Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- continuing fund has different investment objectives than terminating funds -- securityholders of terminating funds provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

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

May 17, 2010

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

FRANKLIN TEMPLETON INVESTMENTS CORP.

(the "Manager")

AND

TEMPLETON EUROPEAN CORPORATE CLASS

AND FRANKLIN JAPAN CORPORATE CLASS

(each a "Terminating Fund", and together,

the "Terminating Funds")

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the "Application") from the Manager and the Terminating Funds (together, the "Filers") for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for approval of the mergers (collectively, the "Mergers" and individually, a "Merger") of the Terminating Funds into the Continuing Fund (as defined below) under section 5.5(1)(b) of National Instrument 81-102 ("NI 81-102") (the "Approval Sought").

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

(a) the Ontario Securities Commission 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, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the "Non-Principal Jurisdictions").

Interpretation

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

"Continuing Fund" means Templeton International Stock Corporate Class;

"Corporate Class Ltd." means Franklin Templeton Corporate Class Ltd.;

"Effective Date" means the effective date of the Mergers and is anticipated to be June 11, 2010 or as soon as practicable thereafter;

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

"Underlying Funds" means Templeton European Fund in respect of Templeton European Corporate Class and Franklin Japan Fund in respect of Franklin Japan Corporate Class.

Representations

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

1. The Manager is a corporation existing under the laws of Ontario. The Manager is the manager of each of the Funds. The registered head office of the Manager is located in Toronto, Ontario.

2. Corporate Class Ltd. is an open-ended mutual fund corporation incorporated under the laws of Alberta on June 1, 2001. Each of the Funds is a separate class of special shares of Corporate Class Ltd.

3. Securities of the Funds are currently qualified for sale by a simplified prospectus and annual information form dated June 18, 2009, as amended, which has been filed and receipted in the Jurisdiction and each of the Non-Principal Jurisdictions.

4. Each of the Funds is a reporting issuer in the Jurisdiction and each of the Non-Principal Jurisdictions. Neither the Filers nor the Continuing Fund are in default of the securities legislation in the Jurisdiction or in any of the Non-Principal Jurisdictions.

5. Other than circumstances in which the principal regulator or the securities regulatory authority of a Non-Principal Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices set out in NI 81-102.

6. 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.

7. The Manager intends to implement the following Mergers:

a) the merger of Templeton European Corporate Class into the Continuing Fund; and

b) the merger of Franklin Japan Corporate Class into the Continuing Fund.

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

9. Securityholders of the Terminating Funds will be asked to approve the Mergers at meetings to be held on June 4, 2010. The Manager, as the sole Class A common shareholder of Corporate Class Ltd., and the securityholders of the Continuing Fund will also approve the Mergers, as required under corporate law.

10. All costs attributable to the Mergers (consisting primarily of legal, proxy solicitation, printing and mailing costs) will be borne by the Manager and will not be borne by the Terminating Funds or the Continuing Fund.

11. Effective as of the close of business on June 4, 2010, the Terminating Funds will cease distribution of securities (except purchases under existing pre-authorized chequing plans). Following the Mergers, all systematic investment programs and systematic withdrawal programs, like pre-authorized chequing plans and systematic withdrawal programs that had been established with respect to the Terminating Funds, will be re-established on a series-for-series basis in the Continuing Fund unless securityholders advise the Manager otherwise. Securityholders may change or cancel any systematic program at any time and securityholders of Terminating Funds who wish to establish one or more systematic programs in respect of their holdings in the Continuing Fund may do so following the Mergers.

12. A material change report, press release and amendments to the simplified prospectus and annual information form of the Funds, which gave notice of the proposed Mergers, were filed via SEDAR on April 8, 2010.

13. 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 the Continuing Fund, and filed on SEDAR, on or about May 13, 2010.

14. 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. The management information circular mailed to securityholders of the Terminating Funds discloses that a securityholder's deferred sales charge schedule is not changed or eliminated as a result of the Mergers, and that investors who redeem their shares of the Terminating Fund may be subject to redemption charges as outlined in the simplified prospectus.

