As filed with the Securities and Exchange Commission on
February, 27, 1995
File Nos.
2-12647
811-730
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
Post Effective Amendment No. 54 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 16 (X)
FRANKLIN PREMIER RETURN FUND
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-
2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA
94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
{ } immediately upon filing pursuant to paragraph (b)
{ } on (Date), pursuant to paragraph (b)
{ } 60 days after filing pursuant to paragraph (a)(i)
{ } on (Date) pursuant to paragraph (a)(i)
{ } 75 days after filing pursuant to paragraph (a)(ii)
{X} on May 1, 1995 pursuant to paragraph (a)(ii) of rule
485
If appropriate, check the following box
{ } This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Declaration Pursuant to Rule 24f-2. The Registrant has
registered an indefinite number or amount of securities
under the Securities Act of 1933 pursuant to Rule 24(f)(2)
under the Investment Company Act of 1940. The Rule 24f-2
Notice for the issuer's most recent fiscal year was filed on
February 23, 1995.
FRANKLIN PREMIER RETURN FUND
CROSS REFERENCE SHEET
FORM N-1A
N-1A Location in
Item No. Item Registration Statement
Part A: Information Required in Prospectus
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Fund";
"Investment Objectives and
Policies of the Fund";
"General Information"
5. Management of the "Management of the Fund"
Fund
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation of
the Fund and Its
Shareholders"; "General
Information"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Purchasing Shares of
Offered the Fund in Connection with
Retirement Plans Involving
Tax-Deferred Investments";
"Other Programs and
Privileges Available to Fund
Shareholders"; "Valuation of
Fund Shares"
8. Redemption or "How to Sell Shares of the
Repurchase Fund"; "Exchange Privilege";
"How to Get Information
Regarding an Investment in
the Fund"
9. Pending Legal Not Applicable
Proceedings
Part B: Information Required in
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information "About the Fund" (See also
and History the Prospectus "About the
Fund"; and "General
Information")
13. Investment Objectives "The Fund's Investment
Restrictions and Policies"
(See also the Prospectus
"Investment Objectives and
Policies of the Fund")
14. Management of the "Officers and Directors"
Fund
15. Control Persons and "Officers and Directors"
Principal Holders of
Securities
16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectus "Management
of the Fund")
17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"
18. Capital Stock and See Prospectus, "General
Other Securities Information"; "Distributions
to Shareholders"; "Taxation
of the Fund and Its
Shareholders"
19. Purchase, Redemption "Additional Information
and Pricing of Regarding Fund Shares" (See
Securities Being also the Prospectus "How to
Offered Buy Shares of the Fund";
"How to Sell Shares of the
Fund"; and "Valuation of
Fund Shares.")
20. Tax Status "Additional Information
Regarding Taxation"
See Prospectus "Taxation of
the Fund and Its
Shareholders"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "General Information"
Performance Data
23. Financial Statements Financial Statements
FRANKLIN
PREMIER
RETURN FUND
PROSPECTUS MAY 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Premier Return Fund (the "Fund") is a diversified,
open-end management investment company with the primary
investment objective of high current return and,
secondarily, relative stability of principal. The Fund will
seek to achieve its primary objective of high current return
by investing in common stocks, investment grade corporate
and U.S. government bonds and short-term money market
instruments. For hedging purposes, in an effort to stabilize
principal fluctuations, the Fund may engage in transactions
in stock options, stock index options, financial futures,
and options thereon.
This Prospectus is intended to set forth in a clear and
concise manner information about the Fund that a prospective
investor should know before investing. After reading the
Prospectus, it should be retained for future reference; it
contains information about the purchase and sale of shares
and other items which a prospective investor will find
useful to have.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the
Fund, dated May 1, 1995, as may be amended from time to
time, provides a further discussion of certain areas in this
Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Fund
or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors") at the address or
telephone number shown above.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN
DESCRIBED IN ANY STATE IN WHICH THE OFFERING IS NOT
AUTHORIZED. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM THE
UNDERWRITER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objectives and
Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund and
Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a
shareholder will bear directly or indirectly in connection
with an investment in the Fund. These figures are based on
aggregate operating expenses of the Fund for the fiscal year
ended December 31, 1994.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50%
Deferred Sales Charge NONE*
Exchange Fee (per transaction) $5.00**
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.63%
12b-1 Fees 0.12%+
Other Expenses:
Shareholder Servicing Costs 0.08%
Professional Fees 0.11%
Registration Fees 0.07%
Reports to Shareholders 0.19%
Other 0.07%
Total Other Expenses 0.52%
Total Fund Operating Expenses 1.27%
*Investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1% is imposed on certain redemptions within 12
months of the calendar month following such investments.
See "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."
**$5.00 fee imposed only on Timing Accounts as described
under "Exchange Privilege." All other exchanges are
processed without a fee.
+Shareholders of the Fund have approved a plan of
distribution (the "Plan") pursuant to Rule 12b-1 of the
Investment Company Act of 1940 (the "1940 Act"), which
provides for payments made by the Fund in connection with
the distribution of its shares (see "Plan of Distribution"
under "Management of the Fund." Consistent with National
Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and
Rule 12b-1 fees could cause long-term shareholders to pay
more than the economic equivalent of the maximum front-end
sales charges permitted under those same rules. See
"Management of the Fund - Plan of Distribution."
Investors should be aware that the above table is not
intended to reflect in precise detail the fees and expenses
associated with an individual's own investment in the Fund.
Rather the table has been provided only to assist investors
in gaining a more complete understanding of fees, charges
and expenses. For a more detailed discussion of these
matters, investors should refer to the appropriate sections
of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example
illustrates the expenses, including the initial sales
charge, that apply to a $1,000 investment in the Fund over
various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period. As noted
in the table above, the Fund charges no redemption fees:
1 year 3 years 5 years 10 years
$57 $83 $112 $191
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING
EXPENSES SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE
OR LESS THAN THOSE SHOWN. The operating expenses are borne
by the Fund and only indirectly by shareholders as a result
of their investment in the Fund. (See "Management of the
Fund" for a description of the Fund's expenses.) In
addition, federal regulations require the example to assume
an annual return of 5%, but the Fund's actual return may be
more or less than 5%.
FINANCIAL HIGHLIGHTS
Set forth below is a table containing financial highlights
for a share of the Fund outstanding throughout the ten
fiscal years ending December 31, 1994. The information for
each of the five fiscal years in the period ended December
31, 1994 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the
financial statements in the Fund's Annual Report dated
December 31, 1994. See the discussion "Reports to
Shareholders" under "General Information." The remaining
figures, which are also audited, are not covered by the
auditors' current report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE*
Net asset value at beginning of $ 622 $ 5.40 $ 4.88 $ 4.21 $ 5.19 $ 5.12 $ 4.95 $ 5.93 $ 6.59 $ 6.17
year -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income................0.14 0.13 0.15 0.14 0.16 0.15 0.15 0.15 0.11 0.12
Net realized and unrealized
gains (losses) on securities...... .(0.110) 0.860 0.530 0.780 (0.595) 0.599 0.705 0.031 0.360 1.255
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
Total from investment operations.....0.030 0.990 0.680 0.920 (0.435) 0.749 0.855 0.181 0.470 1.375
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
Less Distributions:
Dividends from net investment
income.......................... (0.140) (0.170) (0.160) (0.135) (0.155) (0.157) (0.162) (0.166) (0.125) (0.180)
Distributions from realized
capital gains................... - - - (0.115) (0.390) (0.522) (0.523) (0.995) (1.005) (0.775)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions............... (0.140) (0.170) (0.160) (0.250) (0.545) (0.679) (0.685) (1.161) (1.130) (0.955)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at end of year.....$ 6.11 $ 6.22 $ 5.40 $ 4.88 $ 4.21 $ 5.19 $ 5.12 $ 4.95 $ 5.93 $ 6.59
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN**.................... 0.46% 18.38% 14.02% 22.06% (8.81)% 14.72% 17.68% 1.44% 7.53% 24.27%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
year (in 000's). $25,631 $22,877 $22,077 $28,189 $32,878 $44,516 $45,010 $39,790 $34,203 $11,312
Ratio of expenses to average
net assets....................... 1.27% 1.00% 0.92% 0.93% 0.85% 0.81% 0.83% 0.84% 0.95% 1.10%
Ratio of net investment income to
average net assets............... 2.29% 2.15% 2.81% 2.95% 3.27% 2.81% 3.00% 2.65% 2.32% 2.07%
Portfolio turnover rate............ 45.18% 20.49% 23.17% 62.25% 73.12% 163.55% 79.73% 176.36% 105.00% 156.00%
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
**Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends at the offering price and capital gains, if any, at
net asset value.
ABOUT THE FUND
The Fund is a California corporation, originally
incorporated in Hawaii in 1951. It was reincorporated under
the laws of the state of California in 1983 and registered
with the SEC under the 1940 Act. The Fund has only one class
of capital stock, with no par value. The Fund is a
diversified, open-end management investment company,
commonly called a "mutual fund." On April 12, 1991
shareholders approved a change in the Fund's investment
objectives and policies and the adoption of the Fund's
current name. Formerly, the Fund was known as the Franklin
Option Fund.
Shares of the Fund may be purchased (minimum investment of
$100 initially and $25 thereafter) at the current public
offering price, which is equal to the Fund's net asset value
(see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.5% of the offering price. See "How to Buy Shares
of the Fund."
INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND
The investment objectives of the Fund are high current
return and, secondarily, relative stability of principal.
The objectives are fundamental policies of the Fund and may
not be changed without shareholder approval.
Current return, also known as "total return," is made up of
capital appreciation and income distributions. The Fund's
primary emphasis is growth of capital, with income a
secondary consideration. Distributions to shareholders are
expected to be derived primarily from common stock
dividends, interest income, and any net capital gains from
the sale of securities.
The Fund will seek to achieve its primary objective of high
current return by investing in common stocks (a majority of
which fall within the Standard & Poor's ["S&P"] 500 or the
S&P Mid-Cap 400), investment grade corporate and U.S.
government bonds, short-term money market instruments and
securities of foreign issuers. For hedging purposes, in an
effort to stabilize principal fluctuations, the Fund may
engage in transactions in stock options, stock index
options, financial futures and options thereon. As with any
investment, however, there is no assurance that the Fund's
objectives will be attained.
THE FUND'S INVESTMENTS AND STRATEGIES
It is anticipated that the Fund will primarily invest in
common stock, investment grade fixed-income securities, and
money market instruments. The percentage of assets invested
in these types of securities will vary from time to time,
with equity securities representing a majority of the Fund's
net assets.
The Fund's investment manager uses a top-down approach based
on the current and future outlook for the economy and the
business cycle to determine the Fund's asset allocation mix
and sector weightings. Quantitative, technical, and
fundamental analysis are all used to identify sectors, the
industries within those sectors, and the companies within
those industries. Depending on the stage of the business
cycle, certain sectors perform better than others. The
investment manager attempts to position the Fund in the
sectors exhibiting strong price momentum. The same
analytical tools are used to screen for industries and
companies.
Investments in debt securities will be in one of the four
highest ratings of either S&P or Moody's Investors Service
("Moody's"). The four highest rating categories are AAA, AA,
A or BBB by S&P or Aaa, Aa, A, or Baa by Moody's. Debt
securities rated BBB by S&P or Baa by Moody's are regarded
as having an adequate capacity to pay principal and interest
but with greater vulnerability to adverse economic
conditions and some speculative characteristics. As with
other debt instruments, the price of the debt securities in
which the Fund invests are likely to decrease in times of
rising interest rates. Conversely, when rates fall, the
value of the Fund's debt investments may rise. Price changes
of debt securities held by the Fund have a direct impact on
the net asset value per share of the Fund. The Fund's
investments in derivative instruments (options and futures)
will be for portfolio hedging purposes in an effort to
stabilize principal fluctuations to achieve the Fund's
secondary investment objective and not for speculation.
SHORT-TERM INVESTMENTS. The Fund may invest its cash,
including cash resulting from purchases and sales of Fund
shares, temporarily in short-term debt instruments,
including high grade commercial paper, repurchase agreements
and other money market equivalents. Such temporary
investments will only be made with cash held to maintain
liquidity or pending investment. In addition, for temporary
defensive purposes in the event of or when the investment
manager anticipates a general decline in the market prices
of stocks in which the Fund invests, the Fund may invest an
unlimited amount of its assets in short-term debt
instruments.
CONVERTIBLE SECURITIES. A portion of the Fund's assets may
be invested in convertible securities. A convertible
security is a fixed-income security (a bond or preferred
stock) which may be converted at a stated price within a
specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible
securities are senior to common stocks in a corporation's
capital structure, but are usually subordinated to similar
nonconvertible debt securities. Convertible securities
provide a fixed-income stream and the opportunity, through
its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the
convertible security's underlying common stock. As a fixed-
income security, a convertible security tends to increase in
market value when interest rates decline and tends to
decrease in value when interest rates rise. However, the
price of a convertible security is also influenced by the
market value of the security's underlying common stock and
tends to increase as the market value of the underlying
stock rises, whereas it tends to decrease as the market
value of the underlying stock declines.
SYNTHETIC CONVERTIBLES. The Fund may invest a portion of its
assets in "synthetic convertible" securities. A synthetic
convertible is created by combining distinct securities
which possess the two principal characteristics of a true
convertible, i.e., fixed income and the right to acquire the
underlying equity security. This combination is achieved by
investing in nonconvertible fixed-income securities and in
warrants, stock or stock index call options which grant the
holder the right to purchase a specified quantity of
securities within a specified period of time at a specified
price or to receive cash in the case of stock index options.
Synthetic convertible securities differ from the true
convertible security in several respects. The value of a
synthetic convertible is the sum of the values of its fixed-
income component and its convertibility component. Thus, the
values of a synthetic convertible and a true convertible
security will respond differently to market fluctuations.
Further, although the Fund's investment manager, Franklin
Advisers, Inc. ("Advisers" or "Manager"), expects normally
to select synthetic convertibles whose two components
represent one issuer, the character of a synthetic
convertible allows the investment adviser to combine
components representing distinct issuers, or to combine a
fixed-income security with a call option on a stock index,
when Advisers determines that such a combination would
better promote the Fund's investment objectives. In
addition, the component parts of a synthetic convertible
security may be purchased simultaneously or separately; and
the holder of a synthetic convertible faces the risk that
the price of the stock, or the level of the market index
underlying the convertibility component, will decline.
OPTIONS AND FINANCIAL FUTURES. The Fund may write covered
put and call options and purchase put and call options which
trade on securities exchanges and in the over-the-counter
market. The Fund may purchase and sell futures and options
on futures with respect to securities and currencies.
Additionally, the Fund may sell futures and options to
"close out" futures and options it may have purchased. The
Fund will not engage in futures transactions for speculation
but only as a hedge against changes resulting from market
conditions in the value of its securities or securities
which it intends to purchase. In addition, the Fund will not
enter into any futures contract or related options (except
for closing transactions) if, immediately thereafter, the
sum of the amount of its initial deposits and premiums on
open contracts and options would exceed 5% of the Fund's
total assets (taken at current value). The Fund will not
engage in any stock options or stock index options if the
option premiums paid regarding its open option positions
exceed 5% of the value of the Fund's total assets.
RISK FACTORS AND CONSIDERATIONS REGARDING
OPTIONS, FUTURES AND OPTIONS ON FUTURES
The Fund's option and futures investments involve certain
risks. Such risks include the risk that the effectiveness of
an options and futures strategy depends on the degree to
which price movements in the underlying index or securities
correlate with price movements in the relevant portion of
the Fund's portfolio. The Fund bears the risk that the
prices of its portfolio securities will not move in the same
amount as the option or future it has purchased, or that
there may be a negative correlation which would result in a
loss on both such securities and the option or futures
contracts or investment.
The Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on stock
indexes, stock index futures, financial futures and related
options depends on the degree to which price movements in
the underlying index or underlying debt securities correlate
with price movements in the relevant portion of the Fund's
securities. Inasmuch as such securities will not duplicate
the components of any index or such underlying debt
securities, the correlation will not be perfect.
Consequently, the Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as
the hedging instrument. It is also possible that there may
be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged
securities which would result in a loss on both such
securities and the hedging instrument. Accordingly,
successful use by the Fund of options on stock indexes,
stock index futures, financial futures and related options
will be subject to the Manager's ability to predict
correctly movements in the direction of the securities
markets generally or of a particular segment. This requires
different skills and techniques than predicting changes in
the price of individual stocks.
The Fund's option and futures investments may be limited by
the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated
investment company and may reduce the portion of the Fund's
dividends which is eligible for the corporate dividends-
received deduction. These transactions are also subject to
special tax rules that may affect the amount, timing and
character of certain distributions to shareholders, more
information about which is included in the tax section of
this Prospectus and the section entitled "Additional
information Regarding Taxation" in the Statement of
Additional Information.
During the option period the Fund, as the writer of covered
calls, gives up the potential for capital appreciation above
the exercise price should the underlying security rise in
value, and retains the risk of loss, as the writer of puts,
should the underlying security decline in value. Substantial
appreciation in the value of the security underlying covered
calls written by the Fund would result in the security being
"called away." Substantial depreciation in the value of the
security underlying puts written by the Fund would result in
the security being "put to" the writer. If a covered call
option written by the Fund expires unexercised, the Fund
will realize a gain in the amount of the premium received.
If the Fund has to sell the security underlying the covered
call because of the exercise of a call option, it realizes a
gain or loss from the sale of the underlying security, with
the proceeds being increased by the amount of the premium.
From time to time, under certain market conditions, the Fund
may receive little or no short-term capital gains from its
options transactions, which will reduce the Fund's return.
If a put option written by the Fund expires unexercised, it
will realize a gain from the amount of the premium. If the
Fund has to buy the underlying security because of the
exercise of the put option, it will incur an unrealized loss
to the extent that the current market value of the
underlying security is less than the exercise price of the
put option. However, this may be offset in whole or in part
by gain from the premium received.
Positions in exchange traded options and futures may be
closed out only on an exchange which provides a secondary
market. There may not always be a liquid secondary market
for a futures or option contract at a time when the Fund
seeks to close out its position. If the Fund were unable to
close out a futures or option position, and if prices moved
adversely, the Fund would have to continue to make daily
cash payments to maintain its required margin; if the Fund
had insufficient cash, it might have to sell portfolio
securities at a disadvantageous time. In addition, the Fund
might be required to deliver the stocks underlying futures
or options contracts it holds. The Fund will enter into an
option or futures position only if there appears to be a
liquid secondary market for such option or futures.
Over-the-counter Options ("OTC" options) differ from
exchange traded options in certain material respects. OTC
options are arranged directly with dealers and not, as is
the case with exchanged traded options, with a clearing
corporation. Thus, there is a risk of non-performance by the
dealer. Because there is no exchange, pricing is typically
done by reference to information from market makers.
However, OTC options are available for a greater variety of
securities and in a wider range of expiration dates and
exercise prices than exchange traded options; and the writer
of an OTC option is paid the premium in advance by the
dealer.
There can be no assurance that a continuous liquid secondary
market will exist for any particular OTC option at any
specific time. Consequently, the Fund may be able to realize
the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction
with the dealer that issued it. Similarly, when the Fund
writes an OTC option, it generally can close out that option
prior to its expiration only by entering into a closing
purchase transaction with the dealer to which the Fund
originally wrote it. If a covered call option writer cannot
effect a closing transaction, it cannot sell the underlying
security until the option expires or the option is
exercised. Therefore, a covered call option writer of an OTC
option may not be able to sell an underlying security even
though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be
unable to sell the securities pledged to secure the put for
other investment purposes while it is obligated as a put
writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund understands the current position of the staff of
the SEC to be that purchased OTC options are illiquid
securities and that the assets used to cover the sale of an
OTC option are considered illiquid. The Fund and Advisers
disagree with this position. Nevertheless, pending a change
in the staff's position, the Fund will treat OTC options and
"cover" assets as subject to the Fund's limitation on
illiquid securities. (See "Investment Objective and Policies
Followed by the Fund - Illiquid Investments" in this
Prospectus.)
Futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Fund, if the
investment adviser's investment judgment about the general
direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into
any such contract. For example, if the Fund has hedged
against the possibility of an increase in interest rates
which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will
lose part or all of the benefit of the increased value of
its bonds which it has hedged because it will have
offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily
variation margin requirements. Such sales may be, but will
not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a
time when it may be disadvantageous to do so.
The Fund's sale of futures contracts and purchase of put
options on futures contracts will be solely to protect its
investments against declines in value. The Fund expects that
in the normal course of business it will purchase securities
upon termination of long futures contracts and long call
options on future contracts, but under unusual market
conditions it may terminate any of such positions without a
corresponding purchase of securities.
In addition, adverse market movements could cause the Fund
to lose up to its full investment in a call option contract
and/or to experience substantial losses on an investment in
a futures contract. There is also the risk of loss by the
Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures
contract or option. (See "Investment Restrictions and
Policies" in the Statement of Additional Information for a
more complete discussion of the Fund's investments in
options and futures, including the risks associated with
such activity.)
REPURCHASE AGREEMENTS. The Fund may engage in repurchase
transactions, in which the Fund purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-
upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer
of securities with an initial market value, including
accrued interest, equal to at least 102% of the dollar
amount invested by the Fund in each agreement, with the
value of the underlying security marked to market daily to
maintain coverage of at least 100%. A default by the seller
might cause the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase
agreement. The Fund might also incur disposition costs in
liquidating the collateral. The Fund, however, intends to
enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are
deemed creditworthy by the Fund's investment manager. A
repurchase agreement is deemed to be a loan by the Fund
under the 1940 Act. The U.S. government security subject to
resale (the collateral) will be held on behalf of the Fund
by a custodian approved by the Fund's Board and will be held
pursuant to a written agreement.
BORROWING. The Fund does not borrow money or mortgage or
pledge any of the assets of the Fund, except that borrowings
for temporary or emergency purposes may be made from banks
in an amount up to 10% of total asset value. No new
investments will be made while any such borrowings are in
excess of 5% of total assets.
ILLIQUID INVESTMENTS. It is the policy of the Fund that
illiquid securities (securities that cannot be disposed of
within seven days in the normal course of business at
approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase,
more than 10% of the value of the total net assets of the
Fund.
FOREIGN SECURITIES. The Fund will ordinarily purchase
foreign securities which are traded in the United States or
purchase American Depository Receipts ("ADRs"), which are
certificates issued by U.S. banks representing the right to
receive securities of a foreign issuer deposited with that
bank or a correspondent bank. However, the Fund may purchase
the securities of foreign issuers directly in foreign
markets.
Investments in foreign securities where delivery takes place
outside the United States will involve risks that are
different from investments in U.S. securities. These risks
may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign
deposits, currency controls, higher transactional costs due
to a lack of negotiated commissions, or other governmental
restrictions which might affect the amount and types of
foreign investments made or the payment of principal or
interest on securities the Fund holds. In addition, there
may be less information available about these securities and
it may be more difficult to obtain or enforce a court
judgment in the event of a lawsuit. Fluctuations in currency
convertibility or exchange rates could result in investment
losses for the Fund. Investment in foreign securities may
also subject the Fund to losses due to nationalization,
expropriation or differing accounting practices and
treatments.
Investments may be in securities of foreign issuers, whether
located in developed or undeveloped countries, but
investments will not be made in any securities issued
without stock certificates or comparable stock documents.
Securities which are acquired by the Fund outside the United
States and which are publicly traded in the United States or
on a foreign securities exchange or in a foreign securities
market are not considered by the Fund to be an illiquid
asset so long as the Fund acquires and holds the security
with the intention of re-selling the security in the foreign
trading market, the Fund reasonably believes it can readily
dispose of the security for cash in the U.S. or foreign
market and current market quotations are readily available.
The Fund presently has no intention of investing more than
25% of its net assets in foreign securities.
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the
approval of shareholders, which limit its activities to some
extent. For a list of these restrictions and more
information concerning the policies discussed herein, please
see the SAI.
The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 150%, but this rate should not be
construed as a limiting factor in the operation of the
Fund's portfolio. The Fund's portfolio turnover rate for the
prior two years is included in the Financial Highlights
table. Upon the exercise of an option written by the Fund,
the underlying securities are sold; the Fund receives cash
which it then invests, thus increasing the portfolio
turnover rate. High portfolio turnover increases transaction
costs which must be paid by the Fund.
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S
ACTIVITIES
The assets of the Fund are invested in portfolio securities.
If the securities owned by the Fund increase in value, the
value of the shares of the Fund which the shareholder owns
will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also
decline. In this way, shareholders participate in any change
in the value of the securities owned by the Fund.
In addition to the factors which affect the value of
individual securities, as described in the preceding
sections, a shareholder may anticipate that the value of
Fund shares will fluctuate with movements in the broader
equity and bond markets, as well.
To the extent the Fund's investments consist of debt
securities, changes in interest rates will affect the value
of the Fund's portfolio and thus its share price. Increased
rates of interest which frequently accompany higher
inflation and/or a growing economy are likely to have a
negative effect on the value of Fund shares. To the extent
the Fund's investments consist of common stocks, a decline
in the market, expressed for example by a drop in the Dow
Jones Industrials or the Standard & Poor's 500 average or
any other equity based index, may also be reflected in
declines in the Fund's share price. History reflects both
increases and decreases in the prevailing rate of interest
and in the valuation of the market, and these may reoccur
unpredictably in the future.
MANAGEMENT OF THE FUND
The Board of Directors has the primary responsibility for
the overall management of the Fund and for electing the
officers of the Fund who are responsible for administering
its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as
the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr.,
who own approximately 20% and 16%, respectively, of
Resources' outstanding shares. Resources is engaged in
various aspects of the financial services industry through
its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 33
U.S. registered investment companies (111 separate series)
with aggregate assets of over $73 billion.
Pursuant to the management agreement, the Manager supervises
and implements the Fund's investment activities and provides
certain administrative services and facilities which are
necessary to conduct the Fund's business.
During the fiscal year ended December 31, 1994, fees
totaling 0.63% of the average monthly net assets of the Fund
were paid to Advisers.
Among the responsibilities of the Manager under the
management agreement is the selection of brokers and dealers
through whom transactions in the Fund's portfolio securities
will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more
than one broker is able to provide the best execution, the
Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of
shares of the Fund, as factors in selecting a broker.
Further information is included under "The Fund's Policies
Regarding Brokers Used on Portfolio Transactions" in the
SAI.
Shareholder accounting and many of the clerical functions
for the Fund are performed by Franklin/Templeton Investor
Services, Inc. ("Investor Services" or "Shareholder Services
Agent"), in its capacity as transfer agent and dividend-
paying agent. Investor Services is a wholly-owned subsidiary
of Resources.
During the fiscal year ended December 31, 1994, expenses
borne by the Fund, including fees paid to Advisers and to
Investor Services, totaled 1.27% of the average monthly net
assets of the Fund.
PLAN OF DISTRIBUTION
The Fund has adopted a distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund may reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion
and distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have
executed a servicing agreement with the Fund, Distributors
or its affiliates. The maximum amount which the Fund may pay
to Distributors or others for such distribution expenses is
0.25% per annum of the average daily net assets of the Fund,
payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.25% per annum will be borne by
Distributors, or others who have incurred them, without
reimbursement from the Fund. The Plan also covers any
payments to or by the Fund, Advisers, Distributors, or other
parties on behalf of the Fund, Advisers, or Distributors, to
the extent such payments are deemed to be for the financing
of any activity primarily intended to result in the sale of
shares issued by the Fund within the context of Rule 12b-1.
The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more
information please see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make
to its shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of
dividends, interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital
gains or losses in connection with sales or other
dispositions of its portfolio securities. Distributions by
the Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital
loss carryovers) may generally be made twice each year. One
distribution may be made in December to reflect any net
short-term and net long-term capital gains realized by the
Fund as of October 31 of such year. Any net short-term and
net long-term capital gains realized by the Fund during the
remainder of the fiscal year may be distributed following
the end of the fiscal year. These distributions, when made,
will generally be fully taxable to the Fund's shareholders.
The Fund may make more than one distribution derived from
net short-term and net long-term capital gains in any year
or adjust the timing of its distributions for operational or
other reasons.
DISTRIBUTION DATE
Although subject to change by the Board of Directors,
without prior notice to or approval by shareholders, the
Fund's current policy is to declare income dividends
quarterly for shareholders of record on the last business
day of the months of March, June and September, payable on
or about the 15th day of the following month. The Fund's
December dividend will generally be declared and paid during
that month.
The amount of income dividend payments by the Fund is
dependent upon the amount of net income received by the Fund
from its portfolio holdings, is not guaranteed and is
subject to the discretion of the Board of Directors. Fund
shares are quoted ex-dividend on the first business day
following the record date. THE FUND DOES NOT PAY "INTEREST"
OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN
ITS SHARES.
In order to be entitled to a dividend, an investor must have
acquired Fund shares prior to the close of business on the
record date. An investor considering purchasing Fund shares
shortly before the record date of a distribution should be
aware that because the value of the Fund's shares is based
directly on the amount of its net assets, rather than on the
principle of supply and demand, any distribution of income
or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution.
While a dividend or capital gain distribution received
shortly after purchasing shares represents, in effect, a
return of a portion of the shareholder's investment, it may
be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder
Application, income dividends and capital gain
distributions, if any, will be automatically reinvested in
the shareholder's account in the form of additional shares,
valued at the closing net asset value (without sales charge)
on the dividend reinvestment date. Shareholders have the
right to change their election with respect to the receipt
of distributions by notifying the Fund, but any such change
will be effective only as to distributions for which the
record date is seven or more business days after the Fund
has been notified. See the SAI for more information.
Many of the Fund's shareholders receive their distributions
in the form of additional shares. This is a convenient way
to accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the
selected distributions to another fund in the Franklin Group
of Funds(Registered Trademark) or the Templeton Funds, to
another person, or directly to a checking account. If the
bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last
option is requested, the shareholder should allow at least
15 days for initial processing. Dividends which may be paid
in the interim will be sent to the address of record.
Additional information regarding automated fund transfers
may be obtained from Franklin's Shareholder Services
Department. Dividend and capital gain distributions are
eligible for investment in another fund in the Franklin
Group of Funds or the Templeton Funds at net asset value.
See "Purchases at Net Asset Value" under "How to Buy Shares
of the Fund."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the provisions of
the Code that affect mutual funds and their shareholders.
For further information, see the section entitled
"Additional Information Regarding Taxation" in the SAI.
The Fund intends to continue to qualify for treatment as a
regulated investment company under Subchapter M of the Code.
By distributing all of its net investment income and net
realized short-term and long-term capital gains for a fiscal
year in accordance with the timing requirements imposed by
the Code and by meeting certain other requirements relating
to the sources of its income and diversification of its
assets, the Fund will not be liable for federal income or
excise taxes.
For federal income tax purposes, any income dividends which
the shareholder receives from the Fund, as well as any
distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to
receive them in cash or in additional shares.
Distributions derived from the excess of net long-term
capital gain over net short-term capital loss (net capital
gain) are treated as long-term capital gain regardless of
the length of time the shareholder has owned Fund shares and
regardless of whether such distributions are received in
cash or in additional shares.
Pursuant to the Code, certain distributions which are
declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder
until the following January, will be treated for tax
purposes as if received by the shareholder on December 31 of
the calendar year in which they are declared.
For the fiscal year ended December 31, 1994, 72.28% of the
net income dividends paid by the Fund qualified for the
corporate dividends-received deduction, subject to certain
holding period, hedging and debt financing restrictions
imposed under the Code on the corporation claiming the
deduction.
The Fund's transactions in options and futures contracts
will give rise to taxable income, gain or loss and will be
subject to special tax treatment under certain mark-to-
market and straddle rules, the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause
adjustments in the holding periods of Fund securities,
convert capital gains and losses into ordinary income and
losses, convert long-term capital gains into short-term
capital gains, and convert short-term capital losses into
long-term capital losses. Certain elections may be available
to the Fund to mitigate some of the unfavorable consequences
of the provisions described in this paragraph.
Shareholders who are not U.S. persons for purposes of
federal income taxation should consult with their financial
or tax advisors regarding the applicability of U.S.
withholding taxes to distributions received by them from the
Fund.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and
will, promptly after the close of each calendar year, advise
them of the tax status for federal income tax purposes of
such dividends and distributions.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through
securities dealers which execute an agreement with
Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall
include other financial institutions which, pursuant to an
agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the
Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity. The
minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be
waived when the shares are purchased through plans
established by the Franklin Templeton Group. The Fund and
Distributors reserve the right to refuse any order for the
purchase of shares.
The Fund may impose a $10 charge for each returned item,
against any shareholder account which, in connection with
the purchase of Fund shares, submits a check or a draft
which is returned unpaid to the Fund.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price,
which is the net asset value per share plus a sales charge,
next computed (1) after the shareholder's securities dealer
receives the order which is promptly transmitted to the
Fund, or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a
completed Shareholder Application accompanied by a
negotiable check). The sales charge is a variable percentage
of the offering price depending upon the amount of the sale.
On orders for 100,000 shares or more, the offering price
will be calculated to four decimal places. On orders for
less than 100,000 shares, the offering price will be
calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net
asset value per share is included under the caption
"Valuation of Fund Shares."
Set forth below is a table of total sales charges or
underwriting commissions and dealer concessions.
TOTAL SALES CHARGE
SIZE OF AS A PERCENTAGE AS A PERCENTAGE DEALER
TRANSACTION AT OF OFFERING OF NET AMOUNT CONCESSION AS A
OFFERING PRICE PRICE INVESTED PERCENTAGE OF
OFFERING
PRICE*, ***
Less than 4.50% 4.71% 4.00%
$100,000
$100,000 but 3.75% 3.90% 3.25%
less than
$250,000
$250,000 but 2.75% 2.83% 2.50%
less than
$500,000
$500,000 but 2.25% 2.30% 2.00%
less than
$1,000,000
$1,000,000 or none none (see below)**
more
*Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.
**The following commissions will be paid by Distributors,
from its own resources, to securities dealers who initiate
and are responsible for purchases of $1 million or more:
1.00% on sales of $1 million but less $2 million, plus 0.80%
on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus
0.15% on sales of $100 million or more. Dealer concession
breakpoints are reset every 12 months for purposes of
additional purchases.
***At the discretion of Distributors, all sales charges may
at times be allowed to the securities dealer. If 90% or
more of the sales commission is allowed, such securities
dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1
million or more, but a contingent deferred sales charge of
1% is imposed on certain redemptions of all or a portion of
an investment of $1 million or more within 12 months of the
calendar month following such investments ("contingency
period"). See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
The size of a transaction which determines the applicable
sales charge on the purchase of Fund shares is determined by
adding the amount of the shareholder's current purchase plus
the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the
funds in the Franklin Group of Funds(Registered Trademark)
and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the
Franklin Group of Funds except Franklin Valuemark Funds and
Franklin Government Securities Trust (the "Franklin Funds"),
(b) other investment products underwritten by Distributors
or its affiliates (although certain investments may not have
the same schedule of sales charges and/or may not be subject
to reduction) and (c) the U.S. mutual funds in the Templeton
Group of Funds except Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
(the "Templeton Funds"). (Franklin Funds and Templeton Funds
are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate
holdings of (a), (b) and (c) above ("Franklin Templeton
Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount.
Distributors, or one of its affiliates, may make payments,
out of its own resources, of up to 1% of the amount
purchased to securities dealers who initiate and are
responsible for purchases made at net asset value by certain
designated retirement plans (excluding IRA and IRA
rollovers), certain non-designated plans, certain trust
companies and trust departments of banks and certain
retirement plans of organizations with collective retirement
plan assets of $10 million or more. See definitions under
"Description of Special Net Asset Value Purchases" and as
set forth in the SAI.
Distributors or one of its affiliates, out of its own
resources, may also provide additional compensation to
securities dealers in connection with sales of shares of the
Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers in connection with
conferences, sales or training programs for their employees,
seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of
the Franklin Templeton Funds, and other dealer-sponsored
programs or events. In some instances, this compensation may
be made available only to certain securities dealers whose
representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton
Funds. Compensation may include payment for travel expenses,
including lodging, incurred in connection with trips taken
by invited registered representatives and members of their
families to locations within or outside of the United States
for meetings or seminars of a business nature. Dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the
Fund or its shareholders.
Certain officers and directors of the Fund are also
affiliated with Distributors. A detailed description is
included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which
provide for a reduced sales charge. To be certain to obtain
the reduction of the sales charge, the investor or the
dealer should notify Distributors at the time of each
purchase of shares which qualifies for the reduction. In
determining whether a purchase qualifies for any of the
discounts, investments in any Franklin Templeton Investments
may be combined with those of the investor's spouse and
children under the age of 21. In addition, the aggregate
investments of a trustee or other fiduciary account (for an
account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of
beneficiaries of the account.
In addition, an investment in the Fund may qualify for a
reduction in the sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value
(whichever is higher) of existing investments in the
Franklin Templeton Investments may be combined with the
amount of the current purchase in determining the sales
charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for
a reduced sales charge on a purchase of shares of the Fund
by completing the Letter of Intent section of the
Shareholder Application (the "Letter of Intent" or
"Letter"). By completing the Letter, the investor expresses
an intention to invest during the next 13 months a specified
amount which, if made at one time, would qualify for a
reduced sales charge and grants to Distributors a security
interest in the reserved shares and irrevocably appoints
Distributors as attorney-in-fact with full power of
substitution to surrender for redemption any or all shares
for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the
requirements of Rule 22-d-1 under the 1940 Act. The investor
or the investor's securities dealer must inform Investor
Services or Distributors that this Letter is in effect each
time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH
ARE LISTED UNDER "DESCRIPTION OF SPECIAL NET ASSET VALUE
PURCHASES") ACKNOWLEDGES AND AGREES TO THE FOLLOWING
PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of
the total intended purchase will be reserved in shares of
the Fund, registered in the investor's name, to assure that
the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will
be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions
on the reserved shares will be paid as directed by the
investor. The reserved shares will not be available for
disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. For more
information, see "Additional Information Regarding
Purchases" in the SAI.
GROUP PURCHASES
An individual who is a member of a qualified group may also
purchase shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of
the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Fund
shares and now were investing $25,000, the sales charge
would be 3.75%. Information concerning the current sales
charge applicable to a group may be obtained by contacting
Distributors.
A "qualified group" is one which (i) has been in existence
for more than six months, (ii) has a purpose other than
acquiring Fund shares at a discount and (iii) satisfies
uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares. A
qualified group must have more than 10 members, be available
to arrange for group meetings between representatives of the
Fund or Distributors and the members, agree to include sales
and other materials related to the Fund in its publications
and mailings to members at reduced or no cost to
Distributors, and seek to arrange for payroll deduction or
other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such
time as the investor notifies the Fund and the investor's
employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the
payroll deduction information to the Fund, there may be a
delay between the time of the payroll deduction and the time
the money reaches the Fund. The investment in the Fund will
be made at the offering price per share determined on the
day that both the check and payroll deduction data are
received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition
of either a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (1) officers, trustees,
directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton
Group, and by their spouses and family members, including
subsequent payment made by such parties after cessation of
employment; (2) companies exchanging shares with or selling
assets pursuant to a merger, acquisition or exchange offer;
(3) insurance company separate accounts for pension plan
contracts; (4) accounts managed by the Franklin Templeton
Group; (5) Shareholders of Templeton Institutional Funds,
Inc. reinvesting redemption proceeds from that fund under an
employee benefit plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, in shares of the
Fund; (6) certain unit investment trusts and unit holders of
such trusts reinvesting their distributions from the trusts
in the Fund; (7) registered securities dealers and their
affiliates, for their investment account only, and (8)
registered personnel and employees of securities dealers and
by their spouses and family members, in accordance with the
internal policies and procedures of the employing securities
dealer.
