Manulife Asset Management Limited et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund mergers – approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 – mergers not a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act (Canada) – securityholders mailed preliminary fund facts document instead of the most recently filed fund facts document of the Continuing Fund – securityholders of terminating funds are provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

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

May 31, 2017

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

MANULIFE ASSET MANAGEMENT LIMITED

(the “Filer”)

AND

IN THE MATTER OF

MANULIFE PORTRAIT DIVIDEND GROWTH & INCOME PORTFOLIO CLASS,

MANULIFE PORTRAIT GROWTH PORTFOLIO CLASS,

MANULIFE LEADERS OPPORTUNITIES PORTFOLIO

(each a “Terminating Fund” and, collectively, the “Terminating Funds”)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer and the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for approval of the proposed mergers (each a “Merger” and, collectively, the “Mergers”) of the Terminating Funds into Manulife Growth Portfolio (the “Continuing Fund”) under subsection 5.5(1)(b) of National Instrument 81-102 – Investment Funds (“NI 81-102”) (the “Approval Sought”).

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

(a)           the Ontario Securities Commission (the “OSC”) 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 if used in this decision, unless otherwise defined.

Representations

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

The Filer

1.             The Filer is a corporation amalgamated under the Canada Business Corporations Act with its head office located in Toronto, Ontario.

2.             The Filer is registered in the following categories: portfolio manager in all provinces and territories of Canada; investment fund manager in Ontario, Newfoundland and Labrador, and Quebec; commodity trading manager in Ontario; and derivatives portfolio manager in Quebec.

3.             The Filer is the manager of the Terminating Funds and the Continuing Fund (each a “Fund” and, collectively, the “Funds”).

The Funds

4.             Manulife Leaders Opportunities Portfolio (the “Trust Fund”) is an open-ended mutual fund trust established under the laws of Ontario by a declaration of trust (“Declaration of Trust”) and plan of establishment.

5.             Each of Manulife Portrait Dividend Growth & Income Portfolio Class and Manulife Portrait Growth Portfolio Class are classes of mutual fund shares of Manulife Investment Exchange Funds Corp. (“MIX Corp”). MIX Corp is a mutual fund corporation formed under the laws of Ontario by articles of amalgamation dated November 21, 2015, as amended. Each Corporate Class is an open-ended mutual fund.

6.             The Continuing Fund is an open-ended mutual fund trust established under the laws of Ontario by a declaration of trust and regulation.

7.             Securities of each of the Terminating Funds are currently qualified for sale by a simplified prospectus, annual information form and fund facts dated August 2, 2016, which have been filed and receipted in each of the Jurisdictions.

8.             The Continuing Fund is a newly established mutual fund trust created to facilitate the Mergers. Securities of the Continuing Fund are currently qualified for sale by a simplified prospectus, annual information form, and fund facts dated May 1, 2017, which have been filed and receipted in each of the Jurisdictions (collectively, the “Continuing Fund Offering Documents”).

9.             The preliminary fund facts in respect of the Continuing Fund were filed on SEDAR on March 23, 2017 at the time of filing the preliminary simplified prospectus and preliminary annual information form. As there were no final fund facts at the time of sending the Meeting Materials (as defined below), the preliminary fund facts of the Continuing Fund was sent with the remaining required Meeting Materials. The preliminary fund facts contained substantially the same information as the final fund facts, which are dated May 1, 2017.

10.          The Terminating Funds and the Continuing Fund are reporting issuers as defined under the applicable securities legislation of each province and territory of Canada.

11.          The net asset value for each of the Funds is calculated on a daily basis at the end of each day the Toronto Stock Exchange is open for trading.

12.          Neither the Filer nor the Terminating Funds are in default of any of the requirements of the securities legislation of any of the provinces and territories of Canada.

13.          Other than under circumstances in which the securities regulatory authority or securities regulator of the Jurisdictions has expressly exempted a Fund therefrom, each of the Funds is governed and follows the standard investment restrictions and practices established by NI 81-102.

Reason for Approval Sought

14.          The Approval Sought is required because contrary to clause 5.6(1)(b) of NI 81-102, the Mergers will not be effected in reliance on the “qualifying exchange” or tax-deferred transaction provisions of the Income Tax Act (Canada) (the “Tax Act”). For the Trust to Trust Merger (as identified in Representation 16), a taxable merger is tax-neutral for tax-exempt investors and more beneficial for taxable investors since it is expected to result in the realization of net capital gains equal to approximately 10% of the NAV of their units in the Terminating Fund (as of December 31, 2016), whereas a tax-deferred merger is expected to result in the realization of net capital gains equal to approximately 15% of the NAV of their units in the Terminating Fund as, prior to effecting the Merger, the Terminating Fund will sell certain portfolio securities (with unrealized capital gains or losses) in order to better align with the portfolio of the Continuing Fund. For each Corporate to Trust Merger (as identified in Representation 16) there is no method under the Tax Act to implement a tax-deferred merger of a corporate fund (a single class of shares of a multi-class mutual fund corporation) into a Trust Fund.

