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Manulife Asset Management Limited et al.
Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of proposed current mutual fund mergers under the approval requirements in NI 81-102 -- Proposed current merger approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- certain mergers not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- securityholders of terminating funds provided with timely and adequate disclosure. Future fund mergers comply with pre-approved merger requirements in NI 81-102 except that the Manager will provide adequate and timely alternate prospectus level disclosure instead of the prospectus and financial statements to securityholders of terminating funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1).
October 5, 2010
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 WEALTH MANAGEMENT FUND
(formerly AIC Global Wealth Management Fund)
MANULIFE AMERICAN SMALL TO MID CAP FUND
(formerly AIC American Small to Mid Cap Fund)
MANULIFE GLOBAL DIVIDEND FUND
MANULIFE U.S. VALUE FUND
(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:
(a) approval of the mergers (the "Current 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"); and
(b) approval under paragraph 5.5(1)(b) of NI 81-102 of any merger, after the date of this decision, of mutual funds managed by the Filer or an affiliate that meet all of the criteria for pre-approval of mergers under section 5.6 of NI 81-102 except for the financial statement delivery requirement and the simplified prospectus delivery requirement of sub-paragraph 5.6(1)(f)(ii) of NI 81-102 (the "Future Mergers").
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 11-102Passport 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 and portfolio manager and has made an application to be registered in the category of investment fund manager.
3. The Filer is the manager and trustee of the Funds (as defined below).
4. The Funds are open-end mutual fund trusts established under the laws of Ontario by declarations of trust and are governed by the provisions of the NI 81-102.
5. The Filer is proposing to merge each Terminating Fund listed in the chart below into the fund (each a "Continuing Fund" and, collectively, the "Continuing Funds" and, together with the Terminating Funds, the "Funds") shown opposite its name:
6. Securities of the Funds are currently qualified for sale in each of the provinces and territories of Canada pursuant to simplified prospectuses and annual information forms filed with and receipted by the securities regulators in the applicable jurisdiction(s).
7. 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.
8. Other than circumstances in which the securities regulatory authority 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.
9. The net asset value for each of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for business.
10. Each Current Merger will be structured as follows:
(i) the Terminating Fund will transfer all of its assets and liabilities to its corresponding Continuing Fund for an amount equal to the net value of the assets transferred, which amount will be satisfied as described in (iv) below;
(ii) the Continuing Fund will issue securities of the Continuing Fund (as described in (iv) below) to its corresponding Terminating Fund having a net asset value equal to the net value of the assets transferred by the Terminating Fund;
(iii) the Terminating Fund will redeem its outstanding securities and pay the redemption price for these securities by distributing securities of its corresponding Continuing Fund to the Terminating Fund's securityholders;
(iv) securityholders of the Terminating Fund will receive securities of the Continuing Fund as follows:
{•} A new series of securities of the Manulife Global Advantage Fund, to be called Series H securities, will be created to grandfather the management fee of the Advisor Series securities of the Terminating Fund. Upon completion of the merger, Series H securities will be closed to all new purchases, including pre-authorized contributions. Series H securityholders will maintain the same sales charge option and/or DSC schedule within the Continuing Fund.
(v) securities of the Continuing Fund received by the securityholders of its corresponding Terminating Fund will have an aggregate net asset value equal to the aggregate net asset value of the securities of the Terminating Fund which are being redeemed;
(vi) as soon as reasonably practicable after the distribution of securities of the Continuing Fund by the Terminating Fund, the Terminating Fund will be wound-up.
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. Securityholders of each Terminating Fund will continue to have the right to redeem securities of the Terminating Fund for cash at any time up to the close of business on the effective date of the Current Mergers, which is expected to be on or about November 19, 2010.
13. A press release was issued and filed on SEDAR on August 23, 2010 and a material change report was filed on SEDAR on August 25, 2010 with respect to the proposed Current Mergers. The simplified prospectus and annual information form for the Manulife Mutual Funds included disclosure relating to the proposed Current Mergers and was filed on August 19, 2010. Amendments to the simplified prospectus and annual information form for the AIC Funds disclosing the proposed Current Mergers were filed on August 19, 2010.
14. Securityholders of the Terminating Funds will be asked to approve the Current Mergers at special meetings to be held on or about October 13, 2010.
15. A notice of meeting, a management information circular (the "Circular") and a form of proxy in connection with the special meetings of securityholders will be mailed to securityholders of the Terminating Funds and filed on SEDAR on or about September 17, 2010.
16. Pursuant to National Instrument 81-107 Independent Review Committee for Investment Funds, the independent review committee of the Funds has reviewed the proposed Current Merger of each Terminating Fund with its corresponding Continuing Fund and the process to be followed in connection with each Current Merger, and has advised the Filer that, in the opinion of the independent review committee, having reviewed each Current Merger as a potential "conflict of interest matter", each Current Merger achieves a fair and reasonable result for the Terminating Funds and the Continuing Funds. This information will be disclosed in the Circular.
17. The Filer will pay for the costs of the Current Mergers. These costs consist mainly of legal, proxy solicitation, printing, mailing, brokerage costs and regulatory fees.
18. Approval for the Current Mergers is required because the Current 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 because
(i) each such Current Merger will be completed on a taxable basis and not as a "qualifying exchange" or as a tax-deferred transaction under the Tax Act as required under subsection 5.6(1)(b); and
(ii) the materials sent to securityholders of the Terminating Funds in connection with the special meetings of such securityholders to be held to seek approval of the Current Mergers will not include a copy of the current simplified prospectus of the Continuing Funds or a copy of the financial statements of the Continuing Funds as required under subsection 5.6(1)(f)(ii).
19. Except as noted above, the Current 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.
20. The Filer believes that the Current Mergers will benefit securityholders of the Funds because:
a. Securityholders of the Funds may have the potential to enjoy increased economies of scale with respect to administrative expenses, as well as greater profile in the marketplace as part of larger Continuing Funds. As a result of the Current Mergers, existing securityholders of each Terminating Fund will not be subject to any increase in management fees and, in some cases, will potentially benefit from a decrease in management fees.
b. Each Current Merger will eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate mutual fund.
c. 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.
d. Each of the Continuing Funds are 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.
21. The foregoing reasons for the Current Mergers will be set out in the Circular. In addition, the Circular will include prospectus-like disclosure concerning the Continuing Funds, including information regarding fees, expenses, investment objective, investment strategy, valuation procedures, the manager, the portfolio advisor, income tax considerations and net asset value. The Circular will also disclose that securityholders can obtain the simplified prospectus and annual information form and the most recent financial statements 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.
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 Current Mergers and the Future Mergers (collectively, the "Mergers") are approved provided that:
(i) the information circular sent to securityholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;
(ii) the management information circular sent to securityholders in connection with a Merger prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by contacting their dealer, by calling Manulife's 1-800 number, by accessing it on Manulife'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, Manulife makes 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;
(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; and
(v) the material sent to securityholders in respect of a Merger includes the simplified prospectus of the applicable continuing fund or a tailored simplified prospectus consisting of:
(a) the current Part A of the simplified prospectus of the applicable continuing fund; and
(b) the current Part B of the simplified prospectus of the applicable continuing fund.
"Darren McKall"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission