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 certain mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- the fundamental investment objectives of the terminating funds and the continuing funds are not substantially similar for certain mergers -- certain mergers not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada) -- 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.

April 11, 2018

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 CANADIAN OPPORTUNITIES BALANCED CLASS, MANULIFE U.S. DOLLAR FLOATING RATE INCOME FUND, MANULIFE PREFERRED INCOME CLASS, MANULIFE ASIA TOTAL RETURN BOND FUND, MANULIFE CANADIAN OPPORTUNITIES CLASS, MANULIFE U.S. FIXED INCOME PRIVATE TRUST, MANULIFE SHORT TERM BOND FUND, MANULIFE CANADIAN CORPORATE BOND FUND, MANULIFE HIGH YIELD BOND FUND, MANULIFE EMERGING MARKETS DEBT FUND, MANULIFE EMERGING MARKETS 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 on behalf of 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 the applicable Continuing Funds (as defined below) 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 Funds (as defined below) and also the trustee of the Trust Funds (as hereinafter defined).

The Funds

4. Each of Manulife U.S. Dollar Floating Rate Income Fund, Manulife Asia Total Return Bond Fund, Manulife U.S. Fixed Income Private Trust, Manulife Short Term Bond Fund, Manulife Canadian Corporate Bond Fund, Manulife High Yield Bond Fund and Manulife Emerging Markets Debt Fund, (each a "Trust Fund", and together, the "Trust Funds") are open-ended mutual fund trusts established under the laws of Ontario by declarations of trust and where applicable, separate regulations (together with the declarations of trust, the "Declarations of Trust") and are governed by the provisions of NI 81-102.

5. Each of Manulife Canadian Opportunities Balanced Class, Manulife Preferred Income Class, Manulife Canadian Opportunities Class, and Manulife Emerging Markets Class (each a "Corporate Class", and together, the "Corporate Classes") 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 governed by the provisions of NI 81-102.

6. The Filer is proposing to merge each Terminating Fund listed in Schedule "A" 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.

7. Other than E-Series, Legend Series, Series H, Series HE, Series J, Series JT and Series K Securities, (the "Non-Offered Continuing Fund Series"), securities of the Continuing Funds are qualified for sale in each of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form, each dated August 1, 2017, as amended.

8. Legend Series and E-Series of the Terminating Funds are currently capped to new purchases and not available by way of prospectus. In addition, securityholders of Series X, Series O, Series G and Series M of the Terminating Funds have only been offered by way of a prospectus exemption pursuant to National Instrument 45-106 -- Prospectus Exemptions. All of such Terminating Fund series are referred to herein as the "Non-Offered Terminating Fund Series".

9. 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.

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

12. 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

13. The Approval Sought is required because: (i) in the case of the Mergers between Manulife Asia Total Return Bond Fund and Manulife Global Tactical Credit Fund, Manulife U.S. Dollar Floating Rate Income Fund and Manulife U.S. Dollar Strategic Income Fund, Manulife Preferred Income Class and Manulife Dividend Income Class, Manulife U.S. Fixed Income Private Trust and Manulife Global Fixed Income Private Trust, Manulife Short Term Bond Fund and Manulife Money Market Private Trust, Manulife Canadian Corporate Bond Fund and Manulife Canadian Bond Plus Fund, Manulife Emerging Markets Debt Fund and Manulife Global Tactical Credit Fund, a reasonable person may not consider the fundamental investment objectives of a Terminating Fund and its corresponding Continuing Fund to be "substantially similar" as required by subsection 5.6(1)(a)(ii) of NI 81-102, and (ii) 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").

The Proposed Mergers

14. Each Merger is anticipated to be effective on or about the effective date as set out in Schedule "A" (the "Effective Date").

15. Pursuant to subsection 5.1(f) of NI 81-102, securityholders of the Terminating Funds approved the Mergers at special meetings held on April 4, 2018.

