Law Offices
STRADLEY RONON STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
MATTHEW R. DICLEMENTE
Direct Dial - 215.564.8173
mdiclemente@stradley.com
July 24, 2009
Christina L. DiAngelo
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, NE
Washington, DC 20549-4720
RE: SEC STAFF ACCOUNTING COMMENTS TO THE FRANKLIN
INVESTORS SECURITIES TRUST (FIST) AND FRANKLIN NEW
YORK TAX-FREE TRUST'S (FNYTFT AND, TOGETHER WITH
FIST, THE "REGISTRANTS") REGISTRATION STATEMENTS
ON FORM N-14 IN CONNECTION WITH THE
REORGANIZATIONS WITH CERTAIN HSBC FUNDS
Dear Ms. DiAngelo:
Listed below are the responses of the Registrants to your
comments received on July 10, 2009 on the FIST registration
statement on Form N-14 filed on June 19, 2009 (the "FIST
Registration Statement") and the FNYTFT registration statement on
Form N-14 filed on June 19, 2009 (the "FNYTFT Registration
Statement" and, together with the FIST Registration Statement,
the "Registration Statements"). The comments you provided are in
bold text and the Registrants' responses follow in plain text.
Page references relate to the EDGAR version of the N-14
Registration Statement as filed for Franklin Investors Securities
Trust. The capitalized terms used throughout this memo have the
same meanings assigned to them in the Registration Statements
unless otherwise defined.
COMMENT NO. COMMENTS AND RESPONSES
1. TEXT: Part C to Franklin New York Tax-Free Trust: PWC
Consent
COMMENT: PLEASE PROVIDE THE CONSENT FROM PWC FOR
FRANKLIN NEW YORK INTERMEDIATE TERM TAX-FREE
INCOME FUND. THIS WILL REQUIRE YOU TO FILE A
PRE-EFFECTIVE AMENDMENT TO THE REGISTRATION
STATEMENT ON FORM N-14 FOR FRANKLIN NEW YORK
TAX-FREE TRUST.
RESPONSE: The proper consent will be attached to
Pre-Effective Amendment No. l to the FNYTFT
Registration Statement.
2. TEXT: Page 87 - "Financial Highlights" for Franklin Total
Return Fund
COMMENT: ARE THESE FINANCIAL HIGHLIGHTS INTENDED
TO INCORPORATE THE FINANCIAL HIGHLIGHTS AS OF
4/30/09 FROM THE MOST RECENT SEMI-ANNUAL REPORT?
IF SO, PLEASE UPDATE.
RESPONSE: The financial highlights for the
Franklin Total Return Fund in the FIST
Registration Statement will be updated in
Pre-Effective Amendment No. l to the FIST
Registration Statement (together with
Pre-Effective Amendment No. l to the FNYTFT
Registration Statement, "PEA No. 1") to reflect
the financial highlights as of 4/30/09 from the
Franklin Total Return Fund's most recent
semi-annual report to shareholders.
3. TEXT: Fee and Capitalization Tables
COMMENT: THE SEC'S VIEW IS THAT THE FEE TABLES
(WITH CORRESPONDING CAPITALIZATION TABLES) SHOULD
PROVIDE THE MOST LIKELY OUTCOMES AS WELL AS THE
HIGHEST AND LOWEST POSSIBLE OUTCOMES IN TERMS OF
EXPENSES. PLEASE PROVIDE SUCH OUTCOMES OR EXPLAIN
WHY YOU HAVE NOT INCLUDED SUCH OUTCOMES.
RESPONSE: Because the assets to be acquired
constitute less than 10% of the total assets of
the Franklin Total Return Fund, no pro forma
combining financial statements have been included
in the FIST Registration Statement. In completing
the pro forma fee table, it was calculated that
there would be no anticipated change to the
Franklin Total Return Fund's total or net fund
expenses as a result of the reorganizations and
therefore the fee table included in the FIST
Registration Statement presents the most likely
outcome as well as the highest and lowest
outcomes. As a result, only one pro forma
capitalization table was prepared. In addition,
none of the proposed reorganizations, individually
or in the aggregate, had a material impact on
Franklin Total Return Fund's capitalization.
4. TEXT: Page 21- "AMUS does not believe that the
differences in the valuation procedures of the Acquiring
Funds and Target Funds would have any material impact
on shareholder in connection with the organizations."
COMMENT: PLEASE PROVIDE THE PRICING DIFFERENCES
AS OF A RECENT SPECIFIED DATE. IF THE DIFFERENCES
ARE MATERIAL, PLEASE REFLECT SUCH DIFFERENCES IN
THE ADJUSTMENTS COLUMN OF THE CAPITALIZATION TABLE.
RESPONSE: The following table shows the pricing
differences as of 6/30/2009:
NAME OF FUND % MARKET VALUE
ADJUSTMENT
HSBC Investor Core Plus Fixed
Income Fund 0.06%
HSBC Investor Intermediate
Duration Fixed Income
Fund 0.05%
HSBC Investor New York
Tax-Free Bond Fund -0.23%
5. TEXT: Page 16 - "Orderly Reorganization of the Target
Funds" COMMENT: YOU NOTE THAT... "IT IS NOT
ANTICIPATED THAT THE SALE OF SUCH SECURITIES PRIOR TO
THE REORGANIZATION WILL RESULT IN ANY MATERIAL AMOUNTS
OF CAPITAL GAINS TO BE DISTRIBUTED TO SHAREHOLDERS
BY SUCH FUNDS." PLEASE RECALCULATE AS OF A MORE
RECENT DATE TO SHOW THAT THE DISTRIBUTED CAPITAL
GAINS REMAIN NONMATERIAL.
RESPONSE: The Registrants have confirmed that the
sales of securities designated for sale prior to
the merger would result in capital losses if sold
on July 3, 2009 at the closing prices provided by
the Target Funds' pricing service provider on that
date.
6. TEXT: Page 15 - "Who Bears the Expenses Associated
with the Reorganization?"
COMMENT: INCLUDE AN ESTIMATE OF THE TOTAL COST OF
EACH REORGANIZATION EVEN IF BORNE BY PARTIES OTHER
THAN THE FUNDS.
RESPONSE: Franklin Advisers, Inc. and AMUS have
--------
agreed to bear, or arrange for an entity under
common ownership to bear, expenses incurred in
connection with each Reorganization. As discussed
orally with you on July 20, 2009, Franklin
Advisers, Inc. and AMUS believe that it would put
them at a competitive disadvantage with respect to
negotiating the expenses that each entity would be
willing to pay in future reorganizations if they
were to disclose the amount of the Reorganization
expenses. Accordingly, Franklin Advisers, Inc.
and AMUS intend not to include an estimate of the
total cost of the Reorganizations but will add,
where applicable, disclosure regarding the types
of expenses that will be borne by Franklin
Advisers, Inc. and AMUS in connection with the
Reorganization.
7. TEXT: Page 77 - Capitalization Table
COMMENT: BECAUSE PRO FORMA FINANCIALS ARE NOT
INCLUDED FOR FRANKLIN TOTAL RETURN FUND, PLEASE
UPDATE THE CAPITALIZATION TABLE FOR THE FRANKLIN
TOTAL RETURN FUND TO BE AS OF A DATE WITHIN 30
DAYS OF THE FILING DATE.
RESPONSE: The capitalization table for the
Franklin Total Return Fund will be updated in
Pre-Effective Amendment No. l to the FIST
Registration Statement to be as of May 29, 2009,
which is within 30 days of the initial filing date
of June 19, 2009.
8. TEXT: Page 77 - Capitalization Table
COMMENT: PLEASE SHOW THE TOTAL CAPITALIZATION OF
ALL CLASSES (INCLUDING B AND R) OF EACH ACQUIRING
FUND IN THE CAPITALIZATION TABLE. THIS MAY BE
SHOWN WITHIN THE TABLE OR BY A FOOTNOTE TO THE
TABLE. THIS WILL PERMIT SHAREHOLDERS OF THE
TARGET FUNDS TO HAVE COMPLETE INFORMATION ABOUT
THE ACQUIRING FUNDS.
