Northwest & Ethical Investments L.P. and NEI Northwest Tactical Yield Corporate Class

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from multi-layering prohibition in paragraph 2.5(2)(b) of NI 81-102 to permit a mutual fund to invest in a fund that invests more than 10% of its net asset value in other funds -- The three-tier fund structure is analogous to the current multi-layering exception in NI 81-102 -- Relief from the requirement to obtain the approval of securityholders before changing the fundamental investment objectives of a mutual fund -- Relief required as a result of changes to federal budget eliminating certain tax benefits associated with character conversion transactions -- Required to send written notice at least 60 days before the effective date of the change to the investment objectives of the fund setting out the change (including the shift to a fund of fund three tier structure), the reasons for such change, a statement that the fund will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(b), 5.1(c), 19.1.

July 18, 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 NEI NORTHWEST TACTICAL YIELD CORPORATE CLASS (the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Fund from:

(i) the requirement in National Instrument 81-102 Mutual Funds (NI 81-102) to obtain the approval of securityholders before changing the fundamental investment objective of the Fund (the Investment Objective Change Exemption);

(ii) section 2.5(2)(b) of NI 81-102 to permit the Fund to purchase or hold securities of the 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 Third Tier Funds (as defined below) (the Three-Tier Investing Exemption),

(together, the Exemptions 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:

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

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

Trust Fund means NEI Northwest Tactical Yield Fund.

Representations

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

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, and as a portfolio manager in Ontario.

3. The Filer acts as manager of the Fund and the Trust Fund.

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

5. The Filer is the portfolio manager of the Trust Fund and Aviva Investors Americas, LLC is the sub-advisor of the Trust Fund.

6. The Filer is not in default of securities legislation in any of the Jurisdictions.

The Fund, the Trust Fund and the Third Tier Funds

7. The Fund is a class of Northwest Corporate Class Ltd., a mutual fund corporation established under the laws of the Province of Ontario, and is a reporting issuer under the laws of each Jurisdiction subject to NI 81-102.

8. The Trust Fund is an open-end mutual fund trust established under the laws of the Province of Ontario, and is a reporting issuer under the laws of each Jurisdiction subject to NI 81-102.

9. Each Third Tier Fund is or will be either an open-end mutual fund trust that has or will be created under the laws of one or more Jurisdictions or a class of a mutual fund corporation, and is or will be a reporting issuer under the laws of each Jurisdiction subject to NI 81-102, subject to any relief therefrom granted by applicable securities regulatory authorities.

10. The securities of the Fund, the Trust Fund and each Third Tier Fund are 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 the Fund and the Trust Fund are qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts dated June 26, 2014 (SEDAR project number 02207619) (the Final Prospectus). The Trust Fund offers series A, T, F, I P and PF units under the Final Prospectus. The Fund offers series A, F, and T shares under the Final Prospectus.

11. A material change report and press release will be filed announcing the amendment to the Fund's investment objectives pursuant to the Exemptions Sought.

12. Neither the Fund nor the Trust Fund is in default of securities legislation in any of the Jurisdictions. However, under its current investment objectives and strategies, when the Fund entered into Character Conversion Transactions from November 16, 2011 to March 25, 2014, the Fund inadvertently invested using a three-tier structure, contrary to section 2.5 of NI 81-102, because it maintained a position in a specified derivative for which the underlying interest was a security of another mutual fund, and was accordingly considered to be holding a security of that other mutual fund for the purposes of section 2.5 of NI 81-102.

Investment Objective Change Exemption

The Current Investment Objective of the Fund

13. Under its current investment objective and strategies, the Fund may enter into transactions (Character Conversion Transactions) in which it uses derivatives to sell Canadian equity securities for prices determined with reference to its reference fund (i.e., the Trust Fund). The current investment objective of the Fund is set out below:

The Fund aims to provide a return that is similar to the return of a tactical yield fund (the "reference fund") managed by the Manager (less transaction and hedging costs). The reference fund aims to generate a high level of income while providing some potential for capital growth primarily through exposure to a portfolio of fixed income and high yielding equity securities. The reference fund uses a tactical approach to asset allocation based on the attractiveness of the asset class and potential return.

The Fund invests primarily in Canadian equity securities and hedges its equity risks by entering into forward contracts or other permitted derivatives that provide the Fund with a return based on the performance of the reference fund.

Where, in the opinion of the Portfolio Manager, it is advantageous to investors, the Fund may also invest directly in securities similar to the types held by the reference fund.

14. The "tactical yield fund" referred to in the investment objectives of the Fund is the Trust Fund, and the name of the Trust Fund has been stated in the investment strategies of the Fund in each simplified prospectus of the Fund and each Fund Facts of the Fund since its creation.

15. The name of the Fund includes part of the name of the Trust Fund.

The investment objectives of the Trust Fund are: "to generate a high level of income while providing some potential for capital growth primarily through exposure to a portfolio of fixed income and high yielding equity securities. The Fund uses a tactical approach to asset allocation based on the attractiveness of the asset class and potential return."

