AGF Funds Inc. et al. - MRRS Decision

Headnote

MRRS -- Approval of fund mergers despite differences in investment objectives and one merger proceeding on a taxable basis -- simplified prospectus and financial statements of continuing funds not required to be sent to securityholders of terminating funds, provided information circular sent in connection with the unitholder meeting clearly discloses the other ways securityholders can access the simplified prospectus and financial statements -- tailored simplified prospectus also not sent -- this decision is based on exceptional circumstances and is not to be used as a precedent.

Applicable Legislative Provisions

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

April 17, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

THE NORTHWEST TERRITORIES, NUNAVUT

AND THE YUKON

(THE JURISDICTIONS)

AND

IN THE MATTER OF

NATIONAL INSTRUMENT 81-102

MUTUAL FUNDS (NI 81-102)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

AGF FUNDS INC.

(AGF)

AND

AGF GERMANY CLASS

AGF AGGRESSIVE^™ JAPAN CLASS

AGF RSP GLOBAL BOND FUND

HARMONY AMERICAS SMALL CAP EQUITY POOL

(THE TERMINATING FUNDS)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from AGF and the Terminating Funds (collectively, the Filers) for a decision under the securities legislation of the Jurisdictions (the Legislation) for approval under paragraph 5.5(1)(b) of NI 81-102 of the merger or reorganization of the Terminating Funds into the corresponding Continuing Fund (as defined below).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

1. the Ontario Securities Commission is the principal regulator for this application; and

2. this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision.

AGF European Equity Class, AGF Japan Class, AGF Global Government Bond Fund and Harmony Canadian Equity Pool are hereinafter collectively referred to as the Continuing Funds.

Representations

1. AGF is a corporation incorporated under the laws of Ontario. AGF is the manager of all of the Trust Funds and Corporate Funds (each as defined below, and collectively the Funds).

2. Each of AGF RSP Global Bond Fund, AGF Global Government Bond Fund, Harmony Americas Small Cap Equity Pool (Small Cap Pool), Harmony Canadian Equity Pool (Canadian Pool) and Harmony U.S. Equity Pool (U.S. Pool) (collectively, the Trust 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.

3. AGF All World Tax Advantage Group Limited (Tax Advantage Group) is a corporation established under the laws of Ontario. Each of AGF Germany Class, AGF European Equity Class, AGF Aggressive™ Japan Class and AGF Japan Class (collectively, the Corporate Funds) constitutes an authorized class of securities of Tax Advantage Group issuable in series.

4. Each of the Funds is a reporting issuer under the applicable Legislation in each Jurisdiction and is not in default of any of the requirements of the applicable Legislation.

5. Each of the Funds follows the standard investment restrictions and practices in NI 81-102, except pursuant to the terms of any exemption that has been previously obtained in respect of the Fund. None of the Funds are on the list of defaulting reporting issuers maintained under the Legislation.

6. The net asset values of the Funds are calculated on a daily basis on each day that the Toronto Stock Exchange is open for business.

7. AGF proposes that:

(i) AGF Germany Class merge into AGF European Equity Class,

(ii) AGF Aggressive™ Japan Class merge into AGF Japan Class,

(iii) AGF RSP Global Bond Fund merge into AGF Global Government Bond Fund and

(iv) Small Cap Pool merge into Canadian Pool (collectively, the Proposed Mergers).

8. AGF proposes that Small Cap Pool be reorganized (A) by trading a portion of its portfolio to U.S. Pool (the Proposed Inter-fund Trade), and (B) as a second step, by merging into Canadian Pool (the Proposed Inter-fund Trade and the Proposed Merger of Small Cap Pool into Canadian Pool are collectively hereinafter referred to as the Proposed Reorganization).

9. The securities of each of the Corporate Funds and AGF RSP Global Bond Fund and AGF Global Government Bond Fund are qualified for distribution pursuant to a simplified prospectus and an annual information form dated April 20, 2007, as amended. Series M securities of AGF Germany Class are held by investors in that fund but are no longer offered to the public, and in connection with the Proposed Mergers, will be exchanged for Mutual Fund Series securities of AGF European Equity Class that are offered to the public. The securities of each of Small Cap Pool, Canadian Pool and U.S. Pool are qualified for distribution pursuant to a simplified prospectus and an annual information form dated January 31, 2008.

