AGF MANAGEMENT LIMITED REPORTS NET INCOME INCREASE OF 19.5% FOR FISCAL 2010

AGF MANAGEMENT LIMITED
Fiscal 2010 Report to Shareholders for the year ended November 30, 2010

TORONTO, Jan. 28 /CNW/ -

AGF Management Limited (AGF) announced today financial results for the year ended November 30, 2010, reporting a net income increase of 19.5% to $116.8 million, compared to the previous year. Excluding a one-time $9.8 million reduction in income taxes in 2009, net income increased 32.8%.  The increase was the result of higher Investment Management Operations revenue and a decline in loan loss provisions at AGF Trust.

The acquisition of Acuity, announced in the fourth quarter of 2010, will enhance AGF's position as one of the largest independent investment management firms in Canada, with the addition of approximately $7.7 billion in assets under management (AUM).

Earnings per share in fiscal 2010, on a fully diluted basis, were $1.30 compared to $1.09 ($0.98 adjusted for the income tax reduction) in fiscal 2009.  The Company generated free cash flow from operations (defined as cash flow from operations before net changes in non-cash balances related to operations less selling commissions paid) of $173.8 million used to pay cash dividends of $89.2 million, buyback shares of $12.2 million and reduce debt by $13.1 million.  AGF increased its dividend in the first quarter of 2010 and maintained the quarterly dividend at $0.26 per share throughout the year.  AGF intends to maintain the quarterly dividend in the first quarter of 2011 at $0.26 per share on its Class A Voting common and Class B Non-Voting shares.

"In 2010, our financial results showed significant improvement and our balance sheet remains strong," said Blake C. Goldring, Chairman and CEO of AGF Management Limited.  "As we move forward in 2011, we are continuing to focus on our growth strategy.  We believe that the acquisition of Acuity, combined with our enhanced product suite for retail and institutional clients and our strong relationships, will contribute to AGF's continued success."

Consolidated revenue increased to $614.6 million compared to $586.1 million the previous year.  Total expenses decreased 2.4% to $357.8 million in 2010, compared to $366.6 million in 2009.  Revenue in the Investment Management Operations segment increased 9.3% for the year ended November 30, 2010 to $519.5 million compared to $475.4 million in 2009, due to higher average AUM.  Expenses in the Investment Management Operations increased 3.2% due to higher trailer fees associated with higher average AUM. 

Revenues at AGF Trust declined to $95.8 million compared to $104.3 million on a year-over-year basis due to a 16.7% decline in average loan assets.  The decline in loan assets is reflective of a planned reduction in lending.  Expenses at AGF Trust declined 25.0% due to lower loan loss provisions.

Earnings before interest, taxes, depreciation, amortization, (EBITDA) increased 17.0% to $256.8 million for the year ended November 30, 2010, compared to $219.5 million for the year ended November 30, 2009. EBITDA margins improved to 41.8% from 37.5% for the same period a year earlier.

Fourth Quarter Overview

During the fourth quarter of 2010, the Company recorded net income of $31.0 million compared to $45.5 million for the three months ended November 30, 2009. The 2009 fourth quarter included the aforementioned impact of a $9.8 million income tax reduction.  Revenue for the fourth quarter ended November 30, 2010 decreased 1.1% to $155.9 million, compared to $157.7 million in the same period in 2009. Expenses for the three months ended November 30, 2010 increased $3.7 million or 4.3% over the same period a year ago. As a result of lower revenue combined with an increase in expenses, EBITDA decreased 7.7% in the fourth quarter of 2010. EBITDA margins were 42.4% for the three months ended November 30, 2010 compared to 45.4% for the same period in 2009.

Revenue in the Investment Management Operations remained relatively flat in the fourth quarter at $132.4 million compared to $132.1 million for the three months ended November 30, 2009, as average AUM for the fourth quarter of 2010 were 1.8% lower than the same period in 2009.  Expenses for the three months ended November 30, 2010 increased 4.4% to $76.1 million compared to $72.9 million in 2009.  EBITDA of $56.3 million for the three months ended November 30, 2010 decreased 4.9% from $59.2 million for the same period of fiscal 2009, resulting in EBITDA margins of 42.5% and 44.8%, respectively.

Revenue in our Trust Company Operations segment declined 3.4% in the quarter ended November 30, 2010 to $22.8 million compared to $23.6 million in 2009.  Expenses increased to $13.7 million for the three months ended November 30, 2010 compared to $13.2 million in 2009. EBITDA for the three months ended November 30, 2010 was $9.1 million compared to $10.4 million in the fourth quarter of 2009, resulting in EBITDA margins of 39.9% and 44.1%, respectively.

Conference Call

AGF will host a conference call to review its earnings results today at 11 a.m. ET. The live audio webcast with supporting materials will be available in the Investor Relations section of AGF's website at www.agf.com or at http://www.bellwebcasting.ca/audience/index.asp?eventid=87182252. Alternatively, the call can be accessed toll-free in North America by dialling 1-866-696-5910 (Passcode #: 6655052). A complete archive of this discussion along with supporting materials will be available at the same webcast address within 24 hours of the end of the conference call.

About AGF Management Limited

AGF Management Limited is one of Canada's premier investment solutions firms with offices across Canada and subsidiaries around the world. AGF's products and services include a diversified family of award-winning mutual funds, AGF Elements portfolios, the Harmony asset management program, services for institutional and private clients, as well as AGF Trust GICs, loans and mortgages. With approximately $44 billion in total assets under management, AGF serves more than one million investors. AGF trades on the Toronto Stock Exchange under the symbol AGF.B.

AGF Management Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the year ended November 30, 2010

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis (MD&A) includes forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as 'expects', 'anticipates', 'intends', 'plans', 'believes' or negative versions thereof and similar expressions, or future or conditional verbs such as 'may', 'will', 'should', 'would' and 'could'. In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future action on our part, is also a forward-looking statement. Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations, business prospects, business performance and opportunities. While we consider these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about our operations, economic factors and the financial services industry generally. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by us due to, but not limited to, important risk factors such as level of assets under our management, volume of sales and redemptions of our investment products, performance of our investment funds and of our investment managers and advisors, competitive fee levels for investment management products and administration, and competitive dealer compensation levels, size and default experience on our loan portfolio and cost efficiency in our loan operations and investment management operations, as well as interest and foreign exchange rates, taxation, changes in government regulations, unexpected judicial or regulatory proceedings, and our ability to complete strategic transactions and integrate acquisitions. We caution that the foregoing list is not exhaustive. The reader is cautioned to consider these and other factors carefully and not place undue reliance on forward-looking statements. Other than specifically required by applicable laws, we are under no obligation (and expressly disclaim any such obligation) to update or alter the forward-looking statements, whether as a result of new information, future events or otherwise. For a more complete discussion of the risk factors that may impact actual results, please refer to the 'Risk Factors and Management of Risk' section of this MD&A.

Consolidated Performance

This Management's Discussion and Analysis (MD&A) presents an analysis of the financial condition of AGF Management Limited (AGF) and its subsidiaries as at November 30, 2010, compared to November 30, 2009. The MD&A also includes the results of operations for the year ended November 30, 2010 compared to the corresponding period of 2009. A discussion of the results for the three months ended November 30, 2010 compared to the three months ended November 30, 2009 is also included under the section 'Fourth Quarter Analysis'. This discussion should be read in conjunction with our audited Consolidated Financial Statements and Notes for the year ended November 30, 2010. The financial information presented herein has been prepared on the basis of Canadian Generally Accepted Accounting Principles (GAAP). We also utilize non-GAAP financial measures to assess each of our operating segments and our overall performance. Details of non-GAAP measures used are outlined in the 'Key Performance Indicators and Non-GAAP Measures' section, which provides calculations of the non-GAAP measures along with reconciliation of non-GAAP financial measures to GAAP financial statements. All dollar amounts are in Canadian dollars unless otherwise indicated. Throughout this discussion, percentage changes are calculated based on results rounded to the nearest thousand. Results, except per share information, are presented in millions of dollars. Percentage changes are calculated using numbers, rounded to the decimals that appear in this MD&A.

Our Business

AGF Management Ltd. consists of two distinct businesses: AGF Investments and AGF Trust. AGF Investments, with $43.0 billion in assets under management (AUM) as at November 30, 2010, is one of the largest independent Canadian-based investment solutions firm, with operations and investments in Canada, the United States, the United Kingdom, Ireland and Asia. AGF Trust, with $3.2 billion in loan assets as at November 30, 2010, offers mortgage, deposit and consumer lending products to clients of financial advisors and mortgage brokers.

The origin of our Company dates back to 1957 with the introduction of the American Growth Fund (AGF), the first mutual fund available to Canadians seeking to invest in the United States. As of November 30, 2010, our products and services include a diversified family of award-winning mutual funds, AGF Elements portfolios, the Harmony asset management program, services for institutional and high-net-worth clients, as well as AGF Trust GICs, loans and mortgages.

For purposes of this discussion, the operations of AGF and our subsidiary companies are referred to as "we", "us", "our" or "the Company". The financial results relating to the operations have been reported in three segments: Investment Management Operations, Trust Company Operations and Other.

The Investment Management Operations segment includes the results of our retail, institutional and high-net-worth client businesses. The Trust Company Operations segment includes the results of AGF Trust Company, and the Other segment includes our equity interest in Smith & Williamson Holdings Limited (S&WHL).

The principal subsidiaries and associated companies included within each of our reportable segments, collectively referenced to as the AGF Group of Companies (AGF), include:

Investment Management Operations Segment

The Investment Management Operations segment, referred to as AGF Investments, consists of the legal entities listed in the 'Government Regulations' section on page 33 of this MD&A under the section 'Investment Management Operations'. The Investment Management Operations segment dates back to 1957 and  has evolved from a Canadian-based mutual fund operation to a global investment management firm with $43.0 billion of AUM. AGF Investments serves the financial needs of a wide range of diversified clients worldwide through its retail mutual funds, institutional and high-net-worth businesses.

Our multi-disciplined investment management teams have expertise across the balanced, fixed income, equity and speciality asset categories and are located in Toronto, Dublin and Singapore. Our teams work collaboratively to provide excellence in money management and each has a clearly stated investment philosophy and a unique, research-driven investment process.

Our retail mutual fund operations are responsible for the sales and marketing of AGF mutual funds. AGF offers approximately 60 retail products including 40 mutual funds, Harmony managed asset program and AGF Elements portfolios.

Our global institutional business provides investment management services for a variety of clients including institutions, pension funds, endowments, estates and sovereign wealth funds. We offer a diverse range of investment strategies and have sales and client service offices in Toronto, London (Ontario), Boston, Dublin and Hong Kong.

Our high-net-worth business provides investment management and counselling services for high-net-worth clients in local markets. It includes the operations of Cypress Capital Management Limited in Vancouver, Highstreet Asset Management Inc. in London, Ontario and Doherty & Associates Limited in Ottawa and Montreal.

Trust Company Operations Segment

AGF Trust Company (AGF Trust) - The Trust Company Operations segment began in 1988. Complementary to our core business of investment management, AGF Trust has $3.2 billion in loan assets and offers a range of web-enabled products and services including GICs, term deposits, real estate secured loans and investment loans. AGF Trust is federally incorporated, licensed across Canada and is a member of the Canada Deposit Insurance Corporation (CDIC) and Canada Mortgage and Housing Corporation (CMHC).

Other Segment

Smith & Williamson Holdings Limited (S&WHL) - is a leading, independent private client investment management, financial advisory and accounting group based in the U.K., with ₤10.3 billion of AUM. As at November 30, 2010 we held a 30.5% interest in this company.

Our Strategy

AGF Management Limited is committed to providing world-class financial solutions to clients in Canada and abroad. We look to expand our business through strategic acquisitions and organic growth while continuing to focus on our key financial priorities to create long-term value for shareholders, clients and unitholders.

Our Investment Management Operations provide a diverse suite of investment solutions to retail, institutional, and high-net-worth clients. We are focused on delivering strong long-term investment performance and excellence in client service while continuing to build and maintain strong relationships with distribution partners.

Our Trust Company Operations complement our Investment Management Operations and contribute to the profitability of AGF Management Limited. AGF Trust supports the AGF brand through delivery of value added products and services, contributing to the growth of our products and effectively leveraging our advisor distribution channel.

Measuring long-term shareholder growth, we look to the following key performance indicators:

  • Revenue growth driven by new sales, market performance and client retention
  • Earnings before interest, taxes, depreciation, amortization and non-controlling interest (EBITDA) growth
  • Pre-tax margins
  • AUM in our Investment Management Operations
  • Loan assets in our Trust Operations

Year-over-year improvement in these measures is expected to result in improved cash flows as well as improved return on equity. Our objective is the return of a fair share of the annual cash flow to shareholders in the form of dividends and through share buybacks, with the remaining cash flow being invested in a manner intended to support our future growth.

Our strategy also recognizes that both our investment management and trust businesses will experience cycles related to the global stock markets, credit availability, employment levels and other economic factors. We believe that a successful strategy is founded on the ability of our operations to effectively manage cost and infrastructure in order to manage both difficult economic times and capitalize on the economic upturns.

2010 Overview

After signs of improvement for the investment management industry during the first quarter of 2010, the second and third quarter brought a return to global market volatility as a result of the sovereign debt crisis in Europe and concerns about the strength of the global economic recovery. Even though economic data pointed to a slower than expected recovery in 2010, AGF continued to forge ahead with growth plans and strategic initiatives believing that our long-term focus will overcome short-term volatility. AGF Investments continued to experience net redemptions in 2010, while loan assets declined at Trust reflecting managements' conservative approach to its lending programs.

As a sign of AGF's growth and development in 2010, we signed a purchase agreement to acquire 100% of Acuity Funds Ltd. and Acuity Investment Management Inc. for $325 million. The deal is expected to be completed on or about February 1, 2011 and is subject to regulatory approval. When completed, the acquisition will strengthen our place as one of the largest independent investment management firms in Canada. In a consolidating industry, the acquisition of Acuity has demonstrated AGF's ability to increase scale while delivering value to all its stakeholders.

The following summarizes the key financial and operational results of 2010:

  • In November, AGF signed a purchase agreement to acquire 100% of Acuity Funds Ltd. and Acuity Investment Management Inc. for $325 million, adding over $7.0 billion in AUM from Acuity.
  • We continued to experience net redemptions throughout the year despite overall positive industry flows. Net redemptions were $1.8 billion in 2010 and $0.8 billion in 2009.
  • In response to net redemptions, we launched five new products throughout the year offering investors a diversified line-up of funds designed to meet their needs at various life stages with a particular focus on fixed income and balanced categories.
  • EBITDA for fiscal 2010 increased to $256.8 million compared to EBITDA of $219.5 million in fiscal 2009. Consolidated EBITDA margins were 41.8% in fiscal 2010 compared to 37.5% fiscal 2009. Return on equity improved to 10.2% in fiscal 2010 compared to 8.7% in fiscal 2009.
  • Cash flow from operations in fiscal 2010 was $223.2 million compared to $206.1 million in fiscal 2009.
  • Our total debt declined to $143.7 million as at November 30, 2010 compared to $156.7 million as at November 30, 2009.
  • We returned 58.3% of our free cash flow directly to our shareholders through dividend payments and share buybacks. We define free cash flow as cash flow from operations before net change in non-cash balances related to operations less selling commissions paid. In fiscal 2010, dividends paid increased 3.0% to $1.03 per share from $1.00 per share in 2009.
  • AGF Trust real estate secured loans declined 21.9% over the prior year and investment loans declined 7.3%. AGF Trust ended the year with $3.2 billion in loan assets.
  • Our overall balance sheet remains strong with a long-term debt to EBITDA ratio of 56.0% and undrawn capacity of $150.9 million on our $300.0 million credit facility.

Key Performance Indicators and Non-GAAP Measures

We measure the success of our business strategies using a number of key performance indicators (KPIs), which are outlined below. With the exception of revenue, the following KPIs are non-GAAP measures which are not defined under Canadian GAAP. They should not be considered as an alternative to net income or any other measure of performance under Canadian GAAP. Segment discussions include a review of KPIs that are relevant to each segment.

a)     Consolidated Operations

Revenue
Revenue is a measurement defined by Canadian GAAP and is recorded net of fee rebates, sales taxes and distribution fees paid to limited partnerships. Revenue is indicative of our potential to deliver cash flow.

We derive our revenue principally from a combination of:

  • management and advisory fees based on AUM
  • deferred sales charges (DSC) earned from investors when mutual fund securities sold on a DSC basis are redeemed
  • net interest income earned on AGF Trust's loan portfolio

EBITDA
We define EBITDA as earnings before interest, taxes, depreciation, amortization and non-controlling interest. EBITDA is a standard measure used in the mutual fund industry by management, investors and investment analysts to understand and compare results. We believe this is an important measure as it allows us to assess our investment management businesses without the impact of non-operational items. EBITDA for the Trust Company Operations segment includes interest expense related to deposits. These deposits fund our investment loan and real estate secured loan programs, and are therefore considered an operating cost directly related to generating interest revenue. We include this interest expense in Trust Company Operations EBITDA to provide a meaningful comparison to our other business segments and our competitors.

Please see the Consolidated Operating Results section on page 19 of this MD&A for a schedule showing how EBITDA reconciles to our GAAP financial statements.

Cash Flow from Operations
We report cash flow from operations before net changes in non-cash balances related to operations. Cash flow from operations helps to assess the ability of the business to generate cash, which is used to pay dividends, repurchase shares, pay sales commissions, pay down debt and fund other needs.

       
($ millions)
Years ended November 30

 

2010

 

 

2009
 
       

Net cash provided by operating activities

 $

178.5

 

 $

189.5  
Less: net changes in non-cash balances related to operations   (44.7)     (16.6) 
Cash flow from operations $ 223.2   $ 206.1

Free Cash Flow from Operations
We define free cash flow as cash flow from operations before net changes in non-cash balances related to operations less selling commissions paid. This is a relevant measure in the investment management business since a substantial amount of cash is spent on upfront commission payments. Free cash flow represents cash available for distribution to our shareholders and for general corporate purposes.

       
($ millions)
Years ended November 30

 

2010

 

 

2009

 

 

 

 

 

 
Cash flow from operations (defined above) $ 223.2      $ 206.1
Less: selling commissions paid   49.4       54.5
Free cash flow $ 173.8     $ 151.6  

EBITDA Margin
EBITDA margin provides useful information to management and investors as an indicator of our overall operating performance. We believe EBITDA margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define EBITDA margin as the ratio of EBITDA to revenue.

       
($ millions)      
Years ended November 30   2010 2009
           
EBITDA  $ 256.8  $ 219.5  
Divided by revenue   614.6   586.1  
EBITDA margin   41.8%   37.5%

Pre-Tax Profit Margin
Pre-tax profit margin provides useful information to management and investors as an indicator of our overall operating performance. We believe pre-tax profit margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define pre-tax profit margin as the ratio of income before taxes to revenue.

       
($ millions)      
Years ended November 30   2010   2009
             
Net income  $ 116.8  $ 97.7  
Add: income taxes   46.1   18.6  
Income before taxes  $ 162.9  $ 116.3  
Divided by revenue   614.6   586.1  
Pre-tax profit margin   26.5%   19.8%

Return on Equity (ROE)
We monitor ROE to assess the profitability of the consolidated Company on an annual basis. We calculate ROE by dividing net income by average shareholders' equity.

           
($ millions)          
Years ended November 30   2010     2009
           
Net income  $ 116.8   $ 97.7  
Divided by average shareholders' equity   1,140.5     1,118.9  
Return on equity   10.2%     8.7%

Long-term Debt to EBITDA Ratio
Long-term debt to EBITDA ratio provides useful information to management and investors as an indicator of our ability to service our long-term debt. We define long-term debt to EBITDA ratio as long-term debt at the end of the year divided by EBITDA for the year.

           
($ millions)          
Years ended November 30     2010     2009
           
Long-term debt $ 143.7   $ 143.6
EBITDA   256.8     219.5
Long-term debt to EBITDA   56.0%     65.4%

b)     Investment Management Operations

Assets Under Management (AUM)
The amount of AUM is critical to our business since these assets generate fees from our mutual fund, institutional, strategic accounts and high-net-worth relationships. AUM will fluctuate in value as a result of investment performance, sales and redemptions. Mutual fund sales and AUM determines a significant portion of our expenses because we pay upfront commissions on gross sales and trailing commissions to financial advisors as well as investment advisory fees based on the value of AUM.

Investment Performance
Investment performance, which represents market appreciation (depreciation) of fund portfolios and is shown net of management fees received, is a key driver of the level of AUM and is central to the value proposition that we offer advisors and unitholders. Growth in AUM resulting from investment performance increases the wealth of our unitholders, and, in turn, we benefit from higher revenues. Alternatively, poor investment performance will reduce our AUM levels and result in lower management fee revenues. Strong relative investment performance may also contribute to growth in gross sales or reduced levels of redemptions. Conversely, poor relative investment performance may result in lower gross sales and higher levels of redemptions. Refer to the 'Risk Factors and Management of Risk' section of this report for further information.

Net Sales (Redemptions)
Gross sales and redemptions are monitored separately and the sum of these two amounts comprises net sales (redemptions). Net sales (redemptions), together with investment performance and fund expenses, determine the level of average daily mutual fund AUM, which is the basis on which management fees are charged. The average daily mutual fund AUM is equal to the aggregate average daily net asset value of the AGF mutual funds. We monitor AUM in our high-net-worth and institutional businesses separately. We do not compute an average daily AUM figure for them.

EBITDA Margin - Investment Management
EBITDA margin provides useful information to management and investors as an indicator of our operating performance in our Investment Management Operations segment. We believe EBITDA margin is a valuable measure since it assesses the extent we are able to earn profit from each dollar of revenue. We define EBITDA margin as the ratio of EBITDA to revenue.

       
($ millions)      
Years ended November 30   2010   2009
           
EBITDA  $ 216.3  $ 181.6 
Divided by revenue   519.5   475.4 
EBITDA margin   41.6%   38.2%

Pre-Tax Profit Margin - Investment Management
Pre-tax profit margin provides useful information to management and investors as an indicator of our operating performance in our Investment Management Operations segment. We believe pre-tax profit margin is a valuable measure since it assesses the extent we are able to earn profit from each dollar of revenue. We define pre-tax profit margin as the ratio of income before taxes and non-segmented items to revenue.

       
($ millions)      
Years ended November 30   2010     2009
           
Income before taxes and non-segmented items  $ 131.3    $ 87.7
Divided by revenue   519.5     475.4
Pre-tax profit margin   25.3%     18.4%

c)     Trust Company Operations

Loan Assets
In the Trust Company Operations segment (AGF Trust), new originations, net of repayments, drive the outstanding balance of loans on which we charge interest. Loan asset growth contributes to increases in our revenue. Conversely, a decline in loan assets will negatively impact our revenue.

Net Interest Income
Net interest income is a common lending industry performance indicator. We monitor this figure to evaluate the growth of the financial contribution of AGF Trust. The figure is calculated by subtracting interest expense from interest income earned from AGF Trust loan assets.

       
($ millions)      
Years ended November 30   2010   2009
           
Interest income  $ 183.9  $ 226.2
Less: interest expense   97.5   130.0
Net interest income $ 86.4 $ 96.2

Net Interest Margin
Net interest margin is equal to net interest income for the year divided by the average yearly total loan balance.

           
($ millions)          
Years ended November 30   2010     2009
           
Net interest income $ 86.4   $ 96.2
Divided by average yearly total loan balance   3,343.9     4,014.3
Net interest margin   2.6%     2.4%

Efficiency Ratio
The efficiency ratio is a financial services industry KPI that measures the efficiency of the organization. We use this ratio to monitor expenses, excluding loan loss provisions. The ratio is calculated from AGF Trust results by dividing non-interest expenses by the total of net interest income and non-interest income.

       
($ millions)      
Years ended November 30   2010     2009
           
Selling, general and administrative expenses  $ 36.9    $ 35.2
Add: amortization expense   2.2     2.8
Non-interest expense   39.1     38.0
           
Other revenue  $ 7.3    $ 8.7
RSP loan securitization income (loss), net of impairment   2.1     (0.6)
Non-interest income   9.4     8.1
           
Net interest income  $ 86.4    $ 96.2
Add: non-interest income   9.4     8.1
Total of net interest income and non-interest income   95.8     104.3
Efficiency ratio   40.8%     36.4%

EBITDA Margin - Trust
EBITDA margin provides useful information to management and investors as an indicator of AGF Trust's operating performance. We believe EBITDA margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define EBITDA margin as the ratio of EBITDA to revenue.

       
($ millions)      
Years ended November 30   2010   2009
           
EBITDA  $ 41.2  $ 31.5
Divided by revenue   95.8   104.3
EBITDA margin   43.0%   30.2%

Pre-Tax Profit Margin - Trust
Pre-tax profit margin provides useful information to management and investors as an indicator of AGF Trust's operating performance. We believe pre-tax profit margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define pre-tax profit margin as the ratio of income before taxes and non-segmented items to total revenue.

       
($ millions)      
Years ended November 30   2010     2009
           
Income before taxes and non-segmented items  $ 39.0    $ 28.7
Divided by revenue   95.8     104.3
Pre-tax profit margin   40.7%     27.5%

Assets-to-Capital Multiple
Federally regulated deposit-taking institutions (DTI) are expected to meet an assets-to-capital multiple test. The assets-to-capital multiple is determined by dividing the DTI's total assets by its total regulatory capital, and expresses the extent by which capital is leveraged into the assets of the DTI.

           
($ millions)          
Years ended November 30   2010     2009
           
Total assets per OSFI guidelines $ 4,112.7   $ 4,497.4
Divided by adjusted Tier 1 and Tier 2 capital   403.8     375.5
Assets-to-capital multiple   10.2     12.0

Loan-to-Value Ratio
Loan-to-value ratio on our conventional mortgage loans is calculated using outstanding balance of conventional mortgage loans divided by the estimated fair value of the real estate serving as collateral for the conventional mortgage loans as at the date the loans were funded.

           
($ millions)          
Years ended November 30   2010     2009
           
Conventional mortgage loans1 $ 439.5   $ 556.5
Divided by estimated fair value of collateral   698.0     851.7
Loan-to-value ratio   63.0%     65.3%

1 Includes loan provision and deferred sales commission of $7.6 million in 2010 and $9.5 million in 2009.

Impaired Loans as a Percentage of Loans Outstanding
Impaired loans as a percentage of loans outstanding is calculated by dividing total impaired loans by total loans outstanding.

           
($ millions)          
Years ended November 30   2010     2009
           
Impaired loans $ 35.7   $ 48.9
Total loans outstanding1   3,122.2     3,594.8
Impaired loans as a percentage of loans outstanding   1.1%     1.4%

1 Includes loan provision and deferred sales commission of $28.6 million in 2010 and $34.7 million in 2009.

Significant Accounting Policies

The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. The Consolidated Financial Statements include the accounts of the Company and its directly and indirectly owned subsidiaries. Intercompany transactions and balances are eliminated on consolidation. For subsidiaries where the Company does not own all of the equity, the minority shareholders' interest is disclosed in the Consolidated Balance Sheet as non-controlling interest and the related income is disclosed as a separate line in the Consolidated Statement of Income. Investments over which the Company is able to exercise significant influence are accounted for by the equity method. A summary of AGF's significant accounting policies can be found in Note 1 of the Consolidated Financial Statements.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual amounts could differ from these estimates.

Key areas of estimation, where management has made difficult, complex or subjective judgments - often about matters that are inherently uncertain - are loan loss provisions, recoverability of goodwill and intangible assets using estimates of future cash flows, as well as commitments and contingencies, fund absorption costs, income tax provisions, valuation of retained interest from securitization, stock-based compensation and the provision for performance-related compensation. The Company has made investments in companies or businesses, some of which have experienced operating losses. Significant changes in the assumptions, including those about future business plans and cash flows, could change the recorded amounts by a material amount. Any further operating losses of these investees could result in impairment of these investments.

Significant Accounting Changes

There were no changes to accounting policies in the current fiscal year.

Income Taxes

The Company follows the asset and liability method in accounting for income taxes whereby future income tax assets and liabilities reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases. Future income tax assets and liabilities are measured based on the enacted or substantively enacted tax rates which are expected to be in effect when the future income tax assets or liabilities are expected to be realized or settled. The effect on future income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the substantive enactment date. Future income tax assets are recognized to the extent that realization is considered more likely than not.

Deferred Selling Commissions

Selling commissions paid to brokers on mutual fund securities sold on a deferred sales charge (DSC) basis are recorded at cost and are amortized on a straight-line basis over a period that corresponds with the applicable DSC schedule (which ranges from three to seven years).  

Property, Equipment and Computer Software

Property, equipment and computer software, which is comprised of furniture and equipment, computer hardware, computer software and leasehold improvements is stated at cost, net of accumulated amortization and impairment, if any. Amortization is calculated using the following methods based on the estimated useful lives of these assets:

      Furniture and equipment      20% declining balance
      Computer hardware           30% declining balance 
      Leasehold improvements      straight-line over term of lease
      Computer software           straight-line over 3 years

Customer Contracts

Customer contracts are stated at cost, net of accumulated amortization and impairment, if any. Amortization is computed on a straight-line basis over seven to 15 years based on the estimated useful lives of these assets.

Impairment of Long-lived Assets

Impairment of long-lived assets, which includes property, equipment and computer software and intangible assets with finite useful lives, is recognized when an event or change in circumstance causes the assets' carrying value to exceed the total undiscounted cash flows expected from their use and eventual disposition. The measurement of impairment loss is based on the amount that the carrying value exceeds the fair value.

Goodwill, Management Contracts and Trademarks

The purchase price of acquisitions accounted for under the purchase method and the purchase price of investments accounted for under the equity method are allocated based on the fair values of the net identifiable assets acquired, including management contracts and other identifiable intangible assets. The excess of the purchase price over the values of such assets is recorded as goodwill. Management contracts and trademarks have been determined to have an indefinite life.

Goodwill, management contracts and trademarks are not amortized but are subject to impairment tests on an annual basis or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill is allocated to the reporting units and any impairment is identified by comparing the carrying value of a reporting unit with its fair value. If any impairment is indicated, then it is quantified by comparing the carrying value of goodwill to its fair value, based on the fair value of the assets and liabilities of the reporting unit. Management contracts and trademarks are tested for impairment by comparing their fair value to their carrying amounts. An impairment loss is realized when the carrying amount of the asset exceeds its fair value.

For goodwill impairment testing, the fair value of each reporting unit is determined primarily using a discounted cash flow approach which incorporates each reporting unit's internal forecasts of revenue and expenses. Estimates and assumptions of discount rates, growth rates, and terminal growth rates are incorporated in this approach.

Real Estate Secured Loans and Investment Loans

Real estate secured loans and investment loans are classified as loans and receivables and are recorded at amortized cost using the effective interest rate method and are net of an allowance for loan losses. Interest income from loans is recorded on an accrual basis. Accrued but uncollected interest on uninsured real estate secured loans and investment loans is reversed when a loan is identified as impaired. Principal payments on the real estate secured loans and investment loans that are contractually due to the Company in the 12-month period from the balance sheet date are classified as current assets. Fees that relate to the origination of loans are considered to be adjustments to loan yield and are deferred and amortized to interest income over the expected term of the loans.

Allowance for Loan Losses

The allowance for loan losses consists of both general allowances and specific allowances. General allowances are based on management's assessment of inherent, unidentified losses in the portfolio at the reporting date that have not been captured in the determination of specific allowances. The assessment takes into account portfolio-specific credit factors, general economic factors, geographic exposure, historical loss experience, as well as probability of default (PD) and loss given default (LGD) pairs.

Specific allowances consist of provision for losses on identifiable assets for which the estimated amounts recoverable are less than their carrying value and are designed to provide against the likelihood of losses for loans that are deemed to be impaired.

Specific allowances also include estimated provisions for losses on identifiable assets that are currently 1-90 days in arrears and are likely to become impaired based on a combination of historical average roll rates and LGD for a given loan portfolio.

Impaired Loans

Loans are classified as impaired when, in the opinion of management, there is reasonable doubt as to the collectability, either in whole or in part, of principal or interest, or when principal or interest is 90 days or greater past due, except where the loan is both well-secured and in the process of collection. Loans that are insured by the federal government, an agency thereof, or a third-party insurer are classified as impaired when interest or principal is past due 365 days.

When a loan is identified as impaired, the carrying amount of the loan is reduced to its estimated realizable value. In subsequent periods, recoveries of amounts previously written off and any increase in the carrying value of the loan are credited to the provision for loan losses in the Consolidated Statement of Income. Where a portion of the loan is written off and the remaining balance is restructured, the new loan is carried on an accrual basis when there is no longer any reasonable doubt about the collectability of principal or interest. Interest income is recognized on impaired loans on a cash basis only after the specific allowance for losses has been reversed and provided there is no further doubt as to the collectability of the principal. Full or partial writeoffs of loans are recorded when management believes there is no realistic prospect of full recovery.

Stock-based Compensation and Other Stock-based Payments

The Company has a stock option plan as described in Note 15 of the Consolidated Financial Statements. The Company utilizes the fair-value-based method of accounting for stock-based compensation. The fair value of stock-based compensation, determined using an option pricing model, is recorded over the vesting period as a charge to net earnings with a corresponding credit to contributed surplus.

The Company also has a share purchase plan under which employees can have a percentage of their annual earnings withheld subject to a maximum of 6% to purchase AGF's Class B Non-Voting shares (Class B Non-Voting shares). The Company matches up to 60% of the amounts contributed by the employee. The Company's contribution vests immediately and is recorded as a charge to net income in the period in which the cash contribution is made. All contributions are used by the plan trustee to purchase Class B Non-Voting shares on the open market.

The Company has Restricted Share Unit (RSU) plans for senior employees under which certain employees are granted RSUs of Class B Non-Voting shares. These units vest three years from the grant date. AGF will redeem all of the participants' share units in cash equal to the value of one Class B Non-Voting share for each RSU. Compensation expense and the related liability are recorded equally over the three-year vesting period, taking into account fluctuations in the market price of Class B Non-Voting shares, dividends paid and forfeitures.

The Company has a Partners Incentive Plan (PIP) for senior employees of its Investment Management Operations segment under which certain employees are designated to participate. The plan consists of a number of points, which are allocated among participating employees. The value of each point is determined using a funding rate which is based on a set percentage of targeted earnings before interest and tax (EBIT) that defines the funding pool for the year. At the end of each fiscal year, the funding pool is adjusted up or down to reflect the Company's EBIT performance. The adjusted dollar value is then settled in the form of RSUs or stock options. Stock options are granted under the Company's stock option plan, which is described in Note 15 of the Consolidated Financial Statements. RSUs are granted under the PIP plan. These units vest evenly over three years from the grant date. Upon vesting, the Company will redeem the participants' share units in cash equal to the value of one Class B Non-Voting share for each RSU. During the first year of the plan, compensation expense and the related liability is expensed based on the targeted funding pool over a graded four-year vesting period. Upon granting of the RSU or stock option, the remaining expense is accounted for under the RSU or option model.

The Company has a Performance Share Unit (PSU) plan for senior employees under which certain employees are granted PSUs of Class B Non-Voting shares. Compensation expense and the related liability are recorded equally over the vesting period, taking into account the likelihood of the performance criteria being met, fluctuations in the market price of Class B Non-Voting shares, dividends paid and forfeitures. These PSUs vest three years from the grant date provided employees meet certain performance criteria. AGF will redeem all of the participants' share units in cash equal to the value of one Class B Non-Voting share for each PSU. As at November 30, 2010, all PSUs were forfeited and cancelled and no further units will be issued under this plan.

The Company has a Deferred Share Unit (DSU) plan for non-employee Directors. The plan enables Directors of the Company to elect to receive their remuneration in DSUs. These units vest immediately and compensation expense and the related liability are charged to net income in the period the DSUs are granted. On termination, AGF will redeem all of the participants' DSUs in cash or shares equal to the value of one Class B Non-Voting share at the termination date for each DSU.

Accounting for Securitizations

The Company has securitized certain registered Retirement Savings Plan (RSP) loans through the sale of these loans to a securitization trust. For a securitization to be treated as a sale, the Company must surrender control over those loans included in the securitization. To surrender control, the securitized assets must be isolated from the Company and its creditors, even in the case of bankruptcy or receivership, and the Company must receive consideration other than the beneficial interest in the transferred assets.

Under terms that transfer control to third parties, the transaction is recognized as a sale and the related loan assets are removed from the Consolidated Balance Sheet. As part of the securitization, certain financial assets are retained. The retained interests, classified as available for sale, are carried at fair value, determined using the present value of future expected cash flows. A gain or loss on the sale of loan receivables is recognized immediately in income. In determining the gain or loss on sale, management estimates future cash flows by relying on estimates of the amount of interest that will be collected on the securitized assets, the yield paid to investors, the portion of the securitized assets that will be prepaid before their scheduled maturity, expected credit losses, the cost of servicing the assets and the rate at which to discount these expected future cash flows. Actual cash flows may differ significantly from those estimated by management. If actual cash flows differ from the Company's estimate of future cash flows, the gains on the retained interest are recorded in OCI. Any losses are first recognized in OCI to the extent there is an offsetting gain and any excess is recognized in the Consolidated Statement of Income under RSP loan securitization income (loss), net of impairment.  

Servicing fee revenues related to the securitization loan are reported within 'RSP loan securitization income (loss), net of impairment' in the Consolidated Statement of Income. Where a servicing liability is recognized, the amount is recorded in Other Liabilities in the Consolidated Balance Sheet.

Retained interests are tested regularly for other-than-temporary impairment and, if required, the retained interest's carrying value is reduced to fair value by a charge in the Consolidated Statement of Income. Refer to Note 3 of the Consolidated Financial Statements for additional disclosure regarding the securitizations and related balance sheet and income statement impacts.

Future Accounting Changes

Business Combinations, Consolidated Financial Statements, and Non-controlling Interests

In January 2009, the CICA issued new accounting standards on Business Combinations, Consolidated Financial Statements and Non-Controlling Interests. The Business Combinations standard provides clarification as to what an acquirer must measure when it obtains control of a business, the basis of valuation and the date at which the valuation should be determined. Most acquisition-related costs must be accounted for as expenses in the period that they are incurred. This new standard will be applicable for acquisitions that are completed on or after December 1, 2011 although early adoption is permitted to facilitate the transition to International Financial Reporting Standards. The Consolidated Financial Statements standard establishes guidance for preparing consolidated financial statements after the acquisition date. The Non-Controlling Interests standard establishes guidance on the accounting and presentation of non-controlling interest. These new standards must all be adopted concurrently. The Company has adopted this standard effective December 1, 2010.

Transition to International Financial Reporting Standards
Canadian public companies will be required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), for fiscal years beginning on or after January 1, 2011. Effective December 1, 2011, we will adopt IFRS as the basis for preparing our consolidated financial statements. We will report our financial results for the quarter ended February 29, 2012 prepared on an IFRS basis. We will also provide comparative data on an IFRS basis, including an opening balance sheet as at December 1, 2010.

To meet the requirement to transition to IFRS, in 2008 we established an enterprise-wide project. We are following a transition plan comprising three phases: (1) IFRS diagnostic assessment, (2) impact analysis, evaluation and design, and (3) implementation and review. The project remains on track: we have completed the diagnostic assessment, and the impact analysis, evaluation and design phase of our transition is well advanced.

The IFRS diagnostic assessment identified the areas that would be the most impactful to AGF. Those areas included provision for credit losses on loans, hedge accounting, asset securitization, and deferred sales commission.

The second phase, impact analysis, evaluation and design included identifying and implementing the necessary changes within our existing financial reporting or data collection processes to address the IFRS differences identified in our diagnostic assessment; developing and executing internal training and awareness programs; and selecting accounting policy options permitted under IFRS. The impact to our data collection processes and existing financial reporting and data collection processes is minimal. No significant changes to IT systems were identified. As a result, the amendments to our financial systems were assessed and have been completed. Our internal training will remain ongoing, with the continued training of key finance and operational staff responsible for IFRS.

We provide updates to the Audit Committee on a quarterly basis. These updates include a review of timelines, disclosure requirements, expected impact of the new standards on the financial statements and note disclosures as well as an update on the progress of the IFRS project. Based on our diagnostic, we are currently reviewing and determining accounting policy options permitted under IFRS that are expected to impact AGF. The assessment and selection of accounting policy options is complete and in the process of final review. In addition, we have assessed the exemptions to full restatement that are permitted under IFRS. Generally, with the adoption of IFRS, any change to our existing accounting policies must be applied retroactively and reflected in our opening balance sheet of the comparative period. There are, however, a number of exemptions from full restatement available under IFRS. The most impactful election under IFRS 1 to AGF is related to business combinations. Under IFRS 1, a company can elect to (a) restate retrospectively all business combinations after a particular date in accordance with IFRS 3 or; (b) apply IFRS 3 prospectively, the value at transition is considered deemed cost under IFRS. Under both options, goodwill must be tested for impairment at transition and on a periodic basis thereafter. We intend to apply IFRS 3 prospectively. In addition, IFRS 1 allows entities to elect to charge the Cumulative Translation Account (CTA) to retained earnings at transition. AGF intends to apply this election. This will result in a reclassification from Accumulated Other Comprehensive Income (AOCI) to retained earnings. During 2010, a revision was made to IFRS 1 which amended the derecognition date from January 1, 2004 to the date of transition. This amendment impacts our Trust Company as their securitized assets will no longer need to be on the balance sheet at transition. 

As each accounting policy option is selected, we will complete a review of its impact to our internal controls over financial reporting as well as disclosure controls and procedures and make changes where necessary.

Risk Factors and Management of Risk

Risk is the responsibility of the Executive Committee of AGF Management Limited. The Executive Committee is made up of the Chairman and Chief Executive Officer (CEO), AGF Management Limited, the Executive Vice-President and Chief Financial Officer (CFO), AGF Management Limited, the Executive Vice-President, Chief Operating Officer and General Counsel, AGF Management Limited, the Executive Vice-President, Investments, AGF Investments Inc., the Executive Vice-President and Chief Investment Officer, AGF Investments Inc., the Executive Vice-President, Retail Distribution, AGF Investments Inc., the Executive Vice-President, Product and Marketing, Strategy and Development, AGF Investments Inc. and the President and Chief Operating Officer, AGF Trust Company. The Chairman and CEO is directly accountable to the Board of Directors for all risk-related activities. The Executive Committee reviews and discusses significant risk action plans that arise in executing the enterprise-wide strategy and ensures that risk oversight and governance occur at the most senior levels of management. Each of the business units owns and assumes responsibility for managing its risk. They do this by ensuring that policies, processes and internal controls are in place and by escalating significant risk identified in the business units to the Executive Committee.

AGF Management Limited also oversees or operates key functions for each of the business units on a shared services basis. These functions include Finance, Internal Audit, Human Resources, Compensation and Benefits, Information Technology, Fund Oversight, Legal and Compliance. These functions also play a significant role in ensuring consistent risk management practices and standards across the company in areas that are common to the business units.

In addition, AGF Management Limited applies a disciplined approach to risk taking through policy formation, reporting and oversight of the operational units.

AGF's risk governance structure is designed to balance risk and reward and promote business activities consistent with our standards and risk tolerance levels, with the objective of maximizing long-term shareholder value.

As a federally regulated deposit-taking institution, AGF Trust is subject to risk management expectations of its regulators and has responsibilities to its depositors. In 2009, AGF Trust revised its management and governance framework to enhance its ability to identify, characterize and manage risk. Specific changes included the appointment of a Chief Risk Officer and implementing new management committee structures to ensure appropriate oversight and management of key risk areas: credit, operational, distribution channel and asset and liability.

Refer to Note 23 of the Consolidated Financial Statements for risks arising from the use of financial instruments.

Risk Factors that May Affect Future Results

There are many factors that may affect our ability to execute against our strategy. Some of these factors are within our control and others, because of their nature, are beyond our control. These factors apply to our corporate strategy as well as the business-specific strategies, which are included in the segment discussions that follow.

Company-Specific Risk Factors

Investment Management Operations
Demand for our products depends on the ability of our investment management team to deliver value in the form of strong investment returns, as well as the demand for specific investment products. A specific fund manager's style may fall out of favour with the market, resulting in lower sales and/or higher redemptions.

Our future financial performance will be influenced by our ability to successfully execute our strategy and generate net sales. If sales do not materialize as planned or key personnel cannot be retained, margins may erode.

Our strategy includes strategic acquisitions. There is no assurance that we will be able to complete acquisitions on the terms and conditions that satisfy our investment criteria. After transactions are completed, meeting target return objectives is contingent upon many factors, including retaining key employees and growth in AUM of the acquired companies.

Our retail AUM is obtained through third-party distribution channels including financial advisors or strategic partners that offer our products to investors along with competing products. Our future success is dependent on continued access to these distribution channels that are independent of our company.

Trust Company Operations
AGF Trust manages its business to a set of identified key risks: credit, operational, interest rate (non-trading), funding and liquidity and legal and compliance.

Credit risk is the risk of loss associated with a counterparty's or client's inability to fulfill its payment obligations, after taking into account recovery values and associated costs. AGF Trust is in the business of providing loans and as a result credit risk is the largest risk exposure to the company. AGF Trust's overall credit risk strategy and credit risk policy are developed by the AGF Trust's Risk Management group in conjunction with the business unit and presented to senior management. The overall credit strategies and approaches are supported through the use of policies, processes and internal controls. The AGF Trust's Risk Management group ensures these activities and the outcomes are within the standards of risk tolerance levels established by senior management and approved by the Board of Directors and updates the Board of Directors with the results on a regular basis.

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems. Impact can be financial, loss to reputation, loss of competitive position or regulatory or legal sanction. Operational risk and review of operational processes, activities and systems are the responsibility of the Operations Committee of AGF Trust and the methodologies for measuring and monitoring operational risks reside with the Risk Management department of AGF Trust.

Interest rate (non-trading) risk is the risk of adverse impact to AGF Trust's earnings and economic value due to unexpected changes in interest rates and interest rate volatility. Categories of interest rate risk include: yield curve/gap risk, basis or spread compression risk, commitment or embedded option risk, prepayment risk and discretionary. Interest rate (non-trading) risk is monitored by the AGF Trust Treasury department and overseen by the AGF Trust Asset and Liability Committee.

Funding and liquidity risk is the risk to earnings and capital if AGF Trust is unable to: i) meet its obligations due to an inability to liquidate assets or obtain adequate funding; or, ii) unwind or offset specific exposures without incurring a loss as a result of inadequate market depth or market disruptions; or iii) obtain funding at costs that are consistent with historical norms from its traditional funding sources. Funding and liquidity risk is monitored by the AGF Trust Treasury department and overseen by the AGF Trust Asset and Liability Committee.

Legal and compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation that AGF Trust may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organisation standards, and codes of conduct applicable to AGF Trust's business activities. Legal and compliance risk is managed and monitored on a shared services basis.

Non-Company Risk Factors

Investment Management Operations
A general economic downturn, market volatility and an overall lack of investor confidence could result in lower sales, higher redemption levels and lower AUM levels. In addition, market uncertainty could result in retail investors avoiding traditional equity funds in favour of money market funds.

The level of competition in the industry is high. Sales and redemptions of mutual funds may be influenced by relative service levels, management fees, attributes of specific products in the marketplace and actions taken by competitors.

We take all reasonable measures to ensure compliance with governing statutes, regulations or regulatory policies. Failure to comply with statutes, regulations or regulatory policies could result in sanctions or fines that could adversely affect earnings and reputation. Changes to laws, statutes, regulations or regulatory policies could affect us by changing certain economic factors in our industry. See the 'Government Regulations' section for further details.

Revenues are generally not subject to significant seasonal swings, but are directly correlated to global stock market volatility. We experience somewhat higher sales during the Retirement Savings Plan (RSP) season; however, the immediate impact of the level of sales on total revenue is not significant. The Selected Quarterly Information table shows key performance statistics for the past eight quarters.

AUM are exposed to various market risks which are detailed in the 'Market Risk in Assets under Management (AUM)' section.

Trust Company Operations
A general economic downturn, increased unemployment rate, declining real estate values, adverse capital market conditions and/or an increase in personal bankruptcy rates could lead to reduced creditworthiness of AGF Trust borrowers and increased loss in the event of default.

A portion of AGF Trust's insured mortgage portfolio is insured by private mortgage insurers. AGF Trust is exposed to losses in the event private mortgage insurers fail to perform in accordance with their obligations under insurance contracts. Changes to laws, statutes, regulations or regulatory policies could affect AGF Trust by changing certain economic factors in our industry or increasing costs of compliance. See the 'Government Regulations' section for further details.

Market Risk in Assets under Management

AUM are exposed to various market risks, including changes in equity prices, interest rates and foreign exchange rates. These risks transfer to the Company as our management fee revenue is calculated as a percentage of the average net asset value of each mutual fund or portfolio managed. The Company does not quantify these risks in isolation, however, in general, for every $1 billion reduction of mutual fund AUM, management fee revenues would decline by approximately $20 million. The Company monitors these risks as they may impact earnings, however, it is at the discretion of the fund manager to decide on the appropriate risk-mitigating strategies for each fund.

To provide additional details on the Company's exposure to these market risks, the following provides further information on our mutual fund AUM by asset type as at November 30:

           
Percentage of total mutual fund AUM   2010     2009
           
Domestic equity funds   40.7%     38.4%
U.S. and international equity funds   30.7%     32.9%
Domestic balanced funds   9.3%     10.0%
U.S. and international balanced funds   1.2%     1.8%
Domestic fixed income funds   12.8%     11.4%
U.S. and International fixed income funds   3.6%     3.3%
Domestic money market   1.7%     2.2%
    100.0%     100.0%

Institutional and high-net-worth AUM are exposed to the same market risks as mutual fund AUM. In general, for every $1 billion reduction of institutional and high-net-worth AUM, management fee revenues would decline by approximately $4 million.

Foreign Exchange Risk

Our main foreign exchange risk derives from the U.S. and international portfolio securities held in the mutual fund AUM. Change in the value of the Canadian dollar relative to foreign currencies will cause fluctuations in the Canadian-dollar value of non-Canadian AUM upon which our management fees are calculated. This risk is monitored since currency fluctuation may impact the financial results of AGF. However, it is at the discretion of the fund manager to decide whether to enter into foreign exchange contracts to hedge foreign exposure on U.S. and international securities held in funds.

We are subject to foreign exchange risk on our integrated foreign subsidiaries in Ireland and Singapore, which provide investment advisory services. These subsidiaries retain minimal monetary exposure to the local currency and their revenues are calculated in Canadian dollars. The local currency expenses are translated at the average monthly rate and local currency assets and liabilities are translated at the rate of exchange in effect at the balance sheet date.

The Company is exposed to foreign exchange risks through its 30.5% equity interest in Smith & Williamson Holdings Limited (S&WHL), which is denominated in U.K. pounds. The investment is translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Unrealized translation gains and losses are reported in other comprehensive income. Based on the carrying value at November 30, 2010, a 5% change in the value of the Canadian dollar versus the U.K. pound would result in a change in other comprehensive income of $3.7 million.

Interest Rate Risk

Excluding the AGF Trust operations, we have exposure to the risk related to changes in interest rates on floating-rate debt and cash balances at November 30, 2010. Using average balances for the year, the effect of a 1% change in variable interest rates on our floating-rate debt and cash balances in fiscal 2010 would have resulted in a corresponding change of approximately $1.5 million in interest expense for the year ended November 30, 2010. As the amount of interest paid is small relative to our operating cash flow, such a change in interest rates would not have a material impact on the results of operations or the fair value of the related debt.

For the AGF Trust operations, interest rate risk refers to the treasury book (non-trading) and can have a potentially adverse impact on AGF Trust's earnings and economic value due to unexpected changes in interest rates and interest rate volatility. Categories of interest rate risk include: yield curve/gap risk, basis or spread compression risk, commitment or embedded option risk, prepayment risk and discretionary. The impact of a 1% change  in interest rates would result in a corresponding change  in annual net interest income of approximately $4.0 million.

The foregoing discussion is not an exhaustive list of all risks and uncertainties regarding our ability to execute against our strategy. Readers are cautioned to consider other potential risk factors when assessing our ability to execute against our strategy.

Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by AGF Management Limited in reports filed or submitted under Canadian securities laws is recorded, processed, summarized and reported within the time periods specified under those laws and include controls and procedures that are designed to ensure that information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure.

AGF Management Limited's management, under the direction of the CEO and CFO, has evaluated the effectiveness of AGF Management Limited's disclosure controls and procedures (as defined in National Instrument 52-109 of the Canadian Securities Commission) as at November 30, 2010, and has concluded that such disclosure controls and procedures were effective.

Internal Control over Financial Reporting

The CEO and CFO have designed, or caused to be designed under their supervision, internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

The Company's internal control over financial reporting includes policies and procedures that:

  • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the Company;
  • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Canadian GAAP, and receipts and expenditures of the Company are made only in accordance with authorizations of management and directors of the Company; and
  • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be designed effectively can provide only reasonable assurance with respect to financial reporting and financial statement preparation.

Management, under the direction of the CEO and CFO, has evaluated the effectiveness of the Company's internal control over financial reporting as at November 30, 2010 and has concluded that internal control over financial reporting is designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Management's assessment was based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Changes in Internal Controls over Financial Reporting

There have been no changes in AGF Management Limited's internal control over financial reporting during the year ended November 30, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Changes in Information Technology Systems

During 2010, there were no significant changes to Information Technology Systems.

Consolidated Operating Results

The table below summarizes our consolidated operating results for the years ended November 30, 2010 and 2009:

                 
($ millions, except per share amounts)                
Years ended November 30   2010      2009      % change
                 
Revenue                
  Investment Management Operations $ 519.5   $ 475.4     9.3% 
  Trust Company Operations   95.8     104.3     (8.1%)
  Other   (0.7)     6.4     n/m   
    614.6     586.1     4.9% 
                 
Expenses                
  Investment Management Operations   303.2     293.8     3.2% 
  Trust Company Operations   54.6     72.8     (25.0%)
    357.8     366.6     (2.4%)
                 
EBITDA1   256.8     219.5     17.0% 
  Amortization   87.2     96.7     (9.8%)
  Interest expense   5.7     5.9     (3.4%)
  Non-controlling interest   1.0     0.6     66.7% 
  Income taxes    46.1     18.6     147.8% 
Net income    $ 116.8   $ 97.7     19.5% 
Earnings per share - diluted $ 1.30   $ 1.09     19.3% 

1  For the definition of EBITDA, see the 'Key Performance Indicators and Non-GAAP Measures' section. The items required to reconcile EBITDA to net income, a defined term under Canadian GAAP, are detailed above.

Results from Operations

Revenue for the year ended November 30, 2010, increased by 4.9% from the corresponding period in 2009. Revenue in the Investment Management Operations segment increased 9.3% for the year ended November 30, 2010. This corresponds to higher average levels of AUM. The Trust Company Operations segment reported a decrease in revenue of 8.1% in fiscal 2010 over 2009 as average loan balances declined by 16.7% on a year-over-year basis. Revenue from Other, which represents the results of our 30.5% equity interest in S&WHL, was lower for the year ended November 30, 2010 due to the impact of the economic environment in the United Kingdom as well as AGF's proportion of one-time charges of approximately $5.5 million primarily related to a goodwill impairment charge and costs related to investment team recruitment arrangements.

Expenses for the year ended November 30, 2010 decreased 2.4% compared to fiscal 2009. The Investment Management operations' increase in expenses was primarily attributed to higher trailing commissions associated with higher level of AUM. The Trust Company Operations' expenses decreased primarily due to lower loan loss provisions in 2010 compared to 2009. For further details, refer to each of the segment discussions.

