Securities Law & Instruments

Headnote

Investment by RSP "clone" fund inanother mutual fund for specified purpose exempted from thereporting requirements and self-dealing provisions of subsection111(2)(b), 111(3), 117(1)(a) and 117(1)(d). Specific relieffrom subsection 118(2)(b) to permit inter-fund trading betweenone of the Top Pools and the corresponding Underlying Pool.

Statutes Cited

Securities Act (Ontario), R.S.O. 1990 c. S.5.,as am., 111(2)(b), 111(3), 117(1)(a), 117(1)(d) and 118(2)(b).

IN THE MATTER OF
THE SECURITIES LEGISLATION
OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
ONTARIO, NOVA SCOTIA AND
NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
AGF FUNDS INC.

AND

HARMONY RSP NORTH AMERICANSMALL CAP POOL
HARMONY RSP OVERSEAS EQUITY POOL
HARMONY RSP U.S. EQUITY POOL

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the provinces of British Columbia, Alberta, Saskatchewan,Ontario, Nova Scotia and Newfoundland and Labrador (the "Jurisdictions")has received an application (the "Application") fromAGF Funds Inc. ("AGF") in its own capacity and onbehalf of Harmony RSP North American Small Cap Pool (to be renamedHarmony RSP Americas Small Cap Equity Pool), Harmony RSP OverseasEquity Pool and Harmony RSP U.S. Equity Pool (the "ExistingTop Pools") and other mutual funds managed by AGF havingan investment objective or strategy that is linked to the returnsor portfolio of another specified AGF managed mutual fund whileremaining 100% eligible for registered plans (together withthe Existing Top Pools, the "Top Pools") and HarmonyAmericas Small Cap Equity Pool, Harmony Overseas Equity Pooland Harmony U.S. Active Equity Pool (to be renamed Harmony U.S.Equity Pool) (the "Existing Underlying Pools") orother corresponding AGF managed mutual funds from time to time(the funds, including the "Existing Underlying Pools",in which such investments are to be made being collectivelyreferred to as the "Underlying Pools") for a decisionby each decision maker (the "Decision") pursuant tothe securities legislation of the Jurisdictions (the "Legislation")that the following provisions in the Legislation (the "ApplicableRequirements") shall not apply:

A. the provision prohibiting a mutual fund fromknowingly making and holding an investment in a person or companyin which the mutual fund, alone or together with one or morerelated mutual funds, is a substantial securityholder;

B. the provision requiring the management companyof a mutual fund, or in British Columbia a mutual fund manager,to file a report relating to the purchase or sale of securitiesbetween the mutual fund and any related person or company, orany transaction in which, by arrangement other than an arrangementrelating to insider trading in portfolio securities, the mutualfund is a joint participant with one or more of its relatedpersons or companies;

C. the provision prohibiting a portfolio manageror in British Columbia, the mutual fund, from knowingly causingan investment portfolio managed by it or in British Columbiathe mutual fund, to purchase or sell the securities of any issuerfrom or to the account of a "responsible person" (asthat term is defined in the Legislation), any associate of aresponsible person or the portfolio manager; and

D. the provision prohibiting the purchase orsale of any security in which an investment counsel or any partner,officer or associate of an investment counsel has a direct orindirect beneficial interest, from or to any portfolio managedor supervised by the investment counsel.

AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this Application;

AND WHEREAS AGF has represented to theDecision Makers that:

1. AGF is a corporation established under thelaws of the Province of Ontario with its head office in Toronto,Ontario. AGF is the manager and trustee of the Top Pools andthe Underlying Pools. AGF holds various registrations includingregistration as an investment counsel and portfolio managerin the Northwest Territories and in every province other thanQuebec.

2. Each of the Top Pools is, or will be, a trustestablished under the laws of the Province of Ontario.

3. Each of the Existing Underlying Pools isa trust established under the laws of Ontario and each of thefuture Underlying Pools will be either a trust or a corporation.

4. The securities of the Top Pools and the UnderlyingPools are or will be qualified for distribution pursuant toa simplified prospectus and annual information form (the "Prospectus").

