AGF Funds Inc. et al.

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- continuing funds have different investment objectives than terminating funds -- certain mergers not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act -- securityholders of terminating funds provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6.

April 21, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATION IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

AGF FUNDS INC.

(the "FILER")

AND

IN THE MATTER OF

AGF GLOBAL HEALTH SCIENCES CLASS

AGF GLOBAL TECHNOLOGY CLASS

AGF GLOBAL FINANCIAL SERVICES CLASS

AGF GLOBAL PERSPECTIVE CLASS

AGF SPECIAL U.S. VALUE CLASS

AGF U.S. VALUE CLASS

AGF U.S. VALUE FUND

AGF DIVERSIFIED DIVIDEND INCOME FUND

(collectively, the "TERMINATING FUNDS")

AND

IN THE MATTER OF

AGF GLOBAL EQUITY CLASS

AGF GLOBAL VALUE CLASS

AGF AMERICAN GROWTH CLASS

AGF SPECIAL U.S. FUND

AGF MONTHLY HIGH INCOME FUND

(collectively, the "CONTINUING 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 of the Terminating Funds into the respective Continuing Funds (the "Proposed Mergers") pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") (the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.

Representations

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

1. Each of AGF U.S. Value Fund ("U.S. Value Fund") and AGF Special U.S. Fund ("Special U.S. Fund") is an open-ended unit trust established under the laws of Ontario by a declaration of trust pursuant to which the Filer is the trustee (each a "Unit Trust Fund" and together the "Unit Trust Funds").

2. Each of AGF Diversified Dividend Income Fund ("Diversified Dividend Fund") and AGF Monthly High Income Fund ("Monthly Income Fund") is an open-end mutual fund trust established under the laws of Ontario by a declaration of trust pursuant to which the Filer is the trustee (each a "Trust Fund" and collectively the "Trust Funds").

3. AGF All World Tax Advantage Group Limited ("Tax Advantage Group") is a corporation established under the laws of Ontario and each of AGF Global Health Sciences Class, AGF Global Equity Class, AGF Global Technology Class, AGF Global Financial Services Class, AGF Global Value Class, AGF Global Perspective Class, AGF Special U.S. Class, AGF American Growth Class and AGF U.S. Value Class (each a "Corporate Fund" and collectively the "Corporate Funds") constitutes an authorized class of shares issuable in series.

4. AGF Funds Inc. ("AGF"), the Filer, is a corporation incorporated under the laws of Ontario. To the best of its knowledge and belief, the Filer is not in default of securities legislation. The Filer is the manager and trustee of each Unit Trust Fund and each Trust Fund. The Filer is also the manager of each of the Corporate Funds of Tax Advantage Group. The Unit Trust Funds, Trust Funds and the Corporate Funds are hereafter collectively referred to as the "Funds" or individually as a "Fund".

5. Various series of securities of the Corporate Funds and the Trust Funds are qualified for distribution pursuant to a simplified prospectus and an annual information form dated April 18, 2008. Series O units of the Unit Trust Funds are qualified for distribution pursuant to a simplified prospectus and an annual information form dated December 18, 2008.

6. Each of the Funds is a reporting issuer under the securities legislation of each Jurisdiction and is not in default of the applicable securities legislation.

7. The Proposed Mergers involve the mergers of (i) AGF Global Health Sciences Class into AGF Global Equity Class; (ii) AGF Global Technology Class into AGF Global Equity Class; (iii) AGF Global Financial Services Class into AGF Global Value Class; (iv) AGF Global Perspective Class into AGF Global Value Class; (v) AGF Special U.S. Class into AGF American Growth Class; (vi) AGF U.S. Value Class into AGF American Growth Class; (vii) AGF U.S. Value Fund into AGF Special U.S. Fund (to be re-named AGF American Growth Fund after giving effect to its change in investment objective); and (viii) AGF Diversified Dividend Income Fund into AGF Monthly High Income Fund.

8. Meetings of securityholders of the Terminating Funds were held on April 14, 2009 on the same day as meetings of other AGF funds, and it is anticipated that the Proposed Mergers will be effective in May or June 2009. Securityholders of the Terminating Funds voted in favour of the Proposed Mergers. With the exception of the Proposed Merger of AGF Global Perspective Class into AGF Global Value Class (which will be a material change to AGF Global Value Class), the Filer has determined that the other Proposed Mergers will not be a material change to each of the Continuing Funds due to the small size of the Terminating Funds relative to their Continuing Funds. A meeting of securityholders of AGF Global Value Class was also held on April 14, 2009 to approve the Proposed Merger with AGF Global Perspective Class. Securityholders of AGF Global Value Class voted in favour of the Proposed Merger with AGF Global Perspective Class. All other approvals required by the Business Corporations Act (Ontario) in connection with the Proposed Mergers of the Corporate Funds will also be sought. The Filer will be responsible for the costs associated with the meetings.

