Securities Law & Instruments

Headnote

Exemptive relief for a mutual fund dealer fromthe requirement to become a member of the Mutual Fund DealersAssociation.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am s.25.

Applicable Ontario Securities CommissionRule

Rule 31-506 - SRO Membership - Mutual Fund Dealers,s. 2.1.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, CHAPTER S.5,AS AMENDED (the "Act")

AND

ONTARIO SECURITIES COMMISSIONRULE 31-506

SRO MEMBERSHIP - MUTUAL FUNDDEALERS (the "Rule")

AND

IN THE MATTER OF

FRANKLIN TEMPLETON INVESTMENTSCORP.

 

DECISION

(Section 5.1 of the Rule)

UPON the Director having received anapplication (the "Application") from Franklin TempletonInvestments Corp. (the "Registrant") for a decision,pursuant to section 5.1 of the Rule, exempting the Registrantfrom the requirements in sections 2.1 and 3.1 of the Rule, whichwould otherwise require that the Registrant be a member of theMutual Fund Dealers Association of Canada (the "MFDA")on and after July 2, 2002, and file with the MFDA, no laterthan May 23, 2001, an application and corresponding fees formembership;

UPON considering the Application andthe recommendation of staff of the Ontario Securities Commission;

AND UPON the Registrant having representedto the Director that:

1. the Registrant is registered under theAct as a dealer in the category of mutual fund dealer andas an adviser under the categories of "investment counsel"and "portfolio manager";

2. the Registrant is the manager of the Templeton,Franklin, Bissett and Mutual Series mutual funds that it hasestablished and will be the manager of other mutual fundsthat it expects to establish in the future;

3. the securities of the mutual funds managedby the Registrant (the "Funds") are generally soldto the public through other registered dealers;

4. currently, the Registrant sells securitiesof the Funds to clients who were investors in the BissettAmerican Equity Fund, Bissett Bond Fund, Bissett CanadianEquity Fund, Bissett Dividend Income Fund, Bissett IncomeFund (formerly the Bissett Income Trust Fund), Bissett InternationalEquity Fund, Bissett Large Cap Fund, Bissett Microcap Fund,Bissett Money Market Fund, Bissett Multinational Growth Fund,Bissett Retirement Fund, Bissett Small Cap Fund and BissettAmerican Equity RSP Fund and Bissett Multinational GrowthRSP Fund prior to November 30, 2000 and who remain investorsin the Funds;

5. the Registrant, as a portfolio manager,also executes trades for its clients in securities of pooledfunds sponsored by the Registrant (i.e. mutual funds whichare sold pursuant to prospectus exemptions) and prospectusedfunds to client accounts over which it exercises discretionaryinvestment authority pursuant to investment counseling agreements;

6. the Registrant administers investment accountsfor the Funds to facilitate the investment of some or allof their assets in other mutual funds;

7. the Registrant executes trades for employeesof the Registrant, its affiliates and service providers;

8. the Registrant executes trades for itsown account to permit it to make the initial investments requiredto establish a new Fund;

9. the Registrant executes for investors inthe Funds who hold securities of a Fund in their own name,redemptions respecting a Fund, and transfers from one Fundto another Fund;

10. the Registrant has requested that itsregistration as a mutual fund dealer permit it to continueto carry on the trading activities referred to in paragraphs4 to 9 above, without applying for membership in the MFDA;

11. the Registrant's trading activities asa mutual fund dealer currently represent and will continueto represent activities that are incidental to its principalbusiness activities;

12. the Registrant has agreed to the impositionof the terms and conditions on the Registrant's registrationas a mutual fund dealer set out in the attached Schedule "A",which outlines the activities the Registrant has agreed toadhere to in connection with its application for this Decision;

13. any person or company that is not currentlya client of the Registrant on the effective date of this Decision,will, before they are accepted as a client of the Registrant,receive prominent written notice from the Registrant that:

The Registrant is not currently a member,and does not intend to become a member of the Mutual FundDealers Association; consequently, clients of the Registrantwill not have available to them investor protection benefitsthat would otherwise derive from membership of the Registrantin the MFDA, including coverage under any investor protectionplan for clients of members of the MFDA;

14. upon the next general mailing to its accountholders and in any event before August 30, 2002, the Registrantshall provide, to any client that was a client of the Registranton the effective date of this Decision, the prominent writtennotice referred to in paragraph 13, above;

AND UPON the Director being satisfiedthat to do so would not be prejudicial to the public interest;

IT IS THE DECISION of the Director, pursuantto section 5.1 of the Rule, that, effective May 23, 2001, theRegistrant is exempt from the requirements in sections 2.1 and3.1 of the Rule;

PROVIDED THAT:

The Registrant complies with the terms and conditionson its registration under the Act as a mutual fund dealer setout in the attached Schedule "A".

June 25, 2002.

"David M. Gilkes"

 

SCHEDULE "A"

TERMS AND CONDITIONS OF REGISTRATION

OF

FRANKLIN TEMPLETON INVESTMENTSCORP.

AS A MUTUAL FUND DEALER

Definitions

1. For the purposes hereof, unless the contextotherwise requires:

(a) "Act" means the SecuritiesAct, R.S.O. 1990, c. S.5, as amended;

(b) "Adviser" means an adviseras defined in subsection 1(1) of the Act;

(c) "Client Name Trade" means,for the Registrant, a trade to, or on behalf of, a personor company, in securities of a mutual fund, that is managedby the Registrant or an affiliated entity of the Registrant,where, immediately before the trade, the person or companyis shown on the records of the mutual fund or of an othermutual fund managed by the Registrant or an affiliate ofthe Registrant as the holder of securities of such mutualfund, and the trade consists of:

(A) a purchase, by the person or company,through the Registrant, of securities of the mutualfund; or

(B) a redemption, by the person or company,through the Registrant, of securities of the mutualfund;

and where, the person or company is eithera client of the Registrant that was not solicited by theRegistrant or was an existing client of the Registrant onthe Effective Date;

(d) "Commission" means the OntarioSecurities Commission;

(e) "Effective Date" means May23, 2001;

(f) "Employee", for the Registrant,means:

(A) an employee of the Registrant;

(B) an employee of an affiliated entityof the Registrant; or

(C) an individual that is engaged toprovide, on a bona fide basis, consulting, technical,management or other services to the Registrant or toan affiliated entity of the Registrant, under a writtencontract between the Registrant or the affiliated entityand the individual or a consultant company or consultantpartnership of the individual, and, in the reasonableopinion of the Registrant, the individual spends orwill spend a significant amount of time and attentionon the affairs and business of the Registrant or anaffiliated entity of the Registrant;

(g) "Employee", for a ServiceProvider, means an employee of the Service Provider or anaffiliated entity of the Service Provider, provided that,at the relevant time, in the reasonable opinion of the Registrant,the employee spends or will spend, a significant amountof time and attention on the affairs and business of:

(A) the Registrant or an affiliatedentity of the Registrant; or

(B) a mutual fund managed by the Registrantor an affiliated entity of the Registrant;

(h) "Employee Rule" means CommissionRule 45-503 Trades To Employees, Executives and Consultants;

(i) "Executive", for the Registrant,means a director, officer or partner of the Registrant orof an affiliated entity of the Registrant;

(j) "Executive", for a ServiceProvider, means a director, officer or partner of the ServiceProvider or of an affiliated entity of the Service Provider;

(k) "Exempt Trade", for the Registrant,means:

(i) a trade in securities of a mutualfund that is made between a person or company and an underwriteracting as purchaser or between or among underwriters;or

(ii) a trade in securities of a mutualfund for which the Registrant would have available toit an exemption from the registration requirements ofclause 25(1)(a) of the Act if the Registrant were nota "market intermediary" as such term is definedin section 204 of the Regulation;

