National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief from management report of fund performance disclosure requirements to permit a continuing fund to use certain disclosure of a terminating fund -- National Instrument 81-106 Investment Fund Continuous Disclosure.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.4 and 17.1.
August 21, 2020
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 Filer) AND IN THE MATTER OF TEMPLETON GROWTH FUND (the Continuing Fund)
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Continuing Fund, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption from section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure for relief from the requirements of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) set out below, to permit the Continuing Fund to include in its annual and interim management reports of fund performance (MRFPs) the performance data and information derived from the financial statements and other financial information (collectively, the Financial Data) of Templeton Growth Fund, Ltd. (the Terminating Fund and with the Continuing Fund, the Funds) as follows:
(i) Items 3.1(1), 3.1(7), 3.1(7.1) and 3.1(8) of Part B of Form 81-106F1 to permit the Continuing Fund to use the financial highlights of the Terminating Fund in its Form 81-106F1;
(ii) Items 4.1(1), 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(1)(b) of Part B of Form 81-106F1 to permit the Continuing Fund to use the past performance data of the Terminating Fund in its Form 81-106F1; and
(iii) Items 3(1) and 4 of Part C of Form 81-106F1 to permit the Continuing Fund to use the financial highlights and past performance data of the Terminating Fund in its Form 81-106F1
(collectively, 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 Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
The Filer and the Funds
1. The Filer is a corporation governed by the laws of Ontario with its head office in Toronto, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Quebec, Alberta, British Columbia, Manitoba, Nova Scotia, and Newfoundland and Labrador, as a mutual fund dealer, portfolio manager and exempt market dealer in each province of Canada and the Yukon, and as a commodity trading manager in Ontario.
3. The Filer is the investment fund manager of the Terminating Fund and will be the investment fund manager and trustee of the Continuing Fund upon creation.
4. The Terminating Fund is a mutual fund corporation established under the laws of Canada.
5. The Continuing Fund is expected on its creation to be an open-ended trust established under the laws of Ontario.
6. The Terminating Fund is a reporting issuer under the applicable securities legislation in each of the Jurisdictions, is subject to National Instrument 81-102 Investment Funds (NI 81-102) and has been a reporting issuer for more than 12 months.
7. Securities of the Terminating Fund are currently qualified for sale in each of the Jurisdictions under a simplified prospectus, annual information form and fund facts document each dated June 26, 2020 (collectively, the Offering Documents), each of which has been prepared in accordance with NI 81-101 Mutual Fund Prospectus Disclosure (NI 81-101).
8. The Filer filed a preliminary simplified prospectus, annual information form and fund facts documents in each of the Jurisdictions on July 24, 2020 with respect to the Continuing Fund. The Filer will not begin distributing securities of the Continuing Fund prior to the Merger (as defined below).
9. The Continuing Fund is expected to be a reporting issuer under the applicable securities legislation in each of the Jurisdictions and is expected to be subject to NI 81-102.
10. Neither the Filer nor the Terminating Fund are in default of securities legislation in any of the Jurisdictions.
11. The Terminating Fund follows, and the Continuing Fund will follow, the standard investment restrictions and practices established under NI 81-102, except pursuant to the terms of any exemption that has been previously obtained.
12. The Filer proposes to merge the Terminating Fund into the Continuing Fund (the Merger) on a tax-deferred basis after close of business on or about Friday, November 13, 2020 (the Merger Date).
13. The Merger satisfies the pre-approval criteria set out in s. 5.6 of NI 81-102, and has been approved by the Independent Review Committee of the Funds at a meeting held on August 12, 2020.
14. The net assets (as at June 30, 2020) of the Terminating Fund are $1,047,994,000, and the series offered and series start dates are as follows:
Series Currently Offered by the Terminating Fund
Date First Offered for Sale
Equivalent Series Offered by the Continuing Fund
November 29, 1954
Series A (Hedged)
March 28, 2013
Series A (Hedged)
November 24, 2000
November 24, 2000
November 24, 2000
June 15, 2015
January 25, 2019
Series PA (Hedged)
January 25, 2019
Series PA (Hedged)
*Series I of the Terminating Fund is not available for purchase, except by existing investors who may continue to purchase up to the business day prior to the Merger Date. Series I of the Continuing Fund will be capped in an identical manner.
15. Following its Merger, the Terminating Fund will be terminated on the Merger Date and will be dissolved as soon as reasonably possible thereafter.