RESPONSE: The capitalization table has been
revised to include all classes of the Acquiring
Funds. The revised capitalization table will be
included in PEA No. 1.
9. TEXT: Page 77 - Capitalization Table
COMMENT: THE CAPITALIZATION TABLE FOR THE
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE
INCOME FUND SHOULD MIRROR THE STATEMENT OF ASSETS
AND LIABILITIES IN THE PRO FORMA FINANCIALS.
PLEASE MODIFY THE CAPITALIZATION TABLE ACCORDINGLY
(BY ADDING SHARE ADJUSTMENT, FOR EXAMPLE).
RESPONSE: The capitalization table has been
reformatted to mirror the capitalization
information included in the Statement of Assets
and Liabilities in the Pro Forma Financials. The
revised capitalization table will be included in
PEA No. 1.
10. TEXT: Appendix I - Pro Forma Financial Statements
COMMENT: REMOVE DUPLICATIVE CAPITALIZATION
SCHEDULE IN THE PRO FORMA FINANCIALS.
RESPONSE: The duplicative capitalization schedule
will be removed from the Pro Forma Financials and
reflected in Pre-Effective Amendment No. 1 to the
FNYTFT Registration Statement.
11. TEXT: Appendix I - Pro Forma Financial Statements
COMMENT: IN THE CAPITALIZATION SCHEDULE UNDER
"FRANKLIN NEW YORK INTERMEDIATE--TERM TAX-FREE
INCOME FUND AFTER TRANSACTION," PLEASE REVIEW THE
NUMBERS UNDER "SHARES OUTSTANDING FOR ALL
CLASSES." THERE APPEARS TO BE ONE SHARE DIFFERENCE
FROM THE INFORMATION PROVIDED IN THE FINANCIAL
HIGHLIGHTS (36,929,017 SHOULD BE 36,929,018).
RESPONSE: The one share difference between the
capitalization schedule and the Financial
Highlights has been corrected and will be
reflected in Pre-Effective Amendment No. 1 to the
FNYTFT Registration Statement.
12. TEXT: Appendix I - Pro Forma Financial Statements
COMMENT: IDENTIFY THE SECURITIES TO BE SOLD PRIOR
TO THE REORGANIZATION IN THE PRO FORMA STATEMENT
OF INVESTMENTS.
RESPONSE: As discussed with you on July 20, 2009,
Franklin Advisors, Inc. and AMUS believe that
disclosure of the identity of the specific
securities to be sold prior to the reorganization
may violate the Target Funds' portfolio holdings
disclosure policy. Franklin Advisors, Inc. and
AMUS further believe that such disclosure may
disadvantage the HSBC Investor New York Tax-Free
Bond Fund and the corresponding Acquiring Fund by
alerting the market to pending securities sales,
which could impact the HSBC Investor New York
Tax-Free Bond Fund's ability to achieve best price
and execution. Accordingly, FNYTFT does not
intend to specifically identify the HSBC Investor
New York Tax-Free Bond Fund portfolio securities
to be sold prior to the reorganization in the Pro
Forma Statement of Investments. The Registrant
confirms, however, that the proxy statement
includes both the estimated percentage of HSBC
Investor New York Tax-Free Bond Fund's assets that
will be sold prior to the reorganization as well
as an estimate of the transactions costs expected
to be incurred in connection with such sales.
13. TEXT: Appendix I - Notes to Pro Forma Combining
Statements
COMMENT: PLEASE PROVIDE THE REQUIRED FAS 157
DISCLOSURE.
RESPONSE: FAS 157 disclosure will be added to the
Notes to Pro Forma Combining Statements and
reflected in Pre-Effective Amendment No. 1 to the
FNYTFT Registration Statement.