The impact of the above items resulted in an increase in total EBITDA of 17.0% for the year ended November 30, 2010 over the respective 2009 period. Amortization expense for the year ended November 30, 2010 decreased by 9.8% compared to the corresponding period in 2009. The decline was primarily due to lower amortization of deferred selling commissions in the Investment Management Operations segment. Amortization of deferred selling commissions for year ended November 30, 2010 accounted for $78.6 million (2009 - $84.7 million) of the total amortization expense.

Interest expense was $5.7 million for the year ended November 30, 2010 as compared to $5.9 million in the same period of 2009. The decline in interest expense in the year is reflective of lower interest rates.

Income tax expense for the year ended November 30, 2010 was $46.1 million as compared to $18.6 million in 2009. Results from the year ended November 30, 2009 included a net income tax reduction of $9.8 million related to the reduction in the Ontario income tax rate from 14% to 10% by July 1, 2013. The effective tax rate for the year ended November 30, 2010 was 28.1% compared to 24.3% in the same period of 2009, excluding the impact of the reductions in 2009.

Net Income

The impact of the above revenue and expense items resulted in net income of $116.8 million in 2010 as compared to $97.7 million in the prior year. Excluding the $9.8 million reduction in income taxes related to substantively enacted tax rates, net income in fiscal 2009 was $87.9 million. Diluted earnings per share were $1.30 per share in 2010 as compared to $1.09 per share in 2009. Basic earnings per share were $1.31 per share in 2010 as compared to $1.10 per share in 2009.

For a more detailed discussion of revenue and expense items, please refer to the operating segment discussions. An analysis of the 2010 fourth-quarter results compared to the corresponding period in 2009 is included under the heading 'Fourth Quarter Analysis'.

Return on Equity

Return on equity in 2010 was 10.2% as compared to 8.7% in 2009. The improvement was due to higher earnings in 2010, which were impacted by higher average AUM levels and associated higher revenues in the Investment Management Operations segment combined with lower loan loss provisions in the Trust segment.

Outlook

As 2010 progressed, economic data pointed to slower than expected recovery around the globe. Continued economic weakness in the United States, the sovereign debt crisis and concerns about the strength of the global economic recovery contributed to stock market volatility in the second and third quarters of 2010. Canada's growth became more subdued by the end of the year, given the cooling of the housing market, slowdown in exports and slower job growth.

While there are indicators pointing to better economic times ahead in 2011, uncertainty remains. High levels of household debt and a more subdued housing market could temper growth and there are still challenges in the U.S. and parts of the European economy. However, there is evidence to support positive growth. We expect that Canadian and U.S. equity markets will improve in 2011, while Emerging markets will continue to contribute positive returns.

Conditions supporting domestic and global growth include:

  • Corporate earnings remain strong which bodes well for the private sector.
  • Tax cuts in the U.S. along with strong consumption at the end of 2010 suggests further growth in 2011.
  • While Europe's fiscal situation remains uncertain for some countries, like Spain and Portugal, others such as Germany are showing strong performance.
  • The Canadian Chamber of Commerce predicts that by the summer of 2011 the global economy should be on a more stable footing and U.S. growth prospects will brighten.
  • Mortgage rates, while expected to rise somewhat later this year, still remain at the low end of the spectrum.

As AGF enters 2011, the Company is focused on returning to net retail sales through enhancing our product offerings and services that meet the needs of our investors and support the growth of AGF Trust, while continuing to grow our institutional business. In addition, the successful integration of Acuity will be a key objective of the Company.

Business Segment Performance

We report on three business segments: Investment Management Operations, Trust Company Operations and Other. AGF's reportable segments are strategic business units that offer different products and services. The Investment Management Operations segment provides investment management and advisory services. It is responsible for the management and distribution of AGF investment products and services, including retail mutual fund operations, institutional investment management and high-net-worth client investment counselling services. The Trust Company Operations segment offers a range of products, including GICs, real estate secured loans and investment loans. The 'Other' segment includes the results of S&WHL, which is accounted for by the equity method, as well as interest expense.

Investment Management Operations

Business and Industry Profile

We are an independent and diversified investment management operation servicing Canadian and international investors through our retail, institutional and high-net-worth businesses.

Our investment management teams provide a diverse range of investment strategies and philosophies and unique research-driven investment processes.

Our retail business delivers a wide-range of products across a number of investment strategies including AGF mutual funds, the AGF Elements portfolios and the Harmony asset management program. We compete with numerous domestic and foreign players serving the market. Our products are delivered through multiple channels, including advisors, financial planners, banks, life insurance companies and brokers. We have seven sales offices located across Canada serving regional advisors and their clients while our strategic accounts team serves our corporate distribution partners.

Our institutional business offers a variety of investment mandates through pooled funds, segregated accounts and sub-advisory relationships. We compete domestically and globally as an institutional investment manager and have sales and client service offices in Canada, the United States, Europe, and Asia serving pension funds, foundations, institutions, endowments and sovereign wealth funds.

Our high-net-worth business delivers investment management and counselling services in local markets in Canada. It includes the operations of Cypress Capital Management Limited in Vancouver, Highstreet Asset Management in London, Ontario, and Doherty & Associates in Ottawa and Montreal.

Segment Strategy and 2010 Overview

Building on our 50-year tradition of being independent, fostering innovation and maintaining integrity, our vision is to be the premiere global investment management firm. Our goal is to deliver strong long-term investment performance and client service excellence to the retail mutual fund, institutional and high-net-worth markets. We continue to foster our relationships with advisors and strategic distribution partners and provide a diverse suite of investment solutions. We strive to build strong portfolio management teams to ensure continuity and strength in investment management and to leverage our in-house investment management expertise across multiple client channels.

A summary of key results are as follows:

  • In November, we signed a purchase agreement to acquire 100% of Acuity Funds Ltd. and Acuity Investment Management. The acquisition of Acuity, which is expected to close on or about February 1, 2011, will enhance AGF's position by:
    • Significantly enhancing both our retail and institutional businesses, while increasing our AUM.
    • Further diversifying our firm's investment management capabilities while leveraging expertise across multiple channels.
    • Enhancing our products through Acuity's strength in income and balanced mandates.
  • We continued to experience net redemptions during the year, despite overall positive industry flows.
  • At the 2010 Canadian Investment Awards, AGF Emerging Markets Fund won the Emerging Markets Equity Fund Award for the fifth consecutive time.
  • At the 2010 Canadian Lipper Awards, AGF Emerging Markets Fund was recognized for achieving the best three-year returns in its category along with the certificate for best five-year return.
  • In November, we launched the AGF Emerging Markets Bond Fund and AGF Emerging Markets Balanced Fund to provide investors with further access to the ongoing potential of emerging markets.
  • In May, we launched the AGF Traditional Income Fund, AGF Global Aggregate Bond Fund and AGF Pure Canadian Balanced Fund. The diversity of these funds allows us to meet investor demands for income and safety.
  • We opened a new office in Hong Kong dedicated to business development and client service for institutional clients in the Asia Pacific region and strengthened our support in Dublin to manage and increase institutional sales in Europe/Middle East/Africa (EMEA) region.

Our strategic priorities for our Investment Management Operations for 2011 are:

  • Focus on the successful integration of Acuity.
  • Return to net sales through product strategies that focus on high flow categories, strong partner relationships and improved investment performance.
  • Continued focus on excellence in three core activities: investment management, relationship management and product management across domestic and international markets.
  • Become the partner of choice for retail clients by providing products that meet their long-term investment strategies.
  • Focus on growth in our institutional business.
  • Improve financial performance.

Assets Under Management
The primary sources of revenue for AGF's Investment Management Operations segment are management and advisory fees. The amount of management and advisory fees depend on the level and composition of AUM, which in turn are dependent upon investment performance and net sales. Under the management and investment advisory contracts between AGF and each of the mutual funds, we are entitled to monthly fees. These fees are based on a specified percentage of the average daily net asset value of the respective fund. In addition, we earn fees on our institutional, strategic accounts and high-net-worth client AUM. As a result, the level of AUM has a significant influence on financial results.

The following table illustrates the composition of the changes in total AUM during the years ended November 30, 2010 and 2009:

                   
  ($ millions)                
  Years ended November 30   2010      2009      % change
                   
  Mutual fund AUM, beginning of year $ 22,746   $ 19,761     15.1% 
                   
  Gross sales of mutual funds   2,611     2,606     0.2% 
  Redemptions of mutual funds   (4,364)     (3,381)     29.1% 
  Net mutual fund sales   (1,753)     (775)     126.2% 
                   
  Market appreciation of fund portfolios   1,271     3,760     (66.2%)
                   
  Mutual fund AUM, end of year $ 22,264   $ 22,746     (2.1%)
                   
  Institutional and strategic accounts AUM   17,585     18,921     (7.1%)
  High-net-worth AUM   3,164     2,951     7.2% 
                   
  Total AUM, end of year $ 43,013   $ 44,618     (3.6%)
                   
  Average daily mutual fund AUM for the year $ 22,091   $ 20,733     6.5% 

The continued recovery in global markets was offset by net mutual fund redemptions which resulted in minimal change in mutual fund AUM ending the year at $22.3 billion as compared to $22.7 billion as at November 30, 2009. The average daily mutual fund AUM for the year ended November 30, 2010, increased 6.5% to $ 22.1 billion, compared to $20.7 billion for the year ended 2009. During the past 12 months, institutional and strategic accounts AUM decreased by $1.3 billion to $17.6 billion, reflecting redemptions somewhat offset by new mandates and market growth. Due to the larger size of institutional mandates, inflows and outflows in this category are more evident than in retail mutual funds. Outflows experienced in 2010 in the institutional business relate primarily to the instability of the European market and its effect on our Europe, Australasia and Far East (EAFE) mandates. In addition, institutional outflows included the loss of a large low-margin institutional account managed by Cypress Capital Management Limited. Offsetting these institutional outflows were new institutional sales throughout the year. High-net-worth AUM increased by 7.2% to $3.2 billion. Overall, total AUM decreased 3.6% to end the year at $43.0 billion.

Investment Performance

Stock market performance influences the level of AUM. During the year ended November 30, 2010, the Canadian-dollar-adjusted S&P 500 Index increased 6.6%, the Canadian-dollar-adjusted NASDAQ Index increased 13.0%, the S&P/TSX Composite Index increased 16.3% and the MSCI World Index increased 4.5%. The aggregate market appreciation of our mutual fund portfolios for the year ended November 30, 2010, divided by the average daily mutual fund AUM for the period was 5.8% after management fees and expenses paid by the funds.

The impact of the U.S. dollar depreciation relative to the Canadian dollar on the market value of AGF mutual funds for the year ended November 30, 2010, has been a decrease in AUM of approximately $182.2 million (2009 - $795.1 million).

The impact of the Euro depreciation relative to the Canadian dollar on the market value of AUM for the year ended November 30, 2010, has been a decrease in AUM of approximately $453.0 million (2009 - $39.7 million).

Consistent with the increase in the stock market, market appreciation net of management fees increased mutual fund AUM by $1.3 billion since November 30, 2009. For the one-year period ended November 30, 2010, 31% of ranked AUM performed above median (2009 - 27%). Over the three-year period ended November 30, 2010, 35% of ranked AUM performed above median (2009 - 41%). The composition of AUM as outlined on page 17 of this MD&A has direct influence on our revenues. Generally, equity funds have higher management fees than fixed income funds and international funds have higher management fees than domestic funds.

Financial and Operational Results

The table below highlights the Investment Management Operations segment results for the years ended November 30, 2010 and 2009.

                   
  ($ millions)                
  Years ended November 30   2010      2009      % change
                   
  Revenue                
    Management and advisory fees $ 489.6   $ 447.8     9.3% 
    Deferred sales charges    22.6     21.6     4.6% 
    Investment income and other revenue   7.3     6.0     21.7% 
      519.5     475.4     9.3% 
                   
  Expenses                
    Selling, general and administrative   155.5     158.4     (1.8%)
    Trailing commissions   138.5     125.3     10.5% 
    Investment advisory fees   9.2     10.1     (8.9%)
      303.2     293.8     3.2% 
                   
  EBITDA   216.3     181.6     19.1% 
  Amortization   85.0     93.9     (9.5%)
  Income before taxes and non-segmented items $ 131.3   $ 87.7     49.7% 

1As previously defined, see the 'Key Performance Indicators and Non GAAP Measures - EBITDA' section.

Revenue

For the year ended November 30, 2010, revenue for the Investment Management Operations segment increased by 9.3% over the previous year, with changes in the categories as follows:

Management and Advisory Fees
Management and advisory fees are directly related to our AUM levels. The 6.5% increase in average daily mutual fund AUM for the year ended November 30, 2010, combined with higher levels of institutional and high-net-worth AUM for much of the year, contributed to a 9.3% increase in management and advisory fee revenue compared to 2009.

Deferred Sales Charges (DSC)
We receive deferred sales charges upon redemption of securities sold on the contingent DSC or low-load commission basis for which we finance the selling commissions paid to the dealer. The DSC ranges from 2.5% to 5.0%, depending on the commission option, of the original subscription price of the funds purchased if the funds are redeemed within the first two years, and declines to zero after three or seven years. DSC revenue fluctuates based on the level of redemptions, the age of the assets being redeemed and the proportion of redemptions composed of back-end assets. DSC revenues increased by 4.6% in 2010 compared to 2009, reflecting higher retail mutual fund redemptions of DSC AUM.

Investment Income and Other Revenue
Investment income and other revenue increased by 21.7% in fiscal 2010 over 2009, reflecting gains in the sale of certain short-term investments.

Expenses

For the year ended November 30, 2010, expenses for the Investment Management Operations segment increased 3.2% from the previous year. Changes in specific categories are described in the discussion that follows:

Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) decreased by $2.9 million or 1.8% in 2010 compared to 2009. The decrease is made up of the following amounts:

         
  ($ millions)      
  Year ended November 30         2010 
             
  Decrease in severance and restructuring expenses       $ (4.9)
  Increase in compensation-related expenses         5.9
  Increase in other expenses         3.7
  Decrease in fund absorption expenses         (7.6)
          $ (2.9)

The following explains expense changes in 2010 compared to the prior year:

  • Severance and restructuring expenses decreased $4.9 million for the year ended November 30, 2010. The decrease is reflecting the restructuring that took place in 2009.

  • Compensation-related expenses increased primarily due to higher stock-based compensation expense, driven by the introduction of the Partners Incentive Program and an increase in our share price. This was offset by lower bonus expenses in 2010 related to investment performance.

  • Other expenses increased $3.7 million due to a $3.5 million charge for a proposed settlement related to legal proceedings recorded in the third quarter of 2010.

  • Absorption expense decreased by $7.6 million reflecting higher average AUM levels in 2010 as compared to 2009 as well as an increase of the management expense ratio cap on certain funds. The aggregate unitholder service costs absorbed and management and advisory fees waived by the company on behalf of the funds were approximately $9.0 million for the year ended November 30, 2010 compared to $15.8 million in 2009.

Trailing Commissions
Trailing commissions paid to distribution depend on total AUM, the proportion of mutual fund AUM sold on a front-end versus back-end commission basis and the proportion of equity fund AUM versus fixed-income fund AUM. Trailing commissions as a percentage of average daily mutual fund AUM were 0.63% for the 12 months ended November 30, 2010, compared to 0.60% in the same period in 2009.

Investment Advisory Fees
External investment advisory fees decreased by 8.9% in 2010 compared to 2009. The decrease relates to the repatriation of certain mandates.

EBITDA and EBITDA margin

EBITDA for the Investment Management Operations segment were $216.3 million for the year ended November 30, 2010, a 19.1% increase from $181.6 million for the same period of fiscal 2009. The increase is directly attributable to higher revenue levels resulting from higher average daily mutual fund AUM. EBITDA margins were 41.6% in fiscal 2010 compared to 38.2% in 2009.

Amortization
The most significant component in this category is amortization of deferred selling commissions. The category also represents amortization of property, equipment, customer contracts and other intangible assets. We internally finance all selling commissions paid. These selling commissions are capitalized and amortized on a straight-line basis over a period that corresponds with their applicable DSC schedule. Amortization expense related to deferred selling commissions was $78.6 million in 2010, compared to $84.7 million in 2009 due to lower levels of DSC assets.

During fiscal 2010, we paid $49.4 million in selling commissions, compared to $54.5 million in 2009. The decline in DSC paid is due to lower gross sales of retail funds and a slightly higher percentage of funds paid on a front-end basis in 2010 compared to 2009. As at November 30, 2010, the unamortized balance of deferred selling commissions financed was $243.9 million, a decrease of $30.1 million from the prior-year balance of $274.0 million. The contingent deferred sales charges that would be received if all of the DSC securities were redeemed at November 30, 2010, were estimated to be approximately $335.7 million (2009 - $373.6 million).

Pre-Tax Profit Margin

Pre-tax profit margin increase to 25.3% for fiscal 2010 compared to 18.4% for 2009, reflecting higher revenues and lower amortization.

Segment Outlook

AGF's recovery over the course of 2010 has been slower than expected. We expect that the recovery will continue in 2011. Presently, there is investor demand for balanced and fixed income funds however, as interest rates increase in 2011, we expect that there will be a gradual shift towards equities and equity funds. We anticipate that, over the longer term, demand for investment products will remain healthy due to factors such as Canada's projected population growth, the significant amount of unused Registered Retirement Savings Plan contribution room, the introduction of the Tax-Free Savings Account in 2009, as well as the large amount of un-invested cash or near-cash holdings that Canadians are reportedly sitting on. Mutual funds remain a very accessible and attractive investment solution for investors.

Over the course of 2011, AGF's will focus on returning to net sales and the successful integration of Acuity by realizing synergies and identifying growth opportunities in our retail and institutional businesses.

Trust Company Operations

Business and Industry Profile

AGF Trust has offered mortgage, deposit and consumer lending products to the clients of financial advisors and mortgage brokers for more than 20 years. Our product offerings serve to complement wealth management products sold by financial advisors and reinforce relationships with our parent company. We remain committed to helping financial advisors serve their clients and supporting AGF Investments Inc. in its mutual fund sales efforts.

The residential mortgage market in Canada remains a key driver of balance sheet growth for financial institutions of all sizes. The domestic housing sector, despite signs of stretched valuations in certain markets, remains well supported by economic fundamentals.  The mortgage broker share of total loan origination has been resilient in the past year, and our expectation is that mortgage brokers will retain a significant market share. Our strategy is to partner with select mortgage brokerage firms to capture a greater share of mortgage origination volumes. The depth of our management's experience in the broker channel, the strength of the AGF brand and our ability to deploy substantial capital base relative to current lending assets, will all support our efforts to grow our mortgage book over the next year.

Segment Strategy and Highlights

In 2010, we have been positioning for renewed balance sheet growth by negotiating distribution agreements with key partners, building underwriting, sales and distribution capacity, and updating and reviewing credit and collection policies. Management is confident that AGF Trust is well positioned to reverse the net decline in lending assets experienced through 2010 by the end of 2011, and build a foundation for solid growth in lending assets in subsequent periods.

For the year ended November 30, 2010, loan originations were $178.3 million compared to $88.4 million in the previous year. Net loan writeoffs were $25.4 million for the year ended November 30, 2010, compared to $34.9 million in the previous year. AGF Trust loan assets declined 11.1% from 2009. This decline in the loan book reflects added conservatism exercised by AGF Trust relative to its real estate and finance loan programs during times of economic uncertainty and market disruption, combined with its desire to conserve capital.

During the second half of 2010, we introduced a mortgage program in the financial advisor channel. In December 2010, we also announced an agreement with a large mortgage broker network to further expand our reach among these two diversified client channels. These initiatives are expected to contribute to net loan growth in 2011, while maintaining high portfolio credit quality. The increase in mortgage loan originations in the second half of 2010 has provided an opportunity to test revised underwriting standards and operational procedures. This has reinforced AGF Trust's ability to effectively manage higher expected lending volumes in 2011.

AGF Trust is entering 2011 with a strong capital position with assets to capital multiple of 10.2 and a total capital ratio of 22.5%.

Financial and Operational Results

The Trust Company Operations segment results for the years ended November 30, 2010 and 2009, are as follows:

                   
  ($ millions)                
  Years ended November 30   2010      2009      % change
                   
  Interest income                
    Loan interest $ 169.4   $ 211.2     (19.8%)
    Investment interest   14.5     15.0     (3.3%)
      183.9     226.2     (18.7%)
  Interest expense                
    Deposit interest   124.9     175.4     (28.8%)
    Hedging interest income   (46.0)     (68.5)     (32.8%)
    Other interest expense (income)   18.6     23.1     (19.5%)
      97.5     130.0     (25.0%)
  Net interest income   86.4     96.2     (10.2%)
  Other revenue   7.3     8.7     (16.1%)
  RSP loan securitization (income) loss, net of impairment   2.1     (0.6)     n/m   
  Total revenue   95.8     104.3     (8.1%)
                   
  Expenses                
    Selling, general and administrative    36.9     35.2     4.8% 
    Provision for loan losses   17.7     37.6     (52.9%)
      54.6     72.8     (25.0%)
                   
  EBITDA1   41.2     31.5     30.8% 
  Amortization   2.2     2.8     (21.4%)
  Income before taxes and non-segmented items $ 39.0     $  28.7     35.9% 

1 For the definition of EBITDA, see the "Key Performance Indicators and Non-GAAP Measures" section. The items required to reconcile EBITDA to net income, a defined term under Canadian GAAP, are detailed above.

Revenue, Net Interest Income and Net Interest Margin
Net interest income, which is expressed net of interest on deposits and other interest expenses, was lower by 10.2% compared to the same period in 2009. The decrease is primarily related to a decrease in average loan balances of 16.7% compared to the prior year. The average net interest margin on lending products was 2.6% in fiscal 2010 (2009 - 2.4%). AGF Trust manages its interest rate risk through the use of interest rate swaps. Interest expense includes hedging interest income of $46.0 million for the year ended November 30, 2010 (2009 - $68.5 million). Other revenue decreased 16.1% in the year ended November 30, 2010 primarily due to a $1.4 million decrease related to hedge ineffectiveness and other income and fees. During the year, the Trust Company recognized a $0.9 million writedown of its retained interest in securitized RSP loans compared to $4.1 million in 2009. These factors resulted in an overall revenue decrease of 8.1% in the year ended November 30, 2010 as compared to 2009.

Securitization Income (Loss), Net of Impairment
As at November 30, 2010, the balance of all securitized loans outstanding was $68.4 million (2009 - $108.3 million). The total income related to the RSP loan securitization was $2.1 million (2009 - loss of $0.6 million) as a result of lower writedowns in 2010 compared to 2009.

Selling, General and Administrative Expenses
SG&A expenses increased $1.7 million to $36.9 million compared to $35.2 million in 2009, as a result of higher compensation related costs.

Provision for Loan Losses
The total provision for loan losses decreased to $17.7 million in 2010 compared to $37.6 million in 2009 reflecting improved economic conditions in 2010.

Based on our analysis of the RSP portfolio, we had approximately $24.9 million of loan accounts which, based on certain loan characteristics, were assessed as having a significantly higher risk of default (2009 - $25.0 million). Accordingly, we have recorded an allowance for loan losses of $3.2 million against these accounts and in addition, we have written off $18.8 million of these loans as at November 30, 2010.

EBITDA and EBITDA margin
A decline in the loan loss provision, partly offset by a decline in revenue, contributed to an increase in EBITDA for the fiscal year ended November 30, 2010 of 30.8% to $41.2 million compared to fiscal 2009. EBITDA margin increased to 43.0% from 30.2% over the same period of 2009.

Pre-Tax Profit Margin
As a result of the factors outlined above, pre-tax margin of 40.7% in 2010 increased from 27.5% in 2009.

Operational Performance

The table below highlights our key operational measures for the segment for the years ended November 30, 2010 and 2009:

                   
  ($ millions)                
  Years ended November 30   2010      2009      % change
                   
  Real estate secured loans1                
    Insured mortgage loans $ 412.0   $ 497.7     (17.2%)
    Conventional mortgage loans   439.5     556.5     (21.0%)
    HELOCs   274.2     387.2     (29.2%)
      1,125.7     1,441.4     (21.9%)
  Investment loans1                
    Secured investment loans   1,630.3     1,734.0     (6.0%)
    RSP loans   364.2     414.2     (12.1%)
    Other loans   2.0     5.1     (60.8%)
      1,996.5     2,153.3     (7.3%)
  Other assets   992.4     905.6     9.6% 
  Total Assets $ 4,114.6   $ 4,500.3     (8.6%)
                   
  Net interest income $ 86.4   $ 96.2     (10.2%)
  RSP loan securitization (income) loss, net of impairment   2.1     (0.6)     n/m   
  Other revenue   7.3     8.7     (16.1%)
  Non-interest expenses2   (39.1)     (38.0)     2.9% 
  Provision for loan losses   (17.7)     (37.6)     (52.9%)
  Income before taxes and non-segmented items $ 39.0   $ 28.7     35.9% 
                   
  Efficiency ratio3   40.8 %   36.4 %    
  Assets-to-capital multiple3   10.2      12.0       

1Includes loan provision and deferred sales commission.
2Includes SG&A and amortization expenses.
3For the definition of efficiency ratio and assets-to-capital multiple, see the "Key Performance Indicators and Non-GAAP Measures" section.

Loan Assets
Real estate secured loan assets decreased by 21.9% year-over-year. Secured investment loans decreased 6.0% to $1.6 billion as at November 30, 2010, compared to fiscal 2009 while RSP loan balances and other loans decreased 12.7% to $366.2 million. This decline was due to conservative lending practices exercised by the Company.

Efficiency Ratio
The efficiency ratio is defined as non-interest expenses divided by the total of net interest income and non-interest income. It is a key industry performance indicator used to ensure expenses are contained as the Trust business grows. The efficiency ratio for the fiscal year ended November 30, 2010, was 40.8% compared to 36.4% in 2009. The increase is due to lower revenue as a result of declining loan balances, combined with an increase in non-interest expense in the year ended November 30, 2010, compared to the same period in 2009 as Trust prepares for loan growth.

Balance Sheet
Total assets decreased 8.6% to $4.1 billion as at November 30, 2010, compared to the previous year. As at November 30, 2010, our assets-to-capital multiple stood at 10.2 times, compared to 12.0 times at the same time last year. AGF Trust's total capital ratio was 22.5% as at November 30, 2010 compared to 19.0% at November 30, 2009. Liquid assets were high with $902.7 million in cash and cash equivalents as well as investments available for sale as at November 30, 2010 (2009 - $773.1 million).

Loan Portfolio Credit
The credit risk factors considered when assessing the collectability of the various loan portfolios are primarily based on the individuals' ability and willingness to make future loan payments, coupled with the underlying collateral security held for each of the loan categories. The key risk factors considered include:

  • Employment rates: higher unemployment rates will likely result in higher default rates as individuals' ability to pay deteriorates.

  • Residential property prices and sales volume: declining residential property prices and reduced volumes of residential property sales may result in lower resale prices and longer disposal times, therefore, increasing losses incurred on the disposition of the property.

  • Equity market performance: declining global equity markets present increased risk on the secured investment loan portfolio as the value of the underlying collateral is lower. While the Trust Company has recourse to the personal assets of clients with respect to investment loans, the global macro-economic situation and employment levels may impede the Trust Company's ability to realize on the full value of the loan.

The general allowance for real estate secured loan losses decreased to $7.5 million as compared to $10.3 million a year ago. This included a general allowance for insured mortgage loans of $2.5 million (2009 - $4.0 million) which was set up in response to certain mortgage insurers taking a stricter interpretation of policy exclusions for fraud and misrepresentation as a result of the current environment. We have written off $1.3 million of insured mortgage loans during the year ended November 30, 2010 (2009 - nil). The general allowance for investment loan losses increased slightly to $14.7 million from $14.5 million in 2009. Approximately 48.4% of real estate secured loan assets, excluding HELOCs, are insured. We have security for non-RSP investment loans, consisting of mutual funds and other investments. The value of this collateral fluctuates with the changes in the underlying investments. The amount of RSP loans written off, net of recoveries (excluding securitized RSP loans) was $13.5 million for the year ended November 30, 2010 (2009 - $23.6 million). For the balance of our loan products, the amount written off net of recoveries was $11.8 million (2009 - $11.3 million).

Segment Outlook

We anticipate that AGF Trust will experience net loan growth in fiscal 2011. A continuation of relatively low interest rates combined with improving consumer confidence, will likely have a positive effect on secured real estate loan portfolio performance. A continuation of higher rates of unemployment may have a negative impact on this portfolio, as well as our investment loan portfolio by increasing the risk of loan defaults.

In fiscal 2011, we will continue to focus on strengthening client relationships and realizing operational efficiencies while making prudent investments in new products and services. AGF Trust uses disciplined underwriting and sound risk management practices, and we are employing the lessons learned during the economic downturn to improve credit quality and profitability of our lending portfolios.

For 2011, we are focused on growth in our lending programs. We launched our 2011 RSP loan program late in fiscal 2010, and have begun to increase our mortgage lending in the latter half of 2010 through new partnerships.

AGF Management Limited

Liquidity and Capital Resources

Consolidated cash flow generated from operating activities, before net change in non-cash balances related to operations, was $223.2 million for the year ended November 30, 2010, compared to $206.1 million in the prior year. The primary uses of cash were as follows:

  • We paid $49.4 million in selling commissions, which were capitalized and amortized for accounting purposes, compared to $54.5 million in 2009. Accordingly, our free cash flow (defined as cash flow from operations less selling commissions paid) was $173.8 million for the year ended November 30, 2010, compared to $151.6 million in the prior year.

  • We paid $89.2 million in dividends and repurchased 846,100 Class B Non-Voting shares for a total consideration of $12.2 million compared to $86.2 million in dividends paid and no Class B Non-Voting shares repurchased under its normal course issuer bid in 2009.

  • We repaid $13.1 million of our revolving term loan balance, decreasing our long-term debt to $143.7 million (2009 - increased $33 million).

Consolidated cash and cash equivalents of $456.6 million increased by $181.7 million from November 30, 2009 levels of $274.9 million (2009 - decreased by $309.3 million). This was primarily due to an increase in cash and cash equivalents held by AGF Trust of $182.6 million to prepare for an anticipated increase in funding volumes in the first quarter of 2011. Aside from cash held in the Trust Company Operations segment, which is held to fund loans to clients and GIC maturities, AGF had $31.7 million of cash as at November 30, 2010 (November 30, 2009 - $32.6 million).

We have a three-year prime rate-based revolving term loan facility to a maximum of $300.0 million, of which $150.9 million was available to be drawn as at November 30, 2010. The loan facility will be available to meet future operational and investment needs. We anticipate that cash flow from operations, together with the available loan facility, will be sufficient in the foreseeable future to implement our business plan, finance selling commissions, satisfy regulatory requirements, service debt repayment obligations, meet capital spending needs and pay quarterly dividends.

The cash portion of the Acuity purchase will be funded by way of a four-year non-amortizing credit facility with two Canadian chartered banks.

Limited Partnership Financing

Prior to 2000, the Company financed certain deferred selling commissions using limited partnerships (LPs). The Company is obligated to pay these LPs an annual fee of 0.45% to 0.90% of the net asset value of DSC securities. This obligation will continue as long as such DSC securities remain outstanding except for certain of the LPs, in which case the obligation terminates at various dates from December 31, 2010 to December 31, 2020. For certain LPs, the obligation is secured by the Company's mutual fund management contracts to the extent of the particular obligation.

The Company is responsible for the management and administration of the LPs. These services are provided in the normal course of operations and are recorded at the amount of consideration agreed to by the parties. The amount of fees received in 2010 was $0.2 million (2009 - $0.3 million). As at November 30, 2010, the net asset value of DSC securities financed by the LPs was $557.0 million (2009 - $733.0 million)

Contractual Obligations

The table below is a summary of our contractual obligations at November 30, 2010. See also Notes 10 & 25 of the Consolidated Financial Statements.

                       
  ($ millions)   Total     2011   2012-2013   2014-2015   Thereafter  
                       
  Long-term debt $ 144.0 $ - $ 64.0 $ 80.0 $ -
  Operating leases   44.4   9.7   17.4   8.0   9.3
  Purchase obligations   26.7   8.7   9.4   5.7   2.9
  Total contractual obligations $ 215.1 $ 18.4 $ 90.8 $ 93.7 $ 12.2

In addition to the contractual obligations detailed above, the following obligations exist that vary depending upon business volume and other factors:

  • AGF Trust is required to pay depositors amounts representing principal and interest on funds on deposit.

  • A portion of our selling commissions paid on a DSC basis has been financed by LPs held by third-party investors. As at November 30, 2010, the net asset value of DSC securities financed by the LPs was $557.0 million and amounts paid to these partnerships in 2010 were $3.2 million.

  • We pay trailing commissions to financial advisors based on AUM of their respective clients. This obligation varies based on fund performance, sales and redemptions, and in 2010 we paid $138.5 million in trailing commissions.

  • We have committed to 2015 to reimburse Citigroup up to $2.8 million per year if minimum levels of services and related fees are not achieved.

  • In conjunction with the Elements Advantage Commitment on certain Elements portfolios, AGF has committed to investors that if a portfolio does not match or outperform its customized benchmark over a three-year average annualized period, investors will receive up to 90 basis points in new units. Payments related to this began in fiscal 2009 for the applicable funds. AGF capped the AGF Elements Advantage feature on its Elements Products to new purchases effective June 22, 2009. Eligible units purchased prior to June 22, 2009 have been grandfathered. The estimated liability as at November 30, 2010, is $7.0 million compared to $8.8 million in 2009.

  • On November 30, 2010, the Company signed a purchase agreement to acquire 100% of the shares of Acuity Funds Ltd. and Acuity Investment Management Inc. (Acuity) for a purchase price of $325 million, subject to an adjustment based on AUM at closing. The transaction is expected to be completed on or about February 1, 2011 and is subject to regulatory approval. The cash portion of the transaction will be funded through a four-year non-amortizing credit facility.

Intercompany and Related Party Transactions

The Company may enter into certain transactions with entities or senior officers who are directors of the Company. During 2010, total amounts paid by the Company to these related parties was nil (2009 - $0.1 million).

Capital Management Activities

We actively manage our capital to maintain a strong and efficient capital base to maximize risk-adjusted returns to shareholders, invest in future growth opportunities, including acquisitions, and to ensure that the regulatory capital requirements are met for each of our subsidiary companies.

AGF capital consists of shareholders' equity. On an annual basis, AGF prepares a five-year plan detailing projected operating budgets and capital requirements. Each of AGF's operating segments are required to prepare and submit a five-year operating plan and budget to AGF's Finance Committee for approval prior to seeking Board approval. AGF's Finance Committee consists of the Chairman and CEO, the Vice-Chairman, Executive Vice-President and CFO, and the Executive Vice-President, Chief Operating Officer and General Counsel. Once approved by the Finance Committee, the five-year plans are reviewed and approved by AGF's Board of Directors. These plans become the basis for the payment of dividends to shareholders, the repurchase of Class B Non-Voting shares and, combined with the reasonable use of leverage, the source of funds for acquisitions.

Investment Management Operations - Regulatory Capital
A significant objective of the Capital Management program is to ensure regulatory requirements are met for capital. Our Investment Management businesses, in general, are not subject to significant regulatory capital requirements in each of the jurisdictions in which they are registered and operate. The cumulative amount of minimum regulatory capital across all of our investment management operations is approximately $6.0 million.

AGF Trust - Capital Management Framework
AGF Trust's regulatory capital consists primarily of common shareholders' equity, preferred shares and subordinated debentures. Regulatory capital is a factor that allows the AGF Trust Board of Directors (Trust Board) to assess the stability and security in relation to the overall risks inherent in AGF Trust's activities.

AGF Trust actively manages regulatory capital levels in conjunction with management's internal assessment of capital. Consideration is given to many factors including regulatory guidance, strategic planning, shareholder interests, interests of depositors and internally generated target capital ratios. Minimum regulatory capital requirements are set by the Trust and Loan Companies Act and the Office of the Superintendant of Financial Institutions (OSFI). AGF Trust adopted the Standardized Approach for credit risk and the Basic Indicator Approach for operational risk.

A key component of AGF Trust's capital framework is its internal capital adequacy assessment process (ICAAP). This process attributes capital for identified risks in proportion to the assessed risk. Risks are assessed using both qualitative and quantitative factors. The process also incorporates a variety of stress testing approaches to evaluate the income and capital impacts of potential stress events.

AGF Trust - Basel II Capital Accord
Capital measures at AGF Trust are detailed as follows:

               
  ($ thousands)            
  November 30   2010      2009    
               
  Tier 1 capital $ 287,183   $ 257,512  
  Total regulatory capital   403,814     375,465  
  Risk-weighted assets   1,795,568     1,971,458  
  Tier 1 capital ratio   16.0  %   13.1 %
  Total capital ratio   22.5  %   19.1 %
  Assets-to-capital multiple   10.2     12.0  

Dividends

The holders of Class B Non-Voting and Class A shares are entitled to receive cash dividends. Dividends are paid in equal amounts per share on all the Class B Non-Voting shares and all the Class A shares at the time outstanding without preference or priority of one share over another. No dividends may be declared in the event that there is a default of a condition of our loan facility or where such payment of dividends would create a default.

Our Board of Directors may determine that Class B Non-Voting shareholders shall have the right to elect to receive part or all of such dividend in the form of a stock dividend. They also determine whether a dividend in Class B Non-Voting shares is substantially equal to a cash dividend. This determination is based on the weighted average price at which the Class B Non-Voting shares traded on the Toronto Stock Exchange during the 10 trading days immediately preceding the record date applicable to such dividend.

The following table sets forth the dividends paid by AGF on Class B Non-Voting shares and Class A shares for the years indicated:

                       
  Years ended November 30   20101   2009   2008   2007   2006
                       
  Per share $ 1.04 $ 1.00 $ 0.95 $ 0.78 $ 0.69
  Percentage increase   3%   5%   22%   13%   23%

1 Represents the total dividends paid in April 2010, July 2010, October 2010 and includes dividends to be paid in January 2011.

We review our dividend distribution policy on a quarterly basis, taking into account our financial position, profitability, cash flow and other factors considered relevant by our Board of Directors. The quarterly dividend paid on January 24, 2011 was $0.26 per share.

Normal Course Issuer Bid
In January 2010, the Company's Board of Directors authorized the renewal of AGF's normal course issuer bid for the purchase of up to 7,167,620 Class B Non-Voting shares, or 10% of the public float for such shares. The Company received approval from the Toronto Stock Exchange on February 24, 2010, for the renewal of its normal course issuer bid. This allows AGF to purchase up to 7,167,620 Class B Non-Voting shares through the facilities of the Toronto Stock Exchange (or as otherwise permitted by the Toronto Stock Exchange) between February 26, 2010 and February 25, 2011. The Class B Non-Voting shares may be repurchased from time to time at prevailing market prices or such other price as may be permitted by the Toronto Stock Exchange. AGF's previous normal course issuer bid allowed for the repurchase of up to 7,108,630 Class B Non-Voting shares between February 26, 2009 and February 25, 2010, at prevailing market prices.

During the year ended November 30, 2010, under this current normal course issuer bid, 846,100 Class B Non-Voting shares were purchased for a total consideration of $12.2 million at an average price of $14.44. Under the previous normal course issuer bid, AGF purchased no Class B Non-Voting shares. The Company intends to renew its normal course issuer bid in 2011.

Outstanding Share Data

Set out below is our outstanding share data as at November 30, 2010. For additional detail, see Notes 14 and 15 of the Consolidated Financial Statements.

             
  Years ended November 30   2010     2009
             
  Shares          
  Class A Voting Common Shares 57,600   57,600
  Class B Non-Voting Shares 88,606,196   89,097,400
         
  Stock Options      
  Outstanding options 5,540,399   6,627,398
  Exercisable options 3,620,914   3,315,368

Government Regulations

AGF Management Limited
AGF Management Limited (AGF) is incorporated under the laws of the Province of Ontario and is a reporting issuer in each province and territory of Canada. Accordingly, AGF is subject to applicable securities laws in each jurisdiction. In addition, the Class B Non-Voting common shares of AGF are listed for trading on the Toronto Stock Exchange under the trading symbol AGF.B. AGF is also subject to oversight from other government and regulatory agencies.

AGF Mutual Funds
To qualify for continuous distribution, each of the mutual funds managed by AGF Investments Inc. (AGFI) must file each year an annual information form and simplified prospectus in every province and territory of Canada in which it intends to distribute securities. It must also obtain a receipt for the same from provincial and territorial securities regulatory authorities. Certain funds are offered in overseas jurisdictions, each of which has its own filing requirements.

Each mutual fund is managed by AGFI and as such AGFI is liable for any misrepresentation in the offering documents of the funds. Pursuant to securities legislation in certain of the provinces and territories of Canada, none of the mutual funds managed by AGFI can make portfolio investments in substantial security holders of the funds, in AGF or in corporations in which the directors or officers of the funds, or their substantial security holders, have a significant interest.

Investment Management Operations

AGF Investments Inc.
AGFI is registered with the Ontario Securities Commission (OSC) as a portfolio manager and investment fund manager and maintains equivalent registrations in each of the other provinces and territories of Canada in which AGFI carries on business. AGFI is also registered as a Mutual Fund Dealer, Exempt Market Dealer and Commodity Trading Manager in certain jurisdictions and is subject to oversight by the federal and provincial Privacy Commissions and Financial Transactions Reports Analysis Centre of Canada (FINTRAC). In its capacity as portfolio manager and investment fund manager, AGFI is subject to conflict of interest provisions pursuant to the Securities Act (Ontario), National Instrument 31-103 and certain other provincial and territorial securities legislation. Amongst other things, these provisions impose limitations on the ability of AGFI to advise or make recommendations with respect to its own securities or securities of a related or connected issuer. AGFI is also subject to certain restrictions that are imposed by applicable provincial and territorial securities legislation on advertising and sales incentives.

AGF International Advisors Company Limited
AGF International Advisors Company Limited is incorporated under the laws of the Republic of Ireland and is authorized by The Central Bank of Ireland (Bank of Ireland), under Regulation 11 of the European Communities (Markets in Financial Instruments) Regulations 2007, to provide a range of financial services including the provision of investment advice and the managing of portfolios. As an authorized entity, AGF International Advisors Company Limited is subject to a range of Irish and EU regulations. AGF International Advisors Company Limited also holds an Australian Financial Services Licence granted by the Australian Securities & Investments Commission (ASIC) and is subject to the relevant ongoing requirements of this licence.

AGFIA Limited
AGFIA Limited is a private limited company incorporated under the laws of the Republic of Ireland and is authorized by the Bank of Ireland, under Regulation 11 of the European Communities (Markets in Financial Instruments) Regulations 2007, to provide a range of financial services including the provision of investment advice and the managing of portfolios, primarily to institutional accounts. As an authorized entity, AGFIA Limited is subject to a range of Irish and EU regulations. AGFIA Limited is registered with the OSC as a non-resident portfolio manager and maintains equivalent registrations in each of the other provinces and territories of Canada in which AGFIA carries on business.

AGF Asset Management (Asia) Limited
Established in 1996, AGF Asset Management (Asia) Limited provides investment research and advisory services on Asian markets for AGF mutual funds and other clients. AGF Asset Management (Asia) Limited is regulated by the Monetary Authority of Singapore (MAS) under the Securities and Futures Act. The company holds a Capital Markets Services licence which permits it to offer fund management services to accredited investors. AGF Asset Management (Asia) Limited is required to obtain the prior approval of MAS for any significant change of its members or shareholdings of its members.

AGF Investments America Inc
AGF Investments America Inc. (AGFA) is registered with the U.S. Securities and Exchange Commission as an adviser and provides investment management services to (U.S.) institutional clients.

AGF Investments Asia Limited
AGF Investments Asia Limited is incorporated as a limited liability company in Hong Kong.

Highstreet Asset Management Inc.
Highstreet Asset Management Inc. (Highstreet) is registered with the OSC as a portfolio manager and maintains equivalent registrations in each of the other provinces and territories of Canada in which it does business. Highstreet is also registered with the OSC as exempt market dealer for the purpose of facilitating the distribution of certain securities to clients and is subject to oversight by federal and provincial Privacy Commissions and FINTRAC. In addition, Highstreet is registered in Ontario as a Commodity Trading Manager.

Highstreet Asset Management U.S. Inc.
Highstreet Asset Management U.S. Inc. is a wholly owned subsidiary of Highstreet and is registered with the U.S. Securities Exchange Commission as an Adviser and provides investment management services to (U.S.) institutional clients.

Cypress Capital Management Ltd.
Cypress Capital Management Limited (Cypress) is registered with the British Columbia Securities Commission as a portfolio manager and maintains equivalent registrations in each of the other provinces and territories of Canada in which it does business. Cypress is also subject to oversight by federal and provincial Privacy Commissions and FINTRAC.

Cypress Capital Management US Limited
Cypress Capital Management US Limited (Cypress US) is a wholly owned subsidiary of Cypress and is registered with the U.S. Securities Exchange Commission as an Adviser. Cypress US provides investment management services to (U.S.) high-net-worth, corporate, endowment and foundation clients.

Doherty & Associates Limited
Doherty & Associates Limited (Doherty) is registered with the OSC as a portfolio manager and maintains equivalent registrations in each of the other provinces and territories of Canada in which it does business. Doherty is also registered with the OSC as an exempt market dealer for the purpose of facilitating the distribution of certain securities to its clients and is subject to oversight by federal and provincial Privacy Commissions and FINTRAC.

AGF Securities (Canada) Limited
AGF Securities (Canada) Limited is a member of the Investment Industry Regulatory Organization of Canada (IIROC). IIROC is the national self-regulatory organization created through the consolidation of the Investment Dealers Association of Canada and Market Regulation Services Inc. AGF Securities (Canada) Limited is registered as an investment dealer with the securities regulatory authorities in each of Alberta, British Columbia, Ontario and Saskatchewan. AGF Securities (Canada) Limited is also a member of the Canadian Investor Protection Fund and is subject to oversight by the federal and provincial Privacy Commissions and FINTRAC.

Trust Company Operations

AGF Trust Company
AGF Trust Company (AGF Trust) is incorporated under and governed by the federal Trust and Loan Companies Act (Canada) and is extra-provincially licensed and registered under applicable legislation in all provinces and territories of Canada. The Trust and Loan Companies Act (Canada) specifies the powers of and imposes investment lending restrictions on federally regulated trust companies. The Trust and Loan Companies Act (Canada) and its related regulations provide for regular reports to be filed on the financial condition of AGF Trust; periodic examinations of AGF Trust's affairs by appropriate regulatory authorities; restrictions on transactions with related parties; corporate governance provisions; and minimum capital standards based on the total assets and risk-weighted assets of AGF Trust. As a federally regulated financial institution, AGF Trust is supervised by the federal Office of the Superintendent of Financial Institutions Canada (OFSI). AGF Trust is also subject to oversight from the Financial Consumer Agency of Canada and other government agencies, including certain provincial authorities.

Fourth Quarter Analysis

Summary of Consolidated Operating Results
The table below highlights our results for the three months ended November 30, 2010 and 2009:

                   
  ($ millions, except per share amounts)                
  Three months ended November 30   2010      2009      % change
                   
  Revenue                
    Investment Management Operations $ 132.4   $ 132.1     0.2% 
    Trust Company Operations   22.8     23.6     (3.4%)
    Other   0.7     2.0     (65.0%)
      155.9     157.7     (1.1%)
                   
  Expenses                
    Investment Management Operations   76.1     72.9     4.4% 
    Trust Company Operations   13.7     13.2     3.8% 
      89.8     86.1     4.3% 
                   
  EBITDA1   66.1     71.6     (7.7%)
    Amortization   21.2     23.6     (10.2%)
    Interest expense   1.3     1.2     -
    Non-controlling interest   0.3     0.2     50.0% 
    Income taxes    12.4     1.1     -
  Net income    $ 30.9   $ 45.5     (31.9%)
                   
  Earnings per share - diluted $ 0.34   $ 0.50     -

1As previously defined, see 'Key Performance Indicators and Non-GAAP Measures - EBITDA'. The items required to reconcile EBITDA to Net Income, a defined term under Canadian GAAP, are detailed above.

Results from Operations

Revenue for the fourth quarter ended November 30, 2010 decreased 1.1% to $155.9 million, compared to $157.7 million in the same period in 2009. The Investment Management segment revenues increased $0.3 million and revenues in the Trust segment decreased $0.8 million. Revenues from our 30.5% equity interests in S&WL were lower due to economic conditions in the U.K.

Expenses in the fourth quarter ended November 30, 2010 increased $3.7 million over the same period a year ago. Expenses in Investment Management Operations increased $3.2 million or 4.4% while expenses in Trust Company Operations segment increased $0.5 million.

As a result of lower revenue combined with an increase in expenses, EBITDA decreased 7.7% in the fourth quarter of 2010. Refer to each of the segment discussions for further details.

Our income tax expense for the three months ended November 30, 2010 was $12.4 million, as compared to $1.1 million, including the impact of tax rate reductions of $9.8 million, for the three months ended November 30, 2009. The impact of the above revenue and expense items resulted in net income of $31.0 million in the three months ended November 30, 2010 compared to a net income of $45.5 million in fiscal 2009. Basic and fully diluted earnings per share were $0.35 and $0.34 per share, in the three months ended November 30, 2010 as compared to $0.51 and $0.50 per share in 2009. Excluding a $9.8 million reduction in income taxes related to substantially enacted tax rates, net income in the fourth quarter of 2009 was $35.7 million with basic and fully diluted earnings per share of $0.40.

On a diluted per share basis, cash flow from operations for the three months ended November 30, 2010 was $0.56 per share (2009 - $0.73).

Investment Management Operations

Assets Under Management

The following table illustrates the composition of the changes in mutual fund AUM during the three months ended November 30, 2010 and 2009:

                   
  ($ millions)                
  Three months ended November 30   2010      2009      % change
                   
  Mutual fund AUM, beginning of period $ 21,443   $ 22,142     (3.2%)
                   
  Gross sales of mutual funds   678     676     0.3% 
  Redemptions of mutual funds   (1,092)     (945)     15.6% 
  Net mutual fund sales   (414)     (269)     53.9% 
                   
  Market appreciation of fund portfolios   1,235     873     41.5% 
                   
  Mutual fund AUM, end of period $ 22,264   $ 22,746     (2.1%)
                   
  Institutional and strategic accounts AUM   17,585     18,921     (7.1%)
  High-net-worth AUM   3,164     2,951     7.2% 
                   
  Total AUM, end of period $ 43,013   $ 44,618     (3.6%)
                   
  Average daily mutual fund AUM for the period $ 22,303   $ 22,723     (1.8%)

Mutual fund AUM remained relatively stable year-over-year as market growth was offset by redemptions. During the past 12 months, institutional and strategic accounts AUM decreased by $1.3 billion to $17.6 billion, reflecting redemptions somewhat offset by new mandates and market growth. Due to the larger size of institutional mandates, inflows and outflows in this category are more evident than in retail mutual funds. Outflows experienced in 2010 in the institutional business relate primarily to the instability of the European market and its effect on our Europe, Australasia and Far East (EAFE) mandates. In addition, institutional included the loss of a large low-margin institutional account managed by Cypress Capital Management Limited. Offsetting these institutional outflows were new institutional sales in the quarter. High-net-worth AUM increased by 7.2% to $3.2 billion. Overall, total AUM decreased 3.6% to $43.0 billion from $44.6 billion at November 30, 2009.

Investment Performance

During the three months ended November 30, 2010, the Canadian-dollar-adjusted S&P 500 Index increased 9.1%, the Canadian-dollar-adjusted NASDAQ Index increased 14.0%, the S&P/TSX Composite Index increased 9.4% and the MSCI World Index increased 7.2%. The aggregate market appreciation of our mutual fund portfolios for the three months ended November 30, 2010, divided by the average daily mutual fund AUM for the period was 5.6% after management fees and expenses paid by the funds.

The impact of the U.S. dollar depreciation relative to the Canadian dollar on the market value of AUM since August 31, 2010 has been a decrease in AUM of approximately $216.5 million (2009 - $168.5 million).

The impact of the Euro depreciation relative to the Canadian dollar on the market value of AUM since August 31, 2010 has been a decrease in AUM of approximately $24.6 million (2009 - $35.7 million).

Financial and Operational Results

The table below highlights the Investment Management Operations segment results for the three months ended November 30, 2010 and 2009:

                   
  ($ millions)                
  Three months ended November 30   2010      2009      % change
                   
  Revenue                
    Management and advisory fees $ 124.1   $ 125.1     (0.8%)
    Deferred sales charges    5.5     5.1     7.8% 
    Investment income and other revenue   2.8     1.9     47.4% 
      132.4     132.1     0.2% 
                   
  Expenses                
    Selling, general and administrative   38.7     35.7     8.4% 
    Trailing commissions   35.1     35.0     0.3% 
    Investment advisory fees   2.3     2.2     4.5% 
      76.1     72.9     4.4% 
                   
  EBITDA   56.3     59.2     (4.9%)
  Amortization   20.7     23.0     (10.0%)
  Income before taxes and non-segmented items $ 35.6   $ 36.2     (1.7%)

1As previously defined, see the 'Key Performance Indicators and Non-GAAP Measures - EBITDA' section.

Revenue

For the three months ended November 30, 2010, revenue for the Investment Management Operations segment was relatively flat with a 0.2% increase over the previous year, with changes in the categories as follows:

Management and Advisory Fees
Management and advisory fees are directly related to our AUM levels. The 1.8% decrease in average daily mutual fund AUM for the quarter ended November 30, 2010 contributed to a 0.8% decrease in management and advisory fee revenue compared to the fourth quarter of 2009. While institutional AUM declined 7.1% from November 2009, much of this decline occurred late in the fourth quarter, reducing the impact to revenue in the quarter.

Deferred Sales Charges (DSC)
We receive deferred sales charges upon redemption of securities sold on the contingent DSC or low-load commission basis for which we finance the selling commissions paid to the dealer. The DSC ranges from 2.5% to 5.0% depending on the commission option, of the original subscription price of the funds purchased if the funds are redeemed within the first two years, and declines to zero after three or seven years. DSC revenue fluctuates based on the level of redemptions, the age of the assets being redeemed and the proportion of redemptions composed of back-end assets. DSC revenues increased by 7.8% or $0.4 million to $5.5 million in the fourth quarter of 2010 compared to 2009, reflecting higher retail mutual fund redemptions of DSC AUM.

Investment Income and Other Revenue
Investment income and other revenue was $2.8 million in three months ended November 30, 2010 compared to $1.9 million in the three months ended November 30, 2009 due to the gain on sale of certain short-term investments in the quarter.

Expenses

For the three months ended November 30, 2010, expenses for the Investment Management Operations segment increased 4.4% from the previous year. Changes in specific categories are described in the discussion that follows:

Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) increased by $3.0 million or 8.4% in 2010 compared to 2009. The increase is made up of the following amounts:

             
  ($ millions)      
  Three months ended November 30         2010
             
  Increase in severance and restructuring expenses       $ 1.1
  Increase in compensation-related expenses         7.0
  Decrease in other expenses         (3.3)
  Decrease in fund absorption expenses         (1.8)
          $ 3.0

The following explains expense changes in three months ended November 30, 2010 compared to the same period in the prior year:

  • Severance and restructuring expenses increased $1.1 million in the fourth quarter of 2010 as compared to 2009.
  • Compensation-related expenses increased $7.0 million due to higher bonus amounts in the fourth quarter of 2010 compared to 2009, the introduction of the partners point program during 2010 and higher stock-based compensation costs related to an increase in the AGF share price.
  • Other expenses decreased $3.3 million primarily due to lower fund related costs.
  • Absorption expense declined by $1.8 million, reflecting an increase of the management expense ratio cap on certain funds.

