As filed with the Securities and Exchange Commission on May 17, 1996.
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. 56
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17
FRANKLIN ASSET ALLOCATION FUND (FORMERLY 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)
{X} on July 19, 1996 pursuant to paragraph (a)(i)
{ } 75 days after filing pursuant to paragraph (a)(ii)
{ } on(date) 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 27, 1996.
This amendment is being filed pursuant to Rule 414 under the Securities Act
of 1933. The successor issuer, Franklin Asset Allocation Fund is filing the
amendment to the registration statement of the Franklin Premier Return Fund,
the predecessor issuer, and expressly adopting the registration statement as
its own.
The filing is made in anticipation of the reorganization of the Franklin
Premier Return Fund, a California corporation, whereby the Fund will merge
into the Franklin Asset Allocation Fund, a Delaware business trust.
Shareholders are expected to approve this reorganization at a meeting
expressly called for that purpose scheduled for July 3, 1996.
FRANKLIN ASSET ALLOCATION 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 How Has the Fund Performed?"
4. General Description of "What Is the Franklin Asset
Registrant Allocation Fund?"; "How Does the
Fund Invest Its Assets?"; "What
Are the Fund's Potential Risks";
"Useful Terms and Definitions"
5. Management of the Fund "Who Manages the Fund"
5A. Management's Discussion of The response to this item is
Fund Performance contained in the Registrant's
Annual Report to Shareholders
6. Capital Stock and Other "What Distributions Might I
Securities Receive from the Fund?"; "How
Taxation Affects You and the
Fund"; "How You Participate in
the Results of the Fund's
Activities";"What Distributions
Might I Receive from the Fund?"
7. Purchase of Securities Being "How Taxation Affects You and
Offered the Fund"; "How Do I Buy
Shares?"; "What Programs and
Privileges Are Available to Me
as a Shareholder?"; "What If My
Investment Outlook
Changes?-Exchange Privilege";
"Telephone Transactions"; "How
Are Fund Shares Valued?";
"Registering Your Account"
8. Redemption or Repurchase "How Do I Get More Information
About My Investment?"; "How does
the Fund Measure Performance?";
"General Information";
"Registering Your Account";
Important Notice Regarding
Taxpayer IRS Certifications";
"What If My Investment Outlook
Changes?" Exchange Privilege";
"How Do I Sell Shares?";
"General Information"
9. Pending Legal Proceedings Not Applicable
FRANKLIN ASSET ALLOCATION FUND
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and "How Does the Fund Invest Its
History Assets?"; "What Are the Funds
Potential Risks?"
13. Investment Objectives "Investment Restrictions"
14. Management of the Fund "Officers and Trustees"
15. Control Persons and "Officers and Trustees"
Principal Holders of
Securities
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"
17. Brokerage Allocation "How Does the Fund Purchase
Securities For Its Portfolio?"
18. Capital Stock and Other "See Prospectus "General
Securities Information"
19. Purchase, Redemption and "How Do I Buy and Sell Shares?";
Pricing of Securities "How Are Fund Shares Valued?"
Being Offered
20. Tax Status "Additional Information Regarding
Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements Financial Statements
FRANKLIN ASSET ALLOCATION FUND
PROSPECTUS
MAY 1, 1996, AS AMENDED JULY 19, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Asset Allocation Fund (the "Fund") is a diversified series of Franklin
Asset Allocation Fund (the "Trust"), an open-end management investment company.
The Fund's primary investment objective is total return. The Fund places
secondary emphasis on reduced risk over time. The Fund may invest in domestic
and foreign securities as described under "How Does the Fund Invest Its Assets?"
The Fund will seek to achieve its primary objective of total return by investing
in common stocks, investment grade corporate and U.S. government bonds,
short-term money market instruments, securities of foreign issuers and real
estate securities. 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. 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.
This prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
this prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items that you will
find useful.
An SAI concerning the Fund, dated May 1, 1996, as amended July 19, 1996,
provides a further discussion of certain areas in this prospectus and other
matters that may be of interest to you. It has been filed with the SEC and is
incorporated herein by reference. A copy is available without charge from the
Fund or Distributors, at the address or telephone number shown above.
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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.
CONTENTS PAGE
Expense Table
Financial Highlights -
How Has the Fund Performed?
What Is the Franklin
Asset Allocation Fund?
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
How You Participate in the Results
of the Fund's Activities
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are
Available to Me as a Shareholder?
What If My Investment Outlook Changes? -
Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information
About My Investment?
How Does the Fund
Measure Performance?
General Information
Registering Your Account
Important Notice Regarding
Taxpayer IRS Certifications
Useful Terms and Definitions
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund for the fiscal year ended December 31, 1995.
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%
Rule 12b-1 Fees.............................................. ..0.19%**
Other Expenses:
Shareholder Servicing Costs.........................0.09%
Professional Fees...................................0.08%
Other...............................................0.18%
Total Other Expenses.............................................0.35%
Total Fund Operating Expenses....................................1.17%
+Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month of such investments. See "How Do I Sell Shares? - Contingent Deferred
Sales Charge." *$5.00 fee imposed only on Market Timers as described under "What
If My Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee. **The maximum amount of Rule 12b-1 fees allowed
pursuant to the Fund's distribution plan is 0.25%. See "Who Manages the Fund? -
Plan of Distribution." 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.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the projected
expenses, including the maximum front-end sales charge, that apply to a $1,000
investment in the Fund over various time periods assuming (1) a hypothetical 5%
annual rate of return and (2) redemption at the end of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
$56* $80 $106 $181
*Assumes that a contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL PAST OR FUTURE EXPENSES YOU
WOULD PAY, OR EXPECTED RETURN YOU WOULD RECEIVE, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly by
you as a result of your investment in the Fund. In addition, federal securities
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 - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing the financial highlights for a share of
the Fund. The information in the table for each of the five fiscal years in the
period ended December 31, 1995 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 to Shareholders for the fiscal year ended December 31,
1995. The remaining figures for earlier fiscal years, which are also audited,
are not covered by the auditors' current report. See "Reports to Shareholders"
under "General Information" in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year.. $6.11 $6.22 $5.40 $4.88 $4.21 $5.19 $5.12 $4.95 $5.93 $6.59
Net investment income................. 0.18 0.14 0.13 0.15 0.14 0.16 0.15 0.15 0.15 0.11
Net realized and unrealized gains (losses) on
securities......................... 1.14 (0.110) 0.860 0.530 0.780 (0.595) 0.599 0.705 0.031 0.360
Total from investment operations...... 1.32 0.030 0.990 0.680 0.920 (0.435) 0.749 0.855 0.181 0.470
Less Distributions:
Dividends from net investment income(0.180) (0.140)(0.170) (0.160) (0.135) (0.155) (0.157) (0.162) (0.166) (0.125)
Distributions from realized
capital gains -- -- -- -- (0.115) (0.390) (0.522) (0.523) (0.995) (1.005)
Total distributions................... (0.180) (0.140)(0.170) (0.160) (0.250) (0.545) (0.679) (0.685) (1.161) (1.130)
Net asset value at end of year........ $7.25 $6.11 $6.22 $5.40 $4.88 $4.21 $5.19 $5.12 $4.95 $5.93
Total Return**........................ 21.79% 0.46% 18.38% 14.02% 22.06% (8.81)% 14.72% 17.68% 1.44% 7.53%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in 000's).. $39,319 $25,631 $22,877 $22,077 $28,189 $32,878 $44,516 $45,010 $39,790 $34,203
Ratio of expenses to average net assets 1.17% 1.27% 1.00% 0.92% 0.93% 0.85% 0.81% 0.83% 0.84% 0.95%
Ratio of net investment income to average net
assets............................. 2.86% 2.29% 2.15% 2.81% 2.95% 3.27% 2.81% 3.00% 2.65% 2.32%
Portfolio turnover rate............... 62.01% 45.18% 20.49% 23.17% 62.25% 73.12% 163.55% 79.73% 176.36% 105.00%
Average commission rate***............ $0.0640 -- -- -- -- -- -- -- -- --
</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 front-end sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.
***Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
WHAT IS THE FRANKLIN ASSET ALLOCATION FUND?
The Fund is a diversified series of the Trust, an open-end management investment
company commonly called a "mutual fund." The Fund was originally incorporated in
Hawaii in 1951, reincorporated under the laws of the state of California in
1983, and reorganized as a trust in its present form on July 19, 1996. The Trust
is registered with the SEC under the 1940 Act. Shares of the Fund may be
considered Class I shares, as described under "Useful Terms and Definitions,"
for redemption, exchange and other purposes.
HOW DOES THE FUND INVEST ITS ASSETS?
The primary investment objective of the Fund is total return. The objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval. The Fund places secondary emphasis on reduced risk over time. Of
course, there is no assurance that the Fund's objective will be achieved.
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's 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 same analytical
tools are used to screen for industries and companies. Using this approach the
Fund seeks to obtain its investment objectives by investing in the following
securities.
COMMON STOCK. The Fund will invest a majority of the portfolio in equity
securities that fall within the Standard & Poor's ("S&P") 500 or the S&P Midcap
400. These indices represent such sectors as basic materials (includes gold),
capital spending, consumer cyclical, consumer staples, financials, utilities,
energy, transportation, health care, conglomerates and technology. The Fund will
also invest a small portion of its assets in equities not listed in these
indices and in smaller capitalized issues for growth prospects.
FIXED-INCOME SECURITIES. The Fund's investment in fixed-income securities will
generally be in debt obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. The Fund may also invest in corporate debt
obligations such as bonds, notes and debentures. Investments in corporate debt
securities will be in investment grade securities, which are securities rated
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.
CONVERTIBLE SECURITIES AND SYNTHETIC CONVERTIBLES. A portion of the Fund's
assets may be invested in convertible securities and synthetic convertible
securities. A convertible security is a fixed-income security (a bond or
preferred stock) that 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
different issuer. A synthetic convertible is created by combining distinct
securities that possess the two principal characteristics of a true convertible,
i.e., fixed income and the right to acquire the underlying security. This
combination is achieved by investing in nonconvertible fixed-income securities
and in warrants, stock or stock index call options that grant the holder the
right to buy 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.
FOREIGN SECURITIES. The Fund will ordinarily purchase foreign securities, traded
in the U.S., or 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. The Fund may also buy
the securities of foreign issuers directly in foreign markets.
REAL ESTATE SECURITIES. Investments in real estate securities will primarily
consist of equity and debt securities of real estate investment trusts. The Fund
may also invest in equity securities issued by home builders and developers that
are a part of, but not limited to, the S&P 500 or MidCap 400 index.
SHORT-TERM MONEY MARKET INSTRUMENTS. The Fund may temporarily invest its cash,
including cash resulting from purchases and sales of Fund shares, in short-term
debt instruments, including high grade commercial paper, repurchase agreements
and other money market equivalents. These 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 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.
OPTIONS AND FUTURES. The Fund may write covered put and call options and buy put
and call options that trade on securities exchanges and in the over-the-counter
market. The Fund may buy 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 that it intends to buy. 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.
MORE INFORMATION ABOUT TYPES
OF SECURITIES THE FUND MAY PURCHASE
FIXED INCOME SECURITIES. Fixed-income securities rated BBB by S&P or Baa by
Moody's are regarded as having adequate capacity to pay principal and interest
but 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.
CONVERTIBLE SECURITIES. A convertible security is generally a debt obligation or
preferred stock that may be converted within a specified period of time into a
certain amount of common stock of the same or a different issuer. A convertible
security provides a fixed-income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in its underlying common stock. As with a straight
fixed-income security, a convertible security tends to increase in market value
when interest rates decline and decrease in value when interest rates rise. Like
a common stock, the value of a convertible security also tends to increase as
the market value of the underlying stock rises, and it tends to decrease as the
market value of the underlying stock declines. Because its value can be
influenced by both interest rate and market movements, a convertible security is
not as sensitive to interest rates as a similar fixed-income security, nor is it
as sensitive to changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.
