AGF Investments Inc. et al.

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 -- certain mergers will not be a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada) -- mergers to 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 2, 2019

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.
(the Filer)

AND

AGF CANADIAN GROWTH EQUITY FUND,
AGF FLEX ASSET ALLOCATION 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 on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed merger of AGF Canadian Growth Equity Fund into AGFiQ Dividend Income Fund (the Taxable Merger), and the proposed merger of AGF Flex Asset Allocation Fund into AGF Elements Conservative Portfolio (together with the Taxable Merger, the Mergers) 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(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the provinces and territories of Canada, other than Ontario (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 Fund means each of AGF Elements Conservative Portfolio and AGFiQ Dividend Income Fund;

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

IRC means the independent review committee for the Funds;

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; and

Tax Act means the Income Tax Act (Canada).

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 the province of Ontario with its head office in Toronto, Ontario.

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

3. The Filer is registered as an investment fund manager in Alberta, British Columbia, Ontario, Quebec and Newfoundland and Labrador, as a portfolio manager in each of the Jurisdictions, as an exempt market dealer in Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan, as a mutual fund dealer in British Columbia, Ontario and Quebec and as a commodity trading manager in Ontario.

4. The Filer is not in default of any requirement of securities legislation in any of the Canadian Jurisdictions.

The Funds

5. The Funds are open ended mutual funds established as trusts under the laws of Ontario.

6. Securities of the Funds are currently qualified for sale in the Canadian Jurisdictions under a simplified prospectus, annual information form and fund facts documents dated April 26, 2018, as amended by Amendment No. 1 dated June 18, 2018 and Amendment No. 2 dated September 5, 2018, as they may be further amended (collectively, the Offering Documents).

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

8. The Funds are not in default of any requirement of securities legislation of any of the Canadian Jurisdictions.

9. 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.

10. All of the Continuing Funds have substantially similar valuation procedures to those of the Terminating Funds. The net asset value for each series of the Funds is calculated on each day that the Toronto Stock Exchange is open for business in accordance with the Funds' valuation policy and as described in the Offering Documents.

11. Securities of the Funds are qualified investments under the Tax Act.

Reason for Approval Sought

12. Regulatory approval of the Mergers is required because each Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. The pre-approval criteria are not satisfied in the following ways:

(a) the fundamental investment objective of each Continuing Fund is not, or may not be considered to be, "substantially similar" to the investment objective of its corresponding Terminating Fund; and

(b) the merger of AGF Canadian Growth Equity Fund into AGFiQ Dividend Income Fund will not be completed as a "qualifying exchange" or as a tax-deferred transaction under the Tax Act.

13. The investment objectives of the Terminating Funds and the Continuing Funds are as follows:

Terminating Fund	Investment Objective	Continuing Fund	Investment Objective
AGF Canadian Growth Equity Fund	The Fund's objective is to provide long-term growth of capital by investing primarily in equity securities of Canadian issuers.	AGFiQ Dividend Income Fund	The Fund's objective is to provide investors with long-term capital appreciation along with the potential for monthly income, primarily through investing in high dividend yielding shares trading on Canadian stock exchanges. The Fund may also invest in money market instruments and fixed income investments issued by corporations and governments of Canada.
AGF Flex Asset Allocation Fund	The Fund's objective is to provide total return over a market cycle, with a focus on capital preservation and risk management. The Fund utilizes a systematic investment framework to construct a diversified portfolio consisting primarily of, but not limited to, any combination of global ETFs, equity securities, fixed income, and short-term instruments as well as cash and cash equivalents.	AGF Elements Conservative Portfolio	The Portfolio's objective is to provide long-term returns with lower risk by investing primarily in a diversified mix of income, bond, money market and equity mutual funds.

14. Except as described in this decision, the proposed Mergers comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

The Proposed Mergers

15. The Filer intends to reorganize the Funds as follows:

(a) AGF Canadian Growth Equity Fund will merge into AGFiQ Dividend Income Fund; and

(b) AGF Flex Asset Allocation Fund will merge into AGF Elements Conservative Portfolio.

16. The Taxable Merger will be effected on a taxable basis, while the other Merger will be effected on a tax-deferred basis.

17. In accordance with NI 81-106, a press release announcing the proposed Mergers was issued and filed via SEDAR on February 27, 2019 and a material change report with respect to the proposed Mergers was filed via SEDAR on February 27, 2019.

