Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval of investment fund mergers -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds -- certain terminating funds and continuing funds do not have substantially similar fundamental investment objectives -- mergers will not be a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada) -- mergers otherwise comply with pre-approval criteria, including securityholder vote, IRC approval -- securityholders provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

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

April 24, 2020

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 SUN LIFE GLOBAL INVESTMENTS (CANADA) INC. (the Filer) AND THE MERGING FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Merging Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) approving the proposed merger (each, a Merger and collectively, the Mergers) of each Merging Fund (as defined below) into the applicable Continuing Fund (as defined below) pursuant to paragraph 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 is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(2) 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 Canadian 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. The following additional terms shall have the following meanings:

Continuing Funds means Sun Life Tactical Balanced ETF Portfolio, Sun Life BlackRock Canadian Equity Fund, Sun Life MFS U.S. Growth Fund, Sun Life Dynamic Equity Income Fund, Sun Life Dynamic Strategic Yield Fund, Sun Life MFS Global Total Return Fund, Sun Life Excel Emerging Markets Fund, Sun Life MFS Canadian Equity Fund, Sun Life MFS Dividend Income Fund, Sun Life Granite Income Portfolio, and Sun Life Tactical Fixed Income ETF Portfolio;

Corporation means Sun Life Global Investments Corporate Class Inc.;

Fund or Funds means, individually or collectively, the Merging Funds and the Continuing Funds;

IRC means, in respect of each Fund, the independent review committee for the Fund;

Merging Corporate Funds means Sun Life BlackRock Canadian Balanced Class, Sun Life BlackRock Canadian Composite Equity Class, Sun Life BlackRock Canadian Equity Class, Sun Life Dynamic Equity Income Class, Sun Life Dynamic Strategic Yield Class, Sun Life Franklin Bissett Canadian Equity Class, Sun Life Invesco Canadian Class, Sun Life MFS Canadian Equity Growth Class, Sun Life Sentry Value Class and Sun Life MFS Dividend Income Class;

Merging Funds means the Merging Corporate Funds and the Merging Trust Funds;

Merging Trust Funds means Sun Life BlackRock Canadian Balanced Fund, Sun Life Dynamic American Fund, Sun Life Dynamic Energy Fund, Sun Life Excel Emerging Markets Balanced Fund, Sun Life Excel China Fund, Sun Life Sentry Value Fund, Sun Life MFS Monthly Income Fund and Sun Life Templeton Global Bond Fund;

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

NI 81-106 means National Instrument 81-106 Investment Fund Continuous Disclosure;

NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds;

Tax Act means the Income Tax Act (Canada).

Trust Funds means funds structured as trusts, which includes the Continuing Funds and the Merging Trust Funds.

Representations

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

The Filer

1. The Filer is a corporation incorporated under the laws of Canada with its head office in Toronto, Ontario. The Filer is an indirect wholly-owned subsidiary of Sun Life Financial Inc., a public company incorporated under the Insurance Companies Act (Canada) and listed on the Toronto Stock Exchange, the New York Stock Exchange and the Philippines Stock Exchange.

2. The Filer is the manager, trustee and portfolio manager of the Funds.

3. The Filer is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, as a mutual fund dealer in each of the Canadian Jurisdictions, and as a commodity trading manager and portfolio manager in Ontario.

The Funds

4. The Funds are either open-ended mutual funds established as trusts under the laws of Ontario or a class of shares of a mutual fund corporation governed under the laws of Ontario.

5. Securities of the Funds are currently qualified for sale in each of the Canadian Jurisdictions under a simplified prospectus, annual information form and fund facts documents dated February 22, 2019, as amended by Amendment No. 1 dated May 24, 2019, Amendment No. 2 dated November 29, 2019 and Amendment No. 3 dated February 26, 2020 to the simplified prospectus, Amendment No. 1 dated April 16, 2019, Amendment No. 2 dated May 24, 2019, Amendment No. 3 dated November 29, 2019 and Amendment No. 4 dated February 26, 2020 to the annual information form, or under a simplified prospectus, annual information form and fund facts documents dated July 18, 2019, as amended by Amendment No. 1 dated November 29, 2019 and Amendment No. 2 dated February 26, 2020.

