NE

means Northwest & Ethical Investments L.P.

SEDAR

System for Electronic Document Analysis and Retrieval.

Tax Act

means the Income Tax Act (Canada).

Taxable Merger

means the proposed mergers of:

NEI Select Income Portfolio into NEI Select Income RS Portfolio;

NEI Select Income & Growth Portfolio into NEI Select Income & Growth RS Portfolio;

NEI Select Balanced Portfolio into NEI Select Balanced RS Portfolio;

NEI Select Growth & Income Portfolio into NEI Select Growth & Income RS Portfolio;

NEI Select Maximum Growth Portfolio into NEI Select Maximum Growth RS Portfolio;

and

NEI Tactical Yield Portfolio into NEI Balanced Yield Portfolio.

Tax-deferred Merger

means the proposed mergers of:

NEI U.S. Equity Fund into NEI U.S. Equity RS Fund;

NEI International Equity Fund into NEI International Equity RS Fund; and

NEI Select Growth Portfolio into NEI Select Growth RS Portfolio.

Terminating Funds

means each of NEI U.S. Equity Fund, NEI International Equity Fund, NEI Select Income Portfolio, NEI Select Income & Growth Portfolio, NEI Select Balanced Portfolio, NEI Select Growth & Income Portfolio, NEI Select Growth Portfolio, NEI Select Maximum Growth Portfolio, and NEI Tactical Yield Portfolio.

Representations

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

A. The Manager is an Ontario limited partnership. The general partner of the Manager is Northwest & Ethical Investments Inc., a corporation formed under the laws of Canada with its head office in Toronto, Ontario.

B. The Manager is the investment fund manager of the Funds and is registered as (i) a portfolio manager and commodity trading manager in Ontario, (ii) an exempt market dealer in British Columbia, Ontario, Quebec and Saskatchewan, and (iii) an investment fund manager in British Columbia, Newfoundland and Labrador, Ontario and Quebec.

C. Each of the Funds is a mutual fund trust established under the laws of British Columbia or Ontario and is a reporting issuer under the applicable securities legislation of each Jurisdiction.

D. The securities of each Fund are qualified for distribution in the Jurisdictions pursuant to simplified prospectuses and annual information forms prepared and filed in accordance with the securities legislation of the Jurisdictions.

E. Each Fund is subject to the requirements of NI 81-102 (to the extent varied by exemptive relief if and as applicable). The securities of each Fund are issuable and redeemable on any business day.

F. Neither the Manager nor any Fund is in default of securities legislation in any Jurisdiction.

G. In accordance with National Instrument 81-106 -- Investment Fund Continuous Disclosure (81-106), on December 15, 2020 a press release announcing the Proposed Mergers was issued, a material change report with respect to the Proposed Mergers was filed on SEDAR and Amendments to the Funds' simplified prospectus, annual information form and Fund Facts were filed on SEDAR.

H. The Manager has received approval from its Board of Directors to proceed with the Proposed Mergers.

I. Meetings of the unitholders of the Terminating Funds will be held on or about March 9, 2021 (the Meetings), with the Proposed Mergers, if approved, being completed on or about April 16, 2021 in respect of the NEI U.S. Equity Fund and NEI International Equity Fund and April 23, 2021 in respect of the remaining Terminating Funds, or such later date as may be determined by the Manager (the Effective Date).

J. Pursuant to a Notice-and-Access decision {1} (the Notice-and-Access Decision), the Filer has obtained an exemption from the requirement in paragraph 12.2(2)(a) of NI 81-106 to send an information circular and proxy-related materials to the securityholders of each Terminating Fund and instead allows each Terminating Fund to make use of a notice-and-access process.

K. The notice prescribed by the Notice-and-Access Decision (the Notice-and-Access Document), the form of proxy and the fund facts document(s) relating to the relevant series of the applicable Continuing Fund will be sent to securityholders of each Terminating Fund commencing on or about February 5, 2021. Additionally, the Notice-and-Access Document, form of proxy and information circular (the Meeting Materials) will be filed via SEDAR and posted on the Filer's website on or about February 5, 2021.

L. The Meeting Materials will provide securityholders of each Terminating Fund with sufficient information to permit them to make an informed decision as to whether or not to approve the Proposed Mergers, including a discussion regarding the tax implications of the Proposed Mergers and the potential benefits of the Proposed Mergers.