5. The Top Pools and the Underlying Pools areor will be reporting issuers in the Jurisdictions and are notor will not be in default of any requirements of the Legislation.

6. AGF currently manages the Existing Top Poolsand the Existing Underlying Pools and AGF is one of the portfoliomanagers of Harmony RSP North American Small Cap Pool ("NARSP").

7. At a meeting to be held on May 16, 2002,the holders of the Existing Top Pools will be requested to approvea change in investment objective such that the investment objectivewill be to provide long-term growth of capital while maintaining100% eligibility for registered plans, by entering into forwardcontracts and other derivatives instruments that are linkedto the performance of the applicable Underlying Pool or to theperformance of portfolio securities of the applicable UnderlyingPool. Each Top Pool may also invest directly in the applicableUnderlying Pool up to the amount prescribed from time to timeas the maximum permitted amount which may be invested in foreignproperty under the Income Tax Act (Canada) (the "Tax Act")without the imposition of tax (the "Permitted Limit").

8. If the change in investment objective isapproved, the change of the Existing Top Pools to an 'RSP clonefund' is expected to occur in June, 2002 or such other dateas determined solely by AGF (the "Effective Date").

9. The Prospectus discloses or will disclosethe investment objectives, investment strategies, risks andrestrictions of the Top Pools and the Underlying Pools. In particular,the Prospectus of the Existing Top Pools will be amended toreflect the changes described in paragraph 7 above.

10. The investment objectives of the UnderlyingPools are, or will be, achieved through investment primarilyin foreign securities. As a result, securities of the UnderlyingPools are only eligible as "foreign property" underthe Tax Act for certain types of registered plans.

11. NA RSP currently holds securities in small-capCanadian companies, some of which are not traded in significantvolumes. As a consequence of the linking of NA RSP to HarmonyAmericas Small Cap Equity Pool ("Americas"), Americaswill be required to purchase additional portfolio securities.Due to the fact that the investment objective of Americas encompassessmall cap stocks and due to the fact that trading in small capsecurities may not be significant in volume, it could take considerabletime for Americas to buy a small cap portfolio to reflect thelinking of NA RSP to Americas. As a result, it is proposed thatin connection with converting NA RSP to an 'RSP clone fund',NA RSP will sell all of its portfolio securities, excludingderivative instruments, to Americas immediately prior to theEffective Date, in return for units of Americas.

12. The portfolio securities described in paragraph11 above will be sold without any brokerage commissions or feesof any kind and Americas will pay NA RSP as consideration unitsof Americas.

13. The direct investment by the Top Pools inthe Underlying Pools will be within the Permitted Limit. Theamount of direct investment by each Top Pool in its correspondingUnderlying Pool will be adjusted from time to time so that,except for transitional cash, the aggregate of derivative exposureto, and direct investment in, the Underlying Pool will equal100% of the net assets of the Top Pool.

14. Except to the extent evidenced by this Decisionand specific approvals granted by the Canadian securities administratorspursuant to National Instrument 81-102 Mutual Fund ("NI81-102"), the investments by the Top Pools in the UnderlyingPools have been, or will be, structured to comply with the investmentrestrictions of the Legislation and NI 81-102.

15. In the absence of this Decision, pursuantto the Legislation, each Top Pool is prohibited from knowinglymaking and holding an investment in a person or company in whichthe mutual fund, alone or together with one or more relatedmutual funds, is a substantial securityholder.

16. In the absence of this Decision, the Legislationrequires AGF to file a report on every purchase or sale of securitiesof an Underlying Pool by a Top Pool and on the transfer of securitiesfrom NA RSP to Americas.

17. In the absence of this Decision, the Legislation,in respect of certain Top Pools, prohibits AGF or, in BritishColumbia, the Top Pool, from knowingly causing an investmentportfolio managed by it to purchase or sell the securities ofany issuer from or to the account of a "responsible person"(as that term is defined in the Legislation), any associateof a responsible person or AGF.

18. The Top Pools' investment in or redemptionof securities of their corresponding Underlying Pools representsthe business judgment of responsible persons, uninfluenced byconsiderations other than the best interests of the Top Pools.