18. As required by NI 81-107, the Filer presented the terms of the Mergers to the IRC for its review. The IRC determined that the Mergers, if implemented, will achieve a fair and reasonable result for each of the Funds.

19. Securityholders of each Terminating Fund will be asked to approve the applicable Mergers at a special meeting to be held on or about April 17, 2019 (the Meeting).

20. The Filer is of the view that none of the Mergers will be a material change for any of the Continuing Funds, as the assets of each Continuing Fund are larger than the assets of its corresponding Terminating Fund.

21. By way of order dated November 4, 2016, the Filer was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of NI 81-106 to send a printed management information circular to securityholders while proxies are being solicited, and, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such securityholders. In accordance with the Filer's standard of care owed to the Funds pursuant to securities legislation, the Filer will only use the notice-and-access procedure for a particular meeting where it has concluded that it is appropriate and consistent with the purposes of notice-and-access (as described in the Companion Policy to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer) to do so, also taking into account the purpose of the meeting and whether the Funds would obtain a better participation rate by sending the management information circular with the other proxy-related materials.

22. Pursuant to the requirements of the Notice-and-Access Relief, a notice-and-access document and form of proxy in connection with the Meeting, along with the most recent fund facts document(s) of the relevant series of the Continuing Funds, were mailed to securityholders of the Terminating Funds commencing on March 15, 2019 and were concurrently filed via SEDAR. The management information circular (the Circular), which the notice-and-access document describes how to obtain, was also filed via SEDAR at the same time.

23. The tax implications of the Mergers and the differences between the investment objectives of the Terminating Funds and the Continuing Funds and the IRC's recommendation of the Mergers were described in the Circular so that the securityholders of the Terminating Funds could consider this information before voting on the Mergers. The Circular also described the various ways in which investors could obtain a copy of the simplified prospectus, annual information form and fund facts documents for the Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance.

24. The Terminating Funds and the Continuing Funds are, and are expected to continue to be at all material times, mutual fund trusts under the Tax Act and, accordingly, units of the Funds are "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.

25. When considering a merger of two or more funds, the Filer undertakes a thoughtful and extensive process to ensure its fund line up meets the changing needs of investors. Once the Filer determines it is appropriate to no longer continue offering a particular mandate, the Filer selects the appropriate continuing fund to receive the assets of the merging fund by considering both qualitative and quantitative factors. 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, the investment performance correlation between the potential merging funds and continuing funds, any overlap in investment holdings, the asset allocation/sector allocation/geographic allocation of each fund, fees for each series, the difference in assets under management 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 formalizes the analysis and recommends a continuing fund with which to proceed forward.

26. With respect to the proposed merger of AGF Flex Asset Allocation Fund into AGF Elements Conservative Portfolio, the Filer determined that it was no longer viable to maintain these Funds as separate mandates. Both Funds aim to provide long-term returns with lower risk using an asset allocation strategy to gain exposure to equities, fixed income and money market instruments. Further, both Funds achieve their investment objectives by investing in other investment funds. The Continuing Fund has a lower risk rating than the Terminating Fund. After considering the factors set out in paragraph 25, AGF Elements Conservative Portfolio was selected as the Continuing Fund primarily due to the size of the Continuing Fund and its lower risk rating.

27. With respect to the proposed merger of AGF Canadian Growth Equity Fund into AGFiQ Dividend Income Fund, the Filer determined that it was no longer viable to maintain these Funds as separate mandates. Both Funds seek to provide long-term capital growth by investing primarily in Canadian issuers, while the Continuing Fund seeks to also provide potential for monthly income. Both Funds have identical risk ratings, high short-term and long-term performance correlations and similar geographical equities exposure. After considering the factors set out in paragraph 25, AGFiQ Dividend Income Fund was selected as the Continuing Fund primarily due to the size of the Continuing Fund and similarities in the overall investment experience in terms of risk, return and geographic exposure.

28. The Filer has determined that it would not be appropriate to effect the Taxable Merger as a "qualifying exchange" within the meaning of section 132.2 of the Tax Act or as a tax-deferred transaction for the following reasons:

(a) to the extent that securityholders in the AGF Canadian Growth Equity Fund have an accrued capital loss on their units, effecting the Taxable Merger on a taxable basis will afford them the opportunity to realize that loss and use it against current capital gains or even carry it forward or back as permitted under the Tax Act;

(b) effecting the Taxable Merger on a taxable basis would preserve the loss carry-forwards in the Continuing Fund; and

(c) effecting the Taxable Merger on a taxable basis is not expected to have a tax impact on the Continuing Fund.

