Mutual Reliance Review System for Exemptive Relief Applications -- NI 81-102 Mutual Funds, clause 5.5(1)(b) -- approval for the merger of the Terminating Fund into the Continuing Fund -- Merger does not meet the criteria for pre-approval outlined in s. 5.6 of NI 81-102 because fundamental investment objectives and fee structures may not be reasonably be considered similar - unitholders of terminating fund received timely and adequate disclosure regarding the merger- merger is not detrimental to unitholders or the public interest.
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6, 5.7.
May 14, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
YUKON TERRITORY, NORTHWEST TERRITORY AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
FRANKLIN TEMPLETON INVESTMENTS CORP.
IN THE MATTER OF
BISSETT INCOME TRUST FUND
("INCOME TRUST FUND")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from FTIC and Income Trust Fund (the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") for approval of the merger (the "Merger") of Income Trust Fund into Bissett Income Fund ("Income Fund") under s. 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") (the "Requested Approval"). Income Trust Fund and Income Fund are collectively referred to as the "Funds" and individually as a "Fund".
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.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filers:
1. FTIC is a corporation governed by the laws of Ontario and is registered as an advisor in each of Ontario, British Columbia, Alberta, Manitoba, Quebec, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island, Saskatchewan and Yukon and as a mutual fund dealer in each of Ontario and Alberta.
2. FTIC is the manager and trustee of the Funds, each of which is an open-ended mutual fund trust governed under the laws of Ontario.
3. Series A, F and O units of Income Trust Fund and Series A, F, I and O units of Income Fund are offered for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated June 12, 2006, as amended January 29, 2007 and March 21, 2007.
4. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada and are not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Decision Makers. The Funds follow the standard investment restrictions and practices established by the Decision Makers.
5. The net asset value for each series of units of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for trading.
6. Unitholders of Income Trust Fund will be asked to approve the Merger at a special meeting scheduled to be held on June 1, 2007. Implicit in the approval of the Merger is the adoption by unitholders of Income Trust Fund of the investment objectives, strategies and fees of Income Fund. FTIC will pay the costs of the Merger, including legal, proxy solicitation, printing, mailing and regulatory fees.
7. If the approval of investors of Income Trust Fund is not received at the special meeting, then the Merger will not proceed.
8. Investors of Income Trust Fund will continue to have the right to redeem units of the Fund for cash at any time up to the close of business on the business day immediately preceding the effective date of the Merger.
9. The Merger will be carried out as a qualifying exchange within the meaning of Section 132.2 of the Income Tax Act (Canada).
10. No sales charges will be payable by either Fund in connection with the acquisition by Income Fund of the investment portfolio of Income Trust Fund.
11. The portfolio and other assets of Income Trust Fund to be acquired by Income Fund in connection with the Merger are acceptable to the portfolio adviser of Income Fund and are consistent with the investment objectives of Income Fund.
12. The Funds have the same valuation procedures and, except as noted, meet all other conditions necessary for mutual funds to complete a merger without regulatory approval as enumerated under subsection 5.6(1) of NI 81-102.
13. A reasonable person may consider the fundamental investment objectives and fee structure of Income Trust Fund to be less than substantially similar to those of Income Fund.
14. If the Merger is approved, the annual management fee rates of for Series A units of Income Fund will be lowered so that the management fees for Series A units of Income Fund will be the same as those for Income Trust Fund.
15. Although Series F unitholders of Income Trust Fund will acquire Series F units of Income Fund that have a management fee that is higher than the management fee currently charged to Series F units of Income Trust Fund, Series F units of Income Fund only pay brokerage commissions and taxes. As a result, although the management fees differ, the overall management expense ratio of both the Series F units of Income Trust Fund and Income Fund are substantially similar.
16. Following the Merger, Income Fund will continue as a publicly offered open-ended mutual fund.
17. A material change report, press release and amendments to the simplified prospectus and annual information form of Income Trust Fund in respect of the Merger have been filed.
18. A notice of meeting, management information circular and proxy in connection with the Merger, as well as a tailored document consisting of the Part A and the Part B for Income Fund as set out in the current simplified prospectus of the Funds will be filed on SEDAR and mailed to Income Trust Fund unitholders of record as at April 23, 2007, on approximately May 11, 2007.
19. Subject to the required approvals, the Merger will be implemented on or about the close of business on June 8, 2007.
20. The Filers submit that the Merger will result in the following benefits:
(a) Unitholders of Income Trust Fund will enjoy greater investment flexibility and diversification;
(b) Unitholders of Income Trust Fund will become unitholders of a fund with greater long term viability; and
(c) Unitholders of the Income Trust Fund will enjoy increased economies of scale as part of a larger Income Fund.
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 Approval is hereby granted.