AND WHEREAS pursuant to the System thisDecision Document evidences the Decision of each Decision Maker;

AND WHEREAS each Decision Maker is satisfiedthat the test contained in the Legislation that provides theDecision Maker with the jurisdiction to make the Decision hasbeen met;

THE DECISION of the Decision Makerspursuant to the Legislation is that the Applicable Requirementsshall not apply to the Top Pools or AGF, as the case may be,to the purchase and sale by the Top Pools in securities of theUnderlying Pools;

AND THE DECISION of the Decision Makerspursuant to the Legislation is that the Applicable Requirementsshall not apply to the one-time sale of securities from NA RSPto Americas;

PROVIDED IN EACH CASE THAT:

1. the Decision, as it relates to the jurisdictionof a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that Decision Makerdealing with the matters in section 2.5 of NI 81-102; and

2. the Decision shall only apply if, at thetime a Top Pool makes or holds an investment in an UnderlyingPool, the following conditions are satisfied:

(a) the securities of both the Top Pool andthe Underlying Pool are being offered for sale in the jurisdictionof the Decision Maker pursuant to a simplified prospectus andannual information form which has been filed with and acceptedby the Decision Maker;

(b) the Underlying Pool is not a mutual fundwhose investment objective includes investing directly or indirectlyin other mutual funds;

(c) the investment by the Top Pool in the UnderlyingPool is compatible with the fundamental investment objectivesof the Top Pool;

(d) the simplified prospectus of the Top Pooldiscloses the intent of the Top Pool to invest directly andindirectly (through derivative exposure) in the Underlying Pool,and the name of the Underlying Pool;

(e) the Top Pool restricts its aggregate directinvestment in the Underlying Pool to a percentage of its assetsthat is within the Permitted Limit;

(f) there are compatible dates for the calculationof the net asset value of the Top Pool and the Underlying Poolfor the purpose of the issue and redemption of the securitiesof such mutual fund;

(g) no sales charges are payable by the TopPool in relation to its purchases of securities of the UnderlyingPool;

(h) no redemption fees or other charges arecharged by the Underlying Pool in respect of the redemptionby the Top Pool of securities of the Underlying Pool owned bythe Top Pool;

(i) no fees and charges of any sort are paidby the Top Pool and the Underlying Pool, by their respectivemanagers or principal distributors, or by any affiliate or associateof any of the foregoing entities, to anyone in respect of theTop Pool's purchase, holding or redemption of the securitiesof the Underlying Pool;

(j) the arrangements between or in respectof the Top Pool and the Underlying Pool are such as to avoidthe duplication of management fees;

(k) any notice provided to securityholdersof the Underlying Pool, as required by applicable laws or theconstating documents of the Underlying Pool, has been deliveredby the Top Pool to its securityholders and all voting rightsattached to the securities of the Underlying Pool that are ownedby the Top Pool will be passed through to securityholders ofthe Top Pool;

(l) all of the disclosure and notice materialprepared in connection with a meeting of securityholders ofthe Underlying Pool and received by the Top Pool will be providedto its securityholders and the securityholders will be permittedto direct a representative of the Top Pool to vote its holdingsin the Underlying Pool in accordance with their direction, andthe representative of the Top Pool will not vote its holdingsin the Underlying Pools except to the extent the securityholdersof the Top Pool have directed;

(m) to the extent that the Top Pool and theUnderlying Pool do not use a combined simplified prospectusand annual information form containing disclosure about theTop Pool and the Underlying Pool, copies of the simplified prospectusand annual information of the Underlying Pool will be providedupon request to securityholders of the Top Pool and this rightwill be disclosed in the simplified prospectus of the Top Pool;and

(n) in addition to receiving the annual and,upon request, the semi-annual financial statements of the TopPool, securityholders of the Top Pool have received the annualand, upon request, the semi-annual financial statements of theUnderlying Pool in either a combined report, containing financialstatements of the Top Pool and the Underlying Pool, or in aseparate report containing the financial statements of the UnderlyingPool.

May 14, 2002.

"Theresa McLeod"      "Robert Shirriff"