Securities Law & Instruments

Headnote

Approval for fund mergers. Exemption to send tailored simplified prospectus and not to send financial statements unless requested. Future oriented relief.

Rules Cited

National Instrument 81-102 - Mutual Funds, ss. 5.5(1)(b), 5.6(1)(f)(ii).

October 7, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC,NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

THE YUKON, THE NORTHWEST TERRITORIES

AND NUNAVUT

(THE "JURISDICTIONS")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FRANKLIN TEMPLETON INVESTMENTS CORP.

(THE "MANAGER")

AND

FRANKLIN U.S. LARGE CAP GROWTH FUND,

FRANKLIN U.S. LARGE CAP GROWTH TAX CLASS OF

FRANKLIN TEMPLETON TAX CLASS CORP.,

FRANKLIN FLEX CAP GROWTH FUND,

FRANKLIN WORLD TELECOM FUND,

FRANKLIN WORLD TELECOM TAX CLASS OF

FRANKLIN TEMPLETON TAX CLASS CORP.,

FRANKLIN TECHNOLOGY FUND AND

FRANKLIN WORLD GROWTH FUND

(COLLECTIVELY, THE "TERMINATING FUNDS")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Manager and the Terminating Funds (the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") for:

(a) approval of the mergers (the "Current Mergers") of the Terminating Funds into the applicable Continuing Funds (as defined below) as set out in paragraph 4 below pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 ("NI 81-102") (the "Merger Approval Relief");

(b) an exemption from the requirement to deliver the Franklin Templeton Investment Funds simplified prospectus to securityholders of the Terminating Funds in connection with the Current Mergers and all future mergers of mutual funds managed by the Manager (the "Future Mergers") pursuant to clause 5.6(1)(f)(ii) of NI 81-102; and

(c) an exemption from the requirement to deliver the most recent annual and interim financial statements of the Continuing Funds to securityholders of the Terminating Funds in connection with the Current Mergers and all Future Mergers pursuant to clause 5.6(1)(f)(ii) of NI 81-102.

(The relief requested in items (b) and (c) are collectively referred to as the "Prospectus and Financial Statement Delivery Relief".)

Under the Mutual Reliance Review System 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. The following additional terms shall have the following meanings:

"Class" or "Classes" means, individually or collectively, Franklin U.S. Large Cap Growth Tax Class, Franklin World Telecom Tax Class, Franklin Flex Cap Growth Tax Class, Franklin Technology Tax Class and Franklin World Growth Tax Class;

"Continuing Funds" means Franklin Flex Cap Growth Tax Class, Franklin Technology Tax Class and Franklin World Growth Tax Class, each a class of special shares of Franklin Templeton Tax Class Corp.;

"Fund" or "Funds" means, individually or collectively, the Terminating Funds and the Continuing Funds;

"Tax Act" means the Income Tax Act (Canada).

Representations

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

1. The Manager is a corporation incorporated under the laws of Ontario. The Manager is the manager of each of the Funds and the trustee of each of the Funds other than the Classes. The head office of the Manager is located in Toronto, Ontario.

2. Franklin Templeton Tax Class Corp. is an open-end mutual fund corporation incorporated under the laws of Alberta on June 1, 2001. Each of the Classes is a separate class of special shares of Franklin Templeton Tax Class Corp.

3. Each of the Funds, other than the Classes, is an open-end mutual fund trust established under the laws of Ontario by declarations of trust.

4. The Manager intends to merge the Terminating Funds into the Continuing Funds as follows:

(a) Franklin U.S. Large Cap Growth Fund, Franklin U.S. Large Cap Growth Tax Class and Franklin Flex Cap Growth Fund into Franklin Flex Cap Growth Tax Class (sometimes referred to as the "Flex Cap Growth Merger");

(b) Franklin World Telecom Fund, Franklin World Telecom Tax Class and Franklin Technology Fund into Franklin Technology Tax Class (sometimes referred to as the "Technology Merger"); and

(c) Franklin World Growth Fund into Franklin World Growth Tax Class (sometimes referred to as the "World Growth Merger").

5. Pursuant to the Current Mergers, securityholders of each Terminating Fund will receive securities with the same value and in the same series of the applicable Continuing Fund as they currently own in the Terminating Fund.

6. Securities of the Funds are currently qualified for sale by a simplified prospectus and annual information form dated June 6, 2005, which has been filed and receipted in all of the Jurisdictions.

7. Each of the Funds is a reporting issuer under applicable securities legislation of each Jurisdiction and is not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Jurisdictions.

8. Other than circumstances in which the securities regulatory authority of a Jurisdiction (the "Authorities") has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established by the Authorities.

