82 FR 26720 - Franklin Fund Allocator Series, et al.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 109 (June 8, 2017)

Page Range		26720-26721
FR Document		2017-11924
Federal Register, Volume 82 Issue 109 (Thursday, June 8, 2017)
[Federal Register Volume 82, Number 109 (Thursday, June 8, 2017)]
[Notices]
[Pages 26720-26721]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-11924]



[[Page 26720]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32669; File No. 812-14611]


Franklin Fund Allocator Series, et al.

June 5, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 12(d)(1)(A), (B), and (C) of the Act; under sections 6(c) and 
17(b) of the Act for an exemption from sections 17(a) of the Act; and 
under section 6(c) of the Act for an exemption from rule 12d1-2(a) 
under the Act. The requested order would: (a) Permit certain registered 
open-end investment companies to acquire shares of certain registered 
open-end investment companies, registered closed-end investment 
companies, business development companies, as defined in section 
2(a)(48) of the Act, and unit investment trusts (collectively, 
``Underlying Funds'') that are within and outside the same group of 
investment companies as the acquiring investment companies, in excess 
of the limits in section 12(d)(1) of the Act; and (b) permit certain 
registered open-end management investment companies relying on rule 
12d1-2 under the Act to invest in certain financial instruments.

Applicants: Franklin Fund Allocator Series, a Delaware statutory trust, 
that is registered under the Act as an open-end management investment 
company with multiple series (the ``Trust''); Franklin Advisers, Inc. 
(the ``Initial Adviser''), a California corporation, registered as an 
investment adviser under the Investment Advisers Act of 1940; and 
Franklin Templeton Distributors, Inc. (the ``Distributor''), registered 
as a broker-dealer under the Securities Exchange Act of 1934 (the 
``1934 Act'') and a member of the Financial Industry Regulatory 
Authority.

Filing Dates: The application was filed on February 9, 2016, and 
amended on May 23, 2017.

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 June 30, 2017, and should be accompanied by proof of 
service on the applicants, in the form of an affidavit, or, for 
lawyers, a certificate of service. Pursuant to rule 0-5 under the Act, 
hearing requests should state the nature of the writer's interest, any 
facts bearing upon the desirability of a hearing on the matter, 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: Craig S. Tyle, 
Franklin Templeton Investments, One Franklin Parkway, San Mateo, CA 
94403; and Bruce G. Leto and Michael W. Mundt, Stradley Ronon Stevens & 
Young, LLP, 2600 One Commerce Square, Philadelphia, PA 19103.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Nadya Roytblat, Assistant Chief Counsel, at (202) 
551-6821 (Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Summary of the Application

    1. Applicants request an order to permit (a) each Fund \1\ (each a 
``Fund of Funds'') to acquire shares of Underlying Funds \2\ in excess 
of the limits in sections 12(d)(1)(A) and (C) of the Act and (b) each 
Underlying Fund that is a registered open-end management investment 
company or series thereof, their principal underwriters, and any broker 
or dealer registered under the 1934 Act to sell shares of the 
Underlying Funds to the Fund of Funds in excess of the limits in 
section 12(d)(1)(B) of the Act.\3\ Applicants also request an order of 
exemption under sections 6(c) and 17(b) of the Act from the prohibition 
on certain affiliated transactions in section 17(a) of the Act to the 
extent necessary to permit the Underlying Funds to sell their shares 
to, and redeem their shares from, the Funds of Funds.\4\ Applicants 
state that such transactions will be consistent with the policies of 
each Fund of Funds and each Underlying Fund and with the general 
purposes of the Act and will be based on the net asset values of the 
Underlying Funds.
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    \1\ Applicants request that the order apply not only to the 
existing series of the Trust (the ``Initial Funds''), but that the 
order also extend to any future series of the Trust and any other 
existing or future registered open-end management investment 
companies and any series thereof that are part of the same ``group 
of investment companies,'' as defined in section 12(d)(1)(G)(ii) of 
the Act, as the Trust and are, or may in the future be, advised by 
the Initial Adviser or its successor or any other investment adviser 
controlling, controlled by, or under common control with the Initial 
Adviser or its successor (together with the Initial Funds, each 
series a ``Fund,'' and collectively, the ``Funds''). Applicants 
further request that the order also apply to any future principal 
underwriter and distributor for a Fund. For purposes of the 
requested order, ``successor'' is limited to an entity that results 
from a reorganization into another jurisdiction or a change in the 
type of business organization. For purposes of the request for 
relief, the term ``group of investment companies'' means any two or 
more registered investment companies, including closed-end 
investment companies, and business development companies, that hold 
themselves out to investors as related companies for purposes of 
investment and investor services.
    \2\ Certain of the Underlying Funds have obtained exemptions 
from the Commission necessary to permit their shares to be listed 
and traded on a national securities exchange at negotiated prices 
and, accordingly, to operate as an exchange-traded fund (``ETF'').
    \3\ Applicants are not requesting relief for a Fund of Funds to 
invest in business development companies and registered closed-end 
investment companies that are not listed and traded on a national 
securities exchange.
    \4\ Applicants note that a Fund of Funds generally would 
purchase and sell shares of an Underlying Fund that operates as an 
ETF or closed-end fund through secondary market transactions rather 
than through principal transactions with the Underlying Fund. 
Applicants nevertheless request relief from sections 17(a)(1) and 
(2) to permit each ETF or closed-end fund that is an affiliated 
person, or an affiliated person of an affiliated person, as defined 
in section 2(a)(3) of the Act, of a Fund of Funds, to sell shares to 
or redeem shares from the Fund of Funds. This includes, in the case 
of sales and redemptions of shares of ETFs, the in-kind transactions 
that accompany such sales and redemptions. Applicants are not 
seeking relief from Section 17(a) for, and the requested relief will 
not apply to, transactions where an ETF, BDC or closed-end fund 
could be deemed an affiliated person, or an affiliated person of an 
affiliated person, of a Fund of Funds because an investment adviser 
to the ETF, BDC or closed-end fund or an entity controlling, 
controlled by or under common control with the investment adviser to 
the ETF, BDC or closed-end fund, is also an investment adviser to 
the Fund of Funds.
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    2. Applicants further request an exemption under section 6(c) from 
rule 12d1-2 under the Act to permit any Fund of Funds that relies on 
section 12(d)(1)(G) of the Act (``Section 12(d)(1)(G) Fund of Funds'') 
and that otherwise complies with rule 12d1-2(a) under the Act, to also 
invest, to the extent consistent with its investment objective, 
policies, strategies and limitations, in other financial instruments 
that may not be securities within the meaning of section 2(a)(36) of 
the Act (``Other Investments'').
    3. Applicants agree that any order granting the requested relief 
will be subject to the terms and conditions

