Manulife Asset Management Limited et al.

Decision

Headnote

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 per-approval -- continuing funds have different investment objectives than terminating funds -- certain mergers do not have the same fee structure -- certain mergers not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- certain continuing funds do not have a simplified prospectus or fund facts documents for certain series that correspond to the terminating funds -- those certain series are offered under a prospectus exempt basis only -securityholders provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.5(3), 5.6, 5.7(1)(b), 19.1.

September 21, 2012

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 GLOBAL ADVANTAGE FUND

MANULIFE SECTOR ROTATION FUND

MANULIFE CANADIAN CORE FUND

MANULIFE CANADIAN EQUITY FUND

MANULIFE EUROPEAN OPPORTUNITIES FUND

MANULIFE SIMPLICITY AGGRESSIVE PORTFOLIO

MANULIFE CANADIAN CORE CLASS

MANULIFE CANADIAN EQUITY CLASS

(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 mergers (the "Mergers") of the Terminating Funds into the applicable Continuing Funds (as defined below) under subsection 5.5(1)(b) of National Instrument 81-102 -- Mutual Funds ("NI 81-102").

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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

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:

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

2. The Filer is registered in the categories of commodity trading manager, exempt market dealer, mutual fund dealer, portfolio manager and investment fund manager.

3. The Filer is the manager of the Funds and is also the trustee of the Trust Funds (as hereinafter defined).

4. Each of Manulife Global Advantage Fund, Manulife International Dividend Income Fund, Manulife Sector Rotation Fund, Manulife Canadian Opportunities Fund, Manulife Canadian Core Fund, Manulife Canadian Equity Fund, Manulife European Opportunities Fund, Manulife International Value Equity Fund, Manulife Simplicity Aggressive Portfolio and Manulife Simplicity Growth Portfolio (collectively, the "Trust Funds") are open-ended mutual fund trusts established under the laws of Ontario by declarations of trust and, where applicable, separate Regulations and are governed by the provisions of NI 81-102.

5. Each of Manulife Canadian Core Class, Manulife Canadian Equity Class and Manulife Canadian Opportunities Class (collectively, the "Corporate Funds") are classes of mutual fund shares of Manulife Investment Exchange Funds Corp. (the "Corporation"). The Corporation is a mutual fund corporation formed under the laws of Ontario by articles of amalgamation dated October 23, 2010, as amended from time to time. Each Corporate Fund is an open-ended mutual fund governed by the provisions of NI 81-102.

6. The Filer is proposing to merge each Terminating Fund listed in the chart below into the corresponding continuing fund (each a "Continuing Fund" and, collectively, the "Continuing Funds" and, together with the Terminating Funds, the "Funds") shown opposite its name:

TERMINATING FUND

CONTINUING FUND

 

Manulife Global Advantage Fund

Manulife International Dividend Income Fund

 

Manulife Sector Rotation Fund

Manulife Canadian Opportunities Fund

 

Manulife Canadian Core Fund

Manulife Canadian Opportunities Fund

 

Manulife Canadian Equity Fund

Manulife Canadian Opportunities Fund

 

Manulife European Opportunities Fund

Manulife International Value Equity Fund

 

Manulife Simplicity Aggressive Portfolio

Manulife Simplicity Growth Portfolio

 

Manulife Canadian Core Class

Manulife Canadian Opportunities Class

 

Manulife Canadian Equity Class

Manulife Canadian Opportunities Class

7. Securities of the Funds are currently qualified for sale in each of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated August 1, 2012 and receipted in all of the provinces and territories of Canada on August 10, 2012. Each of the simplified prospectus, annual information form and related fund facts includes disclosure in respect of the Mergers, as applicable.

8. The Terminating Funds and the Continuing Funds are reporting issuers as defined under the applicable securities legislation of each province and territory of Canada and are not in default of any of the requirements of the securities legislation of any of the provinces and territories of Canada.

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

10. 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.

11. No sales charges, if any, will be payable in connection with the acquisition by each Continuing Fund of the investment portfolio of its corresponding Terminating Fund.

12. The portfolios and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund as a result of the Mergers are currently, or will be, acceptable to the portfolio advisers of the applicable Continuing Fund prior to the effective date of the Mergers, and are or will also be consistent with the investment objectives of the applicable Continuing Fund.

13. Securityholders of Manulife Global Advantage Fund, Manulife European Opportunities Fund, Manulife Canadian Core Class and Manulife Canadian Equity Class will continue to have the right to redeem securities of each such Terminating Fund for cash at any time up to the close of business on the effective date of their Mergers, which is expected to be on or about October 5, 2012. Securityholders of Manulife Sector Rotation Fund, Manulife Canadian Equity Fund, Manulife Canadian Core Fund and Manulife Simplicity Aggressive Portfolio will continue to have the right to redeem securities of each such Terminating Fund for cash at any time up to the close of business on the effective date of their Mergers, which is expected to be on or about November 23, 2012. The Circular (as hereinafter defined) will disclose that securities of a Continuing Fund acquired by securityholders upon the proposed Mergers are subject to the same redemption charges to which their securities of the Terminating Fund were subject prior to the Merger.

14. A press release was issued and filed on SEDAR on May 29, 2012 and a material change report was filed on SEDAR on June 4, 2012 with respect to the proposed Mergers. Amendments to the simplified prospectus and annual information form together with related fund facts for each of the Funds were filed on May 29, 2012.

15. A notice of meeting, a management information circular (the "Circular") and a form of proxy in connection with the special meetings of securityholders that were held on September 18, 2012 were mailed to securityholders of the Terminating Funds and applicable Continuing Funds and filed on SEDAR on or about August 28, 2012.

16. Each Merger (with the exception of the Merger of Manulife Global Advantage Fund into Manulife International Dividend Income Fund and of Manulife Simplicity Aggressive Portfolio into Manulife Simplicity Growth Portfolio) will be either a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) (the "Tax Act") or a tax-deferred transaction under subsection 86(1) of the Tax Act.

17. The Mergers of Manulife Global Advantage Fund into Manulife International Dividend Income Fund and Manulife Simplicity Aggressive Portfolio into Manulife Simplicity Growth Portfolio are intended to be taxable Mergers to permit the accumulated unused losses in the Continuing Funds to be carried forward to shelter possible future gains within the Continuing Funds following the completion of the Mergers.

18. 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 Merger of each Terminating Fund with its corresponding Continuing Fund and the process to be followed in connection with each such Merger, and has advised the Filer that, in the opinion of the independent review committee, having reviewed each Merger as a potential "conflict of interest matter", each Merger achieves a fair and reasonable result for the Terminating Fund and the Continuing Fund. This information will be disclosed in the Circular.

19. 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.

20. Approval for the Mergers is required as the Mergers do not meet all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of the NI 81-102 in the following ways:

(i) a reasonable person may not consider the fundamental investment objectives of the Terminating Funds and the corresponding Continuing Funds to be "substantially similar", contrary to section 5.6(1)(a)(ii) of NI 81-102;

(ii) a reasonable person may not consider the fee structure of the Series G securities of Manulife Canadian Core Fund and the corresponding Continuing Fund to be "substantially similar", contrary to section 5.6(1)(a)(ii) of NI 81-102;

(iii) certain Mergers are being conducted on a taxable basis, contrary to subsection 5.6(1)(b) of NI 81-102; and

(iv) the materials sent to securityholders of certain series of the Terminating Funds does not include the current simplified prospectus or the most recently filed fund facts document of the corresponding series of the applicable Continuing Funds, contrary to subsection 5.6(1)(f)(ii) of NI 81-102.

21. Except as noted herein, the 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.

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

(i) Securityholders of the combined Continuing Funds may benefit from increased economies of scale in administrative and regulatory operating costs and lower expenses associated with operating the Funds, which are significant costs that can contribute to higher management expense ratios.

(ii) Each Merger has the potential to lower costs for securityholders as the operating costs and expenses of the Continuing Funds will be spread over a greater pool of assets when the Terminating Funds merge into the corresponding Continuing Funds, potentially reducing each Continuing Fund's management expense ratio. With the exception of The Manufacturers Life Insurance Company ("MLI"), an affiliate of the Filer and the sole holder of the Series G securities of Manulife Canadian Core Fund, 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 corresponding Continuing Funds and, in some cases, securityholders will potentially benefit from a decrease in management fees. The Series G securities of Manulife Canadian Core Fund are not offered by prospectus and retail investors are not eligible to purchase such securities.

(iii) With the exception of the Mergers involving Manulife Global Advantage Fund and Manulife Simplicity Aggressive Portfolio, which will be conducted on a taxable basis, the tax-deferred nature of the Mergers means that securityholders of the Terminating Funds should not face any material adverse tax consequences in connection with each such Merger.