(l) "Fund-on-Fund Trade", forthe Registrant, means a trade that consists of:

(i) a purchase, through the Registrant,of securities of a mutual fund that is made by anothermutual fund;

(ii) a purchase, through the Registrant,of securities of a mutual fund that is made by a counterparty,an affiliated entity of the counterparty or an other personor company, pursuant to an agreement to purchase the securitiesto effect a hedge of a liability relating to a contractfor a specified derivative or swap made between the counterpartyand another mutual fund; or

(iii) a sale, through the Registrant,of securities of a mutual fund that is made by anothermutual fund where the party purchasing the securitiesis:

(A) a mutual fund managed by the Registrantor an affiliated entity of the Registrant; or

(B) a counterparty, affiliated entityor other person or company that acquired the securitiespursuant to an agreement to purchase the securitiesto effect a hedge of a liability relating to a contractfor a specified derivative or swap made between thecounterparty and another mutual fund; and

where, in each case, at least one of thereferenced mutual funds is a mutual fund that is managedby either the Registrant or an affiliated entity of theRegistrant;

(m) "In Furtherance Trade" means,for the Registrant, a trade by the Registrant that consistsof any act, advertisement, or solicitation, directly orindirectly in furtherance of an other trade in securitiesof a mutual fund, where the other trade consists of:

(i) a purchase or sale of securities ofa mutual fund that is managed by the Registrant or anaffiliated entity of the Registrant; or

(ii) a purchase or sale of securitiesof a mutual fund where the Registrant acts as the principaldistributor of the mutual fund; and

where, in each case, the purchase or saleis made by or through an other registered dealer if theRegistrant is not otherwise permitted to make the purchaseor sale pursuant to these terms and conditions;

(n) "Managed Account" means, forthe Registrant, an investment portfolio account of a clientunder which the Registrant, pursuant to a written agreementmade between the Registrant and the client, makes investmentdecisions for the account and has full discretionary authorityto trade in securities for the account without obtainingthe client's specific consent to the trade;

(o) "Managed Account Trade" means,for the Registrant, a trade to, or on behalf of a ManagedAccount of the Registrant, where the trade consists of apurchase or redemption, through the Registrant of securitiesof a mutual fund, that is made on behalf of the ManagedAccount;

where, in each case,

(i) the Registrant or an affiliate ofthe Registrant is the portfolio adviser to the mutualfund;

(ii) the mutual fund is managed by theRegistrant; and

(iii) either of:

(A) the mutual fund is prospectus-qualifiedin Ontario; or

(B) the trade is not subject to sections25 and 53 of the Act;

(p) "Mutual Fund Instrument" meansNational Instrument 81-102 Mutual Funds, as amended;

(q) "Permitted Client", for theRegistrant, means a person or company that is a client ofthe Registrant, and that is, or was at the time the personor company became a client of the Registrant:

(i) an Executive or Employee of the Registrant;

(ii) a Related Party of an Executive orEmployee of the Registrant;

(iii) a Service Provider of the Registrantor an affiliated entity of a Service Provider of the Registrant;

(iv) an Executive or Employee of a ServiceProvider of the Registrant; or

(v) a Related Party of an Executive orEmployee of a Service Provider of the Registrant;

(r) "Permitted Client Trade" means,for the Registrant, a trade to a person who is a PermittedClient or who represents to the Registrant that he or sheis a person included in the definition of Permitted Client,in securities of a mutual fund that is managed by the Registrantor an affiliated entity of the Registrant, and the tradeconsists of:

(i) a purchase, by the person, throughthe Registrant, of securities of the mutual fund; or

(ii) a redemption, by the person, throughthe Registrant, of securities of the mutual fund;

(s) "Pooled Fund Rule" means,for the Registrant, a rule or other regulation that relates,in whole or in part, to the distribution of securities ofa mutual fund and/or non-redeemable investment fund, otherthan pursuant to a prospectus for which a receipt has beenobtained from the Director, made by the Registrant on oron behalf of a Managed Account, but does not include Rule45-501 Exempt Distributions;

