Franklin Templeton Investments Corp. et al.
Headnote
Investment of substantially all of the assets of the classes of a corporate mutual fund in securities of specified mutualfund trusts exempted from the reporting requirements and self-dealing prohibitions of clauses 111(2)(b), 111(2)(c) andsubsection 111(3), clauses 117(1)(a) and (d) and clause 118(2)(a) subject to certain specified conditions.
Statutes Cited
Securities Act (Ontario), R.S.O., 1990 c.S.5, as am., ss. 111(2)(b), 111(2)(c), 111(3), 117(1)(a), 117(1)(d) and 118(2)(a).
IN THE MATTER OF
THE SECURITIES LEGISLATION
OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
ONTARIO, QUEBEC, NOVA SCOTIA, and NEWFOUNDLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CLASSES OF FRANKLIN TEMPLETON TAX CLASS CORP.
(THE "TAX FUND CORPORATION"), BEING
TEMPLETON GROWTH TAX CLASS
TEMPLETON INTERNATIONAL STOCK TAX CLASS
TEMPLETON EMERGING MARKETS TAX CLASS
TEMPLETON GLOBAL SMALLER COMPANIES TAX CLASS
TEMPLETON CANADIAN STOCK TAX CLASS
FRANKLIN WORLD GROWTH TAX CLASS
FRANKLIN U.S. SMALL CAP GROWTH TAX CLASS
FRANKLIN U.S. AGGRESSIVE GROWTH TAX CLASS
FRANKLIN U.S. LARGE CAP GROWTH TAX CLASS
FRANKLIN WORLD HEALTH SCIENCES AND BIOTECH TAX CLASS
FRANKLIN WORLD TELECOM TAX CLASS
FRANKLIN TECHNOLOGY TAX CLASS
FRANKLIN U.S. MONEY MARKET TAX CLASS
MUTUAL BEACON TAX CLASS
BISSETT MULTINATIONAL GROWTH TAX CLASS
BISSETT CANADIAN EQUITY TAX CLASS
BISSETT SMALL CAP TAX CLASS
BISSETT BOND TAX CLASS
BISSETT MONEY MARKET TAX CLASS
(COLLECTIVELY, THE "CLASSES")
AND
FRANKLIN TEMPLETON INVESTMENTS CORP.
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "Decision Maker") in each ofBritish Columbia, Alberta, Saskatchewan, Ontario, Quebec, Nova Scotia, and Newfoundland (the "Jurisdictions") hasreceived an application from Franklin Templeton Investments Corp. ("Franklin Templeton"), on its own behalf andon behalf of the Classes (the "Current Top Funds") and other classes of the Tax Fund Corporation managed byFranklin Templeton after the date of this Decision (defined herein) having an investment objective that investssubstantially all of its assets in another mutual fund managed by Franklin Templeton (individually, a "Top Fund" and,together with the Current Top Funds, the "Top Funds") for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that the following provisions of the Legislation (the "Applicable Requirements") shallnot apply to the Top Funds or Franklin Templeton, as the case may be, in respect of certain investments to be madeby a Top Fund in an Underlying Fund (as defined herein) from time to time:
(a) the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making orholding an investment in a person or company in which the mutual fund, alone or together with oneor more related mutual funds, is a substantial securityholder;
(b) the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making aninvestment in an issuer in which any officer or director of the mutual fund, its managementcompany or distribution company or an associate of any of them, or any person or company who isa substantial securityholder of the mutual fund, its management company or its distributioncompany, has a significant interest;
(c) the restrictions contained in the Legislation prohibiting a portfolio manager or, in British Columbia,the mutual fund, from knowingly causing an investment portfolio managed by it to invest in anyissuer in which a "responsible person" (as that term is defined in the Legislation) is an officer ordirector, unless the specific fact is disclosed to the client and, if applicable, the written consent ofthe client to the investment is obtained before the purchase; and
(d) the requirements contained in the Legislation requiring a management company or, in BritishColumbia, a mutual fund manager, to file a report relating to a purchase or sale of securitiesbetween the mutual fund and any related person or company, or any transaction in which, byarrangement other than an arrangement relating to insider trading in portfolio securities, the mutualfund is a joint participant with one or more of its related persons or companies.
