[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Notices]
[Pages 26234-26237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13142]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21964; 812-9860]
Franklin Templeton Fund Manager, et al.; Notice of Application
May 20, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under the Investment.
Company Act of 1940 (the ``Act'').
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APPLICANTS: Franklin Templeton Fund Manager (``FTFM''); Franklin Gold
Fund; Franklin Premier Return Fund; Franklin Equity Fund; AGE High
Income Fund, Inc.; Franklin Custodian Funds, Inc.; Franklin Money Fund;
Franklin California Tax-Free Income Fund, Inc.; Franklin Federal Money
Fund; Franklin Tax-Exempt Money Fund; Franklin New York Tax-Free Income
Fund, Inc.; Franklin Federal Tax-Free Income Fund; Franklin Tax-Free
Trust; Franklin California Tax-Free Trust; Franklin New York Tax-Free
Trust; Franklin Investors Securities Trust; Institutional Fiduciary
Trust; Franklin Value Investors Trust; Franklin Tax-Advantaged
International Bond Fund; Franklin Tax-Advantaged High Yield Securities
Fund; Franklin Tax-Advantaged U.S. Government Securities Fund; Franklin
Strategic Mortgage Portfolio; Franklin Municipal Securities Trust;
Franklin Managed Trust; Franklin Strategic Series; Adjustable Rate
Securities Portfolios; The Money Market Portfolios; Midcap Growth
Portfolio; The Portfolios Trust; Franklin International Trust; Franklin
Real Estate Securities Trust; Franklin Templeton Money Fund Trust;
Franklin Valuemark Funds; Franklin Government Securities Trust;
Franklin Templeton Global Trust (collectively, the ``Franklin Funds'');
Franklin Templeton Japan Fund; Templeton Variable Products Series Fund;
Templeton Growth Fund, Inc.; Templeton Funds, Inc.; Templeton Smaller
Companies Growth Fund, Inc.; Templeton Income Trust; Templeton Real
Estate Securities Fund; Templeton Global Investment Trust; Templeton
Global Opportunities Trust; Templeton American Trust, Inc.; Templeton
Institutional Funds, Inc.; Templeton Developing Markets Trust
(collectively, the ``Templeton Funds'') (the Franklin Funds and the
Templeton Funds are collectively referred to as the ``Franklin
Templeton Group of Funds''); any future open-end investment companies
for which Franklin Advisers, Inc. (or any entities controlling,
controlled by or under common control with Franklin Advisers, Inc.),
Franklin Institutional Services Corporation (or any entities
controlling, controlled by or under common control with Franklin
Institutional Services Corporation), Templeton, Galbraith & Hansberger
Ltd. (or any entities controlling, controlled by or under common
control with Templeton, Galbraith & Hansberger Ltd.), Templeton
Investment Counsel, Inc. (or any entities controlling, controlled by or
under common control with Templeton Investment Counsel, Inc.), or
Templeton Investment Management (Singapore) Pte. Ltd. (or any entities
controlling, controlled by or under common control with Templeton
Investment Management (Singapore) Pte. Ltd.) acts as investment adviser
or for which Franklin/Templeton Distributors, Inc. (or any entities
controlling, controlled by or under common control with Franklin/
Templeton Distributors, Inc.) acts as principal underwriter (the
Franklin Funds, the Templeton Funds and such future funds are
collectively referred to herein as the ``Funds'' which reference,
unless hereinafter designated otherwise, is intended to include series
of shares with different investment portfolios offered by such
investment companies); and Franklin Advisers, Inc. (``FAI''), Franklin
Institutional Services Corporation (``FISCO''), Templeton, Galbraith &
Hansberger Ltd., Templeton Investment Counsel, Inc., Templeton
Investment Management (Singapore) Pte. Ltd. (collectively, ``Templeton
Advisers'') (FAI, FISCO and the Templeton Advisers are collectively
referred to as the ``Advisers'' and each is individually referred to as
an ``Adviser'') and Franklin/Templeton Distributors, Inc. (``FTDI'' or
``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
from section 12(d)(1) of the Act, and under sections 6(c) and 17(b) of
the Act from section 17(a) of the Act.