15.          The Approval Sought is also required because the materials sent to securityholders of the Terminating Funds did not include the most recently filed fund facts of the Continuing Fund as required by subparagraph 5.6(1)(f)(ii) of NI 81-102 and the Circular (as defined below) sent to securityholders of the Terminating Funds did not contain references to all of the disclosure documents of the Continuing Fund as required by subparagraph 5.6(1)(f)(iii) of NI 81-102. As the Continuing Fund is a newly established mutual fund, the current prospectus, most recently filed annual information form and most recently filed fund facts were not available at the time the Meeting Materials were sent to securityholders of the Terminating Funds. Furthermore not all remaining disclosure documents required by subparagraph 5.6(1)(f)(iii) are available for newly established mutual funds.

The Proposed Mergers

16.          The Manager intends to merge each Terminating Fund into the Continuing Fund shown opposite its name in the table below:

17.          Each Merger is anticipated to be effective on or about June 2, 2017 (the “Effective Date”).

18.          Pursuant to subsection 5.1(f) of NI 81-102, securityholders of the Terminating Funds approved the Mergers at special meetings held on May 18, 2017.

19.          Pursuant to National Instrument 81-107 - Independent Review Committee for Investment Funds, the independent review committee of the Funds (the “IRC”) has reviewed the proposed Mergers and the process to be followed in connection with each such Merger, and has advised the Filer that, in the opinion of the IRC, having reviewed each Merger as a potential “conflict of interest matter”, each Merger achieves a fair and reasonable result for the Funds. Such opinion of the IRC was disclosed in the Circular.

20.          No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolio of its corresponding Terminating Fund.

21.          The Filer will pay for the costs of the Mergers. These costs consist mainly of legal, proxy solicitation, printing, mailing, brokerage costs and regulatory fees.

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

Securityholder Disclosure

23.          A press release was issued and filed on SEDAR on March 23, 2017, and a material change report was filed on SEDAR on March 30, 2017 with respect to the proposed Mergers. The simplified prospectus, annual information form, and fund facts for the Terminating Funds were amended to include disclosure with respect to the Mergers in accordance with applicable securities law. The Continuing Fund Offering Documents disclose the proposed Mergers with the Terminating Funds, including the anticipated Effective Date of each Merger.

24.          On April 27, 2017, a notice of meeting, a management information circular (the “Circular”) and proxy in connection with the Mergers (together, the “Meeting Materials”) were mailed to investors of record of the Terminating Funds as at April 3, 2017 and filed on SEDAR.

25.          The Circular provided securityholders of the Terminating Funds with sufficient information to permit them to make an informed decision as to whether to approve the Mergers or not, including a discussion regarding the tax implications of the Mergers and the potential benefits of the Mergers.

26.          The Circular also contained certain prospectus-level disclosure concerning the Continuing Fund, including information in respect of its: investment objective; investment structure (i.e.: trust or corporation); registered plan eligibility; portfolio management responsibility; net asset value; fees and expenses; annual returns; valuation procedures; and distribution policy. In addition, the Circular highlighted the similarities and differences between each Terminating Fund and the Continuing Fund with respect to such matters.

27.          The Circular also disclosed that securityholders could obtain the preliminary simplified prospectus, preliminary annual information form, and preliminary fund facts of the Continuing Fund from the Filer upon request or on SEDAR at www.sedar.com. Also accompanying the Circular delivered to securityholders of the Terminating Funds was a copy of the preliminary fund facts for the Continuing Fund. Accordingly, investors of the Terminating Funds will have an opportunity to consider this information prior to voting on the Mergers at the special meetings.

Merger Steps

28.          The Mergers will be structured substantially as follows:

(i)            The value of each Terminating Fund’s portfolio and other assets will be determined at the close of business on the Effective Date.

(ii)           The Declaration of Trust governing the Trust Fund and the articles of MIX Corp will be amended to permit such actions as are necessary to complete the Mergers.

(iii)          Immediately following the close of business on the Effective Date, the Terminating Fund will transfer all of its assets and liabilities to the Continuing Fund with which the Terminating Fund is merging.

(iv)          Prior to effecting a Merger, each Terminating Fund will sell certain portfolio securities in order to better align with the portfolio of the Continuing Fund.

(v)           In exchange, the Terminating Fund will receive securities of the relevant series of the Continuing Fund, the aggregate value of which is equal to the aggregate net asset value (the “NAV”) of the assets of the Terminating Fund transferred to such Continuing Fund, in each case calculated as of the close of business on the Effective Date.

(vi)          Immediately thereafter, the Terminating Fund will cause all of its securities to be redeemed and pay the redemption price by distributing securities of the Continuing Fund. This will result in each securityholder of the Terminating Fund receiving securities of the applicable series of the Continuing Fund with a NAV equal to the NAV of the securities of the relevant series of the Terminating Fund that were held by such securityholder.

