[Federal Register Volume 67, Number 45 (Thursday, March 7, 2002)]
[Notices]
[Pages 10458-10460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5432]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25450; File No. 812-12785]


Franklin Strategic Series, et al.; Notice of Application

March 1, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 17(b) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 17(a) of the Act.

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Summary of Application: Applicants request an order to permit certain 
series of registered open-end management investment companies to 
acquire all of the assets, net of liabilities, of certain corresponding 
series of another registered open-end management investment company. 
Because of certain affiliations, applicants may not rely on rule 17a-8 
of the Act.

Applicants: Franklin Strategic Series, Franklin Federal Tax-Free Income 
Fund (``Franklin Federal Tax-Free Fund''), Franklin Investors 
Securities Trust, Franklin Advisers, Inc. (``FAI''), Templeton Funds, 
Inc. (``Templeton Funds''), Templeton Global Advisers Limited 
(``TGAL'', together with FAI, the ``Franklin Advisers''), FTI Funds, 
and Fiduciary International, Inc (``FII'').

Filing Date:  The application was filed on February 28, 2002.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 25, 2002 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC 
20549-0609. Applicants, c/o David P. Goss, Esq., Franklin Templeton 
Investments, One Franklin Parkway, San Mateo, California 94403-1906.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Mary Kay Frech, 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 
Commission's Public Reference Branch, 450 5th Street, NW., Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. FTI Funds, a Massachusetts business trust, is an open-end 
management investment company registered under the Act. FTI Funds 
consists of seven series, four of which are the ``Acquired Funds''. 
Franklin Strategic Series, a Delaware business trust, is an open-end 
management investment company registered under the Act, and currently 
offers 13 series, one of which is the Franklin Strategic Series: Large 
Cap Growth Fund (``Franklin Large Cap Growth Fund''). Franklin Federal 
Tax-Free Fund, a California corporation, is an open-end management 
investment company registered under the Act. Franklin Investors 
Securities Trust, a Massachusetts business trust, is an open-end 
management investment company registered under the Act, and currently 
offers six series, one of which is the Franklin Investors Securities 
Trust: Total Return Fund (``Franklin Total Return Fund''). Templeton 
Funds, a Maryland corporation, is an open-end management investment 
company registered under the Act, and currently offers two series, one 
of which is Templeton Funds: Foreign Fund (``Templeton Foreign Fund''). 
The Franklin Large Cap Growth Fund, Franklin Federal Tax-Free Fund, 
Franklin Total Return Fund, and Templeton Foreign Fund are the 
``Acquiring Funds''.\1\
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    \1\ The Acquired Funds and the corresponding Acquiring Funds 
are: (a) FTI Funds: Large Cap Growth Fund and Franklin Large Cap 
Growth Fund; (b) FTI Funds: Municipal Bond Fund and Franklin Federal 
Tax-Free Fund; (c) FTI Funds: Bond Fund and Franklin Total Return 
Fund; and (d) FTI Funds: International Equity Fund (``FTI 
International Equity Fund'') and Templeton Foreign Fund (each, a 
``Fund'' and together, the ``Funds'').
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    2. The Franklin Advisers are each registered under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serve as investment 
advisers to the Acquiring Funds.\2\ Each Franklin Adviser is a wholly 
owned subsidiary of Franklin Resources, Inc. (``Resources''). FII is 
registered under the Advisers Act and serves as investment adviser to 
each

[[Page 10459]]