While the Fund uses the same criteria to rate a convertible debt security that
it uses to rate a more conventional debt security, a convertible preferred stock
is treated like a preferred stock for the Fund's financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the preferred
shareholder to take action. A preferred stock generally has no maturity date, so
that its market value is dependent on the issuer's business prospects for an
indefinite period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.
The Fund may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stock(s) ("PERCS"),
which provide an investor, such as the Fund, with the opportunity to earn higher
dividend income than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Most PERCS expire three years from the date of issue, at which time they
are convertible into common stock of the issuer (PERCS are generally not
convertible into cash at maturity). Under a typical arrangement, if after three
years the issuer's common stock is trading at a price below that set by the
capital appreciation limit, each PERCS would convert to one share of common
stock. If, however, the issuer's common stock is trading at a price above that
set by the capital appreciation limit, the holder of the PERCS would receive
less than one full share of common stock. The amount of that fractional share of
common stock received by the PERCS holder is determined by dividing the price
set by the capital appreciation limit of the PERCS by the market price of the
issuer's common stock. PERCS can be called at any time prior to maturity, and
hence do not provide call protection. However if called early the issuer must
pay a call premium over the market price to the investor. This call premium
declines at a preset rate daily, up to the maturity date of the PERCS.
The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock(s)), PRIDES (Preferred Redeemable
Increased Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities), and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS, and DECS all have the following features: they are
issued by the company, the common stock of which will be received in the event
the convertible preferred stock is converted, unlike PERCS they do not have a
capital appreciation limit, they seek to provide the investor with high current
income with some prospect of future capital appreciation, they are typically
issued with three to four-year maturities, they typically have some built-in
call protection for the first two to three years, investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity, and upon maturity they will automatically convert to either
cash or a specified number of shares of common stock.
Similarly, there may be enhanced convertible debt obligations issued by the
operating company whose common stock is to be acquired in the event the security
is converted or by a different issuer, such as an investment bank. These
securities may be identified by names such as ELKS (Equity Linked Securities) or
similar names. Typically they share most of the salient characteristics of an
enhanced convertible preferred stock but will be ranked as senior or
subordinated debt in the issuer's corporate structure according to the terms of
the debt indenture. There may be additional types of convertible securities not
specifically referred to herein which may be similar to those described above in
which a Fund may invest, consistent with its objectives and policies.
An investment in an enhanced convertible security or any other security may
involve additional risks to the Fund. The Fund may have difficulty disposing of
such securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and the Fund's ability to dispose of particular securities, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as the deterioration in the credit worthiness of an issuer.
Reduced liquidity in the secondary market for certain securities may also make
it more difficult for the Fund to obtain market quotations based on actual
trades for purposes of valuing the Fund's portfolio. The Fund, however, intends
to acquire liquid securities, though there can be no assurances that this will
be achieved.
SYNTHETIC CONVERTIBLES. 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
Manager expects normally to create synthetic convertibles whose two components
represent one issuer, the character of a synthetic convertible allows the Fund
to combine components representing distinct issuers, or to combine a
fixed-income security with a call option on a stock index when the Manager
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.
FOREIGN SECURITIES. 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 that are acquired by the Fund outside the U.S. and that
are publicly traded in the U.S. 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.
OTHER INVESTMENT POLICIES OF THE FUND
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 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 Board and will be
held pursuant to a written agreement.
BORROWING. The Fund does not borrow money or mortgage or pledge any of its
assets, 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 net assets of the Fund.
OTHER. 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 about the policies discussed herein, please see "How Does the Fund
Invest Its Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
FOREIGN SECURITIES. Investments in foreign securities where delivery takes place
outside the U.S. 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 that 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.
OPTIONS, FUTURES AND OPTIONS ON FUTURES. The Fund's options and futures
investments involve certain risks. These 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 that would result in a loss on both the 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 Code for qualification as a regulated investment company and may reduce the
portion of the Fund's dividends that 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 you. For more information please see the tax section of this prospectus and
"Additional information Regarding Taxation" in the SAI.
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 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 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 "Other Investment Policies of the
Fund - Illiquid Investments" in this prospectus.)
Futures contracts entail risks. Although the Fund believes that the use of these
contracts will benefit the Fund, if the Manager's 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 that
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 that 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. These sales may be, but will not
necessarily be, at increased prices that 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 buy securities
upon termination of long futures contracts and long call options on future
contracts, but under unusual market conditions it may terminate any of the
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 "What Are the
Fund's Potential Risks?" in the SAI for a more complete discussion of the Fund's
investments in options and futures, including the risks associated with such
activity.)
Transactions in options, futures, and options on futures are generally
considered "derivative securities." The Fund's investments in these derivative
securities 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.
HOW YOU PARTICIPATE IN THE
RESULTS OF THE FUND'S ACTIVITIES
If the securities owned by the Fund increase in value, the value of the shares
of the Fund which you own will increase. If the securities owned by the Fund
decrease in value, the value of your shares will also decline. In this way, you
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, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets.
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.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the Fund
and for electing the officers of the Trust who are responsible for administering
the Fund's day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of 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 subsidiaries. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (119 separate series) with aggregate
assets of over $80 billion.
The team responsible for the day-to-day management of the Fund's portfolio is R.
Martin Wiskemann since its inception and Lisa A. Costa since 1983:
Lisa A. Costa, CMT
Portfolio Manager of Advisers
Ms. Costa holds a Master of Business Administration degree from Golden Gate
University and a Bachelor of Science degree in finance from California State
University at Hayward. She has been with Advisers or an affiliate since 1980.
Ms. Costa is a Chartered Market Technician, President of the Technical
Securities Analysts Association of San Francisco, and a member of several
securities industry-related committees and associations.
R. Martin Wiskemann
Senior Vice President of Advisers
Mr. Wiskemann 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.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Trust are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Trust's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Trust's
Code of Ethics.
During the fiscal year ended December 31, 1995, management 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 "How
Does the Fund Purchase Securities For Its Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services 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, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.17% of the
average monthly net assets of the Fund.
PLAN OF DISTRIBUTION
A plan of distribution has been approved and adopted for the Fund (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 Trust, Distributors or its affiliates.
The maximum amount which the Fund may reimburse Distributors or others for
distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. All expenses of distribution 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, including a discussion of the Board's policies with regard
to the amount of Plan fees, please see "The Fund's Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT
I RECEIVE FROM THE FUND?
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally 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 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, 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. 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, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you 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 your investment, it may be taxable as
dividend income or capital gain.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these ways:
1. PURCHASE ADDITIONAL SHARES OF THE FUND - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS SELECTED, DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and 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 that you receive 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 you have 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 you have 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 you
until the following January, will be treated for tax purposes as if received by
you on December 31 of the calendar year in which they are declared.
For the fiscal year ended December 31, 1995, 36.78% 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.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by you from the Fund and
the application of foreign tax laws to these distributions.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
HOW DO I BUY SHARES?
You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may be
waived when shares are purchased by retirement plans. To open your account,
contact your investment representative or complete and sign the enclosed
Shareholder Application and return it to the Fund with your check.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.
QUANTITY DISCOUNTS IN SALES CHARGES
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
AS A PERCENTAGE OF
AMOUNT ALLOWED
TO DEALER
NET AMOUNT AS PERCENTAGE
SIZE OF TRANSACTION AT OFFERING PRICE OFFERING PRICE INVESTED OF OFFERING PRICE*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000............................................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000.............................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000.............................. 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000............................ 2.25% 2.30% 2.00%
$1,000,000 or more........................................... None** None None***
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times reallow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended. **A contingent deferred sales charge of
1% may be imposed on certain redemptions of all or a part of an investment of $1
million or more. See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
RIGHTS OF ACCUMULATION. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
LETTER OF INTENT. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.
o You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem any
or all of these reserved shares to pay any unpaid sales charge if you do not
fulfill the terms of the Letter.
o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
o Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
o Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
GROUP PURCHASES. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 3.75%.
We define a qualified group as 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.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Fund?" or call Shareholder Services at
1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
(iii) an annuity payment received under either an annuity option or from death
benefit proceeds, PROVIDED THAT the annuity contract offers as one underlying
investment option the Franklin Valuemark Funds, Templeton Variable Annuity Fund,
the Templeton Variable Products Series Fund, or the Franklin Government
Securities Trust. You must return the payment within 365 days of its payment
date. You should contact your tax advisor for information on any tax
consequences of these purchases;
(iv) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. The distribution must be
returned to the Fund within 365 days of the distribution date; or
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. IF A DIFFERENT
CLASS OF SHARES IS PURCHASED, THE FULL FRONT-END SALES CHARGE MUST BE PAID AT
THE TIME OF PURCHASE OF THE NEW SHARES. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:
(i) registered securities dealers and their affiliates, for their
investment accounts only;
(ii) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(iii) broker-dealers who have entered into a supplemental agreement with
Distributors, on behalf of their clients who are participating in comprehensive
fee programs. These programs, sometimes known as wrap fee programs, are
sponsored by the broker-dealer and either advised by the broker-dealer or by
another registered investment advisor affiliated with that broker;
(iv) 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").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
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 the Manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(v) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members,
in accordance with then-current rules of Resources for investments by its
employees and their families;
(vi) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13 month period. We will accept orders for
such accounts 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;
(vii) group annuity separate accounts offered to retirement plans;
(viii) trustees or other fiduciaries purchasing securities for certain
retirement plans of organizations with collective retirement plan assets of $1
million or more, without regard to where such assets are currently invested; or
(ix) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements for Designated Retirement Plans and those described under "Group
Purchases," above.
(x) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(xi) accounts managed by the Franklin Templeton Group;
(xii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS WRITTEN
STATEMENT IS NOT INCLUDED WITH YOUR ORDER.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
HOW DO I BUY SHARES IN CONNECTION
WITH TAX-DEFERRED RETIREMENT PLANS?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236).
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from 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, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
GENERAL
The Fund continuously offers its shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 1% 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. These breakpoints are reset every 12 months for purposes of
additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (vi), (viii)
or (ix) under "Purchases at Net Asset Value" above. These payments may not be
made to securities dealers or others in connection with the sale of Fund shares
if the payments might be used to offset administration or recordkeeping costs
for retirement plans or circumstances suggest that plan sponsors or
administrators might use or otherwise allow the use of Rule 12b-1 fees to offset
such costs. Please see "How Do I Buy and Sell Shares?" in the SAI for the
breakpoints applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the U.S. Securities dealers may not use sales of the Fund's
shares to qualify for this compensation if prohibited by the laws of any state
or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers and
Trustees."
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR 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 "REGISTERING YOUR
ACCOUNT" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares from 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 you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or your securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to buy additional shares. If you
are interested in this program, please refer to the Automatic Investment Plan
Application at the back of this prospectus for the requirements of the program
or contact your investment representative. Of course, the market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may terminate the program at
any time by notifying Investor Services by mail or by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. RECEIVE PAYMENTS IN CASH - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or income, part of the payment may be a return of your investment.
While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of buying, selling or exchanging shares of the
Fund available to institutional accounts. For further information, contact the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? -
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of another Franklin Templeton Fund eligible for sale in
your state of residence and in conformity with that fund's stated eligibility
requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may choose
to sell your shares of the Fund and buy Class II shares of another Franklin
Templeton Fund but such purchase will be subject to that fund's Class II
front-end and contingent deferred sales charges. Although there are no exchanges
between different classes of shares, Class II shareholders of a Franklin
Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
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.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
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.
BY TELEPHONE
You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares 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 your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "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, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset value 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 original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into 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.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your 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, you 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 under "Additional Information Regarding Taxation" in the SAI.
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 objective 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 PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange shares
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
MARKET TIMERS
Market Timers will be charged a $5.00 administrative service fee for each
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
Market Timers.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer, group or
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, (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 by Market Timers, will be aggregated
for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in the Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange 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 coincides with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors, as indicated in "How Do I Buy Shares?" reserve the
right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time and receive from the Fund the
value of the shares. You may sell shares in any of the following ways:
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. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) 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 will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES 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 owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
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.
Signatures 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
that are members of a national securities exchange or a clearing agency or that
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.
When 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 owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your 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
officers 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 trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees 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 applicable state
law since these accounts have varying requirements, depending upon the state of
residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts." You may obtain
additional information about telephone redemptions 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. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
If your account has a 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 the scheduled close of the Exchange
(generally 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, you should follow the other
redemption procedures set forth in this prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities that qualify to purchase shares at net asset value pursuant
to the terms of this prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
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 your 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 your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value"; exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares 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). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of 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.
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.
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 you invested, depending on
fluctuations in the market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your 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 INFORMATION
Distribution or redemption checks sent to you 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 caused by your failure to cash such
checks.
"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.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including 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, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you 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 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 you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You 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 redemption, distribution or
dividend payment changes. 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.
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.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact your investment
representative for assistance or 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 your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 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).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE
INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information specific
to the Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements and deposit slips.
The Fund code, which will be needed to access system information, is 002. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
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.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's 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 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.
Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in 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 of the Fund are
reflected in the current distribution rate, which may be quoted to you. 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 performance 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. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, 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 under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Agreement and Declaration of Trust permits the Board to issue an unlimited
number of shares of beneficial interest, all of which have a par value of $.001
per share. A single series of the Trust has been authorized by the Board, and an
unlimited number of shares have been allocated to the single series. Shares of
any series the Trust may be divided into classes (or subseries) of such series.
All shares 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 are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Delaware Business Trust Act does not require business trusts to hold routine
annual meetings of shareholders and the Trust does not intend to hold annual
shareholder meetings. The Trust may, however, hold a special shareholders'
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
the trustees in their discretion or by shareholders holding at least ten percent
of the shares entitled to vote at the meeting. Shareholders will receive
assistance in communicating with other shareholders in connection with the
election or removal of trustees such as that provided in Section 16(c) of the
1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.
REGISTERING YOUR ACCOUNT
An account registration should reflect your 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, you may transfer an account in the Fund carried in "street"
or "nominee" name by your 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 your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers 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 your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of, or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you 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 Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available 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 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. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are 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 you 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.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended.
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager.
BOARD - The Board of Trustees of the Trust.
CLASS I AND CLASS II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended.
DESIGNATED RETIREMENT PLANS - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13 month period. Distributors
determines the qualifications for Designated Retirement Plans.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
EXCHANGE - New York Stock Exchange.
FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc.
LETTER - Letter of Intent.
MANAGER - Franklin Advisers, Inc., the Fund's investment manager.
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NET ASSET VALUE (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.
NON-DESIGNATED RETIREMENT PLANS - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
OFFERING PRICE - The public offering price is equal to the net asset value per
share plus the 4.5% sales charge.
PROPER FORM (PURCHASES) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
SECURITIES DEALER - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system.
TEMPLETON FUNDS - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly-owned subsidiaries of Resources.
U.S. - United States.
FRANKLIN ASSET ALLOCATION FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996, AS AMENDED JULY 19, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS
How Does the Fund Invest Its Assets?
Investment Restrictions
Officers and Trustees
Investment Advisory and Other Services
How Does the Fund Purchase
Securities For Its Portfolio?
How Do I Buy and Sell Shares?
How Are Fund Shares Valued?
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Financial Statements
Appendix
The Franklin Asset Allocation Fund (the "Fund") is a diversified series of
Franklin Asset Allocation Fund (the "Trust"), an open-end management
investment company. The Fund's primary investment objective is total return.
A prospectus for the Fund, dated May 1, 1996, as amended July 19, 1996 (the
"Prospectus") provides the basic information you should know before investing
in the Fund and may be obtained 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 STATEMENT OF ADDITIONAL INFORMATION ("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 YOU WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUND'S PROSPECTUS.
HOW DOES THE FUND INVEST ITS ASSETS?
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 that 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.
A call option written by the Fund is "covered" if the Fund owns the
underlying security that 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 bank. 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 bank, 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 buy the underlying security at the exercise price, which will
usually exceed the then current 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 at the same time as 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 buy 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.
Buying Call and Put Options. The Fund may buy call options on securities that
it intends to buy 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 buy 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 buy 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 buy 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 that 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 ("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.
Options on Stock Indices. The Fund may also buy 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 buy 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 bank 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 that have been designated
"contracts markets" by the Commodities Futures Trading Commission and must be
executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market.
Although futures contracts by their terms call for the actual 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 buys 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 that it
intends to buy. 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 buy or sell futures
contracts or buy 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, cash, cash equivalents, or high
quality debt securities at least equal to the market value of the futures
contract or related options on futures 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 a futures contract, it will deposit in a
segregated account with its custodian cash or U.S. Treasury obligations equal
to a specified percentage of the value of the futures contract (the "initial
margin"), as required by the relevant contract market and futures commission
merchant. The futures contract will be marked-to-market daily. Should the
value of the futures contract decline relative to the Fund's position, the
Fund will be required to pay to the futures commission merchant an amount
equal to such change in value.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES
The Fund may buy 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
buy 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
buy.
Options on Stock Index Futures. The Fund may buy 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 buy 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 buy 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 that 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 may also buy 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 that are not presently contemplated for use by
the Fund or which are not currently available but that may be developed, to
the extent such opportunities are both consistent with the Fund's investment
objectives and legally permissible for the Fund. Prior to investing in any
such investment vehicle, the Fund will supplement its Prospectus, if
appropriate.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies,
which means that they may not be changed without the approval of a majority
of the outstanding voting securities of the Fund. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), a "vote of a majority of
the outstanding voting securities" of the Fund means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of the Fund present at a shareholder meeting if
more than 50% of the outstanding shares of the Fund are represented at the
meeting in person or by proxy. 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
trustees 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, trustee 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.
If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in value of portfolio securities or the amount of net assets will not
be considered a violation of any of the foregoing restrictions.
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 it may participate in joint repurchase arrangements and may combine
orders to buy or sell securities with other orders to obtain lower brokerage
commissions; invest in any security that 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 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 investment 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 TRUSTEES
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Fund, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Trust
who are responsible for administering day-to-day operations of the Fund. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be
"interested persons" of the Trust, as defined in the 1940 Act, are indicated
by an asterisk (*).
Name, Positions and Offices Principal Occupations
Age and Address with the Trust During Past Five Years
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of
the investment companies in the Franklin Group of Funds.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
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 58 of the investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
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 30 of the investment
companies in the Franklin Group of Funds.
*Edward B. Jamieson (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
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 (63)
777 Mariners Island Blvd
San Mateo, CA 94404
Chairman of the Board and Trustee
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 57 of the investment companies in the Franklin
Templeton Group of Funds.
Hayato Tanaka (78)
277 Haihai Street
Hilo, HI 96720
Trustee
Retired, former owner of The Jewel Box Orchids; and director or trustee, as
the case may be, of two of the investment companies in the Franklin Group of
Funds.
*R. Martin Wiskemann(69)
777 Mariners Island Blvd
San Mateo, CA 94404
Vice President and Trustee
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 21 of the investment companies in the Franklin Group of Funds.
Harmon E. Burns (51)
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 61 of the investment companies in the Franklin
Templeton Group of Funds.
Kenneth V. Domingues (63)
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 37 of the investment
companies in the Franklin Group of Funds.
Martin L. Flanagan (35)
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, director and/or trustee of 61 of the investment companies
in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 61 of the investment companies in the
Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. (55)
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 61 of the
investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 32 of the investment companies in the
Franklin Group of Funds.
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Trustees not
affiliated with the investment manager ("nonaffiliated trustees") are
currently paid fees of $100 per meeting attended. As indicated above, certain
of the Fund's nonaffiliated trustees also serve as directors, trustees or
managing general partners of other investment companies in the Franklin Group
of Funds(R) and the Templeton Group of Funds (the "Franklin Templeton Group of
Funds") from which they may receive fees for their services. The following
table indicates the total fees paid to nonaffiliated trustees by the Trust
and by other funds in the Franklin Templeton Group of Funds.
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP OF
RECEIVED FROM THE FRANKLIN TEMPLETON FUNDS ON WHICH
NAME TRUST* GROUP OF FUNDS** EACH SERVES***
Frank Abbott, III $500 $162,420 31
S. Joseph Fortunato 500 344,745 58
David Garbellano 500 146,100 30
Hayato Tanaka 500 500 2
*For the fiscal year ended December 31, 1995.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in the Franklin
Templeton Group of Funds for which they serve as director, trustee or
managing general partner. No officer or director received any other
compensation directly from the Fund. Certain officers or trustees 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.
As of May 7, 1996, the officers and trustees, as a group, owned of record and
beneficially approximately 56,206 shares, or less than 1% of the total
outstanding shares of the Fund. Many of the Trust's trustees also own shares
in various of the other funds in the Franklin Templeton Group of Funds.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
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
(the "Exchange"). Resources owns several other subsidiaries that are involved
in investment management and shareholder services.
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 Board
to whom the Manager renders periodic reports of the Fund's investment
activities. Under the terms of the management agreement, the Manager provides
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. Please see the Statement of Operations in the
financial statements included in the Fund's Annual Report to Shareholders for
the fiscal year ended December 31, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The
Manager may give advice and take action with respect to any of the other
funds it manages, or for its own account, which may differ from action taken
by the Manager on behalf of the Fund. Similarly, with respect to the Fund,
the Manager is not obligated to recommend, purchase or sell, or to refrain
from recommending, purchasing or selling any security that the Manager and
access persons, as defined by the 1940 Act, may purchase or sell for its or
their own account or for the accounts of any other fund. Furthermore, the
Manager is not obligated to refrain from investing in securities held by the
Fund or other funds which it manages or administers. Of course, any
transactions for the accounts of the Manager and other access persons will be
made in compliance with the Trust's Code of Ethics.
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) of 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 2.5% of the first $30 million of average net assets of the
Fund, 2.0% of the next $70 million of average net assets of the Fund and 1.5%
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, 1993, 1994 and 1995
were $139,233, $155,985, and $198,598 respectively.
The management agreement is in effect until April 30, 1997. Thereafter, it
may continue in effect for successive annual periods providing such
continuance is specifically approved at least annually by a vote of the Board
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 Trust's trustees
who are not parties to the management agreement or interested persons of any
such party (other than as trustees of the Trust), cast in person at a meeting
called for that purpose. The management agreement may be terminated without
penalty at any time by the Board or by a vote of the holders of a majority of
the Fund's outstanding voting securities, 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"), 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 New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of the
Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in
connection with the purchase of Fund shares. 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, 1995, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's Annual Report to
Shareholders for the fiscal year ended December 31, 1995.
HOW DOES THE FUND PURCHASE SECURITIES FOR ITS PORTFOLIO?
Under the current management agreement, 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 Board may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions 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
that 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. 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 interest, the Manager may place portfolio transactions with
brokers who provide the types of services described below, even if it means
the Fund will pay a higher commission than 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 services 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 the Manager from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the Manager 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 broker-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 past three fiscal years ended December 31 the Fund paid brokerage
commissions totaling $26,048, $26,798, and $52,955.
As of December 31, 1995, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY AND SELL 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)
honor the transaction or make adjustments to your account for the transaction
as of a date and with a foreign currency exchange factor determined by the
drawee bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you 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 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. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.
If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option, to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
The Fund may deduct from your account the costs of its efforts to locate you
if mail is returned as undeliverable or the Fund is otherwise unable to
locate you or verify your current mailing address. These costs may include a
percentage of the account when a search company charges a percentage fee in
exchange for its 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 one of its affiliates 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 may be offered
with the following schedule of sales charges:
SALES
SIZE OF PURCHASE - U.S. DOLLARS CHARGE
- ------------------------------------------------------------
Under $30,000 3.0%
$30,000 but less than $50,000 2.5%
$50,000 but less than $100,000 2.0%
$100,000 but less than $200,000 1.5%
$200,000 but less than $400,000 1.0%
$400,000 or more 0%
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior
to the scheduled close of the Exchange (generally 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 the scheduled close of the Exchange 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, either directly or through affiliates, have an agreement
with Distributors to 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 you resulting from the failure to do so must be settled
between you and the securities dealer.
OTHER PAYMENTS TO SECURITIES DEALERS
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies and trust
departments of banks, certain designated retirement plans (excluding IRA and
IRA Rollovers), certain non-designated plans, and certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
as described below. Distributors may make these payments in the form of
contingent advance payments, which may be recovered from the securities
dealer, or set off against other payments due to the securities dealer, in
the event shares are redeemed within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed
by an agreement between Distributors, or one of its affiliates, and the
securities dealer.
Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, 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): 1% 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. 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 $1 million or more, either Distributors, or one of its affiliates,
out of its own resources, may pay up to 1% of the amount invested.
LETTER OF INTENT
You 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 you want to qualify for a reduced sales charge, you
may file with the Fund a signed Shareholder Application with the Letter of
Intent (the "Letter") section completed. After the Letter 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. Your holdings in the Franklin Templeton Funds,
including Class II shares, acquired more than 90 days before the Letter is
filed will be counted towards completion of the Letter but will not be
entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make, unless by a designated retirement 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 have been completed.
If the Letter 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 retirement plans. If you execute a Letter prior to a
change in the sales charge structure for the Fund, you will be entitled to
complete the Letter at the lower of the new sales charge structure, or the
sales charge structure in effect at the time the Letter was filed.
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 your
name. This policy of reserving shares does not apply to a designated
retirement plan. If the total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the total
purchases, less redemptions, exceed the amount specified under the Letter 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 (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, you 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 that 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 your account will be deposited to an
account in your name or delivered to you or as you direct. If within 20 days
after written request the difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter is executed on behalf of a designated retirement plan, the level
and any reduction in sales charge for these plans will be based on actual
plan participation and the projected investments in the Franklin Templeton
Funds under the Letter. These 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 these plans entitled to receive
retroactive adjustments in price for investments made before executing the
Letter.
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 the 90-day period. This commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission ("SEC"). In the case of redemption requests in excess of these
amounts, the trustees reserve the right to make payments in whole or in part
in securities or other assets of the Fund, 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 and you
may incur brokerage fees in converting the securities to cash. The Fund does
not intend to redeem illiquid securities in kind. Should it happen, however,
you may not be able to recover your investment in a timely manner.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund
reserves the right to involuntarily redeem your shares at net asset value if
your account has a value of less than one-half of your initial required
minimum investment, but only where the value of your account has been reduced
by the prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right if your account has a
value of $50 or more. In any event, before the Fund redeems your shares and
sends you the proceeds, it will notify you that the value of the shares in
your account is less than the minimum amount and allow you 30 days to make an
additional investment in an amount which will increase the value of your
account to at least $100.
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 the "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.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
SPECIAL SERVICES
The Franklin Templeton Institutional Services Department 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 that maintain
omnibus accounts with the Fund on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such 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. These financial institutions may also charge a fee
for their services directly to their clients.
HOW ARE FUND SHARES VALUED?
As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 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.
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 are valued within the range of the most
recent quoted bid and ask prices. 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 sale 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.
The value of a foreign security is determined as of the close of trading on
the foreign exchange on which it is traded or as of the scheduled close of
trading on the Exchange, if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and ask prices is used. Occasionally events which affect the values of
foreign securities and foreign exchange rates may occur between the times at
which they are determined and the close of the exchange and will, therefore,
not be reflected in the computation of the Fund's net asset value. If events
which materially affect the values of these foreign securities occur during
such period, then these securities will be valued in accordance with
procedures established by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior
to the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of the Fund's shares is determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the values of these securities
occur during such period, then the securities will be valued at their fair
value as determined in good faith by the Board.
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. With the approval of
trustees, the Fund may utilize a pricing service, bank or securities dealer
to perform any of the above described functions.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund has elected to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). The trustees 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 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 the 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 the 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 the 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.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund
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 Templeton 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. You should consult with your 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, OTC 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 and futures 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 timing of
income distributed to you 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 of the applicable federal rate,
reduced by any prior recharacterizations under this provision or Section
263(g) of the Code concerning capitalized carrying costs.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1997,
Distributors acts as principal underwriter in a continuous public offering
for shares of the Fund. 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 Board 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 Trust's trustees who are not parties to the
underwriting agreement or interested persons of any such party (other than as
trustees of the Trust), 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.
Distributors pays the expenses of the 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.
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 is at net asset value.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended December 31, 1993, 1994 and 1995 were
$54,031, $93,593, and 137,840, respectively. After allowances to dealers,
Distributors retained $7,353, $6,627, and $15,494 in net underwriting
discounts and commissions for the respective years. Distributors may be
entitled to reimbursement under the Fund's distribution plan, as discussed
below. Except as noted, Distributors received no other compensation from the
Fund for acting as underwriter.
DISTRIBUTION PLAN
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, payable quarterly, for expenses
incurred in the promotion and distribution of its shares.
In implementing the Plan, the Board has determined that the annual fees
payable under the Plan will be equal to the sum of: (i) the amount obtained
by multiplying 0.25% by the average daily net assets represented by shares of
the Fund that were acquired by investors on or after May 1, 1994, the
effective date of the Plan ("New Assets"), and (ii) the amount obtained by
multiplying 0.15% by the average daily net assets represented by shares of
the Fund that were acquired before May 1, 1994 ("Old Assets"). Such fees will
be paid to the current securities dealer of record on the account. In
addition, until such time as the maximum payment of 0.25% is reached on a
yearly basis, up to an additional 0.05% 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. The
initial rate will be at least 0.20% (0.15% plus 0.05%) of the average daily
net assets and, as Fund shares are sold on or after May 1, 1994, will
increase over time. Thus, as the proportion of Fund shares purchased on or
after May 1, 1994, increases in relation to outstanding Fund shares, the
expenses attributable to payments under the Plan will also increase (but will
not exceed 0.25% of average daily net assets). While this is the currently
anticipated calculation for fees payable under the Plan, the Plan permits the
Fund's trustees to allow the Fund to pay a full 0.25% on all assets at any
time. The approval of the Board 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 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 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 you are a customer of a bank that is prohibited from
providing such services, you would be permitted to remain a shareholder of
the Fund, and alternate means for continuing the servicing would be sought.
In such an event, changes in the services provided might occur and you might
no longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
The Plan has been approved in accordance with the provisions of Rule 12b-1.
The Plan is effective through April 30, 1997 and renewable annually by a vote
of the Board, including a majority vote of the trustees who are
non-interested persons of the Trust 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 trustees be done by the non-interested trustees. The Plan
and any related agreement may be terminated at any time, without penalty, by
vote of a majority of the non-interested trustees 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 management agreement with the
Manager or 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 trustees, 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 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 with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
For the fiscal year ended December 31, 1995, the total amount paid by the
Fund pursuant to the Plan was $59,813, which was used for the following
purposes:
DOLLAR
AMOUNT
Advertising................... $ 5,127
Printing and mailing of prospectuses
other than to current shareholders $ 4,994
Payments to underwriters...... $ 4,425
Payments to broker-dealers.... $45,267
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 and may
occasionally cite statistics to reflect its volatility or risk. Performance
quotations by investment companies are subject to rules adopted by the 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.
The Fund's average annual compounded rates of return for the one, five- and
ten-year periods ended on December 31, 1995, were 16.28%, 14.07% and 10.07%.
These figures were calculated according to the SEC formula:
n
P(1+T)n = 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. These quotations are computed in
the same manner as the Fund's average annual compounded rate, except they
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 Fund's total
rates of return for the one-, five- and ten-year periods ended on December
31, 1995 were 16.28%, 93.15% and 160.95%.
CURRENT YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments and 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 Fund's yield for the 30-day period ended on December 31, 1995 was
2.04%.
This figure was 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
Current 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
shareholders of the Fund. 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 an index considered representative of the types of securities
in which the fund invests. 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
idea is that greater volatility means greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS
For 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
advisors and underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials regarding the Fund
may discuss certain 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 - an unmanaged
index 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 and 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, 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,
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 highlights or summarizes 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. You 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 comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the 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 its
performance as compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs
and/or other long-term goals. The Franklin College Costs Planner may assist
you 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 you 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 of Funds, one of the
largest mutual fund organizations in the U.S., 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 48 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 $141 billion in assets under management for more than 4.1 million
U.S. based mutual fund shareholder and other accounts. The Franklin Group of
Funds and the Templeton Group of Funds offer to the public 115 U.S.-based
mutual funds. The Fund may identify itself by its NASDAQ symbol or CUSIP
number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
As of May 7, 1996, the principal shareholders of the Fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
FTTC TTEE for Valueselect
CACI International Inc.
Attn: Pam Kaopua
PO Box 2438
Rancho Cordova, CA 95741-2438 409,547.945 7.16%
- ---------------------------------------
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.
Employees of Resources or its subsidiaries who are access persons under the
1940 Act are permitted to engage in personal securities transactions subject
to the following general restrictions and procedures: (i) the trade must
receive advance clearance from a compliance officer and must be completed
within 24 hours after clearance; (ii) copies of all brokerage confirmations
must be sent to a 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; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and
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 your 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 audited financial statements contained in the Annual Report to
Shareholders of the Fund for the fiscal year ended December 31, 1995,
including the auditors' report, are incorporated herein by reference.
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Franklin Asset Allocation 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, 1995, as
filed with the SEC electronically on Form Type N-30D on February 27,
1996.
(i) Report of Independent Auditors - January 31, 1996
(ii) Statement of Investments in Securities and Net Assets, December 31,
1995
(iii) Statement of Assets and Liabilities, December 31, 1995
(iv) Statement of Operations for the year ended December 31, 1995
(v) Statement of Changes in Net Assets for the years ended December 31,
1995 and 1994
(vi) Notes to Financial Statements
b) Exhibits
The following exhibits are incorporated by reference as noted, except for
exhibits 1(i), 1(ii), 2(i), 11(i), 17(i), and 17(ii), which are attached:
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust for the Asset Allocation Fund
dated March 21, 1996
(ii) Certificate of Trust for the Asset Allocation Fund dated March
21, 1996
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
(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
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration Statement
on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(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 between Franklin
Premier Return Fund and Franklin/Templeton Distributors, Inc.
dated April 23, 1995
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration Statement
on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(ii) Forms of Dealer Agreements effective December 1, 1994, between
Franklin/Templeton Distributors, Inc. and securities dealers
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration Statement
on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(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 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
(ii) Custodian Agreement between Registrant and Bank of America
NT & SA dated April 1, 1995
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(iii)Amendment to Custodian Agreement dated April 12, 1995
between Registrant and Bank of America NT & SA
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(iv) Master Custodian Agreement between Registrant and Bank of
New York dated February 16, 1996
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(v) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(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;
(i) Agreement of Merger between FOF and Franklin Option Fund,
Inc. dated April 22, 1983
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(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 dated February 27, 1996
(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.
(i) Distribution Plan pursuant to Rule 12b-1 between Franklin
Premier Return Fund and Franklin Distributors, Inc. dated
May 1, 1994
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(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
Registrant: Franklin Premier Return Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(17) Power of Attorney
(i) Power of Attorney dated March 21, 1996
(ii) Certificate of Secretary dated March 21, 1996
(27) Financial Data Schedule
(i) Financial Data Schedule Registrant: Franklin Premier Return
Fund
Filing: Post-effective Amendment No. 55 to Registration
Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of April 30, 1996 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 3,691
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 manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Group of Funds(R).