15. The Funds' independent review committee ("IRC") has reviewed and made a positive recommendation with respect to the Mergers, having determined that the Mergers, if implemented, achieve a fair and reasonable result for each Terminating Fund and the Continuing Fund. The decision of the IRC was included in the notices of meetings as required by section 5.1(2) of National Instrument 81-107.

16. On October 7, 2005, in connection with a prior fund merger, the Manager received an exemption from the requirement to deliver:

a) the Franklin Templeton Investment Funds simplified prospectus to securityholders of terminating funds in connection with all future mergers of mutual funds managed by the Manager (the "Future Mergers") pursuant to paragraph 5.6(1)(f)(ii) of NI 81-102; and

b) the most recent annual and interim financial statements of the continuing fund to securityholders of the terminating funds in connection with all Future Mergers pursuant to paragraph 5.6(1)(f)(ii) of NI 81-102.

(The relief outlined in (a) and (b) is referred to as the "Prospectus and Financial Statement Delivery Relief".)

17. In accordance with the conditions of the Prospectus and Financial Statement Delivery Relief, the material sent to securityholders of the Terminating Funds included a tailored simplified prospectus consisting of:

a) the current Part A of the simplified prospectus of the Continuing Fund, and

b) the current Part B of the simplified prospectus of the Continuing Fund.

18. In accordance with the conditions of the Prospectus and Financial Statement Delivery Relief,

a) the information circular sent to securityholders in connection with the Mergers provided sufficient information about the Mergers to permit securityholders to make an informed decision about the Mergers;

b) each Terminating Fund and Continuing Fund has an unqualified audit report in respect of its last completed financial period;

c) 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 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

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

19. The Terminating Funds will merge into the Continuing Fund on the close of business on the Effective Date and the Continuing Fund will continue as a publicly offered open-end mutual fund governed by the laws of Alberta.

20. The assets of each Terminating Fund are substantially invested in its respective Underlying Fund. Prior to the Effective Date, each Terminating Fund will redeem or otherwise convert to cash and/or cash equivalents its entire investment in units of its Underlying Fund at the Underlying Fund's net asset value. Any realized capital gain or capital loss as a result of such redemptions is not expected to have a significant impact on Corporate Class Ltd.'s overall tax position.

21. The portfolio assets of each Terminating Fund to be acquired by the Continuing Fund will be acceptable to the portfolio adviser of the Continuing Fund and consistent with the investment objectives of the Continuing Fund.

22. The exchange by securityholders of their shares of the Terminating Funds into shares of the Continuing Fund will be carried out on a tax-deferred basis. No sales charges will be payable in connection with the exchange of shares of the Terminating Funds into shares of the Continuing Fund.

23. The shares of the Terminating Funds will cancelled by Corporate Class Ltd., and each of the Terminating Funds will be terminated as soon as possible after the Mergers are implemented.

24. As the Manager is of the view that continued operation of the Terminating Funds is no longer viable, if the Mergers are not approved by securityholders, the Terminating Funds will be wound up and terminated on or about July 16, 2010 but in any event no later than July 31, 2010, as disclosed in the management information circular mailed to securityholders of the Terminating Funds.

25. Approval of the Mergers is required because the Mergers do 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) the fundamental investment objectives of Templeton European Corporate Class are not substantially similar to those of the Continuing Fund; and

b) the fundamental investment objectives of Franklin Japan Corporate Class are not substantially similar to those of the Continuing Fund.

26. Except as noted herein, the Mergers will otherwise comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6(1) of NI 81-102.

27. The Filers submit that the Mergers will result in the following benefits:

a) securityholders of the Terminating Funds and the Continuing Fund will enjoy increased economies of scale and lower fund operating expenses (which are borne indirectly by securityholders) as part of a larger combined Continuing Fund;

b) the Mergers will eliminate the administrative and regulatory costs of operating each Terminating Fund as a separate mutual fund; and

c) the Continuing Fund will have a portfolio of greater value, allowing for increased portfolio diversification opportunities.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Approval Sought is granted.

"Vera Nunes"
Assistant Manager, Investment Funds
Ontario Securities Commission