(vii)         Securityholders of the Terminating Fund will receive securities of the Continuing Fund as follows:

As soon as reasonably practicable after the distribution of securities of the Continuing Fund to the Terminating Fund’s securityholders, such Fund will be terminated or wound up.

29.          New series of securities of the Continuing Fund, being Series J and Series JT securities, were created to grandfather the management fees of existing holdings of the Series F and Series FT securities, respectively, of each of the Terminating Funds as shown in the table under Representation 28. As a result, Series F and Series FT securityholders of the Terminating Funds will maintain the same management fee and DSC schedule within the Continuing Fund. The characteristics of the Series J and Series JT securities are otherwise the same as the Series F and Series FT securities of the Continuing Fund. Following the Mergers, Series J and Series JT securities will only be available to applicable securityholders of a Terminating Fund through pre-authorized chequing plans that have been established in the Terminating Fund prior to the effective date of the Mergers.

30.          New series of securities of the Continuing Fund, being Series H, Series HE, and Series K securities, were created to grandfather the front-end load trailer fees (“FE”) of the Advisor Series (FE only) and Series T (FE only) securities of Manulife Portrait Dividend Growth & Income Portfolio Class and Manulife Portrait Growth Portfolio Class, as shown in the table under Representation 28. As a result, these new series will receive trailer fee reductions with a corresponding management fee reduction within the Continuing Fund. The characteristics of the Series H, Series HE, and Series K securities are otherwise the same as the Advisor Series and Series T securities of the Continuing Fund. Following the Mergers Series H, Series HE, and Series K securities will only be available to applicable securityholders of a Terminating Fund through pre-authorized chequing plans that have been established in the Terminating Fund prior to the effective date of the Mergers.

31.          Securityholders of a Terminating Fund will continue to have the right to redeem securities of such Terminating Fund for cash at any time up to the close of business on the Effective Date. The Circular disclosed that, upon acquisition of securities of the Continuing Fund, Terminating Fund securityholders will be subject to the same redemption charges to which their securities of the Terminating Fund were subject to prior to their Merger occurring.

32.          All Terminating Funds will be capped to new purchases and redemptions as of 4:00 pm (Toronto time) on: (i) May 30, 2017 for wire orders over FundSERV; and (ii) after 4:00 pm (Toronto time) on June 2, 2017 for direct orders; in each case to allow for the Mergers to be processed. In addition, all Terminating Funds will be capped to switches and transfers over FundSERV after 4:00 pm (Toronto time) on June 1, 2017.

33.          Following the Mergers, pre-authorized chequing plans, systematic withdrawal plans and other active optional services which had been established with respect to a Terminating Fund, will be automatically re-established (subject to limited exceptions which will be dealt with on an account-by-account basis) with respect to the Continuing Fund unless securityholders advise the Filer otherwise.

Benefits of Mergers

34.          The Filer believes that the Mergers will benefit securityholders of the Funds because:

(i)            Each Terminating Fund has a similar investment mandate as the Continuing Fund. As a result, each Merger will contribute towards reducing duplication and redundancy across the Manulife fund line-up and may potentially reduce the administrative and regulatory operating costs and expenses associated with the Terminating Funds.

(ii)           Each Merger has the potential to lower costs for securityholders as the operating costs and expenses of the Continuing Fund will be spread over a greater pool of assets when the Terminating Funds merge into the Continuing Fund, potentially resulting in a lower management expense ratio for the Continuing Fund than may occur otherwise. No securityholder of the Terminating Funds will be subject to an increase in management fees as a result of the Terminating Funds merging into the Continuing Fund. Holders of Series F and Series FT securities of each Terminating Fund will be merged into newly created series of the Continuing Fund to maintain existing management fees for such securityholders. In addition, holders of Advisor Series and Series T securities (for the front-end load trailer fees) in Manulife Portrait Dividend Growth & Income Portfolio Class and Manulife Portrait Growth Portfolio Class will be merged into newly created series of the Continuing Fund which will receive trailer fee reductions with a corresponding management fee reduction.

(iii)          The Continuing Fund will have an asset base of greater size, potentially allowing for increased portfolio diversification opportunities and a smaller proportion of assets set aside to fund redemptions. The ability to improve diversification may lead to increased returns and a reduction of risk, while at the same time creating a higher profile that may attract more investors.

(iv)          The Continuing Fund is expected to attract more assets as marketing efforts will be concentrated on a single fund, rather than multiple funds with similar investment mandates. The ability to attract assets to the Continuing Fund will benefit investors by ensuring that the Continuing Fund is a viable, long-term, attractive investment vehicle for existing and potential investors.

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.

“Vera Nunes”

Manager, Investment Funds & Structured Products Branch

Ontario Securities Commission