[Federal Register Volume 60, Number 24 (Monday, February 6, 1995)]
[Notices]
[Pages 7083-7087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2753]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20868; 812-9312]
Franklin Gold Fund, et al.; Notice of Application
January 30, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: 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 Balance Sheet Investment
Fund; 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 [[Page 7084]] Portfolios; Midcap Growth Portfolio; The
Portfolios Trust; Franklin International Trust; Franklin Real Estate
Securities Trust; Franklin Valuemark Funds; Franklin Government
Securities Trust; Franklin/Templeton Global Trust (collectively, the
``Franklin Funds''); 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'');
Franklin Advisers, Inc.; Franklin Institutional Services Corporation;
Templeton, Galbraith & Hansberger Ltd.; Templeton Investment Counsel,
Inc.; Templeton Investment Management (Hong Kong) Limited; Templeton
Investment Management (Singapore) Pte. Ltd. (collectively, the
``Advisers''); and Franklin/Templeton Distributors, Inc. (the
``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g),
18(i), 22(c), and 22(d) of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order that would permit
certain investment companies to issue multiple classes of securities
representing interests in the same portfolio and assess and, under
certain circumstances, waive a contingent deferred sales charge
(``CDSC'') on certain redemptions of shares. The order would supersede
an existing CDSC order (the ``Existing CDSC Order'').\1\
\1\Franklin Gold Fund, et al., Investment Company Act Release
Nos. 20558 (Sept. 16, 1994) (notice) and 20611 (Oct. 11, 1994)
(order).
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FILING DATES: The application was filed on November 2, 1994, and
amended on January 23, 1995.
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 February 24,
1995, 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 5th Street, N.W., Washington D.C. 20549.
Applicants, 777 Mariners Island Boulevard, San Mateo, California 94404.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Robert A.
Robertson, 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 at the
SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Franklin Funds and the Templeton Funds is an open-
end management investment company organized at either a (a) Delaware
business trust; (b) Maryland corporation; (c) California corporation;
(d) Massachusetts business trust; (e) Colorado corporation; (f)
California limited partnership; or (g) New York Corporation. Franklin
Advisers, Inc. and Franklin Institutional Services Corp. are California
corporations. Templeton, Galbraith Hansberger Ltd. is a Bahamas
corporation, Templeton Investment Counsel, Inc. is a Florida
corporation, Templeton Investment Management (Hong Kong) Limited is a
Hong Kong corporation and Templeton Investment Management (Singapore)
Pte. Ltd. is a Singapore corporation. The Advisers provide investment
advisory services to the Funds. The Distributor is a New York
corporation and acts as principle underwriter of the Funds' shares. The
Advisers and the Distributor are each directly or indirectly wholly-
owned subsidiaries of Franklin Resources, Inc., a publicly-owned
company whose shares are listed on the New York Stock Exchange.
Applicants are currently parties to the Existing CDSC Order, which
permits the assessment of a CDSC in certain circumstances. Applicants
request relief for any future open-end investment companies for which
the Advisers, or any entities controlling, controlled by or under
common control with the Advisers, acts as investment advisers or for
which the Distributor, or any entities controlling, controlled by or
under common control with the Distributor, acts as principal
underwriter (the Franklin Funds, the Templeton Funds and such future
funds are collectively referred to herein as the ``Funds'').
A. Multiple Class Distribution System
1. Applicants propose to establish a multiple class distribution
system that would enable each Fund to issue and sell multiple classes
of shares of beneficial interest with different combinations of front-
end sales charges, distribution fees, shareholder services fees and
CDSCs as determined by each Fund. Although applicants currently
contemplate creating two classes of shares, in addition to the existing
class, under the multiple class distribution system a Fund would be
permitted to modify the characteristics of its classes of shares, and
issue and sell additional classes of shares. The only difference among
the various classes of shares will relate solely to: (a) The impact of
the disproportionate payments made under the rule 12b-1 distribution
plans or any non-rule 12b-1 shareholder services plans, as applicable;
(b) the fact that the classes of shares will vote separately with
respect to a Fund's rule 12b-1 distribution plan and/or non-rule 12b-1
shareholder services plan, except as provided in condition 15 below;
(c) the conversion feature applicable only to certain classes of
shares; (d) the exchange privileges of the classes of shares of a Fund;
and (e) the designations of the classes of shares of a Fund.
