FRANKLIN TEMPLETON INVESTMENTS
ONE FRANKLIN PARKWAY
SAN MATEO, CA 94403-1906
August 22, 2017
VIA EDGAR
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, D.C. 20549-9303
Attention: Ms. Sumeera Younis
Mr. David Manion
Re: Franklin Value Investors Trust (the “Registrant”)
File No. 333-219174
Dear Ms. Younis and Mr. Manion:
On behalf of the Registrant, below are the Registrant’s responses to the comments conveyed telephonically by Ms. Younis (the “Disclosure Comments”) and by Mr. Manion (the “Accounting Comments”) on August 2, 2017 to Cory O. Hippler of Stradley Ronon Stevens & Young, LLP (“Stradley”), with regard to the Registrant’s registration statement on Form N-14 (the “Registration Statement”) relating to the proposed reorganization of the Franklin MidCap Value Fund (the “MidCap Fund”), a series of the Registrant, with and into the Franklin Small Cap Value Fund (the “Small Cap Fund”), another series of the Registrant. The Registration Statement was filed with the U.S. Securities and Exchange Commission (“SEC”) on July 6, 2017 under Rule 488 (“Rule 488”) under the Securities Act of 1933, as amended (the “Securities Act”).
Below we have provided your comments (in bold) and the Registrant’s response to each comment. These responses will be incorporated into a filing to be made pursuant to Rule 497(b) of the Securities Act. Capitalized terms not otherwise defined in this letter have the meanings assigned to such terms in the Registration Statement.
I. Disclosure Comments
1. Comment: On page 5, the section titled “SUMMARY–How will the Transaction affect me?–Better Relative Past Performance” includes past performance information for the Funds for the 1-, 3-, 5- and 10-year periods ended March 31, 2017, without sales loads. Please show the past performance information for the 1-, 5- and 10-year periods ended December 31, 2016, with sales loads, consistent with the requirements of Form N-1a. Similar comments apply to other presentations of performance information in the Registration Statement.
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Response: The Registrant notes that the prospectus for each Fund, including the performance information for the 1-, 5- and 10-year periods ended December 31, 2016, with sales loads, as required by Item 4 of Form N-1A, is incorporated by reference into the Registration Statement. Disclosure has been added to clearly state that performance information for the Funds as of December 31, 2016, with and without sales loads, is incorporated by reference from the Fund Prospectus under the section “Fund Summaries – Information about the Fund you should know before investing – Franklin MidCap Value Fund – Performance” and “– Franklin Small Cap Value Fund – Performance.”
The Registrant believes that the presentation of the more recent performance information in the Registration Statement may be beneficial to shareholders considering the Transaction. The Registrant further notes that the performance information included in the Registration Statement was considered by the Board in approving the Transaction.
2. Comment: On page 6, the last sentence in the paragraph under the heading “SUMMARY–How will the Transaction affect me?–Costs of the Transaction” states that “[t]he expenses associated with the Transaction will be allocated in the foregoing manner whether or not the Transaction is consummated.” Please describe the circumstances under which the Transaction would not be consummated, or include a statement to the effect that it is anticipated that the Transaction would be consummated.
Response: The referenced disclosure has been revised to include the underlined language below:
The expenses associated with the Transaction will be allocated in the foregoing manner whether or not the Transaction is consummated. It is expected that the Transaction will be consummated if approved by shareholders.
3. Comment: Under the heading “COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS–Who manages the Funds?–Fund Management Teams” beginning on page 11, please make sure the disclosure is clear that the portfolio management team is the same for both Funds, and will be the same after the Transaction.
Response: The Registrant believes the disclosure is clear that both Funds are managed by the same portfolio management team, and that such portfolio management team will continue to manage the Small Cap Fund after the Transaction.
4. Comment: Please confirm that all material factors that the Board considered in approving the Transaction, including any factors adverse to the Transaction, are disclosed under the heading “REASONS FOR THE TRANSACTION.”
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Response: The Registrant confirms that all material factors considered by the Board in approving the Transaction are disclosed under the heading “REASONS FOR THE TRANSACTION.”
5. Text: The section titled “REASONS FOR THE TRANSACTION” includes the following:
Sales Prospects. The marketplace has responded more favorably to the Small Cap Fund as new gross and net sales of the Small Cap Fund have been greater than new gross and net sales of the MidCap Fund for the 12 months ended March 31, 2017, and Management believes that this sales trend will continue to favor the Small Cap Fund in the future.
Comment: Please explain the basis for Management’s belief that the sales trend will continue in the Small Cap Fund’s favor.
Response: In forming its belief that the sales trend will continue in the Small Cap Fund’s favor, Management considered the gross and net sales of the Funds for the 12 months ended March 31, 2017, the average annual net sales/ redemptions in the Morningstar, Inc. (“Morningstar”) US-Fund Mid Cap Value category relative to the US Fund Small Value category for the 2014-2016 period, and the Funds’ Morningstar ratings and peer rankings within their respective categories as well as the Funds’ absolute and relative performance, which Management believes are important factors in sales trends.
6. Text: The second paragraph under the heading “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS–What are the principal risk factors associated with investments in the Funds?” states the following:
The principal risks of investing in the Small Cap Fund are substantially the same as the principal risks of investing in the MidCap Fund, except that the Small Cap Fund is subject to the principal risk of investing in smaller companies, whereas the MidCap Fund is subject to the principal risk of investing in midsize companies.
Comment: Please confirm whether the risk profile of the Funds is the same for each Fund.
