Franklin Templeton Investments Corp. et al.

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- exemptions granted from the mutual fund conflict of interest investment restrictions and management reporting requirements of the Securities Act (Ontario) and self-dealing prohibition of National Instrument 31-103 -- Registration Requirements to permit pooled funds to invest with fund-on-fund structure -- variation of prior relief to expand top funds and bottom funds

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(2)(c), 111(3), 113, 117(1)(a), 117(1)(d), 117(2).

National Instrument 31-103 Registration Requirements, ss. 13.5(2)(a), 15.1.

November 27, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF THE

FRANKLIN TEMPLETON INVESTMENTS CORP.

(the "Manager")

AND

FRANKLIN TEMPLETON CAPITAL PRESERVATION

POOLED PORTFOLIO AND THE OTHER POOLED

FUNDS LISTED ON SCHEDULE "A" (collectively, the

"Existing Pooled Funds") AND BISSETT BOND

FUND AND THE OTHER RETAIL MUTUAL FUNDS

LISTED ON SCHEDULE "B" (collectively, the

"Existing Underlying Retail Mutual Funds")

(collectively with the Manager, the "Filers")

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the "Application") from the Filers for a decision:

(i) under the securities legislation of Ontario and Alberta for an exemption from the restriction prohibiting a mutual fund in Ontario or a mutual fund, as the case may be, from knowingly making or holding an investment in any person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder, or in any issuer in which any officer or director of the mutual fund, its management company or distribution company or an associate of any of them, or any person or company who is a substantial security holder of the mutual fund, its management company or its distribution company, has a significant interest (the "Investment Restriction");

(ii) under the securities legislation of the Passport Jurisdictions (defined below) for an exemption from the restriction prohibiting a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as adviser, to invest in the securities of any issuer in which a responsible person or an associate of a responsible person is a partner, officer or director, unless the fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase (the "Consent Requirement"); and

(iii) under the securities legislation of the Underlying Retail Mutual Fund Jurisdictions (defined below) for an exemption from the requirement of a management company or, in the case of British Columbia, a mutual fund manager, to file a report of every transaction of purchase or sale of securities between a mutual fund it manages and any related person or company and any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, a mutual fund is a joint participant with one or more of its related persons or companies, in respect of each mutual fund to which it provides services or advice, within 30 days after the end of the month in which it occurs (the "Reporting Requirement");

(collectively, the "Requested Relief").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Price Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision. The following additional terms shall have the following meanings:

"ASA" means the Securities Act (Alberta);

"OSA" means the Securities Act (Ontario);

"Existing Pooled Funds" means each of the funds set out in Schedule "A" hereto;

"Existing Underlying Funds" means each of the funds set out in Schedule "B" hereto;

"FTIF" means Franklin Templeton Investment Funds, a SICAV (as defined below) with UCITS status (as defined below) under the laws of Luxembourg, managed by affiliates of the Manager;

"Manager" means Franklin Templeton Investments Corp., a corporation existing under the laws of the Province of Ontario;

"Pooled Funds" means, collectively, the Existing Pooled Funds and the other open-end mutual fund trusts established or to be created under the laws of Ontario or Alberta and the classes of shares of mutual fund corporations incorporated or to be incorporated in Canada under federal or provincial law that are managed now or in the future by the Manager and that are or will be offered for sale on a private placement basis pursuant to available prospectus exemptions;

"Passport Jurisdictions" means each of the provinces and territories of Canada;

"SICAV" means Société d'Investissment à Capital Variable, an open-end investment company, governed by the laws of Luxembourg;

"SICAV Funds" means each of the existing sub-funds of FTIF and other similar FTIF sub-funds established in the future under FTIF;

"Tapestry Corporate Class Pooled Funds" means, collectively, Tapestry Diversified Income Private Portfolio Corporate Class, Tapestry Balanced Income Private Portfolio Corporate Class, Tapestry Balanced Growth Private Portfolio Corporate Class, Tapestry Global Balanced Private Portfolio Corporate Class, Tapestry Growth Private Portfolio Corporate Class and Tapestry Global Growth Private Portfolio Corporate Class;