of the Acquired Funds. FII is an indirect, wholly owned subsidiary of 
Fiduciary Trust Company International (``FTCI''), which, on behalf of 
certain fiduciary accounts, owns of record, beneficially, or both, 5% 
or more of the outstanding shares of each Acquired Fund. FTCI is also 
an indirect wholly owned subsidiary of Resources.
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    \2\ FAI serves as investment adviser to Franklin Large Cap 
Growth Fund, Franklin Federal Tax-Free Fund, and Franklin Total 
Return Fund. TGAL serves as investment adviser to Templeton Foreign 
Fund.
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    3. On January 16, 2002, the board of trustees of FTI Funds (``FTI 
Board''), including all the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Disinterested 
Trustees''), unanimously approved the respective Agreements and Plans 
of Reorganization entered into between the Acquired Funds and the 
Acquiring Funds (each a ``Plan'' and together, the ``Plans''). On 
November 20, 2001 (and on December 4, 2001, in the case of Templeton 
Funds), the respective boards of trustees of the Acquiring Funds each a 
``Franklin Board'' and collectively, the ``Franklin Boards''), 
including the Disinterested Trustees, unanimously approved each Plan. 
Under each Plan, an Acquiring Fund will acquire substantially all of 
the assets of the corresponding Acquired Fund in exchange for Advisor 
Class shares of the Acquiring Fund, which will be distributed pro rata 
by the Acquired Fund to its shareholders as soon as reasonably 
practicable after the close of the applicable reorganization (each, a 
``Reorganization''). The shares of each Acquiring Fund exchanged will 
have a total net asset value equal to the total net asset value of the 
corresponding Acquired Fund's shares determined as of 4:00 p.m. Eastern 
time on the closing date of each Reorganization (each, a ``Closing 
Date''). The net asset value of the Acquiring Fund shares and the value 
of the corresponding Acquired Fund's net assets will be determined 
according to each Fund's then-current prospectus and statement of 
additional information. On the Closing Date, which is currently 
anticipated to occur on or about March 27, 2002, the Advisor Class 
shares of each Acquiring Fund will be distributed to the corresponding 
Acquired Fund's shareholders, and each Acquired Fund will satisfy its 
liabilities, liquidate and be dissolved as a separate series of FTI 
Funds.
    4. Applicants state that the investment objectives and strategies 
of each Acquired Fund are similar to those of each respective Acquiring 
Fund. Shares of the Acquired Funds and the Advisor Class shares of the 
Acquiring Funds are not subject to a front-end sales load, contingent 
deferred sales charge or exchange fee. The Acquiring Funds do not have 
a rule 12b-1 distribution fee for their Advisor Class shares. No sales 
charges or other fees will be imposed in connection with the 
Reorganizations. The expenses of each Reorganization will be paid one-
quarter by the applicable Acquiring Fund, the corresponding Acquired 
Fund, the applicable Franklin Adviser, and FII.
    5. Each Franklin Board and the FTI Board (together, the 
``Boards''), including all of the Disinterested Trustees, determined 
that each Reorganization was in the best interest of each of their 
respective Funds and their shareholders, and that the interests of each 
Fund's existing shareholders will not be diluted as a result of its 
Reorganization. In approving the Reorganizations, the Boards considered 
various factors, including, among other things: (a) The investment 
objectives, management policies and investment restrictions of the 
Funds; (b) the terms and conditions of the Reorganizations including 
any changes in services to be provided to shareholders of each Fund; 
(c) the respective expense ratios of the Funds; (d) the tax-free nature 
of the Reorganizations; and (e) the potential economies of scale that 
are likely to result from the larger asset base of the combined Funds.
    6. The Reorganizations are subject to a number of conditions, 
including: (a) Each Acquired Fund's shareholders will have approved the 
Plan; (b) an N-14 registration statement relating to each 
Reorganization will have become effective with the Commission; (c) each 
Fund will have received an opinion of counsel concerning the tax-free 
nature of its respective Reorganization; (d) each Acquired Fund will 
have declared and paid dividends and other distributions on or before 
the Closing Date; and (e) applicants will have received from the 
Commission the exemptive relief requested by the application. A Plan 
may be terminated and the Reorganization abandoned at any time prior to 
the Closing Date by mutual written consent of the parties or by either 
Fund in the case of a breach of the Plan. Applicants agree not to make 
any material changes to any Plan without prior approval of the 
Commission staff.
    7. A registration statement on Form N-14 with respect to the 
Reorganization of each Acquired Fund, containing a proxy statement/
prospectus, was filed with the Commission on January 22, 2002 (January 
18, 2002 for FTI International Equity Fund). A combined prospectus/
proxy statement will be mailed to each Acquired Fund's shareholders at 
least 20 business days before the date of the meeting of shareholders 
of each Acquired Fund (scheduled for March 22, 2002).

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, prohibits an 
affiliated person of a registered investment company, or an affiliated 
person of such person, acting as principal, from selling any security 
to, or purchasing any security from the company. Section 2(a)(3) of the 
Act defines an ``affiliated person'' of another person to include: (a) 
Any person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of the 
other person; (b) any person 5% or more of whose securities are 
directly or indirectly owned, controlled, or held with power to vote by 
the other person; (c) any person directly or indirectly controlling, 
controlled by or under common control with the other person; and (d) if 
the other person is an investment company, any investment adviser of 
that company.
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) certain mergers, consolidations, and sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided that certain conditions are 
satisfied.
    3. Applicants believe that they may not rely on rule 17a-8 in 
connection with the Reorganizations because the Funds may be deemed to 
be affiliated by reasons other than having a common investment adviser, 
common directors, and/or common officers. Applicants state that FTCI, 
on behalf of certain fiduciary accounts, owns of record, beneficially, 
or both, 5% or more of the total outstanding voting securities of each 
Acquired Fund. FTCI is also an affiliated person of each Franklin 
Adviser because each such company is under the common control of 
Resources, which directly or indirectly owns 100% of each company's 
outstanding voting securities. Consequently, each Acquired Fund may be 
deemed to be an affiliated person of an affiliated person of the 
corresponding Acquiring Fund for reasons other than those set forth in 
rule 17a-8.
    4. Section 17(b) of the Act provides, in relevant part, that the 
Commission may exempt a transaction from the provisions of section 
17(a) if evidence establishes that the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person

[[Page 10460]]

concerned, and that the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) to the extent necessary to complete 
the Reorganizations. Applicants submit that each Reorganization 
satisfies the standards of section 17(b) of the Act. Applicants state 
that the terms of the Reorganizations are reasonable and fair and do 
not involve overreaching. Applicants state that the investment 
objectives, policies and restrictions of the Acquired Funds are similar 
to those of the corresponding Acquiring Funds. Applicants also state 
that each Franklin Board and the FTI Board, including all of the 
Disinterested Trustees, found that the participation of the Acquired 
and the Acquiring Funds in the Reorganizations is in the best interests 
of each Fund and its shareholders and that such participation will not 
dilute the interests 4 of the existing shareholders of each Fund. In 
addition, applicants state that the Reorganizations will be on the 
basis of the Funds' relative net asset values.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-5432 Filed 3-6-02; 8:45 am]
BILLING CODE 8010-01-U