14. TEXT: Appendix I - Notes to Pro Forma Combining
Statements
COMMENT: PLEASE PROVIDE DISCLOSURE STATING THE
ESTIMATED COSTS OF THE REORGANIZATIONS AND THAT
SUCH COSTS WILL BE BORNE BY THE MANAGERS.
RESPONSE: Disclosure will be added to the Notes
to Pro Forma Combining Statements stating that
Franklin Advisers, Inc. and AMUS have agreed to
bear, or arrange for an entity under common
ownership to bear, expenses incurred in connection
with each Reorganization. For the reasons set
forth in response to Comment # 6 above, the
estimated costs of the Reorganizations will not be
added.
15. TEXT: Appendix I - Pro Forma Combining Statement of
Operations
COMMENT: PLEASE BE MORE DETAILED IN FOOTNOTE (A)
TO THE STATEMENT OF OPERATIONS. FOOTNOTE (A) DOES
NOT EXPLAIN THE MANAGEMENT FEE INCREASE THAT HSBC
SHAREHOLDERS WILL EXPERIENCE.
RESPONSE: Footnote (a) to the Statement of
Operations will be modified to disclose the
increase in management fees and reflected in
Pre-Effective Amendment No. 1 to the FNYTFT
Registration Statement.
16. TEXT: Appendix I - Pro Forma Combining Statement of
Operations
COMMENT: THE STATEMENT OF OPERATIONS IN THE
SHAREHOLDER REPORTS FOR HSBC INVESTOR NEW YORK
TAX-FREE BOND FUND HAVE A SEPARATE LINE ITEM FOR A
SHAREHOLDER SERVICING FEE, YET THE PRO FORMA
COMBINING STATEMENT OF OPERATIONS DOES NOT INCLUDE
SUCH LINE ITEM. PLEASE ADVISE EITHER WHERE THE
PRE-REORGANIZATION SHAREHOLDER SERVICING FEE FOR
THE HSBC INVESTOR NEW YORK TAX-FREE BOND FUND IS
INCLUDED IN THE PRO FORMA STATEMENT OF OPERATIONS
OR WHY IT WAS NOT SO INCLUDED.
RESPONSE: The pre-reorganization shareholder
servicing fee for the HSBC Investor New York
Tax-Free Bond Fund is included in the transfer
agency fee line item in the Pro Forma Combining
Statement of Operations.
17. TEXT: Page 40 - Fee Table - Annual Fund Operating Expenses
for Franklin Total Return Fund
COMMENT: PLEASE EXPLAIN THE DIFFERENCE IN THE
EXPENSE RATIOS IN THE N-14 FEE TABLES AND THE
EXPENSE RATIOS AS DISCLOSED IN THE MOST RECENT
AUDITED FINANCIAL HIGHLIGHTS:
-----------------------------------------------------
FUND RATIO N-14 FEE AUDITED
TABLE FH RATIO
RATIO
-----------------------------------------------------
Franklin Total Gross 1.04% 1.01%
Return Fund- Expenses-
Class A excluding AFFE
-----------------------------------------------------
Franklin Total Gross 1.44% 1.41%
Return Fund- Expenses-
Class C excluding AFFE
-----------------------------------------------------
Franklin Total Gross .79% .76%
Return Fund- Expenses-
Class I excluding AFFE
-----------------------------------------------------
HSBC Core Plus Gross 2.21% 2.19%
Fixed Income-
Class B
-----------------------------------------------------
HSBC Core Plus Gross 2.21% 2.22%
Fixed Income-
Class C
HSBC Gross 1.76% 1.78%
Intermediate
Duration- Class A
-----------------------------------------------------
RESPONSE: The difference between the Franklin
Total Return Fund expense ratio in the Financial
Highlights and the N-14 Registration Statement fee
tables is due to the acquired fund fees and
expenses. The management fees shown in the N-14
Registration Statement expense table are shown at
the gross contractual rate of 35 basis points.
However, in the Financial Highlights the
management fees have been reduced by the acquired
fund fees and expenses to 32 basis points.