Response: Management believes the risk profiles for the MidCap Fund and Small Cap Fund are materially aligned. To the extent that the Small Cap Fund generally invests a larger percentage of its assets in smaller capitalization companies than the MidCap Fund, its risk profile may differ from that of the MidCap Fund with respect to the degree of risk associated with such investments. Additional information regarding the risks of investing in smaller capitalization companies has been added under the heading “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS–What are the principal risk factors associated with investments in the Funds?”
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7. Comment: On page 32, under the heading “INFORMATION ABOUT THE FUNDS–Additional Information,” please include the Securities Act filing numbers for the materials incorporated by reference.
Response: Revised as requested.
8. Comment: With respect to the estimated cost of solicitation disclosed under the heading “VOTING INFORMATION–How will proxies be solicited?,” please confirm whether the estimated cost of proxy solicitation is included in the estimated cost of the Transaction described elsewhere in the Registration Statement, and subject to the allocation of costs among the Investment Manager and the Funds.
Response: The Registrant confirms that the estimated cost of solicitation is included in the estimated cost of the Transaction described in the Registration Statement, and subject to the allocation of costs among the Investment Manager and the Funds.
9. Comment: Please confirm that the information in Exhibit C regarding principal holders of shares of the Funds is current.
Response: The Registrant confirms that the information in Exhibit C regarding principal holders of shares of the Funds is as of the Record Date.
II. Accounting Comments
Response: The Registrant confirms that the Small Cap Fund will be the accounting survivor following the Transaction and acknowledges that the SEC staff may have additional comments.
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Response: The pro forma adjustment amounts in the capitalization table have been revised to equal, in total, $111,200, which is the total amount of the estimate expenses of the Transaction to be paid by the Funds.
Response: The disclosure has been added as requested.
Response: The pro forma “other expenses” and “total annual Fund operating expenses after fee waiver and/or expense reimbursement” for each class of the Small Cap Fund have been revised to reflect that no reduction is expected in the Small Cap Fund’s “other expenses” or “annual Fund operating expenses after fee waiver and/or expense reimbursement” following the Transaction. The expense example also has been revised accordingly.
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Response: The Registrant confirms that fees waived and expenses reimbursed by the Investment Manager are not subject to recoupment.
Response: The Registrant confirms that the fees and expenses presented in the annual operating expense tables beginning on page 14 under the heading “ANNUAL OPERATING EXPENSE TABLE FOR CLASS A, CLASS C, CLASS R AND ADVISOR CLASS SHARES OF THE FUNDS AND PROJECTED EXPENSES AFTER THE TRANSACTION” reflect the fees and expenses for each Fund using the format prescribed by Item 3 of Form N-1A, in accordance with Item 3(a) of Form N-14. Form N-1A, Item 3, Instruction 3(d)(i) requires that a registrant “base the percentages of ‘Annual Fund Operating Expenses’ on amounts incurred during the fund’s most recent fiscal year.” For the purposes of Form N-1A, the presentation of “amounts incurred during the fund’s most recent fiscal year” is linked to the fund’s financial statements included in its registration statement, such as the statement of operations. For example, Form N-1A, Item 3, Instruction 3(c)(i) states that “the amount of expenses deducted from the fund's assets are the amounts shown as expenses in the fund’s statement of operations.” Thus, the annual fund operating expense ratios presented in the fee and expense tables should be based upon and correspond to amounts that appear in the Funds’ statement of operations. The Registrant believes it has complied with this requirement.
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Response: The referenced footnote has been revised to state that the fee waiver and/or expense reimbursement will be in effect until February 28, 2018 and to remove the parenthetical reference to “acquired fund.” The Registrant confirms that the contractual fee waiver and/or expense reimbursement may not be terminated by the Board during the term of the waiver.
Response: The referenced asterisks have been removed.
Response: The following has been added under the heading “REASONS FOR THE TRANSACTION:”
Capital Loss Carryovers. At October 31, 2016, neither Fund had capital loss carryovers. For more information, see “FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION” below.
Response: Revised as requested.
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Response: The pro forma adjustment amounts in the capitalization table have been revised to equal, in total, $111,200, which is the total amount of the estimated expenses of the Transaction to be paid by the Funds.
Response: The following disclosure has been added under the heading “FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION–Repositioning of the MidCap Fund’s Portfolio Assets:”
Such sales would consist primarily of the MidCap Fund’s holdings with market capitalizations that exceed the range used by the Small Cap Fund to define “small-capitalization companies.”
With respect to the estimated transaction costs for repositioning, the disclosure under the heading “FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION–Repositioning of the MidCap Fund’s Portfolio Assets” has been revised to include the following:
Transaction costs also may be incurred due to the repositioning of a portion of the MidCap Fund’s portfolio assets, which will be borne by the MidCap Fund or the combined Small Cap Fund. Management believes that these portfolio transaction costs will be [approximately $84,000] [immaterial in amount (i.e., less than 0.005% (1/2 of 1 basis point) of the net asset value of the Small Cap Fund as of June 30, 2017)].
Response: Revised as requested.
Response: Revised as requested.
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The Registrant believes it has fully responded to each comment. If, however, you have any further questions or require further clarification of any response, please contact Kristin H. Ives at (215) 564-8037 or, in her absence, Cory O. Hippler at (215) 564-8089.
Regards,
/s/ Steven J. Gray
Steven J. Gray
Secretary and Vice President
Franklin Value Investors Trust
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