6. New series have been created for certain Continuing Funds (the New Series) in order to facilitate the Mergers. The New Series of Sun Life MFS Global Total Return Fund will only be available for existing eligible investors in Series DB of Sun Life Excel Emerging Markets Balanced Fund and those investors may continue to purchase and redeem the New Series of Sun Life MFS Global Total Return Fund after the Mergers are complete. The New Series of all other Continuing Funds are only available for redemption by existing eligible investors of the applicable Merging Fund. The New Series will not be available for purchase by new investors.

7. The New Series will be offered for sale in each of the Canadian Jurisdictions on or about June 5, 2020.

8. Each of the Funds is a reporting issuer under the applicable securities legislation of the Canadian Jurisdictions.

9. Neither the Filer nor the Funds are in default under the securities legislation of any of the Canadian Jurisdictions.

10. Other than circumstances in which the securities regulatory authority of a Canadian Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under NI 81-102.

11. The net asset value for each series of the Funds is calculated on a daily basis in accordance with the Funds' valuation policy and as described in the respective simplified prospectus of each of the Funds.

Reasons for Approval Sought

12. Regulatory approval for the Mergers is required under subsection 5.5(1)(b) of NI 81-102, and pre-approval for the Mergers under section 5.6(1) is unavailable, because:

(a) the fundamental investment objectives of Sun Life Tactical Balanced ETF Portfolio, Sun Life BlackRock Canadian Equity Fund (with respect to the Merger of Sun Life BlackRock Canadian Composite Equity Class), Sun Life Dynamic Equity Income Fund (with respect to the Merger of Sun Life Dynamic Energy Fund), Sun Life Excel Emerging Markets Fund, Sun Life MFS Global Total Return Fund and Sun Life Tactical Fixed Income ETF Portfolio are not, or may be considered not to be, "substantially similar" to the investment objectives of their corresponding Merging Funds; and

(b) each of the Mergers will not be completed as a "qualifying exchange" or other tax deferred transaction under the Tax Act.

13. Except as noted above, each of the other conditions for pre-approval under subsection 5.6(1) of NI 81-102 is, or will be, met in respect of each Merger.

The Proposed Mergers

14. Effective on or about June 5, 2020 (the Merger Date), it is proposed that the Merging Funds will be merged into the Continuing Funds as follows:

(a) Sun Life BlackRock Canadian Balanced Class into Sun Life Tactical Balanced ETF Portfolio;

(b) Sun Life BlackRock Canadian Balanced Fund into Sun Life Tactical Balanced ETF Portfolio;

(c) Sun Life BlackRock Canadian Composite Equity Class into Sun Life BlackRock Canadian Equity Fund;

(d) Sun Life BlackRock Canadian Equity Class into Sun Life BlackRock Canadian Equity Fund;

(e) Sun Life Dynamic American Fund into Sun Life MFS U.S. Growth Fund;

(f) Sun Life Dynamic Energy Fund into Sun Life Dynamic Equity Income Fund;

(g) Sun Life Dynamic Equity Income Class into Sun Life Dynamic Equity Income Fund;

(h) Sun Life Dynamic Strategic Yield Class into Sun Life Dynamic Strategic Yield Fund;

(i) Sun Life Excel China Fund into Sun Life Excel Emerging Markets Fund;

(j) Sun Life Excel Emerging Markets Balanced Fund into Sun Life MFS Global Total Return Fund;

(k) Sun Life Franklin Bissett Canadian Equity Class into Sun Life MFS Canadian Equity Fund;

(l) Sun Life Invesco Canadian Class into Sun Life MFS Canadian Equity Fund;

(m) Sun Life MFS Dividend Income Class into Sun Life MFS Dividend Income Fund;

(n) Sun Life MFS Canadian Equity Growth Class into Sun Life MFS Canadian Equity Fund;

(o) Sun Life MFS Monthly Income Fund into Sun Life Granite Income Portfolio;

(p) Sun Life Sentry Value Class into Sun Life MFS Canadian Equity Fund;

(q) Sun Life Sentry Value Fund into Sun Life MFS Canadian Equity Fund; and

(r) Sun Life Templeton Global Bond Fund into Sun Life Tactical Fixed Income ETF Portfolio.

15. Each of paragraphs (d), (g), (h), (m) and (n) above is referred to as a Fund of Fund Merger.

16. Each Merger will be effected on a taxable basis.

17. The assets of each Merging Fund to be acquired by the applicable Continuing Fund to effect each Merger are currently or will, on the Merger Date, be acceptable to the portfolio manager of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the applicable Continuing Fund.

18. Securityholders of each Merging Fund will be asked to approve the relevant Merger at a special meeting to be held on or about May 21, 2020 (the Meeting).

19. The Filer, as manager of the Continuing Funds, is of the view that the Mergers will not be a "material change" for any of the Continuing Funds.

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

21. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of the corresponding Merging Fund.

22. Securityholders of each Merging Fund will continue to have the right to redeem securities of the Merging Fund at any time up to the close of business on the business day immediately before the Merger Date.

23. If securityholders of a Merging Fund approve the applicable Merger, the Filer will waive any applicable redemption charges for those securityholders who wish to submit a redemption request to redeem securities of the Merging Fund originally purchased under the deferred sales charge option or the low load sales charge option between the business day following the Meeting and the effective date of the Merger.

24. Securities of the Continuing Funds are, and are expected to continue to be at all material times, "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax free savings accounts (collectively, the Registered Plans).

Securityholder Disclosure

25. In accordance with NI 81-106, a press release announcing the proposed Mergers was issued and filed via System for Electronic Document Analysis and Retrieval (SEDAR) on February 19, 2020. An amendment to the relevant simplified prospectus and annual information form of the Merging Funds, along with amended fund facts documents and a material change report with respect to the proposed Mergers were filed via SEDAR on February 26, 2020.

26. As required by NI 81-107, an IRC has been appointed for each of the Merging Funds. The Filer presented the potential conflict of interest matters related to the proposed Mergers to the IRC of each Merging Fund. Each IRC reviewed the potential conflict of interest matters related to the proposed Mergers and, on February 12, 2020, provided its positive recommendation for the Mergers, after determining that the proposed Mergers, if implemented, would achieve a fair and reasonable result for each Fund.

27. Pursuant to a decision dated December 5, 2016 (the Notice-and-Access Decision), The Filer has obtained an exemption from the requirement in paragraph 12.2(2)(a) of NI 81-106 to send an information circular and proxy-related materials to the securityholders of each Merging Fund and instead allows each Merging Fund to make use of a notice-and-access process.

28. The notice prescribed by the Notice-and-Access Decision (the Notice-and-Access Document), the form of proxy and the fund facts document(s) relating to the relevant series of the applicable Continuing Fund will be sent to securityholders of each Merging Fund commencing on or about April 20, 2020. Additionally, the Notice-and-Access Document, form of proxy and information circular (the Meeting Materials) will be filed via SEDAR and posted on the Filer's website on or about April 20, 2020.

29. The Meeting Materials will provide securityholders of each Merging Fund with sufficient information to permit them to make an informed decision as to whether or not to approve the Mergers, including a discussion regarding the tax implications of the Mergers and the potential benefits of the Mergers.

Merger Steps

30. If the necessary approvals are obtained, the Filer will carry out the following steps to complete the Mergers:

(a) In respect of the Merger of a Merging Trust Fund into another Trust Fund:

(i) Prior to effecting a Merger, each Merging Trust Fund will sell some or all securities in its portfolio. As a result, the Merging Trust Funds will temporarily hold cash or cash equivalents and will not be fully invested in accordance with their investment objectives for a brief period of time prior to the Merger.

(ii) The value of each Merging Trust Fund's portfolio and other assets will be determined at the close of business on the applicable Merger Date in accordance with its declaration of trust.

(iii) Each Merging Trust Fund will declare, pay and automatically reinvest a distribution to its unitholders of a sufficient amount of its net income and net realized capital gains, if any, to ensure that the Merging Trust Fund will not be subject to tax for its current taxation year that includes the applicable Merger Date.

(iv) Each relevant Continuing Fund will acquire the assets of the applicable Merging Trust Fund in exchange for units of the Continuing Fund.

(v) Each relevant Continuing Fund will not assume any liabilities of the Merging Trust Fund and the Merging Trust Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the applicable Merger Date.

(vi) The units of each relevant Continuing Fund received by the applicable Merging Trust Fund will have a total net asset value equal to the value of the assets acquired by the relevant Continuing Fund from the Merging Trust Fund, and the units of the relevant Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the applicable Merger Date.

(vii) On the applicable Merger Date, the units of each Continuing Fund received by the applicable Merging Trust Fund will bedistributed to unitholders of the Merging Trust Fund on a dollar for dollar basis in exchange for their units in the Merging Trust Fund, with unitholders of each series of the Merging Trust Fund receiving the corresponding series of units of the Continuing Fund in the manner described further below.

(viii) As soon as reasonably possible following the Mergers, each Merging Trust Fund will be wound up and the applicable Continuing Fund will continue as a publicly offered open end mutual fund.

(b) In respect of the Merger of a Merging Corporate Fund into a Trust Fund (other than the Fund of Fund Mergers):

(i) Prior to effecting a Merger, each of Sun Life BlackRock Canadian Balanced Class, Sun Life BlackRock Canadian Composite Equity Class, Sun Life Franklin Bissett Canadian Equity Class, Sun Life Invesco Canadian Class and Sun Life Sentry Value Class will sell all securities in its portfolio. As a result, these Merging Corporate Funds will temporarily hold cash or cash equivalents and will not be fully invested in accordance with its investment objectives for a brief period of time prior to the Merger.

(ii) The value of each such Merging Corporate Fund's portfolio and other assets will be determined at the close of business on the applicable Merger Date in accordance with the articles of the Corporation.

(iii) The Corporation may declare, pay and automatically reinvest ordinary dividends or capital gains dividends to securityholders of these Merging Corporate Funds, as determined by the Filer at the time of the Merger.

(iv) Each relevant Continuing Fund will acquire the assets (being the cash and cash equivalents) of the applicable Merging Corporate Fund in exchange for units of the Continuing Fund.

(v) Each relevant Continuing Fund will not assume any liabilities of the applicable Merging Corporate Fund and the Merging Corporate Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the applicable Merger Date.

(vi) The units of each relevant Continuing Fund received by the applicable Merging Corporate Fund will have a total net asset value equal to the value of the assets acquired by the relevant Continuing Fund from the Merging Corporate Fund, and the units of the relevant Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the applicable Merger Date.

(vii) On the applicable Merger Date, the units of each relevant Continuing Fund received by the applicable Merging Corporate Fund will be distributed to securityholders of the Merging Corporate Fund on a dollar for dollar basis in exchange for their securities in the Merging Corporate Fund, with securityholders of each Merging Corporate Fund receiving the corresponding series of units of the Continuing Fund in the manner described further below.

(viii) As soon as reasonably possible following the Mergers, each Merging Corporate Fund will be terminated and the applicable Continuing Fund will continue as a publicly offered open end mutual fund.

(ix) The articles of the Corporation will be amended to reflect the termination of each applicable Merging Corporate Fund.

(c) In respect of the Fund of Fund Mergers:

(i) The Corporation may declare, pay and automatically reinvest ordinary dividends or capital gains dividends to securityholders of Sun Life BlackRock Canadian Equity Class, Sun Life Dynamic Equity Income Class, Sun Life Dynamic Strategic Yield Class, Sun Life MFS Dividend Income Class and Sun Life MFS Canadian Equity Growth Class, as determined by the Filer at the time of the Fund of Fund Merger.

(ii) The value of each such Merging Corporate Fund's portfolio and other assets will be determined at the close of business on the applicable Merger Date in accordance with the articles of the Corporation.

(iii) On the Merger Date, each series of securities held by these Merging Corporate Funds in the Continuing Funds will be redeemed by the Filer and the value of those securities receivable by the Merging Corporate Funds will form part of the cash equivalents of the Merging Corporate Funds.

(iv) Each relevant Continuing Fund will acquire the assets (being the cash and cash equivalents) of the applicable Merging Corporate Fund in exchange for units of the Continuing Fund.

(v) Each relevant Continuing Fund will not assume any liabilities of the applicable Merging Corporate Fund and the Merging Corporate Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the applicable Merger Date

(vi) The units of each relevant Continuing Fund received by the applicable Merging Corporate Fund will have a total net asset value equal to the value of the assets acquired by the relevant Continuing Fund from the Merging Corporate Fund, and the units of the relevant Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the applicable Merger Date

(vii) Immediately thereafter, the units of each relevant Continuing Fund held by the applicable Merging Corporate Fund will be distributed to securityholders of the Merging Corporate Fund in exchange for their securities of the Merging Corporate Fund on a dollar for dollar basis in exchange for their securities in the Merging Corporate Fund, with securityholders of each Merging Corporate Fund receiving the corresponding series of units of the relevant Continuing Fund in the manner described further below.