"Acquired fund fees" is also shown as a separate
line item in the N-14 and then reduced in the
waiver line item resulting in a net expense line
item that reflects the acquired fund fees and
expenses in the N-14 Registration Statement, but
not in the Financial Highlights. Below is a
breakout showing the differences between the
Financial Highlights ("FH") and N-14 Registration
Statement expense ratios. Acquired fund fees and
expenses are abbreviated as "AFFE."
FH N-14
Mgt Fees.32 .35 FH shows net of acquired fund
fees
12b-l .25 .25
Other .44 .44
AFFE .00 .03 Required prospectus disclosure,
waived and footnoted
Gross 1.01 1.07
Waiver (.16) (.19)
Net .85 .88 Net ratio reflects AFFE
The gross expense ratios included in the N-14 fee
table for the HSBC Investor Funds noted above are
those previously included in the applicable
Prospectus dated February 27, 2009. The gross
expense ratios included in the Prospectus were
adjusted from the gross expense ratios included in
the October 31, 2008 financial highlights to
reflect the difference in the maximum contractual
amounts that could be charged for class specific
expenses as compared to the largest share class (I
shares) of the fund as included in the same
Prospectus fee table.
18. TEXT: Page 69 - Fee Table -Annual Fund Operating
Expensesfor Franklin New York Intermediate-Term
Tax-Free Income Fund
COMMENT: IS FOOTNOTE (2) APPLICABLE GIVEN THAT
NUMBERS APPEAR IN THE FINANCIAL HIGHLIGHTS?
[FOOTNOTE (2) STATES: THE FRANKLIN NEW YORK
INTERMEDIATE-TERM TAX-FREE INCOME FUND BEGAN
OFFERING ADVISOR CLASS SHARES ON DECEMBER 1,
2008. TOTAL ANNUAL FUND EXPENSES ARE BASED ON THE
EXPENSES OF THE FUND'S CLASS A SHARES FOR THE
FISCAL YEAR ENDED SEPTEMBER 30,2008.]
RESPONSE: The footnote disclosure is consistent
with the requirements of Form N- 1 A. Instruction
6 to Item 3 of Form N-l A defines a "New Fund" as
"a Fund that does not include in Form N-l A
financial statements reporting operating results
or that includes financial statements for the
Fund's initial fiscal year reporting operating
results for a period of 6 months or less." The
financial highlights in the FNYTFT Registration
Statement include figures for Advisor Class shares
of the Franklin New York Intermediate Term
Tax-Free Income Fund for the period from December
1, 2008 to March 31,2009. Because this period is
less than six months, the Advisor Class shares of
the Franklin New York Intermediate Term Tax-Free
Income Fund are considered a "new fund" as defined
in Instruction 6 to Item 3 of Form N-l A.
Instruction 6 to Item 3 of Form N-l A requires
that "new funds" disclose in a footnote to the fee
table that "Other Expenses" are based on estimated
amounts for the current fiscal year.
19. TEXT: Page 66 - "The Annual Fund Operating Expenses
shown in the table below represent expenses for the
12 months ended October 31, 2008 and September 30,
2008 for the HSBC Investor New York Tax-Free Bond
Fund and Franklin New York Intermediate-Term
Tax-Free Income Fund, respectively, and those
projected for the Franklin New York
Intermediate-Term Tax-Free Income Fund on a PRO
FORMA basis after giving effect to the proposed
Reorganization, and are based on PRO FORMA
combined net assets as if the transaction had
occurred on March 31,2009. The expense table
information provided for the period prior to the
transaction is based on the most recent
prospectuses of the HSBC Investor New York
Tax-Free Bond and Franklin New York
Intermediate-Term Tax-Free Income Funds, while the
pro forma information is based on the 12 month
period ended September 30, 2008."
COMMENT: CONSIDER LEAVING PRO FORMA INFORMATION
TO BE AS OF THE ACQUIRING FUND'S FISCAL YEAR END
(9/30/08), OR RESTATE ALL INFORMATION AS OF
3/31/09. THE SEC HAS ALLOWED THE RESTATEMENT OF
FEE TABLES IN REGISTRATION STATEMENTS ON FORM N-14
ONLY IF THE FUND HAS EXPERIENCED A SIGNIFICANT
DROP IN ASSETS THAT MATERIALLY AFFECTED THE FEE
TABLE IN ITS LAST ANNUAL FINANCIAL STATEMENTS.
