Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from requirements contained in paragraphs 2.5(2)(a) and 2.5(2)(c) of National Instrument 81-102 Mutual Funds - Top Funds permitted to invest up to 10% of net assets, in aggregate, in securities of mutual funds governed by the laws of Luxembourg that are sub-funds of an affiliate and managed by the same manager – Relief subject to certain conditions – Top Funds are required to divest if laws applicable to Luxembourg mutual funds cease to be materially consistent with Part 2 of NI 81-102.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, paragraphs 2.5(2)(a), 2.5(2)(c) and section 19.1.
February 13, 2009
IN THE MATTER OF THE SECURITIES LEGISLATION OF THE PROVINCE 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. ("FTIC" or the "Manager"), Quotential Balanced Income Portfolio, Quotential Balanced Income Corporate Class Portfolio, Quotential Balanced Growth Portfolio, Quotential Balanced Growth Corporate Class Portfolio, Quotential Growth Portfolio, Quotential Growth Corporate Class Portfolio, Quotential Global Balanced Portfolio, Quotential Global Balanced Corporate Class Portfolio, Quotential Global Growth Portfolio, Quotential Global Growth Corporate Class Portfolio, Quotential Maximum Growth Portfolio, Quotential Maximum Growth Corporate Class Portfolio and Wellington West Franklin Templeton Balanced Retirement Income Fund (the "Existing Top Funds")
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the "Application") from FTIC and the Existing Top Funds (the "Filers") for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Existing Top Funds and other top funds managed by FTIC after the date of this Decision that invest a portion of their assets in global/international equities by investing in underlying funds with a global/international equity mandate (which together with the Existing Top Funds are referred to collectively as the "Top Funds") from
(i) the prohibition contained in paragraph 2.5(2)(a) of National Instrument 81-102 Mutual Funds (NI 81-102) against a mutual fund investing in another mutual fund that is not subject to NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101); and
(ii) the prohibition contained in paragraph 2.5(2)(c) of NI 81-102 against a mutual fund investing in another mutual fund's securities where those securities are not qualified for distribution in the local jurisdiction (together with paragraph (i) above, the "Exemption Sought")
to enable each Top Fund to invest up to 10 per cent of its net assets, taken at market value at the time of the investment, in aggregate, in Franklin Templeton Investment Funds Templeton Latin America Fund (the "Latin America Fund") and Franklin Templeton Investment Funds Templeton Asian Growth Fund (the "Asian Growth Fund") and other similar FTIF (as defined below) sub-funds (which together with the Latin America Fund and the Asian Growth Fund are referred to collectively as the "Underlying Funds").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission ("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, Québec, New Brunswick, Nova Scotia, Prince 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 if used in this decision, unless otherwise defined.
"Franklin Templeton Investments" means Franklin Resources, Inc. and its subsidiaries.
"FTIF" means Franklin Templeton Investment Funds, an umbrella SICAV (as defined below) with UCITS status (as defined below) under the laws of Luxembourg.
"SICAV" means Société d'Investissment à Capital Variable, an open-end investment company, governed by the laws of Luxembourg.
"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.
Representations
This decision is based on the following facts represented by the Filers:
FTIC is a corporation amalgamated under the laws of Ontario, having its head office in Toronto, Ontario. FTIC is registered as an advisor in the categories of investment counsel and/or 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.
FTIC is a wholly-owned subsidiary of Templeton Worldwide, Inc., a Delaware corporation, which is a direct wholly-owned subsidiary of Franklin Resources, Inc. ("FRI"). FRI is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions for institutional and retail clients managed by its Franklin, Templeton, Mutual Series, Bissett and Fiduciary Trust investment teams. In addition to Canada, FRI and its subsidiaries maintain offices in 28 other countries.
FTIC is the manager of the Existing Top Funds, each complying with NI 81-102 and having a simplified prospectus and annual information form prepared in accordance with NI 81-101.
FTIC and the Top Funds are not in default of securities legislation in any Canadian jurisdiction.
FTIF is a wholly-owned subsidiary of Franklin Templeton Luxembourg S.A., a Luxembourg corporation, which is an indirect wholly-owned subsidiary of FRI. As of December 31, 2008, FTIF managed approximately USD 40 billion. FTIF includes the Underlying Funds. As of December 31, 2008, the Asian Growth Fund and the Latin America Fund had USD 2.84 billion and USD 1.18 billion in assets under management, respectively.
The Underlying Funds, are distributed in several European countries, pursuant to the European passport implemented by the European Union regulations of collective investment schemes, known as the UCITS Directives (Undertakings for Collective Investment in Transferable Securities) which simplify the cross-border registration/distribution of UCITS in more than one country provided the UCITS Directives are followed. As SIC