In addition, Mr. Charles B. Johnson is a director of General Host Corporation.
For additional information please see Part B and Schedules A and D of Form ADV
of the Funds' Investment Manager (SEC File 801-26292), incorporated herein by
reference, which sets forth the officers and directors of the Investment Manager
and information as to any business, profession, vocation or employment of a
substantial nature engaged in by those officers and directors during the past
two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of Franklin Gold Fund, Franklin Equity
Fund, AGE High Income Fund, Inc., Franklin Custodian Funds, Inc., Franklin
Money Fund, Franklin California Tax-Free Income Fund, Inc., Franklin
Federal Money Fund, Franklin Tax-Exempt Money Fund, Franklin New York
Tax-Free Income Fund, Inc., Franklin Federal Tax-Free Income Fund, Franklin
Tax-Free Trust, Franklin California Tax-Free Trust, Franklin New York
Tax-Free Trust, Franklin Investors Securities Trust, Institutional
Fiduciary Trust, Franklin Value Investors Trust, Franklin Tax-Advantaged
International Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Advantaged High Yield Securities Fund, Franklin
Municipal Securities Trust, Franklin Managed Trust, Franklin Strategic
Series, Franklin International Trust, Franklin Real Estate Securities
Trust, Franklin Templeton Global Trust, Franklin Templeton Money Fund
Trust, Franklin Templeton Japan Fund, Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Developing Markets
Trust, Templeton Funds, Inc., Templeton Global Investment Trust, Templeton
Global Opportunities Trust, Templeton Growth Fund, Inc., Templeton Income
Trust, Templeton Institutional Funds, Inc., Templeton Real Estate
Securities Fund, Templeton Smaller Companies Growth Fund, Inc., and
Templeton Variable Products Series 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 17th day of May, 1996.
FRANKLIN ASSET ALLOCATION 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) Trustee
Dated: May 17, 1996
MARTIN L. FLANAGAN* Principal Financial Officer
(Martin L. Flanagan) Dated: May 17, 1996
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: May 17, 1996
FRANK H. ABBOTT, III* Trustee
(Frank H. Abbott, III) Dated: May 17, 1996
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: May 17, 1996
DAVID W. GARBELLANO* Trustee
(David W. Garbellano) Dated: May 17, 1996
CHARLES B. JOHNSON* Trustee and Chairman of the
(Charles B. Johnson) Board
Dated: May 17, 1996
HAYATO TANAKA* Trustee
(Hayato Tanaka) Dated: May 17, 1996
R. MARTIN WISKEMANN* Trustee
(R. Martin Wiskemann) Dated: May 17, 1996
*By Larry L. Greene
Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN PREMIER RETURN FUND
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Attached
Trust dated March 21, 1996
EX-99.B1(ii) Certificate of Trust dated March Attached
21, 1996
EX-99.B2(i) By-Laws Attached
EX-99.B5(i) Management Agreement between *
Registrant and Franklin Advisers,
Inc. dated May 1, 1986
EX-99.B6(i) Amended and Restated Distribution *
Agreement dated April 23, 1995
EX-99.B6(ii) Forms of Dealer Agreement between *
Franklin/Templeton Distributors,
Inc. ("Distributors") and dealers
dated December 1, 1994
EX-99.B8(i) Custodian Agreement between *
Registrant and Citibank Delaware
EX-99.B8(ii) Custodian Agreement between *
Registrant and Bank of America NT
& SA dated April 1, 1995
EX-99.B8(iii) Amendment to Custodian Agreement *
between Registrant and Bank of
America NT & SA dated April 12, 1996
EX-99.B8(iv) Master Custodian Agreement *
between Registrant and Bank of
New York dated February 16,
1996
EX-99.B8(v) Terminal Link Agreement between *
Registrant and Bank of New
York, dated February 16, 1996
EX-99.B9(i) Merger Agreement between FOF and *
Franklin Option Fund, Inc. dated
April 12, 1983
EX-99.B11(i) Consent of Independent Auditors Attached
dated February 27, 1996
EX-99.B14(i) Model Retirement Plan *
EX-99.B16(i) Schedule for computation of *
performance quotation
EX-99.B17(i) Power of Attorney dated February Attached
16, 1995
EX-99.B17(ii) Certificate of Secretary Attached
EX-27.B1 Financial Data Schedule *
*Incorporated by reference
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN ASSET ALLOCATION FUND
a Delaware Business Trust
Principal Place of Business:
777 Mariners Island Boulevard
San Mateo, California 94404
TABLE OF CONTENTS
Page
ARTICLE I....................................................................1
Name and Definitions..................................................1
Section 1. Name.................................................1
Section 2. Definitions..........................................1
(a) Trust...........................................1
(b) Trust Property..................................1
(c) Trustees........................................1
(d) Shares..........................................2
(e) Shareholder.....................................2
(f) Person..........................................2
(g) 1940 Act........................................2
(h) Commission and Principal
Underwriter....................................2
(i) Declaration of Trust............................2
(j) By-Laws.........................................2
(k) Interested Person...............................2
(1) Investment Manager..............................2
(m) Series..........................................2
ARTICLE II...................................................................2
Purpose of Trust.......................................................2
ARTICLE III..................................................................3
Shares.................................................................3
Section 1. Division of Beneficial Interest......................3
Section 2. Ownership of Shares..................................3
Section 3. Investments in the Trust.............................4
Section 4. Status of Shares and Limitation of
Personal Liability.................................4
Section 5. Power of Board of Trustees to Change
Provisions Relating to Shares......................4
Section 6. Establishment and Designation of
Shares.............................................5
(a) Assets Held with Respect to a Particular
Series...............................................5
(b) Liabilities Held with Respect to a Particular
Series...............................................6
(c) Dividends, Distributions, Redemptions, and
Repurchases..........................................6
(d) Voting...............................................7
(e) Equality.............................................7
(f) Fractions............................................7
(g) Exchange Privilege...................................7
(h) Combination of Series................................7
(i) Elimination of Series................................8
Section 7. Indemnification of Shareholders......................8
ARTICLE IV...................................................................8
The Board of Trustees..................................................8
Section 1. Number, Election and
Tenure.............................................8
Section 2. Effect of Death, Resignation, etc. of
a Trustee..........................................9
Section 3. Powers...............................................9
Section 4. Payment of Expenses by the Trust....................13
Section 5. Payment of Expenses by Shareholders.................13
Section 6. Ownership of Assets of the Trust....................13
Section 7. Service Contracts...................................14
ARTICLE V 15
Shareholders' Voting Powers and Meetings..............................15
Section 1. Voting Powers.......................................15
Section 2. Voting Power and Meetings...........................16
Section 3. Quorum and Required Vote............................16
Section 4. Action by Written Consent...........................17
Section 5. Record Dates........................................17
Section 6. Additional Provisions...............................17
ARTICLE VI 18
Net Asset Value, Distributions, and Redemptions.......................18
Section 1. Determination of Net Asset Value, Net
Income, and Distributions.........................18
Section 2. Redemptions and Repurchases.........................18
Section 3. Redemptions at the Option of the
Trust.............................................19
ARTICLE VII 19
Compensation and Limitation of Liability of Trustees..................19
Section 1. Compensation........................................19
Section 2. Indemnification and Limitation of
Liability.........................................19
Section 3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety.........................20
Section 4. Insurance...........................................20
ARTICLE VIII................................................................20
Miscellaneous.........................................................20
Section 1. Liability of Third Persons Dealing
with Trustees.....................................20
Section 2. Termination of Trust or Series......................20
Section 3. Merger and Consolidation............................21
Section 4. Amendments..........................................21
Section 5. Filing of Copies, References, Headings..............22
Section 6. Applicable Law......................................22
Section 7. Provisions in Conflict with Law or
Regulations.......................................22
Section 8. Business Trust Only.................................23
Section 9. Use of the name "Franklin"..........................23
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN ASSET ALLOCATION FUND
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is
made and entered into as of the date set forth below by the
Trustees named hereunder for the purpose of forming a Delaware
business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that a
Certificate of Trust be filed with the office of the Secretary of
State of the State of Delaware and do hereby declare that the
Trustees will hold IN TRUST all cash, securities and other assets
which the Trust now possesses or may hereafter acquire from time
to time in any manner and manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the
holders of Shares in this Trust.
ARTICLE I.
Name and Definitions
SECTION 1. Name. This trust shall be known as
"Franklin Asset Allocation Fund" and the Trustees shall conduct
the business of the Trust under that name or any other name as
they may from time to time determine.
SECTION 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) The "Trust Property" means any and all property,
real or personal, tangible or intangible, which is owned or held
by or for the account of the Trust, including without limitation
the rights referenced in Article VIII, Section 9 hereof;
(c) "Trustees" refers to the persons who have signed
this Agreement and Declaration of Trust, so long as they continue
in office in accordance with the terms hereof, and all other
persons who may from time to time be duly elected or appointed to
serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees
hereunder;
(d) "Shares" means the shares of beneficial interest
into which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as
whole Shares;
(e) "Shareholder" means a record owner of outstanding
Shares;
(f) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures,
estates and other entities, whether or not legal entities, and
governments and agencies and political subdivisions thereof,
whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company
Act of 1940 and the Rules and Regulations thereunder, all as
amended from time to time;
(h) The terms "Commission" and "Principal Underwriter"
shall have the respective meanings given them in Section 2(a)(7)
and Section (2)(a)(29) of the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement
and Declaration of Trust, as amended or restated from time to
time;
(j) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given
it in Section 2(a)(19) of the 1940 Act;
(l) "Investment Manager" or "Manager" means a party
furnishing services to the Trust pursuant to any contract
described in Article IV, Section 7(a) hereof;
(m) "Series" refers to each Series of Shares
established and designated under or in accordance with the
provisions of Article III and shall mean an entity such as that
described in Section 18(f)(2) of the 1940 Act, and subject to
Rule 18f-2 thereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and
carry on the business of a management investment company
registered under the 1940 Act through one or more Series
investing primarily in securities.
ARTICLE III.
Shares
SECTION 1. Division of Beneficial Interest. The
beneficial interest in the Trust shall at all times be divided
into an unlimited number of Shares, with a par value of $ .01 per
Share. The Trustees may authorize the division of Shares into
separate Series and the division of Series into separate classes
of Shares. The different Series shall be established and
designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and
determined, by the Trustees. If only one or no Series (or
classes) shall be established, the Shares shall have the rights
and preferences provided for herein and in Article III, Section 6
hereof to the extent relevant and not otherwise provided for
herein, and all references to Series (and classes) shall be
construed (as the context may require) to refer to the Trust.
Subject to the provisions of Section 6 of this Article
III, each Share shall have voting rights as provided in Article V
hereof, and holders of the Shares of any Series shall be entitled
to receive dividends, when, if and as declared with respect
thereto in the manner provided in Article VI, Section I hereof.
No Shares shall have any priority or preference over any other
Share of the same Series with respect to dividends or
distributions upon termination of the Trust or of such Series
made pursuant to Article VIII, Section 4 hereof. All dividends
and distributions shall be made ratably among all Shareholders of
a particular (class of a) Series from the assets held with
respect to such Series according to the number of Shares of such
(class of such) Series held of record by such Shareholder on the
record date for any dividend or distribution or on the date of
termination, as the case may be. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares
of that Series without thereby materially changing the
proportionate beneficial interest ' of the Shares of that Series
in the assets held with respect to that Series or materially
affecting the rights of Shares of any other Series.
SECTION 2. Ownership of Shares. The ownership of
Shares shall be recorded on the books of the Trust or a transfer
or similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series (or class). No
certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider
appropriate for the transfer of Shares of each Series (or class)
and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be,
shall be conclusive as to who are the Shareholders of each Series
(or class) and as to the number of Shares of each Series (or
class) held from time to time by each.
SECTION 3. Investments in the Trust. Investments may
be accepted by the Trust from such Persons, at such times, on
such terms, and for such consideration as the Trustees from time
to time may authorize. Each investment shall be credited to the
individual Shareholder's account in the form of full and
fractional Shares of the Trust, iii such Series (or class) as the
purchaser shall select, at the net asset value per Share next
determined for such Series (or class) after receipt of the
investment; provided, however, that the Trustees may, in their
sole discretion, impose a sales charge upon investments in the
Trust.
SECTION 4. Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving
only the rights provided in this instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but entitles such representative only
to the rights of said deceased Shareholder under this Trust.
ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust Property or
right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust shall have any
power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to
pay.
SECTION 5. Power of Board of Trustees to Change
Provisions Relating to Shares. Notwithstanding any other
provisions of this Declaration of Trust and without limiting the
power of the Board of Trustees to amend the Declaration of Trust
as provided elsewhere herein, the Board of Trustees shall have
the power to amend this Declaration of Trust, at any time and
from time to time, in such manner as the Board of Trustees may
determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this
Declaration of Trust, provided that before adopting any such
amendment without Shareholder approval the Board of Trustees
shall determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law. if
Shares have been issued, Shareholder approval shall be required
to adopt any amendments to this Declaration of Trust which would
adversely affect to a material degree the rights and preferences
of the Shares of any Series (or class) or to increase or decrease
the par value of the Shares of any Series (or class).
Subject to the foregoing Paragraph, the Board of
Trustees may amend the Declaration of Trust to amend any of the
provisions set forth in paragraphs (a) through (i) of Section 6
of this Article III.
SECTION 6. Establishment and Designation of Shares.
The establishment and designation of any Series (or class) of
Shares shall be effective upon the resolution by a majority of
the then Trustees, adopting a resolution which sets forth such
establishment and designation and the relative rights and
preferences of such Series (or class). Each such resolution
shall be incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant
to this Section 6, unless otherwise provided in the resolution
establishing such Series, shall have the following relative
rights and preferences:
(a) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES.
All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably be held with
respect to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as assets held
with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as the Trustees, in their sole discretion, deem
fair and equitable, and any General Asset so allocated to a
particular Series shall be held with respect to that Series.
Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR
SERIES. The assets of the Trust held with respect to each
particular Series shall be charged against the liabilities of the
Trust held with respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
being held with respect to any particular Series shall be
allocated and charged by the Trustees to and among any one or
more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities held with respect
to" that Series. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive
and binding upon the holders of all Series for all purposes. All
Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been
allocated to any particular Series, shall look, and shall be
required by contract to look exclusively, to the assets of that
particular Series for payment of such credit, claim, or contract.
In the absence of an express contractual agreement so limiting
the claims of such creditors, claimants and contract providers,
each creditor, claimant and contract provider will be deemed
nevertheless to have impliedly agreed to such limitation unless
an express provision to the contrary has been incorporated in the
written contract or other document establishing the claimant
relationship.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND
REPURCHASES. Notwithstanding any other provisions of this
Declaration of Trust, including, without limitation, Article VI,
no dividend or distribution including, without limitation, any
distribution paid upon termination of the Trust or of any series
(or class) with respect to, nor any redemption or repurchase of,
the Shares of any Series (or class) shall be effected by the
Trust other than from the assets held with respect to such
Series, nor, except as specifically provided in Section 7 of this
Article III, shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with
respect to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder
of such other Series. The Trustees shall have full discretion,
to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as
capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
(d) VOTING. All Shares of the Trust entitled to vote
on a matter shall vote separately by Series (and, if applicable,
by class): that is, the Shareholders of each Series (or class)
shall have the right to approve or disapprove matters affecting
the Trust and each respective series (or class) as if the Series
(or classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if
the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series (or
classes), then all the Trust's Shares shall be entitled to vote
on a one-vote-per-Share basis. Second, if any matter affects
only the interests of some but not all Series (or classes), then
only the Shareholders of such affected Series (or classes) shall
be entitled to vote on the matter.
(e) EQUALITY. All the Shares of each particular
Series shall represent an equal proportionate undivided interest
in the assets held with respect to that Series (subject to the
liabilities held with respect to that Series and such rights and
preferences as may have been established and designated with
respect to classes of Shares within such Series), and each Share
of any particular Series shall be equal to each other Share of
that Series.
(f) FRACTIONS. Any fractional Share of a Series shall
carry proportionately all the rights and obligations of a whole
share of that Series, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have
the authority, without the approval of the Shareholders of any
Series unless otherwise required by applicable law, to combine
the assets and liabilities held with respect to any two or more
series into assets and liabilities held with respect to a single
series.
(i) ELIMINATION OF SERIES. At any time that there are
no Shares outstanding of any particular Series (or class)
previously established and designated, the Trustees may by
resolution of a majority of the then Trustees abolish that Series
(or class) and rescind the establishment and designation thereof.
SECTION 7. Indemnification of Shareholders. If any
Shareholder or former Shareholder shall be exposed to liability
by reason of a claim or demand relating to his or her being or
having been a Shareholder, and not because of his or her acts or
omissions, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators, or other legal representatives
or in the case of a corporation or other entity, its corporate or
other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust against all
loss and expense arising from such claim or demand.
ARTICLE IV.
The Board of Trustees
SECTION 1. NUMBER, ELECTION AND TENURE. The number of
Trustees constituting the Board of Trustees shall be fixed from
time to time by a written instrument signed, or by resolution
approved at a duly constituted meeting, by a majority of the
Board of Trustees, provided, however, that the number of Trustees
shall in no event be less than one (1) nor more than fifteen
(15). The Board of Trustees, by action of a majority of the then
Trustees at a duly constituted meeting, may fill vacancies in the
Board of Trustees or remove Trustees with or without cause. Each
Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and until the
election and qualification of his or her successor. Any Trustee
may resign at any time by written instrument signed by him and
delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to
the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any
right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of
such removal. The Shareholders may fix the number of Trustees
and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust. A meeting of Shareholders for
the purpose of electing or removing one or more Trustees may be
called (i) by the Trustees upon their own vote, or (ii) upon the
demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A
TRUSTEE. The death, declination, resignation, retirement,
removal, or incapacity of one or more Trustees, or all of them,
shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of
Trust. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled as provided in Article IV, Section
1, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees and shall discharge all
the duties imposed upon the Trustees by this Declaration of
Trust. As conclusive evidence of such vacancy, a written
instrument certifying the existence of such vacancy may be
executed by an officer of the Trust or by a majority of the Board
of Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then
Trustees within a short period of time and without the
opportunity for at least one Trustee being able to appoint
additional Trustees to fill vacancies, the Trust's Investment
Manager(s) are empowered to appoint new Trustees subject to the
provisions of Section 16(a) of the 1940 Act.
SECTION 3. POWERS. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Trustees in all instances shall
act as principals, and are and shall be free from the control of
the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any and
all contracts and instruments that they nay consider necessary or
appropriate in connection with the administration of the Trust.
Without limiting the foregoing, the Trustees may: adopt By-Laws
not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust and may
amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; fill vacancies in or
remove from their number, and may elect and remove such officers
and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and
terminate one or more committees consisting of two or more
Trustees which may exercise the powers and authority of the Board
of Trustees to the extent that the Trustees determine; employ one
or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any
part of such assets in a system or systems for the central
handling of securities or with a Federal Reserve Bank, retain a
transfer agent or a shareholder servicing agent, or both; provide
for the issuance and distribution of Shares by the Trust directly
or through one or more Principal underwriters or otherwise;
redeem, repurchase and transfer Shares pursuant to applicable
law; set record dates for the determination of Shareholders with
respect to various matters; declare and pay dividends and
distributions to Shareholders of each Series from the assets of
such Series; establish from time to time, in accordance with the
provisions of Article III, Section 6 hereof, any Series (or
class) of Shares, each such Series (or class) to operate as a
separate and distinct investment medium and with separately
defined investment objectives and policies and distinct
investment purpose; and in general delegate such authority as
they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the
Trust or to any such custodian, transfer or shareholder servicing
agent, or Principal Underwriter. Any determination as to what is
in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of a
grant of power to the Trustees. Unless otherwise specified or
required by law, any action by the Board of Trustees shall be
deemed effective if approved or taken by a majority of the
Trustees then in office. Any action required or permitted to be
taken at any meeting of the Board of Trustees, or any committee
thereof, may be taken without a meeting if all members of the
Board of Trustees or committee (as the case may be) consent
thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board of Trustees, or
committee.
Without limiting the foregoing, the Trust shall have
power and authority:
(a) To invest and reinvest cash, to hold cash
uninvested, and to subscribe for, invest in, reinvest in,
purchase or otherwise acquire, own, hold, pledge, sell, assign,
transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future
acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, preferred
stocks, negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, bankers'
acceptances, and other securities of any kind, issued, created
guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the
United States and the District of Columbia and any political
subdivision, agency, or instrumentality thereof, any foreign
government or any political subdivision of the U.S. Government or
any foreign government, or any international instrumentality, or
by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any
corporation or organization organized under any foreign law, or
in "when issued" contracts for any such securities, to change the
investments of the assets of the Trust; and to exercise any and
all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including, without limitation, the right to consent
and otherwise act with respect thereto, with power to designate
one or more Persons, to exercise any of said rights, powers, and
privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, lease, or write options with respect to or otherwise
deal in any property rights relating to any or all of the assets
of the Trust or any Series, subject to any requirements of the
1940 Act;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating that it is trust property, whether in bearer,
unregistered or other negotiable form, or in its own name or in
the name of a custodian or subcustodian or a nominee or nominees
or otherwise or to authorize the custodian or a subcustodian or a
nominee or nominees to deposit the same in a securities
depository, subject in each case to proper safeguards according
to the usual practice of investment companies or any rules or
regulations applicable thereto;
(f) To consent to, or participate in, any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise, and
in that connection to deposit any security with, or transfer any
security to, any such committee, depositary or trustee, and to
delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy, including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of
the Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes
or other obligations of any Person; to make contracts of guaranty
or suretyship, or otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust
Property such insurance as the Trustees may deem necessary or
appropriate for the conduct of the business, including, without
limitation, insurance policies insuring the assets of the Trust
or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers,
principal underwriters, or independent contractors of the Trust,
individually against all claims and liabilities of every nature
arising by reason of holding Shares, holding, being or having
held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such Person as
Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action
taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such
Person against liability; and
(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trust shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trust shall not in any way be
bound or limited by any present or future law or custom in regard
to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or
take any other action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The
Trustees are authorized to pay or cause to be paid out of the
principal or income of the Trust or Series (or class), or partly
out of the principal and partly out of income, and to charge or
allocate the same to, between or among such one or more of the
Series (or class) that may be established or designated pursuant
to Article III, Section 6, as they deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust or Series (or class), or in connection with the
management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser 'or manager,
principal underwriter, auditors, counsel, custodian, transfer
agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series, to pay directly, in advance or arrears, for
charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by
the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to
all of the assets of the Trust shall at all times be considered
as vested in the Trust, except that the Trustees shall have power
to cause legal title to any Trust Property to be held by or in
the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and
interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee.
Upon the resignation, removal or death of a Trustee he or she
shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have
been executed and delivered.
SECTION 7. SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as
nay be set forth in the By-Laws, the Trustees may, at any time
and from time to time, contract for exclusive or nonexclusive
advisory, management and/or administrative services for the Trust
or for any Series with any corporation, trust, association or
other organization; and any such contract may contain such other
terms as the Trustees may determine, including without
limitation, authority for the Investment Manager or administrator
to determine from time to time without prior consultation with
the Trustees what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time
to time, contract with any corporation, trust, association or
other organization, appointing it exclusive or nonexclusive
distributor or Principal Underwriter for the Shares of one or
more of the Series (or classes) or other securities to be issued
by the Trust. Every such contract shall comply with such
requirements and restrictions as may be set forth in the By-Laws;
and any such contract may contain such other terms as the
Trustees may determine.
(c) The Trustees are also empowered, at any time and
from time to time, to contract with any corporations, trusts,
associations or other organizations, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract
shall comply with such requirements and restrictions as may be
set forth in the By-Laws or stipulated by resolution of the
Trustees.
(d) The Trustees are further empowered, at any tine
and from time to time, to contract with any entity to provide
such other services to the Trust or one or more of the Series, as
the Trustees determine to be in the best interests of the Trust
and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or
officers of the Trust is a shareholder, director,
officer, partner, trustee, employee, Manager, adviser,
Principal Underwriter, distributor, or affiliate or
agent of or for any corporation, trust, association, or
other organization, or for any parent or affiliate of
any organization with which an advisory, management or
administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made also has an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other service contract with
one or more other corporations, trust, associations, or
other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V.
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. Subject to the provisions
of Article III, Section 6(d), the Shareholders shall have power
to vote only (i) for the election or removal of Trustees as
provided in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall
rest on the challenger.
SECTION 2. VOTING POWER AND MEETINGS. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to tine
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven (7) days before such meeting, postage prepaid,
stating the time and place of the meeting, to each Shareholder at
the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his or her attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent
to such notice.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a
larger quorum is required by applicable law, by the By-Laws or by
this Declaration of Trust, forty percent (40%) of the Shares
entitled to vote shall constitute a quorum at a Shareholders'
meeting. When any one or more Series (or classes) is to vote as
a single class separate from any other Shares, forty percent
(40%) of the Shares of each such Series (or classes) entitled to
vote shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the
question of adjourning a meeting to another date and tine,
whether or not a quorum is present, and the meeting may be held
as adjourned within a reasonable time after the date set for the
original meeting without further notice. Subject to the
provisions of Article III, Section 6(d), when a quorum is present
at any meeting, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, except when a
larger vote is required by any provision of this Declaration of
Trust or the By-Laws or by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action
taken by Shareholders may be taken without a meeting if
Shareholders holding a majority of the Shares entitled to vote on
the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or
by the By-Laws) and holding a majority (or such larger proportion
as aforesaid) of the Shares of any Series (or class) entitled to
vote separately on the matter consent to the action in writing
and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
SECTION 5. RECORD DATES. For the purpose of
determining the Shareholders of any Series (or class) who are
entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which
shall be not more than ninety (90) days before the date of any
meeting of Shareholders, as the record date for determining the
Shareholders of such Series (or class) having the right to notice
of and to vote at such meeting and any adjournment thereof, and
in such case only Shareholders of record on such record date
shall have such right, notwithstanding any transfer of shares on
the books of the Trust after the record date. For the purpose of
determining the Shareholders of any Series (or class) who are
entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a date,
which shall be before the date for the payment of such dividend
or such other payment, as the record date for determining the
Shareholders of such Series (or class) having the right to
receive such dividend or distribution. Without fixing a record
date the Trustees may for voting and/or distribution purposes
close the register or transfer books for one or more Series for
all or any part of the period between a record date and a meeting
of Shareholders or the payment of a distribution. Nothing in
this Section shall be construed as precluding the Trustees from
setting different record dates for different Series (or classes).
SECTION 6. ADDITIONAL PROVISIONS. The By-Laws may
include further provisions for Shareholders' votes and meetings
and related matters.
ARTICLE VI.
Net Asset Value, Distributions, and Redemptions
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET
INCOME, AND DISTRIBUTIONS. Subject to Article III, Section 6
hereof, the Trustees, in their absolute discretion, may prescribe
and shall set forth in the By-laws or in a duly adopted vote of
the Trustees such bases and time for determining the per Share or
net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES. The Trust
shall purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
Person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, in accordance with
the By-Laws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation
set forth in this Section 2 is subject to the provision that in
the event that any time the New York Stock Exchange (the
"Exchange") is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency
which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the
value of the net assets held with respect to such Series or
during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or
postponed by the Trustees.
The redemption price may in any case or cases be paid
wholly or partly in kind if the Trustees determine that such
payment is advisable in the interest of the remaining
Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection
and quantity of securities or other property so paid or delivered
as all or part of the redemption price may be determined by or
under authority of the Trustees. In no case shall the Trust be
liable for any delay of any corporation or other Person in
transferring securities selected for delivery as all or part of
any payment in kind.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST.
The Trust shall have the right at its option and at any tine to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series having an aggregate
net asset value of less than an amount determined from time to
time by the Trustees prior to the acquisition of said Shares; or
(ii) to the extent that such Shareholder owns Shares of a
particular Series equal to or in excess of a percentage of the
outstanding Shares of that Series determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from
time to time by the Trustees, of the outstanding Shares of the
Trust or of any Series.
ARTICLE VII.
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees as such shall
be entitled to reasonable compensation from the Trust, and they
may fix the amount of such compensation. Nothing herein shall in
any way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
SECTION 2. INDEMNIFICATION AND LIMITATION OF
LIABILITY. The Trustees shall not be responsible or liable in
any event for any neglect or wrong-doing of any officer, agent,
employee, Manager or Principal Underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any
other Trustee, and the Trust out of its assets shall indemnify
and hold harmless each and every Trustee from and against any and
all claims and demands whatsoever arising out of or related to
each Trustee's performance of his or her duties as a Trustee of
the Trust; provided that nothing herein contained shall
indemnify, hold harmless or protect any Trustee from or against
an y liability to the Trust or any Shareholder to which he or she
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee,
and such Trustees or Trustee shall not be personally liable
thereon.
SECTION 3. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE,
NO BOND OR SURETY. The exercise by the Trustees of their powers
and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable to the Trust and to any
Shareholder solely for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
SECTION 4. INSURANCE. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee
or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust, whether or not
the Trust would have the power to indemnify him or her against
such liability under the provisions of this Article.
ARTICLE VIII.
Miscellaneous
SECTION 1. LIABILITY OF THIRD PERSONS DEALING WITH
TRUSTEES. No Person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
SECTION 2. TERMINATION OF TRUST OR SERIES. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of a majority of the Shares of each Series entitled to vote,
voting separately by Series, or by the Trustees by written notice
to the Shareholders. Any Series may be terminated at any time by
vote of a majority of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the
case may be), after paying or otherwise providing for all
charges, taxes, expenses and liabilities held, severally, with
respect to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined
by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the
remaining assets held, severally, with respect to each Series (or
the applicable Series, as the case may be), to distributable form
in cash or shares or other securities, or any combination
thereof, and distribute the proceeds held with respect to each
Series (or the applicable Series, as the case nay be), to the
Shareholders of that Series, as a Series, ratably according to
the number of Shares of that Series held by the several
Shareholders on the date of termination.
SECTION 3. MERGER AND CONSOLIDATION. The Trustees may
cause (i) the Trust or one or more of its Series to the extent
consistent with applicable law to be merged into or consolidated
with another Trust or company, (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this
Section 3 of Article VIII, or (iii) the Shares to be exchanged
under or pursuant to any state or federal statute to the extent
permitted by law. Such merger or consolidation, Share conversion
or Share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust, as a whole, or any affected
Series, as may be applicable; provided that in all respects not
governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to
accomplish a sale of assets, merger or consolidation including
the power to create one or more separate business trusts to which
all or any part of the assets, liabilities, profits or losses of
the Trust may be transferred and to provide for the conversion of
Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
SECTION 4. AMENDMENTS. This Declaration of Trust may
be restated and/or amended at any time by an instrument in
writing signed by a majority of the then Trustees and, if
required, by approval of such amendment by Shareholders in
accordance with Article V, Section 3 hereof. Any such
restatement and/or amendment hereto shall be effective
immediately upon execution and approval. The Certificate of
Trust of the Trust may be restated and/or amended by a similar
procedure, and any such restatement and/or amendment shall be
effective immediately upon filing with the Office of the
Secretary of State of the State of Delaware or upon such future
date as may be stated therein.
SECTION 5. FILING OF COPIES, REFERENCES, HEADINGS.
The original or a copy of this instrument and of each restatement
and/or amendment hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing
with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or
amendments have been made and as to any matters in connection
with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such
restatements and/or amendment, references to this instrument, and
all expressions like "herein," "hereof" and "hereunder," shall be
deemed to refer to this instrument as amended or affected by any
such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or
effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
SECTION 6. APPLICABLE LAW. This Agreement and
Declaration of Trust is created under and is to be governed by
and construed and administered according to the laws of the State
of Delaware and the Delaware Business Trust Act, as amended from
time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a business trust.
SECTION 7. PROVISIONS IN CONFLICT WITH LAW OR
REGULATIONS.
(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to
have constituted a part of the Declaration of Trust; provided,
however, that such determination shall not affect any of the
remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust shall
be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction or any other provision
of the Declaration of Trust in any jurisdiction.
SECTION 8. BUSINESS TRUST ONLY. It is the intention
of the Trustees to create a business trust pursuant to the
Delaware Business Trust Act, as amended from time to time (the
"Act"), and thereby to create only the relationship of trustee
and beneficial owners within the meaning of such Act between the
Trustees and each Shareholder. It is not the intention of the
Trustees to create a general partnership, limited partnership,
joint stock association, corporation, bailment, or any form of
legal relationship other than a business trust pursuant to such
Act. Nothing in this Declaration of Trust shall be construed to
make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
SECTION 9. USE OF THE NAME "FRANKLIN". The name
"Franklin" and all rights to the use of the name "Franklin"
belongs to Franklin Resources, Inc. ("Franklin"), the sponsor of
the Trust. Franklin has consented to the use by the Trust of the
identifying word "Franklin" and has granted to the Trust a non-
exclusive license to use the name "Franklin" as part of the name
of the Trust and the name of any Series of Shares. In the event
Franklin or an affiliate of Franklin is not appointed as Manager
and/or Principal Underwriter or ceases to be the Manager and/or
Principal Underwriter of the Trust or of any Series using such
names, the non-exclusive license granted herein may be revoked by
Franklin and the Trust shall cease using the name "Franklin" as
part of its name or the name of any Series of Shares, unless
otherwise consented to by Franklin or any successor to its
interests in such names.
IN WITNESS WHEREOF, the Trustees named below do hereby
make and enter into this Declaration of Trust as of the 21st day
of March, 1996.
/s/ Frank H. Abbott, III /s/ Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
1045 Sansome Street 777 Mariners Island Blvd.
San Francisco, CA 94111 San Mateo, CA 94404
/s/ S. Joseph Fortunato /s/ Hayato Tanaka
S. Joseph Fortunato Hayato Tanaka
Park Avenue at Morris County 277 Haihai Street
P.O. Box 1945 Hilo, HI 96720
Morristown, NJ 07962-1945
/s/ David W. Garbellano /s/ R. Martin Wiskemann
David W. Garbellano R. Martin Wiskemann
111 New Montgomery St. #402 777 Mariners Island Boulevard
San Francisco, CA 94105 San Mateo, CA 94404
/s/ Edward B. Jamieson
Edward B. Jamieson
777 Mariners Island Boulevard
San Mateo, CA 94404
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners
Island Boulevard, San Mateo, California 94404
CERTIFICATE OF TRUST
OF
FRANKLIN ASSET ALLOCATION FUND
a Delaware Business Trust
THIS Certificate of Trust of the FRANKLIN ASSET ALLOCATION FUND (the
"Trust"), dated as of this 21st day of March, 1996, is being duly executed and
filed, in order to form a business trust pursuant to the Delaware Business Trust
Act (the "Act"), Del. Code Ann. tit. 12, ss.ss.3801-3819.
