In the Matter of AGF Investments INC., 2016 CanLII 21017

April 18, 2016

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

AGF Investments INC. (AGF)

and

the Merging Funds (as defined below)

and

the Continuing Funds (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the Application) from AGF, the manager of each of the funds discussed below (AGF, together with the funds discussed below are referred to as the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for merger approvals (Merger Approval) pursuant to clause 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102). Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for the Application, and

(b) the Filers have 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, the Northwest Territories, Yukon 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.

The following terms shall have the following meanings:

AGF AIF

refers to the AGF funds’ annual information form dated April 17, 2015, as amended

AGF SP

refers to the AGF funds’ simplified prospectus dated April 17, 2015, as amended

Circular

refers to the management information circular described in this Application

Continuing Funds

refers to AGF Canadian Small Cap Fund and AGF Global Equity Fund

Funds

refers, collectively, to the Merging Funds and the Continuing Funds, and each, a Fund

IRC

refers to the independent review committee of a Fund or Funds

Merger Effective Date

refers to on or about May 20, 2016 – the expected date for effecting the Proposed Mergers (as defined below)

Merging Funds

refers to AGF Global Value Fund and AGF Canadian Small Cap Discovery Fund

Tax Act

refers to the Income Tax Act (Canada)

Representations

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

The Filers

1The head office of each of the Filers is located in Toronto, Ontario. The Filers are not in default of securities legislation in any jurisdiction of Canada.

2AGF is the investment fund manager and trustee of each of the Funds.

3AGF is registered as an investment fund manager in each of Ontario, Québec, Alberta, British Columbia and Newfoundland and Labrador.

4Each of the Funds is an open-end mutual fund trust established under the laws of Ontario by a declaration of trust pursuant to which AGF is the trustee.

5Each of the Funds is a reporting issuer under the applicable securities legislation of each jurisdiction in Canada.

6Various series of the Funds are qualified for distribution pursuant to the AGF SP and AGF AIF.

The Proposed Mergers

7The Funds proposed to be merged (the Proposed Mergers) are set forth below:

MERGING FUND

CONTINUING FUND

AGF Canadian Small Cap Discovery Fund

AGF Canadian Small Cap Fund

AGF Global Value Fund

AGF Global Equity Fund

8AGF currently proposes to effect the Proposed Mergers on or about May 20, 2016 (the Merger Effective Date).

9AGF has determined that the Proposed Mergers will not be a material change to the Continuing Funds.

10Unitholders of the Merging Funds will continue to have the right to redeem securities of the Merging Funds at any time up to the close of business immediately before the Merger Effective Date.

11The Proposed Mergers will not be implemented on a tax-deferred basis as described in paragraph 5.6(1)(b) of NI 81-102.

12Except as noted above, the Proposed Mergers would otherwise comply with all of the other conditions of section 5.6 of NI 81-102.

Reasons for Merger Approval

13Section 5.5(1)(b) of NI 81-102 requires the approval of the Principal Regulator before a reorganization or transfer of assets of a mutual fund is implemented, if the transaction will result in the unitholders of the mutual fund becoming unitholders in another mutual fund and the reorganization or transfer of assets does not satisfy the criteria for pre-approved mergers, reorganizations and transfers set out in section 5.6 of NI 81-102.

14Approval of the Proposed Mergers is required because the Proposed Mergers do not satisfy all of the criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102, namely because the Proposed Mergers will not be tax-deferred transactions as described in paragraph 5.6(1)(b) of NI 81-102. Except for this reason, the Proposed Mergers will otherwise comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

15The Filers have determined that it would not be appropriate to effect the Proposed Mergers as a tax-deferred transaction for the following reasons: (i) each Merging Fund has sufficient loss carry-forwards to shelter any net capital gains that could arise for it on the taxable disposition of its portfolio assets on its Proposed Merger; (ii) effecting each Proposed Merger on a taxable basis would preserve the net losses and loss carry-forwards in the relevant Continuing Fund; and (iii) effecting each Proposed Merger on a taxable basis will have no other tax impact on the relevant Continuing Fund.

Approval of the Mergers

16Meetings of unitholders of the Merging Funds were held on or about April 13, 2016, and unitholders of the Merging Funds approved the Proposed Mergers.

17AGF will be responsible for the costs associated with the Proposed Mergers. Costs and expenses associated with the Proposed Mergers, including the costs of the unitholder meetings, will be borne by AGF and will not be charged to the Funds. The costs of the Proposed Mergers include transaction costs associated with any portfolio liquidations, legal, printing, mailing and regulatory fees, as well as proxy solicitation costs.

18No sales charges will be payable by unitholders of the Funds in connection with the Proposed Mergers.

19A press release describing the Proposed Mergers has been issued. The press release, material change report and amendments to the simplified prospectus, annual information form and fund facts, which give notice of the Proposed Mergers, have been filed via SEDAR.

20AGF is not entitled to seek the approval of the respective IRCs for the Proposed Mergers due to the fact that one or more conditions of section 5.6 of NI 81-102 will not be met as required by section 5.3(2)(c) of NI 81-102.

21Pursuant to National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), on March 9, 2016, the IRCs reviewed the Proposed Mergers on behalf of the Merging Funds and the Continuing Funds and the process to be followed in connection with the Proposed Mergers, and have advised AGF that in the IRCs’ opinion, having reviewed each of the Proposed Mergers as a potential conflict of interest, following the process proposed, each of the Proposed Mergers achieves a fair and reasonable result for each of the Merging Funds and the Continuing Funds.

22The relevant notices of the meetings and Circular have been mailed to unitholders of the relevant Funds and filed on SEDAR in accordance with applicable securities legislation. The Circular includes disclosure concerning the Continuing Funds resulting from the Proposed Mergers, including information regarding fees, expenses, investment objectives, the portfolio manager, redemptions, income tax considerations, distribution policies and net asset values. The Circular also includes disclosure where unitholders can obtain the most recent continuous disclosure documents of the Merging Funds and the Continuing Funds. Also accompanying the Circular delivered to unitholders is a Fund Facts document of the relevant Continuing Fund.

23Following each Proposed Merger, the relevant Continuing Fund will continue as a publicly offered open-end mutual fund and the Merging Fund will be wound up as soon as reasonably practicable.

24AGF believes that the Proposed Mergers will be beneficial to unitholders of each Fund for the following reasons:

(a) it is expected that each Proposed Merger will reduce duplication and create operational efficiencies;

(b) following the Proposed Mergers, each Continuing Fund will have more assets, thereby allowing for increased portfolio diversification opportunities; and

(c) each Continuing Fund will benefit from its larger profile in the marketplace.

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 Merger Approval is granted.