SUMMARY OF APPLICATION: The requested order would permit series of the
Franklin Templeton Fund Manager, which will be registered as an open-
end management investment company, to invest substantially all of their
assets in a combination of Franklin Funds and Templeton Funds.
FILING DATES: The application was filed on November 29, 1995, and
amended on March 25, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 14, 1996,
and should be accompanied by proof of service on applicants, in the
form of an affidavit, or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Deborah R. Gatzek, Senior Vice President-Legal,
Franklin Resources, Inc., 777 Mariners Island Boulevard, San Mateo, CA
94404.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenless, Senior Counsel, at (202) 942-0581, or Alison E.
Baur, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. FTFM is a newly formed Delaware Business Trust that will be
registered under the Act as an open-end management investment company.
FTFM intends to offer shares in three open-end series, designated as
Series I, II and III (the ``Asset Allocation Series'' or ``Series'').
Each Series intends to invest substantially all of its assets in a
combination of Franklin Funds and Templeton Funds, each of which is an
open-end management investment company, or series thereof (the
``Underlying Funds''). While the Asset Allocation Series currently
intends to invest in the Funds listed herein, the Series may also
invest in any Fund in the Franklin Templeton Group of Funds currently
existing or to be organized in the future.
2. The Asset Allocation Series will be designed for investors who
wish to achieve their investment objectives of long-term total return
in excess of the inflation rate by investing in one mutual fund that
provides for professional asset allocation of investments among various
Franklin Funds and Templeton Funds. Such asset allocation and,
consequently, the percentage investment in the Underlying Funds, will
be related to the investor's specific long-term investment goals.
3. Series I will be targeted to investors with shorter time
horizons, including
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those in or approaching retirement. Series II will be targeted to
investors with medium-term horizons, including employees in mid-career.
Series III will be targeted to investors with long-term horizons,
including employees in their early career years. The Series would be
marketed to both tax-exempt (i.e., 401(k) Plans and IRAs) and taxable
accounts as a vehicle for meeting specified investment planning goals,
including, in particular, retirement funding.
4. The Underlying Funds are currently offered in a classes
structure, either with Class I and Class II shares, or with a single
class of shares subject to a pricing structure resembling that of Class
I. With the exception of certain Templeton Funds which offer shares
with a maximum front-end sales charge of 5.75%, most Class I shares, or
shares of Funds offering only one class of shares, carry a maximum
front-end sales charge of 4.50% for equity Funds and 4.25% for fixed
income funds. The majority of Class I shares, or shares of funds
offering only one class of shares, are offered with a Rule 12b-1 fee of
a maximum of 0.25% for equity funds, 0.15% for taxable fixed income
funds and 0.10% for tax-free fixed income funds, and a limited
contingent deferred sales charge (``CDSC'') for certain large
purchases.
5. Class II shares carry a 1.00% front-end sales charge, a
servicing fee of 0.15% for fixed income funds and 0.25% for equity
funds and an asset-based sales charge of 0.50% for fixed income funds
and 0.75% for equity funds. In addition, Class II shares carry a CDSC
of 1.00% if shares are redeemed within the first eighteen months after
purchase.
6. Applicant proposes that the Asset Allocation Series will invest
in a third class of shares to be created for each Underlying Fund that
currently offers two classes of shares (and a second class to be
created for each Underlying Fund that currently offers only one class
of shares) (collectively referred to herein as ``Class III shares'').
Such Class III shares would be sold to and redeemed by the Asset
Allocation Series at net asset value without the imposition of any
front-end or deferred sales charge, or redemption fee. In addition,
Class III shares would not be subject to distribution fees under a rule
12b-1 plan.