2. Most of the non-money-market Funds currently sell shares subject
to a front-end sales charge and a distribution fee (``Class I
Shares''). The Class I Shares of most of the Franklin Funds and
Templeton Funds also currently carry a CDSC, which is imposed on shares
purchased in amounts of $1 million or more that were initially sold
without a front-end sales charge and are redeemed within twelve months
of purchase. Under the proposed multiple class distribution system,
such Funds will continue to sell Class I Shares. Applicants anticipate
issuing a new class of shares (the ``Class II Shares'') that will carry
a front-end sales charge (1.00%) at the time of purchase and may be
subject to a CDSC of up to 1.00% on redemptions made within eighteen
months after purchase. The Class II Shares also will be subject to a
rule 12b-1 distribution plan. Applicants anticipate that certain Funds
may offer a third class of shares without any front-end sales charge,
CDSC, or a rule 12b-1 fee (``Class III Shares''). Class III Shares
would be marketed primarily to certain institutional investors such as
retirement plans, foundations, endowments, and certain governmental
entities.
3. The Fund may create some additional classes of shares which will
[[Page 7085]] be offered only to certain institutional offerees (the
``Indirect Investor Classes''). The offerees of the shares of Class I,
Class II, Class III and additional classes other than the Indirect
Investor Classes (collectively, the ``Direct Investor Classes''), and
offerees of the Indirect Investor Classes, will not overlap. The
Indirect Investor Classes will be offered exclusively to the following
five limited categories of investors: (a) Benefit plans such as
qualified retirement plans, other than individual retirement accounts
and retirement plans of self-employed persons, with total assets in
excess of $5 million or such other amounts as the Funds may establish
and with such other characteristics as the Funds may establish; (b)
defined contribution retirement plans maintained by the Advisers or
their affiliates for the benefit of their employees; (c) banks and
insurance companies purchasing shares for their own accounts; (d)
registered investment companies not affiliated with the Advisers; and
(e) endowment funds of non-profit organizations.
4. All expenses incurred by a Fund will be borne by each class of
shares in the same proportion that the net assets attributable to that
class bears to such Fund's total net assets except for the expenses of
each 12b-1 distribution plan, non-rule 12b-1 shareholder services plan
and any expenses determined by the trustees to be properly allocated to
a class of shares.
5. Shareholders of one class of shares of a Fund may exchange
shares of that class for shares of the same class of another Fund.
Additionally, shareholders of a class in which the investor is no
longer eligible for participation may exchange his or her shares of
such Fund for shares of a Fund in which he or she is eligible to
participate. All exchange privileges will comply with rule 11a-3 under
the Act.
6. The Funds currently contemplate that the classes of shares of
the Funds will not convert to another class of shares. However, the
Funds reserve the right to adopt a conversion feature with respect to
such classes of shares or future additional classes of shares. A Fund
may permit one class of shares (``Purchase Class'') to convert to
another class of shares (``Target Class'') after expiration of a
certain period. Such Purchase Class shares (except those purchased
through the reinvestment of dividends and other distributions) would
automatically convert to Target Class shares at the relative net asset
values of each of the classes, and would thereafter be subject to a
lower rule 12b-1 distribution and/or shareholder services plan fee, in
the aggregate. All Purchase Class shares in a shareholder's account
that were purchased through the reinvestment of dividends and other
distributions paid in respect of Purchase Class (and which have not
converted to Target Class) would be considered to be held in a separate
sub-account. Each time any shares of the Purchase Class in the
shareholder's account (other than those in the sub-account) convert to
a Target Class, a proportionate number of the shares of the Purchase
Class in the sub-account also will convert to such Target Class.
B. The CDSC
1. Applicants are currently parties to an Existing CDSC Order,
which permits the assessment of a CDSC in certain circumstances related
to purchases of $1 million or more of fund shares. Any order granted in
connection with this application will supersede the Existing CDSC Order
and will apply equally to any CDSC imposed on any class of the Funds,
as well as any CDSC arrangements to be imposed in the future.
2. The proposed CDSC will not be imposed on redemptions of those
shares which were purchased more than a specified period (the ``CDSC
Period'') prior to their redemption, or those shares derived from
reinvestment of dividends or other distributions including capital
gains. Furthermore, no CDSC will be imposed on an amount which
represents an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares of
beneficial interest purchased during the CDSC Period. In determining
the applicability and rate of any CDSC, it would be assumed that a
redemption is made first of shares representing capital appreciation,
second, of shares representing reinvestment of dividends and capital
gains distributions, third, of shares held by the shareholders for a
period equal to or greater than the CDSC Period, and finally of other
shares held by the shareholder for the longest period of time.
3. Applicants request relief to permit each Fund to waive or reduce
the CDSC in certain circumstances. Any waiver or reduction will comply
with the conditions in paragraph (a) through (d) of rule 22d-1 of the
Act. If the trustees of the Fund determine to discontinue the waiver,
deferral or reduction of a CDSC, the disclosure in each Fund's
prospectus will be appropriately revised. The sum of any front-end
sales charge, asset-based sales charge, and CDSC will comply with the
requirements of Article III, Section 26(d) of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
(``NASD'').
Applicants' Legal Analysis
1. Applicants request an exemption under section 6(c) of the Act to
the extent that the proposed issuance and sale of multiple classes of
shares representing interests in the Funds might be deemed (a) to
result in a ``senior security'' within the meaning of section 18(g) of
the Act and to be prohibited by section 18(f)(1) of the Act and (b) to
violate the equal voting provisions of section 18(i) of the Act. The
multiple class distribution system does not involve borrowings and does
not adversely affect the Funds' existing assets or reserves. The
proposed arrangement will not increase the speculative character of the
shares of the Funds.
2. Applicants request an exemption under section 6(c) from sections
2(a)(32), 2(a)(35), 22(c) and 22(d) of the Act and rule 22c-1
thereunder, to the extent necessary to permit the Funds to assess a
CDSC on certain redemptions of shares and to permit the Funds to waive
or reduce CDSCs with respect to certain types of redemptions.
Applicants believe that the imposition of a CDSC on shares in certain
classes is fair and in the best interests of its shareholders.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund and will be identical in all
respects, except as set forth below. The only differences among the
classes of shares will relate solely to: (a) The impact of the
disproportionate payments made under the rule 12b-1 distribution plans
and the shareholder services plans (if any), as applicable; (b) other
expenses that are subsequently identified and determined to be properly
allocated to one or more classes of shares that shall be approved by
the SEC pursuant to an amended order; (c) the fact that the classes
will vote separately with respect to a Fund's rule 12b-1 distribution
plan and non-rule 12b-1 shareholder services plan, except as provided
in condition 15, below; (d) the conversion feature applicable only to
certain classes of shares; (e) the different exchange privileges of the
classes of shares of a Fund; and (f) the designations of the classes of
shares of a Fund.
2. The trustees, including a majority of the independent trustees,
have approved the multiple class distribution system. The minutes of
the meetings of [[Page 7086]] the trustees regarding the deliberations
of the trustees with respect to the approvals necessary to implement
the multiple class distribution system will reflect in detail the
reasons for the trustees' determination that the proposed multiple
class distribution system is in the best interests of both a Fund and
its shareholders.
3. On an ongoing basis, the trustees, pursuant to their fiduciary
responsibilities under the Act and otherwise, will monitor each Fund
for the existence of any material conflicts between the interests of
the various classes of shares of each respective Fund. The trustees,
including a majority of the independent trustees, shall take such
action as is reasonably necessary to eliminate any such conflicts that
may develop. The Adviser and the Distributor will be responsible for
reporting any potential or existing conflicts to the trustees. If a
conflict arises, the Adviser and the Distributor, at their own cost,
will remedy such conflict up to and including establishing new
registered management investment companies.
