Securities Law & Instruments


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 re-organizations and transfers in National Instrument 81-102 -- mergers have different investment objectives -- mergers not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- mergers involve different fee structures -- 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(1), 5.7(1)(b), 19.1.

June 24, 2011

(the "Jurisdiction")
(the Filer)
LISTED IN SCHEDULE "A" (collectively, the Funds)


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) granting approval under section 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) to merge each Terminating Fund into the Continuing Fund opposite its name in the chart attached as Schedule A (the Proposed Mergers) (the Merger Approvals).

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 to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.


Defined terms contained in National Instrument 14-101 -- Definitions and in MI 11-102 have the same meaning if used in this decision unless otherwise defined.


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

The Filer

1. The Filer is a limited partnership existing under the laws of Ontario with its head office located in Toronto, Ontario and is the manager of the Funds; the Filer is registered in the category of portfolio manager in Ontario and British Columbia and has applied for registration as an investment fund manager in Ontario.

2. The Filer is not in default of securities legislation in any of the provinces and territories of Canada.

The Funds

3. Each of the Funds is an open-end mutual fund trust existing under the laws of Ontario.

4. Securities of the Funds are qualified for sale as follows:

(a) The Continuing Funds are qualified for sale in all provinces and territories of Canada pursuant to an amended and restated simplified prospectus dated August 23, 2010, amending and restating the simplified prospectus dated June 28, 2010; and

(b) The Terminating Funds are qualified for sale in all provinces and territories of Canada, other than Quebec, pursuant to a simplified prospectus dated June 28, 2010.

5. The Funds are reporting issuers under applicable Canadian securities legislation and subject to the requirements of NI 81-102. The Funds are not on the list of defaulting reporting issuers maintained under applicable Canadian securities legislation or in default of applicable Canadian securities legislation in any jurisdiction.

6. Each Fund follows the standard investment restrictions and practices established under applicable Canadian securities legislation except to the extent that it has received permission from the Canadian Securities Administrators to deviate therefrom.

7. The net asset value (NAV) for each of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for business. As at April 29, 2011, the NAV of the Funds was as set out in Schedule A.

The Proposed Mergers

8. The Board of Directors of the general partner of the Filer approved the Proposed Mergers on April 15, 2011; the Proposed Mergers were described in a press release dated and filed on SEDAR on April 18, 2011 and a material change report filed on SEDAR on April 21, 2011.

9. Upon announcement of the Proposed Mergers, purchase of, and transfers to, units of the Terminating Funds were suspended at the close of business on April 19, 2011, except for purchases made through pre-approved automatic purchase plans.

10. The Filer proposes to effect the Proposed Mergers, subject to and after obtaining all necessary approvals, on or about June 27, 2011 (the Effective Date) after which the Continuing Funds will continue as publicly offered open-end mutual funds.

11. The Filer believes the Proposed Mergers will be beneficial to securityholders of each Fund for the following reasons:

(a) Securityholders of the applicable Terminating Fund and Continuing Fund may enjoy increased economies of scale and lower operating expenses as part of a larger combined Continuing Fund;

(b) Each Continuing Fund will have a portfolio of greater value allowing for increased portfolio diversification opportunities than within the applicable Terminating Fund; and

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

12. The Independent Review Committee for the Funds (the IRC) has advised the Filer that, after reasonable inquiry, it has concluded that the Proposed Mergers do not create any conflict issues that have not been adequately addressed and, on that basis, achieve a fair and reasonable result for the Funds (the IRC's Recommendation).

13. If approved by investors each Proposed Merger will result in Class A and Class B unitholders in each Terminating Fund ceasing to be holders of units of a class of the Terminating Fund and becoming Series A unitholders of the applicable Continuing Fund.

14. A notice of meeting, management information circular (the Circular) and a form of proxy were mailed to investors of the Terminating Funds and filed on SEDAR on or about June 1, 2011 in connection with the securityholder meetings. The materials mailed to investors also included a copy of a tailored prospectus containing the current Part A and current Part B of the simplified prospectus for the relevant Continuing Fund.