29. If all required approvals for the Mergers are obtained, it is intended that the Mergers will occur after the close of business on or about May 17, 2019 and no later than December 31, 2019 (the Merger Date). The Filer therefore anticipates that securityholders of each Terminating Fund will become securityholders of the applicable Continuing Fund after the close of business on the Merger Date.

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

31. The Filer will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with any merger-related trades, legal, proxy solicitation, printing, mailing and regulatory fees.

32. No sales charges will be payable by securityholders of the Terminating Funds in connection with the Mergers.

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

Merger Steps

34. The proposed Mergers will be structured as follows:

(a) Prior to the Merger Date, any investments of the Terminating Funds which are not suitable for the applicable Continuing Funds or acceptable to the portfolio manager of the Continuing Funds will be sold. As a result, the Terminating Funds may temporarily hold cash and/or money market instruments and may not be invested in accordance with its investment objectives for a brief period of time prior to the Merger Date. The value of any investments sold will depend on prevailing market conditions.

(b) Prior to the Merger Date, each Terminating Fund will distribute to its securityholders sufficient net income and net realized capital gains, if any, so that the Terminating Fund will not be subject to tax under Part I of the Tax Act for the taxation year that includes the Merger Date.

(c) The value of each Terminating Fund's portfolios and other assets will be determined at the close of business on the Merger Date in accordance with its declaration of trust.

(d) On the Merger Date, substantially all of the Terminating Funds' assets will be transferred to the applicable Continuing Fund (after reserving sufficient assets to satisfy its estimated liabilities, if any, as of the Merger Date) in exchange for securities of the applicable Continuing Fund having an aggregate net asset value equal to the aggregate value of the assets transferred by the applicable Terminating Funds, and the securities of the Continuing Funds will be issued at the applicable series net asset value per security of the applicable Continuing Fund as of the close of business on the Merger Date.

(e) Immediately thereafter, the securities of the Terminating Funds will be redeemed at their series net asset value and such amount will be paid to securityholders of the Terminating Funds by way of the transfer of securities of an equivalent series of the applicable Continuing Fund to each Terminating Fund securityholder in an amount equal to the redemption proceeds realized from the Terminating Fund.

(f) Following the completion of the Mergers, the Terminating Funds will be wound up and terminated.

(g) Any outstanding unit certificates (if applicable) of the Terminating Funds will be cancelled.

Benefits of the Mergers

35. The Filer believes that the Mergers are beneficial to securityholders of each Terminating Fund and Continuing Fund for the following reasons:

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

(b) the Mergers will eliminate similar fund offerings, thereby reducing the administrative and regulatory costs of operating the Terminating Funds and the Continuing Funds as separate funds;

(c) a line-up consisting of fewer mutual funds that target similar types of investors will allow the Filer to concentrate its marketing efforts to attract additional assets in the Continuing Funds. Ultimately this benefits securityholders because it ensures that each Continuing Fund remains a viable, long-term investment vehicle for existing and potential investors;

(d) the Continuing Funds have a portfolio of greater value, allowing for increased portfolio diversification opportunities compared to the Terminating Funds;

(e) the Continuing Funds, as a result of their greater size, can spread operating expenses over a larger asset base, which may positively impact the management expense ratio of each Continuing Fund;

(f) as AGF Canadian Growth Equity Fund has the same risk rating as its Continuing Fund and AGF Flex Asset Allocation Fund has a higher risk rating than its Continuing Fund, securityholders of the Terminating Funds will become investors in Continuing Funds that have a risk investment profile that is the same as, or lower than, the risk profile of the Terminating Funds;

(g) securityholders of the Terminating Funds will receive units of the Continuing Funds that have an administration fee that is either the same as, or lower than, that charged in respect of the series of units of the Terminating Funds that they currently hold; and

(h) securityholders of the Terminating Funds will receive units of the Continuing Funds that have a management fee that is either the same as, or lower than, that charged in respect of the series of units of the Terminating Funds that they currently hold.

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.