1. NAME. The name of the business trust formed hereby is "FRANKLIN ASSET
ALLOCATION FUND."
2. REGISTERED OFFICE AND REGISTERED AGENT. The Trust will become, prior to
the issuance of beneficial interests, a registered investment company under the
Investment Company Act of 1940, as amended. Therefore, in accordance with
section 3807(b) of the Act, the Trust has and shall maintain in the State of
Delaware a registered office and a registered agent for service of process.
(a) REGISTERED OFFICE. The registered office of the Trust in Delaware is
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
(b) REGISTERED AGENT. The registered agent for service of process on the
Trust in Delaware is The Corporation Trust Company.
3. LIMITATION ON LIABILITY. Pursuant to section 3804 of the Act, in the
event that the Trust's governing instrument, as defined in section 3801(f) of
the Act, creates one or more series as provided in section 3806(b)(2) of the
Act, the debts, liabilities, obligations and expenses incurred, contracted for
or otherwise existing with respect to a particular series of the Trust shall be
enforceable against the assets of such series only, and not against the assets
of the Trust generally.
IN WITNESS WHEREOF, the Trustees named below do hereby execute this
Certificate of Trust as of the date first-above written.
/s/Frank H. Abbott, III /s/Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
1045 Sansome Street 777 Mariners Island Blvd.
San Francisco, CA 94111 San Mateo, CA 94404
/s/S. Joseph Fortunato /s/Hayato Tanaka
S. Joseph Fortunato Hayato Tanaka
Park Avenue at Morris County 277 Haihai Street
P.O. Box 1945 Hilo, HI 96720
Morristown, NJ 07962-1945
/s/David W. Garbellano /s/R. Martin Wiskemann
David W. Garbellano R. Martin Wiskemann
111 New Montgomery St. #402 777 Mariners Island Boulevard
San Francisco, CA 94105 San Mateo, CA 94404
/s/Edward B. Jamieson
Edward B. Jamieson
777 Mariners Island Boulevard
San Mateo, CA 94404
BY-LAWS
OF
FRANKLIN ASSET ALLOCATION FUND
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from time
to time, may change the location of the principal executive office of the Trust
at any place within or outside the State of Delaware.
Section 2. OTHER OFFICES. The Board of Trustees may at any time establish
branch or subordinate offices at any place or places where the Trust intends 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 Delaware designated by the Board of
Trustees. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be called at
any time by the Board of Trustees or by the Chairman of the Board or by the
president.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a trustee has a direct or indirect financial
interest, (ii) an amendment of the Declaration of Trust, (iii) a reorganization
of the Trust, or (iv) a voluntary dissolution of the Trust, the notice shall
also state the general nature of that proposal.
Section 4. 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
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust'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 Trust'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 Trust is returned to the Trust by the United
States Postal Service marked to indicate that the 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 Trust 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 Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting, 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.
When any meeting of shareholders 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 sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees 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 3 and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the original meeting.
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders, vote may be
by voice vote or by ballot, provided, however, that any election for trustees
must be by ballot if demanded by any shareholder before the voting has begun. on
any matter other than elections of trustees, 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.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, 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 meeting of shareholders.
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 beginning of the
meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any 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. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's 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 Trust 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 action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 9. 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 action without a meeting, the Board of
Trustees may fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any such meeting as
provided in the Declaration of Trust.
If the Board of Trustees 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 action in writing without a meeting, (i) when no prior action by the
Board of Trustees has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the Board of Trustees has been
taken, shall be at the close of business on the day on which the Board of
Trustees adopt the resolution relating to that action or the seventy-fifth day
before the date of such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for trustees 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 Trust. 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 Trust 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 Trust 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 General Corporation
Law of the State of California.
Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders, the
Board of Trustees 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 or 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
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the Declaration
of Trust 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 Trust
shall be managed and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact number of
trustees shall be set forth in the Agreement and Declaration of Trust, until
changed by a duly adopted amendment to the Declaration of Trust.
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled by a
majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing trustees. In the event that at any time less than a
majority of the trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
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
trustees to fill any existing vacancies in the Board of Trustees, 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 Trust is a
participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-i under the Investment Company Act of 1940, then the selection and
nomination of the trustees who are not interested persons of the Trust (as that
term is defined in the Investment Company Act of 1940) shall be, and is,
committed to the discretion of such disinterested trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the
Board of Trustees may be held at any place within or outside the State of
Delaware 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 Trust. Any meeting, regular or special, may be
held by conference telephone or similar communication equipment, so long as all
trustees participating in the meeting can hear one another and all such trustees
shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such tine as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees 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) trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each trustee at that trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least seven (7) days before the
tine of the holding of the meeting. In case the notice is delivered personally,
by telephone, to the telegraph company, or by express mail or similar service,
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 trustee or to a person at the office of the trustee
who the person giving the notice has reason to believe will promptly communicate
it to the trustee. 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
Trust.
Section 7. QUORUM. A majority of the authorized number of trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
trustees if any action taken is approved by a least a majority of the required
quorum for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to any
trustee 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 approvals shall be filed with the records of the Trust or made a
part of the minutes of the meeting. Notice of a meeting shall also be deemed
given to any trustee who attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
Section 10. 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 forty-eight (48) 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 7 of this Article III to the trustees who were present at the time of
the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Trustees may be taken without a meeting if a majority
of the members of the Board of Trustees shall individually or collectively
consent in writing to that action. Such action by written consent shall have the
same force and effect as a majority vote of the Board of Trustees. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees 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 Trustees. This Section 12 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration of Trust except as otherwise expressly provided
herein or by resolution of the Board of Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by resolution
adopted by a majority of the authorized number of trustees designate one or more
committees, each consisting of two (2) or more trustees, to serve at the
pleasure of the Board. The Board may designate one or more trustees 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 applicable law also requires
shareholders' approval or approval of the outstanding shares, or requires
approval by a majority of the entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any committee;
(c) the fixing of compensation of the trustees for serving on the Board of
Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of the By-Laws
or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Trust, except at a rate or in
a periodic amount or within a designated range determined by the Board of
Trustees; or
(g) the appointment of any other committees of the Board of Trustees 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, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees, 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 Trustees 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 Trust shall be a president, a
secretary, and a treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, 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 Trust, except such
officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may
empower the president to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees 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 Trustees at any regular or special
meeting of the Board of Trustees or except in the case of an officer upon whom
such power of removal may be conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the Trust.
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
Trust 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
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Trustees to the chairman of the board, if there be such an
officer, the president shall be the chief executive officer of the Trust and
shall, subject to the control of the Board of Trustees, have general
supervision, direction and control of the business and the officers of the
Trust. 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 Trustees. 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 Trustees or these
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
Trustees or if not ranked, a vice president designated by the Board of Trustees,
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 Trustees or
by these 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 of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of trustees,
committees of trustees 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 trustees' 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 of the Trust or at the office of the Trust's transfer agent or registrar,
as determined by resolution of the Board of Trustees, 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 Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief financial officer
of the Trust and 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 Trust, 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 trustee.
The treasurer shall deposit all monies and other valuables in the name and
to the credit of the Trust with such depositories as may be designated by the
Board of Trustees. He shall disburse the funds of the Trust as may be ordered by
the Board of Trustees, shall render to the president and trustees, whenever they
request it, an account of all of his transactions as chief financial officer and
of the financial condition of the Trust and shall have other powers and perform
such other duties as may be prescribed by the Board of Trustees or these
By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, 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 trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "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 TRUST. This Trust 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 Trust) by reason of
the fact that such person is or was an agent of this Trust, 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 Trust
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 contenders 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 Trust or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS OTHER THAN BY TRUST. This Trust 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 Trust to
procure a judgment in its favor by reason of the fact that the person is or was
an agent of this Trust, 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 Trust 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 this Trust.
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 Trust, 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) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity; or
(c) 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
Trust 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 Trustees,
including a majority who are disinterested, non-party trustees, 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 Trust 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 trustees who are not parties
to the proceeding and are not interested persons of the Trust (as defined in the
Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust 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 trustees, 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 trustees
and officers of this Trust 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 Sections 5 ----------- or 6 in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Agreement and
Declaration of Trust, 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 Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust 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 Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article.
Section 11. FIDUCIARIES OF 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 this Trust 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. This Trust 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 Trustees, a record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep at
its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. 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.
Section 4. INSPECTION BY TRUSTEES. Every trustee 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 Trust. This inspection by a
trustee 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. FINANCIAL STATEMENTS. A copy of any financial statements and any
income statement of the Trust for each quarterly period of each fiscal year and
accompanying balance sheet of the Trust as of the end of each such period that
has been prepared by the Trust shall be kept on file in the principal executive
office of the Trust for at least 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.
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 Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. 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 Trust 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 Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees,
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 Trust and this authority may be general or
confined to specific instances; and unless so authorized or ratified by the
Board of Trustees or within the agency power of an officer, no officer, agent,
or employee shall have any power or authority to bind the Trust by any contract
or engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the chairman of the board or the
president or vice president and by the treasurer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the 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 Trust with the same
effect as if that person were an officer, transfer agent or registrar at the
date of issue. Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the Trust and cancelled at the same time. The Board of
Trustees 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 Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust 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 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The
chairman of the board, the president or any vice president or any other person
authorized by resolution of the Board of Trustees or by any of the foregoing
designated officers, is authorized to vote or represent on behalf of the Trust
any and all shares of any corporation, partnership, trusts, or other entities,
foreign or domestic, standing in the name of the Trust. The authority granted
may be exercised in person or by a proxy duly executed by such designated
person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The fiscal
year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by applicable
law or by the Declaration of Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by law or by the Declaration of Trust, these
By-Laws may be adopted, amended, or repealed by the Board of Trustees.
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. 56
to the Registration Statement of Franklin Premier Return Fund on Form N-1A (File
No. 2-12647) of our report dated January 31, 1996 on our audit of the financial
statements and financial highlights of Franklin Premier Return Fund, which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1995, which is incorporated by reference in the Registration
Statement.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
May 16, 1996
POWER OF ATTORNEY
The undersigned officers and trustees of FRANKLIN ASSET ALLOCATION 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) as attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to the Notification of
Registration on Form N-8A registering the Registrant as an investment company
under the Investment Company Act of 1940, as amended, and 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, including any and all amendments
thereto, covering the registration of the Registrant as an investment company
and the sale of shares by the Registrant, including all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, including applications for exemptive order rulings. 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 trustees hereby execute this Power of Attorney
as of this 21st day of March, 1996.
/s/Edward B. Jamieson /s/Charles B. Johnson
Edward B. Jamieson, Charles B. Johnson,
Principal Executive Trustee
Officer and Trustee
/s/Frank H. Abbott, III /s/S. Joseph Fortunato
Frank H. Abbott, III, S. Joseph Fortunato,
Trustee Trustee
/s/David W. Garbellano /s/Hayato Tanaka
David W. Garbellano, Hayato Tanaka,
Trustee Trustee
/s/R. Martin Wiskemann /s/Martin L. Flanagan
R. Martin Wiskemann, Martin L. Flanagan,
Trustee Principal Financial
Officer
/s/Diomedes Loo-Tam
Diomedes Loo-Tam,
Principal Accounting
Officer
CERTSEC.faa
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of Franklin Asset
Allocation Fund (the "Trust").
As Secretary of the Trust, I further certify that the following resolution
was adopted by a majority of the Trustees of the Trust present at a meeting held
at 777 Mariners Island Boulevard, San Mateo, California, on March 21, 1996.
RESOLVED, that a Power of Attorney, substantially in the form of the
Power of Attorney presented to this Board, appointing 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
Securities and Exchange Commission, be executed by each Trustee 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
Deborah R. Gatzek
Secretary
Dated: March 21, 1996