Shares of the Fund may be purchased at net asset value by
persons who have redeemed, within the previous 120 days,
their shares of the Fund or another of the Franklin
Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on
redemption. An investor may reinvest an amount not exceeding
the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed
and subsequently repurchased, a new contingency period will
begin. Shares of the Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are
not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of
shares of the Fund must be received by the Fund or the
Fund's Shareholder Services Agent within 120 days after the
redemption. The 120 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset
value may also be handled by a securities dealer or other
financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the
amount of gain or loss recognized and the tax basis of the
shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information
regarding the possible tax consequences of such a
reinvestment is included in the tax section of this
Prospectus and the SAI.
Dividends and capital gains received in cash by the
shareholder may also be used to purchase shares of the Fund
or another of the Franklin Templeton Funds at net asset
value and without the imposition of a contingent deferred
sales charge within 120 days of the payment date of such
distribution. To exercise this privilege, a written request
to reinvest the distribution must accompany the purchase
order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions
in Cash" under "Distributions to Shareholders."
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by investors who have, within the past 60 days, redeemed an
investment in an unaffiliated mutual fund which charged the
investor a contingent deferred sales charge upon redemption
and which has investment objectives similar to those of the
Fund.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by broker-dealers who have entered into a supplemental
agreement with Distributors, or by registered investment
advisers affiliated with such broker-dealers, on behalf of
their clients who are participating in a comprehensive fee
program (sometimes known as a wrap fee program).
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by anyone who has taken a distribution from an existing
retirement plan already invested in the Franklin Templeton
Funds (including former participants of the Franklin
Templeton Profit Sharing 401(k) plan), to the extent of such
distribution. In order to exercise this privilege a written
order for the purchase of shares of the Fund must be
received by Franklin Templeton Trust Company (the "Trust
Company"), the Fund or Investor Services, within 120 days
after the plan distribution. A prospectus outlining the
investment objectives and policies of a fund in which the
shareholder wishes to invest may be obtained by calling toll
free at 1-800/DIAL BEN (1-800/342-5236).
Shares of the Fund may also be purchased at net asset value
and without the imposition of a contingent deferred sales
charge by any state, county, or city, or any
instrumentality, department, authority or agency thereof
which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment
laws from paying a sales charge or commission in connection
with the purchase of shares of any registered management
investment company ("an eligible governmental authority").
SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND
CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal investors
considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net
asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors
or one of its affiliates may make a payment, out of their
own resources, to such securities dealer in an amount not to
exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may also be purchased at net asset value
and without the imposition of a contingent deferred sales
charge by certain designated retirement plans, including
profit sharing, pension, 401(k) and simplified employee
pension plans ("designated plans"), subject to minimum
requirements with respect to number of employees or amount
of purchase, which may be established by Distributors.
Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the
amount invested or to be invested during the subsequent 13-
month period in the Fund or in any of the Franklin Templeton
Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of
the Code ("non-designated plans") may be afforded the same
privilege if they meet the above requirements as well as the
uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by trust companies and bank trust departments for funds over
which they exercise exclusive discretionary investment
authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are
subject to minimum requirements with respect to amount of
purchase, which may be established by Distributors.
Currently, those criteria require that the amount invested
or to be invested during the subsequent 13-month period in
this Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the
bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge
by trustees or other fiduciaries purchasing securities for
certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, without
regard to where such assets are currently invested.
Refer to the SAI for further information.
Securities laws of states in which the Fund's shares are
offered for sale may differ from the interpretations of
federal law, and banks and financial institutions selling
Fund shares may be required to register as dealers pursuant
to state law.
PURCHASING SHARES OF THE FUND IN CONNECTION WITH RETIREMENT
PLANS INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-
sponsored retirement plans involving tax-deferred
investments. The Fund may be used as an investment vehicle
for an existing retirement plan, or Franklin Templeton Trust
Company (the "Trust Company") may provide the plan documents
and serve as custodian or trustee. A plan document must be
adopted for a retirement plan to be in existence.
The Trust Company, an affiliate of Distributors, can serve
as custodian or trustee for retirement plans. Brochures for
the Trust Company plans contain important information
regarding eligibility, contribution and deferral limits and
distribution requirements. Please note that an application
other than the one contained in this Prospectus must be used
to establish a retirement plan account with the Trust
Company. To obtain a retirement plan brochure or
application, call toll free 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific
information regarding redemptions from retirement plan
accounts. Specific forms are required to be completed for
distributions from Franklin Templeton Trust Company
retirement plans.
Individuals and plan sponsors should consult with legal, tax
or benefits and pension plan consultants before choosing a
retirement plan. In addition, retirement plan investors
should consider consulting their investment representatives
or advisers concerning investment decisions within their
plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
Certain of the programs and privileges described in this
section may not be available directly from the Fund to
shareholders whose shares are held, of record, by a
financial institution or in a "street name" account or
networked account through the National Securities Clearing
Corporation ("NSCC") (see the section captioned "Account
Registrations" in this Prospectus).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and
capital gain distributions, are generally credited to an
account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining
shares in uncertificated form (also known as "plan balance")
minimizes the risk of loss or theft of a share certificate.
A lost, stolen or destroyed certificate cannot be replaced
without obtaining a sufficient indemnity bond. The cost of
such a bond, which is generally borne by the shareholder,
can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the securities
dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends reinvested during that
period and after each other transaction which affects the
shareholder's account. This statement will also show the
total number of shares owned by the shareholder, including
the number of shares in "plan balance" for the account of
the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be
able to arrange to make additional purchases of shares
automatically on a monthly basis by electronic funds
transfer from a checking account, if the bank which
maintains the account is a member of the Automated Clearing
House, or by preauthorized checks drawn on the shareholder's
bank account. A shareholder may, of course, terminate the
program at any time. The Shareholder Application included
with this Prospectus contains the requirements applicable to
this program. In addition, shareholders may obtain more
information concerning this program from their securities
dealers or from Distributors.
The market value of the Fund's shares is subject to
fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a
program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided
that the net asset value of the shares held by the
shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal
Plan. The minimum amount which the shareholder may withdraw
is $50 per withdrawal transaction although this is merely
the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. Retirement plans subject
to mandatory distribution requirements are not subject to
the $50 minimum. The plan may be established on a monthly,
quarterly, semiannual or annual basis. If the shareholder
establishes a plan, any capital gain distributions and
income dividends paid by the Fund will be reinvested for the
shareholder's account in additional shares at net asset
value. Payments will then be made from the liquidation of
shares at net asset value on the day of the transaction
(which is generally the first business day of the month in
which the payment is scheduled) with payment generally
received by the shareholder three to five days after the
date of liquidation. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder
Application included with this Prospectus, a shareholder may
direct the selected withdrawals to another of the Franklin
Templeton Funds, to another person, or directly to a
checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing.
Withdrawals which may be paid in the interim will be sent to
the address of record. Liquidation of shares may reduce or
possibly exhaust the shares in the shareholder's account, to
the extent withdrawals exceed shares earned through
dividends and distributions, particularly in the event of a
market decline. If the withdrawal amount exceeds the total
plan balance, the account will be closed and the remaining
balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a
sale for federal income tax purposes. Because the amount
withdrawn under the plan may be more than the shareholder's
actual yield or income, part of the payment may be a return
of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the
additional purchases. The shareholder should ordinarily not
make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time
such a plan is in effect. A Systematic Withdrawal Plan may
be terminated on written notice by the shareholder or the
Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's
receipt of notification of the death or incapacity of the
shareholder. Shareholders may change the amount (but not
below the specified minimum) and schedule of withdrawal
payments, or suspend one such payment by giving written
notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual
funds with various investment objectives or policies. The
shares of most of these mutual funds are offered to the
public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the
Fund shares may be exchanged for shares of other Franklin
Templeton Funds which are eligible for sale in the
shareholder's state of residence and in conformity with such
fund's stated eligibility requirements and investment
minimums. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations
on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges. Exchanges may
be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of
the written instructions together with any outstanding share
certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD,
IF ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY
CALLING INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED
FRANKLIN TELEFACTS SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO
A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD
BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to
effect exchanges from the Fund into an identically
registered account in one of the other available Franklin
Templeton Funds. The Telephone Exchange Privilege is
available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The
Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be
difficult to implement and the TeleFACTS option may not be
available. In this event, shareholders should follow the
other exchange procedures discussed in this section,
including the procedures for processing exchanges through
securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the
Fund's shares, Investor Services will accept exchange orders
by telephone or by other means of electronic transmission
from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Exchanges By
Telephone" above. Such a dealer-ordered exchange will be
effective only for uncertificated shares on deposit in the
shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a
fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject
to a contingent deferred sales charge in the original fund
purchased, and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will
be imposed. The contingency period will be tolled (or
stopped) for the period such shares are exchanged into and
held in a Franklin or Templeton money market fund. See also
"How to Sell Shares of the Fund - Contingent Deferred Sales
Charge."
Exchanges are made on the basis of the net asset values of
the funds involved, except as set forth below. Exchanges of
shares of the Fund which were purchased without a sales
charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless
the investment on which no sales charge was paid was
transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a
higher sales charge will be charged the difference, unless
the shares were held in the Fund for at least six months
prior to executing the exchange. When an investor requests
the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain
distributions will be transferred to the fund being
exchanged into and will be invested at net asset value.
Because the exchange is considered a redemption and purchase
of shares, the shareholder may realize a gain or loss for
federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding
the possible tax consequences of such an exchange is
included in the tax section in this Prospectus and in the
SAI.
There are differences among the Franklin Templeton Funds.
Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the
shareholder wishes to transfer.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the
Fund pursuant to the exchange privilege, the Fund might have
to liquidate portfolio securities it might otherwise hold
and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege
may result in periodic large inflows of money. If this
should occur, it is the general policy of the Fund to
initially invest this money in short-term, interest-bearing
money market instruments, unless it is felt that attractive
investment opportunities consistent with the Fund's
investment objectives exist immediately. Subsequently, this
money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as
orderly a manner as is possible when attractive investment
opportunities arise.
The Exchange Privilege may be modified or discontinued by
the Fund at any time upon 60 days' written notice to
shareholders.
RETIREMENT PLANS
Franklin Templeton IRA and 403(b) retirement plan accounts
may accomplish exchanges directly. Certain restrictions may
apply, however, to other types of retirement plans. See
"Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market
timing services to purchase or redeem shares based on
predetermined market indicators ("Timing Accounts") will be
charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective
prospectuses, certain funds do not accept or may place
differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific
purchase order for any Timing Account or any person whose
transactions seem to follow a timing pattern who: (i) makes
an exchange request out of the Fund within two weeks of an
earlier exchange request out of the Fund, or (ii) makes more
than two exchanges out of the Fund per calendar quarter, or
(iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon
certain predetermined market indicators, will be aggregated
for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group
if, in the Manager's judgment, the Fund would be unable to
invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be
adversely affected. A shareholder's purchase exchanges may
be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive
to the Fund and therefore may be refused.
The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order
for the purchase of shares.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and
receive from the Fund the value of the shares. Shares may be
redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of
this Prospectus, and any share certificates which have been
issued for the shares being redeemed, properly endorsed and
in order for transfer. The shareholder will then receive
from the Fund the value of the shares based upon the net
asset value per share next computed after the written
request in proper form is received by Investor Services.
Redemption requests received after the time at which the net
asset value is calculated (1:00 p.m. Pacific time) each day
that the New York Stock Exchange (the "Exchange") is open
for business will receive the price calculated on the
following business day. Shareholders are requested to
provide a telephone number(s) where they may be reached
during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly
when necessary will speed the processing of the redemption.
To be considered in proper form, signature(s) must be
guaranteed if the redemption request involves any of the
following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone
other than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any
address other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in
excess of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based
on the transfer instructions, including, for example,
when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple
owners have a dispute or give inconsistent instructions
to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered
owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the
subject of divorce proceedings, or (f) the authority of
a representative of a corporation, partnership,
association, or other entity has not been established
to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the
Securities Exchange Act of 1934. Generally, eligible
guarantor institutions include (1) national or state banks,
savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and
credit unions; (2) national securities exchanges, registered
securities associations and clearing agencies; (3)
securities dealers which are members of a national
securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature guarantee
medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied
by the share certificate and a share assignment form signed
by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced
above.
Shareholders are advised, for their own protection, to send
the share certificate and assignment form in separate
envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court
jurisdiction require the following documentation to be in
proper form:
Corporation - (1) Signature guaranteed letter of instruction
from the authorized officer(s) of the corporation, and (2) a
corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction
from a general partner, and (2) pertinent pages from the
partnership agreement identifying the general partners or a
certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from
the trustee(s), and (2) a copy of the pertinent pages of the
trust document listing the trustee(s) or a Certification for
Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents
and the applicable state law since these accounts have
varying requirements, depending upon the state of residence.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper
form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"),
included with this Prospectus, may redeem shares of the Fund
by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR
INVESTOR SERVICES AT THE ADDRESS SHOWN ON THE COVER OR BY
CALLING 1-800/632-2301. THE FUND AND INVESTOR SERVICES WILL
EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR
THE RISK OF LOSS IN CERTAIN CASES AS DESCRIBED UNDER
"TELEPHONE TRANSACTIONS - VERIFICATION PROCEDURES."
For shareholder accounts with the completed Agreement on
file, redemptions of uncertificated shares or shares which
have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 1:00
p.m. Pacific time on any business day will be processed that
same day. The redemption check will be sent within seven
days, made payable to all the registered owners on the
account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within
30 days following an address change by telephone. In that
case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional
accounts (certain corporations, bank trust departments,
government entities, and qualified retirement plans which
qualify to purchase shares at net asset value pursuant to
the terms of this Prospectus) which wish to execute
redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department
by telephoning 1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders by telephone or other
means of electronic transmission from securities dealers who
have entered into a dealer or similar agreement with
Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is
that if the shareholder redeems shares through a dealer, the
redemption price will be the net asset value next calculated
after the shareholder's dealer receives the order which is
promptly transmitted to the Fund, rather than on the day the
Fund receives the shareholder's written request in proper
form. These documents, as described in the preceding
section, are required even if the shareholder's securities
dealer has placed the repurchase order. After receipt of a
repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other
documents set forth above. A shareholder's letter should
reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name.
Details of the dealer-ordered trade, such as trade date,
confirmation number, and the amount of shares or dollars,
will help speed processing of the redemption. The seven-day
period within which the proceeds of the shareholder's
redemption will be sent will begin when the Fund receives
all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in a shareholder's best interest
to have the required documentation completed and forwarded
to the Fund as soon as possible. The shareholder's dealer
may charge a fee for handling the order. The SAI contains
more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers
on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of
the calendar month following their purchase. The charge is
1% of the lesser of the value of the shares redeemed
(exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales
charge are deemed to be redeemed first, in the following
order: (i) shares representing amounts attributable to
capital appreciation of those shares held less than 12
months; (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held
longer than 12 months; and followed by any shares held less
than 12 months, on a "first in, first out" basis.
The contingent deferred sales charge is waived for:
exchanges; account fees; distributions to participants in
Trust Company retirement plan accounts due to death,
disability or attainment of age 59 1/2; tax-free returns of
excess contributions to employee benefit plans;
distributions from employee benefit plans, including those
due to plan termination or plan transfer; redemptions
through a Systematic Withdrawal Plan set up prior to
February 1, 1995 and, for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's
net asset value (3% quarterly, 6% semiannually or 12%
annually); and redemptions initiated by the Fund due to a
shareholder's account falling below the minimum specified
account size. In addition, shares of participants in Trust
company retirement plan acounts will, in the event of death,
disability or attainment of age 59 1/2, no longer be subject
to the contingent deferred sales charge.
Requests for redemptions for a specified dollar amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests
for redemption of a specific number of shares will result in
the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed, unless
otherwise specified by the shareholder.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these
checks will also be held pending clearance. Shares purchased
by federal funds wire are available for immediate
redemption. In addition, the right of redemption may be
suspended or the date of payment postponed if the Exchange
is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it,
by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount invested
by the shareholder, depending on fluctuations in the market
value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement account liquidations require the completion of
certain additional forms to ensure compliance with IRS
regulations. To liquidate a retirement plan account, a
shareholder or securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from
such plans to a participant under age 59 1/2, unless the
distribution meets one of the exceptions set forth in the
Code.
OTHER
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services
Department or the securities dealer may call Franklin's
Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative
of record, if any, may be able to execute various
transactions by calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in
address, (ii) change a dividend option (see "Restricted
Accounts" below), (iii) transfer Fund shares in one account
to another identically registered account in the Fund, and
(iv) exchange Fund shares as described in this Prospectus by
telephone. In addition, shareholders who complete and file
an Agreement as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem
shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. These will include: recording all
telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or
account information requested by the telephone service agent
at the time of the call for the purpose of establishing the
caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the
Fund and Investor Services follow instructions communicated
by telephone which were reasonably believed to be genuine at
the time of their receipt, neither they nor their affiliates
will be liable for any loss to the shareholder caused by an
unauthorized transaction. Shareholders are, of course, under
no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that instructions
received by telephone are genuine, the requested transaction
will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be
accepted on Franklin Templeton retirement accounts. To
assure compliance with all applicable regulations, special
forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is
extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of
retirement plans. Changes to dividend options must also be
made in writing.
To obtain further information regarding distribution or
transfer procedures, including any required forms,
retirement account shareholders may call to speak to a
Retirement Plan Specialist at 1-800/527-2020 for Franklin
accounts or 1-800/354-9191 (press "2" when prompted to do
so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In
such situations, shareholders may wish to contact their
investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this
Prospectus.
Neither the Fund nor Investor Services will be liable for
any losses resulting from the inability of a shareholder to
execute a telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written
notice to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of the Fund is determined as
of 1:15 p.m. Pacific time each day that the Exchange is open
for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and
"ask" (offering price, which includes the maximum front-end
sales charge of the Fund).
The net asset value per share of the Fund is determined in
the following manner: The aggregate of all liabilities
including, without limitation, the current market value of
any outstanding options written by the Fund, accrued
expenses and taxes and any necessary reserves is deducted
from the aggregate gross value of all assets, and the
difference is divided by the number of shares of the Fund
outstanding at the time. For the purpose of determining the
aggregate net assets of the Fund, cash and receivables are
valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date.
Portfolio securities listed on a securities exchange or on
the NASDAQ National Market System for which market
quotations are readily available are valued at the last
quoted sale price of the day or, if there is no such
reported sale, within the range of the most recent quoted
bid and ask prices. Over-the-counter portfolio securities
for which market quotations are readily available are valued
within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in
the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative
market as determined by the Manager. Portfolio securities
underlying actively traded call options are valued at their
market price as determined above. The current market value
of any option held by the Fund is its last sales price on
the relevant exchange prior to the time when assets are
valued. Lacking any sales that day or if the last sale price
is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices
if such valuation is believed to fairly reflect the
contract's market value. Other securities for which market
quotations are readily available are valued at the current
market price, which may be obtained from a pricing service,
based on a variety of factors, including recent trades,
institutional size trading in similar types of securities
(considering yield, risk and maturity) and/or developments
related to specific issues. Securities and other assets for
which market prices are not readily available are valued at
fair value as determined following procedures approved by
the Board of Directors. With the approval of directors, the
Fund may utilize a pricing service, bank or securities
dealer to perform any of the above described functions.
HOW TO GET INFORMATION REGARDING
AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's
account should be directed to Investor Services at the
address shown on the back cover of this Prospectus.
From a touch-tone phone, shareholders may obtain current
price, yield or performance information specific to a fund
in the Franklin Funds by calling the automated Franklin
TeleFACTS(Registered Trademark) system (day or night) at 1-
800/247-1753. Information about the Fund may be accessed by
entering Fund Code 02 followed by the # sign, when requested
to do so by the automated operator. The TeleFACTS system is
also available for processing exchanges. See "Exchange
Privilege."
To assist shareholders and securities dealers wishing to
speak directly with a representative, the following is a
list of the various Franklin departments, telephone numbers
and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)
In order to ensure that the highest quality of service is
being provided, telephone calls placed to or by
representatives in Franklin's service departments may be
accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including current yield, various expressions of
total return and current distribution rate. They may
occasionally cite statistics to reflect its volatility or
risk.
Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of
$1,000 invested at the maximum public offering price
(offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent
applicable, through the end of the most recent calendar
quarter, assuming reinvestment of all distributions. The
Fund may also furnish total return quotations for other
periods, or based on investments at various sales charge
levels or at net asset value. For such purposes total return
equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the
Fund's portfolio investments; it is calculated by dividing
the Fund's net investment income per share during a recent
30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed
by the SEC (see the SAI) is not indicative of the dividends
or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate,
which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount
of dividends per share paid by the Fund during the past 12
months by a current maximum offering price. Under certain
circumstances, such as when there has been a change in the
amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize
the dividends paid during the period such policies were in
effect, rather than using the dividends during the past 12
months. The current distribution rate differs from the
current yield computation because it may include
distributions to shareholders from sources other than
dividends and interest, such as premium income from option
writing and short-term capital gain, and is calculated over
a different period of time.
In each case performance figures are based upon past
performance, reflect all recurring charges against Fund
income and will assume the payment of the maximum sales
charge on the purchase of shares. When there has been a
change in the sales charge structure, the historical
performance figures will be restated to reflect the new
rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent
what an investment may earn in the future or what the Fund's
yield, distribution rate or total return may be in any
future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends December 31. Annual Reports
containing audited financial statements of the Fund,
including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtainedby investors or
shareholders, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page
of this Prospectus.
Additional information on Fund performance is included in
the Fund's Annual Report to Shareholders and the SAI.
ORGANIZATION
The Fund's authorized capital stock consists of
5,000,000,000 shares of common stock. All shares are of one
class, have one vote and, when issued, are fully paid and
nonassessable. All shares have equal voting, participation
and liquidation rights, but have no subscription, preemptive
or conversion rights.
VOTING RIGHTS
Shares of the Fund have cumulative voting rights which means
that in all elections of directors, each shareholder has the
right to cast a number of votes equal to the number of
shares owned, multiplied by the number of directors to be
elected at such election, and each shareholder may cast the
whole number of votes for one candidate or distribute such
votes among two or more candidates.
The California Corporations Code does not require
corporations registered as management investment companies
under the 1940 Act to hold routine annual meetings of
shareholders and the Fund does not intend to hold annual
shareholders' meetings. The Fund may, however, hold a
special meeting for such purposes as changing fundamental
investment restrictions, approving a new management
agreement or any other matters which are required to be
acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Directors or by
shareholders holding at least ten percent of the shares
entitled to vote at the meeting. Shareholders may receive
assistance in communicating with other shareholders in
connection with the election or removal of directors such as
that provided in Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value,
shares of any shareholder whose account has a value of less
than $50, but only where the value of such account has been
reduced by the shareholder's prior voluntary redemption of
shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided
advance notice is given to the shareholder. More information
is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do
not earn interest or any other income during the time such
checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss to the shareholder
caused by the shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check,
draft or wire. The Fund has no facility to receive, or pay
out, cash in the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's
intentions as to ownership. Where there are two co-owners on
the account, the account will be registered as "Owner 1" and
"Owner 2"; the "or" designation is not used except for money
market fund accounts. If co-owners wish to have the ability
to redeem or convert on the signature of only one owner, a
limited power of attorney may be used.
Accounts should not be registered in the name of a minor,
either as sole or co-owner of the account. Transfer or
redemption for such an account may require court action to
obtain release of the funds until the minor reaches the
legal age of majority. The account should be registered in
the name of one "Adult" as custodian for the benefit of the
"Minor" under the Uniform Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for"
should only be used if the account is being established
pursuant to a legal, valid trust document. Use of such a
designation in the absence of a legal trust document may
cause difficulties and require court action for transfer or
redemption of the funds.
Shares, whether in certificate form or not, registered as
joint tenants or "Jt Ten" shall mean as "joint tenants with
rights of survivorship" and not as "tenants in common."
Except as indicated, a shareholder may transfer an account
in the Fund carried in "street" or "nominee" name by the
shareholder's securities dealer to a comparably registered
Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have
executed dealer agreements on file with Distributors. Unless
a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and
will so inform the shareholder's delivering securities
dealer. To effect the transfer, a shareholder should
instruct the securities dealer to transfer the account to a
receiving securities dealer and sign any documents required
by the securities dealer(s) to evidence consent to the
transfer. Under current procedures the account transfer may
be processed by the delivering securities dealer and the
Fund after the Fund receives authorization in proper form
from the shareholder's delivering securities dealer. In the
future it may be possible to effect such transfers
electronically through the services of the NSCC.
The Fund may conclusively accept instructions from an owner
or the owner's nominee listed in publicly available nominee
lists, regardless of whether the account was initially
registered in the name of, or by the owner, the nominee, or
both. If a securities dealer or other representative is of
record on an investor's account, the investor will be deemed
to have authorized the use of electronic instructions on the
account, including, without limitation, those initiated
through the services of the NSCC, to have adopted as
instruction and signature any such electronic instructions
received by the Fund and the Shareholder Services Agent, and
to have authorized them to execute the instructions without
further inquiry. At the present time, such services which
are available, or which are anticipated to be made available
in the near future, include the NSCC's "Networking,"
"Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment,
or by calling Franklin's Fund Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund
may be required to report to the Internal Revenue Service
("IRS") any taxable dividend, capital gain distribution, or
other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to
individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN")
and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject
to backup withholding if the IRS or a securities dealer
notifies the Fund that the number furnished by the
shareholder is incorrect or that the shareholder is subject
to backup withholding for previous under-reporting of
interest or dividend income.
The Fund reserves the right to (1) refuse to open an account
for any person failing to provide a TIN along with the
required certifications and (2) close an account by
redeeming its shares in full at the then current net asset
value upon receipt of notice from the IRS that the TIN
certified as correct by the shareholder is in fact incorrect
or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a
certified TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-
to-day management of the Fund's portfolio: Lisa Costa and R.
Martin Wiskemann since inception.
Lisa Costa, Portfolio Manager of Advisers, holds a bachelor
of science degree in finance from California State
University at Hayward and a master's degree in business
administration and finance from Golden Gate University, San
Francisco. She has been with Advisers since 1980. Ms. Costa
is a member of several securities industry-related
committees and associations.
R. Martin Wiskemann, Senior Vice President of Advisers,
holds a degree in business administration from the
Handelsschule of the State of Zurich, Switzerland. He has
been with Advisers since 1972 and, prior thereto, he was a
securities analyst at Laird, Bissell & Meed and an
investment manager with Winfield & Company. Mr. Wiskemann is
a member of several securities industry-related committees
and associations.
FRANKLIN
PREMIER
RETURN FUND
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1995
777 MARINERS ISLAND BLVD., P.O.BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
About the Fund (See also the
Prospectus "About the Fund" and
"General Information")
The Fund's Investment Restrictions
and Policies (See also the Prospectus
"Investment Objectives and
Policies of the Fund")
Officers and Directors
Investment Advisory and Other Services
(See also the Prospectus
"Management of the Fund")
The Fund's Policies Regarding Brokers
Used on Portfolio Transactions
Additional Information Regarding Fund Shares (See also the
Prospectus "How to Buy Shares of the Fund," "How to Sell
Shares of the Fund," and "Valuation of Fund Shares")
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Financial Statements
A Prospectus for the Fund, dated May 1, 1995, as may be
amended from time to time, provides the basic information an
investor should know before investing in the Fund, and may
be obtained without charge from the Fund or from its
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address shown above.
This Statement of Additional Information (the "SAI") is not
a prospectus. It contains information in addition to and in
more detail than set forth in the Prospectus. This SAI is
intended to provide investors with additional information
regarding the activities and operations of the Fund, and
should be read in conjunction with the Fund's Prospectus.
ABOUT THE FUND
The Fund is a diversified, open-end management investment
company, commonly called a "mutual fund." It was
incorporated in Hawaii on December 5, 1951, and
reincorporated in California on April 27, 1983, pursuant to
a statutory merger with a corporation formed on April 18,
1983. On April 12, 1991 shareholders approved a change in
the Fund's investment objective and policies and the
adoption of the Fund's current name. The Fund has only one
class of capital stock with no par value.
THE FUND'S INVESTMENT
RESTRICTIONS AND POLICIES
TRANSACTIONS IN OPTIONS, FUTURES
AND OPTIONS ON FINANCIAL FUTURES
CALL AND PUT OPTIONS ON SECURITIES. The Fund intends to
write covered put and call options and purchase put and call
options which trade on securities exchanges and in the over-
the-counter market.
WRITING CALL AND PUT OPTIONS. A call option gives the option
holder the right to buy the underlying securities from the
option writer at a stated exercise price. A put option gives
the option holder the right to sell the underlying security
at the option exercise price at any time during the option
period.
Call options written by the Fund give the holder the right
to buy the underlying securities from the Fund at a stated
exercise price; put options written by the Fund give the
holder the right to sell the underlying security to the Fund
at a stated exercise price. A call option written by the
Fund is "covered" if the Fund owns the underlying security
which is subject to the call or has an absolute and
immediate right to acquire that security without additional
cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a
call on the same security and in the same principal amount
as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund
in cash and high grade debt securities in a segregated
account with its custodian. A put option written by the Fund
is "covered" if the Fund maintains cash and high grade debt
securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put
on the same security and in the same principal amount as the
put written where the exercise price of the put held is
equal to or greater than the exercise price of the put
written. The premium paid by the purchaser of an option will
reflect, among other things, the relationship of the
exercise price to the market price and volatility of the
underlying security, the remaining term of the option,
supply and demand and interest rates.
The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since,
with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of
the obligation. Whether or not an option expires
unexercised, the writer retains the amount of the premium.
This amount, of course, may, in the case of a covered call
option, be offset by a decline in the market value of the
underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss
from the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to
purchase the underlying security at the exercise price,
which will usually exceed the then market value of the
underlying security.
The writer of an option who wishes to terminate its
obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as
the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing
purchase transaction after being notified of the exercise of
an option. Likewise, an investor who is the holder of an
option may liquidate its position by effecting a "closing
sale transaction." This is accomplished by selling an option
of the same series as the option previously purchased. There
is no guarantee that either a closing purchase or a closing
sale transaction will be available to be effected at the
time desired by the Fund.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call
option on the underlying security with either a different
exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another
put option to the extent that the exercise price thereof is
secured by deposited cash or short-term securities. Also,
effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject
to the option to be used for other Fund investments. If the
Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the
sale of the security.
The Fund will realize a profit from a closing transaction if
the price of the transaction is less than the premium
received from writing the option or is more than the premium
paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction
is more than the premium received from writing the option or
is less than the premium paid to purchase the option.
Because increases in the market price of a call option will
generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase
of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the
Fund.
The writing of covered put options involves certain risks.
For example, if the market price of the underlying security
rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be
limited to the premium received. If the market price of the
underlying security declines or otherwise is below the
exercise price, the Fund may elect to close the position or
take delivery of the security at the exercise price and the
Fund's return will be the premium received from the put
options minus the amount by which the market price of the
security is below the exercise price.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase call
options on securities which it intends to purchase in order
to limit the risk of a substantial increase in the market
price of such security before the purchase is effected. The
Fund may also purchase call options on securities held in
its portfolio and on which it has written call options.
Prior to its expiration, a call option may be sold in a
closing sale transaction. Profit or loss from such a sale
will depend on whether the amount received is more or less
than the premium paid for the call option plus the related
transaction costs.
The Fund may purchase put options on particular securities
in order to protect against a decline in the market value of
the underlying security below the exercise price less the
premium paid for the option. The ability to purchase put
options will allow the Fund to protect the unrealized gain
in an appreciated security in its portfolio without actually
selling the security. In addition, the Fund will continue to
receive interest or dividend income on the security. The
Fund may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option.
Such sales will result in a net gain or loss depending on
whether the amount received on the sale is more or less than
the premium and other transaction costs paid for the put
option that is sold. Such gain or loss may be wholly or
partially offset by a change in the value of the underlying
security which the Fund owns or has the right to acquire.
OVER-THE-COUNTER OPTIONS ("OTC" OPTIONS). The Fund intends
to write covered put and call options and purchase put and
call options which trade in the over-the-counter market to
the same extent that it will engage in exchange traded
options. Just as with exchange traded options, OTC call
options give the option holder the right to buy an
underlying security from an option writer at a stated
exercise price; OTC put options give the holder the right to
sell an underlying security to an option writer at a stated
exercise price. However, OTC options differ from exchange
traded options in certain material respects.
OTC options are arranged directly with dealers and not, as
is the case with exchange traded options, with a clearing
corporation. Thus, there is a risk of non-performance by the
dealer. Because there is no exchange, pricing is typically
done by reference to information from market makers.
However, OTC options are available for a greater variety of
securities, and in a wider range of expiration dates and
exercise prices, than exchange traded options; and the
writer of an OTC option is paid the premium in advance by
the dealer.
There can be no assurance that a continuous liquid secondary
market will exist for any particular option at any specific
time. Consequently, the Fund may be able to realize the
value of an OTC option it has purchased only by exercising
it or by entering into a closing sale transaction with the
dealer that issued it. Similarly, when the Fund writes an
OTC option, it generally can close out that option prior to
its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally
wrote it.
OPTIONS ON STOCK INDICES. The Fund may also purchase call
options on stock indices in order to hedge against the risk
of market or industry-wide stock price fluctuations. Call
and put options on stock indices are similar to options on
securities except that, rather than the right to purchase or
sell stock at a specified price, options on a stock index
give the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the
underlying stock index is greater than (or less than, in the
case of puts) the exercise price of the option. This amount
of cash is equal to the difference between the closing price
of the index and the exercise price of the option expressed
in dollars multiplied by a specified number. Thus, unlike
stock options, all settlements are in cash, and gain or loss
depends on price movements in the stock market generally (or
in a particular industry or segment of the market) rather
than price movements in individual stocks.
When the Fund writes an option on a stock index, the Fund
will establish a segregated account containing cash or high
quality fixed-income securities with its custodian in an
amount at least equal to the market value of the underlying
stock index and will maintain the account while the option
is open or it will otherwise cover the transaction.
FUTURES CONTRACTS. The Fund may enter into contracts for the
purchase or sale for future delivery of securities and in
such contracts based upon financial indices ("financial
futures"). Financial futures contracts are commodity
contracts that obligate the long or short holder to take or
make delivery of a specified quantity of a financial
instrument, such as a security, or the cash value of a
securities index during a specified future period at a
specified price. A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price
on a specified date. A "purchase" of a futures contract
means the acquisition of a contractual obligation to acquire
the securities called for by the contract at a specified
price on a specified date. Futures contracts have been
designed by exchanges which have been designated "contracts
markets" by the Commodity Futures Trading Commission and
must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract
market.
At the same time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). Daily thereafter, the futures
contract is valued and the payment of "variation margin" may
be required, since each day the Fund would provide or
receive cash that reflects any decline or increase in the
contract's value.
Although delivery or acquisition of securities, in most
cases the contractual obligation is fulfilled before the
date of the contract without having to make or take delivery
of the securities. The offsetting of a contractual
obligation is accomplished by buying (or selling, as the
case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a
transaction, which is effected through a member of an
exchange, cancels the obligation to take delivery of the
securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated
with the exchange on which the contracts are traded, the
Fund will incur brokerage fees when it purchases or sells
futures contracts.
The Commodities Futures Trading Commission and the various
exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net
short position which any person may hold or control in a
particular futures contract. Trading limits are imposed on
the maximum number of contracts which any person may trade
on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these
limits and it may impose other sanctions or restrictions.
The Fund does not believe that these trading and positions
limits will have an adverse impact on the Fund's strategies
for hedging its securities.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the natures of those markets,
are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures
contracts through offsetting transactions which could
distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third,
from the point of view of speculators, the margin deposit
requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market
may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general
interest rate trends by the investment adviser may still not
result in a successful transaction.
The Fund will not engage in transactions in futures
contracts or related options for speculation but only as a
hedge against changes resulting from market conditions in
the values of its securities or securities which it intends
to purchase. The Fund will not enter into any stock index or
financial futures contract or related option if, immediately
thereafter, more than one-third of the Fund's net assets
would be represented by futures contracts or related
options. In addition, the Fund may not purchase or sell
futures contracts or purchase or sell related options if,
immediately thereafter, the sum of the amount of margin
deposits on its existing futures and related options
positions, and premiums paid for related options, would
exceed 5% of the market value of the Fund's total assets. In
instances involving the purchase of futures contracts or
related call options, money market instruments equal to the
market value of the futures contract or related option will
be deposited in a segregated account with the custodian to
collateralize such long positions.
The purpose of the acquisition or sale of a futures contract
is to attempt to protect the Fund from fluctuations in price
of portfolio securities without actually buying or selling
the underlying security. To the extent the Fund enters into
futures contracts, (to the extent required by the rules of
the Securities and Exchange Commission), it will maintain
with its custodian assets in a segregated account to cover
its obligations with respect to such contract which will
consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the
difference between the fluctuating market value of such
futures contract and the aggregate value of the initial and
variation margin payments made by the Fund with respect to
such futures contracts.
STOCK INDEX FUTURES AND
OPTIONS ON STOCK INDEX FUTURES
The Fund may purchase and sell stock index futures contracts
and options on stock index futures contracts.
STOCK INDEX FUTURES. A stock index futures contract
obligates the seller to deliver (and the purchaser to take)
an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index
at the close of the last trading day of the contract and the
price at which the agreement is made. No physical delivery
of the underlying stocks in the index is made.
The Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to
offset the decrease in market value of its equity securities
that might otherwise result. When the Fund is not fully
invested in stocks and it anticipates a significant market
advance, it may purchase stock index futures in order to
gain rapid market exposure that may in part or entirely
offset increases in the cost of stocks that it intends to
purchase.
OPTIONS ON STOCK INDEX FUTURES. The Fund may purchase and
sell call and put options on stock index futures to hedge
against risks of market-side price movements. The need to
hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the
sensitivity of such investments to factors influencing the
stock market as a whole.
Call and put options on stock index futures are similar to
options on securities except that, rather than the right to
purchase stock at a specified price, options on stock index
futures give the holder the right to receive cash. Upon
exercise of the option, the delivery of the futures position
by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount
by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on
the futures contract. If an option is exercised on the last
trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the
closing price of the futures contract on the expiration
date.
BOND INDEX FUTURES AND OPTIONS ON SUCH CONTRACTS. The Fund
may purchase and sell futures contracts based on an index of
debt securities and options on such futures contracts to the
extent they currently exist and, in the future, may be
developed. The Fund reserves the right to conduct futures
and options transactions based on an index which may be
developed in the future to correlate with price movements in
certain categories of debt securities. The Fund's investment
strategy in employing futures contracts based on an index of
debt securities will be similar to that used by it in other
financial futures transactions.
The Fund also may purchase and write put and call options on
such index futures and enter into closing transactions with
respect to such options.
FUTURE DEVELOPMENTS. The Fund may take advantage of
opportunities in the area of options and futures contracts
and options on futures contracts and any other derivative
investments which are not presently contemplated for use by
the Fund or which are not currently available but which may
be developed, to the extent such opportunities are both
consistent with the Fund's investment objective and legally
permissible for the Fund. Prior to investing in any such
investment vehicle, the Fund will supplement its prospectus,
if appropriate.
RISK FACTORS AND CONSIDERATIONS REGARDING
OPTIONS, FUTURES AND OPTIONS ON FUTURES
The Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on stock
indices, stock index futures, financial futures and related
options depends on the degree to which price movements in
the underlying debt index or underlying debt securities
correlate with price movements in the relevant portion of
the Fund's portfolio. Inasmuch as such securities will not
duplicate the components of the index or such underlying
securities, the correlation will not be perfect.