16. Pursuant to 5.1(g) of NI 81-102, securityholders of the Manulife Canadian Monthly Income Class, Manulife Dividend Income Class, Manulife Canadian Stock Class, Manulife Money Market Private Trust, Manulife Canadian Bond Plus Fund and Manulife U.S. Tactical Credit Fund approved the Mergers at special meetings held on April 4, 2018 as each such Merger was a material change for such Funds.

17. 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 (as defined below).

18. No costs or expenses will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of its corresponding Terminating Fund.

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. 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

21. A press release was issued and filed on SEDAR on January 15, 2018, and a material change report was filed on SEDAR on January 25, 2018 with respect to the proposed Mergers. The simplified prospectus, annual information form, and fund facts for the applicable Funds were amended to include disclosure with respect to the Mergers in accordance with applicable securities law.

22. A notice of meeting, a management information circular ("Circular") and a form of proxy (together, the "Meeting Materials") in connection with the special meetings of securityholders being held on or about April 4, 2018, were mailed to investors of record as at February 20, 2018 of the Terminating Funds, certain Continuing Funds, and to other applicable securityholders for matters that are not subject to this application, and filed on SEDAR, on or before March 14, 2018.

23. 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, the differences between being a securityholder of a mutual fund trust and a securityholder of a mutual fund corporation and the potential benefits of the Mergers.

24. The Circular also contained certain prospectus-level disclosure concerning the Continuing Funds, 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.

25. The Circular also disclosed that securityholders could obtain the simplified prospectus, annual information form, fund facts, the most recent annual and interim financial statements and the most recent annual and interim management report of fund performance for the Continuing Funds from the Filer upon request or on SEDAR at www.sedar.com. Also, when applicable, accompanying the Circular delivered to securityholders of the Terminating Funds was a copy of the fund facts for the relevant 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

26. 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 each Trust Fund and the articles of MIX Corp. will be amended to permit such actions as are necessary to complete the Mergers.

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

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

(v) In exchange, the Terminating Fund will receive securities of the relevant series of the corresponding 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, each Terminating Fund will cause all of its securities to be redeemed and pay the redemption price by distributing securities of the corresponding Continuing Fund. This will result in each securityholder of a Terminating Fund receiving securities of the applicable series of the corresponding 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 a Terminating Fund will receive securities of its corresponding Continuing Fund as follows:

Terminating Fund	Continuing Fund
Manulife U.S. Fixed Income Private Trust	Manulife Global Fixed Income Private Trust
Advisor Series securities	Series H securities{1}
Series F securities	Series J securities{1}
Series X securities	Series X securities
Series O securities	Series O securities
Series G securities	Series G securities
Series L securities	Series HE securities{1}
Manulife Short Term Bond Fund	Manulife Money Market Private Trust
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Legend Series securities	Legend Series securities
E-Series securities	E-Series securities
Series X securities	Series X securities
Series H securities	Advisor Series securities
Series J securities	Series F securities
Series G securities	Series G securities
Manulife Canadian Corporate Bond Fund	Manulife Canadian Bond Plus Fund
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series T securities
Legend Series securities	Legend Series securities
E-Series securities	E-Series securities
Series X securities	eries X securities
Series G securities	Series G securities
Manulife High Yield Bond Fund	Manulife U.S. Tactical Credit Fund
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series T securities
Legend Series securities	Legend Series securities
E-Series securities	E-Series securities
Series X securities	Series X securities
Series M securities	Series M securities
Series J securities	Series F securities
Series G securities	Series G securities
Series D securities	Series D securities
Manulife Emerging Markets Debt Fund	Manulife Global Tactical Credit Fund
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series T securities
Series I securities	Series I securities
Legend Series securities	Legend Series securities
E-Series securities	E-Series securities
Series X securities	Series X securities
Series J securities	Series F securities
Series G securities	Series G securities
Manulife Emerging Markets Class	Manulife Emerging Markets Fund
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series T securities
Series X securities	Series X securities
Series G securities	Series G securities
Manulife Canadian Opportunities Balanced Class	Manulife Canadian Monthly Income Class
Advisor Series securities	Series H securities{2}
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series K securities{2}
Manulife U.S. Dollar Floating Rate Income Fund	Manulife U.S. Dollar Strategic Income Fund
Advisor Series securities	Series H securities{2}
Series F securities	Series J securities{2}
Series FT securities	Series JT securities{2}
Series T securities	Series K securities{2}
Series I securities	Series I securities
Manulife Preferred Income Class	Manulife Dividend Income Class
Advisor Series securities	Series H securities{2}
Series F securities	Series J securities{2}
Series FT securities	Series JT securities{2}
Series T securities	Series K securities{2}
Series I securities	Series I securities
Manulife Asia Total Return Bond Fund	Manulife Global Tactical Credit Fund
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series T securities
Series I securities	Series I securities
Series X securities	Series X securities
Series G securities	Series G securities
Series D securities	Series D securities
Manulife Canadian Opportunities Class	Manulife Canadian Stock Class
Advisor Series securities	Advisor Series securities
Series F securities	Series F securities
Series FT securities	Series FT securities
Series T securities	Series T securities
Series D securities	Series D securities