16. The Continuing Fund is being created for the purpose of the Merger, and therefore:
(a) the securityholders of the Terminating Fund will have rights under securities legislation as securityholders of the Continuing Fund that are substantially similar in all material respects to the rights under securities legislation they had as securityholders of the Terminating Fund;
(b) the securityholders of the Terminating Fund will hold securities of the equivalent series of the Continuing Fund with the same aggregate net asset value that they held before as securityholders of the Terminating Fund;
(c) the Continuing Fund will have an investment objective and investment strategies that are substantially similar to the investment objective and investment strategies of the Terminating Fund;
(d) the portfolio manager of the Terminating Fund is the same as the portfolio manager of the Continuing Fund;
(e) the Continuing Fund will have a valuation procedure that is identical to the valuation procedure of the Terminating Fund; and
(f) the management fees and administration fees attached to each series of the Continuing Fund will be the same as the management fees and administration fees for each corresponding series of the Terminating Fund and thus there will be no change to the fee or expense structure as a result of the Merger that will have a material impact on securityholders of the Terminating Fund who will become securityholders of the Continuing Fund.
17. As a result, notwithstanding the Merger, the Continuing Fund will be managed in a manner which is substantially similar in all material respects to the manner in which the Terminating Fund has been managed.
18. Subject to receipt of the Seed Capital Relief (as defined below), the Continuing Fund will not have any assets (other than a nominal amount to establish it) or liabilities at the time of the Merger.
19. The assets of the Terminating Fund will be transferred to the Continuing Fund in connection with the implementation of the Merger.
20. As the Filer intends to cease distribution of units of the Terminating Fund at the close of business on the business day prior to the Merger Date, it does not intend to renew the Terminating Fund's simplified prospectus and annual information form after the lapse date.
21. The Continuing Fund will be a new fund. While the Continuing Fund will have the same assets and liabilities as the Terminating Fund, as a new fund, it will not have its own Financial Data as at the Merger Date.
22. The Financial Data of the Terminating Fund is significant information which can assist investors in determining whether to purchase securities of the Continuing Fund. In the absence of the Exemption Sought, investors will have no historical financial or performance information (such as past performance) on which to base such an investment decision.
23. Without the Exemption Sought, the MRFPs of the Continuing Fund cannot include financial highlights and performance data of the Terminating Fund that relate to a period prior to the Merger.
24. The Filer proposes to:
(a) prepare annual MRFPs for the Continuing Fund commencing with the year ending December 31, 2020 and interim MRFPs for the Continuing Fund commencing with the period ending June 30, 2021 using the Terminating Fund's financial highlights and past performance; and
(b) prepare comparative annual financial statements for the Continuing Fund commencing with the year ending December 31, 2020 and interim financial statements for the Continuing Fund commencing with the period ending June 30, 2021 using the Terminating Fund's financial highlights and past performance.
25. The Filer is seeking to make the Merger as seamless as possible for investors of the Terminating Fund. Accordingly, the Filer submits that treating the Continuing Fund as fungible with the Terminating Fund for purposes of the Financial Data would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the difference between the Terminating Fund and the Continuing Fund.
26. The Filer submits that investors will not be misled if the Financial Data of the Continuing Fund reflects the Financial Data of the Terminating Fund.
27. The Filer has filed a separate application for exemptive relief from certain provisions of:
(a) NI 81-102 to permit the filing of a simplified prospectus for the Continuing Fund, notwithstanding that the initial investment in respect of the Continuing Fund under section 3.1 of NI 81-102 will not be provided (the Seed Capital Relief);
(b) NI 81-101 to permit the Continuing Fund to disclose certain information and performance data of the Terminating Fund in its simplified prospectus and fund facts documents;
(c) NI 81-102 to permit the Continuing Fund to use the performance data of the Terminating Fund in sales communications and other communications to securityholders (the Fund Communications) of the Continuing Fund; and
(d) NI 81-102 to permit the Continuing Fund to calculate its investment risk level using the performance history of the Terminating Fund
(collectively, the NI 81-101 and NI 81-102 Relief).
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 Exemption Sought is granted provided that:
(a) the MRFPs for the Continuing Fund include the Financial Data of the Terminating Fund pertaining to the corresponding series of the Terminating Fund and disclose the Merger for the relevant time periods; and
(b) the Continuing Fund prepares its simplified prospectus, fund facts documents and other Fund Communications in accordance with the NI 81-101 and NI 81-102 Relief.