RESPONSE: The pro forma fee table information and
expense example will be revised to be as of the
Acquiring Fund's fiscal year end (9/30/08) and
reflected in PEA No. 1.
20. TEXT: Page 16 - "General Limitations on Capital Losses"
COMMENT: PLEASE EXPLAIN WHY THE UNREALIZED
APPRECIATION (DEPRECIATION) AT 4/30/09 FOR TARGET
FUNDS IS CALCULATED ON A BOOK BASIS, AND THE
UNREALIZED APPRECIATION (DEPRECIATION) AT 3/31/09
FOR ACQUIRING FUND IS CALCULATED ON A TAX BASIS AS
INDICATED IN THE CHART BELOW.
-------------------------------------------------------------
FUND PER N-14 PER FS
-------------------------------------------------------------
Capital Loss Franklin Total ($44,803,103) ($44,856,089)
Carryovers Return
-------------------------------------------------------------
Realized HSBC Core Plus ($915,623) ($915,868)
Capital Gain Fixed Income
(Loss) on a Fund
book basis at
4/30/09
-------------------------------------------------------------
HSBC Core Plus ($1,417,616) ($1,418,786)
Fixed Income
Fund (Advisor)
-------------------------------------------------------------
HSBC ($4,602) ($4,996)
Intermediate
Duration
Fixed Income
Fund
-------------------------------------------------------------
Net Assets at HSBC Core $8,864,585 $8,895,406
4/30/09 Plus Fixed
Income Fund
-------------------------------------------------------------
HSBC Core $47,375,293 $47,535,425
Plus Fixed
Income Fund
(Advisor)
-------------------------------------------------------------
HSBC $12,328,901 $12,350,321
Intermediate
Duration
Fixed Income
Fund
-------------------------------------------------------------
HSBC New York $42,511,462 $42,562,761
Intermediate-Term
Tax-Free Fund
-------------------------------------------------------------
Unrealized Franklin New $2,153,063 $2,114,354
appreciation York
(depreciation) Intermediate-Term
at 4/30/09 for Tax-Free Fund
Target Funds on
a book basis
and 3/31/09 for
Acquiring Fund
on a tax basis
-------------------------------------------------------------
RESPONSE: The unrealized appreciation
(depreciation) at 4/30/09 for Target Funds was
calculated on a book basis because tax basis
numbers were unavailable at the time of filing of
the Registration Statements. The tax basis
numbers are now available and will be included as
referenced in PEA No. 1.
21. TEXT: Page 56 - Annual Fund Operating Expenses for
HSBC Intermediate Duration Fixed Income Fund
COMMENT: WE NOTED THAT THE GROSS EXPENSE RATIO
FOR THE HSBC INTERMEDIATE DURATION FIXED INCOME
FUND, CLASS C DROPPED TO 1.6% AT 4/30/09. WHAT
CAUSED THIS SIGNIFICANT DROP?
RESPONSE: The change was due to an expense
adjustment made for budgeted to actual expenses.
At the time of the expense adjustment, the net
assets of the class had significantly decreased
which caused a larger basis point impact.
In connection with the responses to the comments above, each
Registrant acknowledges the following:
o that the Registrant is responsible for the adequacy and
accuracy of the disclosure in their filings;
o that Staff comments or changes to disclosure in response
to Staff comments in the filings reviewed by the Staff do
not foreclose the Securities and Exchange Commission
("Commission") from taking any action with respect to
the filing; and
o that the Registrant may not assert Staff comments as a
defense in any proceeding initiated by the Commission
or any person under the federal securities laws of the
United States.
Please do not hesitate to contact me at 215.564.8173 if you have
any questions on these responses.
Very truly yours,
/s/ Matthew DiClemente