Templeton International Stock Fund - MRRS Decision

Headnote

MRRS- exemptive relief from the matching requirement in paragraph 15.3(4)(c) of National Instrument 81-102 -- Mutual Funds -- Relief exempting the applicants from the requirement to publish performance and ranking rating, as produced by a specified rating agency, that conforms to the "since inception" period (as applicable) of standard performance data -- Relief granted to applicants and other funds wishing to publish the ratings of the specified rating agency.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 15.2(1)(a), 15.3(4)(c), 15.8, 19.1(1).

May 14, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, PRINCE EDWARD

ISLAND, NEW BRUNSWICK, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON AND NUNAVUT

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TEMPLETON INTERNATIONAL STOCK FUND

(the "Fund")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from Franklin Templeton Investments Corp. (the "Filer") on behalf of the Fund and other Canadian mutual funds that are governed by National Instrument 81-102 Mutual Funds ("Other Funds") that wish to publish Lipper Leader Ratings and refer to Lipper Awards, as defined below, produced through the use of the Lipper Leader Methodology, as defined below, in sales communications for a decision under the securities legislation of the Jurisdictions (the "Legislation") that the Fund and the Other Funds are exempted from the requirement contained in paragraph 15.3(4)(c) of National Instrument 81- 102 Mutual Funds so as to permit the Fund and Other Funds to publish in a sales communication the Lipper Leader Ratings and refer to such awards for certain periods for which standard performance data is required to be given (the "Requested Relief").

Under the Mutual Reliance Review System ("MRSS") for Exemptive Relief Applications

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

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

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is the manager of the Fund. The head office of the Filer is in Ontario.

2. The Fund is an open-ended mutual fund trust established under the laws of Ontario. Units of the Fund are offered on a continuous basis in each of the Jurisdictions pursuant to a simplified prospectus dated June 12, 2007 as amended.

3. The Filer wishes to include in sales communications of the Fund certain ratings of its performance (the "Lipper Leader Ratings") determined on the proprietary rating methodology prepared and provided by Lipper, Inc. ("Lipper") (the "Lipper Leader Methodology"), which sales communications will not strictly comply with the requirement in paragraph 15.3(4)(c) of National Instrument 81-102 Mutual Funds ("NI 81-102"), which requires that the ratings that are published be provided for, or "match", each period for which standard performance data is required to be given (the "Matching Requirement"). Other Funds similarly wish to publish Lipper Leader Ratings in sales communications. The Fund and Other Funds may also wish, from time to time, to include in their sales communication disclosure of any awards awarded to them by Lipper (the "Lipper Awards"), as described below.

4. Lipper is a rating agency that is not a member of the organization of the Fund or of the Other Funds. The Fund and Other Funds may make reference to the Lipper Leader Ratings or Lipper Awards in sales communication subject to the terms of a license agreement with Lipper.

5. In accordance with the requirements of section 15.8 of NI 81-102, standard performance data in sales communications for mutual funds is required for the following periods (as applicable): one year, three years, five years, 10 years, and since inception if the mutual fund has been offering securities by way of simplified prospectus for more than one and less than 10 years.

6. The Lipper Leader system is a toolkit that uses investor-centered criteria to deliver a simple, clear description of a fund's success in meeting certain goals, such as preserving capital or building wealth through consistent, strong returns. Lipper Leader Ratings are designed to be used in conjunction with each other to effectively identify funds that meet the particular characteristics sought by investors. The basis of generating Lipper Leader Ratings is consistent from mutual fund to mutual fund and captures a quantitative assessment of a mutual fund's past-risk-adjusted return, presented related to its category.

7. Lipper Leader Ratings are derived from formulas that analyze funds against clearly defined criteria. Funds are compared to similar funds, and only those that truly stand out are awarded Lipper Leader status. Funds are ranked against their peers on each of three measures: Total Return, Consistent Return and Preservation.

8. The Lipper Leader Ratings provide ratings for the following periods (as applicable): one-year (for mutual funds with a three-year history), three years, five years, ten years, and the overall rating (the "Overall Rating"), which is a un-weighted average of the previous three periods. If only five years of history are available, the three-year and five-year periods are averaged. If only three years of data are available, the three-year statistics alone are used. Mutual funds less than three years old are not rated and accordingly are not included in the applicable category. For each measure, the highest 20% of funds in each peer group are named Lipper Leaders. The next 20% receive a score of 4; the middle 20% are scored 3; the next 20% are scored 2, and the lowest 20% are scored 1.

9. Lipper also awards to appropriate funds the Lipper Awards pursuant to the Lipper Fund Awards program that highlights funds that have excelled in delivering consistently strong risk adjusted performance, relative to peers. The Lipper Awards are funds and fund families being ranked 1st in the Consistency Lipper Leader Rating. Lipper designates award-winning funds in most individual classifications for the three-, five- and ten-year periods. In addition, the Lipper Fund Awards program spotlights fund families with high average scores for all funds within a particular asset class or overall.

