No Action Letter - Franklin Templeton

Investment Company Act of 1940 - Section 17(f) and Rule 17f-2
Franklin Templeton

August 12, 2026

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT

In your[1] August 12, 2026 letter on behalf of the U.S. registered open-end and closed-end investment companies within the Franklin Templeton family of funds (collectively, the "Funds" and each, a "Fund") that are advised by investment advisers ("Managers") that are under the direct or indirect control of Franklin Templeton,[2] you request our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the "Commission") against the Funds under section 17(f) of the Investment Company Act of 1940, as amended (the "1940 Act") and Rule 17f-2 thereunder, if the Funds establish custodial arrangements in the manner and subject to the representations described below, with respect to the Funds' investments in shares of the Franklin OnChain U.S. Government Money Fund (the "OnChain Fund"), a series of Franklin Templeton Trust, without compliance with paragraphs (b), (e) and (f) of Rule 17f-2.

Background

You state the following:

• The OnChain Fund is an open-end management investment company and operates as a "government money market fund" relying on Rule 2a-7 under the 1940 Act.
• Franklin Templeton Investor Services LLC ("FTIS"), a registered transfer agent under the Securities Exchange Act of 1934, acts as the OnChain Fund's transfer agent. FTIS and the primary investment managers and most of the subadvisers to the Funds are indirect wholly-owned subsidiaries of Franklin Resources, Inc. and are affiliated persons of each other and of the Funds, including the OnChain Fund.
• FTIS maintains the official record of share ownership (i.e., the master securityholder file) using a proprietary recordkeeping system that is integrated with blockchain/distributed ledger technology (the "Integrated System"). The Integrated System is composed of:
  • an internal book-entry system that records private shareholder information (e.g., name, date of birth or Social Security number); and
  • one or more blockchains that record transactional and other anonymous shareholder information, such as purchases, redemptions, dividend rates, dividend distributions, net asset values, trade dates and transaction memo information, as well as complete transactional and operational history of the OnChain Fund. These records are automatically joined by FTIS on a real-time basis by referential data linkage to establish the master securityholder file.
• FTIS controls the Integrated System, including the permissioning, smart-contract administrative functions and referential linkage that make blockchain-recorded information part of the master securityholder file. All fund and shareholder records in the Integrated System are under FTIS's full control. FTIS maintains controls to correct errors or unauthorized transactions on any blockchain used by the Integrated System as well as to limit the transferability of OnChain Fund shares.
• FTIS also maintains a separate administrative key-control environment (the "Administrative Controls"). These Administrative Controls allow FTIS, in its capacity as transfer agent and administrator of the Integrated System, to sign and submit administrative instructions affecting the blockchain records associated with an investor wallet. The Administrative Controls permit FTIS to maintain, correct, freeze, migrate, or restore the official record of share ownership in the Integrated System. The Administrative Controls apply (and have such capabilities) regardless of whether the shareholder uses FTIS's wallet implementation, their own wallet, or a third-party wallet implementation.
• The Funds seek flexibility to invest in the OnChain Fund for cash management purposes, including the investment of cash balances and securities lending collateral. The Funds believe that investments in the OnChain Fund would benefit the Funds and their shareholders because the OnChain Fund provides certain operational features that are not available through the Funds' current cash management vehicle, including, for example, hourly net asset value calculations, intraday trading, faster transaction processing and the potential for reduced costs, as well as enhanced data security.
• In order for a Fund to invest in the OnChain Fund, FTIS represents that it will create a blockchain wallet for the Fund on the Stellar blockchain network upon creation of the Fund's account.[3] FTIS will maintain and secure the private key associated with each Fund's blockchain wallet.[4]
• FTIS uses a layered wallet security architecture, including multi-signature and multi-party computation techniques, geographically and operationally distributed signers, and offline recovery capabilities, designed to protect against theft, loss and unauthorized use of private keys.

Analysis

Your request relates to the staff's September 24, 1992 no-action letter issued to Franklin Investors Securities Trust (the "Trust") (the "1992 NAL"),[5] which provided a no-action position with respect to paragraphs (b), (e) and (f) of Rule 17f-2 in connection with an affiliated master-feeder fund arrangement in which the master fund's transfer agent maintained the fund shares held by the feeder fund in book-entry form.

Because FTIS is an affiliated person of the Funds, the Funds' proposed custody of shares of the OnChain Fund with FTIS are also self-custody arrangements subject to Rule 17f-2.[6] Further, you observe that the Funds' proposed investments in the OnChain Fund present the same issue that was addressed in the 1992 NAL: the investing Funds' OnChain Fund shares will be maintained by FTIS and will not be held by the Funds in certificated form deposited in a physical vault. Accordingly, you contend that the Funds would be unable to comply with paragraphs (b), (e) and (f) of Rule 17f-2 because those paragraphs would impose operational requirements designed for physical or certificated securities.[7] You also believe that the Funds' proposed custody arrangements, under the circumstances described below, support the staff granting a no-action position with respect to Rule 17f-2(b), (e) and (f), just as the arrangements described in the 1992 NAL were sufficient in the context of affiliated fund shares maintained by an affiliated transfer agent in book-entry form.

In support of your request, you represent that FTIS would perform the same custodial function for shares of the OnChain Fund that FAS performed for shares of the Master Fund, as described in the 1992 NAL. As FAS did for shares of the Master Fund, FTIS will allocate OnChain Fund shares to Fund accounts and effect purchases, redemptions, transfers and related record changes through entries in records that FTIS controls. While these functions will be performed, in part, through blockchain records, you believe that the additional use of these blockchain records does not alter that similarity to the circumstances described in the 1992 NAL; FTIS remains the party charged with and empowered to maintain the official record of share ownership as part of its custodial function, and it maintains unilateral control over that record.

You also contend that FTIS's maintenance of the private keys associated with the investing Funds' blockchain wallets does not require a substantially different result. While these private keys permit transactions associated with a Fund's wallet to be digitally signed, you represent that they do not displace FTIS's transfer-agent authority, FTIS's master securityholder file, or FTIS's administrative controls over the Integrated System. You further represent that FTIS controls the permissioning, smart-contract administrative functions and referential linkage that make blockchain-recorded information part of the official record, and that FTIS can correct errors or unauthorized transactions, freeze or migrate wallet records, create a new wallet and restore the official record if necessary. Therefore, you argue that a compromise or misuse of a wallet private key would not, by itself, establish a different official ownership record or prevent FTIS from maintaining the correct record of share ownership.

You argue that FTIS's controlled transfer-agent records, segregated accounts, successor-transition obligations and board oversight satisfy the concerns addressed by the physical vault custody requirement in Rule 17f-2(b) for fund shares recorded in the Integrated System. Similarly, you believe that controls over authorized instructions, passwords or other authentication factors, confirmations sent to persons other than those transmitting instructions, and daily reconciliation against transaction authorizations satisfy the concerns addressed by the deposit and withdrawal notation requirement in Rule 17f-2(e). Finally, you believe that the concerns addressed by Rule 17f-2(f) are satisfied by three annual independent public accountant verifications that compare FTIS's transfer-agent account records with the book records of the investing Fund and the OnChain Fund, together with reconciliation of any differences.

Response

Based upon the facts and representations set forth in your letter, staff of the Division of Investment Management (the "Division") would not recommend enforcement action to the Commission under section 17(f) and Rule 17f-2 if FTIS acts as custodian for the Funds with respect to the Funds' investments in shares of the OnChain Fund, without compliance with paragraphs (b), (e) and (f) of Rule 17f-2, provided that the investing Funds will:

1. maintain a system that is reasonably designed to prevent unauthorized officers' instructions and that will provide, at least, for the form, content and means of giving, recording and reviewing instructions.
2. require FTIS, upon ceasing to act as transfer agent for the OnChain Fund (including upon any assignment of the transfer agent function to another entity), to deliver and transition each investing Fund's shares and the related official books and records to the successor transfer agent, custodian or other safekeeper. In connection with any such transition, FTIS will also transfer to the successor transfer agent the Administrative Controls necessary to maintain and update the official record of share ownership in the Integrated System, including administrative control over any smart contracts and any other functionality that provides unilateral ability to effect or correct entries on the official record.
3. require FTIS to maintain the Administrative Controls described in this request for so long as FTIS acts as transfer agent for the OnChain Fund, including the controls necessary for FTIS to correct errors or unauthorized transactions, freeze or migrate wallet records if necessary, and maintain or restore the official record of share ownership in the Integrated System.
4. cause each Fund's Board of Trustees to approve the arrangements with FTIS and review such arrangements at least annually.
5. require FTIS to maintain records in the Integrated System that reflect each investing Fund's holdings in an account established for that Fund and segregated from the records of other shareholders. In addition, for purposes of recording holdings on the blockchain, FTIS will establish and maintain a separate blockchain wallet for each investing Fund.
6. require FTIS to send to each investing Fund copies of all confirmations of any transactions to or from the Fund's account or blockchain wallet.
7. require FTIS to send to each investing Fund reports regarding FTIS's system of internal accounting control as the Fund may reasonably request from time to time.
8. limit the number of persons authorized to transmit instructions to FTIS as transfer agent.
9. use passwords or other factors of authentication and cryptographic tools to ensure that only properly authorized persons can transmit instructions.
10. require FTIS to transmit confirmations of each transaction to persons authorized by the investing Fund other than those who transmit investment instructions on behalf of the investing Fund.
11. maintain internal accounting controls that subject all confirmations from FTIS to daily reconciliation against the investing Fund's transaction authorizations.
12. engage each investing Fund's independent public accountants to conduct their examinations by comparing FTIS's transfer agent account records with the book records of the investing Fund and the OnChain Fund and reconciling any differences. The independent public accountants will perform at least three verifications of the investing Fund's investments each fiscal year, at least two of which will be performed without prior notice to the investing Fund.

Our letter provides our position on enforcement action only and does not provide any legal conclusions on the issues presented. Because our position is based on all of the facts and representations made in your letter, you should note that any different facts and circumstances might require a different conclusion. This letter reflects the views of the staff of the Division of Investment Management. It is not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved its content. This letter, like all staff statements, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

Taylor Evenson
Senior Counsel