M. Unitholders of the Funds will continue to have the right to redeem units of the Funds up to the close of business on the business day immediately prior to the Effective Date.

N. The application was made in connection with the following Proposed Mergers:

TERMINATING FUND

CONTINUING FUND

NEI U.S. Equity Fund {*}

NEI U.S. Equity RS Fund {*}

NEI International Equity Fund {*}

NEI International Equity RS Fund {*}

NEI Select Income Portfolio

NEI Select Income RS Portfolio

NEI Select Income & Growth Portfolio

NEI Select Income & Growth RS Portfolio

NEI Select Balanced Portfolio

NEI Select Balanced RS Portfolio

NEI Select Growth & Income Portfolio

NEI Select Growth & Income RS Portfolio

NEI Select Growth Portfolio {*}

NEI Select Growth RS Portfolio {*}

NEI Select Maximum Growth Portfolio

NEI Select Maximum Growth RS Portfolio

NEI Tactical Yield Portfolio

NEI Balanced Yield Portfolio

{*} Tax-deferred Mergers

O. The Proposed Mergers do not meet the requirements in section 5.6(1) of NI 81-102 as:

(a) in the case of the Taxable Mergers they will not be implemented as "qualifying exchanges" within the meaning of the Tax Act or as tax-deferred transactions under the Tax Act; and

(b) each Continuing Fund has investment objectives and strategies that are similar, but not necessarily substantially similar in all respects, to the applicable Terminating Fund.

P. The Taxable Mergers are proposed to proceed as a taxable merger as:

(a) implementing the Taxable Mergers on a taxable basis will preserve any unused tax losses of a Continuing Fund, which would otherwise expire upon implementation of the Taxable Merger on a tax deferred basis and therefore would not be available to shelter income and capital gains realized by the Continuing Fund in future years; and

(b) the Terminating Funds have or expect to have available loss-carryforwards, capital gains refunds, and/or accrued but as of yet unrealized losses on certain portfolio holdings that should serve to reduce the aggregate potential net realized capital gains resulting from the Proposed Mergers.

Q. Unitholders of the Terminating Funds will be provided with information about the tax consequences of the Proposed Mergers in the Circular and will have the opportunity to consider such information prior to voting on the Proposed Mergers.

R. Except as noted above, the Proposed Mergers will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

S. The Manager has determined that the Proposed Mergers do not result in a material change for the Continuing Funds.

T. It is proposed that the following steps will be carried out to effect each Proposed Merger:

Step 1: Before the effective date of the Proposed Merger, certain of the securities in the portfolios of the Terminating Fund will be liquidated.

Step 2: The Terminating Fund will distribute to its unitholders sufficient amounts of its net income and net realized capital gains so that it will not be subject to tax under Part I of the Tax Act for its current taxation year.

Step 3: The Terminating Fund will transfer all of its assets, which will consist of cash and/or portfolio securities less an amount required to satisfy the liabilities of the Terminating Fund, to the applicable Continuing Fund, in exchange for units of the applicable Continuing Fund.

Step 4: Immediately following the above-noted transfer, the Terminating Fund will distribute to its unitholders the units of the applicable Continuing Fund so that following the distribution, the unitholders of the Terminating Fund will become direct holders of the applicable series of units of the applicable Continuing Fund.

Step 5: As soon as reasonably possible following the Merger, the Terminating Fund will be wound up.

U. The Manager believes the Proposed Mergers to be in the best interests of unitholders of the Terminating Funds for the following reasons:

(a) each Continuing Fund will have a larger net asset value following the Proposed Mergers, allowing for greater portfolio diversification opportunities, a potential for decreased amounts of assets dedicated to redemption, and a reduction in some shared transactional costs, than the Terminating Funds and Continuing Funds would enjoy separately;

(b) the Proposed Mergers will result in a more streamlined and simplified product line-up that is easier for investors to understand; and

(c) each Continuing Fund, as a result of its increased size, will benefit from a more significant profile in the marketplace.

V. No sales charges, redemption fees or other fees or commissions will be payable by unitholders in connection with the Proposed Mergers or with respect to any portfolio rebalancing in the Terminating Funds arising in connection with the Proposed Mergers. The costs and expenses specifically associated with the Proposed Mergers will be borne by the Manager.

W. Unitholders of a Terminating Fund will receive the same series of securities of the Continuing Fund as such unitholders hold in the Terminating Fund upon closing of the Proposed Merger.

X. The combined management and administrative fees for the relevant series of the applicable Continuing Fund are, or will as of the Effective Date be, in each case, the same as or lower than those of each Terminating Fund.

Y. The valuation procedures for the applicable Continuing Fund are the same as those of each Terminating Fund.

Z. Investors in the Terminating Funds will have the right to vote on the Proposed Mergers. Due to the redemption rights of unitholders, each unitholder ultimately can choose whether to remain in the Continuing Fund or not.

AA. Subsequent to the completion of the Proposed Mergers, the Terminating Funds will be wound up.

BB. Investors of each Terminating Fund are expected to benefit from the increased scale and operational efficiencies of the Continuing Fund, enjoying the same management fees.

CC. The Manager has referred the Proposed Mergers to the IRC for review, and after reasonable inquiry, the IRC has determined that the Proposed Mergers achieve a fair and reasonable result for the Terminating Funds and their unitholders. The results of the IRC's review of the Proposed Mergers will be referred to in the Circular.

TERMINATING FUND	CONTINUING FUND

NEI U.S. Equity Fund {*}	NEI U.S. Equity RS Fund {*}

NEI International Equity Fund {*}	NEI International Equity RS Fund {*}

NEI Select Income Portfolio	NEI Select Income RS Portfolio

NEI Select Income & Growth Portfolio	NEI Select Income & Growth RS Portfolio

NEI Select Balanced Portfolio	NEI Select Balanced RS Portfolio

NEI Select Growth & Income Portfolio	NEI Select Growth & Income RS Portfolio

NEI Select Growth Portfolio {*}	NEI Select Growth RS Portfolio {*}

NEI Select Maximum Growth Portfolio	NEI Select Maximum Growth RS Portfolio

NEI Tactical Yield Portfolio	NEI Balanced Yield Portfolio

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 Approval Sought is granted, provided that the Manager obtains the prior approval of the unitholders of the Terminating Funds for the Proposed Mergers at a special meeting held for that purpose.

"Darren McKall"

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission

{1} The Manager will be relying on the notice-and-access method pursuant to Re: Brandes Investment Partners & Co., 2016 CanLII 84805 (ON SEC).

Circular	means the joint management information circular of the Terminating Funds.

Continuing Funds	means each of NEI U.S. Equity RS Fund, NEI International Equity RS Fund, NEI Select Income RS Portfolio, NEI Select Income & Growth RS Portfolio, NEI Select Balanced RS Portfolio, NEI Select Growth & Income RS Portfolio, NEI Select Growth RS Portfolio, NEI Select Maximum Growth RS Portfolio, and NEI Balanced Yield Portfolio.

Fund or Funds	means the Terminating Funds and the Continuing Funds.

IRC	means the Independent Review Committee of the Funds.

NE	means Northwest & Ethical Investments L.P.

SEDAR	System for Electronic Document Analysis and Retrieval.

Tax Act	means the Income Tax Act (Canada).

Taxable Merger	means the proposed mergers of:
	NEI Select Income Portfolio into NEI Select Income RS Portfolio;
	NEI Select Income & Growth Portfolio into NEI Select Income & Growth RS Portfolio;
	NEI Select Balanced Portfolio into NEI Select Balanced RS Portfolio;
	NEI Select Growth & Income Portfolio into NEI Select Growth & Income RS Portfolio;
	NEI Select Maximum Growth Portfolio into NEI Select Maximum Growth RS Portfolio;
	and
	NEI Tactical Yield Portfolio into NEI Balanced Yield Portfolio.

Tax-deferred Merger	means the proposed mergers of:
	NEI U.S. Equity Fund into NEI U.S. Equity RS Fund;
	NEI International Equity Fund into NEI International Equity RS Fund; and
	NEI Select Growth Portfolio into NEI Select Growth RS Portfolio.

Terminating Funds	means each of NEI U.S. Equity Fund, NEI International Equity Fund, NEI Select Income Portfolio, NEI Select Income & Growth Portfolio, NEI Select Balanced Portfolio, NEI Select Growth & Income Portfolio, NEI Select Growth Portfolio, NEI Select Maximum Growth Portfolio, and NEI Tactical Yield Portfolio.