15. The Circular sets out:

(a) The Proposed Mergers, including the procedures for implementing them and the consequences of the Proposed Mergers, including their fees consequences and their tax consequences for the Terminating Funds and for investors in the Terminating Funds;

(b) That as the holders of Class A units and Class B units of a Terminating Fund are impacted differently by the Proposed Mergers because they have different fees and expenses, they will be asked to approve the mergers on a class basis. In the event the Proposed Merger of a Terminating Fund into a Continuing Fund is not approved by either the Class A or the Class B unitholders of a Terminating Fund, the merger will proceed to be implemented only with the unitholders of the class of units which approved the merger. The remaining unitholders will remain as unitholders of the Terminating Fund and such Fund will be terminated. In the event that both Class A and Class B unitholders do not approve the mergers, both Class A and Class B unitholders will remain unitholders of the Terminating Fund and such Terminating Fund will be terminated;

(c) The similarities and differences, including the differences in fundamental investment objectives, between the Terminating Funds and the Continuing Funds;

(d) The various ways in which investors can obtain a copy of the full simplified prospectus, annual information form, financial statements and the management report of fund performance of the Continuing Funds. The Filer intends to rely on the exemptive relief decision dated October 22, 2009 previously granted to the Filer which permits the Filer to deliver to investors a tailored simplified prospectus and to deliver the financial statements and management report of fund performance to investors only on request; and

(e) The IRC's Recommendation.

16. The Circular provides sufficient information about the Proposed Mergers to permit investors to make an informed decision about the Proposed Mergers.

17. The Filer is conducting the Proposed Mergers on a taxable basis as the Filer has determined that proceeding with the Proposed Mergers on a taxable basis will enable the Continuing Funds to retain their respective tax losses. As investors in the Terminating Funds will become investors in the Continuing Funds if the Proposed Mergers are approved, this preserves a tax benefit for all investors by reducing the tax liability of any gains from an investment in the Continuing Funds. In addition, each Terminating Fund is expected to have sufficient loss carryforwards to shelter any net realized capital gains resulting from the liquidation of portfolio assets and the disposition of portfolio assets to the applicable Continuing Fund.

18. The cost of effecting the Proposed Mergers (consisting primarily of legal, proxy solicitation, brokerage fees, printing, mailing and regulatory fees) will be borne by the Filer.

19. Investors in the Terminating Funds will continue to have the right to redeem securities of the Terminating Funds until the close of business on the business day before the Effective Date; unitholders who purchased their units of the Terminating Funds pursuant to a deferred sales charge option (the DSC units) and who elect to redeem their DSC units in the Terminating Funds prior to the Effective Date will be required to pay any applicable deferred sales charges when they redeem their DSC units.

20. No sales charges will be payable in connection with the purchase by the Terminating Funds of securities of the Continuing Funds.

21. Following the Proposed Mergers, the Terminating Funds will be wound up as soon as reasonably practicable.

22. The Merger Approvals are required because the Proposed Mergers do not satisfy all of the criteria for pre-approved mergers set out in section 5.6 of NI 81-102, specifically:

(a) A reasonable person would not consider that the Continuing Funds and Terminating Funds have substantially similar fundamental investment objectives;

(b) The Proposed Mergers will not be structured as "qualifying exchanges" or as tax deferred transactions under the Income Tax Act; and

(c) A reasonable person would not consider that the Continuing Funds and Terminating Funds have substantially similar fee structures, specifically:

• each of the Continuing Funds pays the Filer a fixed administration fee whereas currently, each Terminating Fund pays all of its operating expenses (legal, audit, transfer agent, custodial services, costs of financial reporting, prospectus and regulatory filing fees, taxes including HST, brokerage fees as well as costs associated with the IRC). Additionally, the Filer has, in some years, waived or absorbed a portion of each of the Terminating Funds operating expenses, with the result that each Terminating Funds' management expense ratio is variable and uncertain compared with those of the Continuing Funds; and

• unitholders of each Terminating Fund will become Series A unitholders of the applicable Continuing Fund. Class B unitholders of the Terminating Funds pay a management fee that is negotiated between the Filer and each Class B unitholder, whereas Series A unitholders of the Continuing Funds pay a fixed management fee out of the assets of the Continuing Fund.

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


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 Merger Approval is granted.

"Darren McKall"
Manager, Investment Funds Branch
Ontario Securities Commission



Terminating Funds and Continuing Funds and NAVs as at April 29, 2011


Terminating Fund

Continuing Fund



Credential EnRich Canadian Equity Pool -- $19,920,646

Ethical Canadian Dividend Fund -- $333,942,652



Credential EnRich US Equity Pool -- $14,536,146

Ethical American Multi-Strategy Fund -- $69,481,585



Credential EnRich International Equity Pool -- $14,995,789

Northwest EAFE Fund -- $66,660,980