Trailing Commissions
Trailing commissions paid to distribution depend on total AUM, the proportion of mutual fund AUM sold on a front-end versus back-end commission basis and the proportion of equity fund AUM versus fixed-income fund AUM.  Annualized trailing commissions as a percentage of average daily mutual fund AUM were 0.63% for the three months ended November 30, 2010, compared to 0.62% in the same 2009 period.

Investment Advisory Fees
External investment advisory fees remained relatively flat in the fourth quarter of 2010, reflecting a steady average AUM year-over-year as compared to 2009.

EBITDA and EBITDA margin
EBITDA for the Investment Management Operations segment were $56.3 million for the three months ended November 30, 2010, a 4.9% decrease from $59.2 million for the same period in 2009. EBITDA margins were 42.5% for the fourth quarter of 2010, compared to 44.8% in 2009.

Amortization
The most significant component in this category is amortization of deferred selling commissions. The category also represents amortization of property, equipment, customer contracts and other intangible assets. We internally finance all selling commissions paid. These selling commissions are capitalized and amortized on a straight-line basis over a period that corresponds with their applicable DSC schedule. Amortization expense related to deferred selling commissions was $19.3 million in the fourth quarter of 2010, compared to $20.6 million in 2009.

For the three months ended November 30, 2010, we paid $10.8 million in selling commissions, compared to $13.5 million in 2009. The decline in DSC paid is due to lower gross sales of retail funds and a slightly higher percentage of funds paid on a front-end basis in 2010 compared to 2009. As at November 30, 2010, the unamortized balance of deferred selling commissions financed was $243.9 million, a decrease of $30.1 million from the prior-year balance of $274.0 million. The contingent deferred sales charges that would be received if all of the DSC securities were redeemed at November 30, 2010, were estimated to be approximately $335.7 million (2009 - $373.6 million).

Pre-Tax Profit Margin
Pre-tax profit margin was at 26.9% for three months ended November 30, 2010 compared to 27.4% for the three months ended November 30, 2009.

Trust Company Operations

Financial and Operational Results
The table below highlights the results for the three months ended November 30, 2010 and 2009:

                   
  ($ millions)                
  Three months ended November 30   2010     2009     % change
                   
  Interest income                
    Loan interest $ 42.3   $ 46.1     (8.2%)
    Investment interest   4.1     2.6     57.7% 
      46.4     48.7     (4.7%)
  Interest expense                
    Deposit interest   27.9     38.3     (27.2%)
    Hedging interest income   (6.8)     (16.3)     (58.3%)
    Other interest expense (income)   4.5     5.0     (10.0%)
      25.6     27.0     (5.2%)
  Net interest income   20.8     21.7     (4.1%)
  Other revenue   1.6     2.1     (23.8%)
  RSP loan securitization income (loss), net of impairment   0.4     (0.2)     n/m   
  Total revenue   22.8     23.6     (3.4%)
                   
  Expenses                
    Selling, general and administrative    9.5     9.2     3.3% 
    Provision for loan losses   4.2     4.0     5.0% 
      13.7     13.2     3.8% 
                   
  EBITDA1   9.1     10.4     (12.5%)
  Amortization   0.4     0.6     (33.3%)
  Income before taxes and non-segmented items $ 8.7   $ 9.8     (11.2%)

1As previously defined, see the 'Key Performance Indicators and Non-GAAP Measures - EBITDA' section.

Revenue, Net Interest Income and Net Interest Margin
Net interest income, which is expressed net of interest on deposits and other interest expenses, declined 4.1% compared to the same period in 2009. The decrease was primarily related to a decrease in average loan balances of 13.4% for the three months ended November 30, 2010 compared to the prior year. Offsetting this was an increase in the average net interest margin on lending products to 2.6% in the fourth quarter of 2010, as compared to 2.4% in 2009. AGF Trust manages its interest rate risk through the use of interest rate swaps. Interest expense includes hedging interest income of $6.8 million for the three months ended November 30, 2010 (2009 - $16.3 million). Other revenue decreased $0.5 million during the three months ended November 30, 2010 primarily due to a decrease in other income and fees. During the fourth quarter of 2010, the Trust Company recognized a $0.3 million writedown of its retained interest in securitized RSP loans compared to $1.0 million in the fourth quarter of 2009. These factors resulted in an overall revenue decrease of 3.4% in the quarter ended November 30, 2010 as compared to 2009.

Selling, General and Administrative Expenses
SG&A expenses increased $0.3 million to $9.5 million compared to $9.2 million in the fourth quarter of 2009, primarily due to higher compensation related costs.

Provision for Loan Losses
The total provision for loan losses in the fourth quarter remained stable at $4.2 million in 2010 compared to  $4.0 million in 2009. Loan writeoffs, net of recoveries for the three months ended November 30, 2010 were $6.0 million compared to $8.3 million for the period ended November 30, 2009, with the decrease attributable to a decline in RSP loan writeoffs. Loan writeoffs, net of recoveries, for the three months ended November 30, 2010, were $3.0 million in the RSP loan portfolio, $1.4 million in the secured investment loan portfolio and $1.5 million in the mortgage loan portfolio and $0.1 million in HELOC receivables, compared to $5.2 million, $1.7 million, $1.4 million, and $0.1 million, respectively, for the three months ended November 30, 2009. Impaired loans expressed as a percentage of loans outstanding were 1.1% as at November 30, 2010, compared to 1.4% at November 30, 2009.

EBITDA and EBITDA margin
The increase in the provision for loan losses coupled with the decline in revenue led to a decrease in EBITDA for the three months ended November 30, 2010 to $9.1 million compared to $10.4 million in the fourth quarter of 2009. EBITDA margin in the fourth quarter of 2010 was 39.9% (2009 - 44.1%).

Pre-Tax Profit Margin
As a result of the factors outlined above, AGF Trust had a pre-tax profit margin of 38.2% in the fourth quarter of 2010 (2009 - 41.5%).

Selected Quarterly Information

                   
  ($ millions, except per share amounts)   Nov. 30,   Aug. 31,   May 31,   Feb. 28,
  For the three-month period ended    2010   2010   2010   2010
                   
  Revenue  $ 155.9  $ 148.7  $ 153.8  $ 156.2
  Cash flow1    50.1    51.8    61.9    59.4
  EBITDA2   66.1   61.0   62.6   67.1
  Pre-tax income   43.3   38.7   38.3   42.6
  Net income   30.9   27.8   27.5   30.6
                   
  Earnings per share                 
    Basic $ 0.35 $ 0.31 $ 0.31 $ 0.34
    Diluted $ 0.34 $ 0.31 $ 0.30 $ 0.34
                   
  Weighted average basic shares   88,616,451   89,286,335   89,332,374   89,211,983
  Weighted average fully diluted shares   89,665,401   90,232,708   90,482,468   90,390,172
                   
                   
  ($ millions, except per share amounts)   Nov. 30,   Aug. 31,   May 31,   Feb. 29,
  For the three-month period ended    2009   2009   2009   2009
                   
  Revenue  $ 157.7  $ 146.9  $ 143.5  $ 138.0
  Cash flow1    65.7    49.0   44.7   46.7
  EBITDA2   71.6   56.1   49.0   42.8
  Pre-tax income   46.6   30.4   23.0   16.3
  Net income   45.5   22.8   17.2   12.2
                   
  Earnings per share                
    Basic $ 0.51 $ 0.26  $ 0.19  $ 0.14
    Diluted $ 0.50 $ 0.25  $ 0.19  $ 0.14
                   
  Weighted average basic shares   89,072,123   88,914,200   88,826,605   88,564,160
  Weighted average fully diluted shares   90,331,497   89,931,517   89,234,015   88,564,160

1Cash flow from operations before net change in non-cash balances related to operations.
2As previously defined, see 'Key Performance Indicators and Non-GAAP Measures - EBITDA' section.

Selected Annual Information

                             
  ($ millions, except per share amounts)                      
  Years ended November 30   2010     2009     2008   2007     2006
                             
  Revenue (continuing operations) $ 614.6    $ 586.1   $ 725.6  $ 780.3   $ 607.2
  Cash flow from continuing operations1   223.1     206.1     278.7   318.9     214.2
  EBITDA (continuing operations)2   256.8     219.5     313.7   357.2     248.5
  Pre-tax income   162.9     116.3     141.3   222.6     113.7
  Net income (continuing operations)   116.8     97.7     128.6   175.9     102.1
  Earnings per share (continuing operations)                          
    Basic  $ 1.31   $ 1.10   $ 1.44 $ 1.96   $ 1.15
    Diluted  $ 1.30   $ 1.09   $ 1.41 $ 1.93   $ 1.14
  Cash flow from continuing operations                          
    Basic  $ 2.50   $ 2.32   $ 3.12 $ 3.55   $ 2.40
    Diluted  $ 2.47   $ 2.30   $ 3.05 $ 3.49   $ 2.38
  Dividends per share  $ 1.04    $ 1.00    $ 0.95  $ 0.78    $ 0.69
  Total assets  $ 5,253.9   $ 5,675.9   $ 6,534.0 $ 5,876.8   $ 3,919.8
  Total long-term debt  $ 143.7   $ 143.6   $ 123.7 $ 184.5   $ 56.0

1Cash flow from operations before net change in non-cash balances related to operations.
2As previously defined, see 'Key Performance Indicators and Non-GAAP Measures - EBITDA' section.

Additional Information

Additional information relating to the Company can be found in the Company's Consolidated Financial Statements and accompanying notes for year ended November 30, 2010, the Company's 2010 AIF and other documents filed with applicable securities regulators in Canada and may be accessed at www.sedar.com.

AGF Management Limited
CONSOLIDATED FINANCIAL STATEMENTS

For the year ended November 30, 2010

Management's Responsibility for Financial Reporting

Toronto, January 28, 2011

The accompanying consolidated financial statements of AGF Management Limited (the Company) were prepared by management, which is responsible for the integrity and fairness of the information presented, including the amounts based on estimates and judgments. These consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles (GAAP). Financial information appearing throughout this Annual Report is consistent with these consolidated financial statements.

In discharging its responsibility for the integrity and fairness of the consolidated financial statements and for the accounting systems from which they are derived, management maintains internal controls designed to ensure that transactions are authorized, assets are safeguarded and proper records are maintained. The system of internal controls is supported by a compliance function, which ensures that the Company and its employees comply with securities legislation and conflict of interest rules, and by an internal audit staff, which conducts periodic audits of all aspects of the Company's operations.

The Board of Directors oversees management's responsibilities for financial reporting through an Audit Committee, which is comprised entirely of independent directors. This Committee reviews the consolidated financial statements of the Company and recommends them to the Board for approval.

PricewaterhouseCoopers LLP, independent auditors appointed by the shareholders of the Company upon the recommendation of the Audit Committee, has performed an independent audit of the consolidated financial statements, and its report follows. The shareholders' auditors have full and unrestricted access to the Audit Committee to discuss their audit and related findings.

[SIGNATURE]

Blake C. Goldring, M.S.M., CFA
Chairman & Chief Executive Officer

[SIGNATURE]

Robert J. Bogart, CPA
Executive Vice-President & Chief Financial Officer


Auditors' Report

January 28, 2011

To the Shareholders of AGF Management Limited:

We have audited the consolidated balance sheet of AGF Management Limited as at November 30, 2010 and 2009 and the consolidated statements of income, changes in shareholders' equity, comprehensive income and cash flow for each of the years in the two-year period ended November 30, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2010 and 2009 and the results of its operations and its cash flows for each of the years in the two-year period then ended in accordance with Canadian generally accepted accounting principles.

[SIGNATURE]
PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants
Toronto, Canada


AGF Management Limited
Consolidated Balance Sheet

                     
  ($ thousands)                  
  November 30        2010          2009
                     
  Assets                   
    Current Assets                   
      Cash and cash equivalents   $   456,550     $   274,870
      Investments available for sale (note 2(a))       503,963         550,480
      Accounts receivable, prepaid expenses and other assets       94,963         98,745
      Current portion of retained interest from securitization (note 3)       21,334         3,550
      Real estate secured and investment loans due within one year (note 6)       433,537         537,683
              1,510,347         1,465,328
                           
    Retained interest from securitization (note 3)       17,365         36,898
    Real estate secured and investment loans (note 6)       2,688,677         3,057,072
    Investment in associated company (note 2(b))       77,049         90,447
    Management contracts (note 7)       504,269         504,269
    Customer contracts, net of accumulated amortization (note 7)       11,383         14,221
    Goodwill (note 7)       173,708         173,708
    Trademarks (note 7)       1,935         1,935
    Deferred selling commissions, net of accumulated amortization        243,861         273,959
    Property, equipment and computer software, net of accumulated amortization (note 8)       11,230         14,127
    Other assets (note 9)       14,037         43,958
  Total assets   $   5,253,861     $   5,675,922
                           
                           
  Liabilities and shareholders' equity                  
      Current Liabilities                    
        Accounts payable and accrued liabilities      $   258,728     $   284,043
        Future income taxes (note 13)         18,024         22,190
        Long-term debt due within one year (note 10)          -         13,083
        Deposits due within one year (note 6(f))         1,814,701         1,884,235
                2,091,453         2,203,551
                           
      Deposits (note 6(f))         1,721,264         2,034,328
      Long-term debt (note 10)          143,678         143,648
      Future income taxes (note 13)         129,574         146,909
      Other long-term liabilities (note 11)         16,701         16,675
      Total liabilities         4,102,670         4,545,111
                           
      Non-controlling interest         497         408
                           
      Shareholders' equity                     
        Capital stock (note 14)          439,216         438,612
        Contributed surplus         22,580         19,964
        Retained earnings          702,017         685,063
        Accumulated other comprehensive loss (note 17)         (13,119)         (13,236)
      Total shareholders' equity         1,150,694         1,130,403
    Total liabilities and shareholders' equity     $   5,253,861     $   5,675,922
Commitments (note 25)                  
Guarantees (note 26)                  
Contingent Liabilities (note 27)                  
Subsequent Event (note 28)                  
(The accompanying notes are an integral part of these Consolidated Financial Statements.)        

Approved by the Board:

[SIGNATURE]                                                                         [SIGNATURE]
         
Blake C. Goldring, M.S.M., CFA          Douglas L. Derry, FCA
Director             Director




AGF Management Limited
Consolidated Statement of Income

                     
($ thousands)                    
Years ended November 30       2010           2009
                     
Revenue                     
  Management and advisory fees (note 18)   $   489,633       $   447,821
  Deferred sales charges        22,550           21,647
  RSP loan securitization income (loss), net of impairment (note 3)       2,097           (585)
  Investment income and other revenue       13,903           20,982
        528,183           489,865
    AGF Trust interest income (note 21)       183,879           226,204
    AGF Trust interest expense (note 21)       (97,484)           (129,955)
  AGF Trust net interest income       86,395           96,249
Total revenue       614,578           586,114
                     
Expenses                     
  Selling, general and administrative        192,407           193,653
  Trailing commissions        138,519           125,257
  Investment advisory fees        9,176           10,104
  Amortization of deferred selling commissions        78,589           84,719
  Amortization of customer contracts (note 7)       2,838           4,562
  Amortization of property, equipment and computer software (note 8)       5,777           7,421
  Interest expense        5,750           5,983
  Provision for AGF Trust loan losses (note 6(e))       17,692           37,562
        450,748           469,261
                     
Income before income taxes and non-controlling interest       163,830           116,853
                     
Income tax expense (recovery) (note 13)                    
  Current        64,401           49,473
  Future        (18,339)           (30,896)
        46,062           18,577
                     
Non-controlling interest       993           582
                     
Net income for the year   $   116,775       $   97,694
                     
Earnings per share (note 16)                    
  Basic    $   1.31       $   1.10
  Diluted    $   1.30       $   1.09

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


AGF Management Limited
Consolidated Statement of Changes in Shareholders' Equity

                     
($ thousands)                    
Years ended November 30       2010           2009
                     
Common shares                    
  Balance, beginning of year   $   438,612       $   431,897
  Issued through dividend reinvestment plan       2,635           2,627
  Stock options exercised       2,157           2,552
  Issued on acquisition of Highstreet Partners Limited (note 5)       -           1,536
  Repurchased for cancellation (note 14 (c))       (4,188)           -
  Balance, end of year       439,216           438,612
                     
Contributed surplus                    
  Balance, beginning of year       19,964           17,127
  Stock options       2,616           2,837
  Balance, end of year       22,580           19,964
                     
Retained earnings                    
  Balance, beginning of year       685,063           676,190
  Net income for the year       116,775           97,694
  Dividends on AGF Class A voting common shares and AGF Class B non-voting shares       (91,792)           (88,821)
  Excess paid over recorded capital stock value of AGF Class B non-voting shares repurchased for cancellation (note 14(c))       (8,029)           -
  Balance, end of year       702,017           685,063
                     
Accumulated other comprehensive income (loss)                    
  Balance, beginning of year       (13,236)           (17,792)
  Other comprehensive income       117           4,556
  Balance, end of year       (13,119)           (13,236)
                     
Total shareholders' equity   $   1,150,694       $   1,130,403

(The accompanying notes are an integral part of these Consolidated Financial Statements.)





AGF Management Limited
Consolidated Statement of Comprehensive Income

                   
($ thousands)                  
Years ended November 30     2010           2009
                   
Net income for the year   $ 116,775       $   97,694
Other comprehensive income (losses), net of tax                  
  Foreign currency translation adjustments related to net
investments in self-sustaining foreign operations
   
 
 
(6,429)
     
 
 
 
   
(7,360)
      (6,429)           (7,360)
  Net unrealized gains (losses) on available for sale
securities
   
 
 
 
     
 
 
 
   
 
    Unrealized gains     7,202           10,610
    Reclassification of realized (gains) losses     (735)           1,088
      6,467           11,698
  Net unrealized gains (losses) on cash flow hedges                  
    Reclassification of realized loss on cash flow hedges     79           218
      79           218
Total other comprehensive income, net of tax   $ 117       $   4,556
                   
Comprehensive income   $ 116,892       $   102,250

(The accompanying notes are an integral part of these Consolidated Financial Statements.)




AGF Management Limited
Consolidated Statement of Cash Flow

                     
($ thousands)                    
Years ended November 30       2010            2009 
                     
Operating Activities                     
  Net income for the year   $   116,775        $   97,694
                       
  Items not affecting cash                     
    Amortization       87,204            96,702
    Future income taxes        (18,339)           (30,896)
    RSP loan securitization (income) loss, net of impairment       (2,097)           585
    Provision for AGF Trust loan losses       17,692            37,562
    Stock-based compensation       6,863            4,810
    Equity investment in S&WHL       750            (6,399)
    Dividends from S&WHL       5,128            5,786
    Other        9,151            285
        223,127            206,129
  Net change in non-cash balances related to operations (note 20)       (44,669)           (16,615)
  Net cash provided by operating activities        178,458           189,514
                     
Financing Activities                     
  Repurchase of Class B non-voting shares for cancellation       (12,217)           -
  Issue of Class B non-voting shares       1,924            2,531
  Dividends paid       (89,157)           (86,194)
  Increase (decrease) in revolving term loan       (13,053)           32,991
  Net decrease in AGF Trust deposits        (346,014)           (818,145)
  Net cash used in financing activities       (458,517)           (868,817)
                     
Investing Activities                     
  Deferred selling commissions paid        (49,408)           (54,495)
  Proceeds from sale of discontinued operations (note 4)       607            702
  Acquisition of subsidiaries, net of cash acquired (note 5)       (723)           (19,924)
  Purchase of property, equipment and computer software (note 8)       (2,880)           (2,125)
  Net proceeds from sale (purchase) of investments available for sale       62,586            (345,514)
  Net decrease in AGF Trust real estate secured and  investment loans       451,557           791,361
  Net cash provided by investing activities        461,739           370,005
                     
Increase (decrease) in cash and cash equivalents        181,680            (309,298)
                     
Balance of cash and cash equivalents,  beginning of year       274,870            584,168
                     
Balance of cash and cash equivalents, end of year   $   456,550        $   274,870
                     
Represented by:                     
  Investment Management cash and cash equivalents    $   31,691       $   32,569
  AGF Trust cash and cash equivalents        424,859           242,301
    $   456,550       $   274,870

Refer to Note 20 for supplemental cash flow information.

(The accompanying notes are an integral part of these Consolidated Financial Statements.)



Notes to Consolidated Financial Statements

Years ended November 30, 2010 and 2009

Description of Business

AGF Management Limited (AGF or the Company) is incorporated under the Business Corporations Act (Ontario). The Company is an integrated, global wealth management corporation whose principal subsidiaries provide investment management for mutual funds, institutions and corporations, as well as high-net-worth clients; and trust products and services (including real estate secured loans and investment loans and Guaranteed Investment Certificates (GICs)). The Company conducts the management and distribution of mutual funds in Canada under the brand names AGF, Elements and Harmony (collectively, AGF Funds). The Company conducts its trust business under the name AGF Trust Company (AGF Trust).

Note 1: Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The Consolidated Financial Statements include the accounts of the Company and its directly and indirectly owned subsidiaries. Intercompany transactions and balances are eliminated on consolidation. For subsidiaries where the Company does not own all of the equity, the minority shareholders' interest is disclosed in the Consolidated Balance Sheet as non-controlling interest and the related income is disclosed as a separate line in the Consolidated Statement of Income. The principal subsidiaries of AGF are:

      AGF Investments Inc.
AGF Investments America Inc.
AGF International Advisors Company Limited
AGFIA Limited
AGF Asset Management (Asia) Limited
AGF Investments Asia Limited
Doherty & Associates Limited
Cypress Capital Management Limited
Highstreet Asset Management Inc.
AGF Trust Company
AGF Securities (Canada) Limited
20/20 Financial Corporation

The Company is able to exercise significant influence over Smith & Williamson Holdings Limited (S&WHL), an independent U.K.-based company providing private client investment management, financial advisory and tax and accounting services. This investment is accounted for using the equity method.

Significant Accounting Changes

There were no changes to accounting policies in the current fiscal year.

Prior Year Significant Accounting Changes

Goodwill, Intangible Assets and Financial Statement Concepts

Effective December 1, 2008, the CICA's new accounting standard "Handbook Section 3064, Goodwill and Intangible Assets" (Section 3064) was adopted. The standard clarifies that costs can be deferred only when they relate to an item that meets the definition of an asset, and as a result, start-up costs must be expensed as incurred. "Handbook Section 1000, Financial Statements Concepts" was also amended to provide consistency with Section 3064. These standards did not have any impact on the financial position or earnings of the Company.

Credit Risk and Fair Value

Effective December 1, 2008, EIC-173 "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities" was adopted. EIC-173 requires the Company's own credit risk and the credit risk of the counterparty to be taken into account in determining the fair value of financial assets and financial liabilities, including derivatives. The new guidance did not have a material effect on the financial position or earnings of the Company.

Effective Interest Method

In June 2009, CICA "Handbook Section 3855, Financial Instruments - Recognition and Measurement" (Section 3855) was amended. The amendment clarified the calculation of the effective interest method which is a method of calculating the amortized cost of financial assets and financial liabilities and of allocating the interest income or interest expense over the relevant period. The impact of the clarification had no material effect on the financial position or earnings of the Company.

Classification and Impairment of Financial Assets

In August 2009, Section 3855 was amended. The amendment changed the definition of loans and receivables. The new definition allows debt securities not quoted in an active market to be classified as loans and receivables and carried at amortized cost, or permits the Company to designate these instruments as available-for-sale, measured at fair value with unrealized gains and losses recorded through other comprehensive income. The amendment also requires that credit-related impairment charges be recognized in the Consolidated Statement of Income for instruments carried at amortized cost as well as the reversal of impairment charges for debt instruments classified as available for sale. Impairment charges for debt securities classified as loans are recorded through the provision for credit losses. The amendment did not have any impact on the financial position or earnings of the Company.

Financial Instruments Disclosure

During 2009, CICA "Handbook Section 3862, Financial Instruments - Disclosures" was amended to include enhanced disclosures about inputs to fair value measurement, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:

Level 1         Unadjusted quoted prices in active markets for identical assets or liabilities;
         
Level 2        Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
         
Level 3         Inputs that are not based on observable market data.

If different levels of inputs are used to measure a financial instrument's fair value, the classification within the hierarchy is based on the lowest level input that is significant to the fair value measurement. The amendment only impacted the disclosures in the financial statements. Refer to Note 23.

Financial Instruments

In accordance with Section 3855, financial assets and financial liabilities are initially recognized at fair value. Measurement in subsequent periods is dependent upon the classification of each instrument. The standard requires that all financial assets be classified as either available for sale (AFS), held for trading (HFT), held to maturity (HTM) or loans and receivables. Financial liabilities are classified as trading or other.

AFS assets are initially recorded at fair value on the settlement date in the balance sheet and are remeasured at fair value with unrealized gains and losses, including changes in foreign exchange rates, recognized in other comprehensive income (OCI) until the financial asset is disposed of or becomes permanently impaired. Transaction costs related to AFS assets are capitalized.

HFT assets are initially recorded at fair value on the settlement date and are remeasured at fair value in the balance sheet, with the changes in fair value reported in earnings. Transaction costs related to HFT securities are expensed as incurred. The Company has not classified any financial assets as HTM.

Loans and receivables and other financial liabilities are measured at amortized cost using the effective interest method. Transaction costs related to loans and receivables, deposits and other financial liabilities are capitalized and are then amortized using the effective interest method.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual amounts could differ from these estimates.

Key areas of estimation, where management has made difficult, complex or subjective judgments - often about matters that are inherently uncertain - are loan loss provisions, recoverability of goodwill and intangible assets using estimates of future cash flows, as well as commitments and contingencies, fund absorption costs, income tax provisions, valuation of retained interest from securitization, stock-based compensation and the provision for performance-related compensation. The Company has made investments in companies or businesses, some of which have experienced operating losses. Significant changes in the assumptions, including those about future business plans and cash flows, could change the recorded amounts by a material amount. Any further operating losses of these investees could result in impairment of these investments.

Assets Under Management

The Company manages and provides advisory services in respect of mutual fund and other investment assets owned by clients and third parties that are not reflected on the consolidated balance sheet.

Consolidation of Variable Interest Entities

CICA AcG 15, "Consolidation of Variable Interest Entities" (VIE) provides guidance for applying consolidation principles to certain entities that are subject to control on a basis other than ownership of voting interests. An entity is a VIE when, by design, one or both of the following conditions exist: (a) total equity investment at risk is insufficient to permit the entity to finance its activities without additional subordinated support from others; (b) as a group, the holders of the equity investment at risk lack certain essential characteristics of a controlling financial interest.

The Company has reviewed its relationships, including mutual funds managed, and determined that there are no such entities whose financial results would be required to be included or disclosed in the consolidated results for the years ended November 30, 2010 and 2009.

Cash and Cash Equivalents

Cash represents highly liquid temporary deposits while cash equivalents are comprised of bank term deposits, both of which have short-term maturities of less than three months at inception. 

Accounting for Securitizations

The Company has securitized certain registered Retirement Savings Plan (RSP) loans through the sale of these loans to a securitization trust. For a securitization to be treated as a sale, the Company must surrender control over those loans included in the securitization. To surrender control, the securitized assets must be isolated from the Company and its creditors, even in the case of bankruptcy or receivership, and the Company must receive consideration other than the beneficial interest in the transferred assets.

Under terms that transfer control to third parties, the transaction is recognized as a sale and the related loan assets are removed from the Consolidated Balance Sheet. As part of the securitization, certain financial assets are retained. The retained interests, classified as AFS, are carried at fair value, determined using the present value of future expected cash flows. A gain or loss on the sale of loan receivables is recognized immediately in income. In determining the gain or loss on sale, management estimates future cash flows by relying on estimates of the amount of interest that will be collected on the securitized assets, the yield paid to investors, the portion of the securitized assets that will be prepaid before their scheduled maturity, expected credit losses, the cost of servicing the assets and the rate at which to discount these expected future cash flows. Actual cash flows may differ significantly from those estimated by management. If actual cash flows differ from the Company's estimate of future cash flows, the gains on the retained interest are recorded in OCI. Any losses are first recognized in OCI to the extent there is an offsetting gain and any excess is recognized in the Consolidated Statement of Income under RSP loan securitization income (loss), net of impairment.  

Servicing fee revenues related to the securitization loan are reported within 'RSP loan securitization income (loss), net of impairment' in the Consolidated Statement of Income. Where a servicing liability is recognized, the amount is recorded in Other Liabilities in the Consolidated Balance Sheet.

Retained interests are tested regularly for other-than-temporary impairment and, if required, the retained interest's carrying value is reduced to fair value by a charge in the Consolidated Statement of Income. Refer to Note 3 for additional disclosure regarding the securitizations and related balance sheet and income statement impacts.

Real Estate Secured Loans and Investment Loans

Real estate secured loans and investment loans are classified as loans and receivables and are recorded at amortized cost using the effective interest rate method and are net of an allowance for loan losses. Interest income from loans is recorded on an accrual basis. Accrued but uncollected interest on uninsured real estate secured loans and investment loans is reversed when a loan is identified as impaired. Principal payments on the real estate secured loans and investment loans that are contractually due to the Company in the 12-month period from the balance sheet date are classified as current assets. Fees that relate to the origination of loans are considered to be adjustments to loan yield and are deferred and amortized to interest income over the expected term of the loans.

Allowance for Loan Losses

The allowance for loan losses consists of both general allowances and specific allowances. General allowances are based on management's assessment of inherent, unidentified losses in the portfolio at the reporting date that have not been captured in the determination of specific allowances. The assessment takes into account portfolio-specific credit factors, general economic factors, geographic exposure, historical loss experience, as well as probability of default (PD) and loss given default (LGD) pairs.

Specific allowances consist of provision for losses on identifiable assets for which the estimated amounts recoverable are less than their carrying value and are designed to provide against the likelihood of losses for loans that are deemed to be impaired.

Specific allowances also include estimated provisions for losses on identifiable assets that are currently 1-90 days in arrears and are likely to become impaired based on a combination of historical average roll rates and LGD for a given loan portfolio.

Impaired Loans

Loans are classified as impaired when, in the opinion of management, there is reasonable doubt as to the collectability, either in whole or in part, of principal or interest, or when principal or interest is 90 days or greater past due, except where the loan is both well-secured and in the process of collection. Loans that are insured by the federal government, an agency thereof, or a third-party insurer are classified as impaired when interest or principal is past due 365 days.

When a loan is identified as impaired, the carrying amount of the loan is reduced to its estimated realizable value. In subsequent periods, recoveries of amounts previously written off and any increase in the carrying value of the loan are credited to the provision for loan losses in the Consolidated Statement of Income. Where a portion of the loan is written off and the remaining balance is restructured, the new loan is carried on an accrual basis when there is no longer any reasonable doubt about the collectability of principal or interest. Interest income is recognized on impaired loans on a cash basis only after the specific allowance for losses has been reversed and provided there is no further doubt as to the collectability of the principal. Full or partial write-offs of loans are recorded when management believes there is no realistic prospect of full recovery.

Goodwill, Management Contracts and Trademarks

The purchase price of acquisitions accounted for under the purchase method and the purchase price of investments accounted for under the equity method are allocated based on the fair values of the net identifiable assets acquired, including management contracts and other identifiable intangible assets. The excess of the purchase price over the values of such assets is recorded as goodwill. Management contracts and trademarks have been determined to have an indefinite life.

Goodwill, management contracts and trademarks are not amortized but are subject to impairment tests on an annual basis or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill is allocated to the reporting units and any impairment is identified by comparing the carrying value of a reporting unit with its fair value. If any impairment is indicated, then it is quantified by comparing the carrying value of goodwill to its fair value, based on the fair value of the assets and liabilities of the reporting unit. Management contracts and trademarks are tested for impairment by comparing their fair value to their carrying amounts. An impairment loss is realized when the carrying amount of the asset exceeds its fair value.

For goodwill impairment testing, the fair value of each reporting unit is determined primarily using a discounted cash flow approach which incorporates each reporting unit's internal forecasts of revenue and expenses. Estimates and assumptions of discount rates, growth rates, and terminal growth rates are incorporated in this approach.

Customer Contracts

Customer contracts are stated at cost, net of accumulated amortization and impairment, if any. Amortization is computed on a straight-line basis over seven to 15 years based on the estimated useful lives of these assets.

Deferred Selling Commissions

Selling commissions paid to brokers on mutual fund securities sold on a deferred sales charge (DSC) basis are recorded at cost and are amortized on a straight-line basis over a period that corresponds with the applicable DSC schedule (which ranges from three to seven years). 

Property, Equipment and Computer Software

Property, equipment and computer software, which is comprised of furniture and equipment, computer hardware, computer software and leasehold improvements is stated at cost, net of accumulated amortization and impairment, if any. Amortization is calculated using the following methods based on the estimated useful lives of these assets:

      Furniture and equipment          20% declining balance
      Computer hardware          30% declining balance
      Leasehold improvements          straight-line over term of lease
      Computer software          straight-line over 3 years

Impairment of Long-lived Assets

Impairment of long-lived assets, which includes property, equipment and computer software and intangible assets with finite useful lives, is recognized when an event or change in circumstance causes the assets' carrying value to exceed the total undiscounted cash flows expected from their use and eventual disposition. The measurement of impairment loss is based on the amount that the carrying value exceeds the fair value.

Derivatives

Derivative instruments are used to manage the Company's exposure to interest rate risks and to increases in compensation costs arising from certain share-based compensation. The Company does not enter into derivative financial instruments for trading or speculative purposes. When derivative instruments are used, the Company determines whether hedge accounting can be applied. Where hedge accounting is applied, a hedge relationship is designated as a fair value hedge or a cash flow hedge. The hedge is documented at inception, detailing the particular risk management objective and the strategy for undertaking the hedge transaction. The documentation identifies the specific asset or liability being hedged, the risk that is being hedged, the type of derivative used and how effectiveness will be assessed. The derivative instrument must be highly effective in accomplishing the objective of offsetting either changes in the fair value or forecasted cash flows attributable to the risk being hedged both at inception and over the life of the hedge. In accordance with CICA "Handbook Section 3865, Hedges", the accumulated ineffectiveness of hedging relationships must be measured, and the ineffective portion of changes in fair value must be recognized in the Consolidated Statement of Income. Where hedge accounting is not applied, all changes in fair value are recognized in the Consolidated Statement of income.

Fair Value Hedges

Fair value hedge transactions predominantly use interest rate swaps to hedge the changes in the fair value of an asset, liability or firm commitment with a fixed rate of interest. Derivative financial instruments, held for fair value hedging purposes, are recognized at fair value and the changes in the fair value are recognized in the Consolidated Statement of Income under investment income and other. Changes in the fair value of the hedged items attributable to the hedged risk are also recognized in the Consolidated Statement of Income under Investment Income and Other, with a corresponding adjustment to the carrying amount of the hedged items in the Consolidated Balance Sheet. When the derivative instrument no longer qualifies as an effective hedge or the hedging instrument is sold or terminated prior to maturity, hedge accounting is discontinued prospectively. The cumulative adjustment of the carrying amount of the hedged item related to a hedging relationship that ceases to be effective is recognized in income over the remaining period to maturity on an effective yield basis. Furthermore, if the hedged item is sold or terminated prior to maturity, hedge accounting is discontinued and the cumulative adjustment of the carrying amount of the hedged item is then immediately recognized in investment income and other.

Deposits

Deposits are primarily comprised of GICs that require the Company to pay a fixed interest rate until the maturity date of the certificate. Deposits are classified as current liabilities and other liabilities, depending on the time to maturity, and are carried at amortized cost using the effective interest method. GICs that mature in the 12-month period following the balance sheet date are classified as current liabilities.

Revenue Recognition

Management and advisory fees are based on the net asset value of funds under management and are recognized on an accrual basis. These fees are shown net of management fee rebates and distribution fees payable to third-parties and selling-commission financing entities.

DSC revenue is received from investors when mutual fund securities sold on a DSC basis are redeemed. DSC revenue is recognized on the trade date of redemption of the applicable mutual fund securities.

Net interest income on real estate secured and investment loans, dividends and other investment income earned are recognized on an accrual basis in the period earned.

Stock-based Compensation and Other Stock-based Payments

The Company has stock option plans as described in Note 15. The Company utilizes the fair-value-based method of accounting for stock-based compensation. The fair value of stock-based compensation, determined using an option pricing model, is recorded over the vesting period as a charge to net earnings with a corresponding credit to contributed surplus.

The Company also has a share purchase plan under which employees can have a percentage of their annual earnings withheld subject to a maximum of 6% to purchase AGF's Class B Non-Voting shares. The Company matches up to 60% of the amounts contributed by the employee. The Company's contribution vests immediately and is recorded as a charge to net income in the period in which the cash contribution is made. All contributions are used by the plan trustee to purchase Class B Non-Voting shares on the open market.

The Company has Restricted Share Unit (RSU) plans for senior employees under which certain employees are granted RSUs of Class B Non-Voting shares. These units vest three years from the grant date. AGF will redeem all of the participants' share units in cash equal to the value of one Class B Non-Voting share for each RSU. Compensation expense and the related liability are recorded equally over the three-year vesting period, taking into account fluctuations in the market price of Class B Non-Voting shares, dividends paid and forfeitures.

The Company has a Partners Incentive Plan (PIP) for senior employees of its Investment Management Operations segment under which certain employees are designated to participate. The plan consists of a number of points, which are allocated among participating employees. The value of each point is determined using a funding rate which is based on a set percentage of targeted earnings before interest and tax (EBIT) that defines the funding pool for the year. At the end of each fiscal year, the funding pool is adjusted up or down to reflect the Company's EBIT performance. The adjusted dollar value is then settled in the form of RSUs or stock options. Stock options are granted under the Company's stock option plan, which is described in Note 15. RSUs are granted under the PIP plan. These units vest evenly over three years from the grant date. Upon vesting, the Company will redeem the participants' share units in cash equal to the value of one Class B Non-Voting share for each RSU. During the first year of the plan, compensation expense and the related liability is expensed based on the targeted funding pool over a graded four-year vesting period. Upon granting of the RSU or stock option, the remaining expense is accounted for under the RSU or option model.

The Company has a Performance Share Unit (PSU) plan for senior employees under which certain employees are granted PSUs of Class B Non-Voting shares. Compensation expense and the related liability are recorded equally over the vesting period, taking into account the likelihood of the performance criteria being met, fluctuations in the market price of Class B Non-Voting shares, dividends paid and forfeitures. These PSUs vest three years from the grant date provided employees meet certain performance criteria. AGF will redeem all of the participants' share units in cash equal to the value of one Class B Non-Voting share for each PSU. As at November 30, 2010, all PSUs were forfeited and cancelled and no further units will be issued under this plan.

The Company has a Deferred Share Unit (DSU) plan for non-employee Directors. The plan enables Directors of the Company to elect to receive their remuneration in DSUs. These units vest immediately and compensation expense and the related liability are charged to net income in the period the DSUs are granted. On termination, AGF will redeem all of the participants' DSUs in cash or shares equal to the value of one Class B Non-Voting share at the termination date for each DSU.

Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the balance sheet date and non-monetary assets and liabilities are translated at historical exchange rates. Foreign currency income and expenses are translated at average exchange rates prevailing throughout the year. Unrealized translation gains and losses and all realized gains and losses are included in other non-operating expenses, except for available for sale securities where unrealized translation gains and losses are recorded in other comprehensive income until the asset is sold or becomes impaired.

Financial statements of integrated foreign subsidiaries are translated using the temporal method. Under this method, monetary assets and liabilities are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets are translated at historical exchange rates. Revenue and expenses are translated at average exchange rates for the period, except for amortization which is translated on the same basis as the related asset. Translation gains and losses are included in net income.

Investments in foreign associated companies are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Unrealized translation gains and losses are reported in other comprehensive income.

Income Taxes

The Company follows the asset and liability method in accounting for income taxes whereby future income tax assets and liabilities reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases. Future income tax assets and liabilities are measured based on the enacted or substantively enacted tax rates which are expected to be in effect when the future income tax assets or liabilities are expected to be realized or settled. The effect on future income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the substantive enactment date. Future income tax assets are recognized to the extent that realization is considered more likely than not.

Earnings Per Share

Basic earnings per share are calculated by dividing net income applicable to AGF Class A Voting common shares and AGF Class B Non-Voting shares by the daily weighted average number of shares outstanding. Diluted earnings per share are calculated using the daily weighted average number of shares that would have been outstanding during the year had all potential Class B Non-Voting shares been issued at the beginning of the year, or when other potentially dilutive instruments were granted or issued, if later. The treasury stock method is employed to determine the incremental number of shares that would have been outstanding had the Company used proceeds from the exercise of options to acquire shares.

Future Accounting Changes

Business Combinations, Consolidated Financial Statements, and Non-controlling Interests

In January 2009, the CICA issued new accounting standards on Business Combinations, Consolidated Financial Statements and Non-Controlling Interests. The Business Combinations standard provides clarification as to what an acquirer must measure when it obtains control of a business, the basis of valuation and the date at which the valuation should be determined. Most acquisition-related costs must be accounted for as expenses in the period that they are incurred. This new standard will be applicable for acquisitions that are completed on or after December 1, 2011 although early adoption is permitted to facilitate the transition to International Financial Reporting Standards. The Consolidated Financial Statements standard establishes guidance for preparing consolidated financial statements after the acquisition date. The Non-Controlling Interests standard establishes guidance on the accounting and presentation of non-controlling interest. These new standards must all be adopted concurrently. The Company has adopted this standard effective December 1, 2010.

Transition to International Financial Reporting Standards

The CICA Accounting Standards Board requires all Canadian publicly accountable enterprises to adopt International Financial Reporting Standards (IFRS) for years beginning on or after January 1, 2011. The Company will adopt IFRS for the fiscal year 2012 starting December 1, 2011. The fiscal 2012 Consolidated Financial Statements will include comparative 2011 financial results under IFRS. The Company will report its financial results for the quarter ended February 29, 2012 on an IFRS basis, including comparative IFRS financial results and an opening balance sheet as at December 1, 2010.

Note 2: Investments Available for Sale and Investment in S&WHL

(a)  The following table presents a breakdown of available for sale investments, excluding retained interest from securitization:
                         
($ thousands)                        
November 30           2010           2009
                         
Trust:                        
  Canadian government debt1                        
    Federal       $   -       $   10,179
    Provincial           392,261           350,664
  Deposits with regulated institutions           85,557           86,487
  Other securities           -           83,426
            477,818           530,756
                         
Investment Management:                        
  Canadian government debt                        
    Federal           297           297
  AGF mutual funds and other           19,572           12,909
  Equity securities           6,276           6,518
            26,145           19,724
                         
        $   503,963       $   550,480
                         
1 Includes investments issued and/or guaranteed by the Canadian government

      The following table presents a breakdown of AGF Trust available for sale investments by maturity, excluding retained interest from securitization:

                                       
($ thousands)
November 30, 2010  
    Credit rating       1 Year or Less     1 to 5 years     Greater than
5 years
    Total
                                   
Trust:                                 
  Canadian government debt                                 
    Federal      -     $ -   $ -   $ -   $ -
    Provincial      A to AAA       36,169     328,545     27,547     392,261
  Deposits with regulated institutions      AA       85,557     -     -     85,557
  Other securities      -       -     -     -     -
              $ 121,726   $ 328,545   $ 27,547   $ 477,818
                                   
                                   
                                 
($ thousands)
November 30, 2009
    Credit rating       1 Year or Less     1 to 5 years     Greater than
5 years
    Total
                                   
Trust:                                 
  Canadian government debt                                 
    Federal      AAA     $ 10,179   $ -   $ -   $ 10,179
    Provincial      A to AAA       45,842     264,572     40,250     350,664
  Deposits with regulated institutions      AA       -     86,487     -     86,487
  Other securities      AA High to AAA       83,426     -     -     83,426
            $ 139,447   $ 351,059   $ 40,250   $ 530,756
                                 

  AGF Trust's available for sale investments include provincial guaranteed bonds, senior bank-deposit notes and floating-rate notes (FRNs) with terms to maturity greater than three months at time of purchase. As at November 30, 2010, $85.1 million (2009 - $114.7 million) of AGF Trust's available for sale investments were floating-rate securities subject to repricing and $392.7 million (2009 - $416.1 million) were fixed-rate securities. As at November 30, 2009, other securities include FRN investments of $29.7 million, bank-sponsored asset backed investments of $28.7 million, and asset backed commercial investments of $25.0 million. Investment Management's available for sale investment in Canadian government debt is a fixed-rate treasury bond with a maturity date within one year at time of purchase and a credit rating of AAA. As at November 30, 2010 and 2009, no impairment charges were required.
   
(b)  The Company holds a 30.5% investment in S&WHL accounted for using the equity method. At November 30, 2010, the carrying value was $77.0 million (2009 - $90.4 million). During the 12 months ended November 30, 2010, the Company recognized $0.8 million in losses (2009 - $6.4 million in earnings) and received $5.1 million in dividends (2009 - $5.8 million) from S&WHL. The decrease in the carrying value of the investment in S&WHL during the year ended November 30, 2010, is partly due to the strength of the Canadian dollar relative to the UK pound. S&WHL also recorded a goodwill impairment charge related to one of its subsidiaries and a one-time accounting charge for investment team recruitment agreements during fiscal 2010.

Note 3: Securitization of AGF Trust Loans

In 2006 and 2007, AGF Trust securitized $482.0 million of RSP loans. Cash flows of $459.2 million were received on the securitizations and gains of $17.9 million were recorded, net of transaction fees of $0.3 million. As at November 30, 2010, $68.4 million (2009 - $108.3 million) of securitized loans were outstanding.

When RSP loan receivables are sold in securitization to a securitization trust under terms that transfer control to third parties, the transaction is recognized as a sale and the related loan assets are removed from the Consolidated Balance Sheet. As part of the securitization, certain financial assets are retained. The retained interests are carried at fair value and are determined using the present value of future expected cash flows. A gain or loss on the sale of loan receivables is recognized immediately in income. The amount of the gain or loss is determined by estimating the fair value of future expected cash flows using management's best estimates of key assumptions: excess spread, discount rate on the interest-only strip, expected credit losses, prepayment rates and the expected weighted average life of RSP loans that are commensurate with the risks involved. The current fair value of retained interests is determined using the present value of future expected cash flows as discussed above. During the year ended November 30, 2010, a $0.9 million writedown was recorded as an other-than-temporary impairment (2009 - $4.1 million).

The Company has recorded retained interests of $38.7 million (2009 - $40.4 million) made up of i) the rights to future excess interest on these RSP loans after investors in the securitization trust have received the return for which they contracted, valued at $2.5 million (2009 - $6.0 million), ii) cash collateral of $13.6 million (2009 - $12.8 million) and iii) over-collateralization of $22.6 million (2009 - $21.6 million).

As at November 30, 2010, the impaired loans included in the securitized balances were equal to $0.1 million (2009 - $0.2 million), and during the year ended November 30, 2010, $1.7 million of securitized RSP loans were written off (2009 - $2.6 million).

The Company's claim on the retained interests is subordinate to investors' interests. Recourse available to investors and the securitization trust are limited to the retained interests. For the 12 months ended November 30, 2010, cash flows of $4.5 million (2009 - $5.8 million) related to the interest-only strip were received on the securitized loans. The total income recognized from securitization, net of securitization writedown, during the 12 months ended November 30, 2010, was $2.1 million (2009 - $0.6 million loss). The significant assumptions used to value the retained interests were as follows:

                 
November 30           2010     2009
                   
Excess spread           4.9% - 5.0%     4.7% - 4.9%
Discount rate on interest-only strip           7.5%     7.5%
Expected credit losses           2.3% - 2.4%     1.7% - 2.0%
Prepayment rate         16.2 % - 17.0%     16.3 % - 18.3%
Expected weighted average life of RSP loans         1.6 years     1.8 years

AGF Trust retained servicing responsibilities for the securitized loans. A servicing liability of $0.3 million was recorded as at November 30, 2010 (2009 - $0.6 million). This amount represents the estimated future cost of servicing the securitized loans. The amount amortized related to the servicing liability during the 12 months ended November 30, 2010, was $0.3 million (2009 - $0.5 million)

The following table presents key economic assumptions and the sensitivity of the current fair value of retained interests to two adverse changes in each key assumption as at November 30. Since the sensitivity is hypothetical, it should be used with caution. The effect of changes in the fair value of retained interests was calculated using a discounted cash flow analysis.

           
($ thousands)         Impact on fair value of 
retained interests
November 30           2010   2009
                 
Discount rate                
  +10%         $ (9) $ (37)
  +20%           (18)   (73)
Prepayment rate                
  +10%         $ (13) $ (54)
  +20%           5   (110)
Expected credit losses                
  +10%         $ (242) $ (331)
  +20%           (483)   (663)
Excess spread                
  -10%         $ (288) $ (650)
  -20%           (576)   (1,297)

Note 4: Discontinued Operations

On April 30, 2007, AGF sold 100% of Investmaster for $6.8 million recognizing a gain on the sale of $4.7 million. The purchase consideration included $5.0 million in cash and two notes receivable totalling £0.8 million or $1.8 million at the time of sale from the buyer. In 2009, AGF received a payment of £0.4 million or $0.7 million related to the first note receivable. In 2010, AGF received the final payment of £0.4 million or $0.6 million related to the second note receivable. No additional contingent consideration is receivable by AGF.

Note 5: Acquisition of Highstreet Partners Ltd.

On December 1, 2006, AGF acquired 79.9% of Highstreet Partners Limited (Highstreet). The purchase consideration was payable in a combination of cash and the issue of Class B Non-Voting shares. On March 2, 2009, a final payment, excluding contingent consideration, of $21.5 million was paid, consisting of $20.0 million in cash and the issuance of 188,444 Class B Non-Voting shares valued at $1.5 million. The total consideration paid, including acquisition costs and imputed interest, was $65.4 million in cash and the issuance of 629,443 Class B Non-Voting shares valued at $12.3 million. During the year ended November 30, 2009, contingent consideration, based on certain financial profitability targets being achieved by Highstreet, of $0.7 million was recorded as an increase in goodwill. This amount was paid on March 3, 2010.

Note 6: AGF Trust

AGF Trust's principal business activities are originating real estate secured loans and investment loans and deposit taking. Details relating to these activities are as follows:

                             
      Term to contractual repricing            
($ thousands)
November 30

 
 
 Variable
 rate
 
 
 1 year or 
less 

 
 
 1 to 5
years

 
 
 
2010

 
 
 
2009
                             
Mortgage loans     $ 1,182 $ 315,400   $ 544,425   $ 861,007   $ 1,067,282
Home equity lines of credit (HELOC)      273,272   -     -     273,272     384,774
Total real estate secured loans      274,454   315,400     544,425     1,134,279     1,452,056
Investment loans      2,014,520   1,315     666     2,016,501     2,177,436
Total loans      2,288,974   316,715     545,091     3,150,780     3,629,492
Less: allowance for loan losses                      (32,063)     (39,818)
Add: net deferred sales commissions and commitment fees                     3,497     5,081
                      3,122,214     3,594,755
Less: current portion                      (433,537)     (537,683)
                    $ 2,688,677   $ 3,057,072
                             

(a)  Real Estate Secured and Investment Loans
  The table represents the period of contractual repricing of interest rates on outstanding amounts. Principal repayments due on real estate and investment loans due within one year as at November 30, 2010, were $433.5 million (2009 - $537.7 million).
  As at November 30, 2010, AGF Trust's mortgage portfolio comprises a combination of fixed rate and variable rate residential mortgages with a weighted average term to repricing of 1.7 years (2009 - 1.8 years) and a weighted average yield of 6.1% (2009 - 6.6%). Insured mortgage loans, excluding loan loss allowance, deferred commissions and pending representment, were $413.9 million as at November 30, 2010 (2009 - $501.3 million). HELOCs, which totalled $273.3 million as at November 30, 2010, had an average interest rate of 4.9% (2009 - 4.2%). Investment loans, excluding RSP loans, totaled $1.6 billion as at November 30, 2010, and had an average interest rate (based on the prime interest rate) of 4.8% (2009 - 4.0%). RSP loans totaled $378.0 million as at November 30, 2010, and had an average interest rate of 6.2% (2009 - 5.3%). The average interest rate on all investment loans as at November 30, 2010, was 5.0% (2009 - 4.3%). Mortgage and HELOC loans are secured primarily by residential real estate. Secured investment loans of $1.6 billion (2009 - $1.7 billion) are secured primarily by the investment made using the initial loan proceeds. The market value of this investment loan collateral is approximately $1.4 billion (2009 - $1.4 billion).
   
(b)  Loans by Province and by Type
  The following tables are a breakdown of the total value and total number of loans by province and by type:

                                           
($ millions)
November 30, 2010





 
Insured
Mortgage
Loans





 
Conventional
Mortgage
Loans






Secured
Investment
Loans






RSP Loans






HELOC
Receivables



 


Finance
Loans



 


Total
                                           
  British Columbia   $ 10.5    $ 26.2    $ 305.0    $ 33.4    $ 21.0    $ 0.1    $ 396.2 
  Alberta     59.1      115.7      190.0      38.5      207.5      0.5      611.3 
  Ontario     237.0      210.0      800.2      117.6      17.8      0.3      1,382.9 
  Quebec     104.0      90.3      120.4      154.8      0.3      0.5      470.3 
  Other     3.3      4.9      220.9      33.7      26.7      0.6      290.1 
Total value of loans   $ 413.9    $ 447.1    $ 1,636.5    $ 378.0    $ 273.3    $ 2.0    $ 3,150.8 
                                           
                                           
(number of loans)
November 30, 2010


 

 
Insured
Mortgage
Loans


 

 
Conventional
Mortgage
Loans


 

 
Secured
Investment
Loans


 

RSP Loans


 

HELOC
Receivables


 

Finance
Loans


 

 
Total
                                           
  British Columbia                   54                 112              4,583              3,591                 105                   57     8,502
  Alberta                 262                 576              3,332              3,094                 877                 260     8,401
  Ontario              1,551              1,206            12,887            12,423                 114                 162     28,343
  Quebec                 604                 653              2,234            15,281                     4                 253     19,029
  Other                   19                   33              3,214              2,912                 193                 441     6,812
Total number of loans              2,490              2,580            26,250            37,301              1,293              1,173     71,087
                                           
                                           
($ millions)
November 30, 2009

 
 
Insured
Mortgage
Loans


 
Conventional
Mortgage
Loans


 
Secured
Investment
Loans

 
RSP Loans

 
HELOC
Receivables

 
Finance
Loans


 
Total
                                           
  British Columbia   $ 9.9    $ 33.8    $ 326.9    $ 40.2    $ 37.5    $ 0.2    $ 448.5 
  Alberta     59.5      147.9      208.3      43.7      280.6      1.4      741.4 
  Ontario     299.7      246.9      848.0      143.3      28.4      0.8      1,567.1 
  Quebec     132.2      137.4      127.6      166.6      0.2      1.2      565.2 
  Other             230.7      37.0      38.1      1.5      307.3 
Total value of loans   $ 501.3    $ 566.0    $ 1,741.5    $ 430.8    $ 384.8    $ 5.1    $ 3,629.5 
                                           
                                           
(number of loans)
November 30, 2009

 
 
Insured
Mortgage
Loans

 
 
Conventional
Mortgage
Loans

 
 
Secured
Investment
Loans

 
RSP Loans

 
HELOC
Receivables

 
Finance
Loans

 
Total
                                           
  British Columbia                   58                 141              4,830              4,637                 170                 148     9,984
  Alberta                 269                 709              3,613              3,867              1,213                 649     10,320
  Ontario              1,964              1,505            13,551            16,946                 168                 336     34,470
  Quebec                 750                 935              2,354            16,374                     4                 552     20,969
  Other     -     -              3,350              3,419                 265                 837     7,871
Total number of loans              3,041              3,290            27,698            45,243              1,820              2,522     83,614
                                           

(c)      Impaired Loans
  Loans are considered to be past due where repayment of principal or interest is contractually in arrears. Loans are classified as impaired when, in the opinion of management, there is reasonable doubt as to the collectability, either in whole or in part, of principal or interest, or when principal or interest is 90 days past due, except where the loan is both well-secured and in the process of collection. Loans that are insured by the federal government, an agency thereof, or a third-party insurer are classified as impaired when interest or principal is past due 365 days. As at November 30, 2010, impaired loans were $35.7 million (2009 - $48.9 million) and $25.8 million (2009 - $33.8 million), net of the specific allowance for loan losses.