7. It is proposed that the Asset Allocation Series would be created
with a classes structure which mirrors the classes structure for the
equity Underlying Funds; namely, each Asset Allocation Series would
offer Class I and Class II shares, largely as described above. Class I
shares of the Asset Allocation Series would be subject to rule 12b-1
distribution fees with a maximum charge of 0.25%. Class II shares of
the Asset Allocation Series would be subject to rule 12b-1 plan fees
with a servicing fee of 0.25% and an asset-based sales charge of 0.75%.
8. The Asset Allocation Series will bear all of their own expenses
and, indirectly, their proportionate share of the expenses of each
Underlying Fund. Generally, it is expected that the total expenses of
the Asset Allocation Series, both direct and indirect, expressed as a
percentage of net assets, will be slightly higher than what a
shareholder would pay if he or she invested directly in the same mix of
Underlying Funds, but within the range of total expenses incurred by
equity funds in the Franklin Templeton Group of Funds.
9. FAI intends to provide advisory services, which include asset
allocation advice, to the Asset Allocation Series, and will also
provide the Series with administrative services. While the general
investment advisory and administrative services will be furnished
without charge, it is anticipated that FAI will charge an asset
allocation fee of no more than 0.25% of average daily net assets of
each Asset Allocation Series. Such fee will be for services that are in
addition to, rather than duplicative of, advisory services being
provided to the Underlying Funds. If FAI determines to charge an
advisory fee for other advisory services, it will do so only in
conformity with the requirements of the conditions to the requested
order.
10. Franklin Templeton Investor Services, Inc. (``FTISTI'') will
serve as the shareholder servicing and transfer agent of the Asset
Allocation Series. Bank of New York (``BONY'') likely will serve as the
custodian for the Asset Allocation Series. FTISI currently provides
such shareholder servicing and transfer agency services to the
Underlying Funds.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) provides that no registered investment
company may acquire securities of another investment company if such
securities represent more than 3% of the acquired company's outstanding
voting stock, more than 5% of the acquiring company's total assets, or
if such securities, together with the securities of any other acquired
investment companies, represent more than 10% of the acquiring
company's total assets. Section 12(d)(1)(B) provides that no registered
open-end investment company may sell its securities to another
investment company if the sale will cause the acquiring company to own
more than 3% of the acquired company's voting stock, or if the sale
will cause more than 10% of the acquired company's voting stock to be
owned by investment companies.
2. Section 6(c) provides that the SEC may exempt persons or
transactions if, and to the extent that, such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act. Applicants request an order under section 6(c)
exempting them from section 12(d)(1) to permit the Asset Allocation
Series to invest in the Underlying Funds in excess of the percentage
limitations of that section.
3. Section 12(d)(1) was intended to mitigate or eliminate actual or
potential abuses which might arise when one investment company acquires
shares of another investment company. These abuses include the
acquiring fund imposing undue influence over the management of the
acquired funds through the threat of large-scale redemptions, the
acquisition by the acquiring company of voting control of the acquired
company, the layering of sales charges, advisory fees, and
administrative costs, and the creation of a complex pyramidal structure
which may be confusing to investors. Applicants believe that none of
these potential or actual abuses are present in their proposed fund of
funds structure.
4. FAI would charge only a small asset allocation fee to the Asset
Allocation Series. Such fee would be of services that are in addition
to and not duplicative of the investment advisory services that are
being furnished to the Underlying Funds. Thus, while shareholders of
the Asset Allocation Series would pay indirectly their proportional
share of the advisory fees paid by the Underlying Funds, applicants
believe that there would be no duplication or layering of fees.
5. While the Asset Allocation Series will carry a front-end and
deferred load structure, the Class III shares of the Underlying Funds
selling to the Asset Allocation Series will not have any sales charges,
front-end or deferred or redemption fee. Investors in the Asset
Allocation Series, therefore, will not be subject to a ``sales load on
a sales load.''
6. Applicants' proposal does not contemplate any duplicative
distribution expenses. The Class III shares of the Underlying Funds
that will sell their shares to the Asset Allocation Series will not
carry Rule 12b-1
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distribution fees. The Asset Allocation Series' Class I shares and
Class II shares will be subject to Rule 12b-1 fees, in accordance with
the normal equity fund Rule 12b-1 fees for funds in the Franklin
Templeton Group of Funds. Thus, at all times, there will be no
duplication of distribution fees paid by shareholders of FTFM.