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application.
AND WHEREAS it has been represented by Franklin Templeton to the Decision Makers that:
1. Franklin Templeton is a corporation amalgamated under the laws of the Province of Ontario and is or will bethe manager of each of the Top Funds and each of the Underlying Funds (collectively, the "FranklinTempleton Funds"). Franklin Templeton's head office is located in Toronto, Ontario.
2. Each of the Top Funds is or will be classes of shares of the Tax Fund Corporation, a mutual fundcorporation incorporated under the laws of the Province of Alberta, the shares of which will be offered forsale in each of the provinces and territories of Canada.
3. Each of the Current Underlying Funds (as defined herein) (other than Templeton Growth Fund, Ltd.) is anopen-ended mutual fund trust established under the laws of Ontario or Alberta by a Declaration of Trust.Templeton Growth Fund, Ltd. is an open-end mutual fund corporation, incorporated under the laws ofCanada. The Underlying Funds will be open-ended mutual fund trusts established under the laws ofOntario or Alberta by a Declaration of Trust or open-end mutual fund corporations incorporated under thelaws of Canada.
4. Each of the Franklin Templeton Funds is or will be a reporting issuer in each of the provinces and territoriesof Canada.
5. Securities of each of the Franklin Templeton Funds will be qualified for distribution by means of a simplifiedprospectus and an annual information form filed in accordance with the legislation applicable in each of theprovinces and territories of Canada.
6. Each of the Top Funds seeks to achieve its investment objective by investing substantially all of its assetsin securities of it's corresponding Underlying Fund. Except for transitional cash, each of the Top Funds willbe 100% invested in securities of it's corresponding Underlying Fund.
7. Franklin Templeton is currently the manager of Templeton Growth Fund, Ltd., Templeton InternationalStock Fund, Templeton Emerging Markets Fund, Templeton Global Smaller Companies Fund, TempletonCanadian Stock Fund, Franklin World Growth Fund, Franklin U.S. Small Cap Growth Fund, Franklin U.S.Aggressive Growth Fund, Franklin U.S. Large Cap Growth Fund, Franklin World Health Sciences andBiotech Fund, Franklin World Telecom Fund, Franklin Technology Fund, Franklin U.S. Money Market Fund,Mutual Beacon Fund, Bissett Multinational Growth Fund, Bissett Canadian Equity Fund, Bissett Small CapFund, Bissett Bond Fund and Bissett Money Market Fund (the "Current Underlying Funds") and may in thefuture establish other mutual fund trusts or corporations (together with the Current Underlying Funds, the"Underlying Funds").
8. The simplified prospectus for the Top Funds will disclose the investment objectives, investment strategies,risks and restrictions of the Top Fund.
9. Except to the extent evidenced by this Decision and specific approvals granted by the Decision Makerspursuant to National Instrument 81-102 Mutual Funds ("NI 81-102"), the investments by the Top Funds inthe Underlying Funds have been structured to comply with the investment restrictions of the Legislation andNI 81-102.
10. In the absence of the Decision, pursuant to the Legislation, each Top Fund is prohibited from
knowingly making or holding an investment in a person or company in which the mutual fund, alone ortogether with one or more related mutual funds, is a substantial securityholder. As a result, in the absenceof this Decision the Top Fund would be required to divest itself of any such investments.
11. In the absence of the Decision, pursuant to the Legislation, each Top Fund is prohibited from knowinglymaking an investment in an issuer in which any officer or director of the mutual fund, its managementcompany or distribution company or an associate of any of them, or any person or company who is asubstantial securityholder of a Top Fund, its management company or its distribution company. As a result,in the absence of this Decision the Top Fund would be required to divest itself of any such investments.
12. In the absence of the Decision, Legislation requires Franklin Templeton to file a report on every purchaseor sale of securities of the Underlying Funds by the Top Fund.
13. In the absence of this Decision, pursuant to the Legislation, Franklin Templeton is prohibited from causingthe Top Fund to invest in the Underlying Funds unless the specific fact is disclosed to securityholders of theTop Fund and the written consent of securityholders of the Top fund is obtained before the purchase.