                             
($ thousands)                            
November 30               2010           2009
                             
Impaired Loans:                             
  Insured mortgage loans            $   6,488       $   7,002
  Conventional mortgage loans                25,157           35,523
  Secured investment loans                1,357           1,619
  RSP loans                1,335           3,840
  HELOC receivables                1,412           931
            $   35,749       $   48,915
                             

        The following table provides an aging of loans:

                                   
($ thousands)                                      
November 30, 2010       Current     1 to 29 days     30 to 60 days     61 to 90 days     Over 90 days     Total
                                       
Insured mortgage loans $ 371,731   $ 16,391   $ 2,518   $ 2,627   $ 20,588   $ 413,855
Conventional mortgage loans   400,783     17,722     2,866     1,174     24,607     447,152
Secured investment loans   1,617,556     14,701     2,525     862     898     1,636,542
RSP loans       371,553     4,301     1,043     661     420     377,978
HELOC receivables       266,663     4,289     375     -     1,945     273,272
Finance loans       1,981     -     -     -     -     1,981
      $ 3,030,267   $ 57,404   $ 9,327   $ 5,324   $ 48,458   $ 3,150,780
                                   
                                       
($ thousands)                                      
November 30, 2009       Current     1 to 29 days     30 to 60 days     61 to 90 days     Over 90 days     Total
                                       
Insured mortgage loans $ 436,177   $ 28,504   $ 6,521   $ 3,204   $ 26,853   $ 501,259
Conventional mortgage loans   479,042     33,173     12,112     6,151     35,545     566,023
Secured investment loans   1,722,616     12,713     3,550     1,011     1,619     1,741,509
RSP loans       420,096     6,023     1,785     1,329     1,560     430,793
HELOC receivables    377,865     5,398     147     403     961     384,774
Finance loans       5,134     -     -     -     -     5,134
      $ 3,440,930   $ 85,811   $ 24,115   $ 12,098   $ 66,538   $ 3,629,492
                                   

(d)      Mortgages in Legal Action
  As at November 30, 2010, there were $23.7 million (2009 - $33.8 million) of insured mortgages in legal action. In addition, the following table provides a summary of conventional mortgages in legal action which includes demand for payment, power of sale and foreclosures. The table details opening mortgages in legal action for the period and related changes to the pool, being additions, discharged mortgages other than sold, proceeds on foreclosed mortgages discharged and related losses, to arrive at the ending balance of mortgages in legal action.

                         
($ thousands)                            
Years ended November 30               2010           2009
                             
Balance outstanding, beginning of the year           $   50,513        $   44,987
  Additions               27,619           59,404
  Discharged mortgages other than sold               (25,624)           (27,126)
  Proceeds on foreclosed mortgages discharged           (20,455)           (23,117)
  Loss on foreclosed mortgages discharged             (3,756)           (3,635)
        $   28,297       $   50,513
                         
(e)  Allowance for Credit Losses
  The continuity in the allowance for loan losses is as follows:
                 
($ thousands)   Specific     General     Total
Years ended November 30, 2010   allowances     allowances     allowances
                 
Balance, beginning of the year $ 15,064   $ 24,754   $ 39,818
Amounts written off   (27,463)     -     (27,463)
Recoveries   2,016     -     2,016
Provision for (recovery of) loan losses   20,249     (2,557)     17,692
  $ 9,866   $ 22,197   $ 32,063
                 
Breakdown by category:                
  Insured mortgage loans $ -   $ 2,500   $ 2,500
  Conventional mortgage loans   4,001     4,338     8,339
  Secured investment loans   1,560     5,005     6,565
  RSP loans   4,121     9,716     13,837
  HELOCs receivables   184     638     822
  $ 9,866   $ 22,197   $ 32,063

                 
($ thousands)   Specific     General     Total
Years ended November 30, 2009   allowances     allowances     allowances
                 
                 
Balance, beginning of the year $ 14,163   $ 22,967   $ 37,130
Amounts written off   (36,452)     -     (36,452)
Recoveries   1,578     -     1,578
Provision for loan losses   35,775     1,787     37,562
  $ 15,064   $ 24,754   $ 39,818
                 
Breakdown by category:                
  Insured mortgage loans $ -   $ 4,000   $ 4,000
  Conventional mortgage loans   4,694     5,383     10,077
  Secured investment loans   3,832     4,354     8,186
  RSP loans   6,463     10,102     16,565
  HELOC receivables   75     915     990
  $ 15,064   $ 24,754   $ 39,818
                 

(f)  AGF Trust Deposits
                     
  Term to maturity  
($ thousands)  
November 30
 
 
 
 Demand
 
 
1 year or
 less
 
 
 1 to 5
 years
 
 
 
2010
 
 

2009
                     
Deposits   $  3,630 $ 1,811,071 $ 1,730,828 $ 3,545,529 $ 3,929,860
Less: deferred selling commissions                (9,564)   (11,297)
Less: current portion                (1,814,701)   (1,884,235)
Long-term deposits             $ 1,721,264 $      2,034,328

As at November 30, 2010, deposits were substantially comprised of GICs with a weighted average term to maturity of 1.3 years (2009 - 1.4 years) and a weighted average interest rate of 3.1% (2009 - 3.60%). Approximately 13.8% (2009 - 15.3%) of deposits mature within 90 days.

(g)   Interest Rate Swaps
          To hedge its exposure to fluctuating interest rates, AGF Trust has entered into interest rate swap transactions with four Canadian chartered banks, as noted below. The swap transactions expire between December 2010 and March 2015. They involve the exchange of either the one-month bankers' acceptance (BA) rate or the three-month BA rate to receive fixed interest rates. The swap contracts designated as fair value hedging instruments for deposits are used by AGF Trust for balance sheet matching purposes and to mitigate net interest revenue volatility. As at November 30, 2010, the aggregate notional amount of the swap transactions was $2.4 billion (2009 - $2.3 billion). The aggregate fair value of the swap transactions, which represents the amount that would be received by AGF Trust if the transactions were terminated at November 30, 2010, was $15.9 million (2009 - $55.7 million). During the 12 months ended November 30, 2010, the ineffective portion of accumulated changes in fair value of hedging relationships recognized in the Consolidated Statement of Income amounted to a loss of $1.4 million (2009 - $0.9 million gain), as it relates to fair value hedging relationships. The economic objective of the interest rate swap is to reduce variability in the net interest margin earned by AGF Trust.
                 
November 30, 2010 Notional   Fair   Maturity     Fixed interest
($ thousands) amount of swap   value   date     rate received
  $ 235,000   $ 140   2010     0.60% - 4.34%
    1,290,000     6,523   2011     0.61% - 5.08%
    685,000     6,252   2012     1.26% - 5.01%
    170,000     1,501   2013     1.86% - 2.71%
    40,000     797   2014     2.22% - 2.82%
    25,000     687   2015     2.82% - 2.93%
  $ 2,445,000   $ 15,900          
                     
                         
November 30, 2009 Notional   Fair   Maturity     Fixed interest
($ thousands) amount of swap   value   date     rate received
  $ 230,000   $ 209   2009     0.70% - 4.22%
    985,000     17,545   2010     0.71% - 5.05%
    695,000     24,952   2011     0.85% - 5.08%
    305,000     11,687   2012     1.60% - 5.01%
    35,000     686   2013     2.37% - 2.71%
    30,000     573   2014     2.70% - 2.82%
  $ 2,280,000   $ 55,652          

Note 7: Goodwill and Intangibles

     
November 30 2010 2009
    Opening       Closing   Opening       Closing
    net book       net book   net book       net book
($ thousands)   value   Amortization   value   value   Amortization   value
                         
Customer contracts                        
  Doherty & Associates $ 1,486 $ 164 $ 1,322 $ 3,374 $ 1,888 1,486
  Cypress Capital Management Limited   4,632   483   4,149   5,115   483   4,632
  ING Investment Management Inc. mutual
fund assets
  1,343   501   842   1,844   501   1,343
  Highstreet Asset Management Inc.   6,760   1690   5,070   8,450   1,690   6,760
  $ 14,221 $ 2,838 $ 11,383 $ 18,783 $ 4,562 $ 14,221
                         
          The Company concluded that customer contracts are fully recoverable and no impairment charges were recorded in 2010 and 2009.
                         
($ thousands)                        
Years ended November 30                    2010    2009 
                         
Goodwill                        
  Opening Balance                  $ 173,708  $ 172,985
  Acquisition of Highstreet Partners Limited (note 5)                   -   723
                  $ 173,708 $ 173,708

During the year ended November 30, 2010 and 2009, the Company completed an impairment test on management contracts, trademarks and goodwill and determined that no impairment existed. Accordingly, there was no change to the carrying value of management contracts, trademarks and goodwill during 2010 and 2009.

During 2009, the Company determined that a final payment related to contingent consideration of $0.7 million was payable to Highstreet. As a result, goodwill was increased by $0.7 million. This amount was paid on March 3, 2010.

Note 8: Property, Equipment and Computer Software

                         
            Opening           Closing
($ thousands)             net book   Net       net book
November 30, 2010           value   additions   Amortization   value
                         
Furniture and equipment         $ 2,988 $ 213 $ 618 $ 2,583
Leasehold improvements           4,989   247   1,831   3,405
Computer hardware           2,888   1,119   1,017   2,990
Computer software           3,262   1,301   2,311   2,252
          $ 14,127 $ 2,880 $ 5,777 $ 11,230
                         
                         
            Opening   Net       Closing
($ thousands)             net book   additions       net book
November 30, 2009           value   (disposals)   Amortization   value
                         
Furniture and equipment         $ 3,712 $ (277) $ 447 $ 2,988
Leasehold improvements           7,104   386   2,501   4,989
Computer hardware           3,999   409   1,520   2,888
Computer software           4,608   1,607   2,953   3,262
          $ 19,423 $ 2,125 $ 7,421 $ 14,127

Note 9: Other Assets

                     
($ thousands)                    
November 30               2010   2009
                     
Long-term portion of derivatives used to manage interest rate exposure     $ 9,746 $ 40,637
Other                4,291   3,321
              $ 14,037 $ 43,958

The current portion of derivatives used to manage interest rate exposure is included under accounts receivable, prepaid expenses and other assets. As at November 30, 2010, the current portion was $6.2 million (2009 - $15.0 million). Refer to Note 6(g) for details on the derivatives used to manage interest rate exposure. Refer to Note 23 for further details of the Company's derivative instruments.

Note 10: Long-term Debt

                 
($ thousands)                
November 30         2010      2009 
                 
Revolving term loan       $ 143,678   $ 156,731
Less: amount included in current liabilities         -     13,083
        $ 143,678   $ 143,648

The Company has arranged a revolving committed term loan with a maximum aggregate principal of $300.0 million (November 30, 2009 - $300.0 million) with a Canadian chartered bank. Advances under the facility are made available by direct advance in US or Canadian dollars, under BAs, at cost of funds rates or by issuance of letters of credit. The facility is available for a term of two years from the commencement date (the commitment period) and the commitment period may be renewed annually. The current commitment period, if not renewed, will expire on July 31, 2012. The current renewal date is July 31, 2011. If not renewed, the facility automatically converts to a non-revolving, amortizing term loan facility with a term of two years following the end of the commitment period. The term facility balance is repayable over a period of two years in equal quarterly installments of one-twelfth of the amount of principal outstanding, with the balance payable at the end of the term. As at November 30, 2010, AGF had drawn $143.7 million (2009 - $156.7 million) against the facility in the form of a 31-day BA at an effective average interest rate of 2.6% (2009 - 2.1%) per annum.

Security for the facility includes a specific claim over the management fees owing from the mutual funds (subject to the existing claims of limited partnerships or other funding arrangements) for which AGF acts as manager and a pledge of assets by AGF Management Limited and certain subsidiaries, including AGF Investments Inc. and 20/20 Financial Corporation.

Note 11: Other Long-term Liabilities

                 
($ thousands)                
November 30       2010   2009
                     
Long-term portion of derivative used to manage changes in share-based
compensation
    $ - $ 1,498
Long-term compensation-related liabilities           12,772   11,637
Long-term portion of Elements Advantage           3,883   3,487
Other                46   53
              $ 16,701 $ 16,675

The current portion of the derivative used to manage changes in share-based compensation is included under accounts payable and accrued liabilities. As at November 30, 2010, the current portion was $1.3 million (2009 - $2.4 million).

On December 3, 2010, the Company fully settled with its counterparty the remaining 124,626 units having a notional value of $3.4 million based on their November 30, 2010, fair value thereby terminating the hedging relationship. On December 3, 2009, the Company settled with its counterparty 91,225 units having a notional value of $2.7 million based on their November 30, 2009, fair value. After including the effect of this transaction, the remaining notional amount of the derivative used to manage share-based compensation as at November 30, 2009, was $6.2 million or 208,731 share units. Refer to Note 23 for further details on the Company's derivative instruments.

In November 2005, the Company launched AGF Elements, which consists of five diversified fund-of-fund portfolios. Until June 22, 2009, four of these portfolios included the Elements Advantage Commitment, which is a commitment to investors that if their portfolio does not match or outperform its customized benchmark over a three-year period, AGF will provide each individual investor up to 90 basis points in additional units. This is calculated based on the value of such investment at the end of its related three-year period. As of June 22, 2009, the Company discontinued the Elements Advantage feature on its Elements products. Eligible units purchased prior to June 22, 2009 have been grandfathered and will retain the Elements Advantage feature.

The Company records in liabilities up to 30 basis points per year of each investor's AUM, adjusted for redemptions, until the end of the three-year measurement period of each investment made by such investor. At that time, if an individual investor's returns match or exceed the corresponding benchmark, the Company will recognize the entire amount as management fee revenue. If an individual investor's actual returns are below the customized benchmark, a corresponding amount will be distributed to the investor in the form of additional units. The current portion of the Elements Advantage liability is included under accounts payable and accrued liabilities. As at November 30, 2010, the current portion was $3.1 million (2009 - $5.3 million).

Note 12: Limited Partnership Financings

Prior to 2000, the Company financed certain deferred selling commissions using limited partnerships (LPs). The Company is obligated to pay these LPs an annual fee of 0.45% to 0.90% of the net asset value of DSC securities. This obligation will continue as long as such DSC securities remain outstanding except for certain of the LPs, in which case the obligation terminates at various dates from December 31, 2010 to December 31, 2020. For certain LPs, the obligation is secured by the Company's mutual fund management contracts to the extent of the particular obligation.

The Company is responsible for the management and administration of the LPs. These services are provided in the normal course of operations and are recorded at the amount of consideration agreed to by the parties. The amount of fees received in 2010 was $0.2 million (2009 - $0.3 million). As at November 30, 2010, the net asset value of DSC securities financed by the LPs was $557.0 million (2009 - $733.0 million).

Note 13: Income Taxes

(a)  The Company's effective income tax rate for continuing operations is comprised as follows:
                 
Years ended November 30         2010     2009
                 
Canadian corporate tax rate         31.1%     32.8%
Net tax rate reduction         -     (8.4) 
Rate differential on earnings of subsidiaries         (5.6)     (8.3) 
Amortization of customer contracts and relationships         -     0.2  
Tax exempt investment income         (0.4)     (1.2) 
Other         3.0     0.8  
Effective income tax rate         28.1%     15.9%
                 

(b)  The tax effects of temporary differences which gave rise to future tax liabilities and assets are as follows:
                 
($ thousands)                
November 30         2010     2009
                 
Future income tax liability                
  Deferred sales commissions       $ (64,272)   $ (75,427)
  Deferred revenue         192     497
  Undepreciated capital cost in excess of carrying values         5,513     4,969
  Loss carryforwards         3,319     10,236
  Expenses deductible or gain to be recognized in future periods         6,010     6,026
  Provision for loan losses         8,040     6,618
  Securitization of RSP loans         (4,615)     (7,819)
  Deferred charges         (4,617)     (5,309)
  Goodwill and management contracts         (99,275)     (100,145)
  Investments         2,723     945
  Other         (616)     (9,690)
          (147,598)     (169,099)
Less: current portion         18,024     22,190
Future income tax liability - long-term portion       $ (129,574)   $ (146,909)
                 

(c)     As at November 30, 2010, certain subsidiaries of the Company have accumulated aggregate non-capital losses of approximately $4.4 million (2009 - $27.4 million) and $16.8 million (2009 - $17.3 million) of capital loss that may be used to reduce taxable income in the future. These tax loss carry-forwards expire as follows:

                                $1.0 million non-capital loss            2026
                                $2.7 million non-capital loss            2027
                                $0.4 million non-capital loss            2029
                                $0.1 million non-capital loss            2030
                                $0.2 million non-capital loss            no expiry date
                                             
                                $16.8 million capital loss              no expiry date

(d)  In November 2009, a reduction of the Ontario corporate income tax rate from 14% to 10% by July 1, 2013 was substantively enacted. Accordingly, during the year ended November 30, 2009, the Company recognized a $9.8 million net reduction in future income tax liabilities.

Note 14: Capital Stock

(a) Authorized Capital
  The authorized capital of AGF consists of an unlimited number of Class B Non-Voting shares and an unlimited number of Class A Voting common shares. The Class B Non-Voting shares are listed for trading on the Toronto Stock Exchange (TSX).
(b) Changes During the Year
  The changes in capital stock are summarized as follows:
       
Years ended November 30   2010 2009
($ thousands, except share amounts)   Shares     Stated value     Shares      Stated value
                         
Class A Voting common shares     57,600   $ -     57,600   $ -
                         
Class B Non-Voting shares                        
  Balance, beginning of the year     89,097,400   $ 438,612     88,480,104   $ 431,897
  Issued through stock dividend plan     162,296     2,635     239,352     2,627
  Stock options exercised      192,600     2,157     189,500     2,552
  Issued on acquisition of Highstreet Partners Limited (note 5)     -     -     188,444     1,536
  Repurchased for cancellation     (846,100)     (4,188)     -     -
Balance, end of the year     88,606,196   $ 439,216     89,097,400   $ 438,612
                         

(c) Class B Non-Voting shares Repurchased for Cancellation
  AGF has obtained applicable regulatory approval to repurchase for cancellation, from time to time, certain of its Class B Non-Voting shares through the facilities of the TSX (or as otherwise permitted by the TSX). Under its normal course issuer bid, AGF may repurchase up to 10% of the public float outstanding on the date of the receipt of regulatory approval or up to 7,167,620 shares through to February 25, 2011. During the year ended November 30, 2010, 846,100 Class B Non-Voting shares were repurchased at a cost of $12.2 million and the excess paid of $8.0 million over the recorded capital stock value of the shares repurchased for cancellation was charged to retained earnings. No shares were repurchased during the year ended November 30, 2009.

Note 15: Stock-based Compensation and Other Stock-based Payments

(a) Stock Option Plans
  AGF has established stock option plans for senior employees under which stock options to purchase an aggregate maximum of 4,748,451 Class B Non-Voting shares could have been granted as at November 30, 2010 (2009 - 3,854,052). The stock options are issued at a price not less than the market price of the Class B Non-Voting shares immediately prior to the grant date. Stock options are vested to the extent of 25% to 33% of the individual's entitlement per annum, or in some instances, vest at the end of the term of the option. The change in stock options during 2010 and 2009 is summarized as follows:
                         
Years ended November 30   2010 2009
            Weighted           Weighted
            average           average
      Options      exercise price     Options      exercise price
                         
Class B Non-Voting share options                        
  Balance, beginning of year     6,627,398   $ 16.34     6,576,948   $ 16.59
  Options granted     75,000     16.20     797,000     16.82
  Options forefeited/expired     (969,399)     17.53     (557,050)     21.04
  Options exercised     (192,600)     9.99     (189,500)     13.36
  Balance, end of year     5,540,399   $ 16.35     6,627,398   $ 16.34

The following summarizes information about stock options outstanding as at November 30, 2010:

                         
     Number of    Weighted      Weighted    Number of      Weighted
     options    average      average    options      average
Range of exercise prices    outstanding    remaining life      exercise price    exercisable      exercise price
                         
 $8.01 to $15.00    2,127,550   5.0 years   $ 8.24   1,021,498   $               8.24
 $15.01 to $25.00    2,365,117   3.3     17.91   1,706,117                 18.29
 $25.01 to $35.00    1,035,000   3.6     29.22   883,750                 28.76
 $35.01 to $45.00    12,732   3.3     35.70   9,549                 35.70
    5,540,399   4.0   $ 16.35   3,620,914   $             18.05

The outstanding stock options have expiry dates ranging from 2010 to 2017. During 2010, AGF granted 75,000 options (2009 - 797,000) and recorded $2.8 million (2009 - $2.9 million) in compensation expense and contributed surplus. The fair value of options granted during 2010 has been estimated at $3.60 per share (2009 - $3.77 per share) using the Black-Scholes option-pricing model. The following ranges of assumptions were used to determine the fair value of the options granted in 2010:

                                Risk-free interest rate             3.03% 
                                Expected dividend yield             6.42%
                                Expected share price volatility            41.66%
                                Option term               5 years
(b) Share Purchase Plan
  The Company's contributions are recorded in payroll costs and amounted to $0.4 million for the year ended November 30, 2010 (2009 - $0.5 million).
(c) Restricted Share Unit (RSU) and Performance Share Unit (PSU) Plans
  The change in share units during 2010 and 2009 is as follows:
     
Years ended November 30   2010 2009
    Number of share units Number of share units 
                         
Outstanding, beginning of year                        
  Non-vested     685,862   680,889
Issued          
  Initial allocation     12,122   151,886
  In lieu of dividends     41,442   55,734
Settled in cash     (96,091)   (59,219)
Forfeited and cancelled     (155,574)   (143,428)
Outstanding, end of year     487,761   685,862
           

  Compensation expense related to these share units for the year ended November 30, 2010, was $3.8 million (2009 - $1.5 million). AGF has entered into a swap agreement to fix the cost of compensation related to certain RSUs and PSUs. As at November 30, 2010, AGF has economically hedged 43,237 (2009 - 243,861) share units at a fixed cost of $27.49 (2009 - $29.73).
  During 2008, the Company determined that the achievement of certain performance criteria for the PSUs to be paid was unlikely. As a result, the Company did not recognize any liability associated with these units. As at November 30, 2010, all PSUs were forfeited and cancelled and no further units will be issued under this plan.
(d) Deferred Share Unit (DSU) Plan
  There is no unrecognized compensation expense related to directors' DSUs since these awards vest immediately upon grant. As at November 30, 2010, 53,446 (2009 - 43,150) DSUs were outstanding. Compensation expense related to these DSUs for year ended November 30, 2010, was $0.2 million (2009 - $0.5 million).
(e) Partners Incentive Plan (PIP)
  Compensation expense related to this incentive plan are recorded in payroll costs and amounted to $3.8 million for the year ended November 30, 2010 (2009 - nil).

Note 16: Earnings Per Share

The following table sets forth the calculation of both basic and diluted earnings per share and basic earnings per share and diluted earnings per share from continuing operations:

                         
($ thousands, except per share amounts)                        
Years ended November 30                 2010     2009
                         
Numerator                         
  Net income for the year               $ 116,775   $ 97,694
                         
Denominator                         
  Weighted average number of shares - basic                  89,112,595     88,845,141
  Dilutive effect of employee stock options                  1,044,990     815,703
  Weighted average number of shares - diluted                  90,157,585     89,660,844
                         
Earnings per share                         
  Basic               $ 1.31   $ 1.10
  Diluted               $ 1.30   $ 1.09

Note 17: Accumulated Other Comprehensive Income (Loss)

                             
          Foreign     Available            
          currency     for sale     Cash flow      
($ thousands)         translation     securities     hedge     Total
                             
Opening Balance                            
  Other comprehensive loss       $ (18,998)   $ (1,489)   $ (449)   $ (20,936)
  Income tax recovery         2,851     141     152     3,144
Balance, November 30, 2008         (16,147)     (1,348)     (297)     (17,792)
Transactions during the year ended November 30, 2009                        
  Other comprehensive income (loss)         (8,608)     15,306     323     7,021
  Income tax recovery (expense)         1,248     (3,608)     (105)     (2,465)
Balance, November 30, 2009         (23,507)     10,350     (79)     (13,236)
Transactions during the year ended November 30, 2010                        
  Other comprehensive income (loss)         (7,347)     9,668     126     2,447
  Income tax recovery (expense)         918     (3,201)     (47)     (2,330)
Balance, November 30, 2010       $ (29,936)   $ 16,817   $ -   $ (13,119)

Note 18: Agreements with Mutual Funds

The Company acts as manager for the AGF Funds and receives management and advisory fees from the AGF Funds in accordance with the respective agreements between the Funds and the Company. In return, the Company is responsible for management and investment advisory services and all costs connected with the distribution of securities of the Funds. Substantially all the management and advisory fees the Company earned in 2010 and 2009 were from the AGF Funds. As at November 30, 2010, the Company had $33.0 million (2009 - $34.6 million) receivable from the AGF Funds. The Company also acts as trustee for the AGF Funds that are mutual fund trusts.

The aggregate unitholder services costs absorbed and management and advisory fees waived by the Company during the year on behalf of the Funds were approximately $9.0 million (2009 - $15.8 million). The decrease is primarily attributable to a management expense ratio cap increase on certain funds that was approved during the year ended November 30, 2010.

Note 19: Related Party Transactions

The Company may enter into certain transactions with entities under common control or senior officers who are directors of the Company. During 2010, total amounts paid by the Company to these related parties was nil (2009 - $0.1 million).

Note 20: Supplemental Disclosure of Cash Flow Information

(a)  Changes in Non-Cash Operating Working Capital Items
                   
($ thousands)                   
Years ended November 30             2010   2009
                   
(Increase) decrease in accounts receivable           $ 3,088 $ (7,662)
(Increase) decrease in other assets             (11,278)   6,822
Decrease in accounts payable and accrued liabilities             (28,915)   (21,625)
Increase (decrease) in deposits and other liabilities              (7,564)   5,850
            $ (44,669) $ (16,615)
                   

(b)  Income Taxes and Interest Paid
                   
($ thousands)                   
Years ended November 30             2010   2009
                   
Income taxes paid           $ 72,113 $ 54,996
Interest paid             83,465   112,376
            $ 155,578 $ 167,372

Note 21: AGF Trust Net Interest Income

The breakdown of net interest income is as follows:

                       
($ thousands)                      
Years ended November 30               2010     2009
                       
AGF Trust interest income                      
  Loan interest             $       169,371   $       211,253
  Investment interest                       14,508             14,951
                      183,879           226,204
                       
AGF Trust interest expense                      
  Deposit interest                     124,893           175,367
  Hedging interest income               (45,971)     (68,532)
  Other interest expense               18,562     23,120
                        97,484           129,955
                       
AGF Trust net interest income             $         86,395   $         96,249

Note 22: Capital Management

The Company's objectives when managing capital are to:

  • Provide returns for shareholders through the payment of dividends, the repurchase of Class B Non-Voting shares and the reasonable use of leverage.
  • Ensure that AGF Trust maintains the level of capital to adequately protect depositors and to meet the requirements of its principal regulator, the Office of the Superintendent of Financial Institutions Canada (OSFI).

The Company's capital consists of shareholders' equity. The AGF Capital Committee is responsible for the management of capital. The AGF Board of Directors is responsible for overseeing the Company's capital policy and management. The Company reviews its five-year capital plan annually.

The Investment Management businesses, in general, are not subject to significant regulatory capital requirements in each of the jurisdictions in which they are registered and operate.

AGF Trust's regulatory capital requirements are determined in accordance with guidelines issued by OSFI, which are based on a framework of risk-based capital standards developed by the Bank for International Settlements (BIS).

AGF Trust's regulatory capital consists of Tier 1 capital and Tier 2 capital, less certain deductions. Tier 1 capital is comprised of common shares, retained earnings, non-cumulative preference shares and contributed surplus. Gains on the sale of securitized assets and retained interests from securitized assets are deducted from Tier 2 capital. Tier 2 capital is comprised of subordinated debt and eligible general allowances. Retained interests from securitization are deducted from Tier 2 capital. For Tier 1 and Tier 2 capital, the deductions related to retained interests on securitization are subject to a 50/50 allocation.

Regulatory capital ratios are reported monthly to management and quarterly to AGF Trust's Board of Directors. As at November 30, 2010, AGF Trust continues to be in compliance with its regulatory capital requirements. The regulatory capital ratios and assets-to-capital multiple for AGF Trust are as follows:

                       
($ thousands)                      
November 30               2010     2009 
                       
Tier 1 capital             $ 287,183   $ 257,512
Total regulatory capital               403,814     375,465
Risk-weighted assets               1,795,568     1,971,458
Tier 1 capital ratio               16.0%     13.1%
Total capital ratio               22.5%     19.1%
Assets-to-capital multiple               10.2     12.0

Note 23: Financial Instruments

Financial instruments are classified based on categories according to CICA Handbook "Section 3855 Financial Instruments - Recognition and Measurement" as follows:

         
      Carrying amount on balance sheet
      Fair value     Amortized cost 
                  Loans and
      Available     Held     Receivables or
($ thousands)     for     for     Other Financial
November 30, 2010     Sale     Trading     Liabilities
                       
Cash and cash equivalents   $ -   $ 456,550   $ -
Investments     503,963     -     -
Retained interest from securitization     38,699     -     -
Accounts receivable     -     -     85,925
Real estate secured and investment loans     -     -     3,122,214
Derivatives     -     15,900     -
Other assets     -     -     4,291
Total financial assets   $ 542,662   $ 472,450   $ 3,212,430
                       
Accounts payable and accrued liabilities   $ -   $ -   $ 257,451
Long-term debt     -     -     143,678
Deposits     -     -     3,535,965
Derivatives     -     1,277     -
Other long-term liabilities     -     -     16,701
Total financial liabilities   $ -   $ 1,277   $ 3,953,795

       
      Carrying amount on balance sheet
      Fair value     Amortized cost
                  Loans and
      Available     Held     Receivables or
($ thousands)     for     for     Other Financial
November 30, 2009     Sale     Trading     Liabilities
                       
Cash and cash equivalents   $ -   $ 274,870   $ -
Investments     550,480     -     -
Retained interest from securitization     40,448     -     -
Accounts receivable     -     -     80,968
Real estate secured and investment loans     -     -     3,594,755
Derivatives     -     55,652     -
Other assets     -     -     3,321
Total financial assets   $ 590,928   $ 330,522   $ 3,679,044
                     
Accounts payable and accrued liabilities   $ -   $ -   $ 281,641
Long-term debt     -     -     156,731
Deposits     -     -     3,918,563
Derivatives     -     3,900     -
Other long-term liabilities     -     -     15,177
Total financial liabilities   $ -   $ 3,900   $ 4,372,112

Fair value hierarchy

Financial Instruments Carried at Fair Value

The financial instruments carried at fair value have been categorized under three levels of fair value hierarchy as follows:

Quoted Prices in an Active Market (Level 1)

This level of the hierarchy includes listed equity securities on major exchanges, investments in AGF mutual funds, highly liquid temporary deposits with Canadian and Irish Banks, as well as term deposits, and bank deposit notes. The fair value of instruments that are quoted in active markets are determined using the quoted prices where they represent those at which regularly and recently occurring transactions take place.

Valuation Techniques with Observable Parameters (Level 2)

This level of the hierarchy includes derivative instruments with major Canadian chartered banks, as well as investments held by AGF Trust which include commercial paper, bank-sponsored ABCP, and FRNs. These instruments are recorded at fair value on the settlement date. AGF Trust values its investment holdings primarily using counterparty mark to markets provided by the major financial institutions or investment brokerages with which it deals.

The fair value of derivatives used to manage interest rate exposure is calculated through discounting future expected cash flows using the BA-based swap curve. Since the BA-based swap curve is an observable input, these financial instruments are considered Level 2.

The fair value of the derivative used to manage changes in share-based compensation is calculated as the difference between the initial swap price and the market value of Class B Non-Voting shares on the valuation date, multiplied by the total number of shares outstanding. The initial price is equal to the price agreed to at the onset of the swap agreement, adjusted for dividends that have been reinvested by the equity holder. Since the market value of Class B Non-Voting shares is an observable input, this financial instrument is considered Level 2.

Valuation Techniques with Significant Unobservable Parameters (Level 3)

This level of the hierarchy includes the retained interest from securitization. Instruments classified in this category have a parameter input or inputs which are unobservable and which have a more than insignificant impact on either the fair value of the instrument or the profit or loss of the instrument. The fair value of the retained interest from securitization is determined using the present value of future expected cash flows. The expected cash flow model incorporates expected credit losses, prepayment rates, discount rate, and excess spread. Expected credit losses and prepayment rates are primarily based on historical portfolio performance, while discount rate and excess spread are based on portfolio performance combined with Management's assessment of the impact of market and economic factors on expected cash flows. 

The following tables classify the carrying value of the financial instruments held at fair value across the fair value hierarchy:

                         
($ thousands)   Financial instruments at fair value
November 30, 2010     Level 1     Level 2     Level 3   Total
                         
Cash and cash equivalents   $ 456,550   $ -   $ - $ 456,550
Investments     26,145     477,818     -     503,963
Retained interest from securitization     -     -     38,699     38,699
Derivatives     -     15,900     -     15,900
Total financial assets    $ 482,695   $ 493,718   $ 38,699 $ 1,015,112
                         
Derivatives   $ -   $ 1,277   $ - $ 1,277
Total financial liabilities   $ -   $ 1,277   $ - $ 1,277

                         
    Financial instruments at fair value
November 30, 2009     Level 1     Level 2     Level 3   Total
                         
Cash and cash equivalents   $ 274,870   $ -   $ - $ 274,870
Investments     19,724     530,756     -     550,480
Retained interest from securitization     -     -     40,448     40,448
Derivatives     -     55,652     -     55,652
Total financial assets    $ 294,594   $ 586,408   $ 40,448 $ 921,450
                         
Derivatives   $ -   $ 3,900   $ - $ 3,900
Total financial liabilities   $ -   $ 3,900   $ - $ 3,900

During the year ended November 30, 2010 and 2009, there were no significant transfers between Level 1 and Level 2 of the fair value hierarchy. The following tables present reconciliations of Level 3 fair value measurements:

                       
      Fair value measurements using level 3 inputs
                      Retained interest
($ thousands)                 from securitization
                       
Balance at November 30, 2009               $     40,448
Accretion income                     2,682
Cash receipts, net of writeoffs                      (3,037)
Securitization writedown                     (906)
Unrealized losses recognized in OCI                     (488)
Balance at November 30, 2010               $     38,699
                     
                       
      Fair value measurements using level 3 inputs
                      Retained interest
($ thousands)                 from securitization
                       
Balance at November 30, 2008               $     44,947
Accretion income                     3,021
Cash receipts, net of writeoffs                      (3,234)
Securitization writedown                     (4,085)
Unrealized losses recognized in OCI                     (201)
Balance at November 30, 2009               $     40,448

Financial Instruments not Carried at Fair Value

The following table presents the estimated fair value of the Company's financial instruments which are not carried at fair value in the balance sheet:

                         
($ thousands)   2010 2009
November 30   Carrying value   Fair value   Carrying value   Fair valu
                           
Accounts receivable   $ 85,925   $ 85,925   $ 80,968   $ 80,968
Real estate secured loans and investment loans     3,122,214     3,135,568     3,594,755       3,611,473
Other assets     4,291     4,291     3,321     3,321
Total financial assets    $ 3,212,430   $ 3,225,784   $ 3,679,044   $ 3,695,762
                           
Accounts payable and accrued liabilities   $ 257,451   $ 257,451   $ 281,641   $ 281,641
Long-term debt     143,678     143,678     156,731       156,731
Deposits     3,535,965     3,568,319     3,918,563       3,963,517
Other long-term liabilities     16,701     16,701     15,177       15,177
Total financial liabilities   $ 3,953,795   $ 3,986,149   $ 4,372,112   $ 4,417,066

For accounts receivable, other assets, accounts payable and accrued liabilities, long-term debt and other long-term liabilities, the carrying amount represents a reasonable approximation of fair value.

Real estate secured loans, investment loans, RSP loans, HELOC receivables, and finance loans are classified as loans and receivables and are recorded at amortized cost using the effective interest method, net of any allowance for loan losses and related deferred fees and charges. The fair value of mortgage loans and deposits is calculated based on the discounted present value of future cash flows associated with the loans and deposits. The discount rates used reflect prevailing market rates for loans and deposits with similar residual terms to maturity and product characteristics. For all other loan types, the carrying value is considered to be a reasonable approximation of fair value due to the variable interest rate nature of the loan.

Risk Management

In the normal course of business, the Company manages risks that arise as a result of its use of financial instruments. These risks include market, liquidity and credit risk.

Market Risk

Market risk is the risk that the fair value of, or cash flows associated with, financial instruments will fluctuate due to changes in market factors. Market risk includes fair value risk, interest rate risk and foreign currency risk. The Company is exposed to these risks directly through its financial instruments.

Fair Value Risk

Fair value risk is the risk of loss due to adverse changes in prices other than from change in interest rates and foreign currency. The Company is exposed to fair value risk on certain of its investments available for sale and certain derivative positions. The Company's investments that have fair value risk include mutual funds managed by the Company of $19.6 million (2009 - $12.9 million) and equity securities of $6.3 million (2009 - $6.5 million) as at November 30, 2010. Any unrealized gains or losses arising from changes in the fair value of these financial instruments available for sale are recorded in other comprehensive income. Based on the carrying value of these investments at November 30, 2010, the effect of a 10% decline or increase in the value of investments would result in a $2.6 million (2009 - $1.9 million) unrealized gain or loss before income taxes to other comprehensive income.

Details of the Company's derivative instruments are as follows:

                       
          Hedging item            
($ thousands)           maximum     Notional     Fair
November 30, 2010   Interest Rate     maturity date     Value     Value
                       
Derivatives used to manage                        
interest rate exposure   0.60% - 5.08%     2015     2,445,000     15,900
Derivatives used to manage                      
changes in share-based compensation   -     2010     3,426     (1,277)
                       
                       
          Hedging item            
($ thousands)           maximum     Notional     Fair
November 30, 2009   Interest Rate     maturity date     amount     Value
                       
Derivatives used to manage                        
interest rate exposure   0.70% - 5.08%     2014     2,280,000     55,652
Derivatives used to manage                      
changes in share-based compensation   -     2010     8,919     (3,900)

At November 30, 2010, the effect of a 10% decline or increase in the value of the underlying reference asset of the derivatives used to manage changes in share-based compensation would result in a $0.1 million (2009 - $0.4 million) increase or decrease in pre-tax income.

Interest Rate Risk

Interest rate risk, inclusive of credit spread risk, is the risk of loss due to the following: changes in the level, slope and curvature of the yield curve; the volatility of interest rates; mortgage prepayment rates; changes in the market price of credit and the creditworthiness of a particular client.

The Company, through AGF Trust, is exposed to interest rate risk primarily through its cash and cash equivalents, investments available for sale, real estate secured and investment loans receivable and deposits, managed and supervised by AGF Trust's Asset and Liability Committee. AGF Trust employs a number of techniques to manage this risk, including the matching of asset and liability terms. AGF Trust also uses interest rate swaps to manage any residual mismatches. At November 30, 2010, a 1% increase in interest rates in the aforementioned financial instruments would result in an increase in annual net interest income of approximately $4.0 million (2009 - $4.1 million), while a 1% decrease in interest rates will result in a decrease in annual net interest income of approximately $4.0 million. As a result of interest rate levels in the prior year, a sensitivity analysis based on a 1% decrease would not provide meaningful information. Refer to Note 3 for the effect of changes to key assumptions on the fair value of retained interests.

The Company, excluding AGF Trust, is also exposed to interest rate risk through its floating-rate debt and cash balances. As at November 30, 2010, the effect of a 1% change in the variable interest rates on the average balances for the year would have resulted in an annualized change in interest expense of approximately $1.5 million (2009 - $1.2 million).

Foreign Exchange Risk

Foreign currency risk is the risk of loss due to changes in spot and forward rates and the volatility of currency exchange rates. The Company is subject to foreign exchange risk on its integrated foreign subsidiaries in Ireland and Singapore, which provide investment advisory services. These subsidiaries retain minimal monetary exposure to the local currency, as the majority of revenues are earned in Canadian dollars and salaries and wages are primarily paid on a monthly basis and represent the majority of the local currency expenses. As such, these foreign subsidiaries have limited use of financial instruments denominated in local currencies, thus resulting in minimal foreign exchange risk.

Liquidity Risk

Liquidity risk arises from the possibility that the Company cannot meet a demand for cash resources when required or meet its financial obligations.

The Company manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Notes 10 and 22. In its Investment Management segment, the Company manages its liquidity by monitoring actual and projected cash flows to ensure that it has sufficient liquidity through cash received from operations as well as borrowings under its credit facility. The key liquidity requirements within this segment are the funding of commissions paid on mutual funds and dividends paid to shareholders. The Company is subject to certain financial loan covenants under its credit facility and has met all of these conditions.

AGF Trust manages liquidity risk through deposit taking activities and through the securitization of loans. The key liquidity requirements within this segment are the funding of mortgages and loans and the ability to pay out maturing GICs. AGF Trust's overall liquidity risk is managed by its treasury department and is supervised by AGF Trust's Asset and Liability Management Committee in accordance with the policies for management of assets and liabilities, liquidity and loan financing activities. These policies aim to ensure that AGF Trust has sufficient cash resources to meet its current and future financial obligations in the regular course of business and under a variety of conditions.

Management monitors cash resources daily to ensure that AGF Trust's liquidity measurements are within the limits established by policies. In addition, management meets regularly to assess the timing of cash inflows and outflows related to loan and deposit maturities, and to review various possible stress scenarios. AGF Trust aims to maintain a prudent reserve of unencumbered liquid assets that are readily available if required. It strives to maintain a stable volume of base deposits that originate from its deposit brokerage clientele.

The Company's internal audit department reviews the compliance of AGF Trust's liquidity policies. Internal audit reports are presented to the Audit Committee of the Trust Board for review.

The following table presents contractual terms to maturity of the financial liabilities owed by the Company at November 30, 2010 and 2009:

                       
($ thousands)                      
November 30, 2010       Demand    1 Year or Less    1 to 5 Years 
                       
Accounts payable and accrued liabilities       $ -   $ 258,728   $ -
Long-term debt         -     -     143,678
Deposits1         3,630     1,839,525     1,850,820
Other liabilities         -     -     16,701
Total        $ 3,630   $ 2,098,253   $   2,011,199
                       
                       
($ thousands)                      
November 30, 2009       Demand    1 Year or Less    1 to 5 Years 
                       
Accounts payable and accrued liabilities       $ -   $ 284,043   $ -
Long-term debt         -     13,083     143,648
Deposits1         4,665     1,909,845     2,218,390
Other liabilities         -     -     16,675
Total        $ 4,665   $ 2,206,971 $ 2,378,713

1  Includes future interest payments and excludes deferred selling commissions.

Credit Risk

Credit risk is the potential of financial loss arising from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Company. The Company's overall credit risk strategy and credit risk policy are developed by the AGF Risk Management group in conjunction with the business unit and presented to senior management. The overall credit strategies and approaches are supported through the use of policies, processes and internal controls. The AGF Risk Management group ensures these activities and the outcomes are within the standards of risk tolerance levels established by senior management and approved by the Board of Directors and updates the Board of Directors with the results on a regular basis. As at November 30, 2010, financial assets of $4.2 billion (2009 - $4.6 billion), consisting of cash and cash equivalents, investments, retained interests from securitization, real estate secured loans and investment loans, accounts receivable and other assets, were exposed to credit risk up to the maximum of their respective carrying value.

Cash and cash equivalents consist primarily of highly liquid temporary deposits with Canadian banks, an Irish government guaranteed bank, and non-Irish banks in Ireland, as well as bank term deposits.

Investments subject to credit risk consist primarily of FRNs, senior bank deposit notes, investments in mutual funds of AGF and other securities. For investing activities done through AGF Trust, policies have been established that identify the types and rating of debt investments in which AGF Trust can invest. These policies also restrict AGF Trust's transactions primarily to major chartered banks and recognized investment dealers who are members of the Investment Industry Regulatory Organization of Canada (IIROC). AGF Trust maintains a list of approved securities dealers and counterparties, which are reviewed at least annually by the Trust Board. AGF Trust uses external credit rating agencies in assessing the credit quality of certain investments in financial assets. The credit rating agencies used include DBRS, S&P and Moody's. Refer to Note 2 for a breakdown of the credit ratings for AGF Trust's investments available for sale.

The Company's most significant credit risk is through AGF Trust's real estate secured loans and investment loans. AGF Trust mitigates this risk through stringent credit policies and lending practices. These policies aim to ensure that the authority to approve credit applications is appropriately delegated by senior management of AGF Trust, depending on the risk and the amount of the credit application. The credit policies also provide guidelines for pricing based on risk, for reviewing any collateral pledged for a credit application, monitoring of impaired loans and for establishing and reviewing loan loss provisions to ensure they are adequate. The policies establish risk limits for credit concentration by counterparty, geographic location and other risk factors that would impact AGF Trust's credit risk profile.

At November 30, 2010, AGF Trust's loan assets totaled $3.2 billion (2009 - $3.6 billion) and were comprised of mortgage loans, investment loans, RSP loans, finance loans and HELOC receivables. Of this amount, $0.9 billion (2009 - $1.1 billion) was represented by mortgage loans and $0.3 billion (2009 - $0.4 billion) was represented by HELOC receivables, both of which are secured by residential real estate. At November 30, 2010, 48.1% of mortgage loans were insured by Canada Mortgage and Housing Corporation (CMHC) or another insurer (November 30, 2009 - 47.6%). Conventional uninsured mortgages have loan-to-value ratios of less than 80% of the appraised value of the property at the time the mortgage loan was granted. The average loan-to-value ratio of uninsured mortgage loans was 63.0% as at November 30, 2010 (2009 - 61.3%).

Residential mortgages represent the largest component of the total mortgage portfolio, comprising 97.2% as at November 30, 2010 (2009 - 97.0%). AGF Trust's credit risk on these loans is also mitigated through the use of collateral, primarily in the form of residential real estate. Under AGF Trust's lending criteria, management reviews all mortgage loans on a regular basis to determine the appropriate allowance for loss required by AGF Trust. Risk is also mitigated through residential mortgage insurance through CMHC or another insurer. As at November 30, 2010, $413.9 million of AGF Trust's residential mortgage portfolio was insured (2009 - $501.3 million).

Credit risk for HELOCs and investment loans is mitigated by collateral in the form of residential mortgages and investment funds, respectively. Investment loans, excluding RSP loans, of $1.6 billion, are secured primarily by the investment made using the initial loan proceeds. The fair value of this investment loan collateral is approximately $1.4 billion.

RSP loans are used by borrowers to purchase assets in a retirement savings plan. The creditworthiness of each borrower is assessed prior to approval of the loan. Predictive scorecards are used to determine the probability of default and bankruptcy of the borrowers. On a regular basis, AGF Trust reviews the credit quality in the portfolio. Loans in arrears are also reviewed regularly to determine the appropriate loan loss reserves.

Derivative financial instruments expose AGF Trust to credit risk to the extent that if a counterparty default occurs, market conditions are such that AGF Trust would incur a loss in replacing the defaulted transaction. AGF Trust negotiates derivative master netting agreements with counterparties with which it contracts. These agreements reduce credit risk exposure. AGF Trust assesses the credit worthiness of the counterparties to minimize the risk of counterparty default under the agreements. AGF Trust only uses major Chartered banks as counterparties with a minimum credit rating of AA.

Note 24: Segment Information

AGF has three reportable segments: Investment Management Operations, Trust Company Operations and Other. The Investment Management Operations segment provides investment management and advisory services and is responsible for the management and distribution of AGF investment products. AGF Trust offers a wide range of trust services including GICs, term deposits, real estate secured loans and investment loans. The results of Smith & Williamson Holdings Limited have been included in Other.

The results of the reportable segments are based upon the internal financial reporting systems of AGF. The accounting policies used in these segments are generally consistent with those described in the 'Summary of Significant Accounting Policies' detailed in Note 1.

                       
    Investment     Trust            
($ thousands)     Management     Company            
Year ended November 30, 2010   Operations     Operations     Other1     Total
                       
Revenue (loss) $ 519,490   $ 95,838   $ (750)   $ 614,578
Operating expenses   303,238     54,556     -     357,794
Amortization and other expenses   84,978     2,226     5,750     92,954
Segment income (loss) before taxes $ 131,274   $ 39,056   $ (6,500)   $ 163,830
                       
Total Assets $ 1,139,262   $ 4,114,599   $ -   $ 5,253,861
                       
                       
    Investment      Trust            
($ thousands)     Management      Company            
Year ended November 30, 2009   Operations      Operations     Other1     Total
                       
Revenue $ 475,429   $ 104,286   $ 6,399   $ 586,114
Operating expenses   293,774     72,802     -     366,576
Amortization and other expenses   93,880     2,822     5,983     102,685
Segment income before taxes $ 87,775   $ 28,662   $ 416   $ 116,853
                       
Total Assets $ 1,175,612   $ 4,500,310   $ -   $ 5,675,922

1  Other revenue relates to S&WHL.

Note 25: Commitments

The Company is committed under operating leases and purchase obligations for office premises and equipment. The Company is also committed for a 10-year period expiring 2015 to reimburse Citigroup Fund Services Inc. (Citigroup) and CitiFinancial up to $2.8 million per year should annual revenues derived from AGF fund administration services fall below predetermined levels. The approximate minimum annual cash payments related to the above are as follows:

                                         
($ thousands)                                        
2011                               $       18,389
2012                                       14,847
2013                                       11,865
2014                                       7,789
2015                                       5,991
Thereafter                                       12,177

AGF Trust has outstanding mortgage commitments of $36.1 million as at November 30, 2010, (2009 - $8.8 million) at rates of interest prevailing at the time the commitments were issued. Any interest rate commitment has a term of less than 60 days.

On November 30, 2010, the Company signed a definitive purchase agreement to acquire 100% of the shares of Acuity Funds Ltd. and Acuity Investment Management Inc. (Acuity) for a purchase price of $325 million, subject to an adjustment based on assets at closing. Refer to Note 28 for further details.

Note 26: Guarantees

The Company, under an indemnification agreement with each of the directors of the Company, as well as directors of the mutual fund corporations, has agreed to indemnify the directors against any costs in respect of any action or suit brought against them in respect of the proper execution of their duties. To date, there have been no claims under these indemnities.

Note 27: Contingent Liabilities

(a)  The Company, through its subsidiary AGF Investments Inc., is a party to two class action proceedings alleging inappropriate frequent trading market timing activity in certain funds. These proceedings were instituted in the provinces of Quebec and Ontario in 2004 and 2005, respectively. During the year ended November 30, 2010, the Company recorded a $3.5 million charge related to a settlement of all outstanding claims. The settlement was approved by the courts in Quebec and Ontario on December 17, 2010 and is effective January 17, 2011.
(b)  The Company believes that it has adequately provided for incomes taxes based on all of the information that is currently available. The calculation of income taxes in many cases, however, requires significant judgment in interpreting tax rules and regulations. The Company's tax filings are subject to audits, which could materially change the amount of the current and future income tax assets and liabilities, and could, in certain circumstances, result in the assessment of interest and penalties.
(c)  There are certain claims and potential claims against the Company. None of these claims or potential claims are expected to have a material adverse effect on the consolidated financial position of the Company.

Note 28: Subsequent Event

On November 30, 2010, the Company signed a definitive purchase agreement to acquire 100% of the shares of Acuity for a purchase price of $325 million, subject to an adjustment based on AUM at closing. The transaction is expected to be completed on or about February 1, 2011 and is subject to regulatory approval. Under the terms of the agreement, Acuity shareholders will receive a combination of 60% cash and 40% AGF Class B Non-Voting shares. A portion of the purchase price will be deferred over three years and is subject to an AUM-based adjustment. On January 28, 2011, the Company entered into a four-year non-amortizing loan agreement for up to $200.0 million with two Canadian chartered banks to fund the acquisition of Acuity. In addition, the Company amended the terms of its current $300.0 million revolving term loan facility from a three-year agreement to a four-year agreement.

Consolidated 10-Year Review

                     
($ thousands, except per share amounts)                    
Years ended November 30   2010   2009   2008   2007   2006
                     
Operations                    
  Total revenue                    
    (continuing operations)  $ 614,578  $ 586,114  $ 725,570  $ 780,320  $ 607,202
  Net income    116,775    97,694    128,592   178,687   112,657
  Dividends   91,792   88,821   84,860   70,151   61,521
                     
Financial position                    
  Working capital (deficit) $ (581,106) $ (738,223) $ (1,360,365)  $ 735,103  $ (404,223)
  Long-term debt   143,678   143,648   123,740   184,486   56,000
  Shareholders' equity   1,150,694   1,130,403   1,107,422   1,069,002   979,771
  Return on equity   10.2%   8.7%   11.8%   17.4%   11.9%
                     
Per share                    
  Net income - basic $ 1.31 $ 1.10 $ 1.44  $ 1.99  $ 1.26
  Dividends   1.04   1.00   0.95   0.78   0.69
   Book value (continuing operations)   12.91   12.72   12.40   12.02   10.99
                     
                     
                     
($ thousands, except per share amounts)                    
Years ended November 30   2005   2004   2003   2002   2001
                     
Operations                    
  Total revenue                    
    (continuing operations)  $ 546,567  $ 545,393  $ 510,571  $ 637,660  $ 630,525
  Net income    91,872   77,287   44,016   119,839   163,754
  Dividends   50,522   37,474   27,150   22,967   19,577
                     
Financial position                    
  Working capital (deficit) $ (31,958)  $ 56,363  $ 62,490  $ 95,287  $ (9,950)
  Long-term debt   17,364   68,292   112,192   225,403   165,481
  Shareholders' equity   918,326   914,366   903,360   887,566   764,707
  Return on equity   10.0%   8.5%   4.9%   14.5%   26.3%
                     
Per share                    
  Net income - basic $ 1.02  $ 0.85  $ 0.48  $ 1.34  $ 1.84
  Dividends   0.56   0.41   0.30   0.26   0.22
  Book value (continuing operations)   10.30   10.08   9.79   9.74   8.56

This report contains forward-looking statements with respect to AGF, including its business operations, strategy, financial performance and condition. Although Management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.


SOURCE AGF

For further information:

AGF Management Limited shareholders and analysts, please contact:

Robert J. Bogart, CPA
Executive Vice-President and Chief Financial Officer
416-865-4264, bob.bogart@agf.com

Media, please contact: 
Lucy Becker
Vice-President, Public Relations and Public Affairs
416-865-4284, lucy.becker@agf.com

Organization Profile

AGF

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