(iv) The retention of tax loss carry forwards in Manulife International Dividend Income Fund and Manulife Simplicity Growth Portfolio may serve to attract new investments into the Funds.

(v) Each 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. Each Continuing Fund is also expected to benefit from an increased profile in the marketplace. 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 will attract more investors.

(vi) Each of the Continuing Funds is expected to attract more assets as marketing efforts will be concentrated on fewer funds, rather than multiple funds with similar investment mandates. The ability to attract assets in the Continuing Funds will benefit investors by ensuring that the Continuing Funds remain viable, long-term, attractive investment vehicles for existing and potential investors.

(vii) The IRC has determined, after reasonable inquiry, that the Mergers achieve a fair and reasonable result for the Funds and has provided its positive recommendation of the Mergers.

23. The foregoing reasons for the Mergers were set out in the Circular. In addition, the Circular included certain prospectus-level disclosure concerning the Continuing Funds, including information regarding fees, expenses, investment objectives, valuation procedures, the manager, the portfolio advisor (or sub-advisor, as applicable), income tax considerations and net asset value. The Circular also disclosed that securityholders can obtain the simplified prospectus, annual information form, the fund facts, the most recent financial statements, and the most recent management report of fund performance of the Continuing Funds that have been made public, from the Filer upon request, on the Filer's website or on SEDAR at www.sedar.com. Also accompanying the Circular delivered to securityholders was a copy of the fund facts document for the relevant Continuing Fund. In cases where a fund facts document does not exist for a particular series of the Continuing Fund, the fund facts document for the Advisor Series securities of the Continuing Fund accompanied the Circular. These series will not be qualified for distribution under a prospectus and will not be sold to any investors following the Mergers. For example, in respect of Series H securities, securityholders were provided with the fund facts document for the Advisor Series securities of Manulife International Dividend Income Fund and Manulife Canadian Opportunities Fund as a new series of securities of Manulife International Dividend Income Fund and Manulife Canadian Opportunities Fund, to be called Series H securities, will be created to grandfather the trailer fee of the Series H securities of Manulife Global Advantage Fund and Manulife Canadian Equity Fund. In respect of Series K securities, securityholders were provided with the fund facts document for the Advisor Series securities of the Manulife Canadian Opportunities Fund as a new series of securities of Manulife Canadian Equity Fund to be called Series K securities, will be created to grandfather the trailer fee of the Series A securities of Manulife Canadian Equity Fund.

24. In respect of the Circular and the other disclosure documents set out in sub-paragraph 5.6(f)(iii) of NI 81-102, the Filer ensured that:

(i) the Circular sent to securityholders in connection with a Merger provided sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;

(ii) the Circular sent to securityholders in connection with a Merger prominently disclosed that securityholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by contacting their dealer, by calling the Filer's 1-800 number, by accessing it on the Filer's website at www.manulifemutualfunds.ca or by accessing the SEDAR website at www.sedar.com;

(iii) upon request by a securityholder for financial statements or the simplified prospectus of the funds, the Filer would make best efforts to provide the securityholder with financial statements of the applicable continuing fund in a timely manner so that the securityholder can make an informed decision regarding a Merger; and

(iv) each applicable Terminating Fund and the applicable Continuing Fund with respect to a Merger has an unqualified audit report in respect of its last completed financial period.

25. Finally, in accordance with subsection 5.1(f) of NI 81-102, securityholders of the Terminating Funds approved the Mergers at special meetings held on September 18, 2012. Pursuant to subsection 5.1(g) of NI 81-102, securityholders of Manulife International Value Equity Fund and Manulife Canadian Opportunities Fund (with respect to its Mergers with Manulife Canadian Core Fund and Manulife Canadian Equity Fund) were asked to approve the Mergers at special meetings held on September 18, 2012, as each such Merger constituted a material change for the applicable Continuing Fund and, in each case, the requisite securityholder approval was obtained at the special meetings. In addition, in accordance with the Business Corporations Act (Ontario), securityholders of Manulife Canadian Opportunities Class approved each of the Mergers with Manulife Canadian Equity Class and Manulife Canadian Core Class at a special meeting held on September 18, 2012.

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 Mergers are approved.

"Sonny Randhawa"
Manager, Investment Funds Branch
Ontario Securities Commission