{1} New series of securities of the Continuing Fund will be created to grandfather the lower management fees of the Terminating Fund. Please see Schedule "B" for the new series being created. Such new series may be re-named by the Filer, at its discretion, prior to the Merger taking place.

{2} New series of securities of the Continuing Fund will be created to grandfather the lower management fees of the Terminating Fund. Please see Schedule "B" for the new series being created. Such new series may be re-named by the Filer, at its discretion, prior to the Merger taking place.

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.

27. As indicated in the table above, securityholders of the Non-Offered Terminating Fund Series (the "Non-Offered Terminating Fund Securityholders"), will receive corresponding Non-Offered Continuing Fund Series upon completion of their Mergers.

28. In addition to the Non-Offered Terminating Fund Securityholders, the securityholders of Advisor Series, Series F and Series L of Manulife U.S. Fixed Income Private Trust, Advisor Series and Series T of Manulife Canadian Opportunities Balanced Class, Advisor Series, Series F, Series FT and Series T of Manulife U.S. Dollar Floating Rate Income Fund, and Advisor Series, Series F, Series FT and Series T of Manulife Preferred Income Class (the "Offered Terminating Fund Securityholders") will receive corresponding Non-Offered Continuing Fund Series as indicated in the table above upon completion of their Mergers. Such Mergers involving the Non-Offered Terminating Fund Securityholders and the Offered Terminating Fund Securityholders, and the resultant distribution of securities of Non-Offered Continuing Fund Series, will be completed in reliance on the prospectus exemption contained in section 2.11 of National Instrument 45-106 Prospectus Exemptions. Non-Offered Continuing Fund Series are being created solely to grandfather the lower management fees of the Terminating Funds to facilitate such Mergers and are not or will not be qualified for distributions or available for sale following completion of the Mergers.

29. With respect to the Mergers involving Offered Terminating Fund Securityholders described in paragraph 28 above, the Filer included prospectus level disclosure in the Circular describing the applicable securities and Mergers in sufficient detail to enable the Offered Terminating Fund Securityholders to form a reasoned judgement concerning the applicable Mergers. In particular, the Circular disclosed information regarding fees, expenses, investment objectives, risk ratings, valuation procedures, the manager, the portfolio advisor (or sub-advisor, as applicable), income tax considerations and net asset value of the applicable Terminating Funds and applicable Continuing Funds.

30. 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.

31. All Terminating Funds with an Effective Date of April 20, 2018 will be capped to new purchases and redemptions as of 4:00 pm (Toronto time) on: (i) April 18, 2018 for wire orders over Fundserv, and (ii) after 4:00 pm (Toronto time) on April 20, 2018 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 April 19, 2018.