14. The investments by the Top Fund in securities of the Underlying Funds will represent the businessjudgment of "responsible persons" (as defined in the Legislation) uninfluenced by considerations other thanthe best interests of the Top Funds.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the Decision of eachDecision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the tests contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that the Applicable Requirementsshall not apply so as to prevent the Top Funds from making and holding an investment in securities of theUnderlying Funds or require Franklin Templeton to file a report relating to the purchase or sale of such securitiesand disclose such purchase or sale to securityholders of the Top Fund and obtain their written consent.
PROVIDED IN EACH CASE THAT:
1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after thepublication in final form of any legislation or rule of that Decision Maker dealing with matters in subsection2.5 of NI 81-102.
2. the Decision shall only apply if, at the time a Top Fund makes or holds an investment in its UnderlyingFund, the following conditions are satisfied:
(a) the securities of both the Top Fund and the Underlying Fund are being offered for sale in thejurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information formwhich has been filed with and accepted by the Decision Maker;
(b) the investment by the Top Fund in the Underlying Fund is compatible with the fundamentalinvestment objectives of the Top Fund;
(c) the simplified prospectus discloses the intent of the Top Fund to invest substantially all of itsassets in securities of the Underlying Fund, the manager of the Underlying Fund, and alldisclosure required for the Underlying Fund in its own simplified prospectus by Part B of Form 81-101F1 Contents of Simplified Prospectus;
(d) the investment objective of the Top Fund discloses that the Top Fund invests substantially all of itsassets in securities of the Underlying Fund and the name of the Underlying Fund;
(e) the Underlying Fund is not a mutual fund whose investment objective includes investing directly orindirectly in other mutual funds;
(f) if the Underlying Fund disclosed in the simplified prospectus has been changed, securityholders ofthe Top Fund have given prior approval and the simplified prospectus has been amended or anew simplified prospectus has been filed to reflect the change;
(g) there are compatible dates for the calculation of the net asset value of the Top Fund and theUnderlying Fund for the purpose of the issue and redemption of the securities of such mutualfunds;
(h) no sales charges are payable by the Top Fund in relation to its purchases of securities of theUnderlying Fund;
(i) no redemption fees or other charges are charged by the Underlying Fund in respect of theredemption by the Top Fund of securities of the Underlying Fund owned by the Top Fund;
(j) no fees or charges of any sort are paid by the Top Fund and the Underlying Fund, by theirrespective managers or principal distributors, or by any affiliate or associate of any of theforegoing entities, to anyone in respect of the Top Fund's purchase, holding or redemption of thesecurities of the Underlying Fund;
(k) the arrangements between or in respect of the Top Fund and the Underlying Fund are such as toavoid the duplication of management fees;
(l) any notice provided to securityholders of the Underlying Fund as required by applicable laws orthe constating documents of that Underlying Fund has been delivered by the Top Fund to itssecurityholders;
(m) all of the disclosure and notice material prepared in connection with a meeting of securityholdersof the Underlying Fund and received by the Top Fund has been provided to its securityholders, thesecurityholders have been permitted to direct a representative of the Top Fund to vote its holdingsin the Underlying Fund in accordance with their direction, and the representative of the Top Fundhas not voted its holdings in the Underlying Fund except to the extent the securityholders of theTop Fund have directed;
(n) in addition to receiving the annual and, upon request, the semi-annual financial statements of theTop Fund, securityholders of the Top Fund have received appropriate summary disclosure inrespect of the Top Fund's holdings of securities of the Underlying Funds in the financialstatements of the Top Fund; and
(o) to the extent that the Top Fund and the Underlying Fund do not use a combined simplifiedprospectus and annual information form containing disclosure about the Top Fund and theUnderlying Fund, copies of the simplified prospectus and annual information form of theUnderlying Fund have been provided upon request to securityholders of the Top Fund and theright to receive these documents is disclosed in the simplified prospectus of the Top Fund.
June 5, 2001.
"J.A. Geller" "R. Stephen Paddon"