10. The Lipper Leader Ratings do not provide a "since inception" period rating, since a "since inception" period is not accommodated within the Lipper Leader Methodology. Any period that runs from the inception of the mutual fund in question will, by definition, create a host of different periods for mutual funds within the same category. This undermines the comparability of the resulting information, which is an issue for any rating of performance, not just the Lipper Leader Methodology. Accordingly, a Lipper Leader Rating cannot be presented on a complete matching basis with the standard performance data periods. Any changes made to the Lipper Leader Methodology in these regards would undermine the integrity and rigour of the Lipper Leader Rating.

11. The categories against which the Fund and Other Funds are ranked by Lipper are the categories maintained by the Investment Funds Standards Committee ("IFSC") (www.cifsc.com), a Canadian organization that is independent of Lipper, or a successor to the CIFSC from time to time.

12. In order that the Fund and the Other Funds' sales communications more closely comply with the Matching Requirements, Lipper has agreed to calculate and provide a one year rating for mutual funds that have at least 3 years of performance history.

13. Given that the Lipper Leader Methodology does not include a since inception rating, the Fund and Other Funds wish to be exempt from the requirement to publish such rating in accordance with the Matching Requirement.

14. The absence of the since inception rating in sales communications, as well as the addition therein of the Overall Rating or disclosure of Lipper Awards would not be misleading to investors contrary to clause 15.2(1)(a) of NI 81-102. The Fund and the Other Funds will otherwise comply with the Matching Requirement when making reference to Lipper Leader Ratings or Lipper Awards in sales communications.

15. In the absence of this Decision, the fund managers would be prohibited from publishing the Lipper Leader Ratings for their funds in sales communications given that the Lipper Leader Ratings, while substantially complying with the Matching Requirements, fall short of technical compliance.

16. Lipper Awards are performance ranking, and, for the reasons described above in respect of the Lipper Leader Ratings, would not be prepared in technical compliance with the Matching Requirements.

Decision

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

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted such that

(i) the Fund and Other Funds are not required to publish Lipper Leader Ratings or refer to Lipper Awards that correspond to the "since inception" period of standard performance data; and

(ii) the Fund and Other Funds may publish Lipper's Overall Rating in sales communications alongside other Lipper Leader Ratings, or refer to Lipper Awards, that correspond to the one, three, five and 10-year periods, as applicable, for which standard performance data is required to be given,

provided that:

1) for Other Funds who wish to rely on this decision to publish in a sales communication the Lipper Leader Ratings and refer to Lipper awards, the manager of their mutual fund families, file an advance written notice with the Director of the Investment Funds Branch of the Ontario Securities Commission that:

(a) names the mutual fund family, and

(b) confirms that the mutual fund family has agreed to the conditions of this decision;

2) the sales communication of the Fund or Other Fund that contains the Lipper Leader Ratings or refers to Lipper Fund Awards complies with Part 15 of NI 81-102 and contains the following disclosure in at least 10 point type:

(a) the name of the category within which the Fund or the Other Fund is rated;

(b) the number of mutual funds in the applicable category for each required standard performance period;

(c) the name of the ranking entity, i.e. Lipper;

(d) the length of period and the ending date, or, the first day of the period and the ending date on which the Lipper Leader Ratings or the Lipper Fund Award is based;

(e) a statement that the Lipper Leader Methodology is subject to change every month;

(f) a brief overview of the Lipper Leader Methodology, including what return/risk measures it takes into account;

(g) disclosure of the meaning of the Lipper Leader Ratings from 1 to 5 (e.g. ranking of 5 indicates fund is in top 20% of its category.)

(h) reference to Lipper's website (www.lipperweb.com) for greater detail on the calculation of the Lipper Leader Ratings or the awarding of the Lipper Awards;

3) if the sales communication of the Fund or Other Fund also includes the Overall Rating, the Overall Rating is to the most recent calendar month end that is not more than 45 days before the date of the appearance or use of the advertisement in which it is included, and not more than three months before the date of first publication of any other sales communication in which it is included;

4) if the sales communication of the Fund or Other Fund makes reference to the Lipper Awards, the Lipper Awards must not have been awarded more than 365 days before the date of the sales communication;

5) the Lipper Leader Ratings or Lipper Awards provided or described in a sales communication of the Fund or Other Fund are calculated based on comparisons of performance of investment funds within a specified category established by CIFSC;

6) the corresponding Lipper Leader Rating that the Lipper Awards are derived from must be provided along with the Lipper Awards, when the Lipper Awards are referred to in a Sales Communication; and

7) this decision, as it relates to the Jurisdiction of a Decision Maker, will terminate in that Jurisdiction one year after the publication in final form of any legislation or rule of that Decision Maker which modifies the provisions of section 15.2(4) of NI 81-102 in a manner which makes the relief provided for in this decision unnecessary or provides similar relief on a different basis or subject to different conditions.