Consequently, the Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as
the hedging instrument. It is also possible that there may
be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged
securities which would result in a loss on both such
securities and the hedging instrument. Accordingly,
successful use by the Fund of options on stock indices,
stock index futures, financial futures and related options
will be subject to the investment manager's ability to
predict correctly movements in the direction of the
securities markets generally or a particular segment. This
requires different skills and techniques than predicting
changes in the price of individual stocks.
Positions in stock index options, stock index futures and
financial futures and related options may be closed out only
on an exchange which provides a secondary market. There can
be no assurance that a liquid secondary market will exist
for any particular stock index option or futures contract or
related option at any specific time. Thus, it may not be
possible to close such an option or futures position. The
inability to close options or futures positions also could
have an adverse impact on the Fund's ability to effectively
hedge its securities. The Fund will enter into an option or
futures position only if there appears to be a liquid
secondary market for such options or futures.
There can be no assurance that a continuous liquid secondary
market will exist for any particular OTC option at any
specific time. Consequently, the Fund may be able to realize
the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction
with the dealer that issued it. Similarly, when the Fund
writes an OTC option, it generally can close out that option
prior to its expiration only by entering into a closing
purchase transaction with the dealer to which the Fund
originally wrote it. If a covered call option writer cannot
effect a closing transaction, it cannot sell the underlying
security until the option expires or the option is
exercised. Therefore, a covered call option writer of an OTC
option may not be able to sell an underlying security even
though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be
unable to sell the securities pledged to secure the put for
other investment purposes while it is obligated as a put
writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Commodities Futures Trading Commission and the various
exchanges have established limits, referred to as
"speculative position limits," on the maximum net long or
net short position which any person may hold or control in a
particular futures contract. Trading limits are imposed on
the maximum number of contracts which any person may trade
on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these
limits and it may impose other sanctions or restrictions.
The Fund does not believe that these trading and positions
limits will have an adverse impact on the Fund's strategies
for hedging its securities.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the natures of those markets,
are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures
contracts through offsetting transactions which could
distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third,
from the point of view of speculators, the margin deposit
requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market
may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general
interest rate trends by the investment adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the
Fund believes that use of such contracts will benefit the
Fund, if the investment adviser's investment judgment about
the general direction of interest rates is incorrect, the
Fund's overall performance would be poorer than if it had
not entered into any such contract. For example, if the Fund
has hedged against the possibility of an increase in
interest rates which would adversely affect the price of
bonds held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of
the increased value of its bonds which it has hedged because
it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities from its portfolio to
meet daily variation margin requirements. Such sales may be,
but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do
so.
The Fund's sale of futures contracts and purchase of put
options on futures contracts will be solely to protect its
investments against declines in value. The Fund expects that
in the normal course it will purchase securities upon
termination of long futures contracts and long call options
on future contracts, but under unusual market conditions it
may terminate any of such positions without a corresponding
purchase of securities.
In addition to the objectives and policies discussed in the
Prospectus, the Fund has adopted the following restrictions
as fundamental policies. The Fund MAY not:
1. Purchase the securities of any one issuer (except
securities issued by the United States of America or any
instrumentality thereof) if, immediately after and as a
result of such purchase, the market value of the holdings of
the Fund in the securities of such issuer would exceed 5% of
the market value of the Fund's total net assets.
2. Purchase the securities of any issuer if such purchase
would cause more than 10% of the outstanding voting
securities of such issuer, or more than 10% of the
outstanding voting securities of any one class of such
issuer, to be held in the Fund's portfolio.
3. Concentrate investments in any particular industry;
therefore, the Fund will not purchase a security if, as a
result of such purchase, more than 25% of its assets will be
invested in a particular industry.
4. Purchase any securities on margin or sell securities
short.
5. Purchase or retain the securities of any regulated
investment company; except to the extent the Fund invests
its uninvested daily cash balances in shares of Franklin
Money Fund and other money market funds in the Franklin
Group of Funds provided (i) its purchases and redemptions of
such money market fund shares may not be subject to any
purchase or redemption fees, (ii) its investments may not be
subject to duplication of management fees, nor to any charge
related to the expense of distributing the Fund's shares (as
determined under Rule 12b-1, as amended under the federal
securities laws) and (iii) provided aggregate investments by
the Fund in any such money market fund do not exceed (A) the
greater of (i) 5% of the Fund's total net assets or (ii)
$2.5 million, or (B) more than 3% of the outstanding shares
of any such money market fund.
6. Invest more than 15% of the Fund's total assets in the
securities of all issuers in the aggregate, the respective
businesses of which have been in continuous operation for
less than three years. As a non-fundamental policy, the Fund
has determined to limit such investments to 5% of its total
assets.
7. Purchase or retain investments in securities of any
issuer in which directors or officers of the Fund have a
substantial financial interest. The Fund, as a non-
fundamental policy, will not purchase the securities of any
issuer if any officer, director or employee of the Fund is
an officer, director or security holder of such issuer and
owns beneficially more than 1/2 of 1% of the securities of
such issuer, and if all of such persons owning more than 1/2
of 1% own more than 5% of the outstanding securities of such
issuer.
8. Borrow money, except as a temporary measure for
extraordinary purposes, and then not in excess of 10% of the
total assets of the Fund taken at cost or value, whichever
is less, and provided that immediately after any such
borrowing there is an asset coverage (meaning the ratio
which the value of the total assets of the Fund, less all
liabilities and indebtedness of the Fund not represented by
such borrowing, bears to the aggregate amount of such
borrowing) of at least 300% for all borrowings of the Fund.
9. Lend any money or assets of the Fund, except through the
purchase of a portion of an issue of debt securities
distributed privately by federal, state or municipal
government agencies, and then not in excess of 10% of the
total assets of the Fund taken at cost or value, whichever
is less, or to the extent the entry into a repurchase
agreement may be deemed a loan. For the purpose of this
policy, the purchase by the Fund of a portion of an issue of
publicly distributed corporate or governmental bonds,
debentures or other debt securities shall not be deemed to
be the lending of money by the Fund.
10. Mortgage or pledge any of the Fund's assets. The escrow
arrangements involved in the Fund's option writing
activities are not deemed to be a mortgage or pledge of its
assets.
11. Act as a securities underwriter or investor in real
estate or commodities, other than the Fund's investments in
derivative securities, including financial futures and
options on financial futures.
12. Purchase or sell any securities other than shares of the
Fund from or to the manager or any officer or director of
the manager of the Fund.
13. Invest in the securities of companies for the purpose of
exercising control.
14. Issue securities senior to the Fund's presently
authorized common stock.
So long as the percentage restrictions above are observed by
the Fund at the time it purchases any security, changes in
values of particular Fund assets or the assets of the Fund
as a whole will not cause a violation of any of the
foregoing restrictions.
In order to change any of these restrictions which are
fundamental policies, approval is needed by the lesser of
(i) 67% or more of the Fund's voting securities present at a
meeting, if the holders of more than 50% of the Fund's
voting securities are represented at that meeting or (ii)
more than 50% of the Fund's outstanding voting securities.
In addition to these fundamental policies, it is the Fund's
present policy (which may be changed without the approval of
the Fund's shareholders) not to: invest in oil, gas or other
mineral exploration or development programs; engage in joint
or joint and several trading accounts in securities, except
that a Fund order to purchase or sell securities may be
combined with other orders to obtain lower brokerage
commissions; invest in any security which would be
restricted from sale to the public without registration
under the Securities Act of 1933 if, as a result of such
purchase, more than 5% of the Fund's total assets would be
invested in such securities; or invest more than 10% of its
assets in securities, including restricted securities, which
are not readily marketable. The Fund's investments in
warrants, if any, other than those acquired by the Fund as a
part of a unit, valued at the lower of cost or market, will
not exceed 5% of the value of the Fund's net assets,
including not more than 2% which are not listed on the New
York or American Stock Exchange. The Fund will not invest in
straddles or spreads or any combination thereof; however,
the Fund may purchase put options on securities in its
portfolio and call options to close out its obligations on a
call option it has previously written (see "Investment
Objectives and Policies of the Fund" in the Prospectus).
The exchanges on which options are traded have established
limitations governing the maximum number of options in each
class which may be written by a single investor or group of
investors acting in concert (regardless of whether the
options are written on the same or different exchanges or
are held or written in one or more accounts or through one
or more brokers). It is possible that the Fund and other
clients of the Manager may be considered to be such a group.
An exchange may order the liquidation of positions found to
be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the
number of options which the Fund will be able to write on a
particular security.
OFFICERS AND DIRECTORS
The Board of Directors has the responsibility for the
overall management of the Fund, including general
supervision and review of its investment activities. The
directors, in turn, elect the officers of the Fund who are
responsible for administering day-to-day operations of the
Fund. The affiliations of the officers and directors and
their principal occupations for the past five years are
listed below. Directors who are deemed to be "interested
persons" of the Fund, as defined in the Investment Company
Act of 1940 (the "1940 Act"), are indicated by an asterisk
(*).
Frank H. Abbott, III
1045 Sansome St.
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment
company); Director, Mother Lode Gold Mines Consolidated; and
director, trustee or managing general partner, as the case
may be, of 30 of the investment companies in the Franklin
Group of Funds.
S. Joseph Fortunato
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Director of General Host Corporation; director, trustee or
managing general partner, as the case may be, of 56 of the
investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano
111 New Montgomery St., #402
San Francisco, CA 94105
Director
Private Investor; Assistant Secretary/Treasurer and
Director, Berkeley Science Corporation (a venture capital
company); and director, trustee or managing general partner,
as the case may be, of 29 of the investment companies in the
Franklin Group of Funds.
*Edward B. Jamieson
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
Senior Vice President and Portfolio Manager, Franklin
Advisers, Inc.; and officer and/or director or trustee of
five of the investment companies in the Franklin Group of
Funds.
*Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Director
President and Director, Franklin Resources, Inc.; Chairman
of the Board and Director, Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 55 of the
investment companies in the Franklin Templeton Group of
Funds.
Hayato Tanaka
277 Haihai Street
Hilo, HI 96720
Director
Retired, former owner of The Jewel Box Orchids; and director
or trustee, as the case may be, of two of the Franklin Group
of Funds.
*R. Martin Wiskemann
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Senior Vice President, Portfolio Manager and Director,
Franklin Advisers, Inc.; Senior Vice President, Franklin
Management, Inc.; Vice President, Treasurer and Director,
ILA Financial Services, Inc. and Arizona Life Insurance
Company of America; and officer and/or director, as the case
may be, of 19 of the investment companies in the Franklin
Group of Funds.
Harmon E. Burns
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or
director, as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or
trustee of 41 of the investment companies in the Franklin
Templeton Group of Funds.
Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting
Standards
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and Officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and
Treasurer, Franklin Resources, Inc.; Executive Vice
President, Templeton Worldwide, Inc.; Senior Vice President
and Treasurer, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Senior Vice President,
Franklin/Templeton Investor Services, Inc.; officer of most
other subsidiaries of Franklin Resources, Inc.; and officer
of 60 of the investment companies in the Franklin Templeton
Group of Funds.
Deborah R. Gatzek
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 36 of the investment
companies in the Franklin Group of Funds.
Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources,
Inc. and Franklin Templeton Distributors, Inc.; President
and Director, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the
case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 42 of the investment companies in the
Franklin Templeton Group of Funds.
Diomedes Loo-Tam
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of
the investment companies in the Franklin Group of Funds.
Edward V. McVey
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin
Templeton Distributors, Inc.; and officer of 31 of the
investment companies in the Franklin Group of Funds.
As indicated above, certain of the directors and officers
hold positions with other companies in the Franklin Group of
Funds and the Templeton Group of Funds. Directors not
affiliated with the investment manager are currently paid
fees of $100 per meeting attended and are reimbursed for
expenses incurred in connection with attending such
meetings. During the fiscal year ended December 31, 1994,
fees totaling $2,000 were paid by the Fund to Messrs. Abbott
($600), Fortunato ($500), Garbellano ($500) and Tanaka
($400). For the calendar year ended December 31, 1994,
Messrs. Abbott, Fortunato, Garbellano and Tanaka received
total fees of $176,870, $336,065, $153,300 and $400,
respectively, from the various Franklin and Templeton Funds
for which they serve as directors, trustees or managing
general partners and for which they spent significant time
in preparation for and attendance at the meetings. No
officer or director received any other compensation directly
from the Fund. As of February 7, 1995, the directors and
officers, as a group, owned of record and beneficially
approximately 56,346 outstanding shares of the Fund. In
addition, many of the Fund's directors own shares in various
of the other funds in the Franklin Group of Funds and the
Templeton Group of Funds. Certain officers or directors who
are shareholders of Franklin Resources, Inc. ("Resources")
may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are brothers.
From time to time, the number of Fund shares held in the
"street name" accounts of various securities dealers for the
benefit of their clients or in centralized securities
depositories may exceed 5% of the total shares outstanding.
To the best knowledge of the Fund, no other person holds
beneficially or of record more than 5% of the Fund's
outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers,
Inc. ("Advisers" or "Manager"). Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company
whose shares are listed on the New York Stock Exchange
("Exchange"). Resources owns several other subsidiaries
which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of
Resources currently manage over $114 billion in assets for
more than 3.7 million shareholders. The preceding table
indicates those officers and directors who are also
affiliated persons of Distributors and Advisers.
Pursuant to the management agreement, the Manager provides
investment research and portfolio management services,
including the selection of securities for the Fund to
purchase, hold or sell and the selection of brokers through
whom the Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and
supervision of the Fund's Board of Directors to whom the
Manager renders periodic reports of the Fund's investment
activities. The Manager, at its own expense, furnishes the
Fund with office space and office furnishings, facilities
and equipment required for managing the business affairs of
the Fund; maintains all internal bookkeeping, clerical,
secretarial and administrative personnel and services; and
provides certain telephone and other mechanical services.
The Manager is covered by fidelity insurance on its
officers, directors, and employees for the protection of the
Fund. The Fund bears all of its expenses not assumed by the
Manager. See the Statement of Operations in the financial
statements in the Fund's Annual Report for additional
details of these expenses.
Pursuant to the management agreement, the Fund is obligated
to pay the Manager a fee computed at the close of business
on the last business day of each month equal to a monthly
rate of 5/96 of 1% (approximately 5/8 of 1% per year) for
the first $100 million of net assets of the Fund; 1/24 of 1%
(approximately 1/2 of 1% per year) on net assets of the Fund
in excess of $100 million up to $250 million; and 9/240 of
1% (approximately 45/100 of 1% per year) of net assets of
the Fund in excess of $250 million. The management agreement
specifies that the management fee will be reduced to the
extent necessary to comply with the most stringent limits on
the expenses which may be borne by the Fund as prescribed by
any state in which the Fund's shares are offered for sale.
The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate
operating expenses of the Fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses such as
litigation costs) would otherwise exceed in any fiscal year
2 1/2% of the first $30 million of average net assets of the
Fund, 2% of the next $70 million of average net assets of
the Fund and 1 1/2% of average net assets of the Fund in
excess of $100 million. Expense reductions have not been
necessary based on state requirements. Management fees for
the fiscal years ended December 31, 1992, 1993 and 1994 were
$147,863, $139,233, and $155,985, respectively.
The management agreement is in effect until April 30, 1995.
Thereafter, it may continue in effect for successive annual
periods providing such continuance is specifically approved
at least annually by a vote of the Fund's Board of Directors
or by a vote of the holders of a majority of the Fund's
outstanding voting securities, and in either event by a
majority vote of the Fund's directors who are not parties to
the management agreement or interested persons of any such
party (other than as directors of the Fund), cast in person
at a meeting called for that purpose. The management
agreement may be terminated without penalty at any time by
the Fund or by the Manager on 30 days' written notice and
will automatically terminate in the event of its assignment,
as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor
Services" or "Shareholder Services Agent"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent
for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor,
San Francisco, California 94104, acts as custodian of the
securities and other assets of the Fund. Citibank Delaware,
One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate
in decisions relating to the purchase and sale of portfolio
securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Fund's independent auditors.
During the fiscal year ended December 31, 1994, their
auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's
Annual Report.
THE FUND'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
Under the current management agreement with Advisers, the
selection of brokers and dealers to execute transactions in
the Fund's portfolio is made by the Manager in accordance
with criteria set forth in the management agreement and any
directions which the Fund's Board of Directors may give.
When placing a portfolio transaction, the Manager attempts
to obtain the best net price and execution of the
transaction. On portfolio transactions which are done on a
securities exchange, the amount of commission paid by the
Fund is negotiated between the Manager and the broker
executing the transaction. The Manager seeks to obtain the
lowest commission rate available from brokers which are felt
to be capable of efficient execution of the transactions.
The determination and evaluation of the reasonableness of
the brokerage commissions paid in connection with portfolio
transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on
the basis of, among other things, the experience of these
individuals in the securities industry and information
available to them concerning the level of commissions being
paid by other institutional investors of comparable size.
The Manager will ordinarily place orders for the purchase
and sale of over-the-counter securities on a principal
rather than agency basis with a principal market maker
unless, in the opinion of the Manager, a better price and
execution can otherwise be obtained. Purchases of portfolio
securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and
purchases from dealers will include a spread between the bid
and ask price. As a general rule, the Fund does not purchase
bonds in underwritings here it is not given any choice, or
only limited choice, in the designation of dealers to
receive the commission. The Fund seeks to obtain prompt
execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to
be considered in the selection of a broker to execute a
trade. If it is felt to be in the Fund's best interests, the
Manager may place portfolio transactions with brokers who
provide the types of services described below, even if it
means the Fund will have to pay a higher commission than
would be the case if no weight were given to the broker's
furnishing of these services. This will be done only if, in
the opinion of the Manager, the amount of any additional
commission is reasonable in relation to the value of the
services. Higher commissions will be paid only when the
brokerage and research services received are bona fide and
produce a direct benefit to the Fund or assist the Manager
in carrying out its responsibilities to the Fund, or when it
is otherwise in the best interest of the Fund to do so,
whether or not such data may also be useful to the Manager
in advising other clients.
When it is felt that several brokers are equally able to
provide the best net price and execution, the Manager may
decide to execute transactions through brokers who provide
quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of
the Fund's net assets, in such amount of total brokerage as
may reasonably be required in light of such services, and
through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total
brokerage as may reasonably be required.
It is not possible to place a dollar value on the special
executions or on the research services received by Advisers
from dealers effecting transactions in portfolio securities.
The allocation of transactions in order to obtain additional
research services permits Advisers to supplement its own
research and analysis activities and to receive the views
and information of individuals and research staff of other
securities firms. As long as it is lawful and appropriate to
do so, the Manager and its affiliates may use this research
and data in their investment advisory capacities with other
clients. Provided that the Fund's officers are satisfied
that the best execution is obtained, the sale of Fund shares
may also be considered as a factor in the selection of
securities dealers to execute the Fund's portfolio
transactions.
Because Distributors is a member of the National Association
of Securities Dealers, it is sometimes entitled to obtain
certain fees when the Fund tenders portfolio securities
pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Fund, any
portfolio securities tendered by the Fund will be tendered
through Distributors if it is legally permissible to do so.
In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of
any fees received by Distributors in cash, less any costs
and expenses incurred in connection therewith.
If purchases or sales of securities of the Fund and one or
more other investment companies or clients supervised by the
Manager are considered at or about the same time,
transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed
equitable to all by the Manager, taking into account the
respective sizes of the funds and the amount of securities
to be purchased or sold. It is recognized that in some cases
this procedure could possibly have a detrimental effect on
the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to
participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Fund.
During the fiscal years ended December 31, 1992, 1993 and
1994, the Fund paid total brokerage commissions of $47,902,
$26,048, and $26,798, respectively.
As of December 31, 1994, the Fund held equity securities of
Bank of America NT & SA valued in the aggregate at $395,000
and debt securities of Nikko Securities Co. Intl., Inc.
valued in the aggregate at $3,000,000. Except as stated
above, the Fund did not own securities of its regular broker-
dealers.
ADDITIONAL INFORMATION
REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for
purchasing or redeeming shares of the Fund must be
denominated in U.S. dollars. The Fund reserves the right, in
its sole discretion, to either (a) reject any order for the
purchase or sale of shares denominated in any other
currency, or (b) to honor the transaction or make
adjustments to a shareholder's account for the transaction
as of a date and with a foreign currency exchange factor
determined by the drawee bank.
In connection with exchanges (see Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from
the sale of shares of an investment company generally are
not available until the fifth business day following the
redemption, the funds into which the Fund shareholders are
seeking to exchange reserve the right to delay issuing
shares pursuant to an exchange until said fifth business
day. The redemption of shares of the Fund to complete an
exchange for shares of any of the investment companies will
be effected at the close of business on the day the request
for exchange is received in proper form at the net asset
value then effective.
Dividend checks which are returned to the Fund marked
"unable to forward" by the postal service will be deemed to
be a request by the shareholder to change the dividend
option, and the proceeds will be reinvested in additional
shares at net asset value until new instructions are
received.
The Fund may deduct from a shareholder's account the costs
of its efforts to locate a shareholder if mail is returned
as undeliverable or the Fund is otherwise unable to locate
the shareholder or verify the current mailing address. These
costs may include a percentage of the account when a search
company charges a percentage fee in exchange for their
location services.
Under agreements with certain banks in Taiwan, Republic of
China, the Fund's shares are available to such banks'
discretionary trust funds at net asset value. The banks may
charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion
of such service fees may be paid to Distributors, or an
affiliate of Distributors, to help defray expenses of
maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication
facilities.
Shares of the Fund may be offered to investors in Taiwan
through securities firms known locally as Securities
Investment Consulting Enterprises. In conformity with local
business practices in Taiwan, shares of the Fund will be
offered with the following schedule of sales charges:
SIZE OF PURCHASE IN U.S. SALES CHARGE
DOLLARS
Up to $100,000 3%
$100,000 to $1,000,000 2%
U.S. $1,000,000 1%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in
proper form prior to 1:00 p.m. Pacific time any business day
that the Exchange is open for trading and promptly
transmitted to the Fund will be based upon the public
offering price determined that day. Purchase orders received
by securities dealers or other financial institutions after
1:00 p.m. Pacific time will be effected at the Fund's public
offering price on the day it is next calculated. The use of
the term "securities dealer" herein shall include other
financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle
customer orders and accounts with the Fund. Such reference,
however, is for convenience only and does not indicate a
legal conclusion of capacity.
Orders for the redemption of shares are effected at net
asset value subject to the same conditions concerning time
of receipt in proper form. It is the securities dealer's
responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so
must be settled between the customer and the securities
dealer.
SPECIAL NET ASSET VALUE PURCHASES
As discussed in the Prospectus under "How to Buy Shares of
the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase
shares of the Fund without a front-end sales charge ("net
asset value") or a contingent deferred sales charge.
Distributors or one of its affiliates may make payments, out
of its own resources, to securities dealers who initiate and
are responsible for such purchases, as indicated below. As a
condition for these payments, Distributors or its affiliates
may require reimbursement from the securities dealers with
respect to certain redemptions made within 12 months of the
calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement
between Distributors, or its affiliates, and the securities
dealer.
The following amounts may be paid by Distributors or one of
its affiliates, out of its own resources, to securities
dealers who initiate and are responsible for (i) purchases
of most equity and taxable-income Franklin Templeton Funds
made at net asset value by certain designated retirement
plans (excluding IRA and IRA rollovers): 1.00% on sales of
$1 million but less than $2 million, plus 0.80% on sales of
$2 million but less than $3 million, plus 0.50% on sales of
$3 million but less than $50 million, plus 0.25% on sales of
$50 million but less than $100 million, plus 0.15% on sales
of $100 million or more; and (ii) purchases of most taxable
income Franklin Templeton Funds made at net asset value by
non-designated retirement plans: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of
$50 million but less than $100 million, plus 0.15% on sales
of $100 million or more. These payment breakpoints are
reset every 12 months for purposes of additional purchases.
With respect to purchases made at net asset value by certain
trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement
plan assets of $10 million or more, Distributors, or one of
its affiliates, out of its own resources, may pay up to 1%
of the amount invested.
LETTER OF INTENT
An investor may qualify for a reduced sales charge on the
purchase of shares of the Fund, as described in the
prospectus. At any time within 90 days after the first
investment which the investor wants to qualify for the
reduced sales charge, a signed Shareholder Application, with
the Letter of Intent section completed, may be filed with
the Fund. After the Letter of Intent is filed, each
additional investment will be entitled to the sales charge
applicable to the level of investment indicated on the
Letter. Sales charge reductions based upon purchases in more
than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment
qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds acquired more than 90 days before
the Letter of Intent is filed will be counted towards
completion of the Letter of Intent but will not be entitled
to a retroactive downward adjustment in the sales charge.
Any redemptions made by the shareholder, other than by a
designated benefit plan during the 13-month period will be
subtracted from the amount of the purchases for purposes of
determining whether the terms of the Letter of Intent have
been completed. If the Letter of Intent is not completed
within the 13-month period, there will be an upward
adjustment of the sales charge, depending upon the amount
actually purchased (less redemptions) during the period. The
upward adjustment does not apply to designated benefit
plans. An investor who executes a Letter of Intent prior to
a change in the sales charge structure for the Fund will be
entitled to complete the Letter of Intent at the lower of
(i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter of Intent was
filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of the
amount of the total intended purchase will be reserved in
shares of the Fund registered in the investor's name, unless
the investor is a designated benefit plan. If the total
purchases, less redemptions, equal the amount specified
under the Letter, the reserved shares will be deposited to
an account in the name of the investor or delivered to the
investor or the investor's order. If the total purchases,
less redemptions, exceed the amount specified under the
Letter of Intent and is an amount which would qualify for a
further quantity discount, a retroactive price adjustment
will be made by Distributors and the securities dealer
through whom purchases were made pursuant to the Letter of
Intent (to reflect such further quantity discount) on
purchases made within 90 days before and on those made after
filing the Letter. The resulting difference in offering
price will be applied to the purchase of additional shares
at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount
specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales
charge which would have applied to the aggregate purchases
if the total of such purchases had been made at a single
time. Upon such remittance the reserved shares held for the
investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the
investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption
of an appropriate number of reserved shares to realize such
difference will be made. In the event of a total redemption
of the account prior to fulfillment of the Letter of Intent,
the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be
forwarded to the investor.
If a Letter of Intent is executed on behalf of a benefit
plan (such plans are described under "Purchases at Net Asset
Value" in the Prospectus), the level and any reduction in
sales charge for these designated benefit plans will be
based on actual plan participation and the projected
investments in the Franklin Templeton Funds under the Letter
of Intent. Benefit plans are not subject to the requirement
to reserve 5% of the total intended purchase, or to any
penalty as a result of the early termination of a plan, nor
are benefit plans entitled to receive retroactive
adjustments in price for investments made before executing
the Letter of Intent.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record,
limited in amount, however, during any 90-day period to the
lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and
Exchange Commission. In the case of requests for redemption
in excess of such amounts, the directors reserve the right
to make payments in whole or in part in securities or other
assets of the Fund from which the shareholder is redeeming,
in case of an emergency, or if the payment of such a
redemption in cash would be detrimental to the existing
shareholders of the Fund. In such circumstances, the
securities distributed would be valued at the price used to
compute the Fund's net assets. Should the Fund do so, a
shareholder may incur brokerage fees in converting the
securities to cash. The Fund does not intend to redeem
illiquid securities in kind; however, should it happen,
shareholders may not be able to timely recover their
investment and may also incur brokerage costs in selling
such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small
investments, the Fund reserves the right to redeem,
involuntarily, at net asset value, the shares of any
shareholder whose account has a value of less than one-half
of the initial minimum investment required for that
shareholder, but only where the value of such account has
been reduced by the shareholder's prior voluntary redemption
of shares. Until further notice, it is the present policy of
the Fund not to exercise this right with respect to any
shareholder whose account has a value of $50 or more. In any
event, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder
that the value of the shares in the account is less than the
minimum amount and allow the shareholder 30 days to make an
additional investment in an amount which will increase the
value of the account to at least $100.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, the Fund generally calculates
net asset value as of 1:15 p.m. Pacific time each day that
the Exchange is open for trading. As of the date of this
SAI, the Fund is informed that the Exchange observes the
following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund's portfolio securities are valued as stated in the
Prospectus. Generally, trading in corporate bonds, U.S.
government securities and money market instruments is
substantially completed each day at various times prior to
the close of the Exchange. The values of such securities
used in computing the net asset value of the Fund's shares
are determined as of such times. Occasionally, events
affecting the values of such securities may occur between
the times at which they are determined and 1:15 p.m. Pacific
time which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then
these securities will be valued at their fair value as
determined in good faith by the Board of Directors.
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be
purchased at the net asset value determined on the business day
following the dividend record date (sometimes known as "ex-
dividend date"). The processing date for the reinvestment of
dividends may vary from month to month, and does not affect the
amount or value of the shares acquired.
SPECIAL SERVICES
The Trust and Institutional Services Division of
Distributors provides specialized services, including
recordkeeping, for institutional investors of the Fund. The
cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions
which maintain omnibus accounts with the Fund on behalf of
numerous beneficial owners for recordkeeping operations
performed with respect to such beneficial owners. For each
beneficial owner in the omnibus account, the Fund may
reimburse Investor Services an amount not to exceed the per
account fee which the Fund normally pays Investor Services.
Such financial institutions may also charge a fee for their
services directly to their clients.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund intends to be treated
as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (The "Code"). The Directors
reserve the right not to maintain the qualification of the
Fund as a regulated investment company if they determine
such course of action to be beneficial to the shareholders.
In such case, the Fund will be subject to federal and
possibly state corporate taxes on its taxable income and
gains, and distributions to shareholders will be ordinary
dividend income to the extent of the Fund's available
earnings and profits.
Subject to the limitations discussed below, all or a portion
of the income distributions paid by a Fund may be treated by
corporate shareholders as qualifying dividends for purposes
of the dividends-received deduction under federal income tax
law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations,
the stock in which is not debt-financed by the Fund and is
held for at least a minimum holding period) is less than
100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be
designated as eligible for such deduction will not exceed
the aggregate qualifying dividends received by the Fund for
the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction
will be declared by the Fund annually in a notice to
shareholders mailed shortly after the end of the Fund's
fiscal year.
Corporate shareholders should note that dividends paid by a
Fund from sources other than the qualifying dividends it
receives will not qualify for the dividends-received
deduction. For example, any interest income and net short-
term capital gain (in excess of any net long-term capital
loss or capital loss carryover) included in investment
company taxable income and distributed by a Fund as a
dividend will not qualify for the dividends-received
deduction. Corporate shareholders should also note that
availability of the corporate dividends-received deduction
is subject to certain restrictions. For example, the
deduction is eliminated unless the Fund shares have been
held (or deemed held) for at least 46 days in a
substantially unhedged manner. The dividends-received
deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable
to its investment in Fund shares. The entire dividend,
including the portion which is treated as a deduction, is
includable in the tax base on which the alternative minimum
tax is computed and may also result in a reduction in the
shareholder's tax basis in its Fund shares, under certain
circumstances, if the shares have been held for less than
two years. Corporate shareholders whose investment in the
Fund is "debt financed" for these tax purposes should
consult with their tax advisors concerning the availability
of the dividends- received deduction.
The Code requires all funds to distribute at least 98% of
their taxable ordinary income earned during the calendar
year and at least 98% of their capital gain net income
earned during the twelve-month period ending October 31 of
each year (in addition to amounts from the prior year that
were neither distributed nor taxed to the Fund) to
shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. The Fund intends as
a matter of policy to declare such dividends, if any, in
December and to pay these dividends in December or January
to avoid the imposition of this tax, but does not guarantee
that its distributions will be sufficient to avoid any or
all federal excise taxes. Under these rules, certain
distributions which are declared in October, November or
December but which, for operational reasons, may not be paid
to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received
by the shareholder on December 31 of the calendar year in
which they are declared.
Redemptions and exchanges of Fund shares are taxable events
on which a shareholder may realize a gain or loss. Any loss
incurred on sale or exchange of the Fund's shares, held for
six months or less, will be treated as a long-term capital
loss to the extent of capital gain dividends received with
respect to such shares. All or a portion of the sales charge
incurred in purchasing shares of the Fund will not be
included in the federal tax basis of such shares sold or
exchanged within ninety (90) days of their purchase (for
purposes of determining gain or loss with respect to such
shares) if the sales proceeds are reinvested in the Fund or
in another fund in the Franklin Group of Funds and a sales
charge which would otherwise apply to the reinvestment is
reduced or eliminated. Any portion of such sales charge
excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment.
Shareholders should consult with their tax advisors
concerning the tax rules applicable to the redemption or
exchange of Fund shares.
All or a portion of a loss realized upon a redemption of
shares will be disallowed to the extent other shares of the
Fund are purchased (through reinvestment of dividends or
otherwise) within 30 days before or after such redemption.
Any loss disallowed under these rules will be added to the
tax basis of the shares purchased.
The Fund's investment in options and futures contracts are
subject to many complex and special tax rules. For example,
over-the-counter options on debt securities and equity
options, including options on stock and on narrow-based
stock indexes, will be subject to tax under Section 1234 of
the Code, generally producing a long-term or short-term
capital gain or loss upon exercise, lapse, or closing out of
the option or sale of the underlying stock or security. The
Fund treatment of certain other options, futures and forward
contracts entered into by the Fund is generally governed by
Section 1256 of the Code. These "Section 1256" positions
generally include listed options on debt securities, options
on broad-based stock indexes, options on securities indexes,
options on futures contracts, regulated futures contracts
and certain foreign currency contracts and options thereon.
Absent a tax election to the contrary, each such Section
1256 position held by the Fund will be marked-to-market
(i.e., treated as if it were sold for fair market value) on
the last business day of the Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and
mark-to-market positions at fiscal year end (except certain
foreign currency gain or loss covered by Section 988 of the
Code) will generally be treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. The
effect of Section 1256 mark-to-market rules may be to
accelerate income or to convert what otherwise would have
been long-term capital gains into short-term capital gains
or short-term capital losses into long-term capital losses
within the Fund. The acceleration of income on Section 1256
positions may require the Fund to accrue taxable income
without the corresponding receipt of cash. In order to
generate cash to satisfy the distribution requirements of
the Code, the Fund may be required to dispose of portfolio
securities that it otherwise would have continued to hold or
to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may
affect both the amount, character and time of income
distributed to shareholders by the Fund.
When the Fund holds an option or contract which
substantially diminishes the Fund's risk of loss with
respect to another position of the Fund (as might occur in
some hedging transactions), this combination of positions
could be treated as a "straddle" for tax purposes, resulting
in possible deferral of losses, adjustments in the holding
periods of Fund securities and conversion of short-term
capital losses into long-term capital losses. Certain tax
elections exist for mixed straddles i.e., straddles
comprised of at least one Section 1256 position and at least
one non-Section 1256 position which may reduce or eliminate
the operation of these straddle rules.
As discussed in the Prospectus, the Fund may invest in
"synthetic convertible securities," i.e., two or more
financial instruments that will produce an economic effect
that is similar to holding a convertible security.
Generally, each instrument included in a synthetic position
is treated as a separate property for tax purposes. Thus,
the conversion of a "synthetic" convertible position may
result in one or more taxable transactions with respect to
the separate properties, in contrast to the conversion of a
true convertible instrument, which may be tax-free. Gains or
losses recognized may affect the amount, timing and
character of the fund's distributions.
As a regulated investment company, the Fund is also subject
to the requirement that less than 30% of its annual gross
income be derived from the sale or other disposition of
securities and certain other investments held for less than
three months ("short-short income").
This requirement may limit the Fund's ability to engage in
options, hedging transactions and futures contracts because
these transactions are often consummated in less than three
months, may require the sale of portfolio securities held
less than three months and may, as in the case of short
sales of portfolio securities reduce the holding periods of
certain securities within the Fund, resulting in additional
short-short income for the Fund.
The Fund will monitor its transactions in such options and
contracts and may make certain other tax elections in order
to mitigate the effect of the above rules and to prevent
disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
Gains realized by the Fund from any transactions entered
into after April 30, 1993 that are deemed to constitute
"conversion transactions" under the Code and which would
otherwise produce capital gain may be recharacterized as
ordinary income to the extent that such gain does not exceed
an amount defined by the Code as the "applicable imputed
income amount". A conversion transaction is any transaction
in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment
in such transaction and any one of the following criteria
are met: 1) there is an acquisition of property with a
substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the
transaction is an applicable straddle; 3) the transaction
was marketed or sold to the Fund on the basis that it would
have the economic characteristics of a loan but would be
taxed as capital gain; or 4) the transaction is specified in
Treasury regulations to be promulgated in the future. The
applicable imputed income amount, which represents the
deemed return on the conversion transaction based upon the
time value of money, is computed using a yield equal to 120
percent the applicable federal rate, reduced by any prior
recharacterizations under this provision or Section 263(g)
of the Code concerning capitalized carrying costs.
As a regulated investment company, the Fund is also subject
to the requirement that less than 30% of its annual gross
income be derived from the sale or other disposition of
securities and certain other investments held for less than
three months ("short-short income"). This requirement may
limit the Fund's ability to engage in options, straddles,
hedging transactions and forward or futures contracts
because these transactions are often consummated in less
than three months, may require the sale of portfolio
securities held less than three months and may, as in the
case of short sales of portfolio securities reduce the
holding periods of certain securities within the Fund,
resulting in additional short-short income for the Fund. The
Fund will monitor its transactions in such options and
contracts and may make certain other tax elections in order
to mitigate the effect of the above rules and to prevent
disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April
30, 1995, Distributors acts as principal underwriter in a
continuous public offering for shares of the Fund.
Distributors pays the expenses of distribution of Fund
shares, including advertising expenses and the costs of
printing sales material and prospectuses used to offer
shares to the public. The Fund pays the expenses of
preparing and printing amendments to its registration
statements and prospectuses (other than those necessitated
by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The underwriting agreement will continue in effect for
successive annual periods provided that its continuance is
specifically approved at least annually by a vote of the
Fund's Board of Directors, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Fund's directors who
are not parties to the underwriting agreement or interested
persons of any such party (other than as directors of the
Fund), cast in person at a meeting called for that purpose.
The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either
party on 90 days' written notice.
Until April 30, 1994, income dividends were reinvested at
the offering price (which includes the sales charge) and
Distributors allowed 50% of the entire commission to the
securities dealer of record, if any, on an account. Starting
with any income dividends paid after April 30, 1994, such
reinvestment will be at net asset value.
In connection with the offering of the Fund's shares,
aggregate underwriting commissions for the fiscal years
ended December 31, 1992, 1993 and 1994 were $45,152,
$54,031, and $93,593, respectively. After allowances to
dealers, Distributors retained $7,642, $7,353, and $6,627
for the fiscal years ended December 31, 1992, 1993 and 1994,
respectively. Distributors may be entitled to reimbursement
under the Distribution Plan of the Fund as discussed under
"Distribution Expenses." Except as noted, Distributors
received no other compensation from the Fund for acting as
underwriter.
PLAN OF DISTRIBUTION
The Fund has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") whereby the Fund may
pay up to a maximum of 0.25% per annum of its average daily
net assets for expenses incurred in the promotion and
distribution of its shares.
In implementing the Plan, the Board has determined that the
annual fees payable thereunder will be equal to the sum of:
(i) the amount obtained by multiplying 0.10% by the average
daily net assets represented by shares of the Fund that were
acquired by investors on or after the Effective Date of the
Plan ("New Assets"), and (ii) the amount obtained by
multiplying 0.05% by the average daily net assets
represented by shares of the Fund that were acquired before
the Effective Date of the Plan ("Old Assets"). Such fees
will be paid to the current securities dealer of record on
the shareholder's account. In addition, until such time as
the maximum payment of 0.15% is reached on a yearly basis,
up to an additional 0.02% will be paid to Distributors under
the Plan. The payments to be made to Distributors will be
used by Distributors to defray other marketing expenses that
have been incurred in accordance with the Plan, such as
advertising.
The fee is a Fund expense so that all shareholders
regardless of when they purchased their shares will bear 12b-
1 expenses at the same rate. That rate initially will be at
least 0.07% (0.05% plus 0.02%) of such average daily net
assets and, as Fund shares are sold on or after the
Effective Date, will increase over time. Thus, as the
proportion of Fund shares purchased on or after the
Effective Date increases in relation to outstanding Fund
shares, the expenses attributable to payments under the
proposed Plan will also increase (but will not exceed 0.10%
of average daily net assets). While this is the currently
anticipated calculation for fees payable under the Plan, the
Plan permits the Fund's directors to allow the Fund to pay a
full 0.15% on all assets at any time. The approval of the
Fund's Board of Directors would be required to change the
calculation of the payments to be made under the Plan.
Pursuant to the Plan, Distributors or others will be
entitled to be reimbursed each quarter (up to the maximum as
stated above) for actual expenses incurred in the
distribution and promotion of the Fund's shares, including,
but not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and
distributing of sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead
expenses attributable to the distribution of Fund shares, as
well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its
affiliates.
In addition to the payments to which Distributors or others
are entitled under the Plan, the Plan also provides that to
the extent the Fund, the Manager or Distributors or other
parties on behalf of the Fund, the Manager or Distributors,
make payments that are deemed to be payments for the
financing of any activity primarily intended to result in
the sale of shares of the Fund within the context of Rule
12b-1 under the 1940 Act, then such payments shall be deemed
to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments made under the Plan, plus any other
payments deemed to be made pursuant to the Plan, exceed the
amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers,
Inc., Article III, Section 26(d)4.
The terms and provisions of the Plan relating to required
reports, term, and approval are consistent with Rule 12b-1.
The Plan does not permit unreimbursed expenses incurred in a
particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing
functions, as distinguished from administrative servicing or
agency transactions, certain banks will not be entitled to
participate in the Plan as a result of applicable federal
law prohibiting certain banks from engaging in the
distribution of mutual fund shares. Such banking
institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency
transactions. If a bank were prohibited from providing such
services, its customers who are shareholders would be
permitted to remain shareholders of the Fund, and alternate
means for continuing the servicing of such shareholders
would be sought. In such an event, changes in the services
provided might occur and such shareholders might no longer
be able to avail themselves of any automatic investment or
other services then being provided by the bank. It is not
expected that shareholders would suffer any adverse
financial consequences as a result of any of these changes.
Securities laws of states in which the Fund's shares are
offered for sale may differ from the interpretations of
federal law expressed herein, and banks and financial
institutions selling shares of the Fund may be required to
register as dealers pursuant to state law.
The Plan has been approved by shareholders and by the
directors of the Fund, including those directors who are not
interested persons, as defined in the 1940 Act. The Plan is
effective through May 1, 1995 and renewable annually by a
vote of the Fund's Board of Directors, including a majority
vote of the directors who are non-interested persons of the
Fund and who have no direct or indirect financial interest
in the operation of the Plan, cast in person at a meeting
called for that purpose. It is also required that the
selection and nomination of such directors be done by the
non-interested directors. The Plan and any related agreement
may be terminated at any time, without any penalty, by vote
of a majority of the non-interested directors on not more
than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an
assignment of the Underwriting Agreement with Distributors,
or by vote of a majority of the Fund's outstanding shares.
Distributors or any dealer or other firm may also terminate
their respective distribution or service agreement at any
time upon written notice.
The Plan and any related agreements may not be amended to
increase materially the amount to be spent for distribution
expenses without approval by a majority of the Fund's
outstanding shares, and all material amendments to the Plan
or any related agreements shall be approved by a vote of the
non-interested directors, cast in person at a meeting called
for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board
of Directors at least quarterly on the amounts and purpose
of any payment made under the Plan and any related
agreements, as well as to furnish the Board of Directors
with such other information as may reasonably be requested
in order to enable the Board of Directors to make an
informed determination of whether the Plan should be
continued.
For the fiscal year ended December 31, 1994, the total
amount paid by the Fund pursuant to the Plan was $30,623,
which was used for the following purposes.
DOLLAR AMOUNT
Advertising $ 5,206
Printing and mailing of
prospectuses to other than current
shareholders $ 9,799
Payments to underwriters $ 613
Payments to brokers or dealers $15,005
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate the Fund's
past performance. It may occasionally cite statistics to
reflect its volatility or risk.
Performance quotations by investment companies are subject
to rules adopted by the Securities and Exchange Commission
("SEC"). These rules require the use of standardized
performance quotations or, alternatively, that every non-
standardized performance quotation furnished by the Fund be
accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average
annual compounded total return quotations used by the Fund
are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and
other methods used by the Fund to compute or express
performance follows.
TOTAL RETURN
The average annual total return is determined by finding the
average annual compounded rates of return over one-, five-
and ten-year periods that would equate an initial
hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes the maximum front-end sales
charge is deducted from the initial $1,000 purchase order,
and income dividends and capital gains are reinvested at net
asset value. The quotation assumes the account was
completely redeemed at the end of each one-, five- and ten-
year period and the deduction of all applicable charges and
fees. If a change is made on the sales charge structure,
historical performance information will be restated to
reflect the maximum front-end sales charge currently in
effect.
In considering the quotations of total return by the Fund,
investors should remember that the maximum front-end sales
charge reflected in each quotation is a one time fee
(charged on all direct purchases) which will have its
greatest impact during the early stages of an investor's
investment in the Fund. The actual performance of an
investment will be affected less by this charge the longer
an investor retains the investment in the Fund. The average
annual compounded rates of return for the Fund for the
indicated periods ended on the date of the financial
statements incorporated herein by reference are (4.00%),
7.7.% and 10.30%, respectively.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one-, five- or
ten-year periods at the end of the one-, five- or ten-
year periods.
As discussed in the Prospectus, the Fund may quote total
rates of return in addition to its average annual total
return. Such quotations are computed in the same manner as
the Fund's average annual compounded rate, except that such
quotations will be based on the Fund's actual return for a
specified period rather than on its average return over one-
, five- and ten-year periods. The total rates of return for
the Fund for the indicated periods ended on the date of the
financial statements incorporated herein by reference are
(4.00%), 44.98% and 166.57%, respectively.
YIELD
Current yield reflects the income per share earned by the
Fund's portfolio investments.
Current yield is determined by dividing the net investment
income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the
period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during
the base period. The yield for the Fund for the 30-day
period ended on the date of the financial statements
incorported herein by reference was 2.73%.
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period.
CURRENT DISTRIBUTION RATE
Yield which is calculated according to a formula prescribed
by the SEC is not indicative of the amounts which were or
will be paid to the Fund's shareholders. Amounts paid to
shareholders are reflected in the quoted "current
distribution rate." The current distribution rate is
computed by dividing the total amount of dividends per share
paid by the Fund during the past 12 months by a current
maximum offering price. Under certain circumstances, such as
when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it
might be appropriate to annualize the dividends paid over
the period such policies were in effect, rather than using
the dividends during the past 12 months. The current
distribution rate differs from the current yield computation
because it may include distributions to shareholders from
sources other than dividends and interest, such as premium
income from option writing and short-term capital gains, and
is calculated over a different period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund
volatility or risk. Measures of volatility or risk are
generally used to compare Fund net asset value or
performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund
relative to the total market as represented by the Standard
& Poor's 500 Stock Index. A beta of more than 1.00 indicates
volatility greater than the market, and a beta of less than
1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net
asset value or total return around an average, over a
specified period of time. The premise is that greater
volatility connotes greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are
permitted to purchase shares of the Fund at net asset value,
sales literature pertaining to the Fund may quote a current
distribution rate, yield, total return, average annual total
return and other measures of performance as described
elsewhere in this SAI with the substitution of net asset
value for the public offering price.
Sales literature referring to the use of the Fund as a
potential investment for Individual Retirement Accounts
(IRAs), Business Retirement Plans, and other tax-advantaged
retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal
income tax applies.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an
indication of the return to shareholders only for the
limited historical period used.
The Fund may include in its advertising or sales material
information relating to investment objectives and
performance results of funds belonging to the Templeton
Group of Funds. Resources is the parent company of the
advisers and underwriter of both the Franklin Group of Funds
and Templeton Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in the
Fund might satisfy their investment objective,
advertisements and other materials regarding the Fund may
discuss various measures of Fund performance as reported by
various financial publications. Materials may also compare
performance (as calculated above) to performance as reported
by other investments, indices, and averages. Such
comparisons may include, but are not limited to, the
following examples:
a) Dow Jones Composite Average or its component averages -
an unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15
utilities company stocks (Dow Jones Utilities Average), and
20 transportation company stocks. Comparisons of performance
assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component
indices - an unmanaged index composed of 400 industrial
stocks, 40 financial stocks, 40 utilities stocks, and 20
transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component
indices - unmanaged indices of all industrial, utilities,
transportation, and finance stocks listed on the New York
Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the
market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume
reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper -
Fixed Income Fund Performance Analysis - measure total
return and average current yield for the mutual fund
industry. Rank individual mutual fund performance over
specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return, and average rate of return (average annual
compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. -
analyzes price, yield, risk, and total return for equity
funds.
h) Financial publications: The Wall Street Journal and
Business Week, Changing Times, Financial World, Forbes,
Fortune and Money magazines - provide performance statistics
over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published
by the U.S. Bureau of Labor Statistics - a statistical
measure of change, over time, in the price of goods and
services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by
Ibbotson Associates - historical measure of yield, price,
and total return for common and small company stock, long-
term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published
in the U.S. Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of
First Boston Corporation, the J. P. Morgan companies,
Salomon Brothers Merrill Lynch, Pierce, Fenner & Smith,
Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index
based on the prices of 100 blue-chip stocks, including 92
industrials, one utility, two transportation companies, and
5 financial institutions. The S&P 100 Stock Index is a
smaller, more flexible index for options trading.
From time to time, advertisements or information for the
Fund may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such
advertisements or information may include symbols,
headlines, or other material which highlight or summarize
the information discussed in more detail in the
communication.
Advertisements or information may also compare the Fund's
performance to the return on certificates of deposit or
other investments. Investors should be aware, however, that
an investment in the Fund involves the risk of fluctuation
of principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For
example, as the general level of interest rates rise, the
value of the Fund's fixed-income investments, as well as the
value of its shares which are based upon the value of such
portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of
deposit are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any
federal, state or private entity.
In assessing such comparisons of performance, an investor
should keep in mind that the composition of the investments
in the reported indices and averages is not identical to the
Fund's portfolio, that the indices and averages are
generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the
formula used by the Fund to calculate its figures. In
addition there can be no assurance that the Fund will
continue this performance as compared to such other
averages.
OTHER FEATURES AND BENEFITS
The Fund may help investors achieve various investment goals
such as accumulating money for retirement, saving for a down
payment on a home, college cost and/or other long-term
goals. The Franklin College Costs Planner may assist an
investor in determining how much money must be invested on a
monthly basis in order to have a projected amount available
in the future to fund a child's college education.
(Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin
Retirement Planning Guide leads an investor through the
steps to start a retirement savings program. Of course, an
investment in the Fund cannot guarantee that such goals will
be met.
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group, one of
the largest mutual fund organizations in the United States
and may be considered in a program for diversification of
assets. Founded in 1947, Franklin, one of the oldest mutual
fund organizations, has managed mutual funds for over 47
years and now services more than 2.5 million shareholder
accounts. In 1992, Franklin, a leader in managing fixed-
income mutual funds and an innovator in creating domestic
equity funds, joined forces with Templeton Worldwide, Inc.,
a pioneer in international investing. Together, the Franklin
Templeton Group has over $114 billion in assets under
management for more than 3.7 million shareholder accounts
and offers 111 U.S.-based mutual funds. The Fund may
identify itself by its NASDAQ or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked
Franklin number one in service quality for five of the past
seven years.
Access persons of the Franklin Templeton Group, as defined
in SEC Rule 17(j) under the 40 Act, who are employees of
Franklin Resources, Inc. or their subsidiaries, are
permitted to engage in personal securities transactions
subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance
from a Compliance Officer and must be completed within 24
hours after this clearance; (2) Copies of all brokerage
confirmations must be sent to the Compliance Officer and
within 10 days after the end of each calendar quarter, a
report of all securities transactions must be provided to
the Compliance Officer; (3) In addition to items (1) and
(2), access persons involved in preparing and making
investment decisions must file annual reports of their
securities holdings each January and also inform the
Compliance Officer (or other designated personnel) if they
own a security that is being considered for a fund or other
client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale
by a fund or other client.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of
ownership or authority to control a shareholder's account,
the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all
persons deemed by the Fund to have a potential property
interest in the account, prior to executing instructions
regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to
the Internal Revenue Service in response to a Notice of
Levy.
FINANCIAL STATEMENTS
The financial statements contained in the Annual Report to
Shareholders of Franklin Premier Return Fund dated December
31, 1994 are incorporated herein by reference.
Franklin Premier Return Fund
File Nos. 2-12647
811-730
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements incorporated herein by reference
to the Registrant's Annual Report to Shareholders dated
December 31, 1994 as filed on February 27, 1995
(i) Report of Independent Auditors - February 1, 1995
(ii) Statement of Investments in Securities, Open
Options and Net Assets, December 31, 1994.
(iii) Statement of Assets and Liabilities -
December 31, 1994.
(iv) Statement of Operations - for the year ended
December 31, 1994.
(v) Statements of Changes in Net Assets - for the
years ended December 31, 1994 and 1993.
(vi) Notes to Financial Statements
b) Exhibits
(1) copies of the charter as now in effect;
(i) Articles of Incorporation dated April
13, 1983
(ii) Certificate of Amendment of Articles of
Incorporation dated April 15, 1991
(2) copies of the existing By-Laws or instruments
corresponding thereto;
(i) Amended By-Laws of Franklin Premier Return
Fund
(ii) Amendment to By-Laws adopted January 18, 1994
(3) copies of any voting trust agreement with respect to
more than five percent of any class of equity
securities of the Registrant;
N/A
(4) specimens or copies of each security issued by the
Registrant, including copies of all constituent
instruments, defining the rights of the holders of such
securities, and copies of each security being
registered;
N/A
(5) copies of all investment advisory contracts relating to
the management of the assets of the Registrant;
(i) Management Agreement between Registrant and
Franklin Advisers, Inc. dated May 1, 1986
(6) copies of each underwriting or distribution contract
between the Registrant and a principal underwriter, and
specimens or copies of all agreements between principal
underwriters and dealers;
(i) Amended and Restated Distribution Agreement dated
April 20, 1993
(ii) Forms of Dealer Agreements effective December 1,
1994, between Franklin/Templeton Distributors,
Inc. ("Distributors") and dealers
(7) copies of all bonus, profit sharing, pension
or other similar contracts or arrangement
wholly or partly for the benefit of
directors or officers of the Registrant in
their capacity as such; any such plan that
is not set forth in a formal document,
furnish a reasonably detailed description
thereof;
N/A
(8) copies of all custodian agreements and depository
contracts under Section 17(f) of the 1940 Act, with
respect to securities and similar investments of the
Registrant, including the schedule of renumeration;
(i) Custodian Agreement dated December 1, 1982
between Registrant and Bank of America NT & SA
(ii) Amendment to Custodian Agreement dated December
1, 1994, between Registrant and Bank of America
NT & SA
(iii)Copy of Custodian Agreements between Registrant
and Citibank Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master
Agreement
3. Short Form Bank Agreement - Deposits and
Disbursements of Funds
(9) copies of all other material contracts not made in the
ordinary course of business which are to be performed
in whole or in part at or after the date of filing the
Registration Statement;
Agreement of Merger between FOF and Franklin Option
Fund, Inc. dated April 22, 1983
(10) an opinion and consent of counsel as to the legality
of the securities being registered, indicating whether
they will when sold be legally issued, fully paid and
nonassessable;
N/A
(11) copies of any other opinions, appraisals or rulings
and consents to the use thereof relied on in the
preparation of this registration statement and
required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) all financial statements omitted from Item 23;
N/A
(13) copies of any agreements or understandings made in
consideration for providing the initial capital
between or among the Registrant, the underwriter,
adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that
their purchases were made for investment purposes
without any present intention of redeeming or
reselling;
N/A
(14) copies of the model plan used in the establishment of
any retirement plan in conjunction with which
Registrant offers its securities, any instructions
thereto and any other documents making up the model
plan. Such form(s) should disclose the costs and fees
charged in connection therewith;
(i) Copy of model retirement plan
Registrant: AGE High Income Fund, Inc.
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form
N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant
to Rule 12b-1 under the 1940 Act, which describes all
material aspects of the financing of distribution of
Registrant's shares, and any agreements with any
person relating to implementation of such plan.
N/A
(16) schedule for computation of each performance quotation
provided in the registration statement in response to
Item 22 (which need not be audited).
(i) Schedule for computation of performance quotation
(17) Power of Attorney
(i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
Item 25 Persons Controlled by or under Common Control
with Registrant
None
Item 26 Number of Holders of Securities
As of December 31, 1994, the number of record holders of the
only class of securities of the Registrant was as follows:
Number of
Title of Class Record Holders
Capital Stock 3,357
Item 27 Indemnification
Please see Section 6 of the Management Agreement (Exhibit
(5)), and Section 16 of Distribution Agreement (Exhibit
(6)), previously filed as an exhibit and incorporated
herein by reference.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant
in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court or appropriate jurisdiction
the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 28 Business and Other Connections of Investment
Adviser
The officers and directors of the Registrant's investment
advisor also serve as officers and/or directors for (1) the
advisor's corporate parent, Franklin Resources, Inc.,
and/or (2) other investment companies in the Franklin Group
of Funds. In addition, Mr. Charles B. Johnson is a
director of General Host Corporation. For additional
information please see Part B.
Item 29 Principal Underwriters
a) Distributors also acts as principal underwriter of
shares of AGE High Income Fund, Inc., Franklin
Custodian Funds, Inc., Franklin Gold Fund, Franklin
Equity Fund, Franklin Municipal Securities Trust,
Franklin California Tax-Free Income Fund, Inc.,
Franklin New York Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Investors
Securities Trust, Franklin Tax-Free Trust, Franklin
New York Tax-Free Trust, Franklin Strategic Series,
Franklin International Trust, Franklin Tax-Advantaged
International Bond Fund, Franklin Tax-Advantaged U.S.
Government Securities Fund, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Managed Trust,
Franklin Balance Sheet Investment Fund, Franklin
Federal Tax-Free Income Fund, Institutional Fiduciary
Trust, Franklin Money Fund, Franklin Federal Money
Fund, Franklin Tax Exempt Money Fund, Franklin Real
Estate Securities Trust, Templeton Variable Products
Series Fund, Templeton Real Estate Securities Fund,
Templeton Growth Fund, Inc., Templeton Funds, Inc.,
Templeton Smaller Companies Growth Fund, Inc.,
Templeton Income Trust, Templeton Global Opportunities
Trust, Templeton Institutional Funds, Inc., Templeton
American Trust, Inc., Templeton Capital Accumulator
Fund, Inc., Templeton Developing Markets Trust,
Templeton Global Investment Trust, Templeton Variable
Annunity Fund, and Franklin/Templeton Japan Fund.
(b) The information required by this Item 29 with respect
to each director and officer of Distributors is
incorporated by reference to Part B of this N-1A and
Schedule A of Form BD filed by Distributors with the
Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-5889):
(c) Not applicable. Registrant's principal underwriter is
an affiliated person of an affiliated person of the
Registrant.
Item 30 Location of Accounts and Records
The accounts, books or other documents required to be
maintained by Section 31(a) of the Investment Company Act
of 1940 are kept by the Fund or its shareholder services
agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA.
94404.
Item 31 Management Services
There are no management-related service contracts not
discussed in Part A or Part B.
Item 32 Undertakings
The Registrant hereby undertakes to comply with the
information requirement in Item 5A of the Form N-1A by
including the required information in the Fund's annual
report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
has duly caused this Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Mateo and the State of
California, on the 27th day of February, 1995.
FRANKLIN PREMIER RETURN FUND
By: Edward B. Jamieson *
Edward B. Jamieson,
President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to its Registration Amendment has been signed
below by the following persons in the capacities and on the
dates indicated:
Edward B. Jamieson* Chief Executive Officer
and
(Edward B. Jamieson) Director
Dated: February 27,
1995
Kenneth V. Domingues* Vice President, Principal
(Kenneth V. Domingues) Financial and Accounting
Officer
Dated: February 27,
1995
Frank H. Abbott, III* Director
(Frank H. Abbott, III) Dated: February 27,
1995
S. Joseph Fortunato* Director
S. Joseph Fortunato Dated: February 27,
1995
David W. Garbellano* Director
(David W. Garbellano) Dated: February 27,
1995
Charles B. Johnson* Director and Chairman of
the
(Charles B. Johnson) Board
Dated: February 27,
1995
Hayato Tanaka Director
(Hayato Tanaka) Dated: February 27,
1995
R. Martin Wiskemann* Director & Vice President
(R. Martin Wiskemann) Dated: February 27,
1995
*by
/s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
FRANKLIN PREMIER RETURN FUND
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Articles of Incorporation Attached
dated April 13, 1983
EX-99.B1(ii) Certificate of Amendment of Attached
Articles of Incorporation
dated April 15, 1991
EX-99.B2(i) Amended By-Laws of Franklin Attached
Premier Return Fund
EX-99.B2(ii) Amendment to By-Laws adopted Attached
January 18, 1994
EX-99.B5(i) Management Agreement dated May Attached
1, 1986
EX-99.B6(i) Amended and Restated Attached
Distribution Agreement dated
April 20, 1993
EX-99.B6(ii) Forms of Dealer Agreements Attached
effective December 1, 1994
EX-99.B8(i) Custodian Agreement dated Attached
December 1, 1982
EX-99.B8(ii) Amendment to Custodian Attached
Agreement dated December 1,
1994
EX-99.B8(iii) Copy of Custodian Agreements Attached
dated between Registrant and
Citibank Delaware
EX-99.B9(i) Agreement of Merger between Attached
F O F and Franklin Option
Fund, Inc. dated April 22,
1983
EX-99.B11(i) Consent of Independent Attached
Auditors
EX-99.B14(i) Copy of model retirement plan *
EX-99.B17(i) Power of Attorney dated Attached
February 16, 1995
EX-99.B17(ii) Certificate of Secretary dated Attached
February 16, 1995
EX-99.B27(i) Financial Data Schedule Attached
Schedules
*Incorporated by reference
ARTICLES OF INCORPORATION
OF
F 0 F, INC.
I
The name of this corporation is F O F, INC.
II
The purpose of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under
the General Corporation Law of California other than the banking
business, the trust company business, or the practice of a
profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is:
HARMON E. BURNS, 155 Bovet Road, San Mateo, California 94402.
IV
This corporation is authorized to issue only one class of
shares of stock, to wit, common stock, and the total number of
shares of common stock which this corporation is authorized to
issue is Five Billion (5,000,000,000).
V
The shares of common stock of the corporation shall be
subject to redemption as hereinafter set forth:
(1) Redemption by Shareholders:
(a) Each shareholder of this corporation at any time
may redeem all or any portion of such shareholder's shares by
tendering the shares to be redeemed in such manner as the Board
of Directors of the corporation may determine, and to receive the
redemption price next determined after a proper tender is made to
the corporation. The redemption price shall be determined in
accordance with the provisions set forth in the current
prospectus of the corporation, and shall be paid in cash or in
kind in such manner as the Board of Directors shall determine.
(b) The right of redemption by the shareholder may be
suspended (i) for any periods during which the New York Stock
Exchange is closed (other than for customary weekend and holiday
closings), (ii) when trading in the markets the corporation
normally utilizes is restricted or when an emergency exists as
determined by the United States Securities and Exchange
Commission as a result of which disposal of the corporation's
portfolio securities or a fair determination of the value of the
corporation's net assets is not reasonably practicable; or (iii)
for such other periods as the United States Securities and
Exchange Commission by order may permit for protection of the
corporation's shareholders.
(2) Redemption by Corporation:
(a) At the option of the corporation, to be exercised
at the discretion of the Board of Directors, the corporation may
redeem the shares owned by a shareholder if at any time the
shares of such shareholder do not have a total value (per share
net asset value times the number of shares held) of at least
$500. The Board of Directors shall cause written notice to be
mailed to any such shareholder at the address of such shareholder
as then reflected on the books of the corporation of the
corporation's intention to exercise its option of redemption,
and, unless such shareholder within 30 days following the mailing
of such notice purchases such additional number of shares so that
the value of all such shares then owned by such shareholder is at
least $500, the corporation shall on the date specified in such
written notice redeem all shares owned by such shareholder at the
aggregate per share redemption price next determined as provided
in the current prospectus of the corporation. Said redemption
price shall be paid in cash or in kind in such manner as the
Board of Directors shall determine.
(b) At the option of the corporation, to be exercised
by the Board of Directors, the corporation may redeem all or a
portion of the shares owned by a shareholder if at any time in
the opinion of the Board of Directors ownership of the
corporation's shares has or may fail to qualify for tax treatment
applicable to a "regulated investment company" under Subchapter M
of the United States Internal Revenue Code of 1954, as amended,
or any successor statute. No shareholder (or group of
shareholders deemed to be a single shareholder under said
Subchapter M) holding less than 5% of the net asset value of the
corporation shall be subject to redemption under this paragraph.
Such option shall be exercised by the Board of Directors causing
written notice to be mailed to such shareholder at the
shareholder's address as then reflected on the books of the
corporation of its intention to redeem all or a portion of such
shares, and the corporation shall redeem such shares upon the
date specified in such notice at the redemption price thereof
next determined as provided in the current prospectus of the
corporation.
(3) General
Upon redemption by the shareholder or by the
corporation as provided hereunder, the shareholder shall have no
further rights relative to or interest in the shares redeemed,
including without limitation the right to vote such shares or to
receive further dividends in respect thereto, other than the
right to receive payment of the redemption price on the date and
in the manner specified by the Board of Directors.
DATED: April 13, 1983
/s/ Harmon E. Burns
Harmon E. Burns, Incorporator
I hereby declare that I am the person who executed the
foregoing Articles of Incorporation, which execution is my act
and deed.
/s/ Harmon E. Burns
Harmon E. Burns
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
FRANKLIN OPTION FUND
HARMON E. BURNS and DEBORAH R. GATZEK certify that:
1. They are the vice president and secretary, respectively,
of FRANKLIN OPTION FUND, a California corporation.
2. Article First of the Articles of Incorporation of this
corporation is amended to read as follows:
"I. The name of this corporation is FRANKLIN PREMIER RETURN
FUND."
3. The foregoing Amendment of the Articles of Incorporation
has been duly approved by the corporation's board of directors.
4. The foregoing Amendment of the Articles of Incorporation
was duly approved on April 11, 1991 by the required vote of the
shareholders in accordance with Section 902 of the California
Corporations Code. The total number of outstanding shares of the
corporation entitled to vote was 7,551,346.712 and the number of
shares voting in favor of such amendment was in excess of the
vote required. The percentage vote required was a majority of
outstanding shares.
/s/ Harmon E. Burns
Harmon E. Burns
/s/ Deborah R. Gatzek
Deborah R. Gatzek
The undersigned declare under penalty of perjury that the matters
set forth in the foregoing Certificate are true of their own
knowledge.
Executed at San Mateo, California on April 15, 1991
/s/ Harmon E. Burns
Harmon E. Burns
/s/ Deborah R. Gatzek
Deborah R. Gatzek
AMENDED BY-LAWS
OF
FRANKLIN PREMIER RETURN FUND
A California Corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The Board of Directors shall
fix the location of the principal executive office of the
corporation at any place within or outside the State of
California. If the principal executive office is located outside
this state and the corporation has one or more business offices
in this state, the Board of Directors shall fix and designate a
principal business office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors may at
any time establish branch or subordinate offices at any place or
places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place within or outside the State of
California designated by the Board of Directors. In the absence
of any such designation, shareholders' meetings shall be held at
the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of
shareholders shall be held on a date and at a time as the Board
of Directors shall determine, provided that annual meetings of
shareholders need not be held in any year in which such is not
required by the Investment Company Act of 1940.
Section 3. SPECIAL MEETING. A special meeting of the
shareholders may be called at any time by the Board of Directors
or by the chairman of the board or by the president or by one or
more shareholders holding shares of the aggregate entitled to
cast not less than ten (10%) percent of the votes at that
meeting.
If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in
writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted and shall be
delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the
president, any vice president or the secretary of the
corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote,
in accordance with the provisions of Sections 4 and 5 of this
Article II, that a meeting shall be held at the time requested by
the person or persons calling the meeting not less than thirty-
five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days
after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting,
fixing or affecting the time when a meeting of the shareholders
called by action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETING. All notices of
meetings of shareholders shall be sent or otherwise given in
accordance with Section 5 of this Article II not less than ten
(10) nor more than sixty (60) days before the date of the
meeting. The notice shall specify the place, date and hour of
the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, or (ii) in the case of
the annual meeting, those matters which the Board of Directors at
the time of giving the notice, intends to present for action by
the shareholders. The notice of any meeting at which directors
are to be elected shall include the name of any nominee or
nominees whom at the time of the notice management intends to
present for election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a director has
a direct or indirect financial interest, (ii) an amendment of the
Articles of Incorporation, (iii) a reorganization of the
corporation, (iv) a voluntary dissolution of the corporation, or
(v) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, the notice shall also
state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for
the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent
by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address,
all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the
shareholder on written demand of the shareholder at the principal
executive office of the corporation for a period of one year from
the date of the giving of the notice.
An affidavit of the mailing or other means of giving any
notice of any shareholder's meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the
corporation giving the notice and shall be filed and maintained
in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of
the holders of a majority of the shares entitled to vote at any
meeting of shareholders shall constitute a quorum for the
transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholder's
meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by
proxy, but in the absence of a quorum no other business may be
transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special,
is adjourned to another time or place, notice need not be given
of the adjourned meeting at which the adjournment is taken,
unless a new record date of the adjourned meeting is fixed or
unless the adjournment is for more than forty-five (45) days from
the date set for the original meeting, in which case the Board of
Directors shall set a new record date. Notice of any such
adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of Section 11 of this Article II, subject to
the provisions of the Corporations Code of California relating to
voting shares held by a fiduciary in the name of a corporation or
in joint ownership. The shareholders' vote may be by voice vote
or by ballot, provided, however, that any election for directors
must be by ballot if demanded by any shareholder before the
voting has begun. On any matter other than elections of
directors any shareholder may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote
them against the proposal, but if the shareholder fails to
specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to the total shares
that the shareholder is entitled to vote on such proposal. If a
quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any
matter (other than the election of directors) shall be the act of
the shareholders, unless the vote of a greater number or voting
by classes is required by the California General Corporation Law
or by the Articles of Incorporation.
At a shareholder's meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes
(i.e., cast for any one or more candidates a number of votes
greater than the number of the shareholder's shares) unless the
candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice
prior to commencement of the voting of the shareholder's
intention to cumulate votes. If any shareholder has given such a
notice, then every shareholder entitled to vote may cumulate
votes for candidates in nomination and give one candidate a
number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's
shares are entitled, or distribute the shareholder's votes on the
same principle among any or all of the candidates as the
shareholder thinks fit. The candidates receiving the highest
number of votes up to the number of directors to be elected shall
be elected.
Section 9. WAIVER OF NOTICE OF CONSENT BY ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
either annual or special, however called and noticed and wherever
held, shall be as valid as though had at a meeting duly held
after regular call and notice if a quorum be present either in
person or by proxy and if either before or after the meeting,
each person entitled to vote who was not present in person or by
proxy signs a written waiver of notice or a consent to a holding
of the meeting or an approval of the minutes. The waiver of
notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be
taken for approval of any of those matters specified in the
second paragraph of Section 4 of this Article II, the waiver of
notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects
at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened
and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at
the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and
without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be
necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and
voted. In the case of election of directors, such a consent
shall be effective only if signed by the holder of all
outstanding shares entitled to vote for the election of
directors; provided however, that a director may be elected at
any time to fill a vacancy on the Board of Directors that has not
been filled by the directors by the written consent of the
holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed
with the Secretary of the Corporation and shall be maintained in
the corporate records. Any shareholder giving a written consent
or the shareholder's proxy holders or a transferee of the shares
or a personal representative of the shareholder or their
respective proxy holders may revoke the consent by a writing
received by the Secretary of the Corporation before written
consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the corporate action
approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 5 of this
Article II. In the case of approval of (i) contracts or
transactions in which a director has a direct or indirect
financial interest, (ii) indemnification of agents of the
corporation, (iii) a reorganization of the corporation, and (iv)
a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, the notice shall be given
at least ten (10) days before the consummation of any action
authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND
GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to corporate action without a meeting, the Board of
Directors may fix in advance a record date which shall not be
more than sixty (60) days nor less than ten (10) days before the
date of any such meeting nor more than sixty (60) days before
such action without a meeting and in this event only shareholders
of record on the date so fixed are entitled to notice and to vote
or to give consents as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the
record date, except as otherwise provided in the California
General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders
shall be at the close of business on the business day
next preceding the day on which notice is given or if
notice is waived, at the close of business on the
business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled
to give consent to corporate action in writing without
a meeting, (i) when no prior action by the Board of
Directors has been taken, shall be the day on which the
first written consent is given, or (ii) when prior
action of the Board of Directors has been taken, shall
be at the close of business on the day on which the
Board of Directors adopts the resolution relating to
that action or the sixtieth day before the date of such
other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for
directors or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly
executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a
writing delivered to the corporation stating that the proxy is
revoked or by a subsequent proxy executed by or attendance at the
meeting and voting in person by the person executing that proxy;
or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the corporation before the vote
pursuant to that proxy is counted; provided however, that no
proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of the
California General Corporation Law.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders the Board of Directors may appoint any persons other
than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders
or proxies, the holders of a majority of shares of their proxies
present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may and on the request of any shareholder
or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the
meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the
California General Corporation Law and any limitations in the
Articles of Incorporation and these By-Laws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under
the direction of the Board of Directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors shall be not less than five (5)
nor more than nine (9), until changed by a duly adopted amendment
to the Articles of Incorporation or by an amendment to this By-
Law adopted by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided
however, that an amendment reducing the number of directors to a
fixed number or a minimum number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting or
the shares not consenting in the case of action by written
consent are equal to more than sixteen and two-thirds (16 2/3%)
percent of the outstanding shares entitled to vote. The Board of
Directors shall by resolution fix the exact number of directors
within the limits set forth herein.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of the
shareholders to hold office until the next annual meeting. Each
director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the Board of Directors
may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director, except that
a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be
filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is
present or by the written consent of holders of a majority of the
outstanding shares entitled to vote. Each director so elected
shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be
deemed to exist in the event of the death, resignation or removal
of any director, or if the Board of Directors by resolution
declares vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony or if
the authorized number of directors is increased or if the
shareholders fail at any meeting of shareholders at which any
director or directors are elected to elect the number of
directors to be voted for at that meeting.
The shareholders may elect a director or directors at any
time to fill any vacancy or vacancies not filled by the
directors, but any such election by written consent shall require
the consent of a majority of the outstanding shares entitled to
vote; provided, however, that any vacancy created by removal of
any director may be filled by written consent only by unanimous
written consent of all shares entitled to vote for the election
of directors.
Any director may resign effective on giving written notice
to the chairman of the board, the president, the secretary or the
Board of Directors, unless the notice specifies a later time for
that resignation to become effective. If the resignation of a
director is effective at a future time, the Board of Directors
may elect a successor to take office when the resignation becomes
effective.
No reduction of the authorized number of directors shall
have the effect of removing any director before that director's
term of office expires.
In the event that at any time less than a majority of the
directors of the corporation holding office at that time were so
elected by the holders of the outstanding voting securities, the
Board of Directors of the corporation shall forthwith cause to be
held as promptly as possible, and in any event within sixty (60)
days, a meeting of such holders for the purpose of electing
directors to fill any existing vacancies in the Board of
Directors, unless such period is extended by order of the United
States Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the
corporation is a participant in or otherwise has in effect a Plan
under which the corporation may be deemed to bear expenses of
distributing its shares as that practice is described in Rule 12b-
1 under the Investment Company Act of 1940, then the selection
and nomination of the directors who are not interested persons of
the corporation (as that term is defined in the Investment
Company Act of 1940) shall be, and is, committed to the
discretion of such disinterested directors.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
Regular meetings of the Board of Directors may be held at any
place within or outside the State of California that has been
designated from time to time by resolution of the board. In the
absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or
outside the State of California that has been designated in the
notice of the meeting or if not stated in the notice or there is
no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another and
all such directors shall be deemed to be present in person at the
meeting.
Section 6. ANNUAL MEETING. At the next regular meeting
following each annual meeting of shareholders, the Board of
Directors shall meet for the purpose of organization, any desired
election of officers, and the transaction of other business.
Special notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings
of the Board of Directors shall be held without call at such time
as shall from time to time be fixed by the Board of Directors.
Such regular meetings may be held without notice.
Section 8. SPECIAL MEETINGS. Special meetings of the Board
of Directors for any purpose or purposes may be called at any
time by the chairman of the board or the president or any vice
president or the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records
of the corporation. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or to the telegraph company,
it shall be given at least forty-eight (48) hours before the time
of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the director or to
a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose of the meeting
or the place if the meeting is to be held at the principal
executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of
directors shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 11 of this
Article III. Every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors,
subject to the provisions of the California General Corporation
Law relating to approval of contracts or transactions in which a
director has a direct or indirect material financial interest, to
appointment of committee, and to indemnification of directors. A
meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors if
any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 10. WAIVER OF NOTICE. Notice of any meeting need
not be given to any director who either before or after the
meeting signs a written waiver of notice, a consent to holding
the meeting or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents and approval shall be filed with the corporate
records or made a part of the minutes of the meeting. Notice of
a meeting shall also be deemed given to any director who attends
the meeting without protesting before or at its commencement the
lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given unless
the meeting is adjourned for more than twenty-four (24) hours, in
which case notice of the time and place shall be given before the
time of the adjourned meeting in the manner specified in Section
8 of this Article III to the directors who were present at the
time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board of Directors may be taken
without a meeting if all members of the Board of Directors shall
individually or collectively consent in writing to that action.
Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors. Such
written consent or consents shall be filed with the minutes of
the proceedings of the Board of Directors.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Directors. This
Section 14 shall not be construed to preclude any director from
serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those
services.
ARTICLE IV
COMMITTEE
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors
may by resolution adopted by a majority of the authorized number
of directors designate one or more committees, each consisting of
two (2) or more directors, to serve at the pleasure of the board.
The board may designate one or more directors as alternate
members of any committee who may replace any absent member at any
meeting of the committee. Any committee to the extent provided
in the resolution of the board, shall have the authority of the
board, except with respect to:
(a) the approval of any action which under the California
General Corporation Law also requires shareholders'
approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or
in any committee;
(c) the fixing of compensation of the directors for serving
on the Board of Directors or on any committee;
(d) the amendment or repeal of By-Laws or the adoption of
new By-Laws;
(e) the amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so
amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a
price range determined by the Board of Directors; or
(g) the appointment of any other committees of the Board of
Directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these By-Laws,
Sections 5 (place of meetings), 7 (regular meetings), 8 (special
meetings and notice), 9 (quorum), 10 (waiver of notice), 11
(adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those By-Laws as
are necessary to substitute the committee and its members for the
Board of Directors and its members, except that the time of
regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the
committee; special meetings of committees may also be called by
resolution of the Board of Directors; and notice of special
meetings of committees shall also be given to all alternate
members who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions
of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall
be a president, a secretary, and a chief financial officer. The
corporation may also have at the discretion of the Board of
Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant
treasurers, one or more assistant financial officers and such
other officers as may be appointed in accordance with the
provisions of Section 3 of this Article V. Any number of offices
may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
corporation, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this
Article V, shall be chosen by the Board of Directors, and each
shall serve at the pleasure of the Board of Directors, subject to
the rights, if any, of an officer under any contract of
employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors
may appoint and may empower the president to appoint such other
officers as the business of the corporation may require, each of
whom shall hold office for such period, have such authority and
perform such duties as are provided in the By-Laws or as the
Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to
the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Directors at any regular or special
meeting of the Board of Directors or except in the case of an
officer chosen by the Board of Directors, by any officer upon
whom such power or removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the
date of the receipt of that notice or at any later time specified
in that notice; and unless otherwise specified in that notice,
the acceptance of the resignation shall not be necessary to make
it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which
the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
because of death, resignation, removal, disqualification or other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the
board, if such an officer is elected, shall if present preside at
meetings of the Board of Directors and exercise and perform such
other powers and duties as may be from time to time assigned to
him by the Board of Directors or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers,
if any, as may be given by the Board of Directors to the chairman
of the board, if there be such an officer, the president shall be
the chief executive officer of the corporation and shall, subject
to the control of the Board of Directors, have general
supervision, direction and control of the business and the
officers of the corporation. He shall preside at all meetings of
the shareholders and in the absence of the chairman of the board
or if there be none, at all meetings of the Board of Directors.
He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have
such other powers and duties as may be prescribed by the Board of
Directors or the By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability
of the president, the vice presidents, if any, in order of their
rank as fixed by the Board of Directors or if not ranked, a vice
president designated by the Board of Directors, shall perform all
the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the
president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Directors or by the By-Laws
and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office or such other place as
the Board of Directors may direct a book of minutes of all
meetings and actions of directors, committees of directors and
shareholders with the time and place of holding, whether regular
or special, and if special, how authorized, the notice given, the
names of those present at directors' meetings or committee
meetings, the number of shares present or represented at
shareholders' meetings and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Board of Directors
required by the By-Laws or by law to be given and he shall keep
the seal of the corporation if one be adopted in safe custody and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial
officer shall keep and maintain or cause to be kept and
maintained adequate and correct books and records of accounts of
the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and
shares. The books of account shall at all reasonable times be
open to inspection by any director.
The chief financial officer shall deposit all monies and
other valuables in the name and to the credit of the corporation
with such depositaries as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the
financial condition of the corporation and shall have other
powers and perform such other duties as may be prescribed by the
Board of Directors or the By-Laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purpose of this Article, "agent" means any person who is or was a
director, officer, employee or other agent of this corporation or
is or was serving at the request of this corporation as a
director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor
corporation of this corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative; and "expenses"
includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY CORPORATION. This
corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any proceeding (other than an
action by or in the right of this corporation) by reason of the
fact that such person is or was an agent of this corporation,
against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such
proceeding if that person acted in good faith and in a manner
that person reasonably believed to be in the best interests of
this corporation and in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was
unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. This corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action
by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that that person is or was an
agent of this corporation, against expenses actually and
reasonably incurred by that person in connection with the defense
or settlement of that action if that person acted in good faith,
in a manner that person believed to be in the best interests of
this corporation and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would
use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding
any provision to the contrary contained herein, there shall be no
right to indemnification for any liability arising by reason of
willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the agent's
office with the corporation.
No indemnification shall be made under Sections 2 or 3 of
this Article:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable in
the performance of that person's duty to this
corporation, unless and only to the extent that the
court in which that action was brought shall determine
upon application that in view of all the circumstances
of the case, that person was not liable by reason of
the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to
indemnity for the expenses which the court shall
determine; or
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court
approval, or of expenses incurred in defending a
threatened or pending action which is settled or
otherwise disposed of without court approval, unless
the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this corporation has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Directors, including a majority who
are disinterested, non-party directors, also determines that
based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this
Article.
Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this corporation only if authorized in the
specific case on a determination that indemnification of the
agent is proper in the circumstances because the agent has met
the applicable standard of conduct set forth in Sections 2 or 3
of this Article and is not prohibited from indemnification
because of the disabling conduct set forth in Section 4 of this
Article, by:
(a) A majority vote of a quorum consisting of directors who
are not parties to the proceeding and are not
interested persons of the corporation as defined in the
Investment Company Act of 1940;
(b) Approval by the affirmative vote of a majority of the
shares of this corporation entitled to vote represented
at a duly held meeting at which a quorum is present or
by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose
the shares owned by the person to be indemnified shall
not be considered outstanding or entitled to vote
thereon;
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or
the attorney or other person rendering services in
connection with the defense, whether or not such
application by the agent, attorney or other person is
opposed by this corporation; or
(d) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this corporation
before the final disposition of the proceeding on receipt of an
undertaking by or on behalf of the agent to repay the amount of
the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this
Article, provided the agent provides a security for his
undertaking, or a majority of a quorum of the disinterested, non-
party directors, or an independent legal counsel in a written
opinion, determine that based on a review of readily available
facts, there is reason to believe that said agent ultimately will
be found entitled to indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in
this Article shall affect any right to indemnification to which
persons other than directors and officers of this corporation or
any subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Section 5
or Section 6(c) in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation, a resolution of the
shareholders or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Directors of this corporation to
purchase such insurance, this corporation shall purchase and
maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent
in such capacity or arising out of the agent's status as such,
but only to the extent that this corporation would have the power
to indemnify the agent against that liability under the
provisions of this Article.
Section 11. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN.
This Article does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee
benefit plan in that person's capacity as such, even though that
person may also be an agent of the corporation as defined in
Section 1 of this Article. Nothing contained in this Article
shall limit any right to indemnification to which such a trustee,
investment manager or other fiduciary may be entitled by contract
or otherwise which shall be enforceable to the extent permitted
by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER.
The corporation shall keep at its principal executive office or
at the office of its transfer agent or registrar, if either be
appointed and as determined by resolution of the Board of
Directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares
held by each shareholder.
A shareholder or shareholders of the corporation holding at
least five percent (5%) in the aggregate of the outstanding
voting shares of the corporation may (i) inspect and copy the
records of shareholders' names and addresses and shareholdings
during usual business hours on five (5) days prior written demand
on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the
shareholder's names and addresses who are entitled to vote for
the election of directors and their shareholdings as of the most
recent record date for which that list has been compiled or as of
a date specified by the shareholder after the date of demand.
This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the
demand is received or the date specified in the demand as the
date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate
at any time during usual business hours for a purpose reasonably
related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. Any inspection and copying
under this Section 1 may be made in person or by an agent or
attorney of the shareholder or holder of voting trust certificate
making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
corporation shall keep at its principal executive office or if
its principal executive office is not in the State of California,
at its principal business office in this state, the original or a
copy of the By-Laws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the
corporation is outside the State of California and the
corporation has no principal business office in this state, the
secretary shall upon the written request of any shareholder
furnish to that shareholder a copy of the By-Laws as amended to
date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS. The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and
any committee or committees of the Board of Directors shall be
kept at such place or places designated by the Board of Directors
or in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written
form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into
written form. The minutes and accounting books and records shall
be open to inspection upon the written demand of any shareholder
or holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person
or by an agent or attorney and shall include the right to copy
and make extracts. These rights of inspection shall extend to the
records of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall
have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical
properties of the corporation and each of its subsidiary
corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual
report to shareholders referred to in the California General
Corporation Law is expressly dispensed with, but nothing herein
shall be interpreted as prohibiting the Board of Directors from
issuing annual or other periodic reports to the shareholders of
the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual
financial statements and any income statement of the corporation
for each quarterly period of each fiscal year and accompanying
balance sheet of the corporation as of the end of each such
period that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for
twelve (12) months and each such statement shall be exhibited at
all reasonable times to any shareholder demanding an examination
of any such statement or a copy shall be mailed to any such
shareholder.
If a shareholder or shareholders holding at least five
percent (5%) of the outstanding shares of any class of stock of
the corporation makes a written request to the corporation for an
income statement of the corporation for the three (3) -month, six
(6) -month, or nine (9) -month period of the then current fiscal
year ended more than thirty (30) days before the date of the
request and a balance sheet of the corporation as of the end of
that period, the chief financial officer shall cause that
statement to be prepared, if not already prepared, and shall
deliver personally or mail that statement or statements to the
person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, this
report shall likewise be delivered or mailed to the shareholder
or shareholders within thirty (30) days after the request.
The corporation shall also on the written request of any
shareholder mail to the shareholder a copy of the last annual,
semi-annual or quarterly income statement which it has prepared
and a balance sheet as of the end of that period.
The quarterly income statements and balance sheets referred
to in this section shall be accompanied by the report, if any, of
any independent accountants engaged by the corporation or the
certificate of an authorized officer of the corporation that the
financial statements were prepared without audit from the books
and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The
corporation shall during the month in which the anniversary of
its incorporation occurs in each year, file with the California
Secretary of State on the prescribed form a statement setting
forth the authorized number of directors, the names and complete
business or residence addresses of all incumbent directors, the
names and complete business or residence addresses of the chief
executive officer, secretary and chief financial officer, the
street address of its principal executive office or principal
business office in this state and the general type of business
constituting the principal business activity of the corporation,
together with a designation of the agent of the corporation for
the purpose of service of process, all in compliance with the
California General Corporation Law.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING. For purposes of determining the shareholders entitled to
receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in
respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of
Directors may fix in advance a record date which shall not be
more than sixty (60) days before any such action and in that case
only shareholders of record on the date so fixed are entitled to
receive the dividend, distribution or allotment of rights or to
exercise the rights as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the
record date so fixed, except as provided in the California
General Corporations Law.
If the Board of Directors does not so fix a record date, the
record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the Board
of Directors adopts the applicable resolution or the sixtieth day
before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts, or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of or payable
to the corporation shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be
determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED. The Board of Directors, except as otherwise provided in
these By-Laws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in
the name of and on behalf of the corporation and this authority
may be general or confined to specific instances; and unless so
authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent, or employee shall
have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any of these shares is
fully paid and the Board of Directors may authorize the issuance
of certificates or shares as partly paid provided that these
certificates shall state the amount of the consideration to be
paid for them and the amount paid. All certificates shall be
signed in the name of the corporation by the chairman of the
board or vice chairman of the board or the president or vice
president and by the chief financial officer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by
the shareholders. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature
has been placed on a certificate shall have ceased to be that
officer, transfer agent, or registrar before that certificate is
issued, it may be issued by the corporation with the same effect
as if that person were an officer, transfer agent or registrar at
the date of issue. Notwithstanding the foregoing, the
corporation may adopt and use a system of issuance, recordation
and transfer of its shares by electronic or other means as
provided in the General Corporation Law.
Section 5. LOST CERTIFICATES. Except as provided in this
Section 5, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the corporation and cancelled at the same time. The Board of
Directors may in case any share certificate or certificate for
any other security is lost, stolen, or destroyed, authorize the
issuance of a replacement certificate on such terms and
conditions as the Board of Directors may require, including a
provision for indemnification of the corporation secured by a
bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it,
including any expense or liability on account of the alleged
loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the president or any vice president or
any other person authorized by resolution of the Board of
Directors or by any of the foregoing designated officers, is
authorized to vote on behalf of the corporation any and all
shares of any other corporation or corporations, foreign or
domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the
corporation any and all shares held by the corporation in any
other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by
a proxy duly executed by these officers.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be
adopted or these By-Laws may be amended or repealed by the vote
or written consent of holders of a majority of the outstanding
shares entitled to vote.
Section 2. AMENDMENT BY DIRECTORS. Subject to the right of
shareholders as provided in Section 1 of this Article IX, By-Laws
may be adopted, amended, or repealed by the Board of Directors.
ARTICLE X
REIMBURSEMENT OF EXPENSES
Section 1. DISALLOWED EXPENSES. Any payments made to or on
behalf of an officer of the corporation, such as salary, bonus,
interest, rent, medical, entertainment or travel expenses, which
shall be disallowed in whole or in part as a deductible expense
to the corporation by the Internal Revenue Service, shall be
reimbursed by such officer to the corporation to the full extent
of such disallowance. It shall be the duty of the Board of
Directors to enforce payment of such amount disallowed. In lieu
of payment by the officer, subject to the determination of the
Board of Directors, proportionate amounts may be withheld from
such officer's future compensation payments until the amount owed
to the corporation has been recovered.
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of Franklin Premier Return
Fund, a corporation organized under the laws of the State of
California, do hereby certify that the following resolutions were
adopted by a majority of the directors present at a meeting held
at the offices of the Fund at 777 Mariners Island Boulevard, San
Mateo, California, on January 18, 1994:
WHEREAS, the Directors have determined that it is necessary
to amend Section 5 of Article II in order to remove the
requirement of using first class mail for notice of any
meeting of shareholders to the extent permitted under
applicable California corporate law; it is
RESOLVED, that in accordance with Article IX, Section 2, of
the Fund's By-Laws, Section 5 of Article II is hereby
amended to read as follows:
SECTION 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE. Notice of any meeting of shareholders shall be
given either personally or by first-class mail, or, if
the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as
provided in Section 605 of the California Corporations
Code) on the record date for such meeting, notice may
be sent by third-class mail, or by telegraphic or other
written communication, charges prepaid addressed to the
shareholder at the address of that shareholder
appearing on the books of the corporation or given by
the shareholder to the corporation for the purpose of
notice. If no such address appears on the
corporation's books or is given, notice shall be deemed
to have been given if sent to that shareholder by first-
class mail or by third-class mail by telegraphic or
other given written communication (as provided herein)
to the corporation's principal executive office, or if
published at least once in a newspaper of general
circulation in the county where that office is located.
Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or
sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address
of that shareholder appearing on the books of the
corporation is returned to the corporation by the
United States Postal Service marked to indicate that
the United States Postal Service is unable to deliver
the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been
duly given without further mailing if these shall be
available to the shareholder on written demand of the
shareholder at the principal executive office of the
corporation for a period of one year from the date of
the giving of the notice.
An affidavit of the mailing or other means of giving
any notice of any shareholder's meeting shall be
executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice and
shall be filed and maintained in the minute book of the
corporation.
and it is
FURTHER RESOLVED, that the officers of the Fund be, and they
hereby are, authorized and directed to execute and deliver
any and all documents and take any and all other actions
that they may deem necessary or advisable in order to
effectuate the foregoing resolution.
IN WITNESS WHEREOF, I have subscribed my name this 27th day of
October, 1994.
/s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
FRANKLIN OPTION FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN OPTION FUND, a
California Corporation, hereinafter called the "Fund" and
FRANKLIN ADVISERS, Inc., a California Corporation, hereinafter
called the "Manager."
WHEREAS, the Fund has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Articles of Incorporation, its By-
Laws and its Registration Statements under the Investment Company
Act of 1940 and the Securities Act of 1933, all as heretofore
amended and supplemented; and the Fund desires to avail itself of
the services, information, advice, assistance and facilities of
an investment manager and to have an investment manager perform
for its various management, statistical, research, investment
advisory and other services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisor's Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of the
Fund, for the period and on the terms hereinafter set forth.
The Manager hereby accepts such employment and agrees during
such period to render the services and to assume the
obligations herein set forth for the compensation herein
provided. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment, and
Personnel. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within
the offices of the Manager or in such other place as
may be agreed upon from time to time, (ii) office
furnishings, facilities and equipment as may be
reasonably required for managing the corporate affairs
and conducting the business of the Fund, including
complying with the corporate and securities reporting
requirements of the United States and the various
states in which the Fund does business, conducting
correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and
records in connection with the Fund's investment and
business activities, and computing net asset value.
The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary
to provide such services. The Manager shall also
compensate all officers and employees of the Fund who
are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which the Fund's Board of Directors may
issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall also
include determining the manner in which voting rights,
rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities
shall be exercised. The Manager shall render regular
reports to the Fund, at regular meetings of the Board
of Directors and at such other times as may be
reasonably requested by the Fund's Board of Directors,
of (i) the decisions which it has made with respect to
the investment of the Fund's assets and the purchase
and sale of portfolio securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Fund's Board of Directors may
issue from time to time, shall place, in the name of
the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this section
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
are equally able to provide such best price and
execution and that, in selecting among such brokers
with respect to particular trades, it is desirable to
choose those brokers who furnish research, statistical
quotations and other information to the Fund and the
Manager in accord with the standards set forth below.
Moreover, to the extent that it continues to be lawful
to do so and so long as the Board determines that the
Fund will benefit, directly or indirectly, by doing so,
the Manager may place orders with a broker who charges
a commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker. Accordingly, the Fund
and the Manager agree that the Manager shall select
brokers for the execution of the Fund's portfolio
transactions from among:
(i) Those brokers and dealers who provide quotations
and other services to the Fund, specifically
including the quotations necessary to determine
the Fund's net assets, in such amount of total
brokerage as may reasonably be required in light
of such services;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which relate directly to portfolio
securities, actual or potential, of the Fund or
which place the Manager in a better position to
make decisions in connection with the management
of the Fund's assets and portfolio, whether or not
such data may also be useful to the Manager and
its affiliates in managing other portfolios or
advising other clients, in such amount of total
brokerage as may reasonably be required.
When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer
solicitation," the Manager shall designate Franklin
Distributors, Inc. ("Distributors") as the "tendering
dealer" so long as it is legally permitted act in such
capacity under the Federal securities laws and rules
thereunder and the rules of any securities exchange or
association of which it may be a member. Distributors
shall not be obligated to make any additional
commitments of capital, expense or personnel beyond
that already committed (other than normal periodic fees
or payments necessary to maintain its corporate
existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this
Agreement and this Agreement shall not obligate the
Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which
they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees
which may be considered to be due from others to it as
a result of such a tender, unless the Fund shall enter
into an agreement with the Manager or Distributors to
reimburse them for all expenses connected with
attempting to collect such fees including legal fees
and expenses and that portion of the compensation due
to their employees which is attributable to the time
involved in attempting to collect such fees.
The Manager shall render regular reports to the Fund,
not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager with
brokers falling into each of the foregoing categories
and the manner in which the allocation has been
accomplished.
The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for
allocation in accordance with the foregoing, and that
the right to make such allocation of brokerage shall
not interfere with the Manager's paramount duty to
obtain the best net price and execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and
Other Materials. The Manager, its officers and
employees will make available and provide accounting
and statistical information required by the Underwriter
in the preparation of registration statements, reports
and other documents required by Federal and state
securities laws and with such information as the
Underwriter may reasonably request for use in the
preparation of such documents or of other materials
necessary or helpful for the underwriting and
distribution of the Fund's shares.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of
Directors and officers of the Fund for consultation and
discussions regarding the administrative management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all its expenses other than these expressly assumed by
the Manager herein, which expenses payable by the Fund shall
include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-
keeping services;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, directors, stockholders
or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to corporate meetings of the Fund,
reports to the Fund to its shareholders, the filing of
reports with regulatory bodies and the maintenance of
the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund
shares for sale;
K. Costs of printing stock certificates representing
shares of the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance
premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, on the first business day of each month
in each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding
month. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be the net assets computed
as of the close of business on the last business day of
the month preceding the month in which the payment is
being made, determined in the same manner as the Fund
uses to compute the value of its net assets in
connection with the determination of the net asset
value of Fund shares, all as set forth more fully in
the Fund's current prospectus. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over $100,000,000
and not over $250,000,000; and
9/240 of 1% of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced
or eliminated to the extent that Franklin Distributors,
Inc. has actually received cash payments of tender
offer solicitation fees less certain costs and expenses
incurred in connection therewith; and to the extent
necessary to comply with the limitations on expenses
which may be borne by the Fund as set forth in the
laws, regulations and administrative interpretations of
those states in which the Fund's shares are registered.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for
the portion of any month in which this Agreement is in
effect which is not a complete month according to the
proportion which the number of calendar days in the
month during which the Agreement is in effect bears to
the number of calendar days in the month, and shall be
payable within 10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of the Fund
and to Section 10(a) of the Federal Investment Company Act
of 1940, it is understood that directors, officers, agents
and stockholders of the Fund are or may be interested in the
Manager or its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as directors, officers, agents,
stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or
duties hereunder on the part of the Manager, the
Manager shall not be subject to liability to the Fund
or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering
services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any
security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the
Fund in the preparation, printing and distribution of
proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or
directors, the conduct of factual investigations, any
legal or administrative proceedings (including any
applications for exemptions or determinations by the
Securities and Exchange Commission) which the Fund
incurs as the result of action or inaction of the
Manager or any of its affiliates or any of their
officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures
(i) is directly or indirectly related to any
transactions or proposed transaction in the shares or
control of the Manager or its affiliates (or litigation
related to any pending or proposed or future
transaction in such shares or control) which shall have
been undertaken without the prior, express approval of
the Fund's Board of Directors; or, (ii) is within the
control of the Manager or any of its affiliates or any
of their officers, directors, employees or
shareholders. The Manager shall not be obligated
pursuant to the provisions of this Subsection 6(B), to
reimburse the Fund for any expenditures related to the
institution of an administrative proceeding or civil
litigation by the Fund or a Fund shareholder seeking to
recover all or a portion of the proceeds derived by any
shareholder of the Manager or any of its affiliates
from the sale of his shares of the Manager, or similar
matters. So long as this Agreement is in effect the
Manager shall pay to the Fund the amount due for
expenses subject to this Subsection 6(B) Agreement
within 30 days after a bill or statement has been
received by the Fund therefore. This provision shall
not be deemed to be a waiver of any claim the Fund may
have or may assert against the Manager or others for
costs, expenses or damages heretofore incurred by the
Fund or for costs, expenses or damages the Fund may
hereafter incur which are not reimbursable to it
hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Fund, or the
Manager, from liability in violation of Sections 17(h)
and (i) of the Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two
years. The Agreement is renewable annually thereafter
for successive periods not to exceed one year (i) by a
vote of a majority of the outstanding voting securities
of the Fund or by a vote of the Board of Directors of
the Fund, and (ii) by a vote of a majority of the
directors of the Fund who are not parties to the
Agreement, or interested persons of any parties to the
Agreement (other than as Directors of the Fund) cast in
person at a meeting called for the purpose of voting on
the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of
Directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund, on
60 days' written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii)may be terminated by the Manager on 60 days'
written notice to the Fund.
C. As used in this Section the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings
set forth for any such terms in the Investment Company
Act of 1940, as amended.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid,
to the other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed effective the 1st day of May, 1986.
FRANKLIN OPTION FUND
/s/ Charles B. Johnson
By: Charles B. Johnson
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson
By: Rupert H. Johnson
FRANKLIN PREMIER RETURN FUND
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We are a California corporation operating as an open-end
management investment company. As such, our company, Franklin
Premier Return Fund (referred to herein as the "Fund") is
registered under the Investment Company Act of 1940, (the "1940
Act"), and its shares are registered under the Securities Act of
1933 (the "1933 Act"). We have been and desire to continue
issuing our authorized but unissued shares of beneficial interest
(the "Shares") to authorized persons in accordance with
applicable Federal and State securities laws.
You were appointed as exclusive sales agent for the Fund's Shares
pursuant to the Agreement dated October 1, 1984. We desire to
revise certain provisions of the original agreement between us
through this Amended and Restated Distribution Agreement (the
"Agreement"). In this regard, you have informed us that your
company is registered as a broker-dealer under the provisions of
the Securities Exchange Act of 1934 and that your company
continues to be a member of the National Association of
Securities Dealers, Inc. You have indicated your desire to
continue to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver
this Agreement to you by a resolution of our Board of Directors
passed at a meeting at which a majority of our directors,
including a majority who are not otherwise interested persons of
the Fund and who are not interested persons of our investment
adviser, its related organizations or with you or your related
organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part
herein expressed and upon the terms and conditions set forth
herein, we hereby re-appoint you as the exclusive sales agent for
our Shares (except for sales made directly by the Fund without
sales charge) and agree that we will deliver such Shares as you
may sell. You agree to use your best efforts to promote the sale
of Shares, but are not obligated to sell any specific number of
Shares.
2. Independent Contractor. You will undertake and
discharge your obligations hereunder as an independent contractor
and shall have no authority or power to obligate or bind us by
your actions, conduct or contracts except that you are authorized
to accept orders for the purchase or repurchase of Shares as our
agent. You may appoint sub-agents or distribute through dealers
or otherwise as you may determine from time to time, but this
Agreement shall not be construed as authorizing any dealer or
other person to accept orders for sale or repurchase on our
behalf or otherwise act as our agent for any purpose. You may
allow such sub-agents or dealers such commissions or discounts
not exceeding the total sales commission as you shall deem
advisable so long as any such commissions or discounts are set
forth in our current prospectus to the extent required by the
applicable Federal and State securities laws.
3. Offering Price. The Fund Shares shall be offered for
sale at a price equivalent to their net asset value plus a
variable percentage of the public offering price as sales
commission. On each business day on which the New York Stock
Exchange is open for business, we will furnish you with the net
asset value of the Shares which shall be determined in accordance
with our then effective prospectus. All Shares will be sold in
the manner set forth in our then effective prospectus.
4. Sales Commission. You shall be entitled to charge a
sales commission on the sale of our Shares in the amount set
forth in our then effective prospectus. Such commission (subject
to any quantity or other discounts or eliminations of commission
as set forth in our then current effective prospectus) shall be
an amount mutually agreed upon between us and equal to the
difference between the net asset value and the public offering
price of our Shares.
5. Terms and Conditions of Sales. Fund Shares shall be
offered for sale only in those jurisdictions where they have been
properly registered or are exempt from registration, and only to
those groups of people which the Board of Directors may from time
to time determine to be eligible to purchase such shares.
6. Payment of Shares. At or prior to the time of delivery
of any of our Shares you will pay or cause to be paid to our
Custodian or its successor, for our account, an amount in cash
equal to the net asset value of such Shares. In the event that
you pay for Shares sold by you prior to your receipt of payment
from purchasers you are authorized to reimburse yourself for the
net asset value of such Shares from the offering price of such
Shares when received by you.
7. Purchases for Your Own Account. You shall not purchase
our Shares for your own account for purposes of resale to the
public, but you may purchase Shares for your own investment
account upon your written assurance that the purchase is for
investment purposes and that the Shares will not be resold except
through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares
at net asset value to certain of your and our affiliated persons
pursuant to the applicable provisions of the Federal Securities
Statutes and Rules or Regulations thereunder (the "Rules and
Regulations"), including Rule 22d-1 under the 1940 Act, as
amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included
in any Post-Effective Amendments ("Amendments") to
our Registration Statement under the 1933 Act or
1940 Act, including the prospectus and statement
of additional information included therein;
(b) Of the preparation, including legal fees, and of
printing all Amendments or supplements filed with
the Securities and Exchange Commission, including
the copies of the prospectuses included in the
Amendments and the first 10 copies of the
definitive prospectuses or supplements thereto,
other than those necessitated by your (including
your "Parent's") activities or Rules and
Regulations related to your activities where such
Amendments or supplements result in expenses which
we would not otherwise have incurred; and
(c) Of the preparation, printing and distribution of
any reports or communications which we send to our
existing shareholders.
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Fund Shares;
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to
offer our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional
information if the Amendment or supplement arises
from your (including your "Parent's") activities
or Rules and Regulations related to your
activities and those expenses would not otherwise
have incurred by us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other
communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting and
selling our Shares.
10. Furnishing of Information. We will furnish to you
such information with respect to the Fund and its Shares, in such
form and signed by such of our officers as you may reasonably
request, and we warrant that the statements therein contained
when so signed will be true and correct. We will also furnish
you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the
public under the Blue Sky Laws of jurisdictions in which you may
wish to offer them. We will furnish you with annual audited
financial statements of our books and accounts certified by
independent public accountants, with semi-annual financial
statements prepared by us, and, from time to time, with such
additional information regarding our financial condition as you
may reasonably request.
11. Conduct of Business. Other than our currently
effective prospectus, you will not issue any sales material or
statements except literature or advertising which conforms to the
requirements of Federal and State securities laws and regulations
and which have been filed, where necessary, with the appropriate
regulatory authorities. You will furnish us with copies of all
such materials prior to their use and no such material shall be
published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State
laws and regulations where our Shares are offered for sale and
conduct your affairs with us and with dealers, brokers or
investors in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares
are tendered to us for redemption or repurchase by us within
seven business days after your acceptance of the original
purchase order for such Shares, you will immediately refund to us
the full sales commission (net of allowances to dealers or
brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or
brokers of the balance of sales commissions reallowed by you. We
shall notify you of such tender for redemption within 10 days of
the day on which notice of such tender for redemption is received
by us.
13. Other Activities. Your services pursuant to this
Agreement shall not be deemed to be exclusive, and you may render
similar services and act as an underwriter, distributor or dealer
for other investment companies in the offering of their shares.
14. Term of Agreement. This Agreement shall become
effective on the date of its execution, and shall remain in
effect for a period of two (2) years. The Agreement is renewable
annually thereafter with respect to the Fund for successive
periods not to exceed one year (i) by a vote of a majority of the
outstanding voting securities of the Fund or by a vote of the
Board of Directors of the Fund, and (ii) by a vote of a majority
of the directors of the Fund who are not parties to the Agreement
or interested persons of any parties to the Agreement (other than
as directors of the Fund), cast in person at a meeting called for
the purpose of voting on the Agreement.
This Agreement may at any time be terminated by the
Fund without the payment of any penalty, (i) either by vote of
the Board of Directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund on 90 days' written
notice to you; or (ii) by you on 90 days' written notice to the
Fund; and shall immediately terminate with respect to the Fund in
the event of its assignment.
15. Suspension of Sales. We reserve the right at all times
to suspend or limit the public offering of Fund Shares upon two
days' written notice to you.
16. Miscellaneous. This Agreement shall be subject to the
laws of the State of California and shall be interpreted and
construed to further promote the operation of the Fund as an open-
end investment company. As used herein the terms "Net Asset
Value", "Offering Price", "Investment Company", "Open-End
Investment Company", "Assignment", "Principal Underwriter",
"Interested Person", "Parents", "Affiliated Person", and
"Majority of the Outstanding Voting Securities" shall have the
meanings set forth in the 1933 Act or the 1940 Act and the Rules
and Regulations thereunder.
Nothing herein shall be deemed to protect you against any
liability to us or to our securities holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder,
or by reason of your reckless disregard of your obligations and
duties hereunder.
If the foregoing meets with your approval, please acknowledge
your acceptance by signing each of the enclosed copies, whereupon
this will become a binding agreement as of the date set forth
below.
Very truly yours,
FRANKLIN PREMIER RETURN FUND
/s/ Rupert H. Johnson
By: Rupert H. Johnson
Accepted:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns, Vice President
DATED: April 20, 1993
DEALER AGREEMENT
Effective: December 1, 1994
Franklin/Templeton Distributors, Inc. - Principal Underwriter
777 Mariners Island Blvd., San Mateo, CA 94404
700 Central Avenue, St. Petersburg, Florida 33701-3628
Franklin Divisions Franklin Group of Funds
777 Mariners Island Blvd., San Mateo, CA 94404
415/312-2000 800/632-2350
500 5th Avenue, 55th Floor, New York, NY 212/869-1776
Templeton Divisions Templeton Group of Funds
700 Central Avenue, St. Petersburg, Florida 33701-3628
813/823-8712 800/237-0738
Franklin/Templeton Distributors, Inc., as Principal
Underwriter for the funds in the Franklin Group of Funds and the
Templeton Group of Funds, invites the dealer indicated below
(hereafter "you" or "dealer") to participate in the distribution
of the shares of any or all funds for which we now, or in the
future, serve as principal underwriter (together, hereafter
referred to as "we," "our," "us"), subject to the terms set forth
below (this "Agreement"). The funds are collectively referred to
herein as the "Funds" and listed in the Appendix. This Agreement
is cumulative and supersedes any agreement in effect prior to the
effective date listed above. Your first trade after receipt of
this Agreement shall constitute your acceptance of its term.
1. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are
presently licensed to the extent necessary by the appropriate
regulatory agency of each state in which you will offer and sell
shares of the Funds. You agree that termination or suspension of
such membership with the NASD, or of your license to do business
by any state or federal regulatory agency, at any time shall
require you to notify us of such action and shall terminate or
suspend this Agreement forthwith; or, if you are not a member of
the NASD but are a dealer subject to the laws of a foreign
country, you agree to conform to the rules of fair practice of
such association. This Agreement is in all respects subject to
Rule 26 of the Rules of Fair Practice of the NASD which shall
control any provision to the contrary in this Agreement.
2. You are to offer and sell shares of each Fund only at the
public offering price which shall then be currently in effect.
The procedures relating to all orders and the handling of them
shall be subject to the terms of the then current prospectus and
statement of additional information (hereafter, the "prospectus")
and new account application, including amendments, for each such
Fund, and our written instructions from time to time.
3. You agree:
(a) To act as principal, or as agent on behalf of your
customers, in all transactions in shares of the Funds except
as provided in paragraph 4 hereof. You shall not have any
authority to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any respect,
nor will you represent to any third party that you have such
authority or are acting in such capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds
only from us and only for the purpose of covering purchase
orders you have already received from your customers or for
your own bona fide investment.
(d) To maintain records of all sales and redemptions of
shares made through you and to furnish us with copies of such
records on request.
(e) To distribute prospectuses and reports to your customers
in compliance with the applicable requirements, except to the
extent that we expressly undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for
shares so as to profit yourself as a result of such
withholding or place orders for shares in amounts just below
the point at which sales charges are reduced so as to benefit
from a higher sales charge applicable to an amount below the
breakpoint.
(g) That if any shares confirmed to you hereunder are
repurchased or redeemed by any of the Funds within seven
business days after such confirmation of your original order,
you shall forthwith refund to us the full concession allowed
to you on such orders. We shall forthwith pay to the
appropriate Fund our share, if any, of the "charge" on the
original sale and shall also pay to such Fund the refund from
you as herein provided. We shall notify you of such repurchase
or redemption within ten days from the date of settlement.
Termination or cancellation of this Agreement shall not
relieve you or us from the requirements of this subparagraph.
(h) That if payment for the shares purchased is not received
within the time customary for such payment, the sale may be
cancelled forthwith without any responsibility or liability on
our part or on the part of the Funds, or at our option, we may
sell the shares ordered back to the Funds, in which latter
case we may hold you responsible for any loss to the Fund or
loss of profit suffered by us resulting from your failure to
make payment as aforesaid. We shall have no liability for any
check or other item returned unpaid to you after you have paid
us on behalf of a purchaser. We may refuse to liquidate the
investment unless we receive the purchaser's signed
authorization for the liquidation.
(i) That you shall assume responsibility for any loss to a
Fund(s) caused by a correction made subsequent to trade date,
provided such correction was not based on any error, omission
or negligence on our part, and that you will immediately pay
such loss to the Fund(s) upon notification.
(j) That if on a redemption which you have ordered,
instructions in proper form, including outstanding
certificates are not received within the time customary, the
redemption may be cancelled forthwith without any
responsibility or liability on our part or on the part of any
Fund, or at our option, we may buy the shares redeemed on
behalf of the Fund, in which latter case we may hold you
responsible for any loss to the Fund or loss of profit
suffered by us resulting from your failure to settle the
redemption.
4. In connection with orders for the purchase of shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, you shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the
application and payments) and shall not place such order until
you have received from your customer payment for such purchase
and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan.
You agree to indemnify us and Franklin Trust Company and/or
Templeton Funds Trust Company as applicable for any claim, loss,
or liability resulting from incorrect investment instructions
received from you which cause a tax liability or other tax
penalty.
5. We will not accept from you any conditional orders for
shares of any of the Funds. Delivery of certificates for shares
purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your
concession and our portion of the sales charge, if any, on such
sale. No certificates will be issued unless specifically
requested.
6. On each purchase of shares by you from us, the total sales
charges and your dealer concessions shall be as stated in each
Fund's then current prospectus, subject to NASD rules and
applicable state and federal laws. Such sales charges and dealer
concessions are subject to reductions under a variety of
circumstances as described in the Funds' prospectuses. To obtain
these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge. Sales charges on the
reinvestment of income dividends shall be allocated as stated in
each Fund's then current prospectus. If you fail to notify us of
the applicability of a reduction in the sales charge at the time
the trade is placed, neither we nor any of the Funds will be
liable for amounts necessary to reimburse any investor for the
reduction which should have been effected.
7. Redemptions or repurchases of shares will be made at the
net asset value of such shares in accordance with the current
prospectuses. Except as permitted by applicable law, you agree
not to purchase any shares from your customers at a price lower
than the redemption or repurchase prices then computed by the
Funds. You shall, however, be permitted to sell shares for the
account of the record owner to the Funds at the repurchase price
then currently in effect for such shares and may charge the owner
a fair commission for handling the transaction.
8. Telephone exchange orders will be effective only for shares
in plan balance (uncertificated shares) or for which share
certificates have been previously deposited and may be subject to
a $5 exchange fee as discussed in the prospectus. You may charge
the shareholder a fair commission for handling an exchange
transaction. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold
with a sales charge to a Fund which carries a higher sales charge
may be subject to a sales charge in accordance with the terms of
each Fund's prospectus.
9. All orders are subject to acceptance by us and become
effective only upon confirmation by us. If required by law, each
transaction shall be confirmed in writing on a fully disclosed
basis and if confirmed by us, a copy of each confirmation shall
be sent simultaneously to you if you so request. All sales are
made subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to suspend
the sale of shares or withdraw the offering of shares entirely.
Telephone orders will be effected at the price(s) next computed
on the day they are received from you if, as set forth in each
Fund's current prospectus, they are received prior to the time
the price of its shares is calculated. Orders received after that
time will be effected at the price(s) computed on the next
business day. Orders for the purchase of 100,000 shares or more
of any of the Funds will be effected at an offering price
calculated to four decimal places. All orders must be accompanied
by payment in U.S. dollars. Orders payable by check must be drawn
payable in U.S. dollars on a U.S. bank, for the full amount of
the investment.
10. With respect to Funds offering both shares subject to a
front-end sales charge ("Class A Shares") and shares subject to a
contingent deferred sales charge ("Class B Shares"), you shall
conform to our written compliance standards as we may from time
to time provide to you in the future.
11. You are also invited to participate in the distribution of
shares of certain of the Funds which, although sold without or at
a reduced sales charge, have adopted a Plan ("Plan Funds")
pursuant to Rule 12b-1 under the Investment Company Act of 1940
("Plans"). Pursuant to such Plans, to the extent you provide
services as specified more fully in or in an attachment to a
service agreement between you and the Principal Underwriter, in
the promotion of shares of such Plan Funds, you shall be paid a
fee as provided for and in effect at any particular time as set
forth in the prospectuses for the Plan Funds which have such
Plans.
We shall furnish to the Board of Directors of the Plan Funds,
for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any Agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested persons
of the Plan Funds and who have no financial interest in the Plans
or any related agreement ("Rule 12b-1 Directors"). The Plans or
the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan
Funds' Boards of Directors, including Rule 12b-1 Directors, or by
a vote of a majority of the outstanding shares of the Plan Funds,
on sixty (60) days' written notice, without payment of any
penalty. The Plans or the provisions of this Agreement may also
be terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds, and/or the management
agreement between Franklin Advisers, Inc. or Templeton, Galbraith
& Hansberger Ltd. or their affiliates and the Plan Funds. In the
event of the termination of the Plans for any reason, the
provisions of this Agreement relating to the Plans will also
terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1 Directors
being ultimately responsible for selecting and nominating any new
Rule 12b-1 Directors.
Under Rule 12b-1, Directors of any of the Plan Funds have a
duty to request and evaluate, and persons who are party to any
agreement related to a Plan have a duty to furnish, such
information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued.
Parties to this Agreement who provide services to Plan Funds
in the promotion of shares of such Funds should be aware that
under Rule 12b-1 Plan Funds are permitted to implement or
continue Plans or the provisions of this Agreement relating to
such Plans from year-to-year only if, based on certain legal
considerations, the board is able to conclude that the Plans will
benefit the Plan Funds. Absent such yearly determination the
Plans and the provisions of this Agreement relating to the Plans
must be terminated as set forth above.
You agree to waive payment of any amounts payable to you by us
under a Fund's Plan of Distribution pursuant to Rule 12b-1 until
such time as we are in receipt of such fee from the Fund.
The provisions of the management agreement between the Plan
Funds and Franklin Advisers, Inc. or Templeton, Galbraith &
Hansberger Ltd. and its affiliates, and/or of the Underwriting
Agreement between the Plan Funds and us, insofar as they relate
to Plans, are incorporated herein by reference, and shall control
in the event of any inconsistency.
12. We shall have no responsibility for the qualification of,
manner of sale, or status of persons selling shares of the Funds
under the laws regulating the sale of securities in any U.S. or
foreign jurisdiction. We shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and
value of such shares or for any matter in connection therewith,
and no obligation not expressly assumed by us in this Agreement
shall be implied. Nothing in this Agreement, however, shall be
deemed to be a condition, stipulation or provision binding any
person acquiring any security to waive compliance with any
provision of the Securities Act of 1933, or of the rules and
regulations of the Securities and Exchange Commission, or to
relieve the parties hereto from any liability arising under the
Securities Act of 1933.
13. If it is necessary to register or qualify the shares in
any foreign jurisdictions in which you intend to offer the
shares, it will be your responsibility to arrange for and to pay
the costs of such registration or qualification; prior to any
such registration or qualification you will notify us of your
intent and of any limitations that might be imposed on the Funds
and you agree not to proceed with such registration or
qualification without the written consent of the Funds and of
ourselves.
14. No person is authorized to give any information or make
any representations concerning shares of the Funds except those
contained in the current prospectus, or statement of additional
information issued by the Fund or by us as information
supplemental to such prospectus or statement of additional
information. We will supply prospectuses, reasonable quantities
of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or
sales material relating to the Funds except that which (a)
conforms to the requirements of any applicable laws or
regulations of any government or authorized agency in the U.S. or
any other country, having jurisdiction over the offering or sale
of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in
whole or in part upon notice to you, and you shall, upon receipt
of such notice, immediately discontinue the use of such sales
literature, sales material and advertising. You are not
authorized to modify or translate any such materials without our
prior written consent.
15. You further agree to indemnify, defend and hold harmless
the Principal Underwriter, the Funds, their officers, directors
and employees from any and all losses, claims, liabilities and
expenses whether or not resulting in any liability to any of them
including, but not limited to, violations of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, or any
rule or regulation of any government or authorized agency, in the
U.S. or any other country, having jurisdiction over the sale of
shares made by you, arising out of the offer and sale by you of
shares of the Funds pursuant to this Agreement, any redemption or
exchange pursuant to telephone instructions received from you or
your agent or employees, or arising out of the breach by you of
any of the terms and conditions of this Agreement.
16. Each party to this Agreement may cancel its participation
in this Agreement by giving written notice to the other parties.
Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally
to the other parties or any officer or member thereof, or was
mailed postpaid or delivered to a telegraph office for
transmission to the other parties at their address as shown
herein. This Agreement shall terminate immediately upon the
appointment of a Trustee under the Securities Investor Protection
Act or any other act of insolvency by you. The termination of
this Agreement by any of the foregoing means shall have no effect
upon transactions entered into prior to the effective date of
termination. A trade placed by you subsequent to your voluntary
termination of the Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary
suspension of a dealer will only be effective upon written
notification by us. This Agreement may be amended by us at any
time by written notice to you and your placing of an order after
the effective date and receipt of notice of any such Amendment
shall constitute your acceptance thereof.
17. Should any of your concession accounts with us have a
debit balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted
to binding arbitration under the commercial arbitration rules of
the NASD or the American Arbitration Association. Judgment upon
any arbitration award may be entered by any state or federal
court having jurisdiction. This Agreement shall be construed in
accordance with the laws of the State of California, not
including any provision which would require the general
application of the law of another jurisdiction, and shall be
binding upon the parties hereto when signed by us and accepted by
you, either by your signature in the space provided below or by
your first trade entered after receipt of this Agreement.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name:
Title:
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(415) 312/2000
Dealer Services - 800-524-4040
Order Room - 800-227-5041
700 Central Avenue
St. Petersburg, Florida 33701-3628
(813) 823/8712
Account Information - 800-354-9191
Switchboard - 800-237-0738
DEALER
(Firm's name)
By:
(Signature)
Name:
Title:
Address:
Telephone:
NASD CRD #
APPENDIX
Revised as of December 1, 1994
Franklin/Templeton Distributors, Inc. ("FTDI") serves as
principal underwriter for the following Funds:
AGE High Income Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Custodian Funds, Inc.,
Franklin Equity Fund, Franklin Federal Tax-Free Income Fund,
Franklin Gold Fund, Franklin International Trust, Franklin
Investors Securities Trust, Franklin Managed Trust, Franklin
Municipal Securities Trust, Franklin New York Tax-Free Trust,
Franklin New York Tax-Free Income Fund, Inc., Franklin Premier
Return Fund, Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Strategic Mortgage
Portfolio, Franklin/Templeton Global Trust, Franklin Real Estate
Securities Fund, all Franklin Money Market Funds, Institutional
Fiduciary Trust, Templeton Growth Fund, Inc., Templeton World
Fund, Templeton Foreign Fund, Templeton Smaller Companies Growth
Fund, Inc., Templeton Global Opportunities Trust, Templeton
Developing Markets Trust, Templeton American Trust, Inc.,
Templeton Real Estate Securities Fund, Templeton Income Fund,
Templeton Money Fund, Templeton Institutional Funds, Inc.
(Foreign Equity Series, Growth Series, Global Fixed Income
Series, Emerging Market Series and Foreign Equity (South Africa
Free) Series), Templeton Global Rising Dividends Fund, Templeton
Global Infrastructure Fund, Templeton Americas Government
Securities Fund, Franklin/Templeton Japan Fund, and Templeton
Variable Products Series Funds (Templeton Bond Fund, Templeton
Asset Allocation Fund, Templeton Stock Fund, Templeton Money
Market Fund and Templeton International Fund).The following
information will assist FTDI in accurately identifying and
reporting the source of sales made by you under the Agreement.
Compliance is voluntary but strongly encouraged. The information
being requested will be used by FTDI solely in connection with
its business as principal underwriter under the Agreement.
1. Nature of Firm's Business
Please indicate how you would best describe the nature of your
firm's business with FTDI, and if you clear for others, how you
would best describe the business of the firms you clear for
(check all that apply):
Firm's Clear Business For
Clearing agent for other firms
National Broker/Dealer
Regional Broker/Dealer
Independent Financial Planner
Financial Planning Broker/Dealer
Bank
Bank Affiliated
Insurance Company
Foreign Broker/Dealer
Other, please describe ______________
2. Branch and Rep Listings
You agree to provide FTDI with certain information including
the names and addresses of your registered representatives and
their representative numbers and branch locations. You also agree
to update FTDI with changes to this information on a regular and
frequent basis. FTDI agrees not to sell, in whole or in part,
this information nor disclose such information except for
regulatory purposes, servicing of accounts, or informational, or
other mailings which are in the normal course of FTDI or its
affiliates' business, or where such disclosure may otherwise be
required by law or by any regulatory agency having jurisdiction
over FTDI's or its affiliates' business.
Back Office Contact
(The person to contact for branch and rep listings)
By:
(Same as signature on agreement above)
95.89/104 (10/94)
MUTUAL FUND PURCHASE AND SALES AGREEMENT FOR ACCOUNT OF BANK
CUSTOMERS
Effective: December 1, 1994
Franklin/Templeton Distributors, Inc. - Principal Underwriter
777 Mariners Island Blvd., San Mateo, CA 94404 700 Central
Avenue, St. Petersburg, Florida 33701-3628
Franklin Divisions Franklin Group of Funds
777 Mariners Island Blvd., San Mateo, CA 94404
415/312-2000 - 800/632-2350
500 5th Avenue, 55th Floor, New York, NY 212/869-1776
Templeton Divisions Templeton Group of Funds
700 Central Avenue, St. Petersburg, Florida 33701-3628
813/823-8712 - 800/237-0738
1. INTRODUCTION
This Agreement is entered into as of the date given on the
signature page. The parties to this Agreement are the bank
identified on that page ("Bank"), and Franklin/Templeton
Distributors, Inc. ("FTDI" or "we," "us"), in its capacity as
principal underwriter for any registered investment companies
("Fund(s)") which comprise the Franklin Group of Funds and the
Templeton Group of Funds, respectively, now or in the future. The
Appendix contains a current list of the Funds. The purpose of
this Agreement is to set forth the terms and conditions under
which FTDI will execute purchases and sales (redemptions) of Fund
shares ("Transaction(s)") at the request of Bank upon the order
and for the account of Bank's customers ("Customer(s)").
2. REPRESENTATIONS AND WARRANTIES OF BANK
Bank warrants and represents to FTDI and the Funds that:
a) Bank is a "bank" as defined in Section 3(a)(6) of the
Securities and Exchange Act of 1934, as amended (the "34
Act"):
"The term 'bank' means (A) a banking institution organized
under the laws of the United States, (B) a member bank of
the Federal Reserve System, (C) any other banking
institution, whether incorporated or not, doing business
under the law of any State or of the United States, a
substantial portion of the business of which consists of
receiving deposits or exercising a fiduciary power similar
to those permitted to national banks under the authority of
the Comptroller of the Currency pursuant to the first
section of Public Law 87-722 (12 U.S.C. 92a), and which is
supervised and examined by State or Federal authority having
supervision over banks, and which is not operated for the
purpose of evading the provisions of this title, and (D) a
receiver, conservator, or other liquidating agent of any
institution or firm included in clauses (A), (B) or (C) of
this paragraph."
b) Bank is authorized to enter into this Agreement, and Bank's
performance of its obligations and receipt of consideration
under this Agreement will not violate any law, regulation,
charter, agreement, or regulatory restriction to which Bank
is subject.
c) Bank has received all regulatory agency approvals and taken
all legal and other steps necessary for offering the
services Bank will provide to Customers in connection with
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL UNDERWRITER
FTDI warrants and represents to Bank that:
a) FTDI is a broker/dealer registered under the '34 Act.
b) FTDI is the principal underwriters of the Funds.
4. COVENANTS OF BANK
For each Transaction under this Agreement, Bank will:
a) be authorized to engage in the Transaction;
b) act as agent for the Customer;
c) act solely at the request of and for the account of the
Customer;
d) not submit an order unless Bank has already received the
order from the Customer;
e) not submit a purchase order unless Bank has already
delivered to the Customer a copy of the then current
prospectus for the Fund(s) whose shares are to be purchased;
f) not withhold placing any Customer's order for the purpose of
profiting from the delay;
g) have no beneficial ownership of the securities in any
purchase Transaction (the Customer will have the full
beneficial ownership), unless Bank is the Customer (in which
case, Bank will not engage in the Transaction unless the
Transaction is legally permissible for Bank); and
h) not accept or withhold any Fee otherwise allowed under
Sections 5(d) and (e) of this Agreement, if prohibited by
the Employee Retirement Income Security Act ("ERISA") or
trust or similar laws to which Bank is subject, in the case
of Transactions involving retirement plans, trusts, or
similar accounts.
i) maintain records of all sales and redemptions of shares made
through you and to furnish us with copies of such records on
request.
j) distribute prospectuses, statements of additional
information and reports to your customers in compliance with
the applicable requirements, except to the extent that we
expressly undertake to do so on your behalf.
While this Agreement is in effect, Bank will:
k) not purchase any shares from any person at a price lower
than the redemption price then quoted by the applicable
Fund;
l) repay FTDI the full Fee received by Bank under Sections 5(d)
and (e) of this Agreement, for any shares purchased under
this Agreement which are repurchased by the Fund within 7
business days after the purchase (in turn, FTDI shall pay to
the Fund the amount repaid by Bank. FTDI will notify Bank of
any such repurchase within 10 days.);
m) in connection with any Transaction on behalf of an
Individual Retirement Account, Self-Employed Retirement Plan
or other retirement accounts for which Franklin Trust
Company ("FTC") or Templeton Funds Trust Company ("TFTC"),
is the trustee or custodian, (i) act as agent for FTC or
TFTC, for the sole purpose of the receipt of applications
and contributions, and in that regard, solely with respect
to the establishment of the date the application or
contribution is received by the custodian or trustee, (ii)
not place any such order until Bank has received payment
along with any required plan documents, fully completed and
executed, and (iii) hold harmless, indemnify, and defend
FTDI, the Funds, FTC and TFTC from any claim, loss, or
liability, resulting directly or indirectly, in whole or in
part, from Bank's actions as agent;
n) be responsible for compliance with all laws and regulations,
including those of the applicable federal and state bank
regulatory authorities, with regard to Bank and Bank's
Customers; and
o) immediately notify FTDI in writing at the address given
below, should Bank cease to be a bank as set forth in
Section 2(a) of this Agreement.
5. TERMS AND CONDITIONS FOR TRANSACTIONS
a) Price
Transaction orders received from Bank will be accepted only
at the public offering price and in compliance with
procedures applicable to each order as set forth in the then
current prospectus for the applicable Fund. All orders must
be accompanied by payment in U.S. dollars. Orders payable by
check must be drawn payable in U.S. dollars on a U.S. bank,
for the full amount of the investment. All sales are made
subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to
suspend the sale of shares or withdraw the offering of
shares entirely.
Orders for the purchase of 100,000 or more shares of a Fund
will be effected at an offering price calculated to 4
decimal places.
b) Orders and Confirmations
Transaction orders shall be made using the procedures and
forms required by FTDI from time to time. Orders received on
any business day after the time for calculating the price of
Fund shares as set forth in each Fund's current prospectus
will be effected at the price determined on the next
business day. A written confirming statement will be sent to
Bank and to Customer upon settlement of each Transaction.
With respect to Funds offering both shares subject to a
front-end and sales charge ("Class A Shares") and shares
subject to a contingent deferred sales charge ("Class B
Shares"), you shall conform to our written compliance
standards as we may from time to time provide to you in the
future.
c) FTDI's Discretion and Transfer Agent's Requirements
All purchase orders are subject to acceptance or rejection
by FTDI and/or the Fund at their sole discretion. All
Transactions are subject to the then current requirements of
the Funds' transfer agent.
d) Payments by Bank for Purchases
On the settlement date for each purchase, Bank shall either
(i) remit the full purchase price by wire transfer to an
account designated by FTDI, or (ii) following FTDI's
procedures, wire the purchase price less the Fee allowed by
Section 5(e) of this Agreement. Twice monthly, FTDI will pay
Bank Fees not previously paid to or withheld by Bank. Each
calendar month, FTDI, as applicable, will prepare and mail
an activity statement summarizing all Transactions.
e) Fee
Where permitted by the prospectus for each Fund, a charge,
concession, or fee ("Fee") may be paid to Bank, related to
services provided by Bank in connection with Transactions.
The amount of the Fee, if any, is set by the relevant
prospectus. Adjustments in the Fee are available for certain
volume purchases, and Bank is solely responsible for
notifying FTDI when any purchase order is qualified for such
an adjustment.
f) Certain of the Funds which, although sold without or at a
reduced sales charge, have adopted a Plan ("Plan Funds")
pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Plans"). Pursuant to such Plans, to the extent you
provide services as specified more fully in or in an
attachment to a service agreement between you and the
principal underwriter, in the promotion of shares of such
Plan Funds, you shall be paid a fee as provided for and in
effect at any particular time as set forth in the
prospectuses and statements of additional information for
the Plan Funds which have such Plans.
We shall furnish to the Board of Directors of the Plan
Funds, for their review on a quarterly basis, a written
report of the amounts expended under the Plans and the
purposes for which such expenditures were made.
The Plans and provisions of any Agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested
persons of the Plan Funds and who have no financial interest
in the Plans or any related agreement ("Rule 12b-1
Directors"). The Plans or the provisions of this Agreement
relating to such Plans may be terminated at any time by the
vote of a majority of the Plan Funds' Boards of Directors,
including Rule 12b-1 Directors, or by a vote of a majority
of the outstanding shares of the Plan Funds on sixty (60)
days' written notice, without payment of any penalty. The
Plans or the provisions of this Agreement may also be
terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds and/or the
management agreement between Franklin Advisers, Inc. or
Templeton Galbraith & Hansberger Ltd. and the Plan Funds. In
the event of the termination of the Plans for any reason,
the provisions of this Agreement relating to the Plans will
also terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1
Directors being ultimately responsible for selecting and
nominating any new Rule 12b-1 Directors.
Under Rule 12b-1, Directors of any of the Plan Funds have a
duty to request and evaluate, and persons who are party to
any agreement related to a Plan have a duty to furnish such
information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued.
Parties to this Agreement who provide services to Plan Funds
in the promotion of shares of such Funds should be aware
that under Rule 12b-1 Plan Funds are permitted to implement
or continue Plans or the provisions of this Agreement
relating to such Plans from year-to-year only if, based on
certain legal considerations, the board is able to conclude
that the Plans will benefit the Plan Funds. Absent such
yearly determination the Plans and the provisions of this
Agreement relating to the Plans must be terminated as set
forth above.
You agree to waive payment of any amounts payable to you by
FTDI under a Plan until such time as FTDI is in receipt of
such fee from the Plan Fund.
The provisions of the management agreement between the Plan
Funds and Franklin Advisers, Inc. or Templeton Galbraith &
Hansberger Ltd. and its affiliates, and/or of the
Underwriting Agreement between the Plan Funds and us,
insofar as they relate to Plans are incorporated herein by
reference, and shall control in the event of any
inconsistency.
g) Other Distribution Services
From time to time, FTDI may offer telephone and other
augmented services in connection with Transactions under
this Agreement. If Bank uses any such service, Bank will be
subject to the procedures applicable to the service, whether
or not Bank has executed any agreement required for the
service.
h) Additional Terms and Conditions
i) Delivery of Certificate and Cancellation of
Transactions
FTDI will not accept any conditional Transaction
orders. Delivery of certificates or confirmations for
shares purchased shall be made by the Fund conditional
upon receipt of the purchase price, subject to
deduction of any Fee. No certificates will be issued
unless specifically requested. If payment is not
received within the required time period, the sale may
be cancelled without notice or demand, and neither FTDI
nor the Fund(s) shall have any responsibility or
liability for such a cancellation. Alternatively, the
unpaid shares may be sold back to the Fund, and Bank
shall be liable for any resulting loss to FTDI or to
the Fund(s). You shall assume responsibility for any
loss to a Fund(s) caused by a correction made
subsequent to trade date, and you will immediately pay
such loss to the Fund(s) upon notification.
ii) Qualification of Shares
Except lack of good faith, FTDI shall not be
responsible expressly or by implication for the
qualification, issuance, form, validity,
enforceability, or value of shares of any of the Funds
for sale under the laws of any U.S. or foreign
jurisdiction. At Bank's request, FTDI will indicate to
Bank the states and jurisdictions in which Funds are
then qualified for sale. Bank shall be solely
responsible for compliance with all legal requirements
applicable to (1) those who may sell Fund shares on
behalf of Bank, and (2) those to whom such shares are
sold. If it is necessary to register or qualify the
shares in any foreign jurisdictions in which you intend
to offer the shares, it will be your responsibility to
arrange for and to pay the costs of such registration
or qualification; prior to any such registration or
qualification you will notify us of your intent and of
any limitations that might be imposed on the Funds and
you agree not to proceed with such registration or
qualification without the written consent of the Funds
and of ourselves. You further agree to indemnify,
defend and hold harmless the Principal Underwriter, the
Funds, their officers, directors and employees from any
and all losses, claims, liabilities and expenses
whether or not resulting in any liability to any of
them including, but not limited to, violations of the
Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the Investment
Company Act of 1940, as amended, or any rule or
regulation of any government or authorized agency, in
the United States or any other country, having
jurisdiction over the sale of shares made by you,
arising out of the offer and sale by you of shares of
the Funds pursuant to this Agreement, any redemption or
exchange pursuant to telephone instructions received
from you or your agent or employees, or arising out of
the breach by you of any of the terms and conditions of
this Agreement.
However, nothing in this Agreement shall be deemed to
be a condition, stipulation, or provision binding any
person acquiring any security to waive compliance with
any provision of the Securities Act of 1933, or of the
rules and regulations of the Securities and Exchange
Commission, or to relieve the parties hereto from any
liability arising under the Securities Act of 1933.
iii) Prospectus and Sales Materials
No person is authorized to make any representations
concerning shares of the Funds except those contained
in the current prospectus, statement of additional
information, or printed information issued by such Fund
or by FTDI as information supplemental to such
prospectus or statement of additional information. FTDI
will supply Bank with prospectuses, reasonable
quantities of supplemental sales literature, sales
bulletins, and additional information as issued.
iv) Limit on Advertising
Bank may not use advertising or sales material relating
to any Fund(s) other than materials delivered under
Section 5(h)(iii) of this Agreement, unless approved in
advance in writing by FTDI. Such approval may be
withdrawn by us in whole or in part upon notice to you,
and you shall, upon receipt of such notice, immediately
discontinue the use of such sales literature, sales
material and advertising. You are not authorized to
modify or translate any such materials without our
prior written consent. The use of any advertising
material must conform to the requirements of any
applicable laws and regulaton any government or
authorized agency, in the U.S. or any other country,
having jurisdiction over the offering or sale of shares
of the Funds.
v) Customers
Customers shall be deemed for all purposes to be Bank's
customers and not customers of FTDI. Customer names
shall be used by FTDI only for regulatory, servicing,
informational, and other mailings in the normal course
of Fund business, and may not be sold to others in a
list containing names of Bank's Customers only.
6.GENERAL
a) Successors and Assignments
This Agreement binds Bank and FTDI and their respective
heirs, successors and assigns. Bank may not assign its right
and duties under this Agreement without the advance, written
authorization of FTDI.
b) Paragraph Headings
The paragraph headings of this Agreement are for convenience
only, and shall not be deemed to define, limit, or describe
the scope or intent of this Agreement.
c) Severability
Should any provision of this Agreement be determined to be
invalid or unenforceable under any law, rule, or regulation,
that determination shall not affect the validity or
enforceability of any other provision of this Agreement.
d) Waivers
There shall be no waiver of any provision of this Agreement
except a written waiver signed by Bank and FTDI. No written
waiver shall be deemed a continuing waiver or a waiver of
any other provision, unless the waiver expresses such
intention.
e) Sole Agreement
This Agreement is the entire agreement of Bank and FTDI and
supersedes all oral negotiations and prior writings.
f) Governing Law
This Agreement shall be construed in accordance with the
laws of the State of California, not including any provision
which would require the general application of the law of
another jurisdiction, and shall be binding upon the parties
hereto when signed by us and accepted by you, either by your
signature in the space provided below or by your first trade
entered after receipt of this Agreement.
g) Arbitration
Should any of your concession accounts with us have a debit
balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to
you. Either party may submit any dispute under this
Agreement to binding arbitration under the commercial
arbitration rules of the American Arbitration Association.
Judgment upon any arbitration award may be entered by any
state or federal court having jurisdiction.
h) Amendments
FTDI may amend this Agreement at any time by depositing a
written notice of the amendment in the U.S. mail, first
class postage pre-paid, addressed to Bank's address given
below. Bank's placement of any Transaction order after the
effective date of the written notice shall constitute Bank's
acceptance of the amendment.
i) Term and Termination
This Agreement shall continue in effect until terminated.
FTDI or Bank may terminate this Agreement at any time by
written notice to the other, but such termination shall not
affect the payment or repayment of Fees on Transactions
prior to the termination date. Termination also will not
affect the indemnities given under this Agreement.
WHEREFORE, the parties, by their duly authorized representatives,
have executed this Agreement.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name:
Title:
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(415) 312/2000
Dealer Services - 800-524-4040
Order Room - 800-227-5041
700 Central Avenue
St. Petersburg, Florida 33701-3628
(813) 823/8712
Account Information - 800-354-9191
Switchboard - 800-237-0738
BANK
(Firm's name)
By:
(Signature)
Name:
Title:
Address:
Telephone:
APPENDIX
Revised as of December 1, 1994
Franklin/Templeton Distributors, Inc. ("FTDI") serves as
principal underwriter for the following Funds:
AGE High Income Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Custodian Funds, Inc.,
Franklin Equity Fund, Franklin Federal Tax-Free Income Fund,
Franklin Gold Fund, Franklin International Trust, Franklin
Investors Securities Trust, Franklin Managed Trust, Franklin
Municipal Securities Trust, Franklin New York Tax-Free Trust,
Franklin New York Tax-Free Income Fund, Inc., Franklin Premier
Return Fund, Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Strategic Mortgage
Portfolio, Franklin/Templeton Global Trust, Franklin Real Estate
Securities Fund, all Franklin Money Market Funds, Institutional
Fiduciary Trust, Templeton Growth Fund, Inc., Templeton World
Fund, Templeton Foreign Fund, Templeton Smaller Companies Growth
Fund, Inc., Templeton Global Opportunities Trust, Templeton
Developing Markets Trust, Templeton American Trust, Inc.,
Templeton Real Estate Securities Fund, Templeton Income Fund,
Templeton Money Fund, Templeton Institutional Funds, Inc.
(Foreign Equity Series, Growth Series, Global Fixed Income
Series, Emerging Market Series and Foreign Equity (South Africa
Free) Series), Templeton Global Rising Dividends Fund, Templeton
Global Infrastructure Fund, Templeton Americas Government
Securities Fund, Franklin/Templeton Japan Fund, and Templeton
Variable Products Series Funds (Templeton Bond Fund, Templeton
Asset Allocation Fund, Templeton Stock Fund, Templeton Money
Market Fund and Templeton International Fund).The following
information will assist FTDI in accurately identifying and
reporting the source of sales made by you under the Agreement.
Compliance is voluntary but strongly encouraged. The information
being requested will be used by FTDI solely in connection with
its business as principal underwriter under the Agreement.
1. Nature of Firm's Business
Please indicate how you would best describe the nature of your
firm's business with FTDI, and if you clear for others, how you
would best describe the business of the firms you clear for
(check all that apply):
Firm's Clear Business For
Clearing agent for other firms
National Broker/Dealer
Regional Broker/Dealer
Independent Financial Planner
Financial Planning Broker/Dealer
Bank
Bank Affiliated
Insurance Company
Foreign Broker/Dealer
Other, please describe ______________
2. Branch and Rep Listings
You agree to provide FTDI with certain information including the
names and addresses of your registered representatives and their
representative numbers and branch locations. You also agree to
update FTDI with changes to this information on a regular and
frequent basis. FTDI agrees not to sell, in whole or in part,
this information nor disclose such information except for
regulatory purposes, servicing of accounts, or informational, or
other mailings which are in the normal course of FTDI or its
affiliates' business, or where such disclosure may otherwise be
required by law or by any regulatory agency having jurisdiction
over FTDI's or its affiliates' business.
Back Office Contact
(The person to contact for branch and rep listings)
By:
(Same as signature on agreement above)
MUTUAL FUND PURCHASE AND SALES AGREEMENT FOR BANK AFFILIATED
BROKER/DEALERS
Effective: December 1, 1994
Franklin/Templeton Distributors, Inc. - Principal Underwriter
777 Mariners Island Blvd., San Mateo, CA 94404
700 Central Avenue, St. Petersburg, Florida 33701-3628
Franklin Divisions Franklin Group of Funds
777 Mariners Island Blvd., San Mateo, CA 94404
415/312-2000 800/632-2350
500 5th Avenue, 55th Floor, New York, NY 212/869-1776
Templeton Divisions Templeton Group of Funds
700 Central Avenue, St. Petersburg, Florida 33701-3628
813/823-8712 800/237-0738
Franklin/Templeton Distributors, Inc., as Principal
Underwriter for the funds in the Franklin Group of Funds and the
Templeton Group of Funds, invites the dealer indicated below
(hereinafter "you" or "dealer") to participate in the
distribution of the shares of any or all funds for which we now,
or in the future, serve as principal underwriter (together,
hereafter referred to as "we," "our," "us"), subject to the terms
set forth below (this "Agreement"). The funds are collectively
referred to herein as the "Funds" and listed in the Appendix.
This Agreement is cumulative and supersedes any agreement in
effect prior to the effective date listed above. Your first trade
after receipt of this Agreement shall constitute your acceptance
of its term.
1. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are
presently licensed to the extent necessary by the appropriate
regulatory agency of any state in which you will offer and sell
shares of the Funds. You agree that termination or suspension of
your membership with the NASD, or of your license to do business
by any state or federal regulatory agency, at any time shall
require you to notify us of such action and shall terminate or
suspend this Agreement forthwith; or, if you are not a member of
the NASD but are a dealer subject to the laws of a foreign
country, you agree to conform to the rules of fair practice of
such association. This Agreement is in all respects subject to
Rule 26 of the Rules of Fair Practice of the NASD, which shall
control any provisions to the contrary in this Agreement.
2. You are to offer and sell shares of each Fund only at the
public offering price which shall then be currently in effect.
The procedures relating to all orders and the handling of them
shall be subject to the terms of the then current prospectus and
statement of additional information (hereafter, the "prospectus")
and new account application, including amendments, for each such
Fund, and our written instructions from time to time.
3. You agree:
(a) To act as agent on behalf of your customers in all
transactions in shares of the Funds except as provided
in paragraph 4 hereof. You shall not have any authority
to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any
respect, nor will you represent to any third party that
you have such authority or are acting in such capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds
only from us and only for the purpose of covering
purchase orders you have already received from your
customers or for your own bona fide investment.
(d) To maintain records of all sales and redemptions of
shares made through you and to furnish us with copies of
such records on request.
(e) To distribute prospectuses and reports to your customers
in compliance with the applicable requirements, except
to the extent that we expressly undertake to do so on
your behalf.
(f) That you will not withhold placing customers' orders for
shares so as to profit yourself as a result of such
withholding or place orders for shares in amounts just
below the point at which sales charges are reduced so as
to benefit from a higher sales charge applicable to an
amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are
repurchased or redeemed by any of the Funds within seven
business days after such confirmation of your original
order, you shall forthwith refund to us the full
concession allowed to you on such orders. We shall
forthwith pay to the appropriate Fund our share, if any,
of the "charge" on the original sale and shall also pay
to such Fund the refund from you as herein provided. We
shall notify you of such repurchase or redemption within
ten days from the date of settlement. Termination or
cancellation of this Agreement shall not relieve you or
us from the requirements of this subparagraph.
(h) That if payment for the shares purchased is not received
within the time customary for such payment, the sale may
be cancelled forthwith without any responsibility or
liability on our part or on the part of the Funds, or at
our option, we may sell the shares ordered back to the
Funds, in which latter case we may hold you responsible
for any loss to the Fund or loss of profit suffered by
us resulting from your failure to make payment as
aforesaid. We shall have no liability for any check or
other item returned unpaid to you after you have paid us
on behalf of a purchaser. We may refuse to liquidate the
investment unless we receive the purchaser's signed
authorization for the liquidation.
(i) That you shall assume responsibility for any loss to a
Fund(s) caused by a correction made subsequent to trade
date, provided such correction was not based on any
error, omission or negligence on our part, and that you
will immediately pay such loss to the Fund(s) upon
notification.
(j) That if on a redemption which you have ordered,
instructions in proper form, including outstanding
certificates are not received within the time customary,
the redemption may be cancelled forthwith without any
responsibility or liability on our part or on the part
of any Fund, or at our option, we may buy the shares
redeemed on behalf of the Fund, in which latter case we
may hold you responsible for any loss to the Fund or
loss of profit suffered by us resulting from your
failure to settle the redemption.
4. In connection with orders for the purchase of shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, you shall act as agent for the custodian or trustee of
such plans (solely with respect to the time of receipt of the
application and payments) and shall not place such order until
you have received from your customer payment for such purchase
and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan.
You agree to indemnify us and Franklin Trust Company and/or
Templeton Funds Trust Company for any claim, loss, or liability
resulting from incorrect investment instructions received from
you which cause a tax liability or other tax penalty.
5. We will not accept from you any conditional orders for
shares of any of the Funds. Delivery of certificates for shares
purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your
concession and our portion of the sales charge, if any, on such
sale. No certificates will be issued unless specifically
requested.
6. On each purchase of shares by you from us, the total sales
charges and your dealer concessions shall be as stated in each
Fund's then current prospectus, subject to NASD rules and
applicable state and federal laws. Such sales charges and dealer
concessions are subject to reductions under a variety of
circumstances as described in the Funds' prospectuses. To obtain
these reductions, we must be notified when the sale takes place
which would qualify for the reduced charge. Sales charges on the
reinvestment of income dividends shall be allocated as stated in
each Fund's then current prospectus. If you fail to notify us of
the applicability of a reduction in the sales charge at the time
the trade is placed, neither we nor any of the Funds will be
liable for amounts necessary to reimburse any investor for the
reduction which should have been effected.
7. Redemptions or repurchases of shares will be made at the
net asset value of such shares in accordance with the current
prospectuses. Except as permitted by applicable law, you agree
not to purchase any shares from your customers at a price lower
than the redemption or repurchase prices then computed by the
Funds. You shall, however, be permitted to sell shares for the
account of the record owner to the Funds at the repurchase price
then currently in effect for such shares and may charge the owner
a fair commission for handling the transaction.
8. Telephone exchange orders will be effective only for shares
in plan balance (uncertificated shares) or for which share
certificates have been previously deposited and may be subject to
a $5 exchange fee as discussed in the prospectus. You may charge
the shareholder a fair commission for handling an exchange
transaction. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge and exchanges from a Fund sold
with a sales charge to a Fund which carries a higher sales charge
may be subject to a sales charge in accordance with the terms of
each Fund's prospectus.
9. All orders are subject to acceptance by us and become
effective only upon confirmation by us. If required by law, each
transaction shall be confirmed in writing on a fully disclosed
basis and, if confirmed by us, a copy of each confirmation shall
be sent simultaneously to you if you so request. All sales are
made subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to suspend
the sale of shares or withdraw the offering of shares entirely.
Telephone orders will be effected at the price(s) next computed
on the day they are received from you if, as set forth in each
Fund's current prospectus, they are received prior to the time
the price of its shares is calculated. Orders received after that
time will be effected at the price(s) computed on the next
business day. Orders for the purchase of 100,000 shares or more
of any of the Funds will be effected at an offering price
calculated to four decimal places. All orders must be accompanied
by payment in U.S. dollars. Orders payable by check must be drawn
payable in U.S. dollars on a U.S. bank, for the full amount of
the investment.
10. With respect to Funds offering both shares subject to a
front-end sales charge ("Class A Shares") and shares subject to a
contingent deferred sales charge ("Class B Shares"), you shall
conform to our written compliance standards as we may from time
to time provide to you in the future.
11. You are also invited to participate in the distribution of
shares of certain of the Funds which, although sold without or at
a reduced sales charge, have adopted a Plan ("Plan Funds")
pursuant to Rule 12b-1 under the Investment Company Act of 1940
("Plans"). Pursuant to such Plans, to the extent you provide
services as specified more fully in or in an attachment to a
service agreement between you and the Principal Underwriter, in
the promotion of shares of such Plan Funds, you shall be paid a
fee as provided for and in effect at any particular time as set
forth in the prospectuses for the Plan Funds which have such
Plans.
We shall furnish to the Board of Directors of the Plan Funds,
for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any Agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested persons
of the Plan Funds and who have no financial interest in the Plans
or any related agreement ("Rule 12b-1 Directors"). The Plans or
the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan
Funds' Boards of Directors, including Rule 12b-1 Directors, or by
a vote of a majority of the outstanding shares of the Plan Funds,
on sixty (60) days' written notice, without payment of any
penalty. The Plans or the provisions of this Agreement may also
be terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds, and/or the management
agreement between Franklin Advisers, Inc. or Templeton, Galbraith
& Hansberger Ltd. or their affiliates and the Plan Funds. In the
event of the termination of the Plans for any reason, the
provisions of this Agreement relating to the Plans will also
terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1 Directors
being ultimately responsible for selecting and nominating any new
Rule 12b-1 Directors.
Under Rule 12b-1, Directors of any of the Plan Funds have a
duty to request and evaluate, and persons who are party to any
agreement related to a Plan have a duty to furnish, such
information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued.
Parties to this Agreement who provide services to Plan Funds
in the promotion of shares of such Funds should be aware that
under Rule 12b-1 Plan Funds are permitted to implement or
continue Plans or the provisions of this Agreement relating to
such Plans from year-to-year only if, based on certain legal
considerations, the board is able to conclude that the Plans will
benefit the Plan Funds. Absent such yearly determination the
Plans and the provisions of this Agreement relating to the Plans
must be terminated as set forth above.
You agree to waive payment of any amounts payable to you by us
under a Fund's Plan of Distribution pursuant to Rule 12b-1 until
such time as we are in receipt of such fee from the fund.
The provisions of the management agreement between the Plan
Funds and Franklin Advisers, Inc. or Templeton, Galbraith &
Hansberger Ltd. and its affiliates, and/or of the Underwriting
Agreement between the Plan Funds and us, insofar as they relate
to Plans, are incorporated herein by reference, and shall control
in the event of any inconsistency.
12. We shall have no responsibility for the qualification of,
manner of sale, or status of persons selling shares of the Funds
under the laws regulating the sale of securities in any U.S. or
foreign jurisdiction. We shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and
value of such shares or for any matter in connection therewith,
and no obligation not expressly assumed by us in this Agreement
shall be implied. Nothing in this Agreement, however, shall be
deemed to be a condition, stipulation or provision binding any
person acquiring any security to waive compliance with any
provision of the Securities Act of 1933, or of the rules and
regulations of the Securities and Exchange Commission, or to
relieve the parties hereto from any liability arising under the
Securities Act of 1933.
13. If it is necessary to register or qualify the shares in
any foreign jurisdictions in which you intend to offer the
shares, it will be your responsibility to arrange for and to pay
the costs of such registration or qualification; prior to any
such registration or qualification you will notify us of your
intent and of any limitations that might be imposed on the Funds
and you agree not to proceed with such registration or
qualification without the written consent of the Funds and of
ourselves.
14. No person is authorized to give any information or make
any representations concerning shares of the Funds except those
contained in the current prospectus, or statement of additional
information issued by the Fund or by us as information
supplemental to such prospectus or statement of additional
information. We will supply prospectuses, reasonable quantities
of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or
sales material relating to the Funds except that which (a)
conforms to the requirements of any applicable laws or
regulations of any government or authorized agency in the U.S. or
any other country, having jurisdiction over the offering or sale
of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in
whole or in part upon notice to you, and you shall, upon receipt
of such notice, immediately discontinue the use of such sales
literature, sales material and advertising. You are not
authorized to modify or translate any such materials without our
prior written consent.
15. You further agree to indemnify, defend and hold harmless
the Principal Underwriter, the Funds, their officers, directors
and employees from any and all losses, claims, liabilities and
expenses whether or not resulting in any liability to any of them
including, but not limited to, alleged violations of the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the Investment Company Act of 1940, as
amended, or any rule or regulation of any government or
authorized agency, in the U.S. or any other country, having
jurisdiction over the sale of shares made by you, arising out of
the offer and sale by you of shares of the Funds pursuant to this
Agreement, any redemption or exchange pursuant to telephone
instructions received from you or your agent or employees, or
arising out of the breach by you of any of the terms and
conditions of this Agreement.
16. Each party to this Agreement may cancel its participation
in this Agreement by giving written notice to the other parties.
Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally
to the other parties or any officer or member thereof, or was
mailed postpaid or delivered to a telegraph office for
transmission to the other parties at their address as shown
herein. This Agreement shall terminate immediately upon the
appointment of a Trustee under the Securities Investor Protection
Act or any other act of insolvency by you. The termination of
this Agreement by any of the foregoing means shall have no effect
upon transactions entered into prior to the effective date of
termination. A trade placed by you subsequent to your voluntary
termination of the Agreement will not serve to reinstate the
Agreement. Reinstatement, except in the case of a temporary
suspension of a dealer will only be effective upon written
notification by us. This Agreement may be amended by us at any
time by written notice to you and your placing of an order after
the effective date and receipt of notice of any such Amendment
shall constitute your acceptance thereof.
17. Should any of your concession accounts with us have a
debit balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted
to binding arbitration under the commercial arbitration rules of
the NASD or the American Arbitration Association. Judgment upon
any arbitration award may be entered by any state or federal
court having jurisdiction. This Agreement shall be construed in
accordance with the laws of the State of California, not
including any provision which would require the general
application of the law of another jurisdiction, and shall be
binding upon the parties hereto when signed by us and accepted by
you, either by your signature in the space provided below or by
your first trade entered after receipt of this Agreement.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name:
Title:
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(415) 312/2000
Dealer Services - 800-524-4040
Order Room - 800-227-5041
700 Central Avenue
St. Petersburg, Florida 33701-3628
(813) 823/8712
Account Information - 800-354-9191
Switchboard - 800-237-0738
DEALER
(Firm's name)
By:
(Signature)
Name:
Title:
Address:
Telephone:
APPENDIX
Revised as of December 1, 1994
Franklin/Templeton Distributors, Inc. ("FTDI") serves as
principal underwriter for the following Funds:
AGE High Income Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Custodian Funds, Inc.,
Franklin Equity Fund, Franklin Federal Tax-Free Income Fund,
Franklin Gold Fund, Franklin International Trust, Franklin
Investors Securities Trust, Franklin Managed Trust, Franklin
Municipal Securities Trust, Franklin New York Tax-Free Trust,
Franklin New York Tax-Free Income Fund, Inc., Franklin Premier
Return Fund, Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Strategic Mortgage
Portfolio, Franklin/Templeton Global Trust, Franklin Real Estate
Securities Fund, all Franklin Money Market Funds, Institutional
Fiduciary Trust, Templeton Growth Fund, Inc., Templeton World
Fund, Templeton Foreign Fund, Templeton Smaller Companies Growth
Fund, Inc., Templeton Global Opportunities Trust, Templeton
Developing Markets Trust, Templeton American Trust, Inc.,
Templeton Real Estate Securities Fund, Templeton Income Fund,
Templeton Money Fund, Templeton Institutional Funds, Inc.
(Foreign Equity Series, Growth Series, Global Fixed Income
Series, Emerging Market Series and Foreign Equity (South Africa
Free) Series), Templeton Global Rising Dividends Fund, Templeton
Global Infrastructure Fund, Templeton Americas Government
Securities Fund, Franklin/Templeton Japan Fund, and Templeton
Variable Products Series Funds (Templeton Bond Fund, Templeton
Asset Allocation Fund, Templeton Stock Fund, Templeton Money
Market Fund and Templeton International Fund).
The following information will assist FTDI in accurately
identifying and reporting the source of sales made by you under
the Agreement. Compliance is voluntary but strongly encouraged.
The information being requested will be used by FTDI solely in
connection with its business as principal underwriter under the
Agreement.
1. Nature of Firm's Business
Please indicate how you would best describe the nature of your
firm's business with FTDI, and if you clear for others, how you
would best describe the business of the firms you clear for
(check all that apply):
Firm's Clear Business For
Clearing agent for other firms
National Broker/Dealer
Regional Broker/Dealer
Independent Financial Planner
Financial Planning Broker/Dealer
Bank
Bank Affiliated
Insurance Company
Foreign Broker/Dealer
Other, please describe ______________
2. Branch and Rep Listings
You agree to provide FTDI with certain information including the
names and addresses of your registered representatives and their
representative numbers and branch locations. You also agree to
update FTDI with changes to this information on a regular and
frequent basis. FTDI agrees not to sell, in whole or in part,
this information nor disclose such information except for
regulatory purposes, servicing of accounts, or informational, or
other mailings which are in the normal course of FTDI or its
affiliates' business, or where such disclosure may otherwise be
required by law or by any regulatory agency having jurisdiction
over FTDI's or its affiliates' business.
Back Office Contact
(The person to contact for branch and rep listings)
By:
(Same as signature on agreement above)
95.89/115 (10/94)
AGREEMENT
AGREEMENT, made as of December 1, 1982, between
Franklin Option Fund a California corporation (hereinafter called
the "Fund") and Bank of America NT & SA, a national banking
association (hereinafter called the "Custodian")
WITNESSETH:
WHEREAS, the Fund is registered as an investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), as a diversified, open-end management company and
desires that its securities and cash shall be held and
administered by the Custodian pursuant to the terms of this
Agreement; and
WHEREAS, the Custodian has an aggregate capital,
surplus, and undivided profits in excess of Two Million Dollars
($2,000,000), and has its functions and physical facilities
supervised by federal authority and is ready and willing to serve
pursuant to and subject to the terms of this Agreement:
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Fund, and Custodian agree as follows:
Sec. 1. Definitions:
The word "securities" as used herein includes stocks,
shares, bonds, debentures, notes, mortgages and other obligations
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets.
The term "proper instructions" shall mean a request or
direction by telephone or any other communication device from an
authorized Fund designee to be followed by a certification in
writing signed in the name of the Fund by any two of the
following persons: the Chairman of the Executive Committee, the
President, a Vice-President, the Secretary and Treasurer of the
Corporation, or any other persons duly authorized to sign by the
Board of Directors of the Fund and for whom authorization has
been communicated in writing to the Custodian. The term "proper
officers" shall mean the officers authorized above to give proper
instructions.
Sec. 2. Names, Titles and Signatures of Authorized Signers:
An officer of the Corporation will certify to Custodian
the names and signatures of those persons authorized to sign in
accordance with Sec. 1 hereof, and on a timely basis, of any
changes which thereafter may occur.
Sec. 3. Receipt and Disbursement of Money:
A. Custodian shall open and maintain a separate account
or accounts in the name of the Fund, subject only to draft or
order by Custodian acting pursuant to the terms of this Agreement
("Direct Demand Deposit Account"). Custodian shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the accounts of the Fund. This shall
include, without limitation, the proceeds from the sale of shares
of the capital stock of the Fund which shall be received along
with proper instructions from the Fund. All such payments
received by Custodian shall be converted to Federal Funds no
later than the day after receipt and deposited to such Direct
Demand Deposit Account.
B. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash or Direct Demand Deposit
Account only (a) for the purchase of securities for the portfolio
of the Fund upon the delivery of such securities to Custodian
registered in the name of the Custodian or of the nominee or
nominees thereof, in the proper form for transfer, (b) for the
redemption of shares of the capital stock of the Fund, (c) for
the payment of interest, dividends, taxes, management or
supervisory fees or any operating expenses (including, without
limitations thereto, fees for legal, accounting and auditing
services), (d) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the
Fund held by or to be delivered to Custodian; or (e) for other
proper corporate purposes. Before making any such payment
Custodian shall receive and may rely upon, proper instructions
requesting such payment and setting forth the purposes of such
payment.
Custodian is hereby authorized to endorse and collect
for the account of the Fund all checks, drafts or other orders
for the payment of money received by Custodian for the account of
the Fund.
Sec. 4. Holding of Securities:
Custodian shall hold all securities received by it for
the account of the Fund, pursuant to the provisions hereof, in
accordance with the provisions of Section 17(f) of the Investment
Company Act of 1940 and the regulations' thereunder. All such
securities are to be held or disposed of by the Custodian for,
and subject at all times to the proper instructions of, the Fund,
pursuant to the terms of this Agreement. The Custodian shall have
no power of authority to assign, hypothecate, pledge or otherwise
dispose of any such securities and investments, except pursuant
to the proper instructions of the Fund and only for the account
of the Fund as set forth in Sec. 5 of this Agreement.
Sec. 5. Transfer, Exchange or Delivery, of Securities:
Custodian shall have sole power to release or to
deliver any securities of the Fund held by it pursuant to this
Agreement. Custodian agrees to transfer, exchange, or deliver
securities held by it hereunder only (a) for the sales of such
securities for the account of the Fund upon receipt by Custodian
of payment therefor, (b) when such securities are called,
redeemed or retired or otherwise become payable, (c) for
examination by any broker selling any such securities in
accordance with "street delivery" custom, (d) in exchange for or
upon conversion into other securities alone or other securities
and cash whether pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise,
(e) upon conversion of such securities pursuant to their terms
into other securities, (f) upon exercise of subscription purchase
or other similar rights represented by such securities, (g) for
the purpose of exchanging interim receipts or temporary
securities for definitive securities, (h) for the purpose of
redeeming in kind shares of capital stock of the Fund upon
delivery thereof to Custodian, or (i) for other proper corporate
purposes. Any securities or cash receivable in exchange for such
deliveries made by Custodian, shall be deliverable to Custodian.
Before making any such transfer, exchange or delivery, the
Custodian shall receive, and may rely upon, proper instructions
authorizing such transfer, exchange or delivery and setting forth
the purpose thereof.
Sec. 6. Other Actions of Custodians:
(a) The Custodian shall collect, receive and deposit
income dividends, interest and other payments or distribution of
cash or property of whatever kind with respect to the securities
held hereunder; receive and collect securities received as a
distribution upon portfolio securities as a result of a stock
dividend, share split-up, reorganization, recapitalization,
consolidation, merger, readjustment, distribution of rights and
other items of like nature, or otherwise, and execute ownership
and other certificates and affidavits for all federal and state
tax purposes in connection with the collection of coupons upon
corporate securities, setting forth in any such certificate or
affidavit the name of the Fund as owner of such securities; and
do all other things necessary or proper in connection with the
collection, receipt and deposit of such income and securities,
including without limiting the generality of the foregoing,
presenting for payment all coupons and other income items
requiring presentation and presenting for payment all securities
which may be called, redeemed, retired or otherwise become
payable. Amounts to be collected hereunder shall be credited to
the account of the Fund according to the following formula:
(1) Periodic interest payments and final payments on
maturities of Federal instruments such as U.S. Treasury bills,
bonds and notes; interest payments and final payments on
maturities of other money market instruments including tax-exempt
money market instruments payable in federal or depository funds;
and payments on final maturities of GNMA instruments, shall be
credited to the account of the Fund on payable or maturity date.
(2) Dividends on equity securities and interest
payments, and payments on final maturities of municipal bonds
(except called bonds) shall be credited to the account of the
Fund on payable or maturity date plus one.
(3) Payments for the redemption of called bonds,
including called municipal bonds shall be credited to the account
of the Fund on the payable date except that called municipal
bonds paid in other than Federal or depository funds shall be
credited on payable date plus one.
(4) Periodic payments of interest and/or of partial
principal on GNMA instruments (other than payments on final
maturity) shall be credited to the account of the Fund on payable
date plus three.
(5) Should the Custodian fail to credit the account of
the Fund on the date specified in paragraphs (1)-(4) above, the
Fund may at its option, require compensation from the Custodian
of foregone interest (at the rate of prime plus one) and for
damages, if any.
(b) Payments to be received or to be paid in connection
with purchase and sale transactions shall be debited or credited
to the account of the Fund on the contract settlement date with
the exception of "when-issued" municipal bonds. Payments to be
made for purchase by the Fund of when-issued municipal bonds
shall be debited to the account of the Fund on actual settlement
date.
(1) In the event a payment is wrongfully debited to the
account of the Fund due to an error by the Custodian, the
Custodian will promptly credit such amount to the Fund, plus
interest (prime plus one) and damages, if any.
(2) In the event a payment is credited to the account
of the Fund and the Custodian is unable to deliver securities
being sold due to an error on the part of the Fund, such payment
shall be debited to the account of the Fund, and an appropriate
charge for costs of the transaction may be sent by the Custodian
to the Fund.
Sec. 7. Reports by Custodian:
Custodian shall each business day furnish the Fund with
a statement summarizing all transactions and entries for the
account of the Fund for the preceding day. At the end of every
month Custodian shall furnish the Fund with a list of the
portfolio securities showing the quantity of each issue owned,
the cost of each issue and the market value of each issue at the
end of each month. Such monthly report shall also contain
separate listings of (a) unsettled trades and (b) when-issued
securities. Custodian shall furnish such other reports as may be
mutually agreed upon from time-to-time.
Sec. 8. Compensation:
Custodian shall be paid as compensation for its
services pursuant to this Agreement such compensation as may from
time-to-time be agreed upon in writing between the two parties.
Sec. 9. Liabilities and Indemnifications:
(a) Custodian shall not be liable for any action taken
in good faith upon any proper instructions herein described or
certified copy of any resolution of, the Board of Directors, and
may rely on the genuineness of any such document which it may in
good faith believe to have been validly executed.
(b) The Fund agrees to indemnify and hold harmless the
Custodian and its nominee from all taxes, charges, expenses
assessments, claims and liabilities (including counsel fees)
incurred or assigned against it or its nominee in connection with
the performance of this Agreement, except such as may arise from
negligent action, negligent failure to act or willful misconduct
of Custodian or its nominee.
Sec. 10. Records:
The Custodian hereby acknowledges that all of the
records it shall prepare and maintain pursuant to this Agreement
shall be the property of the Fund and, if and to the extent
applicable, of the principal underwriter of the shares of the
Fund, and that upon proper instructions of the Fund or such
principal underwriter, if any, or both, it shall:
(a) Deliver said records to the Fund, principal
underwriter or a successor custodian, as appropriate:
(b) Provide the auditors of the Fund or principal
underwriter or any securities regulatory agency with a copy of
such records without charge; and provide the Fund and successor
custodian with a reasonable number of reports and copies of such
records at a mutually agreed upon charge appropriate to the
circumstances.
(c) Permit any securities regulatory agency to inspect
or copy during normal business hours of the Custodian any such
records.
Sec. 11. Appointment of Agents:
(a) The Custodian shall have the authority, in its
discretion, to appoint an agent or agents to do and perform any
acts or things for and on behalf of the Custodian, pursuant at
all times to its instructions, as the Custodian is permitted to
do under this Agreement.
(b) Any agent or agents appointed to have physical
custody of securities held under this Agreement or any part
thereof must be: (1) a bank or banks, as that term is defined in
Section 2(a)(5) of the 1940 Act, having an aggregate, surplus and
individual profits of not less than $2,000,000 (or such greater
sum as may then be required by applicable laws), or (2) a
securities depository, (the "Depository") as that term is defined
in Rule 17f-4 under the 1940 Act, upon proper instructions from
the Fund and subject to any applicable regulations, or (3) the
book-entry system of the U.S. Treasury Department and Federal
Reserve Board, (the "System") upon proper instructions and
subject to any applicable regulations.
(c) With respect to portfolio securities deposited or
held in the System or the Depository, Custodian shall:
1) hold such securities in a nonproprietary account
which shall not include securities owned by
Custodian;
2) on each day on which there is a transfer to or
from the Fund in such portfolio securities, send a
written confirmation to the Fund;
3) upon receipt by Custodian, send promptly to Fund
(i) a copy of any reports Custodian receives from
the System or the Depository concerning internal
accounting controls, and (ii) a copy of such
reports on Custodian's systems of internal
accounting controls as Fund may reasonably
request.
(d) The delegation of any responsibilities or
activities by the Custodian to any agent or agents shall not
relieve the Custodian from any liability which would exist if
there were no such delegation.
Sec. 12. Assignment and Termination:
(a) This Agreement may not be assigned by the Fund or
the Custodian without written consent of the other party.
(b) Either the Custodian or the Fund may terminate this
Agreement without payment of any penalty; at any time upon one
hundred twenty (120) days written notice thereof delivered by the
one to the other, and upon the expiration of said one hundred
twenty (120) days, this Agreement shall terminate; provided,
however, that this Agreement shall continue thereafter for such
period as may be necessary for the complete divestiture of all
assets held hereinunder, as next herein provided. In the event of
such termination, the Custodian will immediately upon the receipt
or transmittal of such notice, as the case may be, commence and
prosecute diligently to completion the transfer of all cash and
the delivery of all portfolio securities, duly endorsed, to the
successor of the Custodian when appointed by the Fund. The Fund
shall select such successor custodian within sixty (60) days
after the giving of such notice of termination, and the
obligation of the Custodian named herein to deliver and transfer
over said assets directly to such successor custodian shall
commence as soon as such successor is appointed and shall
continue until completed, as aforesaid. At any time after
termination hereof the Fund may have access to the records of the
administration of this custodianship whenever the same may be
necessary.
(c) If, after termination of the services of the
Custodian, no successor custodian has been appointed within the
period above provided, the Custodian may deliver the cash and
securities owned by the Fund to a bank or trust company of its
own selection having an aggregate capital, surplus and undivided
profits of not less then Two Million Dollars ($2,000,000) (or
such greater sum as may then be required by the laws and
regulations governing the conduct by the Fund of its business as
an investment company) end having its functions and physical
facilities supervised by federal or state authority, to be held
as the property of the Fund under the terms similar to those on
which they were held by the retiring Custodian, where upon such
bank or trust company so selected by the Custodian shall become
the successor custodian with the same effect as though selected
by the Board of Directors of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement.
FRANKLIN OPTION FUND, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
Attest:
/s/ illegible
Bank of America. NT & SA
/s/ Paul Fitzpatrick
By: Paul Fitzpatrick
Attest:
/s/ S. Koznell
FRANKLIN
RESOURCES, INC.
(letterhead)
777 Mariners Island Blvd.
San Mateo, CA 94404
415/312-3004
415/312-3033
FAX 415/312-2804
Harmon E. Burns
Executive Vice President
December 1, 1994
Stephen H. Kilbuck
Vice President Bank of America
Corporate Banking, #5232
555 California Street, 41st Floor
San Francisco, CA 94104
Dear Steve:
Various Franklin Funds/Portfolios (the "Funds") and Bank of
America, National Trust and Savings Association ("Bank") are
parties to custody agreements (the "Agreements") as well as
separate cash management and deposit services arrangements.
By this Letter Agreement, each of the Funds and Bank desire
to establish the cash compensation to be paid by each Fund for
services rendered to it by Bank.
Effective October 1, 1994, commencing with the first
statement prepared thereafter each Fund will pay to Bank a
monthly fee in cash equal to an annual rate of 95/100 ths. (.95)
basis point of the net asset value of each such Funds domestic
portfolios held in custody by Bank and thirteen (13) basis points
of the net asset value of each such Funds international
portfolios held in custody by Bank or held by foreign sub-
custodians calculated as of the last business day of the month.
For purposes of calculating the monthly fee, .000007916 will be
used as the monthly factor for the domestic portfolio and
.000108333 will be used as the monthly factor for the
international portfolio. The obligation of each Fund is separate
from the obligation of any other Fund.
The purpose of this Letter of Agreement is to provide for a
fair level of compensation to Bank for its service. The fee is
based on the assumption that each Fund will continue to use
services of a type and volume comparable to the services
currently used. The panics agree that any party may initiate
discussions concerning revisions to the terms of this Letter
Agreement at any time it believes the level of compensation to be
inappropriate. The parties further agree that any party may, upon
at least sixty (60) days' written notice, terminate this Letter
Agreement with respect to that party. Upon its termination, if
the parties have not agreed to a substitute fee arrangement, any
party may also terminate all or some of the service provided by
Bank upon additional sixty (60) days' written notice.
On an ongoing basis, Bank will continue to prepare the
monthly corporate account analysis statements on behalf of each
Fund, which estimates all revenues and expenses for the parties'
relationship. From time to time, Bank and any Fund(s) may
renegotiate the estimated "prices" used in the account analysis
process. The account analysis statement will provide a basis for
any negotiations between the parties on the appropriateness of
the fee agreement as embodied in this Letter Agreement. However,
no payment of any kind shall be due on account of any shortfall
on the account analysis statement.
Sincerely,
Authorized Officer for Each
Trust/Franklin
Fund Portfolio (List Attached)
BY Harmon E. Burns
Harmon E. Burns
Executive Vice President
ACCEPTED AND AGREED TO BY:
BANK OF AMERICA, NT & SA
By Stephen H. Kilbuck
Stephen H. Kilbuck
Title Vice President
FRANKLIN GROUP OF FUNDS
FUND # FUND INIT NAME OF FUND
002 FUT FRANKLIN UNIVERSAL TRUST - (closed-end)
003 FPMT FRANKLIN PRINCIPAL MATURITY TRUST - (closed-end)
004 FMIT FRANKLIN MULTI-INCOME TRUST - (closed-end)
101 FGF FRANKLIN GOLD FUND
102 FPRF FRANKLIN PREMIER RETURN FUND
(Franklin Option Fund until April 30, 1991)
103 FEF FRANKLIN EQUITY FUND
105 AGE AGE HIGH INCOME FUND, INC.
FCF FRANKLIN CUSTODIAN FUNDS, INC.
106 GROWTH SERIES
107 UTILITIES SERIES
108 DYNATECH SERIES
109 INCOME SERIES
110 U.S. GOVERNMENT SECURITIES SERIES
111 FMF FRANKLIN MONEY FUND (MMP feeder as of 8/1/94)
112 FCTFIF FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
113 FFMF FRANKLIN FEDERAL MONEY FUND (USGSMMP feeder as of
8/1/94)
114 FTEMF FRANKLIN TAX-EXEMPT MONEY FUND
115 FNYTFIF FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
116 FFTFIF FRANKLIN FEDERAL TAX-FREE INCOME FUND
FTFT FRANKLIN TAX-FREE TRUST
118 FRANKLIN MASSACHUSETTS INSURED TAX-FREE
INCOME FUND
119 FRANKLIN MICHIGAN INSURED TAX-FREE INCOME
FUND
120 FRANKLIN MINNESOTA INSURED TAX FREE INCOME
FUND
121 FRANKLIN INSURED TAX-FREE INCOME FUND
122 FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
123 FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
126 FRANKLIN ARIZONA TAX-FREE INCOME FUND
127 FRANKLIN COLORADO TAX-FREE INCOME FUND
128 FRANKLIN GEORGIA TAX-FREE INCOME FUND
129 FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
130 FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
160 FRANKLIN MISSOURI TAX-FREE INCOME FUND
161 FRANKLIN OREGON TAX-FREE INCOME FUND
162 FRANKLIN TEXAS TAX-FREE INCOME FUND
163 FRANKLIN VIRGINIA TAX-FREE INCOME FUND
164 FRANKLIN ALABAMA TAX-FREE INCOME FUND
165 FRANKLIN FLORIDA TAX-FREE INCOME FUND
166 FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
167 FRANKLIN INDIANA TAX-FREE INCOME FUND
168 FRANKLIN LOUISIANA TAX-FREE INCOME FUND
169 FRANKLIN MARYLAND TAX-FREE INCOME FUND
170 FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
171 FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
172 FRANKLIN KENTUCKY TAX-FREE INCOME FUND
174 FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE
INCOME FUND
177 FRANKLIN ARIZONA INSURED TAX-FREE INCOME
FUND
178 FRANKLIN FLORIDA INSURED TAX-FREE INCOME
FUND
FCTFT FRANKLIN CALIFORNIA TAX-FREE TRUST
124 FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME
FUND
125 FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
152 FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-
FREE INCOME FUND
FNYTFT FRANKLIN NEW YORK TAX-FREE TRUST
(Franklin New York-Tax Exempt Money Fund
until 1/91)
131 FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
153 FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE
INCOME FUND
181 FRANKLIN NEW YORK INSURED TAX-FREE INCOME
FUND
FIST FRANKLIN INVESTORS SECURITIES TRUST
135 FRANKLIN GLOBAL GOVERNMENT INCOME FUND
(formerly Franklin Global Opportunity Income
Fund)
136 FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
137 FRANKLIN CONVERTIBLE SECURITIES FUND
138 FRANKLIN ADJUSTABLE U.S. GOVERNMENT
SECURITIES
FUND (formerly Franklin Adjustable Rate
Mortgage
Fund) (USGARMP feeder)
139 FRANKLIN EQUITY INCOME FUND
(Franklin Special Equity Income Fund until
8/17/93)
151 FRANKLIN ADJUSTABLE RATE SECURITIES FUND
(ARSP retail feeder)
IFT INSTITUTIONAL FIDUCIARY TRUST
140 MONEY MARKET PORTFOLIO (MMP feeder)
141 FRANKLIN LATE DAY MONEY MARKET PORTFOLIO
(Franklin Government Investors Money Market
Portfolio until 6/15/93)
142 FRANKLIN U.S. GOVERNMENT SECURITIES MONEY
MARKET PORTFOLIO (USGSMMP feeder)
143 FRANKLIN U.S. TREASURY MONEY MARKET
PORTFOLIO
144 FRANKLIN INSTITUTIONAL ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND (USGARMP
feeder)
145 FRANKLIN INSTITUTIONAL ADJUSTABLE
RATE SECURITIES FUND (ARSP feeder)
146 FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET
FUND
147 AEA CASH MANAGEMENT FUND (MMP feeder)
(formerly Franklin Star Money Market
Portfolio)
149 FRANKLIN CASH RESERVES FUND (MMP Feeder)
150 FBSIF FRANKLIN BALANCE SHEET INVESTMENT FUND
154 FTAIBF FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
155 FTAUSGSF FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT
SECURITIES FUND
156 FTAHYSF FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES
FUND
FMT FRANKLIN MANAGED TRUST
(formerly Rothschild Managed Trust)
117 FRANKLIN CORPORATE QUALIFIED DIVIDEND FUND
(Franklin Corporate Cash Portfolio until
5/31/91)
158 FRANKLIN RISING DIVIDENDS FUND
159 FRANKLIN INVESTMENT GRADE INCOME FUND
- ---- FRANKLIN INSTITUTIONAL RISING DIVIDENDS FUND
(PT feeder) (not yet filed)
157 FSMP FRANKLIN STRATEGIC MORTGAGE PORTFOLIO (effective
2/1/93)
FMST FRANKLIN MUNICIPAL SECURITIES TRUST
173 FRANKLIN HAWAII MUNICIPAL BOND FUND
175 FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL
FUND
176 FRANKLIN WASHINGTON MUNICIPAL BOND FUND
220 FRANKLIN TENNESSEE MUNICIPAL BOND FUND
221 FRANKLIN ARKANSAS MUNICIPAL BOND FUND
FSS FRANKLIN STRATEGIC SERIES (changed from Cal
250)
180 FRANKLIN CALIFORNIA GROWTH FUND
(Franklin California 250 Growth Fund until
6/30/93)
194 FRANKLIN STRATEGIC INCOME FUND
195 FRANKLIN MIDCAP GROWTH FUND (filed - not yet
being sold)
196 FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
(formerly FISCO MidCap Growth Fund)
197 FRANKLIN GLOBAL UTILITIES FUND
198 FRANKLIN SMALL CAP GROWTH FUND
199 FRANKLIN GLOBAL HEALTH CARE FUND
ARSP ADJUSTABLE RATE SECURITIES PORTFOLIOS (THE
PARENT)
182 U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE
PORTFOLIO (master fund)
183 ADJUSTABLE RATE SECURITIES PORTFOLIO (filed
under 1940 Act only) (master fund)
MMP THE MONEY MARKET PORTFOLIOS (master fund parent)
(filed under 1940 Act only)
184 THE MONEY MARKET PORTFOLIO (master fund)
186 THE U.S. GOVERNMENT SECURITIES MONEY MARKET
PORTFOLIO (master fund)
187 MGP MIDCAP GROWTH PORTFOLIO (master fund) (1940 Act
filing only -not yet being sold)
PT THE PORTFOLIOS TRUST (master fund parent) (1940
Act filing only - not yet being sold)
188 THE RISING DIVIDENDS PORTFOLIO (master fund)
FIT FRANKLIN INTERNATIONAL TRUST
190 FRANKLIN PACIFIC GROWTH FUND
191 FRANKLIN INTERNATIONAL EQUITY FUND
FREST FRANKLIN REAL ESTATE SECURITIES TRUST
192 FRANKLIN REAL ESTATE SECURITIES FUND
FTGT FRANKLIN/TEMPLETON GLOBAL TRUST (formerly
Huntington Funds)
210 FRANKLIN/TEMPLETON GERMAN GOVERNMENT BOND
FUND
211 FRANKLIN/TEMPLETON GLOBAL CURRENCY FUND
212 FRANKLIN/TEMPLETON HARD CURRENCY FUND
213 FRANKLIN/TEMPLETON HIGH INCOME CURRENCY FUND
FVF FRANKLIN VALUEMARK FUNDS (ALLIANZ)
821 MONEY MARKET FUND
822 EQUITY GROWTH FUND
823 PRECIOUS METALS FUND
824 REAL ESTATE SECURITIES FUND
825 UTILITY EQUITY FUND
826 HIGH INCOME FUND
827 GLOBAL INCOME FUND
828 INVESTMENT GRADE INTERMEDIATE BOND FUND
829 INCOME SECURITIES FUND
830 U.S. GOVERNMENT SECURITIES FUND
831 ZERO COUPON FUND - 1995
832 ZERO COUPON FUND - 2000
833 ZERO COUPON FUND - 2005
834 ZERO COUPON FUND - 2010
835 ADJUSTABLE U.S. GOVERNMENT FUND
836 RISING DIVIDENDS FUND
837 TEMPLETON PACIFIC GROWTH FUND
(Pacific Growth Fund until 10/15/93)
838 TEMPLETON INTERNATIONAL EQUITY FUND
(International Equity Fund until 10/15/93)
839 TEMPLETON DEVELOPING MARKETS EQUITY FUND
840 TEMPLETON GLOBAL GROWTH FUND
- ---- TEMPLETON WORLDWIDE ASSET ALLOCATION FUND
(not yet effective)
891 FGST FRANKLIN GOVERNMENT SECURITIES TRUST (AETNA)
BANK SERVICE AGREEMENT AND SIGNATURE AUTHORITY RESOLUTIONS
AND CURRENT LIST OF AUTHORIZED SIGNERS
BANK: CITIBANK DELAWARE
I, DEBORAH R. GATZEK, hereby certify that:
A. I am the Secretary of the mutual fund(s) identified in List A ("List A
Funds") and List B ("List B Funds"), below, and the Assistant
Secretary of the mutual funds identified in List C ("List C Funds"),
below;
B. the following resolutions ("the Resolutions") were adopted by their
respective boards of directors/trustees (1) by List A Funds and List C
Funds at a meeting on Tuesday, August 22, 1989, and (2) by the List B
Fund by unanimous written consent effective September 5, 1989;
C. the persons named in List D are "Authorized Officers" under the
Resolution for (1) List A Funds, (2) List B Funds, and (3) List C
Funds, as of the date given next to my signature on this Certificate,
below, and are therefore authorized to sign banking agreements with
Citibank Delaware.
The Resolutions
1. Establishment of Bank Depository Relationship
RESOLVED, that pursuant to Section 17(f)(1) of the Investment Company
Act of 1940, Citibank Delaware is hereby appointed a depository for
the deposits of [Fund's name], and the President, Treasurer,
Secretary, and any Vice President, or any of them, are hereby
authorized to execute a bank agreement substantially in the form
presented to the Board of Trustees/Directors at its meeting on
Tuesday, August 22, 1989.
2. Ongoing Banking Relationship - New Services
RESOLVED, that the following officers are "Authorized Officers" of
[Fund's name] ("the Fund"), for the purposes of this resolution: (1) the
President, (2) the Secretary or Assistant Secretary, (3) any Vice
President, and (4) the Treasurer. Pursuant to Section 17(f)(1) of the
Investment company Act of 1940, the following actions are hereby authorized
with regard to products and services offered by Citibank Delaware ("the
Bank"): Any two Authorized Officers may enter into agreements on behalf of
the Fund for products and services (including, without limitation, computer
automated and electronic services for either record keeping or money
transfer), which products or services are offered by the Bank in connection
with the services provided by the Bank under the bank agreement. Any such
agreement may not lower the performance standards, legal liabilities, or
responsibilities of the Bank under the bank agreement. Any two of the
Authorized Officers may also adopt (a) forms of resolution, (b) processing
documentation or procedures, (c) forms of statements or reports, (d) forms
of checks drafts, (e) signature cards, (f) lists of authorized signers for
similar documentation or procedures, as they may deem necessary for the
performance by the Bank of its duties under (i) the bank agreement, or (ii)
any agreement entered into pursuant to the powers granted by this
resolution. Any agreement, resolution, document, or other matter adopted
from time to time pursuant to the powers granted by this resolution shall
be deemed to have been duly authorized by this board.
List A
AGE High Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
List B
Franklin Managed Trust
List C
Franklin California Tax-Free Income Fund, Inc.
Franklin Custodian Funds, Inc.
Franklin New York Tax-Free Income Fund, Inc.
List D.
Harmon E. Burns
Kenneth V. Domingues
Deborah R. Gatzek
Date September 6, 1989 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary/Assistant Secretary
AUTHORIZED OFFICERS' CERTIFICATE
I, the undersigned, hereby certify that I am an Authorized Officer under
the Resolution and that on the date given in this Authorized Officers'
Certificate, below, the persons named in the attached "Authorized Signers
List" (1 Page) were authorized to sign on behalf of (1) List A funds, (2)
List B Funds, and (3) List C Funds, in the capacities set forth in the
Authorized Signers List.
[NOTE: Any 2 Authorized Officers may sign.]
Date: September 11, 1989
/s/ Harmon E. Burns /s/ Kenneth V. Domingues
Harmon E. Burns Kenneth V. Domingues
Deborah R. Gatzek
AUTHORIZED SIGNERS LIST
1. The Persons listed on Page 3 of Attachment V to the ACH Service
Agreement are authorized signers with the authority as set forth in that
Attachment and that Agreement.
2. Any two of the persons listed below, signing together, are authorized
signers with the authority as set forth in the modified version of the
Citibank account signature card a photocopy of which is attached as Exhibit
I to this Authorized Signers List.
Name Signature
Oscar Apostol x /s/ Oscar Apostol
Oscar Apostol
Nancy Hessel x /s/ Nancy Hessel
Nancy Hessel
Rich Narcisso x /s/ Rich Narcisso
Rich Narcisso
Ellen Don x /s/ Ellen Don
Ellen Don
[NOTE: Any 2 Authorized Officers may sign.]
Date: September 11, 1989
/s/ Harmon E. Burns /s/ Kenneth V. Domingues
Harmon E. Burns Kenneth V. Domingues
Deborah R. Gatzek
EXHIBIT I
RESOLVED
1. That Citibank (Delaware) (hereinafter called the "Bank") be and
hereby is designated a depository of the funds of (hereinafter called the
"Corporation") and
(If officer(s) designated office(s) only. For example President, Treasurer
etc. If person(s) other than officer(s) Insert name(s))
appearing
(singly any two jointly or otherwise)
Is/are hereby authorized to sign for and on behalf of this Corporation
checks, drafts and other orders with respect to any funds at any time(s) to
the credit of this Corporation with the Bank and/or against any account(s)
of this Corporation maintained at any time(s) with the Bank. Inclusive of
any such checks, drafts and other orders in favor of any of the above
designated officer(s) and/or other person(s), and that the Bank be and
hereby is authorized (a) to pay the same to the debit of any account(s) of
this Corporation then maintained with it. (b) to receive for deposit to the
credit of this Corporation and/or for collection for the account of this
Corporation, any and all checks, drafts, notes and other instruments for
the payment of money, whether or not endorsed by this Corporation, which
may be submitted to it for such deposit and/or collection, it being
understood that each such item shall be deemed to have been unqualifiedly
endorsed by this Corporation, and (c) to receive, as the act of this
Corporation any and all stop-payment instructions (inclusive of any
relative agreement) with respect to any such checks, drafts or other orders
as aforesaid and reconcilement(s) of account when signed by any one or more
of the officer(s) and/or other person(s) as hereinabove designated.
2. That
(If officer(s) designate office(s) only. For example,
President, Treasurer etc. If person(s) other than officer(s), insert
name(s)
appearing
(singly, any two, jointly or otherwise)
Is/are hereby authorized for and on behalf of this Corporation, to
transact any and all other business with or through the Bank which at any
time(s) may be deemed by the said officer(s) and/or other person(s)
transacting the same to the advisable, including without limiting the
generality of the foregoing authority to (f) execute and deliver to the
Bank, automated customers services and other agreements relative to
performance of various computer services and (g) in reference to any of the
business or transactions hereinbefore in this subdivision "2" referred to,
to make, enter inf., execute and deliver to the Bank such negotiable or non-
negotiable instruments, indemnify or other agreements, obligation,
assignments, endorsements, receipts and/or other documents as may be deemed
by the officer(s) and/or other person(s) so acting to be necessary or
desirable.
3. That the Bank is further authorized to pay to the debt of any
account(s) of this Corporation, any and all checks, drafts and other
instruments for the payment of money drawn in the name of this Corporation
bearing or purporting to bear the facsimile signature(s) of
(If officer(s), designate office(s) only. For example, President,
Treasurer, etc. If person(s) other than officer(s), insert name(s)
appearing
(singly, any two, jointly or otherwise)
Inclusive of any in favor of any person(s) whose facsimile signature(s)
thereon, if the facsimile signature(s) thereon, regardless of by whom or
what means affixed, resemble(s) the specimen(s) thereof filed with the
Bank.
4. That any and all withdrawals of money and/or other transactions
heretofore had in behalf of this Corporation with the Bank are hereby
ratified, confirmed and approved, and that the Bank (and any interested
third party) may rely upon the authority conferred by this entire
resolution unless, and except to the extent that this resolution shall be
revoked or modified by a subsequent resolution of this Board and until a
certified copy of such subsequent resolution has been received by the Bank
I FURTHER CERTIFY that the following now occupy(ies) the (respective)
office(s) designated in the above quoted resolution and that the same is
(are) duly qualified as such officer(s) and that the specimen(s) of the
facsimile signature(s) below, if any is (are) that (those)of the persons
referred to by title or named in subdivision 3 of the foregoing resolution
as originally adopted:
Names and Titles Specimen Facsimile Signatures
(if applicable)
Name
Title
Name
Title
Name
Title
Name
Title
Name
Title
ACH CUSTOMER AGREEMENT
This is the ACH Customer Agreement between each Fund in the Franklin Group
of Funds (see list in Attachment A) for which it acts as shareholder
services agent ("You" or "company") and Citibank Delaware ("Citibank" or
"We" or "Us") and is part of, and is to be read in conjunction with, the
Citibank Cash Management Services Master Agreement dated September 11,
1989.
Citibank is participating depository financial institution of the Third
District Funds Transfer Association, which is a member of the National
Automated Clearing House Association("NACHA"). Execution of this Agreement
shall permit you to initiate ACH transactions ("Services") in accordance
with the operating rules and procedures of NACHA in existence as of the
date of this agreement and as amended from time to time. All terms in this
Agreement shall have the same meaning as in the NACHA rules unless stated
to the contrary.
The specific Services and our mutual understanding as to your and our
rights and responsibilities as part of the Services, will be described in
the separate Service Agreement ("Service Agreement") attached as Appendix
A.
You shall act as, and have all of the responsibilities of, the Originating
Company. You have chosen Citibank as the Originating Depository Financial
Institution ("ODFI") with all of the accompanying obligations of an ODFI.
Citibank agrees to make a best effort attempt to keep you abreast of
changes in the ACH Payments arena, including amendments to the NACHA
Operating Rules. It is your obligation to comply with the NACHA Rules
("Rules") and Regulation E ("Regulation") as they apply and to be aware of
any changes or updates to such Rules and Regulations including, but not
limited to, the Rules relating to customer authorizations, retention of
records and obligations to the receiving bank.
You agree to maintain a checking account ("Settlement Account") at Citibank
and agree to fund any Entries submitted and against which any rejected or
returned Entries may be credited or debited, as specified in the ACH
Service Agreement. Posting to this account will be with available funds on
the settlement day, or in case of returns, on the day Citibank receives
them, or as otherwise permitted by the ACH Service Agreement.
You will send all Entries to Citibank and Citibank agrees to process these
Entries in accordance with the Rules and Regulations and the procedures
outlined in the Service Agreement.
You represent and warrant now and at the time of each entry that you have:
-complied with all applicable Rules and Regulations;
-breached no warranties of an Originating Company;
-received the appropriate customer authorizations;
-not violated any federal, state or local laws
-regarding electronic funds transfer.
In the event that you breach any of the warranties in this Agreement, you
will indemnify Us and hold Us harmless.
As set forth in Appendix A, we will provide you with information on
returned items as it is provided to Us by the returning institution.
Except as set forth in Appendix A, it shall be your responsibility to
remake, re-submit and correct these items as well as to notify your
customer of such returned items.
We will rely on the accuracy and/or completeness of the information
provided by you. If you discover an error, it is your responsibility to
notify Us and We will use our best efforts to correct the Entry. We will
not, however, be liable for any of your errors.
We will be responsible for Our own negligence or willful misconduct but
will not be responsible for any failure, act or omission of third parties.
In no event will We be liable for any incidental, consequential, indirect
or special damages nor for losses outside of our direct control.
Neither party shall be liable for any loss, claim or damage rising from a
governmental interruption or act of God.
We regard acceptance of this Agreement as the authorization from your
Company's Board of Directors that the person executing it is authorized to
do so. Furthermore, you warrant that the signatory is authorized to
designate persons to perform the specific functions listed on the Service
Agreement. These functions include the initiation, modification and/or
deletion of financial services by facsimile or written communication.
Fees will be Citibank's standard prices or those listed in the separate
pricing schedule attached as Appendix B. After one (1) or two (2) years
from the date given below, depending on the particular service, prices may
be amended upon 30 days prior written notice unless otherwise provided for
in Appendix B. You are responsible for paying any sales or use tax
associated with the Services.
We reserve the right without notice to modify or terminate the ACH Services
to the Customer offered herein if customer has failed to meet its
obligations to Bank. Either Citibank or Company may terminate this
Agreement without payment of any penalty, at any time upon sixty (60) days
written notice thereof delivered by one to the other.
This Agreement, together with Appendices or their attachments, contain our
complete and exclusive agreement with respect the Services.
This Agreement shall be governed by the laws of the State of New York.
Agreed and accepted as of September 11, 1989.
CUSTOMER: FRANKLIN GROUP OF FUNDS CITIBANK:
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Title: Treasurer
CITIBANK DELAWARE ACH SERVICES - LIST OF PARTICIPATING FRANKLIN FUNDS
AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin New York Tax-Free Income fund, Inc.
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
ACH SERVICE AGREEMENT
This Service Agreement and Attachments I, II, III, IV, and V are Appendix
"A" to the ACH Customer Agreement dated September 1, 1989, between Citibank
Delaware ("Bank") and each Fund (see list in Attachment A) in the Franklin
Group of Funds for which it acts as shareholder services agent ("COMPANY").
The following describes the mutual understanding of BANK and COMPANY:
1. COMPANY agrees to prepare and deliver ACH Entries ("Data") to BANK in
files formatted as specified in Attachment I. Each file of Data
delivered to BANK will consist of Batches of PPD Debit entries and
prenotes for the "Autocheck" application and PPD Credit entries and
prenotes for the "Dividend" application.
2. COMPANY agrees to deliver Data to Citibank Delaware according to the
specifications on Attachment II.
3. COMPANY agrees that Data will be delivered on the days indicated on
Attachment III. COMPANY understands that BANK will determine
Settlement Day to be the date specified by COMPANY as the "Effective
Entry Date" in the Batch Header of the file of Data delivered to BANK.
4. COMPANY agrees to meet a "Delivery Cutoff Time" of no later than 12:00
PM Eastern Time on delivery day. Delivery Cutoff Time means the time
at which a tape is received by Citibank Delaware or a transmission to
Citibank Delaware is completed.
5. BANK will deliver Data to the FED on "Processing Day". COMPANY agrees
that Processing Day will be one day prior to Settlement Day for the
Autocheck application and two days prior to Settlement Day for the
Dividend application, and that BANK will use the FED Day Cycle.
6. Should COMPANY deliver Data to BANK for processing on a non-business
day for BANK, COMPANY authorizes BANK to process such data on the
business day immediately following such day.
7. If Data is not received before the Day Cycle deadline on Processing
Day, BANK will process Data through the next available FED window.
8. COMPANY agrees to retain Data on file for two days following Delivery
Date to permit remaking of file at BANK's request.
9. For the Autocheck application, BANK will offset COMPANY's Settlement
Account #3815-1349 for the dollar value of all entries delivered on
Processing Day. For the Dividend application, BANK will offset
COMPANY's Settlement Account #3815-1322 for the dollar value of all
entries delivered on the day following processing Day. Offset
transactions will be posted in aggregate to the Settlement Account. Offset
transactions shall be assigned availability on Settlement Day. COMPANY
understands that final determinations of Settlement Day,
notwithstanding paragraph (3) above, shall be the day on which the FED
settles for such transactions with BANK.
10. BANK will make a best effort to advise COMPANY by phone within three
hours, but in no case later than one business day, after rejecting a
File of Data or an Individual Entry.
BANK will reject a File of Data if the dollar amount of the file
delivered exceeds $
BANK will reject individual Entries if the dollar amount of such entry
exceeds $
11. For the Autocheck application, entries received by BANK destined for
non-ACH member BANKS will be processed as PAC'S. For the Dividend
application, entries received by BANK destined for non-ACH member
BANKS will be rejected.
12. Return items received by BANK from the Federal Reserve Bank will be
posted by BANK to COMPANY'S Settlement Account individually.
Returns of debit originations received will be resubmitted to the FED
for collection if so specified by COMPANY on Attachment IV.
13. At COMPANY'S request, BANK will make changes to Data which has been
delivered to BANK, but which BANK has not yet delivered to the Federal
Reserve Bank, within the authorizations set forth upon Attachment V.
BANK reserves the right to refuse a request for a change to the Data
if in BANK'S opinion there is not sufficient time to effect the change
prior to delivery of Data to the Federal Reserve Bank.
14. BANK will provide COMPANY information about Returned ACH Entries
posted to COMPANY'S Settlement Account Via CitiCash Manager.
BANK will provide COMPANY information about Returned PAC Items posted
to COMPANY's Settlement Account via faxed report. All returned PACs
will be express mailed to COMPANY.
15. COMPANY will fund/withdraw funds from the Settlement Accounts as
specified on Attachment IV.
16. BANK will notify COMPANY promptly of any changes in these procedures
as specified in Attachment V.
This Service AGREEMENT may be amended, according to the terms of the ACH
Customer Agreement, either by mutual consent or by BANK, upon 45 days
written notice to COMPANY.
FRANKLIN GROUP OF FUNDS
COMPANY SIGNATURE: /s/ Harmon E. Burns
Harmon E. Burns
/s/ Kenneth V. Domingues
Kenneth V. Domingues
BANK SIGNATURE: /s/ Francis B. Hagan
Francis B. Hagan
ACH SERVICE AGREEMENT ATTACHMENT I
DATA FORMAT
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
Preauthorized Consumer Credits (Dividends)
Data will be delivered to BANK in the applicable NACHA "PPD"
format, as in effect from time to time.
ACH SERVICE AGREEMENT ATTACHMENT II
DATA DELIVERY SPECIFICATIONS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
Preauthorized Consumer Credits ( Dividends)
Files of payment data for the Autocheck application will be
electronically transmitted to Citibank Delaware.
Files of payment data for the Dividend application will be
delivered to Citibank Delaware on magnetic tape via
courier. Payment data for the Dividend application may
be electronically transmitted to Citibank at a future
date that has been mutually agreed-upon by both Franklin
and Citibank and after sufficient testing has been
completed.
ACH SERVICE AGREEMENT ATTACHMENT III
ACH DATA TRANSMISSION SCHEDULE
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
ACH Operations needs to be informed of your file processing schedule(s) to
insure timely handling of your payment transactions. We will create a
processing schedule that tells us when to expect the receipt of data from
you. If you change your file delivery dates you must let us know in advance
so that we may correctly anticipate the receipt of your file.
Attached is a blank calendar for 1989. Our Bank holidays are shown. Please
indicate with an "X" each date on which we will receive your tape or
transmission for ACH processing. Please mark the associated settlement
(transaction posting) date with an "o". Note: This is the date that is in
positions 70 - 75 in the Batch Header Record of an ACH formatted file. We
will review this Calendar and contact you if there are any conflicts in
your anticipated settlement dates.
ACH SERVICE AGREEMENT ATTACHMENT IV
SERVICE OPTIONS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
1. COMPANY will transfer funds into or out of the Settlement Account as
follows(choose one or more):
CONCENTRATION TRANSACTIONS
COMPANY will initiate an ACH Debit entry through Bank of America equal
to the amount of all entries originated.
FUNDING TRANSFERS
For debit balances as a result of returned ACH Debit entries, COMPANY
will pay them each day by originating that day an ACH Credit entry
through Bank of America to the account for an amount equal to the
debit balance.
2. COMPANY authorizes BANK to resubmit to the FED Debit Originations
which have been returned to BANK for
(x) Return Reason Code RO9 - Uncollected Funds
Number of times to resubmit 1
Minimum dollar amount to re-submit $
Maximum dollar amount to re-submit $
Maximum age (number of days from original effective date) 7
By: /s/ Harmon E. Burns
Harmon E. Burns
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
COMPANY SIGNATURE DATE: 9/11/89
ACH SERVICE AGREEMENT ATTACHMENT IV
SERVICE OPTIONS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Credits (Dividends)
1. Company will transfer funds into or out of the Settlement Account as
follows (choose one or more):
CONCENTRATION TRANSACTIONS
For credit balances as a result of returned ACH Credit entries,
COMPANY will initiate an ACH Debit entry to the account through Bank
of America for an amount equal to the credit balance.
FUNDING TRANSFERS
COMPANY will initiate an ACH Credit entry through Bank of America
equal to the amount of all entries originated.
FRANKLIN GROUP OF FUNDS
By: /s/ Harmon E. Burns
Harmon E. Burns
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
COMPANY SIGNATURE DATE: 9/11/89
ACH SERVICE AGREEMENT ATTACHMENT V
AUTHORIZATIONS AND CONTRACTS
COMPANY: Franklin Administrative Services, Inc.
APPLICATION: Preauthorized Consumer Debits (Autochecks)
Preauthorized Consumer Credits (Dividends)
COMPANY hereby authorizes the following individuals to provide BANK with
information or instructions, or receive information from BANK, as
indicated. Where "Signature" authorization is required, BANK will not
process a requested change until a signed request form is received by FAX
from COMPANY.
1. Changes to Data after Delivery
(a) Delete a File or Batch
Authorized by One Signature
Authorized Individuals:
Carol Holder, Pam Hall, Carol Talbot
(b) Change Batch Effective Date
Authorized by one Signature
Authorized Individuals:
Carol Holder, Pam Hall, Carol Talbot
(c) Add Entry Detail
Not Authorized
(d) Change Entry Detail - Dollar Amount
Authorized by One Signature (Autochecks)
Authorized Individuals: Leon Mulgrew or Jarmila Kelly
Authorized by Two Signatures (Dividends)
Authorized Individuals: Laura McGeever or Steve Queen
and Rich Narcisso or Moe Adle
(e) Change Entry Detail - ABA Number or Account Number
Authorized by One Signature (Autochecks)
Authorized Individuals: Leon Mulgrew or Jarmila Kelly
Authorized by Two Signatures (Dividends)
Authorized Individuals: Laura McGreever or Steve Queen
and Rick Narcisso or Moe Adle
(f) Change Entry Detail - Non-Financial Fields
Authorized by One Signature (Autochecks)
Authorized Individual: Leon Mulgrew or Jarmila Kelly
Authorized by One Signature (Dividends)
Authorized Individuals: Laura McGeever or Steve Queen
(g) Delete an Entry Detail
Authorized by two signatures (Autochecks)
Authorized Individuals:
Maria Rivas, Rose Duran, or Margaret Hueser
and Leon Mulgrew or Jarmila Kelly
Authorized by Any Two Signatures (Dividends)
Authorized Individuals:
Rick Narcisso, Moe Adle, Laura McGeever, Steve Queen
2. Contact for Notification of Changes in BANK procedures or daily
operations issues:
Name: Jennifer Johnson Bolt
Telephone: 415/378-2990
3. Contact for tape or transmission delivery issues:
Name: Carol Holder
Telephone: 415/378-2691
4. Contact for delivery of paper reports or advices:
Name: Jeff Orlik
Address: 777 Mariners Island Boulevard
San Mateo, California 94404
Telephone: 415/378-4598 FAX: 415/378-5719
Please provide below signatures of the individual(s) listed on the previous
page as having signature authorization power:
Signature /s/ Carol Holder
Carol Holder
Signature /s/ Carol Talbot
Carol Talbot
Signature /s/ Laura McGeever
Laura McGeever
Signature /s/ Steve Queen
Steve Queen
Signature /s/ Rick Narcisso
Rick Narcisso
Signature /s/ Moe Adle
Moe Adle
Signature /s/ Leon Mulgrew
Leon Mulgrew
Signature /s/ Jarmila Kelly
Jarmila Kelly
Signature /s/ Maria Rivas
Maria Rivas
Signature /s/ Rose Duran
Rose Duran
Signature /s/ Margaret Hueser
Margaret Hueser
By: /s/ Harmon E. Burns
Harmon E. Burns
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
COMPANY SIGNATURE DATE: 9/11/89
APPENDIX B
CITICORP/CITIBANK ACH PAYMENTS
Franklin Administrative Services, Inc.
Corporation Price List
The following prices are guaranteed through July 1991.
ITEM PRICING PRICE
ACH Credit/Debit Items: $ .045
PAC Per Item $ .010
Fed Nighttime Surcharge - Debit $ .035
Fed Nighttime Surcharge - Credit $ .015
RETURNED ITEMS PRICE
Return Items - Retired (Less than 15 days) 1.00
Return Item - Retired (More than 15 days) 5.00
Dishonored Items - Customer Requested 15.00
ACH Return Resubmitted 1.00
PAC Return Item 10.00
OTHER PRICE
ACH File Maintenance (Waived through 7/90) 100.00
Warehouse Item Update 10.00
Warehouse Item Delete 5.00
Item Reversals 5.00
File Reversals 35.00
Retrieval Request 20.00
Investigation 20.00
OTHER PRICE
Exception Item Advice 5.00
Advice-Fax 15.00
Courier Free 10.00
Data Transmission Per File * 10.00
Tape Handling Charge Per File 10.00
Demand Deposit Account 85.00
CitiCash Manager System, Base Charge (Waived through 7/90) 135.00
CitiCash Manager Report 3.20
* Telecommunication line charges will be expensed to the customer if
Citibank initiates the connection.
CITIBANK DELAWARE ACCOUNT AGREEMENT
CORPORATE ACCOUNT NUMBER (8 Digits) 3815-1322
TAXPAYER I.D. NUMBER 94-2746684
PARENT COMPANY NAME Franklin Administrative Services, Inc.
CORPORATE ACCOUNT NAME * (see below)
GENERAL CORRESPONDENCE ADDRESS 777 Mariners Island Blvd.
San Mateo, CA 94404
ACCOUNT INFORMATION
RULE OFF CYCLE: [x] MONTHLY [ ] WEEKLY [ ] SEMI MONTHLY
[ ] FLEXIBLE [ ] DAILY
ACT (AUTOMATED CASH TRANSFER): [ ] YES [x] NO
COMPENSATION TYPE: [ ] FEE BASED (AUTOMATIC DEBIT) [x] BALANCE BASED
SPECIAL MAILING INSTRUCTIONS FOR CHECKING STATEMENTS:
[ ] SAME AS GENERAL CORRESPONDENCE ADDRESS
[x] DIFFERENT: FAS Accounting Attn: Ellen Don
777 Mariners Island Blvd.
San Mateo, CA 94404
In consideration of your opening the account, and continuing the same from
time to time in your discretion, the undersigned hereby agrees to be bound
by Citibank's rules governing this account, as they may be amended from
time to time.
FOR: FRANKLIN GROUP OF FUNDS By: /s/ Harmon E. Burns
Harmon E. Burns
DATE: 9-11-89 AUTHORIZED SIGNATURE /s/ K V Domingues
K V Domingues
Note: Initial are required next to any cross-outs or other
corrections/erasures.
* Franklin Administrative Services, Inc., as agent, nominee, and custodian
for each fund in the Franklin Group of Funds, as agent, nominee, and
custodian for each of their shareholders.
CITIBANK DELAWARE ACCOUNT AGREEMENT
CORPORATE ACCOUNT NUMBER (8 Digits) 3815-1349
TAXPAYER I.D. NUMBER 94-2746684
PARENT COMPANY NAME Franklin Administrative Services, Inc.
CORPORATE ACCOUNT NAME *(See below)
GENERAL CORRESPONDENCE ADDRESS 777 Mariners Island Blvd.
San Mateo, CA 94404
ACCOUNT INFORMATION
RULE OFF CYCLE: [x] MONTHLY [ ] WEEKLY [ ] SEMI MONTHLY
[ ] FLEXIBLE [ ] DAILY
ACT (AUTOMATED CASH TRANSFER): [ ] YES [x] NO
COMPENSATION TYPE: [ ] FEE BASED (AUTOMATIC DEBIT) [x] BALANCE BASED
SPECIAL MAILING INSTRUCTIONS FOR CHECKING STATEMENTS:
[ ] SAME AS GENERAL CORRESPONDENCE ADDRESS:
[x] DIFFERENT: FAS Accounting Attn: Ellen Don
777 Mariners Island Blvd.
San Mateo, CA 94404
In consideration of your opening to the account, and continuing the same
from time to time in your discretion, the undersigned hereby agrees to be
bound by Citibank's rules governing this account, as they may be amended
from time to time.
FOR: FRANKLIN GROUP OF FUNDS BY: /s/ Harmon E. Burns
Harmon E. Burns
DATE: 9-11-89 AUTHORIZED SIGNATURE BY: /s/ K V Domingues
K V Domingues
Note: Initials are required next to any cross-outs or other
corrections/erasures.
* Franklin Administrative Services Inc., as agent, nominee, and custodian
for each fund in the Franklin Group of Funds, as agent, nominee, and
custodian for each of their shareholders.
CITIBANK CASH MANAGEMENT SERVICES
MASTER AGREEMENT
This is the Master Agreement between each fund (see list in attachment A)
in the Franklin Group of Funds for which it acts as shareholder services
agent, (from now on "Customer" or "You") and Citibank Delaware (from now on
"Bank" or "We"), dated September 11, 1989, by which the Bank will provide
various Cash Management Services which the Customer will use. The specific
Cash Management Services provided and used are individually referred to in
subagreements and related product appendices. Each appendix contains
provisions which are specific to the particular service chosen by the
Customer. Appendices are not effective until properly executed. This
Agreement and the appendices are not effective until properly executed.
This Agreement and the appendices are designed to be read together. Where
there is a conflict in terms or meaning then the appendix meaning will
apply. All other provisions of this Agreement will remain effective.
Customer is responsible for appointing officials who will be authorized by
Customer to initiate instructions with Bank. When the Bank receives a
written communication from an official so authorized we will act and rely
on this communication that the instruction is approved by Customer's Board
of Directors. The officials will also be responsible for issuing, modifying
and maintaining passwords, identification numbers and codes when required.
We are responsible for failures for our equipment and software and for
willful misconduct or gross negligence of our employees and duly authorized
agents in providing Cash Management Services. We are not responsible for
acts or omissions of third parties. We are not liable for any indirect,
incidental, consequential or special damages, nor for other losses outside
our direct control.
Fees will be those agreed upon from time to time and do not include any
taxes which are solely Customer's responsibility.
Customer may cancel this Agreement or any appendix by giving us written
notice 30 days in advance. After the notice period, customer will not be
billed for services terminated. Because of the nature of Cash Management,
we must reserve the right to modify or terminate a particular service
without notice. We will give you reasonable notice where it is possible.
This agreement and services provided through it may not be delegated to any
subsidiary or parent of the Bank without advanced written approval by the
Customer.
All materials which we provide You with are the BANK's exclusive and
confidential property. Customer must keep there materials confidential by
using the same precautions You use when guarding Your own trade secrets.
Materials as used means software, programs, data bases, operating
documentation, trade secrets, proprietary data, processes and other
documentation but does not include those items which are in the public
domain or legally required to be made public. If a particular service is
terminated all materials relating to the service must be returned to Bank
within 30 days. At the end of this Agreement, all materials must be
returned. Nothing within this Agreement or any appendix will affect the
copyright status of any material and the provisions of this paragraph will
apply whether or not such property is copyrighted.
The Master Agreement, together with the subagreements and appendices You
select to implement a service and the respective product description and
pricing schedule and the Short Form Bank Agreement ("Bank Agreement") is
our entire Agreement with respect to Cash Management Services and
supersedes any prior or contemporaneous oral or written agreements. In the
event of any conflict or inconsistency, the provisions of the Bank
Agreement shall control. This Agreement will be interpreted under the New
York Law and the applicable laws and rules of any facility or intermediary
through which any service is provided.
CUSTOMER: (see list in attachment A) CITIBANK DELAWARE
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
signature Signature
Harmon E. Burns Francis B. Hagan
Print Print
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth v. Domingues
signature
Kenneth V. Domingues
Print
Title: Treasurer
Date: 9/11/89
CITIBANK DELAWARE ACH SERVICES - LIST OF PARTICIPATING FRANKLIN FUNDS
AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin New York Tax-Free Income Fund, Inc.
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
CITIBANK CASH MANAGEMENT SERVICES
CITICASH MANAGER SUB-AGREEMENT
This page is the CitiCash Manager (CCM) sub-agreement and when properly
executed by Citibank and Customer is part of, and is to be read in
conjunction with, the CMS Master Agreement dated September 11, 1989.
Terminals
The CCM System will accept a large variety of cathodes ray tubes and
printing terminals. Bank will advise Customer about those which are
compatible with the System. It is Customer's responsibility to obtain and
maintain its own terminal and communications link to us, and to ensure that
its use of such terminal and communications link is in compliance with the
applicable requirements of law, including any requirements of
telecommunications authorities. Bank cannot be responsible for any failure
or capacity reductions in any communications for which it may have
contracted with public communications authorities or private communication
carriers.
Security
CCM has been designed so that it may be operated only upon entry of valid
ID, accompanied by a unique password. Control of each password is the
responsibility of each official who uses the System. CCM utilizes a Forced
Password Change. This feature requires CCM Users to change their password
at periodic intervals selected by your Security Manager. Passwords not
changed within 10 days of expiration will become automatically disabled. We
will consider any access to the CCM System through use of valid ID and
correct corresponding password, to be duly authorized and we will carry out
any instruction given within the access capability associated with the ID,
regardless of the actual identity of the individual who is actually
operating the System. While we will accept responsibility for unauthorized
access to the System by our employees, we cannot be liable for unauthorized
access by your employees similarly, we cannot accept responsibility for
errors, failures, acts of omissions of communications carriers,
correspondents or clearinghouses through which we effect your instructions
or receive or transmit information.
CUSTOMER: FRANKLIN GROUP OF FUNDS CITIBANK
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Signature Signature
Harmon E. Burns Francis B. Hagan
Printed Printed
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Signature
Kenneth V. Domingues
Print
Title: Treasurer
Date: 9/10/89
CITIBANK CASH MANAGEMENT SERVICES
PRODUCT APPENDIX
CitiCash Manager: Inquiries Module
Citibank Balances and Transactions Only
This page is a "Product Appendix" referred to in the Master Agreement
regarding Cash Management Services between your Company and the undersigned
Bank, dated September 11, 1989, and forms a part of such Master Agreement.
Product Descriptions: The "Inquiries" module provides you with information
concerning balances in your Citibank, Delaware accounts and related
transaction details. Balance and transaction detail is available for the
prior day and for the 45 day period prior to that. In addition, some
account balance and transaction information is available on a same-day,
real-time basis. A detailed description of how to use this module is given
in the CitiCash Manager User Guide.
Special Note: Real-time data are subject to adjustment without notice
before our books are closed for the banking day.
CUSTOMER: FRANKLIN GROUP OF FUNDS CITIBANK DELAWARE
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Signature Signature
Harmon E. Burns Francis B. Hagan
Print Print
Title: Vice President Title: vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Signature
Kenneth V. Domingues
Print
Title: Treasurer
Date: 9/11/89
SHORT FORM BANK AGREEMENT
DEPOSITS AND DISBURSEMENTS OF FUNDS
This Agreement is made as of September 11, 1989, between each fund listed
in attachment A ("Fund"), a Registered Investment Company [organization
type],and Citibank Delaware (Bank), a [jurisdiction and type of bank].
WITNESSETH:
WHEREAS, the Fund is registered as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a open-end
manager company and desires that its cash shall be held and administered by
the Bank pursuant to the terms of this Agreement; and
WHEREAS, the Bank has an aggregate capital, surplus, and undivided
profits in excess of Two Million Dollars ($ 2,000,000), and has its
functions and physical facilities supervised by federal authority and is
ready and willing to serve pursuant to and subject to the terms of this
Agreement:
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund, and Bank agree as follows:
1. Receipt and Disbursement of Money
a. Bank shall open and maintain a separate account or accounts in
such name(s) as the Fund requires, subject only to draft or order by Bank
acting pursuant to the terms of this Agreement, ("Direct Demand Deposit
Account"). Bank shall hold in such account or accounts, subject to the
provisions hereof, all funds received by it from or for the accounts of the
Fund. This shall include, without limitation, the proceeds from the sale of
capital shares of the Fund which shall be received along with proper
instructions from the Fund.
b. Bank shall make payments of cash to, or for the account of, the
Fund from such cash or Direct Demand Deposit Account as requested by the
Fund. Before making any such payment, Bank shall receive and may rely upon
orders from the Fund for the payment of money. Such orders may include, but
are not limited to, orders ("entries") specified in the ACH Service
Agreement.
Fund acknowledges that Bank is acting upon orders of the Fund in
performing the services provided for in this Agreement, that Bank has no
knowledge as to the particular requirements of the Fund, or any payee of a
payment order under this Agreement.
Bank is hereby authorized to endorse and collect for the account of
the Fund all checks, drafts or other orders for the payment of money,
including, without limitation, electronic funds transfers, received by Bank
for the account of the Fund.
2. Reports by Bank
Bank shall each business day make available to the Fund information in
such detail as has been agreed upon relating to all transactions and
entries to the account of the Fund for the preceding day. Bank shall
furnish such other reports as may be mutually agreed upon from time to
time.
3. Compensation
Bank shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in
writing between the two parties.
4. Liabilities and Indemnifications
a. Bank shall not be liable for any action taken in good faith upon
any proper instructions herein described or certified copy of any
resolution of, the Board of Directors/Trustee/General Partner, and may rely
on the genuineness of any such document which it may in good faith believe
to have been validly executed.
b. The Fund agrees to indemnify and hold harmless the Bank and its
nominee from all taxes, charges, expenses, assessments, claims and
liabilities (including reasonable counsel fees) incurred or assigned
against it or its nominee in connection with the performance of this
Agreement, except such as may arise from negligent action, negligent
failure to act or willful misconduct of Bank or its nominee.
5. Records
Bank hereby acknowledges that all of the records it shall prepare and
maintain pursuant to this Agreement shall be the property of the Fund and,
if and to the extent applicable, of the principal underwriter of the shares
of the Fund, and that upon proper instructions of the Fund or each
principal underwriter, if any, or both, it shall:
a. Deliver said records to the Fund, principal underwriter or a
successor Bank, as appropriate;
b. Provide the auditors of the Fund or principal underwriter or any
securities regulatory agency with a copy of such records without charge;
and provide the Fund and successor Bank with a reasonable number of reports
and copies of such records at a mutually agreed upon charge appropriate to
the circumstances; and
c. Permit any securities regulatory agency to inspect or copy during
normal business hours of the Bank any such records.
6. Appointment of Agents
a. Bank shall have the authority, in its discretion, to appoint an
agent or agents to do and perform any acts or things for and on behalf of
the Bank, pursuant at all times to its instructions, as the Bank is
permitted to do under this Agreement.
b. Any agent or agents appointed to have physical custody of deposits
held under this Agreement or any part thereof must be a bank, or banks, as
that term is defined in Section 2(a) (5) of the 1940 act, having an
aggregate, surplus and individual profits of not less than $2,000,000 (or
such greater sum as may then be required by applicable laws).
7. Assignment and Termination
a. This Agreement may not be assigned by the Fund or the Bank without
written consent of the other party.
b. Either the Bank or the Fund may terminate this Agreement without
payment of any penalty, at any time upon one hundred twenty (120) days
written notice thereof delivered by one to the other, and upon the
expiration of said one hundred twenty (120) days, this Agreement shall
terminate. The Fund shall select such successor Bank within sixty (60) days
after the giving of such notice of termination, and the obligation of the
Bank named herein to deliver and transfer over said assets directly to such
successor Bank shall commence as soon as such successor is appointed and
shall continue until completed. At any time after termination hereof the
Fund may have access to the records of the administration of this
relationship whenever the same may be necessary.
Notwithstanding the above, Bank has the right without notice to modify or
terminate ACH services to the Fund as described in the ACH Customer
Agreement if the Fund has failed to meet its obligations to Bank under that
Agreement, or otherwise, upon thirty (30) days notice to the Fund. The Fund
will not be billed for services terminated.
c. If after termination of the services of the Bank, no successor
Bank has been appointed within the period above provided, the Bank may
deliver the cash (deposits) owned by the Fund to a bank or trust company of
its own selection having an aggregate capital, surplus and undivided
profits of not less than Two Million Dollars ($2,000.000) (or such greater
sum as may then be required by the laws and regulations governing the
conduct by the Fund of its business as an investment company) and having
its functions and physical facilities supervised by federal or state
authority, to be held as the property of the Fund under the terms similar
to those on which they were held by the retiring Bank, whereupon such bank
or trust company so selected by the Bank shall become the successor Bank
with the same effect as though selected by the Board of Directors of the
Fund.
8. California Department of Insurance
Should the California Department of Insurance (the "Department")
succeed to control of the Fund's assets in the event of the insolvency of
the Fund, the Bank shall, upon notice of such succession in writing to the
Bank by the Department, recognize the Department's succession to the
Trust's rights and obligations under this Agreement and, accordingly, will
cease to accept instructions from all proper officers of the Fund and shall
accept instructions hereunder from those persons identified to the Bank in
writing by the Department.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
(See attachment A) Citibank Delaware
(Fund's Name) (Bank's Name)
By: /s/ Harmon E. Burns By: /s/ Francis B. Hagan
Harmon E. Burns Francis B. Hagan
Name: Harmon E. Burns Name: Francis B. Hagan
Title: Vice President Title: Vice President
By: /s/ Kenneth V. Domingues
Kenneth V. Domingues
Name: Kenneth V. Domingues
Title: Treasurer
CITIBANK DELAWARE ACH SERVICES - LIST OF PARTICIPATING FUNDS
AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investment Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin New York Tax-Exempt Money Fund
Franklin New York Tax-Free Income Fund, Inc.
Franklin Option Fund
Franklin Pennsylvania Investors Fund
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Universal Trust
Franklin Principal Maturity Trust
Institutional Fiduciary Trust
AGREEMENT OF MERGER
BETWEEN
FOF, INC.
and
FRANKLIN OPTION FUND, INC.
This Agreement of Merger is entered into between FOF, INC.,
a California corporation (herein "Surviving Corporation") and
Franklin Option Fund, Inc., a Hawaii corporation (herein "Merging
Corporation").
The parties hereto mutually agree as follows:
1. Merging Corporation shall be merged into Surviving
Corporation, which shall be governed by the laws of the State of
California.
2. Each outstanding share and any fractional shares of
Merging Corporation shall be converted to an equivalent number of
shares of Surviving Corporation.
3. The outstanding shares of Surviving Corporation
immediately prior to the effectiveness of the merger shall be
redeemed and cancelled upon payment to the holders thereof of
cash equal to such shares' respective proportionate interest in
the net assets of the corporation at such time.
4. Article I of the Articles of Incorporation of the
Surviving Corporation is amended to read as follows:
"The name of this corporation is FRANKLIN OPTION FUND."
5. Merging Corporation shall from time to time, as and when
requested by Surviving Corporation, execute and deliver all such
documents and instruments and take all such action necessary or
desirable to evidence or carry out this merger.
6. The effect of the merger and the effective date of the
merger are as prescribed by law.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 22nd day of April, 1983.
FOF, INC.
/s/ Charles B. Johnson
Charles B. Johnson, President
/s/ Harmon E. Burns
Harmon E. Burns, Secretary
FRANKLIN OPTION FUND
/s/ Charles B. Johnson
Charles B. Johnson
/s/ Harmon E. Burns
Harmon E. Burns, Secretary
OFFICERS' CERTIFICATE
OF
F 0 F, INC.
Charles B. Johnson and Harmon E. Burns certify that:
1. They are the president and secretary, respectively, of F
0 F, INC., a California corporation.
2. The Agreement of Merger in the form attached was duly
approved by the Board of Directors of the corporation.
3. The total number of outstanding shares of the only class
of shares of the corporation entitled to vote is 10.
4. The principal terms of the Agreement of Merger in the
form attached were approved by a vote of the outstanding shares
which exceeded the vote required, which requirement was a
majority of the outstanding shares.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
Certificate are true and correct of our own knowledge.
Dated: April 22, 1983
/s/ Charles B. Johnson
Charles B. Johnson, President
/s/ Harmon E. Burns
Harmon E. Burns, Secretary
OFFICERS' CERTIFICATE
OF
FRANKLIN OPTION FUND, INC.
Charles B. Johnson and Harmon E. Burns certify that:
1. They are the president and secretary, respectively, of
Franklin Option Fund, Inc., a Hawaii corporation.
2. The Agreement of Merger in the form attached was duly
approved by the Board of Directors of the corporation.
3. The total number of outstanding shares of the only class
of shares of the corporation entitled to vote is 919,164.
4. The principal terms of the Agreement of Merger in the
form attached were approved by a vote of the outstanding shares
which exceeded the vote required, which requirement was seventy-
five (75%) percent of the outstanding shares.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
Certificate are true and correct of our own knowledge.
Dated: April 22, 1983
/s/ Charles B. Johnson
Charles B. Johnson, President
/s/ Harmon E. Burns, Secretary
Harmon E. Burns, Secretary
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors of
Franklin Premier Return Fund:
We consent to the incorporation by reference in Post-
Effective Amendment No. 54 to the Registration Statement of
Franklin Premier Return Fund on Form N-1A (File No. 2-12647)
of our report dated February 1, 1995 on our audit of the
financial statements and financial highlights of the Fund,
which report is included in the Annual Report to
Shareholders for the year ended December 31, 1994, which is
incorporated by reference in the Registration Statement.
/S/ COOPERS & LYBRAND L.L.P.
San Francisco, California
February 27, 1995
POWER OF ATTORNEY
The undersigned officers and directors of Franklin Premier
Return Fund (the "Registrant") hereby appoint MARK H. PLAFKER,
HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE AND LARRY
L. GREENE (with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to Post-
Effective Amendments to the Registrant's registration statement
on Form N-1A under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933 covering the sale
of shares by the Registrant under prospectuses becoming effective
after this date, including any amendment or amendments increasing
or decreasing the amount of securities for which registration is
being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory
authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and
purposes as he could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and directors hereby execute this
Power of Attorney as of this 16th day of February 1995.
/s/ Edward B. Jamieson /s/ Frank H. Abbott, III
Edward B. Jamieson, Frank H. Abbott, III,
Principal Executive Officer Director
and Director
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. Joseph Fortunato, David W. Garbellano,
Director Director
/s/ Charles B. Johnson /s/ Hayato Tanaka
Charles B. Johnson, Hayato Tanaka,
Director Director
/s/ R. Martin Wiskemann
R. Martin Wiskemann,
Director
/s/ Martin L. Flanagan /s/ Diomedes Loo-Tam
Martin L. Flanagan, Diomedes Loo-Tam,
Principal Financial Officer Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of
Franklin Premier Return Fund (the "Fund").
As Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of the Directors of the Fund
present at a meeting held at 777 Mariners Island Boulevard, San
Mateo, California, on February 15, 1994.
RESOLVED, that a Power of Attorney, substantially in the
form of the Power of Attorney presented to this Board,
appointed Harmon E. Burns, Deborah R. Gatzek, Karen L.
Skidmore, Larry L. Greene and Mark H. Plafker as attorneys-
in-fact for the purpose of filing documents with the SEC, be
executed by each Director and designated officer.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Deborah R. Gatzek
Dated: February 16, 1994 Deborah R. Gatzek
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN PREMIER RETURN FUND DECEMBER 31, 1994 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 21,440,499
<INVESTMENTS-AT-VALUE> 18,169,086
<RECEIVABLES> 7,531,286
<ASSETS-OTHER> 15,158
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,715,530
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 84,797
<TOTAL-LIABILITIES> 84,797
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,582,624
<SHARES-COMMON-STOCK> 4,193,484
<SHARES-COMMON-PRIOR> 3,680,434
<ACCUMULATED-NII-CURRENT> 34,261
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (711,713)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,274,439)
<NET-ASSETS> 25,630,733
<DIVIDEND-INCOME> 428,132
<INTEREST-INCOME> 453,742
<OTHER-INCOME> 0
<EXPENSES-NET> (313,805)
<NET-INVESTMENT-INCOME> 568,069
<REALIZED-GAINS-CURRENT> (114,361)
<APPREC-INCREASE-CURRENT> (355,103)
<NET-CHANGE-FROM-OPS> 98,605
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (564,467)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,169,075
<NUMBER-OF-SHARES-REDEEMED> (720,711)
<SHARES-REINVESTED> 64,686
<NET-CHANGE-IN-ASSETS> 2,753,492
<ACCUMULATED-NII-PRIOR> 30,659
<ACCUMULATED-GAINS-PRIOR> (597,352)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (155,985)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (313,805)
<AVERAGE-NET-ASSETS> 24,794,751
<PER-SHARE-NAV-BEGIN> 6.220
<PER-SHARE-NII> 0.140
<PER-SHARE-GAIN-APPREC> (0.110)
<PER-SHARE-DIVIDEND> (0.140)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 6.110
<EXPENSE-RATIO> 1.270
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