9. The net asset value for each series of the Funds is calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading.

10. No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of an applicable Terminating Fund.

11. The portfolios and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund arising from the Current Mergers may be acquired by the applicable Continuing Fund in compliance with NI 81-102 and are currently, or will be, acceptable, on or prior to the effective date of the Current Mergers, to the portfolio advisers of the applicable Continuing Fund and are, or will be, consistent with the investment objectives of the applicable Continuing Fund.

12. Securityholders of a Terminating Fund will continue to have the right to redeem securities of the Terminating Fund for cash at any time up to the close of business on the business day immediately before the effective date of the Current Mergers.

13. A material change report and amendments to the current simplified prospectus and annual information form of the Funds were filed via SEDAR on August 12, 2005 with respect to the proposed Current Mergers and proposed changes in the fundamental investment objectives of each of the Continuing Funds.

14. A notice of meeting, a management information circular and a proxy in connection with meetings of securityholders were mailed to securityholders of the Terminating Funds and Continuing Funds on September 16, 2005 and were filed via SEDAR on September 19, 2005.

15. Securityholders of the Terminating Funds and Continuing Funds will be asked to approve the Current Mergers at meetings to be held on October 11, 2005. The Manager, as the sole Class A common shareholder of Franklin Templeton Tax Class Corp., will also approve the Current Mergers, as required under corporate law. The change of fundamental investment objectives of the Continuing Funds will be considered at the same meeting.

16. Each Terminating Fund will merge into the applicable Continuing Fund on or about the close of business on October 21, 2005 and the Continuing Funds will continue as publicly offered open-end mutual funds governed by the laws of Alberta.

17. The Current Mergers will be structured as follows:

    • Each securityholder of the Terminating Fund will receive securities of the same series of the corresponding Continuing Fund with a value equal to the value of their securities in the Terminating Fund as determined on the date of the Current Mergers. After this step is complete, securityholders of each Terminating Fund will become securityholders of the corresponding Continuing Fund;

    • On the effective date of the Current Mergers, the net assets attributable to a Terminating Fund will be included in the portfolio of assets attributable to the corresponding Continuing Fund; and

    • Each Terminating Fund will be wound up as soon as reasonably practical following implementation of the Current Mergers and in any event not later than December 31, 2005.

18. The Manager will pay for the costs of the Current Mergers. These costs consist mainly of brokerage charges associated with the merger-related trades that occur after the date of the Current Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.

19. Approval of the Current Mergers is required because each Current Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

(a) In the case of the Flex Cap Growth Merger, the fundamental investment objectives of the applicable Terminating Funds and Continuing Fund are not substantially similar;

(b) Certain of the Mergers are either not a "qualifying exchange" or a tax-deferred transaction under the Tax Act;

(c) The current simplified prospectus of the Franklin Templeton Investment Funds was not sent to securityholders of the Terminating Funds but, instead, a tailored document consisting of the Part A and the Part B of the simplified prospectus for the Continuing Funds were sent to securityholders of the Terminating Funds; and

(d) The most recent annual and interim financial statements for the Continuing Funds were not sent to the securityholders of the Terminating Funds but, instead, the Manager prominently disclosed in the information circular sent to securityholders of the Terminating Funds that they could obtain the most recent interim and annual financial statements of the Continuing Funds by accessing the SEDAR website at www.sedar.com, by accessing the Manager's website at www.franklintempleton.ca, by calling a toll-free number or by contacting the Manager at service@franklintempleton.ca.

Decision

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

The decision of the Decision Makers under the Legislation is that:

(I) The Merger Approval Relief is granted; and

(II) The Prospectus and Financial Statement Delivery Relief is granted in respect of the Current Mergers and all Future Mergers (collectively, the "Mergers"), provided that:

(a) the material sent to securityholders in respect of a Merger includes a tailored simplified prospectus consisting of:

(i) the current Part A of the simplified prospectus of the applicable continuing fund, and

(ii) the current Part B of the simplified prospectus of the applicable continuing fund;

(b) the information circular sent to securityholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;

(c) each applicable terminating fund and the applicable continuing fund with respect to a Merger have an unqualified audit report in respect of their last completed financial period;

(d) the information circular sent to securityholders in connection with a Merger prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the applicable continuing fund by accessing the SEDAR website at www.sedar.com, by accessing the Manager's website at www.franklintempleton.ca, by calling a toll-free number or by contacting the Manager at service@franklintempleton.ca; and

(e) upon request by a securityholder for financial statements, the Manager will make best efforts to provide the securityholder with financial statements of the applicable continuing fund in a timely manner so that the securityholder can make an informed decision regarding a Merger.

This Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publication in final form of any legislation or rule of that Decision Maker dealing with matters in paragraph 5.5(1)(b) of NI 81-102.

"Rhonda Goldberg"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission