February 5, 2021

 

VIA EDGAR

Ms. Mindy Rotter

Mr. Tony Burak

U.S. Securities and Exchange Commission

Division of Investment Management

100 F Street, NE

Washington, DC 20549-8626

Subject:  Franklin Templeton Funds (the “Funds”) (as listed on the attached Appendix)

 

Dear Ms. Rotter and Mr. Burak:

On behalf of the Funds, the following are the responses to the U.S. Securities and Exchange Commission (“SEC”) Staff’s comments conveyed telephonically on January 6, 2021 with regard to the various filings made by the Funds with the SEC on Forms N-CEN and N-CSR, as well as corresponding disclosures made in their prospectuses filed as part of their registration statements.  References made to a Fund number, or to a Fund’s certified shareholder report or annual report, refer to the Funds and reports reviewed by the Staff as listed on the Appendix.  Each comment is summarized below, followed by the Funds’ response to the comment.

1.         Comment:  Certain Funds had exposure to derivatives during the last fiscal year end. However, management’s discussion of fund performance (“MDFP”) contained in the shareholder report for such Funds does not discuss the effect of the derivatives on the performance of the Fund. If Fund performance was materially affected by the derivative exposure, there should be discussion of the impact in the MDFP.  Please explain in correspondence why no discussion regarding the impact of derivatives was included in the MDFP.  This comment relates to Funds 1 – 44, as applicable.  For example, see Fund 1 (Franklin LibertyQ Emerging Markets ETF) and Fund 22 (Franklin FTSE Hong Kong ETF).

Response:  The Funds confirm that they have considered for the reporting periods, and will continue to consider, whether the use of derivatives materially affected their performance for purposes of the disclosure included in the MDFP section and will include related disclosure when appropriate in accordance with Item 27(b)(7)(i) of Form N-1A.

2.         Comment:  Please confirm in correspondence that there are no amounts payable to Fund Trustees that need to be disclosed or explain why such amounts have not been stated separately on the Statement of Assets and Liabilities in compliance with Rule 6-04 of Regulation S-X (Balance sheets).  This comment applies to Funds 5, 6, 7, 11, 12, 36, 37, 38, 39, 43, and 44.

 

Response:  We confirm that there were no open payables to the Funds’ Trustees at year-end for the indicated Funds.

3.         Comment:  Please confirm in correspondence that there are no components of accrued expenses and other liabilities that should be separately classified on the Statement of Assets and Liabilities.  This comment applies to Funds 7, 11, and 37.

Response:  We confirm that expenses are properly classified in adherence to the requirements of Rule 6-04 for the indicated Funds.

4.         Comment:  Please confirm in correspondence that any categories of other expenses that exceed five percent (5%) of total expenses have been separately identified on the Statement of Operations in accordance with Rule 6-07 of Regulation S-X (Statements of operations).  This comment applies to Funds 15, 27, 37, and 39.

Response:  We confirm that the indicated Funds have complied with the requirement of Rule 6-07 of Regulation S-X that any other expense item that exceeds five percent (5%) of total expenses has been separately identified on the Statement of Operations.

5.         Comment:  For those Funds that are identified in their prospectus as “non-diversified,” but appear to be operating as a diversified fund, please confirm in correspondence that the Fund will receive shareholder approval prior to changing its status back to a non-diversified fund.

Response:  Each of the Funds that is identified in the applicable prospectus as non-diversified (the “Non-Diversified Funds”) may, from time to time, operate as a diversified fund. However, none of the Non-Diversified Funds have operated as diversified for a continuous three-year period.  Pursuant to the Allied Capital SEC No-Action Letter (pub. avail. Jan. 3, 1989), if a Non-Diversified Fund were to operate in a diversified manner continuously for a three-year period, we confirm that such Fund would seek shareholder approval prior to changing its operating status back to non-diversified. 

6.         Comment:  Please explain in correspondence where the Total Annual Operating Expenses Without Fee Waiver noted in the Performance Summary in the annual shareholder report is disclosed in the prospectus.  This comment applies to Funds 7 and 39.

Response:  With respect to Fund 7 (Franklin Liberty U.S. Low Volatility ETF), we note that the prospectus was amended on October 1, 2019, and Total Annual Fund Operating Expenses (before fee waiver and/or expense reimbursement) in the fee table were restated to reflect current fiscal year fees as a result of a decrease in the Fund’s contractual management fee rate effective on October 1, 2019. Such restatement is disclosed in a footnote to the fee table.  Consequently, the Total Annual Operating Expenses Without Fee Waiver noted in the Performance Summary in the annual shareholder report were disclosed in the prospectus as supplemented on October 1, 2019.

 

With respect to Fund 39 (Franklin Liberty Systematic Style Premia ETF), we note that the Total Annual Operating Expenses Without Fee Waiver noted in the Performance Summary in the annual shareholder report were disclosed in the initial prospectus dated December 6, 2019, under Total Annual Fund Operating Expenses in the fee table.  Such Total Annual Fund Operating Expenses included other expenses that were based on estimated amounts for the current fiscal year, as disclosed in a footnote to the fee table.

7.         Comment:  The Financial Highlights of Fund 3 (Franklin LibertyQ Global Equity ETF) disclose the line item “expenses net of waiver and payments by affiliates.”  Please explain in correspondence where such waiver is discussed in the prospectus.

Response:  We note that the amounts that are reflected under the item “expenses net of waiver and payments by affiliates” is a combination of waiver of expenses and payments by affiliates.  The Fund did not have any waiver of expenses for the applicable period.  As disclosed in the prospectus, the adviser has agreed to reimburse the Fund for all acquired fund fees and expenses, which is reflected in the “payments by affiliates” amount.

8.         Comment:  On the Statements of Assets and Liabilities, certain Funds disclosed the liability “funds advanced by custodian.”  Please explain in correspondence what the account represents.  This comment relates to Funds 1 – 44, as applicable.  For example, see Fund 21 (Franklin FTSE Germany ETF).

Response:  Certain of the indicated Funds had an overdraft balance on account of operational matters during the period.  These overdraft amounts were not deemed material and were subsequently resolved.  Such amounts outstanding at the end of the reporting period were denoted as “funds advanced by custodian” on the Statement of Assets and Liabilities.

9.         Comment:  Please explain in correspondence why the “monthly average of the value of portfolio securities on loan during the reporting period” was not reported in response to Item C.6.f. of Form N-CEN when the Fund lent securities during the reporting period.  This comment applies to Funds 2, 18, and 29.

Response:  The monthly average of the value of securities on loan during the period is calculated utilizing the sum of the market value for the first business day of the reporting period plus the value on the last day of each month during the reporting period, divided by 13.  The indicated Funds did not have securities on loan for any day utilized to calculate such monthly average and, consequently, the calculated monthly average for the indicated Funds was zero.  Form N-CEN does not allow for an entry of zero in response to Item C.6.f., resulting in “n/a” being marked.   

10.       Comment:  In response to Item B.13 of Form N-CEN, Franklin Tax-Free Trust (Funds 47 – 69) reported that claims were filed under the directors and officers/errors and omissions liability insurance policy maintained by the registrant during the reporting period.  Please explain in correspondence the circumstances relating to the claim(s) made under such policy.

 

Response: Certain of the indicated Funds were named in an Advisory complaint filed by The Special Claims Committee of the Financial Oversight and Management Board for Puerto Rico, acting by and through its Members; the Official Committee of Unsecured Creditors of the Commonwealth of Puerto Rico; and the Commonwealth of Puerto Rico (“Commonwealth”), et al. The defendants, which included a number of Franklin Templeton (“FT”) funds, received payments from the Commonwealth on account of purported principal and interest obligations relating to certain Commonwealth general obligation bonds. This matter is not expected to have an impact on the shareholders of the aforementioned Funds, as it is in the process of being dismissed without repayment of principal or interest from former bondholders, including the applicable FT funds.

We believe that we have responded fully to each of the SEC’s Staff comments as set forth above.  However, should you have any further questions or require any further information, please do not hesitate to contact the undersigned at 916-463-1135, or, in his absence, Vivek Pai at 954-762-4327. 

 

 

Very truly yours,

 

/s/ Matthew T. Hinkle                      

Matthew T. Hinkle

Senior Vice President,

Global Fund Administration and Reporting & Global Fund Tax

Franklin Templeton

On behalf of the Funds listed in the attached Appendix

 

                                                                                                            APPENDIX

                                                                   FUNDS AND REPORTS REVIEWED BY SEC STAFF