[Federal Register Volume 74, Number 3 (Tuesday, January 6, 2009)]
[Notices]
[Pages 477-479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-31355]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28574; 812-13499]


Franklin Templeton Fund Allocator Series, et al.; Notice of 
Application

December 29, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 17(d) of the 
Investment Company Act of 1940 (``Act'') and rule 17d-1 under the Act.

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Summary of Application: Applicants request an order to permit certain 
registered open-end investment companies in the same group of 
investment companies to enter into a special servicing agreement 
(``Special Servicing Agreement'').

Applicants: Franklin Templeton Fund Allocator Series, Franklin Capital 
Growth Fund, Franklin Gold and Precious Metals Fund, Franklin Custodian 
Funds, Franklin Value Investors Trust, Franklin Mutual Series Funds, 
Templeton China World Fund, Templeton Developing Markets Trust, 
Templeton Funds, Franklin Templeton International Trust, Templeton 
Global Smaller Companies Fund, Franklin High Income Trust, Franklin 
Investors Securities Trust, Franklin Real Estate Securities Trust, 
Franklin Strategic Series, Franklin Strategic Mortgage Portfolio, 
Franklin Templeton Global Trust, Templeton Income Trust, Franklin 
Global Trust, Templeton Growth Fund, Inc., Institutional Fiduciary 
Trust (each, a ``Franklin Templeton Fund'' and collectively, the 
``Franklin Templeton Funds''), Franklin Advisers, Inc. (``Franklin 
Advisers''), Franklin Templeton Institutional, LLC, Franklin Templeton 
Investments Corp., Franklin Investment Advisory Services, LLC, Franklin 
Advisory Services, LLC, Franklin Mutual Advisers, LLC, Templeton Asset 
Management Ltd., Templeton Global Advisors Limited, Templeton 
Investment Counsel, LLC, Franklin Templeton Investment Management 
Limited (the ``Underlying Fund Advisers'' and, together with Franklin 
Advisers, the ``Advisers''), Franklin/Templeton Distributors, Inc. 
(``FTD''), Franklin Templeton Services, LLC (``FTS''), and each 
existing or future registered open-end management investment company or 
series thereof that is part of the same ``group of investment 
companies'' as the Franklin Templeton Funds under section 
12(d)(1)(G)(ii) of the Act and (i) is advised by Franklin Advisers or 
any entity controlling, controlled by, or under common control with 
Franklin Advisers, or (ii) for which FTD or any entity controlling, 
controlled by, or under common control with FTD serves as principal 
underwriter (such investment companies or series thereof, together with 
the Franklin Templeton Funds and their series, the ``Funds'').\1\
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    \1\ All entities that currently intend to rely on the order have 
been named as applicants. Any other entity that relies on the order 
in the future will comply with the terms and conditions of the 
application.

Filing Dates:  The application was filed on February 25, 2008, and 
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amended on December 19, 2008.

Hearing or Notification of Hearing:  An order granting the application 
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 January 23, 2009, 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicants, One Franklin 
Parkway, San Mateo, CA 94403-1906.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 
551-6878, or Mary Kay Frech, Branch Chief, at (202) 551-6821 (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 
Public Reference Room, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1520, telephone (202) 551-5850.

Applicants' Representations

    1. The Advisers are investment advisers registered under the 
Investment Advisers Act of 1940 and are under common control of 
Franklin Resources, Inc. Franklin Advisers provides investment 
management and related administrative services to the Top-Tier Funds 
(as defined below) and certain of the Underlying Funds (as defined 
below). The Underlying Fund Advisers

[[Page 478]]

serve as investment advisers to the remaining Underlying Funds. FTD is 
registered as a broker-dealer under the Securities Exchange Act of 1934 
and serves as distributor of the Funds. FTS provides certain 
administrative services and facilities for the Funds.\2\
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    \2\ FTS also provides general administrative services to certain 
Top-Tier Funds that do not have an investment adviser. The 
administrative services provided include monitoring and rebalancing 
these Top-Tier Funds' investment in the Underlying Funds.
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    2. The Franklin Templeton Funds are registered under the Act as 
open-end management investment companies. The Franklin Templeton Funds 
currently offer multiple series, 10 of which are ``Top-Tier Funds'' \3\ 
and 33 of which are ``Underlying Funds.'' \4\ The Top-Tier Funds will 
invest substantially all of their assets in the Underlying Funds.\5\ 
The Top-Tier Funds and certain of the Underlying Funds currently offer 
multiple classes of shares in reliance on rule 18f-3 under the Act.
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    \3\ ``Top-Tier Funds'' refers to Franklin Templeton Conservative 
Target Fund, Franklin Templeton Corefolio Allocation Fund, Franklin 
Templeton Founding Funds Allocation Fund, Franklin Templeton Growth 
Target Fund, Franklin Templeton Moderate Target Fund, Franklin 
Templeton Perspectives Allocation Fund, Franklin Templeton 2015 
Retirement Target Fund, Franklin Templeton 2025 Retirement Target 
Fund, Franklin Templeton 2035 Retirement Target Fund and Franklin 
Templeton 2045 Retirement Target Fund and any other Fund that 
invests substantially all of its assets in the Underlying Funds (as 
defined below).
    \4\ ``Underlying Funds'' refers to Franklin Capital Growth Fund, 
Franklin Gold and Precious Metals Fund, Franklin Growth Fund, 
Franklin Income Fund, Franklin U.S. Government Securities Fund, 
Franklin MicroCap Value Fund, Franklin Small Cap Value Fund, Mutual 
Discovery Fund, Mutual European Fund, Mutual Financial Services 
Fund, Mutual Shares Fund, Templeton China World Fund, Templeton 
Developing Markets Trust, Templeton Foreign Fund, Templeton Foreign 
Smaller Companies Fund, Templeton Global Long-Short Fund, Templeton 
Global Smaller Companies Fund, Franklin High Income Fund, Franklin 
Floating Rate Daily Access Fund, Franklin Limited Maturity U.S. 
Government Securities Fund, Franklin Total Return Fund, Franklin 
Real Estate Securities Fund, Franklin Strategic Income Fund, 
Franklin Growth Opportunities Fund, Franklin Flex Cap Growth Fund, 
Franklin Natural Resources Fund, Franklin Small Cap Growth Fund II, 
Franklin Strategic Mortgage Portfolio, Franklin Templeton Hard 
Currency Fund, Templeton Global Bond Fund, Franklin Global Real 
Estate Fund, Templeton Growth Fund, Inc., Franklin Cash Reserves 
Fund and any other Fund.
    \5\ The Top-Tier Funds will not be Underlying Funds and no Top-
Tier Fund will invest in another Top-Tier Fund.
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    3. The Advisers and the Funds propose to enter into a Special 
Servicing Agreement that would allow an Underlying Fund to bear the 
expenses of a Top-Tier Fund (other than management fees, fund-level 
administrative service fees,\6\ rule 12b-1 fees and class-specific 
administrative service fees). Under the Special Servicing Agreement, 
each Underlying Fund will bear expenses of a Top-Tier Fund in 
proportion to the estimated benefits to the Underlying Fund arising 
from the investment in the Underlying Fund by the Top-Tier Fund 
(``Underlying Fund Benefits'').
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    \6\ Fund-level administrative services are those that benefit 
all classes of a Fund, including, for example, coordinating daily 
pricing of the Fund's portfolio, providing Fund accounting, 
monitoring the Fund's compliance with laws and providing office 
space, equipment and supplies for the Fund.
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    4. Applicants state that the Underlying Fund Benefits are expected 
to result primarily from the incremental increase in assets resulting 
from investments in the Underlying Funds by the Top-Tier Funds and the 
large asset size of each shareholder account that represents an 
investment by a Top-Tier Fund relative to other shareholder accounts. A 
shareholder account that represents a Top-Tier Fund will experience 
fewer shareholder transactions and greater predictability of 
transaction activity than other shareholder accounts. As a result, the 
shareholder servicing costs to any Underlying Fund for servicing one 
account registered to a Top-Tier Fund will be significantly less than 
the cost to that same Underlying Fund of servicing the same pool of 
assets contributed by a large group of shareholders owning relatively 
small accounts in one or more Underlying Funds. In addition, by 
reducing Top-Tier Fund expenses, the Special Servicing Agreement may 
lead to increased assets being invested in the Top-Tier Funds, which in 
turn would lead to increased assets being invested in the Underlying 
Funds, which could enable the Underlying Funds to control and reduce 
their expense ratios because their operating expenses will be spread 
over a larger asset base.
    5. No Fund will enter into a Special Servicing Agreement unless the 
Special Servicing Agreement: (a) Precisely describes the services 
provided to the Top-Tier Fund and the fees for those services charged 
to the Top-Tier Fund that may be paid by the Underlying Fund 
(``Underlying Fund Payments''); (b) provides that no affiliated person 
of the Top-Tier Funds, or affiliated person of such person, will 
receive, directly or indirectly, any portion of the Underlying Fund 
Payments, except for bona fide transfer agent services approved by the 
board of trustees (``Board'') of the Underlying Fund, including a 
majority of trustees who are not ``interested persons'' (within the 
meaning of section 2(a)(19) of the Act) (``Independent Trustees''); (c) 
provides that the Underlying Fund Payments may not exceed the amount of 
actual expenses incurred by the Top-Tier Funds; (d) provides that no 
Underlying Fund will reimburse transfer agent expenses of a Top-Tier 
Fund, including sub-accounting expenses and other out-of-pocket 
expenses, at a rate in excess of the average per account transfer agent 
expenses of the Underlying Fund, including sub-accounting expenses and 
other out-of-pocket expenses, expressed as a basis point charge (for 
purposes of calculating the Underlying Fund's average per account 
transfer agent expense the Top-Tier Fund's investment in the Underlying 
Fund will be excluded); and (e) has been approved by the Fund's Board, 
including a majority of the Independent Trustees, as being in the best 
interests of the Fund and its shareholders and not involving 
overreaching on the part of any person concerned.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act provide 
that an affiliated person of, or a principal underwriter for, a 
registered investment company, or an affiliate of such person or 
principal underwriter, acting as principal, shall not participate in, 
or effect any transaction in connection with, any joint enterprise or 
other joint arrangement in which the registered investment company is a 
participant unless the Commission has issued an order approving the 
arrangement. As investment advisers to the Funds, the Advisers are 
affiliated persons of each of the Underlying Funds and Top-Tier Funds, 
which in turn could be deemed to be under common control of the 
Advisers and therefore affiliated persons of each other. The Top-Tier 
Funds and the Underlying Funds also may be affiliated persons by virtue 
of a Top-Tier Fund's ownership of more than 5% of the outstanding 
voting securities of an Underlying Fund. Consequently, the Special 
Servicing Agreement could be deemed to be a joint transaction among the 
Top-Tier Funds, the Underlying Funds and the Advisers.
    2. Rule 17d-1 under the Act provides that, in passing upon a joint 
arrangement under the rule, the Commission will consider whether 
participation of the investment company in the joint enterprise or 
joint arrangement on the basis proposed is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants.
    3. Applicants request an order under section 17(d) and rule 17d-1 
to permit them to enter into the Special Servicing

[[Page 479]]

Agreement. Applicants state that participation by the Top-Tier Funds, 
the Underlying Funds and the Advisers in the proposed Special Servicing 
Agreement is consistent with the provisions, policies and purposes of 
the Act, and that the terms of the Special Servicing Agreement and the 
conditions set forth below will ensure that no participant participates 
on a basis less advantageous than that of other participants.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. No Fund will enter into a Special Servicing Agreement unless the 
Special Servicing Agreement: (a) Precisely describes the services 
provided to the Top-Tier Funds and the Underlying Fund Payments; (b) 
provides that no affiliated person of the Top-Tier Funds, or affiliated 
person of such person, will receive, directly or indirectly, any 
portion of the Underlying Fund Payments, except for bona fide transfer 
agent services approved by the Board of the Underlying Fund, including 
a majority of the Independent Trustees; (c) provides that the 
Underlying Fund Payments may not exceed the amount of actual expenses 
incurred by the Top-Tier Funds; (d) provides that no Underlying Fund 
will reimburse transfer agent expenses of a Top-Tier Fund, including 
sub-accounting expenses and other out-of-pocket expenses, at a rate in 
excess of the average per account transfer agent expenses of the 
Underlying Fund, including sub-accounting expenses and other out-of-
pocket expenses, expressed as a basis point charge (for purposes of 
calculating the Underlying Fund's average per account transfer agent 
expense the Top-Tier Fund's investment in the Underlying Fund will be 
excluded); and (e) has been approved by the Fund's Board, including a 
majority of the Independent Trustees, as being in the best interests of 
the Fund and its shareholders and not involving overreaching on the 
part of any person concerned.
    2. In approving a Special Servicing Agreement, the Board of an 
Underlying Fund will consider, without limitation: (a) The reasons for 
the Underlying Fund's entering into the Special Servicing Agreement; 
(b) information quantifying the Underlying Fund Benefits; (c) the 
extent to which investors in the Top-Tier Fund could have purchased 
shares of the Underlying Fund; (d) the extent to which an investment in 
the Top-Tier Fund represents or would represent a consolidation of 
accounts in the Underlying Funds, through exchanges or otherwise, or a 
reduction in the rate of increase in the number of accounts in the 
Underlying Funds; (e) the extent to which the expense ratio of the 
Underlying Fund was reduced following investment in the Underlying Fund 
by the Top-Tier Fund and the reasonably foreseeable effects of the 
investment by the Top-Tier Fund on the Underlying Fund's expense ratio; 
(f) the reasonably foreseeable effects of participation in the Special 
Servicing Agreement on the Underlying Fund's expense ratio; and (g) any 
conflicts of interest that the Advisers, any affiliated person of the 
Advisers, or any other affiliated person of the Underlying Fund may 
have relating to the Underlying Fund's participation in the Special 
Servicing Agreement.
    3. Prior to approving a Special Servicing Agreement on behalf of an 
Underlying Fund, the Board of the Underlying Fund, including a majority 
of the Independent Trustees, will determine that: (a) The Underlying 
Fund Payments under the Special Servicing Agreement are expenses that 
the Underlying Fund would have incurred if the shareholders of the Top-
Tier Fund had instead purchased shares of the Underlying Fund through 
the same broker-dealer or other financial intermediary; (b) the amount 
of the Underlying Fund Payments is less than the amount of Underlying 
Fund Benefits; and (c) by entering into the Special Servicing 
Agreement, the Underlying Fund is not engaging, directly or indirectly, 
in financing any activity which is primarily intended to result in the 
sale of shares issued by the Underlying Fund.
    4. In approving a Special Servicing Agreement, the Board of a Fund 
will request and evaluate, and the Advisers and FTS will furnish, such 
information as may reasonably be necessary to evaluate the terms of the 
Special Servicing Agreement and the factors set forth in condition 2 
above, and make the determinations set forth in conditions 1 and 3 
above.
    5. Approval by the Fund's Board, including a majority of the 
Independent Trustees, in accordance with conditions 1 through 4 above, 
will be required at least annually after the Fund's entering into a 
Special Servicing Agreement and prior to any material amendment to a 
Special Servicing Agreement.
    6. To the extent Underlying Fund Payments are treated, in whole or 
in part, as a class expense of an Underlying Fund, or are used to pay a 
class-based expense of a Top-Tier Fund, conditions 1 through 5 above 
must be met with respect to each class of a Fund as well as the Fund as 
a whole.
    7. Each Fund will maintain and preserve the Board's findings and 
determinations set forth in conditions 1 and 3 above, and the 
information and considerations on which they were based, for the 
duration of the Special Servicing Agreement, and for a period not less 
than six years thereafter, the first two years in an easily accessible 
place.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-31355 Filed 1-5-09; 8:45 am]
BILLING CODE 8011-01-P