4. The initial determination of the class expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the board of trustees of the Fund
including a majority of the trustees who are not interested persons of
the Fund. Any person authorized to direct the allocation and
disposition of monies paid or payable by the Fund to meet class
expenses shall provide to the board of trustees, and the trustees shall
review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
5. The trustees will receive quarterly and annual statements with
respect to each Fund concerning the amounts expended under any non-rule
12b-1 shareholder services plans and any 12b-1 Plans complying with
paragraph (b)(3)(ii) of rule 12b-1, as it may be amended from time to
time. In the statements, only expenditures properly attributable to the
sale or servicing of a particular class of shares will be used to
justify any rule 12b-1 or non-rule 12b-1 shareholder services plan fee
charged to that class. Expenditures not related to the sale or
servicing of a particular class of shares of a Fund will not be
presented to the trustees to justify any fee attributable to that
class. The statements, including the allocations upon which they are
based, will be subject to the review and approval of the independent
trustees in the exercise of their fiduciary duties.
6. If any class will be subject to a non-rule 12b-1 shareholder
services plan, such non-rule 12b-1 shareholder services plan will be
adopted and operated in accordance with the procedures set forth in
rule 12b-1 (b) through (f) as if the expenditures made thereunder were
subject to rule 12b-1, except that shareholders need not enjoy the
voting rights specified in rule 12b-1.
7. Dividends paid by a Fund with respect to each class of its
shares, to the extent any dividends are paid, will be calculated in the
same manner, at the same time, on the same day, and will be in the same
amount, except that expenditures associated with any rule 12b-1 plan or
non-rule 12b-1 shareholder services plan relating to a particular class
of shares will be borne exclusively by the affected class and any other
expenses determined by the trustees to be allocated to a class of
shares and that shall have been approved by the SEC pursuant to an
amended order will be borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of multiple classes of shares and
the proper allocation of expenses among such classes have been reviewed
by the Experts. The Experts have rendered reports to the applicants,
which reports have been provided to the staff of the SEC, that such
methodology and procedures are adequate to ensure that such
calculations and allocations will be made in an appropriate manner. On
an ongoing basis, the Experts, or appropriate substitute Experts, will
monitor the manner in which the calculations and allocations are being
made and, based upon such review, will render at least annually a
report to each Fund that the calculations and allocations are being
made properly. The reports of the Experts shall be filed as part of the
periodic reports filed with the SEC pursuant to sections 30(a) and
30(b)(1) of the Act. The work papers of the Experts with respect to
such reports, following request by a Fund (which each Fund agrees to
provide), will be available for inspection by the SEC staff upon
written request to the respective Fund for such work papers by a senior
member of the Division of Investment Management, limited to the
Director, an Associate Director, the Chief Accountant, the Chief
Financial Analyst, an Assistant Director and any Regional
Administrators or Associate and Assistant Administrators. The initial
reports of the Experts are ``Reports on Policies and Procedures Placed
in Operation,'' and the ongoing reports will be ``Reports on Policies
and Procedures Placed in Operation and Tests of Operating
Effectiveness'' as defined and described in SAS No. 70 of the American
Institute of Certified Public Accountants (``AICPA''), as it may be
amended from time to time, or in similar auditing standards as may be
adopted by the AICPA from time to time.
9. The applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes
of shares and the proper allocation of expenses between the various
classes of shares, and this representation will be concurred with by
the Experts in the initial reports referred to in condition (8) above
and will be concurred with by the Experts, or appropriate substitute
Experts, on an ongoing basis at least annually in the ongoing reports
referred to in condition (8) above. Applicants will take immediate
corrective measures if this representation is not concurred in by the
Experts or appropriate substitute Experts.
10. The prospectus of each Fund will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling or servicing shares of such Fund may receive
different compensation with respect to one particular class of shares
over another in the Fund.
11. The Distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares of a Fund to agree
to conform to such standards. Such compliance standards will require
that all investors eligible to purchase shares of the Indirect Investor
Classes be sold only shares of such Indirect Investor Classes, rather
than any other class of shares offered by a Fund.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees with respect to the
multiple class distribution system will be set forth in guidelines that
will be furnished to the trustees.
