Headnote
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund mergers – approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 – the merger will not be a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act (Canada) – unitholders of terminating fund provided with timely and adequate disclosure regarding the merger. Applicable Legislative Provisions National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b) and 5.6(1).
October 28, 2010
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.
(the “Manager”)
AND
FRANKLIN Templeton CANADIAN SMALL CAP FUND
(the “Terminating Fund”)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the “Application”) from the Manager and the Terminating Fund (together, the “Filers”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for approval of the merger (the “Merger”) of the Terminating Fund into the Continuing Fund (as defined below) under section 5.5(1)(b) of National Instrument 81-102 (“NI 81-102”) (the “Exemption 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 Bissett Small Cap Fund;
“Effective Date” means the close of business on November 26, 2010 or as soon as practicable thereafter;
“Fund” or “Funds” means, individually or collectively, the Terminating Fund and the Continuing Fund; and
“Tax Act” means the Income Tax Act (Canada).
Representations
This decision is based on the following facts represented by the Filers:
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.
Each of the Funds is an open-ended mutual fund trust established under the laws of Ontario by declarations of trust.
Units of the Funds are currently qualified for sale by a simplified prospectus and annual information form dated June 14, 2010, as amended September 13, 2010, which has been filed and receipted in the Jurisdiction and each of the Non-Principal Jurisdictions.
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 is in default of the securities legislation in the Jurisdiction or in any of the Non-Principal Jurisdictions.
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.
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.
The Manager intends to merge the Terminating Fund into the Continuing Fund.
Pursuant to the Merger, unitholders of the Terminating Fund will receive units with the same value and in the same series of the Continuing Fund as they currently own in the Terminating Fund.
Unitholders of the Terminating Fund will be asked to approve the Merger at a meeting to be held on November 19, 2010.
The Funds’ independent review committee (“IRC”) has reviewed and made a positive recommendation with respect to the Merger, having determined that the Merger, if implemented, achieves a fair and reasonable result for the Terminating Fund. The decision of the IRC has been included in the notice of meeting as required by section 5.1(2) of National Instrument 81-107.
If the approval of the unitholders of the Terminating Fund is not received at the special meeting in respect of a Merger, the Merger will not proceed. However, in the view of the Manager, because continued operation of the Terminating Fund is no longer viable, if the Merger is not approved by the unitholders, the Terminating Fund will be wound up and terminated on or about December 29, 2010.
All costs attributable to the Merger (consisting primarily of legal, proxy solicitation, printing and mailing costs) will be borne by the Manager and will not be borne by the Terminating Fund or the Continuing Fund.
Unitholders of the Terminating Fund will continue to have the right to redeem units 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 unitholders of the Terminating Fund discloses that a unitholder’s deferred sales charge schedule is not changed or eliminated as a result of the Merger, and that investors who redeem their units of the Terminating Fund may be subject to redemption charges as outlined in the simplified prospectus.
Effective as of the close of business on November 19, 2010, the Terminating Fund will cease distribution of units (except purchases under existing pre-authorized chequing plans). Following the Merger, 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 Fund, will be re-established on a series-for-series basis in the Continuing Fund unless a unitholder advises the Manager otherwise. Unitholders may change or cancel any systematic program at any time and unitholders of the Terminating Fund who wish to establish one or more systematic programs in respect of their holdings in the Continuing Fund may do so following the Merger.
A material change report, press release and amendments to the simplified prospectus and annual information form, which gave notice of the proposed Merger, were filed via SEDAR on September 13, 2010.
A