(viii) As soon as reasonably possible following the Fund of Fund Mergers, each Merging Corporate Fund will be terminated and the applicable Continuing Fund will continue as a publicly offered open end mutual fund.

(ix) The articles of the Corporation will be amended to reflect the termination of each applicable Merging Corporate Fund.

Benefits of Mergers

31. When undertaking a Merger, the Filer considers both qualitative and quantitative factors when choosing the Continuing Fund for a Merging Fund. The qualitative factors considered include the comparability of investment objectives, investment strategies, risk rating, investment philosophy and portfolio construction. When considering quantitative factors, the Filer reviews fund performance (using both calendar year and to date metrics), the investment performance correlation between the potential Merging and Continuing Funds, any overlap in investment holdings, the asset allocation / sector allocation / geographic allocation of each Fund, fees for each series, the assets under management difference between the Funds, a taxation analysis at both the Fund and securityholder level and any unique factors that would be applicable for the given Merger. Once each of these items has been reviewed, the Filer will formalize the analysis and recommend a Continuing Fund with which to proceed.

32. With respect to the Mergers involving Sun Life BlackRock Canadian Balanced Class, Sun Life BlackRock Canadian Balanced Fund, Sun Life BlackRock Canadian Composite Equity Class, Sun Life Dynamic American Fund, Sun Life Dynamic Energy Fund, Sun Life Excel China Fund, Sun Life Excel Emerging Markets Balanced Fund, Sun Life Franklin Bissett Canadian Equity Class, Sun Life Invesco Canadian Class, Sun Life MFS Monthly Income Fund, Sun Life Sentry Value Class, Sun Life Sentry Value Fund and Sun Life Templeton Global Bond Fund, securityholders of the applicable Merging Fund may benefit from:

(a) receiving securities of a Continuing Fund that has a management fee and administration fee that are the same as, or lower than, that charged in respect of the series of securities of the Merging Fund that they currently hold;

(b) the greater size and scale of the Continuing Fund, which allows securityholders to benefit from the Continuing Fund's ability to provide more effective portfolio implementation, while also generating a larger profile in the marketplace by potentially attracting more investors and enabling it to maintain a "critical mass";

(c) the Continuing Fund's portfolio provides increased portfolio diversification opportunities; and

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

33. With respect to the Mergers involving Sun Life BlackRock Canadian Equity Class, Sun Life Dynamic Equity Income Class, Sun Life Dynamic Strategic Yield Class, Sun Life MFS Canadian Equity Growth Class and Sun Life MFS Dividend Income Class, securityholders of the applicable Merging Fund may benefit from:

(a) receiving securities of a Continuing Fund that has a management fee and administration fee that are the same as, or lower than, that charged in respect of the series of securities of the Merging Fund that they currently hold;

(b) the greater size and scale of the Continuing Fund, which allows securityholders to benefit from the Continuing Fund's ability to provide more effective portfolio implementation, while also generating a larger profile in the marketplace by potentially attracting more investors and enabling it to maintain a "critical mass"; and

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

Taxable Mergers

34. The Filer has determined that it would not be appropriate to effect the Mergers as a "qualifying exchange" or a tax deferred transaction under the Tax Act for the following reasons: (a) the Mergers involving the Merging Corporate Funds cannot be effected on a tax-deferred basis under the Tax Act without dissolving the entire mutual fund corporation; (b) the Continuing Fund has significant loss carryforwards that would be lost if the Merger was completed on a tax-deferred basis under the Tax Act; (c) with respect to certain Mergers, the vast majority of investors in the Merging Trust Funds are tax-exempt Registered Plans and a taxable merger is neither beneficial nor detrimental to a tax-exempt Registered Plan; (d) with respect to certain Mergers, investors that hold their securities of the Merging Trust Funds outside a Registered Plan are in a loss position and triggering a loss can be beneficial as such losses can be used to offset any capital gains realized in the same year or any of the previous three years, and thus immediately reduce their tax liability; or (e) with respect to certain Mergers, the number of taxable investors in a gain position is quite small relative to the number of tax-exempt investors of each of those Merging Trust Funds, and the Filer has determined that the median gain for taxable investors in each of those Merging Trust Funds is not significant when considered in connection with the median market value of a taxable investor's account.

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 securityholders of the Merging Funds at special meetings held for that purpose.

"Darren McKall"
Investment Funds and Structured Products Branch
Ontario Securities Commission