"Tapestry Pooled Funds" means, collectively, Franklin Templeton Capital Preservation Pooled Portfolio, Franklin Templeton Balanced Income Pooled Portfolio, Franklin Templeton Domestic Balanced Growth Pooled Portfolio, Franklin Templeton Global Balanced Growth Pooled Portfolio, Franklin Templeton International Balanced Growth Pooled Portfolio, Franklin Templeton Domestic Growth Pooled Portfolio, Franklin Templeton Global Growth Pooled Portfolio, Franklin Templeton International Growth Pooled Portfolio, Franklin Templeton International Maximum Growth Pooled Portfolio, Franklin Templeton Domestic Maximum Growth Pooled Portfolio and Franklin Templeton Global Maximum Growth Pooled Portfolio;

"UCITS" means Undertakings for Collective Investment in Transferable Securities and refers to the investment funds authorized by the European Union as investment funds suitable to be distributed in more than one country of Europe;

"Underlying Funds" means, collectively, the Underlying Retail Mutual Funds, the Existing Underlying Funds, the Pooled Funds and the SICAV Funds;

"Underlying Retail Mutual Funds" means, collectively, the Existing Underlying Funds and the other open-end mutual fund trusts established or to be created under the laws of Ontario or Alberta and the classes of shares of mutual fund corporations incorporated or to be incorporated in Canada under federal or provincial law that are managed now or in the future by the Manager and that are or will be offered for sale pursuant to simplified prospectuses and annual information forms; and

"Underlying Retail Mutual Fund Jurisdictions" means Ontario, British Columbia, Alberta, Saskatchewan, Nova Scotia, New Brunswick and Newfoundland and Labrador.

Representations

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

1. The Manager is the manager of the Existing Pooled Funds, Existing Underlying Funds and the Tapestry Pooled Funds and the Manager or an affiliate is or will be the manager of the Pooled Funds and the Underlying Funds.

2. The Manager is registered as a portfolio manager in Ontario as well as British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Yukon and as a mutual fund dealer in Ontario and Alberta.

3. The Filers are not in default of securities legislation in any of the provinces and territories of Canada.

4. The Filers were granted exemptive relief similar to the Requested Relief on April 26, 2006 (the "Previous Decision"). The Previous Decision granted exemptive relief from (a) the prohibitions contained in securities legislation to allow the Existing Pooled Funds to make investments in the Existing Underlying Funds, and (b) the associated reporting requirements contained in securities legislation.

5. The Filers would like to continue to make certain fund-on-fund investments and are seeking the Requested Relief to vary the Previous Decision to expand the list of top funds from the Existing Pooled Funds to the Pooled Funds (which includes the Tapestry Corporate Class Pooled Funds) and to expand the list of underlying funds from the Existing Underlying Funds to the Underlying Funds (which includes the SICAV Funds and classes of shares of mutual fund corporations incorporated or to be incorporated in Canada under federal or provincial law that are managed now or in the future by the Manager and that are or will be offered for sale on a private placement basis pursuant to available prospectus exemptions).

6. The Tapestry Pooled Funds are open-end mutual fund trusts established under the laws of Ontario that are managed by the Manager and offered for sale on a private placement basis pursuant to available prospectus exemptions. The Tapestry Pooled Funds invest substantially all of their assets in one or more mutual funds, pooled funds and alternative investment funds. The Manager proposes to restructure the Tapestry Pooled Funds into the new Tapestry Corporate Class Pooled Funds, effective shortly following the close of business on December 4, 2009. The Tapestry Corporate Class Pooled Funds will be classes of shares of a mutual fund corporation incorporated in Canada under federal or provincial law that will be managed by the Manager and will be offered for sale on a private placement basis pursuant to available prospectus exemptions.

7. The Filers submit that varying the Previous Decision to include the Tapestry Corporate Class Pooled Funds as top funds will enable investors to switch from one fund to another within the same corporate class structure on a tax deferred basis.

8. The SICAV Funds are managed by affiliates of the Manager. The SICAV Funds are conventional mutual funds which may not invest more than 10% of their respective net assets in other mutual funds. The SICAV Funds are subject to investment restrictions and practices that are substantially similar to National Instrument 81--102 -- Mutual Funds. The SICAV Funds qualify as UCITS. An FTIF prospectus has been filed with the Commission de Surveillance du Secteur Financier, the Luxembourg financial sector regulator.

