Northwest & Ethical Investments L.P. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions fund merger approval under subsection 5.5(1)(b) of NI 81-102 -- fund merger does not meet all the pre-approval criteria because it is to be effected on a taxable basis and merging funds' investment objectives may not be considered substantially similar -- approval granted subject to investor approval.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.1(1)(f), 5.5(1)(b), 5.6(1), 5.7(1)(b) and 19.1(2).

September 9, 2021

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), NEI GROWTH & INCOME FUND (the Terminating Fund) AND NEI SELECT GROWTH & INCOME RS PORTFOLIO (the Continuing Fund, together with the Terminating Fund, the Funds)

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 (the Legislation) approving the proposed merger, as further described below, of the Terminating Fund into the Continuing Fund (the Proposed Merger) pursuant to clause 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval Sought).

Under National Policy 11-203 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 Fund and certain other mutual funds.

Tax Act means the Income Tax Act (Canada).

Representations

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

The Filer and the Funds

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

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

C. Each Fund 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 a simplified prospectus (SP) and annual information form (AIF) 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 Filer nor any Fund is in default of securities legislation in any Jurisdiction.

Reasons for the Approval Sought

G. The Proposed Merger does not meet all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 (the Pre-Approval Criteria) as:

(a) the Continuing Fund has investment objectives and strategies that are similar, but may not be considered substantially similar, to those of the Terminating Fund per the criteria in section 5.6(1)(a)(ii); and

(b) it will be implemented on a taxable basis and not as a "qualifying exchange" within the meaning of the Tax Act or otherwise as a tax-deferred transaction under the Tax Act per the criteria in section 5.6(1)(b).

H. Except as noted above, the Proposed Merger will otherwise comply with the Pre-Approval Criteria.

I. The Filer has determined that the Proposed Merger will not result in a material change to the Continuing Fund.

The Proposed Merger and Unitholder Disclosure

J. The Filer has received approval from the Board of Directors of the General Partner to proceed with the Proposed Merger.

K. The Filer has referred the Proposed Merger to the Independent Review Committee for the Funds (IRC) for review, and after reasonable inquiry, the IRC has determined that the Proposed Merger achieves a fair and reasonable result for the Terminating Fund and its unitholders.

L. A meeting of the unitholders of the Terminating Fund will be held on or about October 19, 2021 to vote on the Proposed Merger (the Meeting), with the Proposed Merger, if approved, being completed on or about November 19, 2021, or such later date as may be determined by the Filer (the Effective Date).

M. In light of the COVID-19 global pandemic and the current restrictions on public gatherings, unitholders will not be able to attend the Meeting physically. However, unitholders and duly appointed proxyholders will have an equal opportunity to participate, including vote, at the Meeting virtually as they would at a physical meeting.

N. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), a press release announcing the Proposed Merger was issued on August 5, 2021. A material change report with respect to the Proposed Merger was filed on SEDAR on August 5, 2021. Amendments to the Terminating Fund's SP, AIF and Fund Facts were filed on August 5, 2021.

O. The Filer has obtained an exemption from the requirement in paragraph 12.2(2)(a) of NI 81-106 (the Notice-and-Access Decision) that allows the Terminating Fund to make use of a notice-and-access process to provide to the unitholders of the Terminating Fund notice of, and access to, the Circular and proxy-related materials.

P. The notice prescribed by the Notice-and-Access Decision (the Notice-and-Access Document), the form of proxy and the Fund Facts relating to the relevant series of the Continuing Fund will be sent to unitholders of the Terminating Fund commencing on or about September 17, 2021. Additionally, the Notice-and-Access Document, form of proxy and Circular will be filed via SEDAR and posted on the Filer's website on or about September 17, 2021.

Q. The Circular will provide unitholders of the Terminating Fund with sufficient information to permit them to make an informed decision as to whether or not to approve the Merger. Among other things, the Circular describes:

(a) the similarities and differences between the Terminating Fund and the Continuing Fund, including in respect of investment objectives, risk rating, fund type and structure, registered plan eligibility, portfolio management responsibility, net asset value, fees and expenses, performance, and distribution policy;

(b) that the Filer currently expects approximately 80% of the Terminating Fund's portfolio securities to be liquidated prior to the Effective Date;

(c) the tax implications of the Proposed Merger;

(d) the determination of the IRC of the Funds in respect of the Proposed Merger;

(e) the various ways in which unitholders may obtain a copy of the SP, AIF and Fund Facts of the Funds and their most recent annual and interim financial statements and annual and interim management reports of fund performance;

(f) the steps for implementing the Proposed Merger and the potential benefits of the Proposed Mergers as summarized below;

(g) that a unitholder will receive the same series of units with the same applicable sales charges of the Continuing Fund as the unitholder holds in the Terminating Fund upon the completion of the Proposed Merger. Subject to the next sentences, units of the Continuing Fund acquired by unitholders upon the Proposed Merger are subject to the same redemption charges, if any, to which their units of the Terminating Fund were subject prior to the Proposed Merger. Unitholders of the Terminating Fund that will become unitholders of the Continuing Fund that purchased under the LL2 or LL3 purchase options will have their units converted into front-end load units of the Continuing Fund. This is because the LL2 and LL3 options do not exist for the Continuing Fund. As a result, such unitholders will not be subject to redemption charges should they redeem their Continuing Fund units, regardless of their originally applicable redemption schedule applicable to their initial purchase of Terminating Fund units;

(h) that following the Proposed Merger, pre-authorized contribution plans and automatic withdrawal plans administered by the Filer will be re-established unless the unitholder advises otherwise;

(i) that unitholders of the Terminating Fund who do not wish to own units of the Continuing Fund may instead redeem their units up to the close of business on the business day immediately prior to the Effective Date and that unitholders who redeem their units may be subject to redemption charges as outlined in the SP for the Terminating Fund;

(j) that, if the Proposed Merger is not approved, the Filer will consider alternative strategic options for the Terminating Fund including possible termination in accordance with applicable securities laws; and

(k) that there are no charges payable by unitholders who acquire units of the Continuing Fund as a result of the Proposed Merger and that the Filer will bear all of the expenses incurred with respect to the solicitation and to effect the Proposed Merger.

Implementation of Proposed Merger

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

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

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

(b) 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.

(c) 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 Continuing Fund, in exchange for units of the Continuing Fund.

(d) Step 4: Immediately following the above-noted transfer, the Terminating Fund will distribute to its unitholders the units of the 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 Continuing Fund.

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

T. Unitholders of the Terminating Fund will receive securities of the Continuing Fund with a value equal to the value of their securities of the Terminating Fund.

U. The Filer will pay for the costs of the Proposed Mergers. These costs consist mainly of brokerage charges associated with the Proposed Merger-related trades that occur both before and after the Effective Date and legal, proxy solicitation, printing, mailing and regulatory fees.

Taxable Merger

V. The Proposed Merger is proposed to proceed as a taxable merger as:

(a) implementing the Proposed Merger on a taxable basis will preserve any unused tax losses of the Continuing Fund, which would otherwise expire upon implementation of the Proposed 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;

(b) implementing the Proposed Merger on a taxable basis will ensure that pre-existing Continuing Fund unitholders do not inherit any tax liability on accrued but unrealized capital gains of Terminating Fund assets as can occur on a tax-deferred merger in certain circumstances;

(c) the Terminating Fund has or expects to have available capital gains refunds that should serve to reduce the aggregate potential net realized capital gains resulting from the Proposed Merger; and

(d) the Filer believes that a substantial majority of the units of the Terminating Fund are ultimately held in tax-deferred registered plans, which are not generally affected by the tax consequences of a transaction such as the Proposed Merger. Unitholders of the Terminating Fund will be provided with information about the tax consequences of the Proposed Merger in the Circular and will have the opportunity to consider such information prior to voting on the Proposed Merger.

Benefits of Proposed Merger

W. The Filer believes the Proposed Merger to be in the best interests of unitholders of the Terminating Fund for the following reasons:

(a) The Continuing Fund will have a larger net asset value following the Proposed Merger, allowing for greater portfolio diversification opportunities than the Terminating Fund and the Continuing Fund would enjoy separately and the potential for reduced average portfolio transaction costs and a smaller proportion of assets set aside for fund redemptions;

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

(c) the combined management and fixed administration fees with respect to the Continuing Fund will be the same as (and in certain cases may be lower than) the combined management fee and fixed administration fee that are currently payable by unitholders of the Terminating Fund; and

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

X. The Filer has determined that it would be in the best interests of the Funds and their investors and not prejudicial to the public interest to receive the Approval 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 Approval Sought is granted, provided that the Filer obtains the prior approval of the unitholders of the Terminating Fund for the Proposed Merger at a special meeting held for that purpose.

"Darren McKall"

Manager

Investment Funds & Structured Products Branch

Ontario Securities Commission

Application File #: 2021/0443

SEDAR Project # 3257663