9. The relevant notices of the meetings and management information circulars were mailed to securityholders of the relevant Funds and filed on SEDAR in accordance with applicable securities legislation.

10. The Filer did not send annual and interim financial statements of the relevant Continuing Fund to securityholders of the Terminating Funds. Instead, the Filer sent to each securityholder of the Terminating Funds:

(i) a tailored document, consisting of the Part A and the Part B for the relevant Continuing Fund, as set out in the current simplified prospectus of the Continuing Fund filed on SEDAR; and

(ii) a management information circular fully describing the relevant Proposed Merger, which prominently discloses that the most recent audited annual and un-audited interim financial statements of the Continuing Funds can be obtained by accessing the same at the AGF website or the SEDAR website, or requesting the same from AGF by toll-free number, by fax, or by contacting their dealer, all as described in the management information circular.

11. Amendments to the simplified prospectus and annual information form of each of the Funds were filed to describe the Proposed Mergers on March 3, 2009.

12. A press release and a material change report were filed on SEDAR on behalf of the Terminating Funds with the securities commissions of all the Jurisdictions with respect to the Proposed Mergers on March 3, 2009.

13. The Filer is not entitled to seek the approval of the independent review committee (the "IRC") 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.

14. The IRC reviewed and made recommendations with respect to the Proposed Mergers. The decisions of the IRC were included in the notices of meetings as required by section 5.1(2) of National Instrument 81-107.

15. The securities of each Continuing Fund received by a securityholder of the corresponding Terminating Fund will have the same fee structure as the securities of the Terminating Fund held by that securityholder.

16. Securityholders of each Terminating Fund will continue to have the right to redeem securities of the Terminating Fund at any time up to the close of business immediately before the effective date of the Proposed Mergers.

17. Most of the portfolio assets of each of the Terminating Funds are not likely to be acceptable to the portfolio managers of each of the relevant Continuing Funds and will be sold prior to the Proposed Mergers. The portfolio assets of the Terminating Funds which are to be transferred to the respective Continuing Funds are acceptable to the portfolio managers of each of the Continuing Funds.

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

19. In the absence of approval or relief, the Proposed Mergers would be prohibited for the following reasons:

(i) AGF Global Health Sciences Class has a different investment objective than AGF Global Equity Class;

(ii) AGF Global Technology Class has a different investment objective than AGF Global Equity Class;

(iii) AGF Global Financial Services Class has a different investment objective than AGF Global Value Class;

(iv) AGF Special U.S. Class has a different investment objective than AGF American Growth Class;

(v) U.S. Value Fund will not merge into Special U.S. Fund (to be re-named AGF American Growth Fund) on a tax deferred basis; and

(vi) Diversified Dividend Fund will not merge into Monthly Income Fund on a tax deferred basis.

In respect of all of the Proposed Mergers, the Filer would not be permitted to send a tailored simplified prospectus of the Continuing Funds, nor provide access to the annual and interim financial statements of the Continuing Funds, instead of mailing the same to investors in the Terminating Funds.

20. The Filer submits that the Proposed Mergers will reduce duplication between the Funds, thereby increasing operational efficiency as costs of each Continuing Fund will be spread across a greater pool of assets, also allowing for greater diversification.

21. The Filer on behalf of AGF Global Health Sciences Class, AGF Global Technology Class, AGF Global Financial Services Class and AGF Special U.S. Class submits that while each of AGF Global Health Sciences Class, AGF Global Technology Class, AGF Global Financial Services Class and AGF Special U.S. Class has a different investment objective than its corresponding Continuing Fund, the differences are not wholesale differences but differences of degree. The Proposed Mergers simply provide an investor in AGF Global Health Sciences Class, AGF Global Technology Class, AGF Global Financial Services Class and AGF Special U.S. Class with the option to continue as an investor in the corresponding Continuing Fund or to redeem their securities.

22. The Filer submits that investors will not be prejudiced in connection with the Proposed Mergers as:

(a) the information circular sent to securityholders in connection with a Proposed Merger provides sufficient information about the Proposed Merger to permit securityholders to make an informed decision about the Proposed Merger;

(b) the information circular sent to securityholders in connection with a Proposed Merger prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by accessing the SEDAR website at www.sedar.com, by accessing the AGF website, by calling AGF's toll-free telephone number, by faxing a request to AGF or by contacting a dealer;

(c) upon request by a securityholder for financial statements of an applicable Continuing Fund, AGF will make best efforts to provide the securityholder with the financial statements of the applicable Continuing Fund in a timely manner so that the securityholder can make an informed decision regarding a Proposed Merger;

(d) each applicable Continuing Fund and Terminating Fund with respect to a Proposed Merger have an unqualified audit report in respect of their last completed financial period; and

(e) the meeting materials sent to securityholders in respect of a Proposed Merger includes a tailored simplified prospectus consisting of:

(i) the current Part A of the simplified prospectus of the applicable Continuing Fund; and

(ii) the current Part B of the simplified prospectus of the applicable Continuing Fund.

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 Exemption Sought is granted.