7. Applicants assert that redemption threats and a concomitant risk
of lost advisory fees are not a problem in the context of a fund of
funds structure in which all of the funds are members of the same fund
family. FTFM would be part of the same fund complex as the Underlying
Funds and will only acquire shares of the Underlying Funds. Because the
investment advisers to the Underlying Funds, as well as the Asset
Allocation Series, would be affiliated, a redemption by an Asset
Allocation Series from one Underlying Fund would simply lead to the
placing of the proceeds into another Underlying Fund.
8. In addition to not containing the actual and potential abuses
which led to the enactment of section 12(d)(1), applicants believe that
the structure of the Asset Allocation Series would provide a number of
benefits to its shareholders, including: (a) expense ratios only
slightly higher than the weighted average of the expense ratios which
an investor would pay were he or she to invest the same amount in a
combination of Underlying Funds; (b) immediate and broad
diversification resulting from the Asset Allocation Series'
shareholders access to the existing investment portfolios of the
Underlying Funds; and (c) efficient trading practices resulting from
the Underlying Funds' ability to engage in block trading, which would
enable them to acquire securities at more favorable prices than would
smaller transactions.
B. Section 17(a)
1. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company, or an affiliated person of such person,
to sell securities to, or purchase securities from, the company. The
Asset Allocation Series and the Underlying Funds may be considered
affiliated persons because they share common officers and/or directors/
trustees. An Underlying Fund's issuance of its shares to the Asset
Allocation Series may be considered a sale prohibited by section 17(a).
2. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered investment company involved; and (c) the
proposed transaction is consistent with the general provisions of the
Act. Applicants believe that the proposed transactions meet the
standards of sections 6(c) and 17(b).\1\
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\1\ Section 17(b) applies to specific proposed transactions,
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-99 (1945). Section 6(c)
frequently is used to grant relief from section 17(a) to permit an
ongoing series of future transactions.
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Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. FTFM and each Underlying Fund will be part of the same ``group
of investment companies,'' as defined in rule 11a-3 under the Act.
2. No Underlying Fund shall acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
3. A majority of the trustees of FTFM will not be ``interested
persons,'' as defined in section 2(a)(19) of the Act.
4. Before approving any advisory contract under section 15 of the
Act, the Board of Trustees of FTFM, including a majority of the
trustees who are not ``interested persons,'' as defined in section
2(a)(19), shall find that advisory fees charged under such contract are
based on services provided that are in addition to, rather than
duplicative of, services provided pursuant to any Underlying Fund's
advisory contact. Such finding, and the basis upon which the finding
was made, will be recorded fully in the minute books of FTFM.
5. Any sales charges or service fees charged with respect to
securities of the Asset Allocation Series, when aggregated with any
sales charges or service fees paid by the Asset Allocation Series with
respect to shares of the Underlying Funds, shall not exceed the limits
set forth in Article III, section 26, of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
6. Applicants agree to provide the following information, in
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average total assets for each FTFM
portfolio and each of its Underlying Funds; monthly purchases and
redemptions (other than by exchange) for each FTFM portfolio and each
of its Underlying Funds; monthly exchanges into and out of each FTFM
portfolio and each of its Underlying Funds; month-end allocations of
each FTFM portfolio's assets among its Underlying Funds; annual expense
ratios for each FTFM portfolio and each of its Underlying Funds; and a
description of any vote taken by the shareholders of any Underlying
Funds, including a statement of the percentage of votes cast for and
against the proposal by FTFM and by the other shareholders of the
Underlying Funds. Such information will be provided as soon as
reasonably practicable following each fiscal year-end of FTFM (unless
the Chief Financial Analyst shall notify applicants in writing that
such information need no longer be submitted).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13142 Filed 5-23-96; 8:45 am]
BILLING CODE 8010-01-M