[[Page 26721]]

stated in the application. Such terms and conditions are designed to, 
among other things, help prevent any potential (i) undue influence over 
an Underlying Fund that is not in the same ``group of investment 
companies'' as the Fund of Funds through control or voting power, or in 
connection with certain services, transactions, and underwritings, (ii) 
excessive layering of fees, and (iii) overly complex fund structures, 
which are the concerns underlying the limits in sections 12(d)(1)(A), 
(B), and (C) of the Act. Applicants assert that permitting a Section 
12(d)(1)(G) Fund of Funds to invest in Other Investments as described 
in the application would not raise any of the concerns that section 
12(d)(1) of the Act was intended to address.
    4. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities, or transactions, from any provision of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Section 17(b) of the Act authorizes the 
Commission to grant an order permitting a transaction otherwise 
prohibited by section 17(a) if it finds that (a) the terms of the 
proposed transaction are fair and reasonable and do not involve 
overreaching on the part of any person concerned; (b) the proposed 
transaction is consistent with the policies of each registered 
investment company involved; and (c) the proposed transaction is 
consistent with the general purposes of the Act. Section 6(c) of the 
Act permits the Commission to exempt any persons or transactions from 
any provision of the Act if 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-11924 Filed 6-7-17; 8:45 am]
BILLING CODE 8011-01-P
Federal Register / Vol. 82, No. 109 / Thursday, June 8, 2017 / Notices 26721