13. Each Fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales charges,
deferred sales charges, and exchange privileges applicable to each
class of shares other than the Indirect Investor Classes in every
prospectus, regardless of whether all classes of shares are offered
through its respective prospectus. The Indirect Investor Classes will
be offered solely [[Page 7087]] pursuant to separate prospectus(es).
The prospectus(es) for the Indirect Investor Classes will disclose the
existence of the Fund's other classes and will identify the entities
eligible to purchase such shares, and the prospectuses for the Fund's
other classes will disclose the existence of the Indirect Investor
Classes and will identify the persons eligible to purchase shares of
such class. Each Fund will disclose the respective expenses and
performance data applicable to all classes of its shares in every
shareholder report. The shareholder reports will contain, in the
statement of assets and liabilities and statement of operations,
information related to the Fund as a whole generally and not on a per
class basis. Each Fund's per share data, however, will be prepared on a
per class basis with respect to all classes of shares of such Fund. To
the extent any advertisement or sales literature describes the expenses
or performance data applicable to any class of a Fund's shares, it will
also disclose the respective expenses and/or performance data
applicable to all of its classes of shares, except the Indirect
Investor Classes. Advertising materials reflecting the expenses or
performance data for the Indirect Investor Classes will be available
only to those persons eligible to purchase such Indirect Investor
Classes. The information provided by applicants for publication in any
newspaper or similar listing of a Fund's net asset value and public
offering price will present each class of shares, except the Indirect
Investor Classes, separately.
14. Any class of shares with a conversion feature will convert into
another class of shares on the basis of the relative net asset values
per share of the two classes of shares, without the imposition of any
sales load, fee, or other charge. After conversion, the converted
shares will be subject to an asset-based sales charge and/or
shareholder services fee (as those terms are defined in Article III,
Section 26 of the NASD's Rules of Fair Practice), if any, that in the
aggregate are lower than the asset-based sales charge and shareholder
services fee to which they were subject prior to the conversion.
15. If a Fund implements any amendment to its rule 12b-1 plan or,
if presented to shareholders, adopts or implements any amendment to a
non-rule 12b-1 shareholder services plan that would increase materially
the amount that may be borne by a Target Class, existing shares of any
affected Purchase Class will stop converting into Target Class unless
the Purchase Class shareholders, voting separately as a class, approve
the proposal. The trustees shall take such action as is necessary to
ensure that existing Purchase Class shares are exchanged or converted
into a New Target Class, identical in all material respects to the
Target Class as it existed prior to implementation of the proposal, no
later than such shares previously were scheduled to convert into Target
Class. If deemed advisable by the trustees to implement the foregoing,
such action may include the exchange of all existing Purchase Class
shares for a New Purchase Class, identical to existing Purchase Class
shares in all material respects except that the New Purchase Class will
convert into the New Target Class. The New Target Class or the New
Purchase Class may be formed without further exemptive relief.
Exchanges or conversions described in this condition shall be effected
in a manner that the trustees reasonably believe will not be subject to
federal taxation. In accordance with condition 3, any additional cost
associated with the creation, exchange, or conversion of the New Target
Class or New Purchase Class shall be borne solely by the Adviser and
the Distributor. The Purchase Class shares sold after the
implementation of the proposal may convert to the Target Class shares
subject to the higher maximum payment, provided that the material
features of the Target Class plan and the relationship of such plan to
the Purchase Class shares are disclosed in an effective registration
statement.
16. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, Investment Company Act Release No. 16619 (Nov. 2,
1988), as such rule is currently proposed and as it may be reproposed,
adopted or amended.
17. Applicants acknowledge that the grant of the exemptive order
requested by this application will not imply SEC approval,
authorization, or acquiescence in any particular level of payments that
a Fund may make pursuant to its rule 12b-1 distribution plan or non-
rule 12b-1 shareholder services plan in reliance on the exemptive
order.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2753 Filed 2-3-95; 8:45 am]
BILLING CODE 8010-01-M