(t) "Registered Plan" means aregistered pension plan, deferred profit sharing plan, registeredretirement savings plan, registered retirement income fund,registered education savings plan or other deferred incomeplan registered under the Income Tax Act (Canada);

(u) "Registrant" means FranklinTempleton Investments Corp.;

(v) "Regulation" means R.R.O.1990, Reg. 1015, as amended, made under the Act;

(w) "Related Party", for a person,means an other person who is:

(i) the spouse of the person;

(ii) the issue of:

(A) the person,

(B) the spouse of the person, or

(C) the spouse of any person that isthe issue of a person referred to in subparagraphs (A)or (B) above;

(iii) the parent, grandparent or siblingof the person, or the spouse of any of them;

(iv) the issue of any person referredto in paragraph (iii) above; or

(v) a Registered Plan established by,or for the exclusive benefit of, one, some or all of theforegoing;

(vi) a trust where one or more of thetrustees is a person referred to above and the beneficiariesof the trust are restricted to one, some, or all of theforegoing;

(vii) a corporation where all the issuedand outstanding shares of the corporation are owned byone, some, or all of the foregoing;

(x) "securities", for a mutualfund, means shares or units of the mutual fund;

(y) "Seed Capital Trade" meansa trade in securities of a mutual fund made to a personsor company referred to in any of subparagraphs 3.1(1)(a)(i)to 3.1(1)(a)(iii) of the Mutual Fund Instrument;

(z) "Service Provider", for theRegistrant, means:

(i) a person or company that providesor has provided professional, consulting, technical, managementor other services to the Registrant or an affiliated entityof the Registrant;

(ii) an Adviser to a mutual fund thatis managed by the Registrant or an affiliated entity ofthe Registrant; or

(iii) a person or company that providesor has provided professional, consulting, technical, managementor other services to a mutual fund that is managed bythe Registrant or an affiliated entity of the Registrant.

2. For the purposes hereof, a person or companyis considered to be an "affiliated entity" of another person or company if the person or company would bean affiliated entity of that other person or company for thepurposes of the Employee Rule.

3. For the purposes hereof:

(a) "issue", "niece","nephew" and "sibling" includes anyperson having such relationship through adoption, whetherlegally or in fact;

(b) "parent" and "grandparent"includes a parent or grandparent through adoption, whetherlegally or in fact;

(c) "registered dealer" meansa person or company that is registered under the Act asa dealer in a category that permits the person or companyto act as dealer for the subject trade; and

(d) "spouse", for an Employeeor Executive, means a person who, at the relevant time,is the spouse of the Employee or Executive.

4. Any terms that are not specifically definedabove shall, unless the context otherwise requires, have themeaning:

(a) specifically ascribed to such term inthe Mutual Fund Instrument; or

(b) if no meaning is specifically ascribedto such term in the Mutual Fund Instrument, the same meaningthe term would have for the purposes of the Act.

Restricted Registration

Permitted Activities

5. The registration of the Registrant as amutual fund dealer under the Act shall be for the purposesonly of trading by the Registrant in securities of a mutualfund where the trade consists of:

(a) a Client Name Trade;

(b) an Exempt Trade;

(c) a Fund-on-Fund Trade;

(d) an In Furtherance Trade;

(e) a Managed Account Trade, provided that,at the time of the trade, the Registrant is registered underthe Act as an adviser in the categories of "investmentcounsel" and "portfolio manager";

(f) a Permitted Client Trade; or

(g) a Seed Capital Trade;

provided that, in the case of all trades thatare only referred to in clauses (a) or (f), the trades are limitedand incidental to the principal business of the Registrant,and provided also that paragraph (e) will cease to be in effectone year after the coming into force, subsequent to the dateof this Decision, of any Pooled Fund Rule.