777 Mariners Island Blvd. P.O. Box 7777 San Mateo, CA 94403-7777

November 9, 1999

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: File No. S7-19-99

Dear Secretary Katz:

The Franklin Templeton Group is strongly opposed to pay to play practices and shares the Commission's concerns over the adverse impact of these practices on governmental plans and participants. However, we believe that the Commission's proposal places undue burdens on investment advisers and intrudes on the ability of an individual to participate in the political process simply because he or she is associated with an investment adviser. We believe that it would be more appropriate for pay to play practices to be addressed by states and public pension funds, which are in the best position to monitor and regulate the activities of the specific individuals involved in the selection of investment managers.

The Franklin Templeton Group is comprised of ten separate SEC-registered investment advisers, each with its own set of officers. The proposed rule would effectively prohibit one adviser from entering into an advisory relationship with a government client if an officer of an affiliated adviser, without the knowledge of the first adviser, makes a contribution to an elected official who might be indirectly involved in the selection process for a governmental plan. Although the release states that contributions by an affiliate would not trigger the rule's prohibitions, the provision relating to acts done indirectly creates considerable uncertainty regarding the scope of the rule. Further, the exemption process described in the proposed rule for inadvertent contributions is not likely to offer practical relief, since the selection of an adviser can take place over a relatively short period.

The recordkeeping and compliance burdens imposed by the rule are substantial, particularly for firms with multiple advisers such as Franklin Templeton. We disagree with the statement in the release that the fact that the proposed rule is modeled after

MSRB rule G-37 should minimize the compliance burden, since very few investment advisers have broker-dealer affiliates that underwrite municipal securities.

We are especially concerned about the proposed rule's intrusion into the personal and political lives of our employees. Since many equate individual political contributions with free speech, we believe the Commission should be more sensitive to the possible chilling effect that the rule may have on this type of activity.

If the Commission determines to adopt a pay to play rule, we recommend that several changes be made to the rule as proposed.

 

• The amount subject to the de minimis exclusion should be increased to $1000 so as to exclude contributions that are not likely to have an impact on the selection process.

   

• The rule should apply only to advisers and not to individual officers or solicitors, unless it can be shown that the individual intended to evade the rule by making a contribution on behalf of the adviser.
  

   

• The rule, including its recordkeeping requirements, should only apply to contributions to a candidate who the contributor knows is responsible for, or has influence over, the selection of an investment adviser.
  

As stated above, we believe that concerns over pay to play practices are more appropriately addressed by the governmental entities and public pension plans themselves. Individuals responsible for selecting advisers should be subject to the highest fiduciary standards and held accountable if they place their interests above those of the plans they serve. As stated in the release, a number of states and public pension funds have already taken steps in this direction. Accordingly, we do not believe that imposing significant compliance burdens on investment advisers is warranted at this time.

Sincerely,

Deborah R. Gatzek