32. All Terminating Funds with an Effective Date of May 25, 2018 will be capped to new purchases and redemptions as of 4:00 pm (Toronto time) on: (i) May 23, 2018 for wire orders over Fund, and (ii) after 4:00 pm (Toronto time) on May 25, 2018 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 May 24, 2018.

Benefits of Mergers

33. 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 and would generally attract the same type of investor with a similar risk-return profile. 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 Certain Fund Costs (as defined in the Simplified Prospectus of the Terminating Funds and Continuing Funds dated August 1, 2017, as amended) of the Continuing Funds will be spread over a greater pool of assets when the Terminating Funds merge into the corresponding Continuing Funds, potentially resulting in a lower management expense ratio for the Continuing Funds 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 corresponding Continuing Funds.

(iii) 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. 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) 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 to the Continuing Funds will benefit investors by ensuring that the Continuing Funds remain viable, long-term, attractive investment vehicles 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.

"Darren McKall"

Manager, Investment Funds & Structured Products Branch

Ontario Securities Commission

 

SCHEDULE "A"

TERMINATING FUND	CONTINUING FUND	EFFECTIVE DATE	MERGER TYPE
Manulife Canadian Opportunities Balanced Class	Manulife Canadian Monthly Income Class	On or about April 20, 2018	Corporate to Corporate
Manulife U.S. Dollar Floating Rate Income Fund	Manulife U.S. Dollar Strategic Income Fund	On or about April 20, 2018	Trust to Trust
Manulife Preferred Income Class	Manulife Dividend Income Class	On or about April 20, 2018	Corporate to Corporate
Manulife Asia Total Return Bond Fund	Manulife Global Tactical Credit Fund	On or about April 20, 2018	Trust to Trust
Manulife Canadian Opportunities Class	Manulife Canadian Stock Class	On or about April 20, 2018	Corporate to Corporate
Manulife U.S. Fixed Income Private Trust	Manulife Global Fixed Income Private Trust	On or about May 25, 2018	Trust to Trust
Manulife Short Term Bond Fund	Manulife Money Market Private Trust	On or about May 25, 2018	Trust to Trust
Manulife Canadian Corporate Bond Fund	Manulife Canadian Bond Plus Fund	On or about May 25, 2018	Trust to Trust
Manulife High Yield Bond Fund	Manulife U.S. Tactical Credit Fund	On or about May 25, 2018	Trust to Trust
Manulife Emerging Markets Debt Fund	Manulife Global Tactical Credit Fund	On or about May 25, 2018	Trust to Trust
Manulife Emerging Markets Class	Manulife Emerging Markets Fund	On or about May 25, 2018	Corporate to Trust

 

SCHEDULE "B"

NEW GRANDFATHERING SERIES IN CONTINUING FUNDS

Terminating Fund		Continuing Fund
Manulife Canadian Opportunities Balanced Class	into	Manulife Canadian Monthly Income Class
Advisor Series securities	[RARR]	Series H securities
Series T securities	[RARR]	Series K securities
Manulife U.S. Dollar Floating Rate Income Fund	into	Manulife U.S. Dollar Strategic Income Fund
Advisor Series securities	[RARR]	Series H securities
Series F securities	[RARR]	Series J securities
Series FT securities	[RARR]	Series JT securities
Series T securities	[RARR]	Series K securities
Manulife Preferred Income Class	into	Manulife Dividend Income Class
Advisor Series securities	[RARR]	Series H securities
Series F securities	[RARR]	Series J securities
Series FT securities	[RARR]	Series JT securities
Series T securities	[RARR]	Series K securities
Manulife U.S. Fixed Income Private Trust	Into	Manulife Global Fixed Income Private Trust
Advisor Series securities	[RARR]	Series H securities
Series F securities	[RARR]	Series J securities
Series L securities	[RARR]	Series HE securities