stated in the application. Such terms SECURITIES AND EXCHANGE to adjust the inputs and calibrate the
and conditions are designed to, among COMMISSION spread curves iteratively until it
other things, help prevent any potential identifies the tenor causing the
[Release No. 34–80849; File No. SR–LCH
(i) undue influence over an Underlying calibration to fail, and the closest spread
SA–2017–004]
Fund that is not in the same ‘‘group of to that tenor that will allow the curve to
investment companies’’ as the Fund of Self-Regulatory Organizations; LCH appropriately calibrate.6
Funds through control or voting power, SA; Order Approving Proposed Rule LCH SA represented that this
or in connection with certain services, Change Relating to LCH SA’s CDS dichotomy-based algorithm can
transactions, and underwritings, (ii) Margin and Extreme Credit Spread consume significant amounts of time to
excessive layering of fees, and (iii) Curves process because of the number of
repetitions that may be necessary for the
overly complex fund structures, which June 2, 2017. process to produce the appropriate
are the concerns underlying the limits
I. Introduction results, which could result in delays in
in sections 12(d)(1)(A), (B), and (C) of
calculating margin requirements.7 To
the Act. Applicants assert that On April 4, 2017, Banque Central de ameliorate the potential for these delays,
permitting a Section 12(d)(1)(G) Fund of Compensation, which conducts LCH SA has proposed to amend its
Funds to invest in Other Investments as business under the name LCH SA (‘‘LCH approach by replacing the dichotomy-
described in the application would not SA’’), filed with the Securities and based algorithm described above with
raise any of the concerns that section Exchange Commission (‘‘Commission’’), an approximation-based approach under
12(d)(1) of the Act was intended to pursuant to Section 19(b)(1) of the which LCH SA would, in the event that
address. Securities Exchange Act of 1934 the ISDA Pricer fails, construct a
4. Section 12(d)(1)(J) of the Act (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a piecewise hazard rate curve and a
provides that the Commission may proposed rule change (SR–LCH SA–004) piecewise constant interest rate curve,
exempt any person, security, or to amend its CDS margin framework to and then apply average hazard and
replace an algorithm-based approach to interest rates for the relevant period to
transaction, or any class or classes of
pricing credit default swaps (‘‘CDS’’) in price the relevant CDS.8
persons, securities, or transactions, from
the event extreme spread curves cause LCH SA represents that it has
any provision of section 12(d)(1) if the
the International Swaps and Derivatives performed quantitative analysis, which
exemption is consistent with the public Association Standard Model for pricing indicates that the revised approach to
interest and the protection of investors. credit default swaps (‘‘ISDA Pricer’’) to calculating margin requirements in the
Section 17(b) of the Act authorizes the fail with an approximation-based event that the ISDA Pricer fails is a
Commission to grant an order method.3 The proposed rule change was reliable pricing tool.9 Therefore, this
permitting a transaction otherwise published for comment in the Federal revised approach is not likely to result
prohibited by section 17(a) if it finds Register on April 19, 2017.4 The in significant changes to CDS prices and
that (a) the terms of the proposed Commission received no comment margin requirements calculated using
transaction are fair and reasonable and letters regarding the proposed change. LCH SA’s current approach.
do not involve overreaching on the part For the reasons discussed below, the
of any person concerned; (b) the Commission is approving the proposed III. Discussion and Commission
proposed transaction is consistent with rule change. Findings
the policies of each registered Section 19(b)(2)(C) of the Act directs
II. Description of the Proposed Rule
investment company involved; and (c) the Commission to approve a propose
Change
the proposed transaction is consistent rule change of a self-regulatory
with the general purposes of the Act. LCH SA has proposed to amend its organization if it finds that such
Section 6(c) of the Act permits the CDS margin framework. The proposed proposed rule change is consistent with
Commission to exempt any persons or change would alter the approach used the requirements of the Act and the
transactions from any provision of the by LCH SA when the ISDA Pricer, used rules and regulations thereunder
Act if such exemption is necessary or in pricing CDS, fails as a result of applicable to such organization.10
appropriate in the public interest and extreme spread curves. Under its Section 17A(b)(3)(F) of the Act requires,
current CDS margin framework, LCH SA among other things, that the rules of a
consistent with the protection of
uses the ISDA Pricer to calibrate credit registered clearing agency be designed
investors and the purposes fairly
spread curves as part of its spread to promote the prompt and accurate
intended by the policy and provisions of margin component. According to LCH clearance and settlement of securities
the Act. SA, the ISDA Pricer cannot be used to transactions and, to the extent
For the Commission, by the Division of calibrate credit spread curves where applicable, derivative agreements,
Investment Management, pursuant to ‘‘extreme’’ credit spread curves exist.5 contracts, and transactions.11 Rule
delegated authority. In the event that the ISDA Pricer fails 17Ad–22(e)(17) requires, in relevant
Robert W. Errett, due to the existence of extreme credit part, that each covered clearing agency
Deputy Secretary. spread curves, LCH SA has established establish, implement, maintain, and
[FR Doc. 2017–11924 Filed 6–7–17; 8:45 am]
a dichotomy-based algorithm that it uses enforce written policies and procedures
reasonably designed to manage a
asabaliauskas on DSKBBXCHB2PROD with NOTICES

BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). covered clearing agency’s operational
2 17 CFR 240.19b–4. risk by identifying the plausible sources
3 For additional information regarding the ISDA

Standard Model, see www.cdsmodel.com. The 6 Id.
Commission is providing this link solely for
7 Id.
informational purposes.
4 Securities Exchange Act Release No. 34–80451 8 Id.
9 Notice,82 FR at 18516.
(April 13, 2017), 82 FR 18515 (April 19, 2017) (SR–
LCH SA–2017–004) (‘‘Notice’’). 10 15 U.S.C. 78s(b)(2)(C).
5 Notice, 82 FR at 18515. 11 15 U.S.C. 78q–1(b)(3)(F).

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Document Created: 2018-11-14 10:06:26
Document Modified: 2018-11-14 10:06:26
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice.
Dates		The application was filed on February 9, 2016, and amended on May 23, 2017.
Contact		Laura L. Solomon, Senior Counsel, at (202) 551-6915, or Nadya Roytblat, Assistant Chief Counsel, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation		82 FR 26720