The Change of Investment Objective of the Fund

16. On March 21, 2013, the Federal Minister of Finance presented the majority government's budget (theBudget Proposal). The Budget Proposal will eliminate the tax benefits associated with Character Conversion Transactions. The changes apply to Character Conversion Transactions entered into or amended after March 20, 2013.

17. On April 8, 2013, the Filer issued a press release announcing the temporary closing of the Fund effective April 12, 2013. The Fund continues to remain closed to new investors.

18. The Filer has determined that given the elimination of the tax benefits associated with Character Conversion Transactions, it would be more efficient and less costly for the Fund if the Fund achieves its investment objectives by investing all, or substantially all, of its assets directly in units of the Trust Fund. The Filer has also determined that this will also provide investors in the Fund with the least amount of tracking error. Any adjustment made by the Trust Fund to its Third Tier Funds is made by simply acquiring or redeeming securities of the Third Tier Fund in the ordinary course and automatically results in a corresponding indirect adjustment to the Fund's exposure to that Third Tier Fund.

19. In the Final Prospectus, the Filer has reflected an amendment to the investment objective of the Fund to remove all references to the use of Character Conversion Transactions to gain exposure to the Trust Fund and to clarify in its investment objectives that the Fund will invest directly in securities of the Trust Fund. The revised investment objective of the Fund is as set out below:

The Fund aims to provide a return that is similar to the return of NEI Northwest Tactical Yield Fund (the "Underlying Fund"), which is a tactical yield fund managed by the Manager, by investing substantially all of its assets in units of the Underlying Fund. The Underlying Fund aims to generate a high level of income while providing some potential for capital growth primarily through exposure to a portfolio of fixed income and high yielding equity securities. The Underlying Fund uses a tactical approach to asset allocation based on the attractiveness of the asset class and potential return. The Underlying Fund may invest in securities of other mutual funds.

Three-Tier Investing Exemption

20. The Fund is intended to provide investors a version of the 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. The Fund seeks a similar return to that of the Trust Fund by investing all or substantially all of its assets in units of the Trust Fund that has the same investment objective as the Fund.

21. The Trust Fund is a fund-of-funds that invests directly in one or more Third Tier Funds and may also invest directly in cash, bonds or other debt securities, fixed income securities, other income-producing securities and/or equity securities.

22. Each Third Tier Fund primarily invests, or will invest, directly in a portfolio of securities and/or other assets.

23. An investment by the Trust Fund in securities of the Third Tier 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 Third Tier Fund will hold more than 10% of its net asset value in securities of other mutual funds unless otherwise permitted by NI 81-102.

24. An investment by the Fund in units of the 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 the Fund's investment in units of the Trust Fund would result in a multi-tier fund structure with respect to the Trust Fund's investment in one or more Third Tier Funds. This multi-tier fund structure does not fit within the exceptions to section 2.5(2)(b) found in section 2.5(4) of NI 81-102.

25. The simplified prospectus of the Fund discloses (i) in the investment objective, that the Fund aims to provide a return that is similar to the Trust Fund, which in turn, invests in Third Tier Funds, and the name of the Trust Fund that the Fund invests in, and (ii) in the investment strategies, the investment strategies of the Trust Fund.

26. The simplified prospectus of the Fund discloses that the accountability for portfolio management is (a) at the level of the Trust Fund with respect to the selection of Third Tier Funds to be purchased by the Trust Fund and with respect to the purchase and sale of any other portfolio securities held by the Trust Fund and (b) at the level of the applicable Third Tier Fund with respect to the purchase and sale of portfolio securities and other assets held by that Third Tier Fund.

27. There will be no duplication of fees between each tier of the multi-tier structure. The simplified prospectus of the Fund and the Trust Fund discloses that fees and expenses will not be duplicated as a result of investments in other mutual funds.

28. The Fund 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 Fund were investing directly in the portfolio of the Trust Fund.

29. The Three-Tier Investing Exemption, which will result in the Fund investing directly in the Trust Fund, which in turn invests in one or more Third Tier 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.

30. An investment by the Fund in the Trust Fund and by the Trust Fund in the applicable Third Tier Funds represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund and of the Trust Fund, respectively.

31. The Filer has determined that it would be in the best interests of the Fund and not prejudicial to the public interest to receive the Three-Tier Investing Exemption.

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 Exemptions Sought are granted provided that:

(a) securityholders of the Fund will be sent a written notice at least 60 days before the effective date of the change to the investment objective of the Fund that sets out the change to the investment objective, the reasons for such change and a statement that the Fund will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes, and

(b) in respect of the Three-Tier Investing Exemption,

(i) the proposed investment of the Fund in the Trust Fund is otherwise made in compliance with all other requirements of section 2.5 of NI 81-102,

(ii) the investment objectives of the Fund as stated in the simplified prospectus and the information under the section "What does the fund invest in?" in the Fund Facts of the Fund, state the name of the Trust Fund.

"Vera Nunes"

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission