National Policy 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 -- the merger is not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- merger to otherwise comply with pre-approval criteria, including securityholder vote, IRC approval.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 19.1.
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)
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.
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:
refers to the AGF funds' annual information form dated April 17, 2015, as amended
refers to the AGF funds' simplified prospectus dated April 17, 2015, as amended
refers to the management information circular described in this Application
refers to AGF Canadian Small Cap Fund and AGF Global Equity Fund
refers, collectively, to the Merging Funds and the Continuing Funds, and each, a Fund
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)
refers to AGF Global Value Fund and AGF Canadian Small Cap Discovery Fund
refers to the Income Tax Act (Canada)
This decision is based on the following facts represented by the Filers:
1. The 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.
2. AGF is the investment fund manager and trustee of each of the Funds.
3. AGF is registered as an investment fund manager in each of Ontario, Québec, Alberta, British Columbia and Newfoundland and Labrador.
4. Each 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.
5. Each of the Funds is a reporting issuer under the applicable securities legislation of each jurisdiction in Canada.
6. Various series of the Funds are qualified for distribution pursuant to the AGF SP and AGF AIF.
The Proposed Mergers
7. The Funds proposed to be merged (the Proposed Mergers) are set forth below:
AGF Canadian Small Cap Discovery Fund
AGF Canadian Small Cap Fund
AGF Global Value Fund
AGF Global Equity Fund
8. AGF currently proposes to effect the Proposed Mergers on or about May 20, 2016 (the Merger Effective Date).
9. AGF has determined that the Proposed Mergers will not be a material change to the Continuing Funds.
10. Unitholders 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.
11. The Proposed Mergers will not be implemented on a tax-deferred basis as described in paragraph 5.6(1)(b) of NI 81-102.
12. Except 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
13. Section 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.
14. Approval 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.
15. The 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
16. Meetings of unitholders of the Merging Funds were held on or about April 13, 2016, and unitholders of the Merging Funds approved the Proposed Mergers.
17. AGF 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.
18. No sales charges will be payable by unitholders of the Funds in connection with the Proposed Mergers.
19. A 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.
20. AGF 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.
21. Pursuant 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.
22. The 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.
23. Following 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.
24. AGF 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.
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.