10. Securityholders of each of the Terminating Funds will be asked to approve the Proposed Merger or Proposed Reorganization at special meetings of securityholders to be held on or about April 10, 2008. AGF has determined that the Proposed Merger of a Terminating Fund will not be a material change to the relevant Continuing Fund due to the small size of the Terminating Fund relative to the Continuing Fund. All other approvals required by the Business Corporations Act (Ontario) in connection with the Proposed Mergers of the Corporate Funds will also be sought. AGF will be responsible for the costs associated with the meetings.

11. The portfolios and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund arising from the Proposed Mergers will be acceptable, on or prior to the effective date of the Proposed Mergers, to the portfolio advisers of the applicable Continuing Fund and will be consistent with the investment objectives of the applicable Continuing Fund.

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

13. AGF did not send the most recent simplified prospectus and annual and interim financial statements of the relevant Continuing Fund to securityholders of the Terminating Fund. Instead, AGF prominently disclosed in the management information circular sent to securityholders of the Terminating Fund that they can obtain the most recent simplified prospectus and annual and interim financial statements of the Continuing Fund 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 e-mail.

14. Amendments to the simplified prospectus and annual information form of each of the Funds were filed to describe the Proposed Merger or Proposed Reorganization on February 26, 2008.

15. A press release and a material change report was filed on SEDAR on behalf of the Terminating Funds with the securities commissions of all the Jurisdictions with respect to the Proposed Mergers and Proposed Reorganization on February 26, 2008.

16. The securities of the Continuing Fund received by a securityholder of the Terminating Fund will have the same or substantially the same fee rates as the securities of the Terminating Fund held by that securityholder, after giving effect to any management fee rebates in the case of Series M of AGF Germany Class.

17. Securityholders of the Terminating Fund will continue to have the right to redeem securities of the Terminating Fund at any time up to the close of business on the business day immediately before the effective date of the Proposed Mergers and the Proposed Reorganization.

18. If the required securityholder and regulatory approvals are obtained for each of the Proposed Mergers and the Proposed Reorganization, it is expected that the Proposed Mergers will be effective in May or June, 2008. Each Terminating Fund will be wound up as soon as reasonably possible following the relevant Proposed Merger. Each Continuing Fund will continue as a publicly-offered mutual fund governed by the laws of Ontario.

19. All expenses related to the Proposed Mergers and the Proposed Reorganization, including all brokerage expenses incurred in respect of any required sale of portfolio assets of the Terminating Funds, will be borne by AGF.

20. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of an applicable Terminating Fund.

21. Approval of the Proposed Mergers is required because the Proposed Mergers and the Proposed Reorganization do not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

(i) Contrary to subparagraph 5.6(1)(a)(ii) of NI 81-102, AGF Germany Class has a different investment objective than AGF European Equity Class;

(ii) Contrary to paragraph 5.6(1)(b) of NI 81-102, AGF RSP Global Bond Fund will not merge into AGF Global Government Bond Fund on a tax deferred basis;

(iii) Contrary to subparagraph 5.6(1)(a)(ii) of NI 81-102, Small Cap Pool has a different investment objective than Canadian Pool, and

(iv) AGF would be prohibited from carrying out the Proposed Inter-fund Trade prior to the Proposed Merger of Small Cap Pool into Canadian Pool.

In addition, contrary to subparagraph 5.6(1)(f)(ii) of NI 81-102, AGF would not be permitted to provide access to the simplified prospectus and annual and interim financial statements instead of mailing the same to investors in the Terminating Funds.

22. Except as noted above, the Proposed Mergers and the Proposed Reorganization 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.

23. The tax implications of the Proposed Mergers and the Proposed Reorganization, as well as the material differences between the Terminating Funds and the Continuing Funds, are described in the management information circulars so that securityholders of the Terminating Funds may consider this information before voting on the Proposed Mergers and the Proposed Reorganization.

24. The Filers submit that the Proposed Mergers and the Proposed Reorganization 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.

25. AGF, AGF Germany Class and Small Cap Pool submit that while each of AGF Germany Class and Small Cap Pool has a different investment objective than its corresponding Continuing Fund, the differences are not wholesale differences but differences of degree. The Proposed Merger and Proposed Reorganization simply provides an investor in AGF Germany Class and Small Cap Pool with the option to continue as an investor in the corresponding Continuing Fund or to redeem their securities.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.

The Decision of the Decision Makers under the Legislation is that the Proposed Mergers and Proposed Reorganization are approved, provided that:

(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 simplified prospectus, annual information form and 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 fax, or by e-mail;

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

(d) each Terminating Fund and the applicable Continuing Fund with respect to a Proposed Merger has an unqualified audit report in respect of its last completed financial period.