9. The Filers submit that varying the Previous Decision to include the SICAV Funds as underlying funds will enable the Pooled Funds to benefit from greater portfolio diversification, to better capitalize on global economic trends and to better respond to market conditions.

10. The terms and conditions of this decision are substantially the same as those of the Previous Decision except for new terms and conditions that conform with more recent decisions which have granted exemptive relief similar to the Requested Relief.

11. As of the date of this decision, the Filers will no longer rely on the Previous Decision.

12. The Existing Pooled Funds are pooled investment funds established by declarations of trust under the laws of Ontario or Alberta. Securities of the Existing Pooled Funds are offered for sale on a private placement basis pursuant to available prospectus exemptions in each of the provinces and territories of Canada. The Existing Pooled Funds are mutual funds in Ontario, (in the case of the OSA) or mutual funds (in the case of the ASA), but are not reporting issuers.

13. Each of the Pooled Funds are or will be mutual funds in Ontario (in the case of the OSA) or mutual funds (in the case of the ASA), but are not and will not be reporting issuers. Securities of the Pooled Funds are or will be offered for sale on a private placement basis pursuant to available prospectus exemptions in each of the provinces and territories of Canada.

14. The Existing Underlying Funds are open-end mutual fund trusts governed by declaration of trust under the laws of Ontario or Alberta, or are classes of shares of mutual fund corporations incorporated in Canada under federal or provincial law. Securities of the Existing Underlying Funds are offered for sale to the public pursuant to a simplified prospectus and annual information form each dated June 18, 2009, qualified in each of the provinces and territories of Canada (in the case of Existing Underlying Funds that are retail mutual funds) or on a private placement basis pursuant to available prospectus exemptions in each of the provinces and territories of Canada (in the case of Existing Underlying Pooled Funds set out in Schedule "B" hereto).

15. The Underlying Retail Mutual Funds are or will be open-end mutual funds, the securities of which are or will be offered for sale to the public pursuant to simplified prospectuses and annual information forms, fund fact sheets or analogous offering documents qualified in each of the provinces and territories of Canada.

16. Each Pooled Fund intends to invest a portion of its assets in securities of one or more of the Underlying Funds. The percentage invested in an Underlying Fund may fluctuate on a daily basis based on the investment decisions made by the portfolio advisor in order to meet the investment objectives of the Pooled Fund.

17. The actual weighting of the investment by each Pooled Fund in an Underlying Fund will be reviewed on a regular basis and adjusted to ensure that the investment weightings continue to be appropriate for that Pooled Fund's investment objectives. The portfolio advisor will actively manage the investment made by each Pooled Fund in an Underlying Fund on a regular basis.

18. The annual financial statements of the Pooled Funds, which are or will be provided to securityholders in accordance with securities legislation, together with an auditors report, will include summary disclosure of the securities held by the applicable Underlying Funds.

19. Pooled Fund securityholders may obtain a copy of the applicable Underlying Fund's disclosure documents, if any, or, once available, the annual or semi-annual financial statements, free of charge upon request to the Manager.

20. Investors in each Pooled Fund receive or have received the written disclosure which discloses: (i) the intent of the Pooled Fund to invest its assets in securities of the Underlying Funds; (ii) that the Underlying Funds are managed by the Manager or an affiliate of the Manager; (iii) what percentage of net assets of the Pooled Fund is dedicated to the investment in securities of the Underlying Funds; and (iv) the process or criteria used to select the Underlying Funds.

21. Through investing in the Underlying Funds, the Pooled Funds will be able to achieve greater diversification at a lower cost than investing directly in the securities held by the applicable Underlying Funds. This investment structure will also allow investors with smaller investments to have access to a larger variety of investments than would otherwise be available.

22. Investment by the Pooled Funds in the Underlying Funds will increase the asset base of the Underlying Funds, enabling the Underlying Funds to further diversify their portfolios to the benefit of all their investors. The larger asset base will also benefit investors in the Underlying Funds through achieving favourable pricing and transaction costs on portfolio trades, increased access to investments where there is a minimum subscription or purchase amount and economies of scale through greater administrative efficiency.

23. No charges will be payable in connection with the acquisition or disposition by the Pooled Funds of securities of the Underlying Funds.

24. No management or other fee will be payable by the Pooled Funds that, to a reasonable person, would duplicate a fee payable by the applicable Underlying Funds for the same service.

25. Where a matter relating to an Underlying Fund requires a vote of securityholders of the Underlying Fund, the Manager will not cause the securities of the Underlying Fund held by a Pooled Fund to be voted at such meeting.

26. The investment by a Pooled Fund in the applicable Underlying Fund is or will be compatible with the investment objectives of the Pooled Fund.

27. Any investment by the Pooled Funds in securities of an Underlying Fund will represent the business judgement of "responsible persons" uninfluenced by considerations other than the best interests of the Pooled Funds and Underlying Funds.

28. In the absence of the Pooled Fund Investment Relief, each of the Pooled Funds would be prohibited from knowingly making or holding an investment in an Underlying Fund in which it, alone or together with one or more related mutual funds, is a substantial securityholder, and from knowingly making or holding an investment in an issuer in which any person or company who is a substantial securityholder of the Pooled Fund has a significant interest.

29. In the absence of the Pooled Fund Consent Relief, the portfolio manager of the Pooled Funds would be prohibited from knowingly causing the Pooled Funds to invest in Underlying Funds in which a responsible person or an associate of a responsible person is an officer or director unless the specific fact is disclosed to the securityholders of the Pooled Funds and the written consent of the securityholders of the Pooled Funds to the investment is obtained before the purchase.

30. In the absence of the Underlying Retail Mutual Fund Reporting Relief, the Manager would be required to file a report on every purchase or sale of securities of the Underlying Retail Mutual Funds by the Pooled Funds.

Decision

The principal regulator is satisfied that the test contained in the securities legislation of the Jurisdiction (the "Legislation") for the principal regulator to make the decision has been met.

The decision of the principal regulator under the Legislation is that the Requested Relief is granted as follows:

(a) in Ontario and Alberta under the OSA and the ASA, respectively, the Investment Restriction shall not apply to the Pooled Funds in respect of each Pooled Fund's investment in securities of the Underlying Funds;

(b) in the Passport Jurisdictions under the legislation of the Passport Jurisdictions, the Consent Requirement shall not apply to the Manager, the portfolio manager of the Pooled Funds;

(c) in the Underlying Retail Mutual Fund Jurisdictions under the legislation of the Underlying Retail Mutual Fund Jurisdictions, the Reporting Requirement shall not apply to the Manager or its applicable affiliate in respect of each Pooled Fund's purchase or sale of securities of the Underlying Retail Mutual Funds; and

provided that, in each case:

(i) securities of each Pooled Fund are distributed only on a private placement basis pursuant to available prospectus exemptions;

(ii) the investment by each Pooled Fund in an Underlying Fund is compatible with the fundamental investment objectives of the Pooled Fund;

(iii) each Pooled Fund does not vote any of the securities it holds of an Underlying Fund except that the Pooled Fund may, if the Manager so chooses, arrange for all the securities it holds of an Underlying Fund to be voted by the beneficial holders of securities of the Pooled Fund;

(iv) no management fees or incentive fees are payable by a Pooled Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

(v) as each Underlying Fund is managed by the Manager or an affiliate of the Manager, no sales or redemption fees are payable by the Pooled Fund in relation to its purchases or redemptions of securities of an Underlying Fund;

(vi) investors in each Pooled Fund receive or have received the written disclosure which discloses:

(1) the intent of the Pooled Fund to invest its assets in securities of the Underlying Funds;

(2) that the Underlying Funds are managed by the Manager or an affiliate of the Manager;

(3) what percentage of net assets of the Pooled Fund is dedicated to the investment in securities of the Underlying Funds;

(4) the process or criteria used to select the Underlying Funds; and

(vii) investors in each Pooled Fund are entitled to receive from the Manager or its affiliate, on request and free of charge, a copy of the offering memorandum or other disclosure documents (if any) relating to all Underlying Funds in which the Pooled Fund may invest its assets.

Schedule "A"

Existing Pooled Funds

SCHEDULE "B"

EXISTING UNDERLYING FUNDS

Existing Underlying Retail Mutual Funds

Existing Underlying Pooled Funds