As filed with the Securities and Exchange Commission on April 27, 2000
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. _____ (X)
Post Effective Amendment No. 62 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
FRANKLIN ASSET ALLOCATION 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 (650) 312-2000
MURRAY L. SIMPSON, 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)
[X] on May 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on(date) pursuant to paragraph (a)(2) 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.
Prospectus
Franklin Asset Allocation Fund
CLASS A & C
INVESTMENT STRATEGY
GROWTH & INCOME
MAY 1, 2000
[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goal and Strategies
4 Main Risks
7 Performance
8 Fees and Expenses
9 Management
10 Distributions and Taxes
11 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
12 Choosing a Share Class
15 Buying Shares
17 Investor Services
20 Selling Shares
22 Account Policies
25 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is total return.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the fund invests
mainly in equity and debt securities. An equity security, or stock, represents a
proportionate share of the ownership of a company; its value is based on the
success of the company's business, any income paid to stockholders, the value of
its assets, and general market conditions. Common stocks and preferred stocks
are examples of equity securities. Debt securities represent the obligation of
the issuer to repay a loan of money to it, and generally pay interest to the
holder. Bonds, notes and debentures are examples of debt securities.
[Begin callout]
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. [End callout]
The fund's manager uses quantitative, technical, and fundamental analysis to
identify asset classes, economic sectors, industries, and companies that it
believes offer the best opportunities for achieving the fund's goal, recognizing
that each may perform better than others during different stages of the business
cycle. The fund seeks to diversify its investments in order to reduce the impact
of a particular security or asset class on the fund and thus reduce risk over
time, but there is no assurance that it will be successful.
A majority of the fund's investments are in stocks listed in the S&P 500(R)
Index or the S&P 400(R) Index. These indices include sectors such as basic
materials (including gold stocks), capital spending, consumer cyclical, consumer
staples, financials, utilities, energy, transportation, health care,
conglomerates, and technology. The fund also may invest in securities of smaller
companies, which may not be included in these indices.
The fund generally invests in debt securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, as well as in investment grade
corporate debt securities or unrated securities the fund's manager determines
are comparable. Securities rated in the top four ratings categories by
independent rating organizations, such as Standard & Poor's Ratings Group
(S&P(R)) and Moody's Investors Service, Inc. (Moody's), are considered
"investment grade."
The fund may invest up to 25% of its net assets in foreign securities. It
ordinarily buys foreign securities that are traded in the U.S., as well as
American, European, and Global Depositary Receipts. Depositary receipts are
certificates typically issued by a bank or trust company that give their holders
the right to receive securities issued by a foreign or domestic company.
The fund may also invest in convertible preferred stock or convertible debt
securities. Convertible securities have characteristics of both debt securities
(which is frequently the form in which they are first issued) and equity
securities (which is what they can be converted into).
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the fund's
assets in a temporary defensive manner or hold a substantial portion of the
fund's portfolio in cash. Temporary defensive investments generally may include
various types of short-term, highly liquid money market instruments. The manager
also may invest in these types of securities or hold cash while looking for
suitable investment opportunities or to maintain liquidity. In these
circumstances, the fund may be unable to achieve its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods. [End callout]
STOCKS While stocks historically have outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the short term.
These price movements may result from factors affecting individual companies,
industries, or the securities market as a whole.
ASSET ALLOCATION The fund's ability to achieve its investment goal depends upon
the manager's skill in determining the fund's asset allocation mix and sector
weightings. There can be no assurance that the manager's analysis of the outlook
for the economy and the business cycle will be correct. The fund's performance
would suffer if only a small portion of the fund's assets were allocated to an
asset class or sector during a significant advance in that class or sector, or
if a major portion of its assets were allocated to an asset class or sector
during a decline in that class or sector.
SMALLER COMPANIES Smaller companies may offer substantial opportunities for
capital growth, but they also involve substantial risks and should be considered
speculative. Historically, smaller-company securities have been more volatile in
price than larger-company securities, especially over the short term. Among the
reasons for the greater price volatility are the less certain growth prospects
of smaller companies, the lower degree of liquidity in the markets for such
securities, and the greater sensitivity of smaller companies to changing
economic conditions and interest rates.
Small companies also may lack depth of management, be unable to generate funds
necessary for growth or development, or be developing or marketing new products
or services for which markets are not yet established and may never become
established.
FOREIGN SECURITIES Investing in foreign securities typically involves more risks
than investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the fund and affect its share price.
CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign
currencies. As a result, their values may be affected by changes in exchange
rates between foreign currencies and the U.S. dollar, as well as between
currencies of countries other than the U.S. For example, if the value of the
U.S. dollar goes up compared to a foreign currency, an investment traded in that
foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currency adopted by certain
European countries to replace their national currencies, is unclear at this
time.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher for
foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell)
and more volatile than many U.S. securities. This means the fund may at times be
unable to sell foreign securities at favorable prices.
INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.
CREDIT An issuer may be unable to make interest payments and repay principal.
Changes in an issuer's financial strength or in a security's credit rating may
affect a security's value and, thus, impact fund performance.
More detailed information about the fund, its policies, and risks can be found
in the fund's Statement of Additional Information (SAI).
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Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency of the U.S. government. Mutual
fund shares involve investment risks, including the possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of two
broad-based securities market indices. Of course, past performance cannot
predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
- -8.69% 22.20% 14.16% 18.51% 0.48% 21.79% 17.41% 15.24% 13.54% 18.72%
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q4 '98 13.64%
WORST QUARTER:
Q3 '90 -17.17%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------
Franklin Asset Allocation Fund -
Class A 2 11.87% 15.94% 12.24%
S&P 500 Index 3 21.04% 28.56% 18.21%
Lehman Bros. Gov't/Corp. Bond
Index 4 -2.15% 7.61% 7.65%
1. Figures do not reflect sales charges. If they did, returns would be lower. As
of March 31, 2000, the fund's year-to-date return was 4.32% for Class A.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains. May 1,
1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's Micropal. The S&P 500(R) Index is an
unmanaged group of widely held common stocks covering a variety of industries.
It includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
4. The Lehman Brothers Government/Corporate Bond Index is an unmanaged
index of fixed-rate U.S.government and foreign and domestic corporate
bonds that are rated investment grade or higher and have maturities of one
year or more and at least $50 million outstanding. It includes reinvested
interest. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C 1
- ---------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 1.99%
Load imposed on purchases 5.75% 1.00%
Maximum deferred sales charge (load) None 2 0.99% 3
Exchange fee 4 $5.00 $5.00
Please see "Choosing a Share Class" on page 12 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A CLASS C 1
- ---------------------------------------------------------------------
Management fees 0.60% 0.60%
Distribution and service
(12b-1) fees 0.25% 1.00%
Other expenses 0.25% 0.25%
--------------------------
Total annual fund operating expenses 1.10% 1.85%
--------------------------
1. The fund began offering Class C shares on May 1, 1999. Annual fund operating
expenses for Class C are annualized.
2. Except for investments of $1 million or more (see page 12)and
purchases by certain retirement plans without an initial sales charge.
3. This is equivalent to a charge of 1% based on net asset value.
4. This fee is only for market timers (see page 23).
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown; o Your investment has a 5% return
each year; and o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
If you sell your shares at the end of the period:
CLASS A $681 1 $905 $1,146 $1,838
CLASS C $384 $676 $1,091 $2,247
If you do not sell your shares:
CLASS C $286 $676 $1,091 $2,247
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its affiliates
manage over $229 billion in assets.
The team responsible for the fund's management is:
R. MARTIN WISKEMANN, Senior Vice President of Advisers
Mr. Wiskemann has been a manager of the fund since 1972 and has more than 30
years' experience in the securities industry.
MATTHEW W. WARD, PORTFOLIO MANAGER OF ADVISERS
Mr. Ward has been a manager of the fund since January 2000. He joined the
Franklin Templeton Group in 1995.
The fund pays Advisers a fee for managing the fund's assets. For the fiscal year
ended December 31, 1999, the fund paid 0.60% of its average monthly net assets
to the manager for its services.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least quarterly representing its net investment income. Capital gains, if any,
may be distributed twice a year. The amount of these distributions will vary and
there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional fund shares or receive them in cash. Any capital
gains the fund distributes are taxable to you as long-term capital gains no
matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale.
Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local income tax. Non-U.S. investors
may be subject to U.S. withholding and estate tax. You should consult your
tax advisor about the federal, state, local or foreign tax consequences of
your investment in the fund.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1999 1 1998 1997 1996 1995
- --------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, 9.96 9.05 8.32 7.25 6.11
beginning of year
-----------------------------------------------
Net investment income .17 .18 .15 .14 .18
Net realized and unrealized 1.67 1.03 1.10 1.11 1.14
gains
-----------------------------------------------
Total from investment operations 1.84 1.21 1.25 1.25 1.32
-----------------------------------------------
Dividends from net investment (.17) (.19) (.15) (.15) (.18)
income
Distributions from net (.30) (.11) (.37) (.03) -
realized gains
-----------------------------------------------
Total distributions (.47) (.30) (.52) (.18) (.18)
-----------------------------------------------
Net asset value, end of year 11.33 9.96 9.05 8.32 7.25
-----------------------------------------------
Total return (%)2 18.72 13.54 15.24 17.41 21.79
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 146,715 108,268 89,630 56,867 39,319
($ x 1,000)
Ratios to average net
assets: (%)
Expenses 1.10 1.13 1.12 1.21 1.17
Net investment income 1.60 1.91 1.73 1.86 2.86
Portfolio turnover rate (%) 49.86 54.28 54.57 60.11 62.01
CLASS C
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PER SHARE DATA ($)
Net asset value, 10.50
beginning of year
-----------------------------------------------
Net investment income .07
Net realized and unrealized 1.13
gains
-----------------------------------------------
Total from investment operations 1.20
Dividends from net investment (.09)
income
Distributions from net (.30)
realized gains
-----------------------------------------------
Total distributions (.39)
-----------------------------------------------
Net asset value, end of year 11.31
-----------------------------------------------
Total return (%)2 11.57
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 3,544
($ x 1,000)
Ratios to average net
assets: (%)
Expenses 1.85 3
Net investment income 0.94 3
Portfolio turnover rate (%) 49.86
1. Based on average shares outstanding. For the period May 1, 1999 (effective
date) to December 31, 1999 for Class C.
2. Total return does not include sales charges and is not annualized.
3. Annualized.
YOUR ACCOUNT
[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment representative
can help you decide.
CLASS A CLASS C
- -------------------------------------------------
o Initial sales o Initial sales
charge of 5.75% or charge of 1%
less
o Deferred sales o Deferred sales
charge of 1% on charge of 1% on
purchases of $1 shares you sell
million or more sold within 18 months
within 12 months
o Lower annual o Higher annual
expenses than Class expenses than Class
C due to lower A due to higher
distribution fees distribution fees.
SALES CHARGES - CLASS A
THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS % OF
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE YOUR NET INVESTMENT
- -------------------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as a
lump sum or through our cumulative quantity discount or letter of intent
programs (see page 14), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC is
the same for each class (please see page 13).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute Class A shares and provide
other services to shareholders. Because these fees are paid out of Class A's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES - CLASS C
THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS % OF
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE YOUR NET INVESTMENT
- -------------------------------------------------------------------------------
Under $1 million 1.00 1.01
WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C shares
you sell within 18 months of purchase. The way we calculate the CDSC is the same
for each class (please see below).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution and other
fees of up to 1% per year for the sale of Class C shares and for services
provided to shareholders. Because these fees are paid out of Class C's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A & C
The CDSC for each class is based on the current value of the shares being sold
or their net asset value when purchased, whichever is less. There is no CDSC on
shares you acquire by reinvesting your dividends or capital gains distributions.
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
[End callout]
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased. We will use this same method if you
exchange your shares into another Franklin Templeton Fund (please see page 18
for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below, please
let us know at the time you make your investment to help ensure you receive the
lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in the
Franklin Templeton Funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar amount
of shares over a 13-month period and lets you receive the same sales charge
as if all shares had been purchased at one time. We will reserve a portion of
your shares to cover any additional sales charge that may apply if you do not
buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE
APPROPRIATE SECTION OF YOUR ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you may
reinvest some or all of the proceeds within 365 days without an initial sales
charge. The proceeds must be reinvested within the same share class, except
proceeds from the sale of Class B shares will be reinvested in Class A shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class B
shares reinvested in Class A, a new CDSC will not apply, although your account
will not be credited with the amount of any CDSC paid when you sold your Class B
shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD) also
may be reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject to
a sales charge.
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or by
investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales charge.
The CDSC for each class may be waived for certain redemptions and distributions.
If you would like information about available sales charge waivers, call your
investment representative or call Shareholder Services at 1-800/632-2301. For
information about retirement plans, you may call Retirement Services at
1-800/527-2020. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are added
together. There are certain other requirements and the group must have a purpose
other than buying fund shares at a discount.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
- ---------------------------------------------------------------------------
INITIAL ADDITIONAL
- ---------------------------------------------------------------------------
Regular accounts $1,000 $50
- ---------------------------------------------------------------------------
Automatic investment plans $50 ($25 for $50 ($25 for
an Education an Education
IRA) IRA)
- ---------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ---------------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers, Education
IRAs or Roth IRAs)
- ---------------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or Roth
IRAs $250 $50
- ---------------------------------------------------------------------------
Broker-dealer sponsored wrap account programs
$250 $50
- ---------------------------------------------------------------------------
Full-time employees, officers, trustees and directors of Franklin Templeton
entities, and their immediate family members
$100 $50
- ---------------------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE
FOR SALE IN YOUR STATE OR JURISDICTION.
ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. Make sure you indicate the share class you
have chosen. If you do not indicate a class, we will place your purchase in
Class A shares. To save time, you can sign up now for services you may want on
your account by completing the appropriate sections of the application (see the
next page).
BUYING SHARES
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
- --------------------------------------------------------------------------------
Make your check payable to Make your check payable to
[Insert graphic of Franklin Asset Allocation Franklin Asset Allocation
envelope] Fund. Fund. Include your account
number on the check.
BY MAIL Mail the check and your
signed application to Fill out the deposit slip
Investor Services. from your account statement.
If you do not have a slip,
include a note with your
name, the fund name, and
your account number.
Mail the check and deposit
slip or note to Investor
Services.
- --------------------------------------------------------------------------------
[Insert graphic of Call to receive a wire Call to receive a wire
three lightning control number and wire control number and wire
bolts] instructions. instructions.
Wire the funds and mail your To make a same day wire
signed application to investment, please call us
BY WIRE Investor Services. Please by 1:00 p.m. Pacific time
include the wire control and make sure your wire
1-800/632-2301 number or your new account arrives by 3:00 p.m.
(or 1-650/312-2000 number on the application.
collect)
To make a same day wire investment, please call us by 1:00
p.m. Pacific time and make sure your wire arrives by 3:00
p.m.
- --------------------------------------------------------------------------------
[Insert graphic of Call Shareholder Services at Call Shareholder Services at
two arrows pointing the number below, or send the number below or our
in opposite signed written instructions. automated TeleFACTS system,
directions] The TeleFACTS system cannot or send signed written
be used to open a new instructions.
BY EXCHANGE account.
(Please see page 18 for (Please see page 18 for
TeleFACTS(R) information on exchanges.) information on exchanges.)
1-800/247-1753
(around-the-clock
access)
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include the minimum initial investment of $50 ($25 for an
Education IRA) with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in the fund automatically by
transferring money from your paycheck to the fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class* of the fund or another Franklin
Templeton Fund. Initial sales charges and CDSCs will not apply if you reinvest
your distributions within 365 days. You can also have your distributions
deposited in a bank account, or mailed by check. Deposits to a bank account may
be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
*Class C shareholders may reinvest their distributions in Class A shares of any
Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and their
policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class*, generally without paying any additional sales charges.
If you exchange shares held for less than six months, however, you may be
charged the difference between the initial sales charge of the two funds if the
difference is more than 0.25%. If you exchange shares from a money fund, a sales
charge may apply no matter how long you have held the shares.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC will
continue to be calculated from the date of your initial investment and will not
be charged at the time of the exchange. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
shares are held in the money fund will not count towards the CDSC holding
period.
Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
23).
*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge. Advisor Class shareholders of another Franklin
Templeton Fund also may exchange into Class A without any sales charge. Advisor
Class shareholders who exchange their shares for Class A shares and later decide
they would like to exchange into another fund that offers Advisor Class may do
so.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
[Insert graphic of a certificate] SELLING SHARES
You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares o you want your proceeds
paid to someone who is not a registered owner o you want to send your proceeds
somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.
SELLING SHARES
- -------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- -------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
- -------------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
BY MAIL or trust accounts may need to send additional
documents.
Specify the fund, the account number and the dollar
value or number of shares you wish to sell. Be sure to
include all necessary signatures and any additional
documents, as well as signature guarantees if required.
A check will be mailed to the name(s) and address on
the account, or otherwise according to your written
instructions.
- -------------------------------------------------------------------------
[Insert graphic of As long as your transaction is for $100,000 or
phone] less, you do not hold share certificates and
you have not changed your address by phone
BY PHONE within the last 15 days, you can sell your shares
by phone.
1-800/632-2301
A check will be mailed to the name(s) and address on
the account. Written instructions, with a signature
guarantee, are required to send the check to another
address or to make it payable to another person.
- --------------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by mail or
phone.
Before requesting to have redemption proceeds
BY ELECTRONIC FUNDS sent to a bank account, please make sure we
TRANSFER (ACH) have your bank account information on file. If
we do not have this information, you will need to send
written instructions with your bank's name and
address, a voided check or savings account deposit
slip, and a signature guarantee if the ownership of
the bank and fund accounts is different.
If we receive your request in proper form by
1:00 p.m. Pacific time, proceeds sent by ACH
generally will be available within two to
three business days.
- --------------------------------------------------------------------------
[Insert graphic of two Obtain a current prospectus for the fund you
arrows pointing in are considering.
opposite directions]
Call Shareholder Services at the number below
BY EXCHANGE or our automated TeleFACTS system, or send
signed written instructions. See the policies
TeleFACTS(R) above for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you will need
access) to return them to the fund before your
exchange can be processed.
- -------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the NAV
plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record. You will not
be charged a CDSC if your account is closed for this reason.
STATEMENTS AND REPORTS You will receive quarterly account statements that show
all your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). You also will
receive the fund's financial reports every six months. To reduce fund expenses,
we try to identify related shareholders in a household and send only one copy of
the financial reports. If you need additional copies, please call 1-800/DIAL
BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and statements
and other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged shares
out of the fund more than twice in a calendar quarter, or (iii) exchanged shares
equal to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase under the
exchange privilege.
o At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days' notice.
o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer would
be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. from sales charges, distribution and service (12b-1) fees and
its other resources.
CLASS A CLASS C
- ----------------------------------------------------------------
COMMISSION (%) --- 2.00
Investment under $50,000 5.00 ---
$50,000 but under $100,000 3.75 ---
$100,000 but under $250,000 2.80 ---
$250,000 but under $500,000 2.00 ---
$500,000 but under $1 million 1.60 ---
$1 million or more up to 1.00 1 ---
12B-1 FEE TO DEALER 0.25 1.00 2
A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans 1 and on Class C NAV purchases. A dealer commission of up to
0.25% may be paid on Class A NAV purchases by certain trust companies and bank
trust departments, eligible governmental authorities, and broker-dealers or
others on behalf of clients participating in comprehensive fee programs.
1. During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% during the
first year after purchase and may be eligible to receive the full 12b-1 fee
starting in the 13th month.
[Insert graphic of question mark]QUESTIONS
If you have any questions about the fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one of the
following numbers. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].
Investment Company Act file #811-730 133 P 05/00
FRANKLIN ASSET ALLOCATION FUND
CLASS A & C
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated May 1, 2000, which we may amend from time to time, contains
the basic information you should know before investing in the fund. You should
read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended December 31, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies
Risks
Officers and Trustees
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Underwriter
Performance
Miscellaneous Information
Description of Ratings
- ------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- ------------------------------------------------------------------------------
GOAL AND STRATEGIES
- ------------------------------------------------------------------------------
The fund's investment goal is total return. This goal is fundamental, which
means it may not be changed without shareholder approval.
The fund may invest in any industry, although it will not concentrate (invest
more than 25% of its assets) in any one industry.
The following is a description of the various types of securities the fund may
buy.
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. The purchaser of an equity security typically
receives an ownership interest in the company as well as certain voting rights.
The owner of an equity security may participate in a company's success through
the receipt of dividends, which are distributions of earnings by the company to
its owners. Equity security owners also may participate in a company's success
or lack of success through increases or decreases in the value of the company's
shares as traded in the public trading market for such shares. Equity securities
generally take the form of common stock or preferred stock. Preferred
stockholders typically receive greater dividends but may realize less capital
appreciation than common stockholders who may have greater voting rights as
well. Equity securities also may include convertible securities, warrants or
rights. Convertible securities typically are debt securities or preferred stocks
which are convertible into common stock after certain time periods or under
certain circumstances. Warrants or rights give the holder the right to purchase
a common stock within a given time for a specified price.
DEBT SECURITIES A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain period of time. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividends to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.
The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of these
securities generally declines. These changes in market value will be reflected
in the fund's net asset value per share.
RATINGS. Various investment services publish ratings of some of the debt
securities in which the fund may invest. The fund limits its investments in
corporate debt to investment grade securities and unrated debt which it
determines to be of comparable quality. Securities rated BBB by Standard &
Poor's Ratings Group (S&P(R)) or Baa by Moody's Investors Service, Inc.
(Moody's), although regarded as having adequate capacity to pay principal and
interest, have greater vulnerability to adverse economic conditions than more
highly rated investment grade debt and some speculative characteristics. These
ratings represent the opinions of the rating services with respect to the
issuer's ability to pay interest and repay principal. They do not purport to
reflect the risk of fluctuations in market value and are not absolute standards
of quality. Please see "Description of Ratings" for a discussion of the ratings.
If the rating on an issue held in the fund's portfolio is changed by the rating
service or the security goes into default, the manager will consider the event
in its evaluation of the overall investment merits of the security but will not
automatically sell the security.
FOREIGN SECURITIES As described in the prospectus, the fund will ordinarily buy
foreign securities that are traded in the U.S. or depositary receipts (described
below). The fund also may purchase securities of foreign issuers directly in
foreign markets, 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.
DEPOSITARY RECEIPTS. American Depositary Receipts (ADRs) are typically issued by
a U.S. bank or trust company and evidence ownership of underlying securities
issued by a foreign company. European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs) are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or a
U.S. corporation. Generally, depositary receipts in registered form are designed
for use in the U.S. securities market and depositary receipts in bearer form are
designed for use in securities markets outside the U.S.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risk
associated with foreign investments, by investing in ADRs rather than directly
in the stock of foreign issuers, the fund will avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange or
on Nasdaq. The information available for ADRs is subject to the accounting,
auditing and financial reporting standards of the U.S. market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject. EDRs and GDRs may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted.
Depositary receipts may be issued under sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of Depositary Receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between this information and the market value of the Depositary Receipts.
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 both interest rate and
market movements can influence its value, 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.
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. 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.
ENHANCED CONVERTIBLE SECURITIES. In addition to "plain vanilla" convertibles, a
number of different structures have been created to fit the characteristics of
specific investors and issuers. Examples of these enhanced characteristics for
investors include yield enhancement, increased equity exposure or enhanced
downside protection. From an issuer's perspective, enhanced structures are
designed to meet balance sheet criteria, interest/dividend payment deductibility
and reduced equity dilution. The following are descriptions of common structures
of enhanced convertible securities.
Mandatorily convertible securities (e.g., ACES, DECS, PRIDES, SAILS-each issuer
has a different acronym for their version of these securities) are considered
the most equity like of convertible securities. At maturity these securities are
mandatorily convertible into common stock offering investors some form of yield
enhancement in return for some of the upside potential in the form of a
conversion premium. Typical characteristics of mandatories include: issued as
preferred stock, convertible at premium, pay fixed quarterly dividend (typically
higher than common stock dividend), and are non-callable for the life of the
security (usually three to five years). An important feature of mandatories is
that the number of shares received at maturity is determined by the difference
between the price of the common stock at maturity and the price of the common
stock at issuance.
Enhanced convertible preferred securities (e.g., QUIPS, TOPRS, and TECONS) are,
from an investor's viewpoint, essentially convertible preferred securities, i.e.
they are issued as preferred stock convertible into common stock at a premium
and pay quarterly dividends. Through this structure the company establishes a
wholly owned special purpose vehicle whose sole purpose is to issue convertible
preferred stock. The offering proceeds pass-through to the company who issues
the special purpose vehicle a convertible subordinated debenture with identical
terms to the convertible preferred issued to investors. Benefits to the issuer
include increased equity credit from rating agencies and the deduction of coupon
payments for tax purposes.
A company divesting a holding in another company often uses exchangeable
securities. The primary difference between exchangeables and standard
convertible structures is that the issuing company is a different company to
that of the underlying shares.
Yield enhanced stock (YES, also known as PERCS) mandatorily converts into common
stock at maturity and offers investors a higher current dividend than the
underlying common stock. The difference between these structures and other
mandatories is that the participation in stock price appreciation is capped.
Zero-coupon and deep-discount convertible bonds (OID and LYONs) include the
following characteristics: no or low coupon payments, imbedded put options
allowing the investor to put them on select dates prior to maturity, call
protection (usually three to five years), and lower than normal conversion
premiums at issuance. A benefit to the issuer is that while no cash interest is
actually paid, the accrued interest may be deducted for tax purposes. Because of
their put options, these bonds tend to be less sensitive to changes in interest
rates than either long maturity bonds or preferred stocks. The put options also
provide enhanced downside protection while retaining the equity participation
characteristics of traditional convertible bonds.
An investment in an enhanced convertible security or any other security may
involve additional risks. 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 also may make it more
difficult for the fund to obtain market quotations based on actual trades for
purposes of valuing the fund's portfolio.
SYNTHETIC CONVERTIBLES. The fund may invest a portion of its assets in
"synthetic convertible" securities. A synthetic convertible is created by
combining distinct securities that together possess the two principal
characteristics of a true convertible security, i.e., fixed income and the right
to acquire the underlying equity security. This combination is achieved by
investing in nonconvertible fixed-income securities and in warrants or stock or
stock index call options which grant the holder the right to purchase a
specified quantity of securities within a specified period of time at a
specified price or to receive cash in the case of stock index options. Synthetic
convertible securities are generally not considered to be "equity securities"
for purposes of the fund's investment policy regarding those securities.
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.
FUTURE DEVELOPMENTS. The fund may invest in other convertible securities,
enhanced convertible securities or synthetic convertible securities that are not
presently contemplated for use by the fund or that are not currently available
but that may be developed, so long as the opportunities are consistent with the
fund's investment objective and policies.
Certain issuers of convertible securities may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (1940
Act). As a result, the fund's investment in these securities may be limited by
the restrictions contained in the 1940 Act.
ILLIQUID SECURITIES The fund may invest up to 10% of its net assets in
securities, including restricted securities, that are not readily marketable.
Illiquid securities are generally securities that cannot be sold within seven
days in the normal course of business at approximately the amount at which the
fund has valued them.
REAL ESTATE SECURITIES The fund may buy securities of companies operating in the
real estate industry. These investments will consist primarily of equity and
debt securities issued by home-builders and developers.
OPTIONS ON SECURITIES The fund may write covered put and call options and buy
put and call options on securities and indices that trade on securities
exchanges and in the over-the-counter market to help protect its portfolio
against market and/or exchange movements. Additionally, the fund may "close out"
options it has entered into. The fund may only engage in option transactions if
the total provisions it paid for such options are 5% or less of its total
assets.
A call option gives the option holder the right to buy the underlying security
from the option writer at the option exercise price at any time prior to the
expiration of the option. A put option gives the option holder the right to sell
the underlying security to the option writer at the option exercise price at any
time prior to the expiration of the option. 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.
WRITING COVERED CALL AND PUT OPTIONS ON SECURITIES. The writer of covered calls
gives up the potential for capital appreciation above the exercise price of the
option should the underlying stock rise in value. If the value of the underlying
stock rises above the exercise price of the call option, the security may be
"called away" and the fund required to sell shares of the stock at the exercise
price. The fund will realize a gain or loss from the sale of the underlying
security depending on whether the exercise price is greater or less than the
purchase price of the stock. Any gain will be increased by the amount of the
premium received from the sale of the call; any loss will be decreased by the
amount of the premium received. If a covered call option expires unexercised,
the fund will realize a gain in the amount of the premium received. If, however,
the stock price decreases, the hedging benefit of the covered call option is
limited to the amount of the premium received.
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 bank) 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 in
exercise prices 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 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 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, because the option writer may be assigned an exercise notice at any time
prior to the option's expiration. Whether or not an option expires unexercised,
the writer retains the amount of the premium received from the sale of the
option. This amount, of course, may not, in the case of a covered call option,
be sufficient to offset a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer realizes a
profit or loss from the sale of the underlying security. If a put option is
exercised, the writer must buy the underlying security at the exercise price,
which will usually exceed the 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 done 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 done
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 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, and, 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
proceeds from the sale of any securities subject to the option or deposited as
collateral 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 cost of the
transaction is less than the premium received from writing the option. The fund
will realize a loss from a closing transaction if the cost of the transaction is
more than the premium received from writing 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 closing
transaction of a written call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the fund.
The writer of covered puts retains the risk of loss should the underlying
security decline in value. If the value of the underlying stock declines below
the exercise price of the put option, the security may be "put to" the fund and
the fund required to buy the stock at the exercise price. The fund 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, the loss
will be offset at least in part by the premium received from the sale of the
put. If a put option written by the fund expires unexercised, the fund will
realize a gain in the amount of the premium received.
BUYING CALL AND PUT OPTIONS ON SECURITIES. The premium paid by the buyer of an
option will reflect, among other things, the relationship of the exercise price
to the market price and the volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
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 the security
before the purchase is effected. The fund also may 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 (including 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 the option. Profit or loss from such a sale
will depend on whether the amount received is more or less than the premium paid
for the put option (including transaction costs). Any gain may be more than
wholly offset by the decline in value of the underlying security owned by the
fund.
OVER-THE-COUNTER (OTC) OPTIONS. The fund may write covered put and call options
and buy put and call options that 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.
OTC options differ from exchange traded options in certain material respects.
OTC options transactions 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. OTC options,
however, are available for a greater variety of securities and in a wider range
of notional amounts, 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. 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. The
fund may suffer a loss if it is not able to exercise or sell its position on a
timely basis. 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 with which the fund originally wrote the option. If
the fund cannot effect a closing transaction for a covered call option position,
it cannot sell the underlying security until the option expires or is exercised.
Therefore, the fund may not be able to sell the underlying security and reinvest
the proceeds from the sale in other investments when it might be advantageous to
do so. Likewise, the fund may be unable to sell the securities pledged to secure
a put obligation and reinvest the proceeds from the sale in other investments if
it cannot effect a closing transaction.
The fund understands the current position of the staff of the U.S. Securities
and Exchange Commission (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 the manager 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.
OPTIONS ON SECURITIES INDICES Call and put options on securities 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 securities index give the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the underlying securities index is greater (or less, in the
case of puts) than 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
the price movements of the underlying index rather than the price movements of
an individual stock.
In order to hedge against the risk of market or industry-wide stock price
fluctuations, the fund may buy call options on stock indices. When the fund
writes an option on a securities index, the fund will establish a segregated
account containing liquid assets in an amount at least equal to the market value
of the underlying securities index and will maintain the account while the
option is open or it will otherwise cover the transaction.
POSSIBLE LIMITATIONS. The exchanges on which options are traded have established
limitations governing the maximum number of options in each class which may be
written by a single investor or group of investors acting in concert (regardless
of whether the options are written on the same or different exchanges or are
held or written in one or more accounts or through one or more brokers). It is
possible that the fund and other clients of the manager may be considered to be
such a group. An exchange may order the liquidation of positions found to be in
violation of these limits, and it may impose certain other sanctions. These
position limits may restrict the number of options which the fund will be able
to write on a particular security.
FUTURES CONTRACTS The fund may buy and sell financial futures contracts, stock
index futures contracts, foreign currency futures contracts and options on any
of these contracts to reduce its exposure to changes in interest rates,
securities prices, or foreign currency valuations. Additionally, the fund may
"close out" futures and options it has entered into. The fund may only enter
into futures contracts or related options if its initial margin deposits and
premiums are 5% or less of its total assets.
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
selling (or buying, as the case may be) on a commodities exchange an identical
futures contract calling for delivery in the same month. This transaction, which
is effected through a member of an exchange, cancels the obligation to take (or
make) 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 sale 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 market or interest rate trends by the manager 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 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 instances involving the
purchase of futures contracts or related call options, cash, cash equivalents,
or liquid 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.
When the fund enters into a futures contract, it will deposit in a segregated
account an amount of liquid assets 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.
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.
STOCK INDEX FUTURES. The fund may buy and sell stock index futures contracts and
options on stock index futures contracts. A stock index futures contract
obligates the seller to deliver (and the buyer to take) an amount of cash equal
to a specific dollar amount multiplied by 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 securities that it intends to buy.
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 portfolio and
the sensitivity of its 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. 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 futures transactions.
The fund also may 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 goal and
legally permissible for the fund. Prior to investing in any such investment
vehicle, the fund will supplement its prospectus, if appropriate.
BORROWING The fund does not borrow money or mortgage or pledge any of its
assets, except that temporary borrowings for extraordinary purposes may be made
in an amount up to 10% of its total asset value. No new investments will be made
while any such borrowings are in excess of 5% of total assets.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements. Under
a repurchase agreement, the fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
fund's ability to sell the underlying securities. The fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the fund's
assets in a temporary defensive manner or hold a substantial portion of the
fund's portfolio in cash. Unfavorable market or economic conditions may include
excessive volatility or a prolonged general decline in the securities markets,
the securities in which the fund normally invests, or the economies of the
countries where the fund invests.
Temporary defensive investments generally may include high grade commercial
paper, repurchase agreements, and other money market equivalents. To the extent
allowed by exemptions granted under the 1940 Act and the fund's other investment
policies and restrictions, the manager also may invest the fund's assets in
shares of one or more money market funds managed by the manager, or its
affiliates. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
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.
The fund presently has the following additional restrictions, which are not
fundamental and may be changed without shareholder approval.
The fund may not:
1. 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.
2. Invest in oil, gas or other mineral exploration or development programs.
3. 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.
4. 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.
5. Invest more than 10% of its assets in securities, including restricted
securities, which are not readily marketable.
6. Invest in warrants, other than those acquired by the fund as a part of a
unit, valued at the lower of cost or market, in excess of 5% of the value of the
fund's net assets, including not more than 2% in warrants which are not listed
on the New York or American Stock Exchange.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.
RISKS
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FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the fund. These risks can be significantly greater for investments in
emerging markets. Many of the risks described below also apply to investments in
depositary receipts.
The political, economic and social structures of some countries in which the
fund invests may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the imposition
of exchange controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing, and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs on
foreign securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies, and obtaining judgments with
respect to foreign investments in foreign courts than with respect to domestic
issuers in U.S. courts.
Some of the countries in which the fund may invest are considered developing or
emerging markets. Investments in these markets are subject to all of the risks
of foreign investing generally, and have additional and heightened risks due to
a lack of legal, business, and social frameworks to support securities markets.
Emerging markets involve additional significant risks, including:
o political and social uncertainty (for example, regional conflicts and risk
of war)
o currency exchange rate volatility
o pervasiveness of corruption and crime
o delays in settling portfolio transactions
o risk of loss arising out of the system of share registration
o comparatively smaller size and lesser liquidity than developed markets
o dependency upon foreign economic assistance and international trade
o less government supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the U.S.
o currency and capital controls
o imposition of taxes
All of these factors make developing market equity and fixed-income securities
prices generally more volatile than securities issued in developed countries.
CURRENCY Some of the fund's investments may be denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value of
what the fund owns and the fund's share price. Generally, when the U.S. dollar
rises in value against a foreign currency, an investment in that country loses
value because that currency is worth fewer U.S. dollars.
EURO. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national
currencies of the following member countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.
The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the business
or financial condition of European countries and issuers, and issuers in other
regions, whose securities the fund may hold, or the impact, if any, on fund
performance. In the first six months of the euro's existence, the exchange rates
of the euro versus many of the world's major currencies steadily declined. In
this environment, U.S. and other foreign investors experienced erosion of their
investment returns on their euro-denominated securities. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets.
While the implementation of the euro could have a negative effect on the fund,
the fund's manager and its affiliated service providers are taking steps they
believe are reasonably designed to address the euro issue.
REPURCHASE AGREEMENTS The use of repurchase agreements involves certain risks.
For example, if the other party to a repurchase agreement defaults on its
obligation to repurchase the underlying security at a time when the value of the
security has declined, the fund may incur a loss upon disposition of the
security. If the other party to the agreement becomes insolvent and subject to
liquidation or reorganization under the bankruptcy code or other laws, a court
may determine that the underlying security is collateral for the loan by the
fund not within the control of the fund, and therefore the realization by the
fund on the collateral may be automatically stayed. Finally, it is possible that
the fund may not be able to substantiate its interest in the underlying security
and may be deemed an unsecured creditor of the other party to the agreement.
While the manager acknowledges these risks, it is expected that if repurchase
agreements are otherwise deemed useful to the fund, these risks can be
controlled through careful monitoring procedures.
REITS An investment in REITs includes the possibility of a decline in the value
of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants, and increases in interest rates. The value of securities
of companies that service the real industry will also be affected by these
risks.
In addition, equity REITs are affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs are affected by the quality
of the properties to which they have extended credit. Equity and mortgage REITs
are dependent upon the REITs management skill. REITs may not be diversified and
are subject to the risks of financing projects.
DERIVATIVE SECURITIES The effectiveness of an options or futures strategy
depends on the extent to which price movements of the options or futures
correlate with price movements in the relevant portion of the fund's portfolio.
If the prices of the fund's portfolio securities do not correlate well with its
options or futures positions, the fund could suffer losses on its portfolio
securities or its options and futures contracts or both. Options and futures may
fail as hedging techniques in cases where the price movements of the securities
underlying the options and futures do not follow the price movements of the
portfolio securities subject to the hedge. While hedging can reduce or eliminate
portfolio losses, it can also reduce or eliminate gains that might otherwise
have been realized on the securities being hedged. Options and futures
investments may increase the volatility of the fund's returns and share price
regardless of whether the intent of the transaction was to reduce risk or
increase return.
Successful use of options and futures depends on the manager's ability to
predict correctly movements in the direction of the markets, particular market
segments, interest rates and other economic factors. The manager's judgment in
these respects may not be correct, resulting in losses to the fund. 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.
Adverse market movements could cause the fund to lose up to its full investment
in a call or put option contract and/or to experience losses on an investment in
a futures (or related option) contract that are substantially greater than the
amount of the fund's original investment. 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 open options or futures positions.
There may not always be a liquid secondary market for an option or futures
contract at a time when the fund seeks to close out its position. If the fund is
unable to close out its position, the fund may incur losses or may be forced to
forego other investment opportunities. If prices move adversely, the fund would
have to continue to make daily cash payments to maintain its required margin and
if the fund had insufficient cash to do so, it might have to sell portfolio
securities at a disadvantageous time. In addition, the fund might be required to
deliver the stocks underlying the option or futures contracts it holds. The fund
will enter into an option or futures position only if there appears to be a
liquid secondary market for the option or futures contract.
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.
OFFICERS AND TRUSTEES
- ------------------------------------------------------------------------------
The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the trust who
are responsible for administering the trust's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 49 of the investment companies in the Franklin Templeton
Group of Funds.
*Edward B. Jamieson (51)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; officer
of other subsidiaries of Franklin Resources, Inc.; and officer and trustee of
four of the investment companies in the Franklin Templeton Group of Funds.
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Chairman of the Board and Director,
Franklin Investment Advisory Services, Inc.; Chairman of the Board, Franklin
Advisers, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 49 of the investment
companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
Chairman, Peregrine Venture Management Company (venture capital); Director, The
California Center for Land Reclamation (redevelopment); director or trustee, as
the case may be, of 28 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, General Partner, Miller & LaHaye and Peregrine
Associates, the general partners of Peregrine Venture funds.
Hayato Tanaka (82)
277 Haihai Street, Hilo, HI 96720
TRUSTEE
Retired, former owner of The Jewel Box Orchids; and trustee of two of the
investment companies in the Franklin Templeton Group of Funds.
*R. Martin Wiskemann (73)
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.; and officer and/or director or
trustee, as the case may be, of 15 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Vice President and Director, ILA
Financial Services, Inc. (until 1998).
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc. and Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc. and
Franklin/Templeton Investor Services, Inc.; and officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 52 of the investment companies in the Franklin Templeton
Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Senior Vice President, Chief
Financial Officer and Director, Franklin/Templeton Investor Services, Inc.;
Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers,
LLC; Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and Director,
Templeton Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, LLC and Franklin Investment Advisory Services, Inc.; Director,
Franklin Templeton Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (51)
1840 Gateway Drive, San Mateo, CA 94404
SECRETARY
Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 34 of the investment
companies in the Franklin Templeton Group of Funds; and FORMERLY, Senior Vice
President and General Counsel, Franklin Resources, Inc., Senior Vice President,
Franklin Templeton Services, Inc. and Franklin Templeton Distributors, Inc.,
Executive Vice President, Franklin Advisers, Inc., Vice President, Franklin
Advisory Services, LLC and Franklin Mutual Advisers, LLC, and Vice President,
Chief Legal Officer and Chief Operating Officer, Franklin Investment Advisory
Services, Inc. (until January 2000).
David Goss (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Chief Executive Officer and Director, Franklin Select Realty Trust,
Property Resources, Inc., Property Resources Equity Trust, Franklin Real Estate
Management, Inc. and Franklin Properties, Inc.; officer and director of some of
the other subsidiaries of Franklin Resources, Inc.; officer of 53 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Director, Franklin Real Estate Income
Fund and Franklin Advantage Real Estate Income Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc. and Templeton Global Investors, Inc.;
officer of some of the other subsidiaries of Franklin Resources, Inc. and of 53
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Deputy Director, Division of Investment Management, Executive
Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-
1995), Attorney, Rogers & Wells (until 1986), and Judicial Clerk, U.S. District
Court (District of Massachusetts) (until 1979).
Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory
Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 52 of the investment companies in the Franklin
Templeton Group of Funds.
Edward V. McVey (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 of the investment companies in the
Franklin Templeton Group of Funds.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Vice President, Franklin Templeton Services, Inc.; and officer of 33 of the
investment companies in the Franklin Templeton Group of Funds.
Murray L. Simpson (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 53 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and Director, Templeton
Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal securities
laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The trust pays noninterested board members $175 per quarter plus $125 per
meeting attended. Board members who serve on the audit committee of the trust
and other funds in the Franklin Templeton Group of Funds receive a flat fee of
$2,000 per committee meeting attended, a portion of which is allocated to the
trust. Members of a committee are not compensated for any committee meeting held
on the day of a board meeting. Noninterested board members also may serve as
directors or trustees of other funds in the Franklin Templeton Group of Funds
and may receive fees from these funds for their services. The fees payable to
certain noninterested board members by the trust are subject to reductions
resulting from fee caps limiting the amount of fees payable to board members who
serve on other boards within the Franklin Templeton Group of Funds. The
following table provides the total fees paid to noninterested board members by
the trust and by the Franklin Templeton Group of Funds.
NUMBER OF BOARDS IN
TOTAL FEES TOTAL FEES RECEIVED THE FRANKLIN
RECEIVED FROM THE FRANKLIN TEMPLETON GROUP OF
FROM THE TEMPLETON GROUP OF FUNDS ON WHICH EACH
NAME TRUST 1 ($) FUNDS 2 ($) SERVES 3
- --------------------------------------------------------------------------------
Frank H. Abbott, III $920 $156,060 27
S. Joseph Fortunato $890 $363,238 49
Frank W.T. LaHaye $920 $156,060 27
Hayato Tanaka $1,075 $7,675 2
1. For the fiscal year ended December 31, 1999.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 53 registered investment companies, with approximately 155 U.S. based
funds or series.
Noninterested board members 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 or trustee. No officer
or board member received any other compensation, including pension or retirement
benefits, directly or indirectly from the fund or other funds in the Franklin
Templeton Group of Funds. Certain officers or board members who are shareholders
of Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin Advisers, Inc.
The manager is a wholly owned subsidiary of Franklin Resources, Inc.
(Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic `reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that 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, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the fund or other
funds it manages.
The fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the fund or that are currently held by the fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).
MANAGEMENT FEES The fund pays the manager a fee equal to a monthly rate of:
o 5/96 of 1% of the value of net assets up to and including $100 million;
o 1/24 of 1% of the value of net assets over $100 million and not over
$250 million; and
o 9/240 of 1% of the value of net assets in excess of $250 million.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended December 31, the fund paid the following
management fees:
MANAGEMENT FEES PAID ($)
- -------------------------------------------------
1999 757,931
1998 623,263
1997 461,208
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended December 31, the manager paid FT
Services the following administration fees:
ADMINISTRATION FEES PAID ($)
-------------------------------------------------
1999 187,798
1998 149,463
1997 109,164
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please send all
correspondence to Investor Services to P.O. Box 997151, Sacramento, CA
95899-9983.
For its services, Investor Services receives a fixed fee per account. The fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year will not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.
CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the fund's securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA 94105,
is the fund's independent auditor. The auditor gives an opinion on the financial
statements included in the trust's Annual Report to Shareholders and reviews the
trust's registration statement filed with the SEC.
PORTFOLIO TRANSACTIONS
- ------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The manager will ordinarily place
orders to buy and sell 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 manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions to obtain additional
research services allows the manager to supplement its own research and analysis
activities and to receive the views and information of individuals and research
staffs 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. If the fund's officers are
satisfied that the best execution is obtained, the sale of fund shares, as well
as shares of other funds in the Franklin Templeton Group of Funds, also may be
considered a factor in the selection of broker-dealers to execute the fund's
portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture 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 the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.
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 these 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. In some cases this procedure could 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 may improve execution and reduce transaction costs to the
fund.
During the last three fiscal years ended December 31, the fund paid the
following brokerage commissions:
BROKERAGE COMMISSIONS ($)
-------------------------------------------------
1999 132,185
1998 126,991
1997 107,813
For the fiscal year ended December 31, 1999, the fund paid brokerage commissions
of $16,720.67 from aggregate portfolio transactions of $6,312,085.89 to brokers
who provided research services.
Because the fund may, from time to time, invest in broker-dealers, it is
possible that the fund will own more than 5% of the voting securities of one or
more broker-dealers through whom the fund places portfolio brokerage
transactions. In such circumstances, the broker-dealer would be considered an
affiliated person of the fund. To the extent the fund places brokerage
transactions through such a broker-dealer at a time when the broker-dealer is
considered to be an affiliate of the fund, the fund will be required to adhere
to certain rules relating to the payment of commissions to an affiliated
broker-dealer. These rules require the fund to adhere to procedures adopted by
the board relating to ensuring that the commissions paid to such broker-dealers
do not exceed what would otherwise be the usual and customary brokerage
commissions for similar transactions.
DISTRIBUTIONS AND TAXES
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The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in the distribution and service (Rule 12b-1) fees of each class.
Distributions are subject to approval by the board. The fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the fund, constitutes the fund's net investment
income from which dividends may be paid to you. Any distributions by the fund
from such income will be taxable to you as ordinary income, whether you receive
them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the fund. Any net capital gains realized by the fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, to reduce or eliminate excise or income taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized on the sale of debt securities
generally are treated as ordinary losses. These gains when distributed will be
taxable to you as ordinary income, and any losses will reduce the fund's
ordinary income otherwise available for distribution to you. This treatment
could increase or decrease the fund's ordinary income distributions to you, and
may cause some or all of the fund's previously distributed income to be
classified as a return of capital.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code. The fund has qualified as a regulated investment company for its
most recent fiscal year, and intends to continue to qualify during the current
fiscal year. As a regulated investment company, the fund generally pays no
federal income tax on the income and gains it distributes to you. The board
reserves the right not to maintain the qualification of the fund as a regulated
investment company if it determines 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 you
will be taxed as ordinary dividend income to the extent of the fund's earnings
and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these distributions in
December (or to pay them in January, in which case you must treat them as
received in December) but can give no assurances that its distributions will be
sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of fund shares are taxable transactions for federal and state income
tax purposes. If you redeem your fund shares, or exchange your fund shares for
shares of a different Franklin Templeton Fund, the IRS will require that you
report any gain or loss on your redemption or exchange. If you hold your shares
as a capital asset, the gain or loss that you realize will be capital gain or
loss and will be long-term or short-term, generally depending on how long you
hold your shares.
Beginning after the year 2005 (2000 for certain shareholders), gains from the
sale of fund shares held for more than five years may be subject to a reduced
tax rate.
Any loss incurred on the redemption or exchange of shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the fund on those shares. All or a portion
of any loss that you realize upon the redemption of your fund shares will be
disallowed to the extent that you buy other shares in the fund (through
reinvestment of dividends or otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these rules will be added to your
tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in the fund, and then
reinvest the sales proceeds in the fund or in another Franklin Templeton Fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report any gain or loss on the redemption of your original shares
in the fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in the fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.
U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to you
from interest earned on certain U.S. government securities, subject in some
states to minimum investment or reporting requirements that must be met by the
fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities generally
do not qualify for tax-free treatment. The rules on exclusion of this income are
different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 30.03% of the dividends paid by the fund for
the most recent fiscal year qualified for the dividends-received deduction. You
may be allowed to deduct these qualified dividends, thereby reducing the tax
that you would otherwise be required to pay on these dividends. The
dividends-received deduction will be available only with respect to dividends
designated by the fund as eligible for such treatment. All dividends (including
the deducted portion) must be included in your alternative minimum taxable
income calculation.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund (possibly causing the fund to sell securities to raise the cash for
necessary distributions) and/or defer the fund's ability to recognize losses,
and, in limited cases, subject the fund to U.S. federal income tax on income
from certain foreign securities. These rules may affect the amount, timing or
character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
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The fund is a diversified, 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 Delaware business trust on August 1, 1996. The trust was
previously known as the Franklin Premier Return Fund. The trust is registered
with the SEC.
The fund currently offers two classes of shares, Class A and Class C . The fund
began offering Class C shares on May 1, 1999. The fund may offer additional
classes of shares in the future. The full title of each class is:
o Franklin Asset Allocation Fund - Class A
o Franklin Asset Allocation Fund - Class C
Shares of each class represent proportionate interests in the fund's assets. On
matters that affect the fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.
The trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all of
the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The trust does not intend to hold annual shareholder meetings. The trust or a
series of the trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a board
member. A special meeting also may be called by the board in its discretion.
As of April 3, 2000, the principal shareholders of the fund, beneficial or of
record, were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE (%)
- ----------------------------------------------------------------
FTTC CUST For The Rollover C 9.00
IRA Of Helena Grzywacz
1947 Celtic Rd
Tallahassee FL 32311-1463
FTTC TTEE FOR VALUSELECT A 5.34
CACI INTERNATIONAL INC
PO Box 2438
Rancho Cordova CA 95741-2438
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.
As of April 3, 2000, the officers and board members, as a group, owned of record
and beneficially less than 1% of the outstanding shares of each class. The board
members may own shares in other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
- ------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has 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. Banks and financial institutions that
sell shares of the fund may be required by state law to register as securities
dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell 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. We may deduct any applicable banking charges
imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
If you buy shares through the reinvestment of dividends, the shares 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 and does not affect the amount
or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A and
1% for Class C.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of the
lower sales charges for large purchases. The Franklin Templeton Funds include
the U.S. registered mutual funds in the Franklin Group of Funds(R) and the
Templeton Group of Funds except Franklin Templeton Variable Insurance Products
Trust and Templeton Capital Accumulator Fund, Inc.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account 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. By completing the letter of intent section of the application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares you
own, and we will pay or reinvest dividend and capital gain distributions on
the reserved shares according to the distribution option you have chosen.
o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
o Although you may exchange your shares, you may not sell reserved shares until
you complete the LOI or pay the higher sales charge.
After you file your LOI with the fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. Sales charge reductions
based on purchases in more than one Franklin Templeton Fund will be effective
only after notification to Distributors that the investment qualifies for a
discount. Any Class A purchases you made within 90 days before you filed your
LOI also may qualify for a retroactive reduction in the sales charge. If you
file your LOI with the fund before a change in the fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but they
will not be entitled to a retroactive reduction in the sales charge. Any
redemptions you make during the 13 month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.
If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, 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, we will redeem an appropriate number of reserved shares to realize
the difference. If you redeem the total amount in your account before you
fulfill your LOI, we will deduct the additional sales charge due from the sale
proceeds and forward the balance to you.
For LOIs filed on behalf of certain retirement plans, 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 LOI. These plans are not subject to the requirement to reserve 5% of
the total intended purchase or to the policy on upward adjustments in sales
charges described above, 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 LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class A
shares at a reduced sales charge that applies 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.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the fund's
Class A shares at a reduced sales charge under the group purchase privilege
before February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton Fund. The
distributions generally must be reinvested in the same share class. Certain
exceptions apply, however, to Class C shareholders who chose to reinvest
their distributions in Class A shares of the fund before November 17, 1997,
and to Advisor Class or Class Z shareholders of a Franklin Templeton Fund who
may reinvest their distributions in the fund's Class A shares. This waiver
category also applies to Class C shares.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option the
Franklin Templeton Variable Insurance Products Trust. You should contact your
tax advisor for information on any tax consequences that may apply.
o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD or a
Franklin Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date the CD matures,
including any rollover, or the date you redeem your money fund shares.
o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of fund shares
and the CDSC holding period will begin again. We will, however, credit your
fund account with additional shares based on the CDSC you previously paid and
the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
o Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:
o Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments or
other plan fiduciaries or participants, in the case of certain retirement
plans, have full or shared investment discretion. We may accept orders for
these accounts 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 the
order. Effective June 1, 2000, the requirement to agree to invest at least
$1 million in Franklin Templeton Funds over a 13 month period will no
longer apply.
o Any state or local government or any instrumentality, department, authority
or agency thereof that has determined the fund is a legally permissible
investment and that can only buy fund shares without paying sales charges.
Please consult your legal and investment advisors to determine if an
investment in the fund is permissible and suitable for you and the effect, if
any, of payments by the fund on arbitrage rebate calculations.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their
investment accounts only
o Current employees of securities dealers and their affiliates and their family
members, as allowed by the internal policies of their employer
o Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
o Any investor who is currently a Class Z shareholder of Franklin Mutual Series
Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31, 1996,
or who sold his or her shares of Mutual Series Class Z within the past 365
days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by the Franklin Templeton Group
o Certain unit investment trusts and their holders reinvesting distributions
from the trusts
o Group annuity separate accounts offered to retirement plans
o Chilean retirement plans that meet the requirements described under
"Retirement plans" below
In addition, Class C shares may be purchased without an initial sales charge by
any investor who buys Class C shares through an omnibus account with Merrill
Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the shares are
sold within 18 months of purchase.
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without an initial sales charge.
Retirement plans that are not qualified retirement plans (employer sponsored
pension or profit-sharing plans that qualify under section 401 of the Internal
Revenue Code, including 401(k), money purchase pension, profit sharing and
defined benefit plans), SIMPLEs (savings incentive match plans for employees) or
SEPs (employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group purchase
requirements described above to be able to buy Class A shares without an initial
sales charge. We may enter into a special arrangement with a securities dealer,
based on criteria established by the fund, to add together certain small
qualified retirement plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase in
the Franklin Templeton Funds.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the fund's shares are available to these banks' trust accounts without a
sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these 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.
The fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES 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
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the fund's
prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of Class A shares by certain retirement plans without an initial sales charge.
These payments may be made in the form of contingent advance payments, which may
be recovered from the securities dealer or set off against other payments due to
the dealer if shares are sold 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.
In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of the Franklin
Templeton Group of Funds. This support is based primarily on the amount of sales
of fund shares and/or total assets with the Franklin Templeton Group of Funds.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a securities dealer's support of, and
participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to securities dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain securities dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the rules of the National Association of Securities Dealers,
Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply on any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of the Franklin
Templeton Funds or terminated within 365 days of the account's initial purchase
in the Franklin Templeton Funds.
CDSC WAIVERS. The CDSC for any share class generally will be waived for:
o Account fees
o Sales of Class A shares purchased without an initial sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997, or
(ii) the securities dealer of record received a payment from Distributors of
0.25% or less, or (iii) Distributors did not make any payment in connection
with the purchase, or (iv) the securities dealer of record has entered into a
supplemental agreement with Distributors
o Redemptions of Class A shares by investors who purchased $1 million or more
without an initial sales charge if the securities dealer of record waived its
commission in connection with the purchase
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of
your account's net asset value depending on the frequency of your plan
o Redemptions by an employee benefit plan: (i) that is a customer of Franklin
Templeton Defined Contribution Services; and/or (ii) whose assets are held by
Franklin Templeton Bank & Trust as trustee or custodian (not applicable to
Class B)
o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy
o Returns of excess contributions (and earnings, if applicable) from retirement
plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee benefit
plans
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
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 occurs, it is
the fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the fund's investment goals exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.
The proceeds from the sale of shares of an investment company generally are not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent amount
of shares in your account, generally on the 25th day of the month. If the 25th
falls on a weekend or holiday, we will process the redemption on the next
business day. Beginning June 1, 2000, you may request to change the processing
date to the 1st, 5th, 10th, 15th or 20th of the month. For plans set up on or
after June 1, 2000, we will process redemptions on the day of the month you have
indicated on your account application or, if no day is indicated, on the 20th
day of the month (or next business day). When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan also may be
subject to a CDSC.
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. 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.
To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The fund may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically if all shares in your
account are withdrawn or if the fund receives notification of the shareholder's
death or incapacity.
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 U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves 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 these 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. If this happens, however, you may not be able to recover
your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (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 that the
fund normally pays Investor Services. These financial institutions also may
charge a fee for their services directly to their clients.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
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, before 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 IRS in response to a notice of levy.
PRICING SHARES
- ------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria. When you sell shares, you
receive the NAV minus any applicable CDSC.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.
The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.
The fund determines the value of a foreign security as of the close of trading
on the foreign exchange on which the security is traded or as of the close of
trading on the NYSE, if that is earlier. The 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 foreign security is valued within the range of the
most recent quoted bid and ask prices. Occasionally events that 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 NAV. If events materially
affecting the values of these foreign securities occur during this period, the
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 before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, 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 the board, the
fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.
THE UNDERWRITER
- ------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
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.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended December 31, 1999:
AMOUNT RECEIVED IN
CONNECTION WITH
TOTAL COMMISSIONS AMOUNT RETAINED BY REDEMPTIONS AND
RECEIVED ($) DISTRIBUTORS ($) REPURCHASES ($)
-------------------------------------------------------------------------------
1999 429,065 61,926 3,969
1998 374,006 46,480 1,362
1997 389,845 44,287 0
Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the fund and its shareholders.
The plans are expected to, among other things, increase advertising of the fund,
encourage sales of the fund and service to its shareholders, and increase or
maintain assets of the fund so that certain fixed expenses may be spread over a
broader asset base, resulting in lower per share expense ratios. In addition, a
positive cash flow into the fund is useful in managing the fund because the
manager has more flexibility in taking advantage of new investment opportunities
and handling shareholder redemptions.
Under each plan, the fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others who
have executed a servicing agreement with the fund, Distributors or its
affiliates who provide service or account maintenance to shareholders (service
fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and advertisements;
and a prorated portion of Distributors' overhead expenses related to these
activities. Together, these expenses, including the service fees, are "eligible
expenses." The distribution and service (12b-1) fees charged to each class are
based only on the fees attributable to that particular class.
THE CLASS A PLAN. The fund may pay up to 0.25% per year of Class A's average
daily net assets. The Class A plan is a reimbursement plan. It allows the fund
to reimburse Distributors for eligible expenses that Distributors has shown it
has incurred. The fund will not reimburse more than the maximum amount allowed
under the plan.
For the fiscal year ended December 31, 1999, the amounts paid by the fund
pursuant to the plan were:
($)
- -----------------------------------------------------
Advertising 10,229
Printing and mailing prospectuses 16,696
Other than to current shareholders
Payments to underwriters 5,514
Payments to broker-dealers 238,698
Other 24,039
-------------
Total 295,176
-------------
THE CLASS C PLAN. The fund pays Distributors up to 1% per year of the class's
average daily net assets, out of which 0.25% may be used for service fees. The
Class C plan also may be used to pay Distributors for advancing commissions to
securities dealers with respect to the initial sale of Class C shares.
The Class C plan is a compensation plan. It allows the fund to pay a fee to
Distributors that may be more than the eligible expenses Distributors has
incurred at the time of the payment. Distributors must, however, demonstrate to
the board that it has spent or has immediate plans to spend the amount received
on eligible expenses. The fund will not pay more than the maximum amount allowed
under the plan.
Under the Class C plan, the amounts paid by the fund pursuant to the plan for
the fiscal year ended December 31, 1999, were:
($)
- -----------------------------------------------------
Advertising 261
Printing and mailing prospectuses 10
Other than to current shareholders
Payments to underwriters 48
Payments to broker-dealers 3,925
Other 59
-------------
Total 4,303
-------------
THE CLASS A AND C PLANS. In addition to the payments that Distributors or others
are entitled to under each plan, each 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 for the financing of
any activity primarily intended to result in the sale of fund shares within the
context of Rule 12b-1 under the Investment Company Act of 1940, as amended, then
such payments shall be deemed to have been made pursuant to the plan.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not
participate in the plans because of applicable federal law prohibiting certain
banks from engaging in the distribution of mutual fund shares. These banks,
however, are allowed to receive fees under the plans for administrative
servicing or for agency transactions.
Distributors must provide written reports to the board at least quarterly on the
amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board may
reasonably request to enable it to make an informed determination of whether the
plans should be continued.
Each plan has been approved according to the provisions of Rule 12b-1. The terms
and provisions of each plan also are consistent with Rule 12b-1.
PERFORMANCE
- ------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. 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.
Average annual total return and current yield quotations used by the fund are
based on the standardized methods of computing performance mandated by the SEC.
Performance figures reflect Rule 12b-1 fees from the date of the plan's
implementation. An explanation of these and other methods used by the fund to
compute or express performance follows. Regardless of the method used, past
performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.
When considering the average annual total return quotations, you should keep in
mind that the maximum initial sales charge reflected in each quotation is a one
time fee charged on all direct purchases, which will have its greatest impact
during the early stages of your investment. This charge will affect actual
performance less the longer you retain your investment in the fund. The average
annual total returns for the indicated periods ended December 31, 1999, were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
- -----------------------------------------------------------------------------
Class A 11.87 15.94 12.24
SINCE
INCEPTION
(5/1/99) (%)
- ----------------------------------
Class C 9.42
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000 T = average annual total return n =
number of years ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended December 31, 1999, were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
- -----------------------------------------------------------------------------
Class A 11.87 109.45 217.39
SINCE INCEPTION
1 YEAR (%) (5/1/99) (%)
- ------------------------------------------------------------
Class C 9.42
CURRENT YIELD Current yield shows the income per share earned by the fund. It is
calculated by dividing the net investment income per share earned during a
30-day base period by the applicable 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 of the class during the base
period. The yields for the 30-day period ended December 31, 1999, were:
CLASS A (%) CLASS C (%)
- ------------------------------
1.25 0.59
The following SEC formula was used to calculate these figures:
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 that were or
will be paid to shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate . The current distribution rate is usually
computed by annualizing the dividends paid per share by a class during a certain
period and dividing that amount by the current maximum offering price. 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. The current
distribution rates for the 30-day period ended December 31,1999, were:
CLASS A (%) CLASS C (%)
- ------------------------------
1.37 0.74
VOLATILITY Occasionally statistics may be used to show the fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance 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 The fund also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance 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
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.
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
o Dow Jones(R) Composite Average and its component averages - a price-weighted
average of 65 stocks that trade on the New York Stock Exchange. The average
is a combination of the Dow Jones Industrial Average (30 blue-chip stocks
that are generally leaders in their industry), the Dow Jones Transportation
Average (20 transportation stocks), and the Dow Jones Utilities Average (15
utility stocks involved in the production of electrical energy).
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
o The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed
on the NYSE.
o 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.
o Lipper - Mutual Fund Performance Analysis and Lipper - Equity 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.
o 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.
o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk, and total return for mutual funds.
o Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines provide
performance statistics over specified time periods.
o 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.
o 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.
o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R) companies, Salomon Smith Barney Inc., Merrill
Lynch, Lehman Brothers(R) and Bloomberg(R) L.P.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its category.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) 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 CD issued
by a bank. CDs 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 these other averages.
MISCELLANEOUS INFORMATION
- ------------------------------------------------------------------------------
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
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis 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 these goals will be met.
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 is one of the
oldest mutual fund organizations and now services approximately 3 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, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $229 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 103 U.S. based open-end investment companies to the public. The
fund may identify itself by its Nasdaq symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
DESCRIPTION OF RATINGS
- ------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
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 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 that 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 that 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. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
BELOW INVESTMENT GRADE
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.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
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.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
INVESTMENT GRADE
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 a 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.
BELOW INVESTMENT GRADE
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 these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is assigned
an actual or implied CCC- rating. The C rating also may reflect the filing of a
bankruptcy petition under circumstances where debt service payments are
continuing. The C1 rating is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings are opinions of the ability of issuers to repay punctually their
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designations for both short-term debt and
commercial paper, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FRANKLIN ASSET ALLOCATION FUND
FILE NOS. 2-12647
811-730
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
The following exhibits are incorporated by reference to the previously
filed document indicated below, except as noted:
(a) Agreement and Declaration of Trust
(i) Agreement and Declaration of Trust for the Franklin
Asset Allocation Fund dated March 21, 1996
Filing: Post-effective Amendment No. 56 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: May 17, 1996
(ii) Certificate of Trust for the Franklin Asset Allocation
Fund dated March 21, 1996
Filing: Post-effective Amendment No. 56 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: May 17, 1996
(b) By-Laws
(i) By-Laws
Filing: Post-effective Amendment No. 56 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: May 17, 1996
(c) Instruments Defining Rights of Security Holders
Not Applicable
(d) Investment Advisory Contracts
(i) Management Agreement between Registrant and Franklin
Advisers, Inc. dated March 21, 1996
Filing: Post-Effective Amendment No. 58 to Registration
Statement on Form N-1A
File No. 2-21647
Filing Date: April 29, 1997
(e) Underwriting Contracts
(i) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers dated
March 1, 1998
(ii) Amended and Restated Distribution Agreement between the
Registrant and Franklin/Templeton Distributors, Inc.
dated July 26, 1996
Filing: Post-effective Amendment No. 59 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: February 23, 1998
(iii) Amendment of Amended and Restated Distribution
Agreement between the Registrant and
Franklin/Templeton Distributors, Inc. dated January
12, 1999
(f) Bonus or Profit Sharing Contracts
Not Applicable
(g) Custodian Agreements
(i) Master Custodian Agreement between Registrant and Bank
of New York dated February 16, 1996
Filing: Post-effective Amendment No. 55 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(ii) Amendment dated May 7, 1997 to Master Custody Agreement
Between Registrant and Bank of New York dated February
16, 1996
Filing: Post-effective Amendment No. 59 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: February 23, 1998
(iii)Amendment dated February 27, 1998 to Exhibit A in the
Master Custody Agreement between Registrant and Bank of
New York dated February 16, 1996
Registrant: Franklin Value Investors Trust
Filing: Post-effective Amendment No. 19 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 29, 1998
(iv) Terminal Link Agreement between Registrant and Bank of
New York dated February 16, 1996
Filing: Post-effective Amendment No. 55 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(v) Amendment dated March 21, 2000, to Exhibit A of the Master Custody
Agreement between Registrant and bank of New York dated February 16,
1996
(h) Other Material Contracts
(i) Subcontract for Fund Administrative Services between
Franklin Advisers, Inc. and Franklin Templeton
Services, Inc.
Filing: Post-effective Amendment No. 60 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1999
(i) Legal Opinion
(i) Opinion and Consent of Counsel dated February 5, 1999
Filing: Post-effective Amendment No. 60 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1999
(j) Other Opinions
(i) Consent of Independent Auditors
(k) Omitted Financial Statements
Not Applicable
(L) INITIAL CAPITAL AGREEMENTS
Not Applicable
(M) RULE 12B-1 PLAN
(i) Distribution Plan for Class A pursuant to Rule 12b-1 between
the Registrant and Franklin/Templeton Distributors,
Inc. dated August 1, 1996
Filing: Post-effective Amendment No. 59 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: February 23, 1998
(ii) Distribution Plan for Class C dated April 15, 1999
pursuant to Rule 12b-1 between the Registrant and
Franklin/Templeton Distributors, Inc.
Filing: Post-effective Amendment No. 61 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: April 21, 1999
(o) Rule 18f-3 Plan
(i) Multiple Class Plan for Franklin Asset Allocation Fund
dated April 15, 1999
Filing: Post-effective Amendment No. 61 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: April 21, 1999
(p) Power of Attorney
(i) Power of Attorney dated April 18, 2000
(ii) Certificate of Secretary dated April 18, 2000
(q) Code of Ethics
(i) Code of Ethics
ITEM 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None
ITEM 25 INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, 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 trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the 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 of 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.
Please see the Declaration of Trust, By-Laws, Management Agreement and
Distribution Agreements previously filed as exhibits and incorporated herein by
reference.
ITEM 26 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) Franklin Advisers, Inc.'s (Advisers) corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the Franklin
Templeton Group of Funds. In addition, Mr. Charles B. Johnson was formerly a
director of General Host Corporation. For additional information please see Part
B and Schedules A and D of Form ADV of Advisers (SEC File 801-26292),
incorporated herein by reference, which sets forth the officers and directors of
Advisers 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 27 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., (Distributors) also acts as principal
underwriter of shares of:
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc. Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust Franklin Strategic Mortgage Portfolio
Franklin Strategic Series Franklin Tax-Exempt Money Fund Franklin Tax-Free Trust
Franklin Templeton Global Trust Franklin Templeton International Trust Franklin
Templeton Money Fund Trust Franklin Value Investors Trust Franklin Templeton
Variable Insurance Products Trust Institutional Fiduciary 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 Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
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 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 28 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 Registrant or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA. 94404-1585.
ITEM 29 MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 30 UNDERTAKINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Mateo and the State of California, on the
27th day of April, 2000.
FRANKLIN ASSET ALLOCATION FUND
By: EDWARD B. JAMIESON*
Edward B. Jamieson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
EDWARD B. JAMIESON* Principal Executive Officer
(Edward B. Jamieson) and Trustee
Dated: April 27, 2000
MARTIN L. FLANAGAN* Principal Financial Officer
(Martin L. Flanagan) Dated: April 27, 2000
KIMBERLEY H. MONASTERIO* Principal Accounting Officer
(Kimberly H. Monasterio) Dated: April 27, 2000
FRANK H. ABBOTT, III* Trustee
(Frank H. Abbott, III) Dated: April 27 ,2000
S. JOSEPH FORTUNATO* Trustee
(S. Joseph Fortunato) Dated: April 27, 2000
CHARLES B. JOHNSON* Trustee and Chairman
(Charles B. Johnson) of the Board
Dated: April 27, 2000
HAYATO TANAKA* Trustee
(Hayato Tanaka) Dated: April 27, 2000
R. MARTIN WISKEMANN* Trustee
(R. Martin Wiskemann) Dated: April 27, 2000
*By /s/ David P. Goss
Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN ASSET ALLOCATION FUND
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.(a)(i) Agreement and Declaration of Trust *
dated March 21, 1996
EX-99.(a)(ii) Certificate of Trust dated March 21, *
1996
EX-99.(b)(i) By-Laws *
EX-99.(d)(i) Management Agreement between *
Registrant and Franklin Advisers,
Inc. dated March 21, 1996
EX-99.(e)(i) Form of Dealer Agreement between *
Franklin/Templeton Distributors,
Inc. and securities dealers dated
March 1, 1998
EX-99.(e)(ii) Amended and Restated Distribution *
Agreement between the Registrant and
Franklin/Templeton Distributors,
Inc. dated July 26, 1996
EX-99.(e)(iii) Amendment of Amended and Restated Attached
Distribution Agreement between the
Registrant and Franklin/Templeton
Distributors, Inc. dated January 12,
1999
EX-99.(g)(i) Master Custodian Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(g)(ii) Amendment dated May 7, 1997 to *
Master Custody Agreement Between
Registrant and Bank of New York
EX-99.(g)(iii) Amendment dated February 27, 1998 *
to Master Custody Agreement between
Registrant and Bank of New York
EX-99.(g)(iv) Terminal Link Agreement between *
Registrant and Bank of New York,
dated February 16, 1996
EX-99.(g)(v) Amendment dated March 21, 2000, to Attached
Exhibit A of the Master Custody
Agreement between Registrant and
bank of New York dated February 16,
1996
EX-99.(h)(i) Subcontract for Fund Administrative *
Services
EX-99.(i)(i) Opinion and Consent of Counsel dated *
February 5, 1999
EX-99.(j)(i) Consent of Independent Auditors Attached
EX-99.(m)(i) 12b-1 plan between Registrant and *
Franklin/Templeton Distributors,
Inc. dated August 1, 1996
EX-99.(m)(ii) Distribution Plan for Class C *
between Registrant and
Franklin/Templeton Distributors,
Inc. dated April 15, 1999
EX-99.(o)(i) Multiple Class Plan dated April 15, *
1999 for Franklin Asset Allocation
Fund
EX-99.(p)(i) Power of Attorney dated April 18, Attached
2000
EX-99.(p)(ii) Certificate of Secretary dated April Attached
18, 2000
EX-99.(q)(i) Code of Ethics Attached
*Incorporated by reference
FRANKLIN ASSET ALLOCATION FUND
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc
777 Mariners Island Blvd.
San Mateo, CA 94404
Re: Amendment of Amended and Restated Distribution
Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund," which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act") and whose shares are
registered under the Securities Act of 1933, as amended (the "1933 Act"). You
have informed us that your company is registered as a broker-dealer under the
provisions of the Securities Exchange Act of 1934, as amended (the "1934 Act")
and that your company is a member of the National Association of Securities
Dealers, Inc.
This agreement is an amendment (the "Amendment") of the Amended and Restated
Distribution Agreement (the "Agreement") currently in effect between you and us.
As used herein all capitalized terms herein have the meanings set forth in the
Agreement. We have been authorized to execute and deliver the Amendment to you
by a resolution of our Board passed at a meeting at which a majority of Board
members, including a majority who are not otherwise interested persons of the
Fund and who are not interested persons of our investment adviser, its related
organizations or of you or your related organizations, were present and voted in
favor of such resolution approving the Amendment.
To the extent that any provision of the Amendment conflicts with any provision
of the Agreement, the Amendment provision supersedes the Agreement provision.
The Agreement and the Amendment together constitute the entire agreement between
the parties hereto and supersede all prior oral or written agreements between
the parties hereto.
Section 4. entitled "Compensation" is amended by adding the
following sentences at the end of Subsection 4.B:
The compensation provided in the Class B Distribution Plan applicable to
Class B Shares (the "Class B Plan") is divided into a distribution fee and
a service fee, each of which fees is in compensation for different
services to be rendered to the Fund. Subject to the termination provisions
in the Class B Plan, the distribution fee with respect to the sale of a
Class B Share shall be earned when such Class B Share is sold and shall be
payable from time to time as provided in the Class B Plan. The
distribution fee payable to you as provided in the Class B Plan shall be
payable without offset, defense or counterclaim (it being understood by
the parties hereto that nothing in this sentence shall be deemed a waiver
by the Fund of any claim the Fund may have against you). You may direct
the Fund to cause our custodian to pay such distribution fee to Lightning
Finance Company Limited ("LFL") or other persons providing funds to you to
cover expenses referred to in Section 2(a) of the Class B Plan and to
cause our custodian to pay the service fee to you for payment to dealers
or others or directly to others to cover expenses referred to in Section
2(b) of the Class B Plan.
We understand that you intend to assign your right to receive certain
distribution fees with respect to Class B Shares to LFL in exchange for
funds that you will use to cover expenses referred to in Section 2(a) of
the Class B Plan. In recognition that we will benefit from your
arrangement with LFL, we agree that, in addition to the provisions of
Section 7 (iii) of the Class B Plan, we will not pay to any person or
entity, other than LFL, any such assigned distribution fees related to
Class B Shares sold by you prior to the termination of either the
Agreement or the Class B Plan. We agree that the preceding sentence shall
survive termination of the Agreement.
Section 4. entitled "Compensation" is amended by adding the
following Subsection 4.C. after Subsection 4.B.:
C. With respect to the sales commission on the redemption of Shares of
each series and class of the Fund as provided in Subsection 4.A. above, we
will cause our shareholder services agent (the "Transfer Agent") to
withhold from redemption proceeds payable to holders of the Shares all
contingent deferred sales charges properly payable by such holders in
accordance with the terms of our then current prospectuses and statements
of additional information (each such sales charge, a "CDSC"). Upon receipt
of an order for redemption, the Transfer Agent shall direct our custodian
to transfer such redemption proceeds to a general trust account. We shall
then cause the Transfer Agent to pay over to you or your assigns from the
general trust account such CDSCs properly payable by such holders as
promptly as possible after the settlement date for each such redemption of
Shares. CDSCs shall be payable without offset, defense or counterclaim (it
being understood that nothing in this sentence shall be deemed a waiver by
us of any claim we may have against you.) You may direct that the CDSCs
payable to you be paid to any other person.
Section 11. entitled "Conduct of Business" is amended by replacing the reference
in the second paragraph to "Rules of Fair Practice" with a reference to the
"Conduct Rules".
Section 16. entitled "Miscellaneous" is amended in the first paragraph by
changing the first letter of each of the words in each of the terms in
quotations marks, except "Parent," to the lower case and giving to the term
"assignment" the meaning as set forth only in the 1940 Act and the Rules and
Regulations thereunder (and not as set forth in the 1933 Act and the Rules and
Regulations thereunder.)
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN ASSET ALLOCATION FUND
By:/S/DEBORAH R. GATZEK
Deborah R. Gatzek
Vice President & Secretary
Accepted:
Franklin/Templeton Distributors, Inc.
By:/S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
Dated: January 12, 1999
MASTER CUSTODY AGREEMENT
EXHIBIT A
<TABLE>
<CAPTION>
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the
Master Custody Agreement dated as of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Gold & Precious Metals Fund Delaware Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Bond Fund
Franklin Managed Trust Delaware Business Trust Franklin Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin California High Yield Municipal Fund
Franklin Tennessee Municipal Bond Fund
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Discovery Fund
Mutual European Fund
Mutual Financial Services Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Income Fund Delaware Business Trust
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin U.S. Long-Short Fund
Franklin Large Cap Growth Fund
Franklin Aggressive Growth Fund
Franklin Small Cap Growth Fund II
Franklin Technology Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income
Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Templeton Variable Insurance Massachusetts Business Franklin Money Market Fund
Products Trust Trust Franklin Growth and Income Fund
Franklin Natural Resources Securities Fund
Franklin Real Estate Fund
Franklin Global Communications Securities Fund
Franklin High Income Fund
Templeton Global Income Securities Fund
Franklin Income Securities Fund
Franklin U.S. Government Fund
Franklin Zero Coupon Fund - 2000
Franklin Zero Coupon Fund - 2005
Franklin Zero Coupon Fund - 2010
Franklin Rising Dividends Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Templeton Variable Insurance Massachusetts Business Templeton Pacific Growth Fund
Products Trust (cont.) Trust Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Franklin Small Cap Fund
Franklin Large Cap Growth Securities Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Franklin Global Health Care Securities Fund
Franklin Value Securities Fund
Franklin Aggressive Growth Securities Fund
Franklin S&P 500 Index Fund
Franklin Strategic Income Securities Fund
Franklin Technology Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin U.S. Government Securities Money Market
Portfolio
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Franklin Growth Investments Fund
Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Small Cap Investments Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Franklin Floating Rate Master Trust Delaware Business Trust Franklin Floating Rate Master Series
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
Franklin Floating Rate Trust Delaware Business Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
REVISED: 3/21/00
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 62
to the Registration Statement of Franklin Asset Allocation Fund on Form N-1A
(File No. 2-12647) of our report dated February 3, 2000 on our audit of the
financial statements and financial highlights of Franklin Asset Allocation Fund,
which report is included in the Annual Report to Shareholders for the year ended
December 31, 1999 filed with the Securities and Exchange Commission pursuant to
section 30(d) of the Investment Company Act of 1940, which is incorporated by
reference in the Registration Statement. We also consent to the reference to our
firm under the captions "Financial Highlights" and "Auditor."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
April 27, 2000
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, LEIANN NUZUM, Murray L. Simpson, Barbara J. Green and
David P. Goss (with full power to each of them to act alone) his/her
attorney-in-fact and agent, in all capacities, to execute, deliver and file in
the names of the undersigned, any and all instruments that said attorneys and
agents may deem necessary or advisable to enable the Registrant to comply with
or register any security issued by the Registrant under the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as amended, and the
rules, regulations and interpretations thereunder, including but not limited to,
any registration statement, including any and all pre- and post-effective
amendments thereto, any other document to be filed with the U.S. Securities and
Exchange Commission and any and all documents required to be filed with respect
thereto with any other regulatory authority. Each of the undersigned grants to
each of said attorneys, full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he/she
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.
This Power of Attorney may be executed in one or more counterparts, each
of which shall be deemed to be an original, and all of which shall be deemed to
be a single document.
The undersigned officers and trustees hereby execute this Power of
Attorney as of the 18th day of April, 2000.
/S/ EDWARD B. JAMIESON /S/ FRANK H. ABBOTT, III
Edward B. Jamieson, Frank H. Abbott, III,
Principal Executive Officer and Trustee Trustee
/S/ S. JOSEPH FORTUNATO /S/ CHARLES B. JOHNSON
S. Joseph Fortunato, Charles B. Johnson,
Trustee Trustee
/S/ FRANK W.T. LAHAYE /S/ HAYATO TANAKA
Frank W.T. LaHaye, Hayato Tanaka,
Trustee Trustee
/S/ R. MARTIN WISKEMANN /S/ MARTIN L. FLANAGAN
R. Martin Wiskemann, Martin L. Flanagan,
Trustee Principal Financial
Officer
/S/ KIMBERLEY H. MONASTERIO
Kimberley H. Monasterio,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, David P. Goss, certify that I am Assistant Secretary of FRANKLIN ASSET
ALLOCATION FUND (the "Fund").
As Assistant Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of Directors of the Fund present at a
meeting held at 777 Mariners Island Boulevard, San Mateo, California 94404, on
April 18, 2000.
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, Mark H. Plafker, Karen L. Skidmore,
Leiann Nuzum, Murray L. Simpson, Barbara J. Green and David P.
Goss 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/ DAVID P. GOSS
Dated: APRIL 18, 2000 David P. Goss
Assistant Secretary
THE FRANKLIN TEMPLETON GROUP
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS.......................................1
PART 1 - STATEMENT OF PRINCIPLES..................................................1
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE.............................2
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS...........................3
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS......10
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS...........................13
PART 6 - PRE-CLEARANCE REQUIREMENTS..............................................17
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE....................................22
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY....23
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS..................24
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER.....................25
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS..............................31
III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING,
AND PRE-CLEARANCE PROVISIONS .............................................32
IV. LEGAL REQUIREMENT..........................................................33
APPENDIX B: FORMS AND SCHEDULES..................................................34
ACKNOWLEDGMENT FORM..............................................................35
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK
TELEPHONE & FAX NUMBERS.............................................36
SCHEDULE B: SECURITIES TRANSACTION REPORT........................................37
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS
SECURITIES HOLDINGS ................................................39
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING..........................40
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST..............41
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS.........42
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY.........43
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES
ISSUED IN PRIVATE
PLACEMENTS.......................................................................45
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF FRANKLIN
RESOURCES, INC. - FEBRUARY 2000.................................................47
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING..................1
A. LEGAL REQUIREMENT...........................................................1
B. WHO IS AN INSIDER?..........................................................2
C. WHAT IS MATERIAL INFORMATION?...............................................2
D. WHAT IS NON-PUBLIC INFORMATION?.............................................2
E. BASIS FOR LIABILITY.........................................................3
F. PENALTIES FOR INSIDER TRADING...............................................3
G. INSIDER TRADING PROCEDURES..................................................4
</TABLE>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in the
Franklin Templeton Group of Funds (the "Funds") (collectively, the "Franklin
Templeton Group") will follow this Code of Ethics (the "Code") and Policy
Statement on Insider Trading (the "Insider Trading Policy"). Additionally, the
subsidiaries listed in Appendix C of this Code, together with Franklin
Resources, Inc., the Funds, the Fund's investment advisers and principal
underwriter, have adopted the Code and Insider Trading Policy.
PART 1 - STATEMENT OF PRINCIPLES
The Franklin Templeton Group's policy is that the interests of shareholders
and clients are paramount and come before the interests of any director, officer
or employee of the Franklin Templeton Group.1
Personal investing activities of ALL directors, officers and employees of
the Franklin Templeton Group should be conducted in a manner to avoid actual OR
potential conflicts of interest with the Franklin Templeton Group, Fund
shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of the Franklin Templeton Group shall use
their positions with the Franklin Templeton Group, and any investment
opportunities they learn of because of their positions with the Franklin
Templeton Group, in a manner consistent with their fiduciary duties for the
benefit of Fund shareholders, and clients.
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its
overall purpose is to help all of us comply with the law and to preserve and
protect the outstanding reputation of the Franklin Templeton Group. This
document was adopted to comply with Securities and Exchange Commission rules
under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers
Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations
contained in the ICI's REPORT OF THE ADVISORY GROUP ON PERSONAL INVESTING. Any
violation of the Code or Insider Trading Policy, including engaging in a
prohibited transaction or failing to file required reports, may result in
disciplinary action, and, when appropriate, termination of employment and/or
referral to appropriate governmental agencies.
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors,
officers and employees2 of the Franklin Templeton Group. However, there are
different categories of restrictions on personal investing activities. The
category in which you have been placed generally depends on your job function,
although unique circumstances may result in you being placed in a different
category.
The Code covers the following categories of employees who are described below:
(1) ACCESS PERSONS: Access Persons are those employees who have "ACCESS TO
INFORMATION" concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security. Examples of "ACCESS TO
INFORMATION" would include having access to trading systems, portfolio
accounting systems, research data bases or settlement information. Access
Persons would typically include employees, including Management Trainees,
in the following departments:
o fund accounting;
o investment operations;
o information services & technology;
o product management;
o legal and legal compliance
o and anyone else designated by the Director of Compliance
In addition, you are an Access Person if you are any of the following:
o an officer or and directors of funds;
o an officer or director of an investment advisor or broker-dealer
subsidiary in the Franklin Templeton Group;
o a person that controls those entities; and
o any Franklin Resources' Proprietary Account ("Proprietary Account")3
(2) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access Persons and are
those employees of the Franklin Templeton Group, who, in connection with
his or her regular functions or duties, makes or participates in the
decision to purchase or sell a security by a Fund in the Franklin Templeton
Group, or any other client or if his or her functions relate to the making
of any recommendations about those purchases or sales. Portfolio Persons
include:
o portfolio managers;
o research analysts;
o traders;
o employees serving in equivalent capacities (such as Management Trainees);
o employees supervising the activities of Portfolio Persons; and
o anyone else designated by the Director of Compliance
(3) NON-ACCESS PERSONS: If you are an employee in the Franklin Templeton Group
AND you do not fit into any of the above categories, you are a Non-Access
Person. Because you do not normally receive confidential information about
Fund portfolios, you are subject only to the prohibited transaction
provisions described in 3.4 of this Code and the Franklin Resources, Inc.'s
Standards of Business Conduct contained in the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to what
category you fall in or whether you should be considered to be an Access Person
or Portfolio Person.
The Code works by prohibiting some transactions and requiring pre-clearance
and reporting of most others. NON-ACCESS PERSONS do not have to pre-clear their
security transactions, and, in most cases, do not have to report their
transactions. "INDEPENDENT DIRECTORS" need not report any securities transaction
unless you knew, or should have known that, during the 15-day period before or
after the transaction, the security was purchased or sold or considered for
purchase or sale by a Fund or Franklin Resources for a Fund. (See Section 5.2.B
below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES AND INDEPENDENT
DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED TRANSACTIONS
PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions regarding your
personal securities activity, contact the Legal Compliance Department.
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and transactions,
as well as transactions by any of Franklin Resource's Proprietary Accounts. It
also covers all securities and accounts in which you have "beneficial
ownership." 4 A transaction by or for the account of your spouse, or any other
family member living in your home is considered to be the same as a transaction
by you. Also, a transaction for any account in which you have any economic
interest (other than the account of an unrelated client for which advisory fees
are received) and have or share investment control is generally considered the
same as a transaction by you. For example, if you invest in a corporation that
invests in securities and you have or share control over its investments, that
corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any securities
held by a partnership, corporation, trust or similar entity unless you control,
or share control of such entity, or have, or share control over its investments.
For example, securities transactions of a trust or foundation in which you do
not have an economic interest (i.e., you are not the trustor or beneficiary) but
of which you are a trustee are not considered yours unless you have voting or
investment control of its assets. Accordingly, each time the words "you" or
"your" are used in this document, they apply not only to your personal
transactions and accounts, but also to all transactions and accounts in which
you have any direct or indirect beneficial interest. If it is not clear whether
a particular account or transaction is covered, ask a Preclearance Officer for
guidance.
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear OR report transactions of the following
securities:
(1) securities that are direct obligations of the U. S. Government (i.e.,
issued or guaranteed by the U.S. Government, such as Treasury bills, notes
and bonds, including U.S. Savings Bonds and derivatives thereof);
(2) high quality short-term instruments, including but not limited to bankers'
acceptances, bank certificates of deposit, commercial paper and repurchase
agreements;
(3) shares of registered open-end investment companies ("mutual funds"); and
(4) commodity futures, currencies, currency forwards and derivatives thereof.
Such transactions are also exempt from: (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 PROHIBITED TRANSACTIONS FOR ALL ACCESS PERSONS
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts and
the SEC to be prohibited by law. The Code reiterates that these types of
transactions are a violation of the Statement of Principals and are prohibited.
Preclearance, which is a cornerstone of our compliance efforts, cannot detect
transactions which are dependent upon INTENT, or which by their nature, occur
before any order has been placed for a fund or client. A Preclearance Officer,
who is there to assist you with compliance with the Code, CANNOT guarantee any
transaction or transactions comply with the Code or the law. The fact that your
transaction receives preclearance, shows evidence of good faith, but depending
upon all the facts, may not provide a full and complete defense to any
accusation of violation of the Code or of the law. For example, if you executed
a transaction for which you received approval, or if the transaction was exempt
from preclearance (e.g., a transaction for 100 shares or less), would not
preclude a subsequent finding that front-running or scalping occurred because
such activity are dependent upon your intent. Intent cannot be detected during
preclearance, but only after a review of all the facts.
In the final analysis, compliance remains the responsibility of EACH
individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term "front-run"
means knowingly trading before a contemplated transaction by a Fund or client of
any Franklin Templeton adviser, whether or not your trade and the Fund's or
client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin Templeton Group's
intention, to purchase that security or a related security on behalf of a
Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton Group's
intention, to sell that security or a related security on behalf of a Fund
or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the
intention of recommending that the security be purchased for a Fund, or client,
or sell short a security (or its economic equivalent) with the intention of
recommending that the security be sold for a Fund or client. Scalping is
prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related security
is being bought contemporaneously by a Fund or client, or sell a security if you
know that the same or a related security is being sold contemporaneously by a
Fund or client.
E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling the same or a
related security, or has sold the security, until seven (7) calendar days
after the Fund's or client's order has either been executed or withdrawn,
or
(2) sell a security if you know that a Fund or client is buying the same or a
related security, or has bought the security until seven (7) calendar days
after the Fund's or client's order has either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the Code
for more details regarding the preclearance of personal securities transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information 5
without disclosing the information and receiving written authorization. If you
wish to purchase or sell a security about which you obtained such information,
you must report all of the information you obtained regarding the security to
the Appropriate Analyst(s)6, or to the Director of Compliance for dissemination
to the Appropriate Analyst(s).
You will be permitted to purchase or sell such security if the Appropriate
Analyst(s) confirms to the Preclearance Desk that there is no intention to
engage in a transaction regarding the security within seven (7) calendar days on
behalf of an Associated Client7 and you subsequently preclear such security in
accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES, INC., AND
AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its
affiliates, including the Franklin Templeton Group, you cannot effect a short
sale of the securities, including "short sales against the box" of Franklin
Resources, Inc., or any of the Franklin or Templeton closed-end funds, Franklin
real estate investment trusts or any other security issued by Franklin
Resources, Inc. or its affiliates. This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to
sales of any option to buy (i.e., a call option) or purchases of any option to
sell (i.e., a put option) and "swap" transactions or other derivatives. Officers
and directors of the Franklin Templeton Group who may be covered by Section 16
of the Securities Exchange Act of 1934, are reminded that their obligations
under that section are in addition to their obligations under this Code.
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS8
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or indirect
beneficial interest in a security whenever you learn that the security is under
consideration for purchase or sale by an Associated Client in the Franklin
Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of which
recommendation shall be made on behalf of the Associated Client; or
(3) Have functions or duties that relate to the determination of which
recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest
orally to the primary portfolio manager (or other Appropriate Analyst) of the
Associated Client(s) considering the security, the Director of Research and
Trading or the Director of Compliance. Following that oral disclosure, you must
send a written acknowledgment of that interest on Schedule E (or on a form
containing substantially similar information) to the primary portfolio manager
(or other Appropriate Analyst), with a copy to the Legal Compliance Department.
4.2 SHORT SALES OF SECURITIES
You cannot sell short ANY security held by your Associated Clients,
including "short sales against the box". Additionally, Portfolio Persons
associated with the Templeton Group of Funds and clients cannot sell short any
security on the Templeton "Bargain List". This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to,
sales of uncovered call options, purchases of put options while not owning the
underlying security and short sales of bonds that are convertible into equity
positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and
purchase within sixty calendar days of any security, including derivatives.
Portfolio Persons are responsible for transactions that may occur in margin and
option accounts and all such transactions must comply with this restriction.9
This restriction does NOT apply to:
(1) trading within a shorter period if you do not realize a profit and if
you do not violate any other provisions of this Code; AND
(2) profiting on the purchase and sale or sale and purchase within sixty
calendar days of the following securities:
o securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
o high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
o shares of registered open-end investment companies; and
o commodity futures, currencies, currency forwards and derivatives
thereof.
Calculation of profits during the 60 calendar day holding period generally
will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may elect to
calculate their 60 calendar day profits on either a LIFO or FIFO ("first-in,
first-out") basis when there has not been any activity in such security by their
Associated Clients during the previous 60 calendar days.
4.4 SERVICE AS A DIRECTOR
As a Portfolio Person, you cannot serve as a director, trustee, or in a
similar capacity for any company (excluding not-for-profit companies, charitable
groups, and eleemosynary organizations) unless you receive approval from the
Chief Executive Officer of the principal investment adviser to the Fund(s) of
which you are a Portfolio Person and he/she determines that your service is
consistent with the interests of the Fund(s) and its shareholders.
4.5 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering, or
a secondary offering by an issuer, INCLUDING initial public offerings of
securities made by closed-end funds and real estate investment trusts advised by
the Franklin Templeton Group. Purchases of open-end mutual funds are excluded
from this prohibition.
4.6 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other
securities in private placements unless they:
(1) complete the Private Placement Checklist (Schedule H);
(2) provide supporting documentation (e.g., a copy of the offering
memorandum); and
(3) obtain approval of the appropriate Chief Investment Officer; and
(4) submit all documents to the Legal Compliance Department Approval will
only be granted after the Director of Compliance consults with an
executive officer of Franklin Resources, Inc.
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting
procedures is essential to enable us to meet our responsibilities to Funds and
other clients and to comply with regulatory requirements. You are expected to
comply with both the letter and spirit of these requirements, including
completing and filing all reports required under the Code in a timely manner.
5.2 INITIAL HOLDINGS AND BROKERAGE ACCOUNT REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS) Every employee (new or
transfer) of the Franklin Templeton Group who becomes an Access Person, must
file:
(1) An Acknowledgement Form;
(2) Schedule C: Initial, Annual & Updated Disclosure of Securities Holdings;
and
(3) Schedule F: Initial, Annual & Updated Disclosure of Securities Accounts
The Acknowledgement Form, Schedule C and Schedule F MUST be completed and
returned to the Legal Compliance Department within 10 CALENDAR DAYS of the date
the employee becomes an access person.
5.3 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You MUST report ALL securities transactions by; (i) providing the Legal
Compliance Department with copies of ALL broker's confirmations and statements
within 10 calendar days after the end of the calendar quarter (which may be sent
under separate cover by the broker) showing ALL transactions and holdings in
securities AND (ii) certifying by January 30th of each year that you have
disclosed all such brokerage accounts on Schedule F to the Legal Compliance
Department. The brokerage statements and confirmations must include all
transactions in securities in which you have, or by reason of the transaction
acquire any direct or indirect beneficial ownership, including transactions in a
discretionary account and transactions for any account in which you have any
economic interest AND have or share investment control. Also, if you acquire
securities by any other method which is not being reported to the Legal
Compliance Department by a duplicate confirmation statement at or near the time
of the acquisition, you must report that acquisition to the Legal Compliance
Department on Schedule B within 10 calendar days after you are notified of the
acquisition. Such acquisitions include, among other things, securities acquired
by gift, inheritance, vesting,10 stock splits, merger or reorganization of the
issuer of the security.
You must file these documents with the Legal Compliance Department not
later than 10 calendar days after the end of each quarter, but you need not show
or report transactions for any account over which you had no direct or indirect
influence or control.11 Failure to timely report transactions is a violation of
Rule 17j-1 as well as the Code, and may be reported to the Fund's Board of
Directors and may also result, among other things, in denial of future personal
security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of the Franklin Templeton Group but you are not an
"interested person" of the Fund, you are not required to file transaction
reports unless you knew or should have known that, during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund.
5.4 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
As an access person, you must file a report of all personal securities
accounts on Schedule F, with the Legal Compliance Department, annually by
January 30th. You must report the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse and minor children. You must also report any
account in which you have any economic interest AND have or share investment
control (e.g., trusts, foundations, etc.) other than an account for a Fund in,
or a client of, the Franklin Templeton Group.
B. SECURITIES HOLDINGS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
You must file a report of personal securities holdings on Schedule C, with
the Legal Compliance Department, by January 30th of each year. This report
should include ALL of your securities holdings, including any security acquired
by a transaction, gift, inheritance, vesting, merger or reorganization of the
issuer of the security, in which you have any direct or indirect beneficial
ownership, including securities holdings in a discretionary account and for any
account in which you have any economic interest AND have or share investment
control. Your securities holding information must be current as of a date no
more than 30 days before the report is submitted. You may attach copies of
year-end brokerage statements to the Schedule C in lieu of listing each security
position on the schedule.
C. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS (INCLUDING INDEPENDENT
DIRECTORS)
All access persons, including independent directors, will be asked to
certify that they will comply with the FRANKLIN TEMPLETON GROUP'S CODE OF ETHICS
AND POLICY STATEMENT ON INSIDER TRADING by filing the Acknowledgment Form with
the Legal Compliance Department within 10 business days of receipt of the Code.
Thereafter, you will be asked to certify that you have complied with the Code
during the preceding year by filing a similar Acknowledgment Form by January 30
of each year.
5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS (EXCEPT
INDEPENDENT DIRECTORS)
If you are an access person , in the Franklin Templeton Group, before or at
a time contemporaneous with opening a brokerage account with a registered
broker-dealer, or a bank, or placing an initial order for the purchase or sale
of securities with that broker-dealer or bank, you must:
(1) notify the Legal Compliance Department, in writing, by completing Schedule
D or by providing substantially similar information; and
(2) notify the institution with which the account is opened, in writing, of
your association with the Franklin Templeton Group.
The Compliance Department will request the institution in writing to send
to it duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their mailing to you.
If you have an existing account on the effective date of this Code or upon
becoming an access person, you must comply within 10 days with conditions (1)
and (2) above.
PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph D below, you cannot buy or sell any
security, without first contacting a Preclearance Officer by fax, phone, or
e-mail and obtaining his or her approval. A clearance is good until the close of
the business day following the day clearance is granted but may be extended in
special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the Code.
However, all other provisions of the Code apply, including, but not limited to:
(i) the prohibited transaction provisions contained in Part 3.4 such as
front-running; (ii) the additional compliance requirements applicable to
portfolio persons contained in Part 4, (iii) the applicable reporting
requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) MUTUAL FUNDS. Transactions in shares of any registered open-end mutual
fund;
(2) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and sales of
securities of Franklin Resources, Inc., closed-end funds of the Franklin
Templeton Group, or real estate investment trusts advised by Franklin
Properties Inc., as these securities cannot be purchased on behalf of our
advisory clients.12
(3) SMALL QUANTITIES. Transactions that do not result in purchases or sales of
more than 100 shares of any one security, regardless of where it is traded,
in any 30 day period. HOWEVER, YOU MAY NOT EXECUTE ANY TRANSACTION,
REGARDLESS OF QUANTITY, IF YOU LEARN THAT THE FUNDS ARE ACTIVE IN THE
SECURITY. IT WILL BE PRESUMED THAT YOU HAVE KNOWLEDGE OF FUND ACTIVITY IN
THE SECURITY IF, AMONG OTHER THINGS, YOU ARE DENIED APPROVAL TO GO FORWARD
WITH A TRANSACTION REQUEST. Transactions made pursuant to dividend
reinvestment plans ("DRIPs") do not require preclearance regardless of
quantity or Fund activity.
(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or guaranteed by
the governments of the United States, Canada, the United Kingdom, France,
Germany, Switzerland, Italy and Japan, or their agencies or
instrumentalities, or derivatives thereof;
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's spouse
pursuant to a payroll deduction program, provided the Compliance Department
has been previously notified in writing by the access person that the
spouse will be participating in the payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the exercise and/or
purchase by an access person or an access person's spouse of securities
pursuant to a program sponsored by a corporation employing the access
person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of rights issued
pro rata to all holders of a class of securities or the sale of rights so
received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona fide tender
offer made for any and all such securities to all similarly situated
shareholders in conjunction with mergers, acquisitions, reorganizations
and/or similar corporate actions. However, tenders pursuant to offers for
less than all outstanding securities of a class of securities of an issuer
must be precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any securities that are
prohibited investments for all Funds and clients advised by the entity
employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or entity over
which you do not have or share investment control (i.e., an account where
someone else exercises complete investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not acquire or
dispose of direct or indirect beneficial ownership (i.e., an account where
in you have no financial interest).
Although an access person's securities transaction may be exempt from
pre-clearing, such transactions must comply with the prohibited transaction
provisions of Section 3.4 above. Additionally, you may not trade any securities
as to which you have "inside information" (see attached THE FRANKLIN TEMPLETON
GROUP POLICY STATEMENT ON INSIDER Trading). If you have any questions, contact a
Preclearance Officer before engaging in the transaction. If you have any doubt
whether you have or might acquire direct or indirect beneficial ownership or
have or share investment control over an account or entity in a particular
transaction, or whether a transaction involves a security covered by the Code,
you should consult with a Preclearance Officer before engaging in the
transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for which
a registered broker-dealer, a registered investment adviser, or other investment
manager acting in a similar fiduciary capacity, which is not affiliated with the
Franklin Templeton Group, exercises sole investment discretion, if the following
conditions are met:13
(1) The terms of each account relationship ("Agreement") must be in writing and
filed with a Preclearance Officer prior to any transactions.
(2) Any amendment to each Agreement must be filed with aPreclearance Officer
prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at the time
such account relationship commences, and annually thereafter, as contained
in Schedule G of the Code that such Portfolio Person does not have direct
or indirect influence or control over the account, other than the right to
terminate the account.
(4) Additionally, any discretionary account that you open or maintain with a
registered broker-dealer, a registered investment adviser, or other
investment manager acting in a similar fiduciary capacity must provide
duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their delivery to you., If your
discretionary account acquires securities which are not reported to a
Preclearance Officer by a duplicate confirmation, such transaction must be
reported to a Preclearance Officer on Schedule B within 10 days after you
are notified of the acquisition.14
However, if you make ANY request that the discretionary account manager
enter into or refrain from a specific transaction or class of transactions, you
must first consult with aPreclearance Officer and obtain approval prior to
making such request.
D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in the Franklin Templeton Group and a
director of the fund's advisor;
(2) You are not an "advisory person"15 of a Fund in the Franklin Templeton
Group; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative"16 of Franklin Resources or
any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the
transaction, the security was purchased or sold, or considered for purchase or
sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
Directors qualifying under this paragraph are required to comply with all
applicable provisions of the Code including reporting their initial holdings and
brokerage accounts in accordance with 5.2, personal securities transactions and
accounts in accordance with 5.3 and 5.5, and annual reports in accordance with
5.4 of the Code.
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to
maintain shareholder confidence in the Franklin Templeton Group.
In adopting this Code, it is the intention of the Boards of
Directors/Trustees, to attempt to achieve 100% compliance with all requirements
of the Code - but it is recognized that this may not be possible. Incidental
failures to comply with the Code are not necessarily a violation of the law or
the Franklin Templeton Group's Statement of Principles. Such isolated or
inadvertent violations of the Code not resulting in a violation of law or the
Statement of Principles will be referred to the Director of Compliance and/or
management personnel, and disciplinary action commensurate with the violation,
if warranted, will be imposed.
However, if you violate any of the enumerated prohibited transactions
contained in Parts 3 and 4 of the Code, you will be expected to give up ANY
profits realized from these transactions to Franklin Resources for the benefit
of the affected Funds or other clients. If Franklin Resources cannot determine
which Fund(s) or client(s) were affected, the proceeds will be donated to a
charity chosen by Franklin Resources. Failure to disgorge profits when requested
may result in additional disciplinary action, including termination of
employment.
Further, a pattern of violations that individually do not violate the law
or Statement of Principles, but which taken together demonstrate a lack of
respect for the Code of Ethics, may result in disciplinary action including
termination of employment. A violation of the Code resulting in a violation of
the law will be severely sanctioned, with disciplinary action including, but not
limited to, referral of the matter to the board of directors of the affected
Fund, termination of employment or referral of the matter to the appropriate
regulatory agency for civil and/or criminal investigation.
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY
The Code of Ethics is primarily concerned with transactions in securities
held or to be acquired by any of the Funds or Franklin Resources' clients,
regardless of whether those transactions are based on inside information or
actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the
problem of insider trading in securities that could result in harm to a Fund, a
client, or members of the public, and applies to all directors, officers and
employees of any entity in the Franklin Templeton Group. Although the
requirements of the Code and the Insider Trading Policy are similar, you must
comply with both.
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS
This appendix sets forth the additional responsibilities and obligations of
Compliance Officers, and the Legal/Administration and Legal/Compliance
Departments, under the Franklin Templeton Group Code of Ethics and Policy
Statement on Insider Trading.
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Director of Compliance, or a Preclearance Officer, shall only permit an
access person to go forward with a proposed security17 transaction if he or she
determines that, considering all of the facts and circumstances, the transaction
does not violate the provisions of Rule 17j-1, or of this Code and there is no
likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, a Preclearance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, LLC ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
Certain officers of Franklin Resources, as well as legal, compliance, fund
accounting, investment operations and other personnel who generally have access
to trading information of the funds and clients of the Franklin Templeton Group
during the course of their regular functions and duties, will have their
personal securities transactions precleared against executed transactions, open
orders and recommendations of the entire Franklin Templeton Group.
3. SPECIFIC STANDARDS
(a) SECURITIES TRANSACTIONS BY FUNDS OR CLIENTS
No clearance shall be given for any transaction in any security on any day
during which an Associated Client of the access person has executed a buy or
sell order in that security, until seven (7) calendar days after the order has
been executed. Notwithstanding a transaction in the previous seven days,
clearance may be granted to sell if the security has been disposed of by all
Associated Clients.
(b) SECURITIES UNDER CONSIDERATION
OPEN ORDERS
No clearance shall be given for any transaction in any security on any day
which an Associated Client of the access person has a pending buy or sell order
for such security, until seven (7) calendar days after the order has been
executed.
RECOMMENDATIONS
No clearance shall be given for any transaction in any security on any day
on which a recommendation for such security was made by a Portfolio Person,
until seven (7) calendar days after the recommendation was made and no orders
have subsequently been executed or are pending.
(c) PRIVATE PLACEMENTS
In considering requests by Portfolio Personnel for approval of limited
partnerships and other private placement securities transactions, the Director
of Compliance shall consult with an executive officer of Franklin Resources,
Inc. In deciding whether to approve the transaction, the Director of Compliance
and the executive officer shall take into account, among other factors, whether
the investment opportunity should be reserved for a Fund or other client, and
whether the investment opportunity is being offered to the Portfolio Person by
virtue of his or her position with the Franklin Templeton Group. If the
Portfolio Person receives clearance for the transaction, an investment in the
same issuer may only be made for a Fund or client if an executive officer of
Franklin Resources, Inc., who has been informed of the Portfolio Person's
pre-existing investment and who has no interest in the issuer, approves the
transaction.
(d) DURATION OF CLEARANCE
If a Preclearance Officer approves a proposed securities transaction, the
order for the transaction must be placed and effected by the close of the next
business day following the day approval was granted. The Director of Compliance
may, in his or her discretion, extend the clearance period up to seven calendar
days, beginning on the date of the approval, for a securities transaction of any
access person who demonstrates that special circumstances make the extended
clearance period necessary and appropriate.18 The Director of Compliance may, in
his or her discretion, after consultation with a member of senior management for
Franklin Resources, Inc., renew the approval for a particular transaction for up
to an additional seven calendar days upon a similar showing of special
circumstances by the access person. The Director of Compliance may shorten or
rescind any approval or renewal of approval under this paragraph if he or she
determines it is appropriate to do so.
B. WAIVERS BY THE DIRECTOR OF COMPLIANCE
The Director of Compliance may, in his or her discretion, after
consultation with an executive officer of Franklin Resources, Inc., waive
compliance by any access person with the provisions of the Code, if he or she
finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of unforeseen
circumstances or is otherwise appropriate under all the relevant facts
and circumstances;
(2) will not be inconsistent with the purposes and objectives of the Code;
(3) will not adversely affect the interests of advisory clients of the
Franklin Templeton Group, the interests of the Franklin Templeton
Group or its affiliates; and
(4) will not result in a transaction or conduct that would violate
provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis for
it, and a copy shall be promptly sent by the Director of Compliance to the
General Counsel of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
A Preclearance Officer shall make a record of all requests for
pre-clearance regarding the purchase or sale of a security, including the date
of the request, the name of the access person, the details of the proposed
transaction, and whether the request was approved or denied. APreclearance
Officer shall keep a record of any waivers given, including the reasons for each
exception and a description of any potentially conflicting Fund or client
transactions.
A Preclearance Officer shall also collect the signed initial
acknowledgments of receipt and the annual acknowledgments from each access
person of receipt of a copy of the Code and Insider Trading Policy, as well as
reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition,
a Preclearance Officer shall request copies of all confirmations, and other
information with respect to an account opened and maintained with the
broker-dealer by any access person of the Franklin Templeton Group. A
Preclearance Officer shall preserve those acknowledgments and reports, the
records of consultations and waivers, and the confirmations, and other
information for the period required by applicable regulation.
A Preclearance Officer shall review brokerage transaction confirmations,
account statements, Schedules B, C, D, E, F and Private Placement Checklists of
Access Persons for compliance with the Code. The reviews shall include, but are
not limited to;
(1) Comparison of brokerage confirmations, Schedule Bs, and/or brokerage
statements to preclearance request worksheets or, if a private
placement, the Private Placement Checklist;
(2) Comparison of brokerage statements and/or Schedule Fs to current
securities holding information;
(3) Comparison of Schedule C to current securities account information;
(4) Conducting periodic "back-testing" of access person transactions,
Schedule Es and/or Schedule Gs in comparison to fund and client
transactions;
A Preclearance Officer shall evidence review by initialing and dating the
appropriate document. Any apparent violations of the Code detected by a
Preclearance Officer during his or her review shall be promptly brought to the
attention of the Director of Compliance.
D. PERIODIC RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
The Legal Compliance Department shall consult with the General Counsel and
the Human Resources Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor compliance with
the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
(2) Adequate reviews and audits are conducted to monitor compliance with
the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
(3) All access persons and new employees of the Franklin Templeton Group
are adequately informed and receive appropriate education and training
as to their duties and obligations under the Code.
(4) There are adequate educational, informational and monitoring efforts
to ensure that reasonable steps are taken to prevent and detect
unlawful insider trading by access persons and to control access to
inside information.
(5) Written compliance reports are submitted to the Board of Directors of
Franklin Resources, Inc., and the Board of each relevant Fund at least
annually. Such reports will describe any issues arising under the Code
or procedures since the last report, including, but not limited to,
information about material violations of the Code or procedures and
sanctions imposed in response to the material violations.
(6) The Legal Compliance Department will certify at least annually to the
Fund's board of directors that the Franklin Templeton Group has
adopted procedures reasonably necessary to prevent Access Persons from
violating the Code, and
(7) Appropriate records are kept for the periods required by law.
E. APPROVAL BY FUND'S BOARD OF DIRECTORS
(1) Basis for Approval
The Board of Directors/Trustees must base its approval of the Code on
a determination that the Code contains provisions reasonably necessary to
prevent access persons from engaging in any conduct prohibited by rule
17j-1.
(2) New Funds
At the time a new fund is organized, the Legal Compliance Department will
provide the Fund's board of directors, a certification that the investment
adviser and principal underwriter have adopted procedures reasonably necessary
to prevent Access Persons from violating the Code. Such certification will state
that the Code contains provisions reasonably necessary to prevent Access Persons
from violating the Code.
(3) Material Changes to the Code of Ethics
The Legal Compliance Department will provide the Fund's board of directors
a written description of all material changes to the Code no later than six
months after adoption of the material change by the Franklin Templeton Group.
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the terms
below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning of
Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a person,
including an Advisory Representative, who has access to information
concerning recommendations made to a Fund or client with regard to the
purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any
employee who makes any recommendation, who participates in the
determination of which recommendation shall be made, or whose functions or
duties relate to the determination of which recommendation shall be made;
any employee who, in connection with his or her duties, obtains any
information concerning which securities are being recommended prior to the
effective dissemination of such recommendations or of the information
concerning such recommendations; and any of the following persons who
obtain information concerning securities recommendations being made by
Franklin Resources prior to the effective dissemination of such
recommendations or of the information concerning such recommendations: (i)
any person in a control relationship to Franklin Resources, (ii) any
affiliated person of such controlling person, and (iii) any affiliated
person of such affiliated person.
AFFILIATED PERSON - same meaning as Section 2(a)(3) of the Investment Company
Act of 1940. An "affiliated person" of an investment company includes
directors, officers, employees, and the investment adviser. In addition, it
includes any person owning 5% of the company's voting securities, any
person in which the investment company owns 5% or more of the voting
securities, and any person directly or indirectly controlling, controlled
by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst
or portfolio manager making investment recommendations or investing funds
on behalf of an Associated Client and who may be reasonably expected to
recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the
1934 Act. Generally, a person has a beneficial ownership in a security if
he or she, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the security. There is a presumption of a
pecuniary interest in a security held or acquired by a member of a person's
immediate family sharing the same household.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the
most recent 15 days it (i) is or has been held by a Fund, or (ii) is being
or has been considered by a Fund or its investment adviser for purchase by
the Fund.
PORTFOLIO PERSON - Any employee of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund in
the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else designated by the Director of Compliance
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not
limited to, a limited partnership, a corporate hedge fund, a limited
liability company or any other pooled investment vehicle in which Franklin
Resources or its affiliates, owns 5 percent or more of the outstanding
capital or is entitled to 25% or more of the profits or losses in the
account (excluding any asset based investment management fees based on
average periodic net assets in accounts). SECURITY - Any stock, note, bond,
evidence of indebtedness, participation or interest in any profit-sharing
plan or limited or general partnership, investment contract, certificate of
deposit for a security, fractional undivided interest in oil or gas or
other mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit), guarantee of, or warrant or
right to subscribe for or purchase any of the foregoing, and in general any
interest or instrument commonly known as a security, except commodity
futures, currency and currency forwards. For the purpose of this Code,
"security" does not include: (1) Direct obligations of the Government of
the United States; (2) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt instruments, including
repurchase agreements; and (3) Shares issued by open-end funds.
SEE Section III of Appendix A for a summary of different requirements for
different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE
PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions of
Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S. bank
certificates of deposit; (iii) commercial paper; and (iv) repurchase
agreements;
(3) shares of registered open-end investment companies;
(4) commodity futures, currencies, currency forwards and derivatives
thereof;
(5) securities that are prohibited investments for all Funds and clients
advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the governments or
their agencies or instrumentalities of Canada, the United Kingdom,
France, Germany, Switzerland, Italy and Japan and derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of Section
5 and preclearance requirements of Section 6 of the Code include:
(1) securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S. bank
certificates of deposit; (iii) commercial paper; and (iv) repurchase
agreements;
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and derivatives
thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes it
unlawful for any affiliated person of the Franklin Templeton Group in connection
with the purchase or sale of a security, including any option to purchase or
sell, and any security convertible into or exchangeable for, any security that
is "held or to be acquired" by a Fund in the Franklin Templeton Group:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to state
to a Fund a material fact necessary in order to make the statements made,
in light of the circumstances under which they are made, not misleading;
C. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by a Fund, or (ii) is being or has been considered by a
Fund or its investment adviser for purchase by the Fund. .
APPENDIX B: FORMS AND SCHEDULES
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
To: DIRECTOR OF COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I hereby acknowledge receipt of a copy of the Franklin Templeton Group's CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, AMENDED AND RESTATED, FEBRUARY
2000, which I have read and understand. I will comply fully with all provisions
of the Code and the Insider Trading Policy to the extent they apply to me during
the period of my employment. Additionally, I authorize any broker-dealer, bank
or investment adviser with whom I have securities accounts and accounts in which
I have beneficial ownership, to provide brokerage confirmations and statements
as required for compliance with the Code. I further understand and acknowledge
that any violation of the Code or Insider Trading Policy, including engaging in
a prohibited transaction or failure to file reports as required (see Schedules
B, C, D, E, F and G), may subject me to disciplinary action, including
termination of employment.
___________________________________________________________________________
SIGNATURE:
___________________________________________________________________________
PRINT NAME:
___________________________________________________________________________
TITLE:
___________________________________________________________________________
DEPARTMENT:
___________________________________________________________________________
LOCATION:
___________________________________________________________________________
DATE ACKNOWLEDGMENT WAS SIGNED:
___________________________________________________________________________
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS - FLOOR 2.
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX
NUMBERS 19
LEGAL OFFICER
MURRAY SIMPSON
EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL
FRANKLIN RESOURCES, INC.
901 MARINERS ISLAND BLVD.
7TH FLOOR
SAN MATEO, CA 94404
(650) 525 -7331
COMPLIANCE OFFICERS
___________________________________________________________________________
Director of Compliance PRECLEARANCE OFFICERS
James M. Davis Stephanie Harwood
Franklin Resources, Inc. Wally Enrico
2000 Alameda de las Pulgas, Suite Legal Compliance Department
200F 2000 Alameda de las Pulgas,
San Mateo, CA 94403 Suite 200E
(650) 312-2832 San Mateo, CA 94403
(650) 312-3693 (telephone)
(650) 312-5646 (facsimile)
Preclear, Legal (internal
e-mail address)
[email protected] (external e-mail
address)
___________________________________________________________________________
SCHEDULE B: SECURITIES TRANSACTION REPORT
This report of personal securities transactions NOT reported by duplicate
confirmations and brokerage statements pursuant to Section 5.3 of the Code is
required pursuant to Rule 204-2(a) of the Investment Advisers Act of 1940 or
Rule 17j-1(c) of the Investment Company Act of 1940. The report must be
completed and submitted to the Compliance Department no later than 10 calendar
days after the end of the calendar quarter.. Refer to Section 5.3 of the Code of
Ethics for further instructions.
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Trade Buy, sell Security Description, including Type of Quantity or Price Broker-Dealer Date Preclearance
Date or Other interest rate and maturity Security Principal or Bank obtained from
(if appropriate) (Stock, Amount Compliance Dept.
Bond, Option,
etc.)
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
THE REPORT OR RECORDING OF ANY TRANSACTION ABOVE SHALL NOT BE CONSTRUED AS AN
ADMISSION THAT I HAVE ANY DIRECT OR INDIRECT OWNERSHIP IN THE SECURITIES.
______________________________ _________________________ ___________________ ___________________
(PRINT NAME) (SIGNATURE) (DATE) (QUARTER ENDING)
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES
HOLDINGS This report shall set forth the security name or description and
security class of each security holding in which you have a direct or indirect
beneficial interest, including holdings by a spouse, minor children, trusts,
foundations, and any account for which trading authority has been delegated to
you, other than authority to trade for a Fund in or a client of the Franklin
Templeton Group.. In lieu of listing each security position below, you may
instead attach copies of brokerage statements, sign below and return Schedule C
and brokerage statements to the Legal Compliance Department within 10 days if an
initial report or by January 30th of each year if an annual report. Refer to
Sections 5.2.A and 5.4.A of the Code for additional filing instructions.
<TABLE>
<CAPTION>
_______________________________________________________________________________________
Security Description Type of Security Quantity or
including interest rate (Stocks, Bond Principal Name of Broker- Account
and maturity (if appropriate) Option, etc.) Amount Dealer or Bank Number
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
[ ] I DID NOT HAVE ANY PERSONAL SECURITIES HOLDINGS FOR YEAR ENDED _____________
[ ] I HAVE ATTACHED STATEMENTS CONTAINING ALL MY PERSONAL SECURITIES HOLDINGS FOR THE
YEAR ENDED ______
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST,
INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS,
AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED
PARTY.
_______________________ ___________________ __________________ _______________ ____________
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
* Securities that are EXEMPT from being reported on Schedule C include: (i)
securities that are direct obligations of the U.S. Government, such as Treasury
bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof; (ii)
high quality short-term instruments ("money market instruments") including but
not limited to bankers' acceptances, U.S. bank certificates of deposit;
commercial paper; and repurchase agreements; (iii) shares of registered open-end
investment companies; and (iv) commodity futures, currencies, currency forwards
and derivatives thereof.
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING
DATE: __________________________________
TO: Preclearance Desk
Legal Compliance Department
2000 Alameda de las Pulgas, Suite 200E
San Mateo, CA 94403
(650) 312-3693
FAX: (650) 312-5646
FROM: NAME: ____________________________
DEPARTMENT:_______________________
LOCATION:_________________________
EXTENSION:________________________
ARE YOU A REG. REPRESENTATIVE? YES[ ] NO[ ]
ARE YOU AN ACCESS PERSON? YES[ ] NO[ ]
This is to advise you that I will be opening or have opened a securities account
with the following firm:
PLEASE FILL OUT COMPLETELY TO EXPEDITE PROCESSING
NAME ON ACCOUNT: ____________________________________________________________
(If other than employee, please state relationship i.e.,
spouse, son, daughter, trust, etc.)
ACCT # OR SSN #:_____________________________________________________________
NAME OF FIRM:________________________________________________________________
ATTN:________________________________________________________________________
ADDRESS OF FIRM:_____________________________________________________________
CITY/STATE/ZIP:______________________________________________________________
* All Franklin registered representatives and Access Persons, PRIOR TO OPENING A
BROKERAGE ACCOUNT OR PLACING AN INITIAL ORDER, are required to notify the Legal
Compliance Department and the executing broker-dealer in writing. This includes
accounts in which the registered representative or access person has or will
have a financial interest (e.g., a spouse's account) or discretionary authority
(e.g., a trust account for a minor child).
Upon receipt of the NOTIFICATION OF SECURITIES ACCOUNT OPENING form, the Legal
Compliance Department will contact the broker-dealer identified above and
request that it receive duplicate confirmations and statements of your brokerage
account.
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST If you have
any beneficial ownership in a security and you recommend to the Appropriate
Analyst that the security be considered for purchase or sale by an Associated
Client, or if you carry out a purchase or sale of that security for an
Associated Client, you must disclose your beneficial ownership to the Legal
Compliance Department and the Appropriate Analyst in writing on Schedule E (or
an equivalent form containing similar information) before the purchase or sale,
or before or simultaneously with the recommendation.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Method of Primary
Ownership Acquisition Date and Method Learned Portfolio Manager
Type (Direct Year (Purch/Gift/ that Security Under or Appropriate Name of Person Date of Verbal
Security Description or Indirect) Acquired Other) Consideration by Funds Analyst Notified Notification
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
________________________ ___________________________ __________________
(PRINT NAME) (SIGNATURE) (DATE)
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS
This report shall set forth the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse, minor children, trusts, foundations, and any
account for which trading authority has been delegated to you, other than
authority to trade for a Fund in, or a client of, the Franklin Templeton Group.
In lieu of listing each securities account below, you may instead attach copies
of the brokerage statements, sign below and return Schedule F and brokerage
statements to the Compliance Department.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
NAME(S) ON ACCOUNT NAME OF BROKERAGE FIRM, ADDRESS OF BROKERAGE FIRM, BANK OR ACCOUNT NAME OF ACCOUNT
(REGISTRATION SHOWN ON BANK OR INVESTMENT INVEST. ADVISER NUMBER EXECUTIVE/REPRESENTATIVE
STATEMENT) ADVISER (STREET, CITY , STATE AND ZIP CODE)
____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS IN
WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING SECURITY
ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY ACCOUNT FOR
WHICH TRADING AUTHORITY HAS BEEN DELEGATED TO ME.
______________________ ____________________ ___________________ ___________
PRINT NAME SIGNATURE DATE YEAR ENDED
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY
This report shall set forth the account name or description in which you have a
direct or indirect beneficial interest, including holdings by a spouse, minor
children, trusts, foundations, and as to which trading authority has been
delegated by you to an unaffiliated registered broker-dealer, registered
investment adviser, or other investment manager acting in a similar fiduciary
capacity, who exercises sole investment discretion.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
TYPE OF OWNERSHIP
NAME/DESCRIPTION OF BROKERAGE FIRM, DIRECT OWNERSHIP ACCOUNT NUMBER
NAME(S) AS SHOWN ON ACCOUNT OR BANK, INVESTMENT ADVISER OR INVESTMENT (DO) (IF APPLICABLE)
INVESTMENT INDIRECT
OWNERSHIP (IO)
___________________________________________________________________________________________________________________
<S> <C> <C> <C>
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST,
INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS,
AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED
PARTY. FURTHER, I CERTIFY THAT I DO NOT HAVE ANY DIRECT OR INDIRECT INFLUENCE OR
CONTROL OVER THE ACCOUNTS LISTED ABOVE.
____________________ ___________________ _________________ __________________
PRINT NAME SIGNATURE DATE YEAR ENDED
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN
PRIVATE PLACEMENTS
GENERAL INSTRUCTIONS: In considering requests by Access Persons for approval of
limited partnerships and other private placement securities transactions, the
Director of Compliance shall consult with an executive officer of Franklin
Resources, Inc. In deciding whether to approve the transaction, the Director of
Compliance and the executive officer shall take into account, among other
factors, whether the investment opportunity should be reserved for a Fund or
other client, and whether the investment opportunity is being offered to the
access person by virtue of his or her position with the Franklin Templeton
Group. IF THE ACCESS PERSON RECEIVES CLEARANCE FOR THE TRANSACTION, AN
INVESTMENT IN THE SAME ISSUER MAY ONLY BE MADE FOR A FUND OR CLIENT IF AN
EXECUTIVE OFFICER OF FRANKLIN RESOURCES, INC., WHO HAS BEEN INFORMED OF THE
ACCESS PERSON'S PRE-EXISTING INVESTMENT AND WHO HAS NO INTEREST IN THE ISSUER,
APPROVES THE TRANSACTION.
IN ORDER TO PROCESS YOUR REQUEST, PLEASE PROVIDE THE FOLLOWING INFORMATION:
______________________________
1) Name/Description of proposed investment: [______________________________]
__________________________________
2) Proposed Investment Amount: [__________________________________]
3) Please attach pages of the offering memorandum (or other documents)
summarizing the investment opportunity, including:
a) Name of the partnership/hedge fund/issuer;
b) Name of the general partner, location & telephone number;
c) Summary of the offering; including the total amount the offering/issuer;
d) Percentage your investment will represent of the total offering;
e) Plan of distribution; and
f) Investment objective and strategy,
PLEASE RESPOND TO THE FOLLOWING QUESTIONS:
4) Was this investment opportunity presented to you in your capacity as a
portfolio manager, trader or research analyst? If no, please explain the
relationship, if any, you have to the issuer or principals of the issuer.
5) Is this investment opportunity suitable for any fund/client that you
advise? If yes, why isn't the investment being made on behalf of the
fund/client? If no, why isn't the investment opportunity suitable for the
fund/clients?
6) Do any of the fund/clients that you advise presently hold securities of the
issuer of this proposed investment (e.g., common stock, preferred stock,
corporate debt, loan participations, partnership interests, etc)? If yes,
please provide the names of the funds/clients and security description.
7) Do you presently have or will you have any managerial role with the
company/issuer as a result of your investment? If yes, please explain in
detail your responsibilities, including any compensation you will receive.
8) Will you have any investment control or input to the investment decision
making process?
9) If applicable, will you receive reports of portfolio holdings? If yes, when
and how frequently will these be provided?
Reminder: Personal securities transactions that do not generate brokerage
confirmations must be reported to the Legal Compliance Department on Schedule B
within 10 calendar days after you are notified.
______________________________
Name of Access Person
_______________________________ ________________
Access Person Signature Date
Approved by: _______________________________________ ________________
Chief Investment Officer Signature Date
________________________________________________________________________________
Legal Compliance Use Only
________________________________________________________________________________
Date Received: ________________________________________
Date Entered in Lotus Notes: ______________________________________
Date Forwarded FRI Executive Officer: _________________________________
Precleared: [ ] [ ] (attach E-Mail) Date: __________________________
Date Entered in APII: __________________________
________________________________________________________________________________
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF
FRANKLIN RESOURCES, INC. - FEBRUARY 2000
<TABLE>
<CAPTION>
__________________________________________________________________________________________
<S> <C> <C> <C>
Franklin Advisers, Inc. IA Templeton Management Limited IA
(Canada)
__________________________________________________________________________________________
Franklin Advisory Services, LLC. IA Templeton Franklin Investment IA/BD
Services, Inc.
__________________________________________________________________________________________
Franklin Investment Advisory IA Templeton Investment Counsel, Inc. IA
Services, Inc.
__________________________________________________________________________________________
Franklin Management, Inc. IA Templeton Asset Management, Ltd. IA/FIA
__________________________________________________________________________________________
Franklin Mutual Advisers, LLC IA Templeton Investment Management Co. FIA
Ltd. (Japan)
__________________________________________________________________________________________
Franklin Properties, Inc. REA Closed Joint-Stock Company FIA
Templeton (Russia)
__________________________________________________________________________________________
Franklin Templeton Distributors, IA/BD Templeton Unit Trust Management FBD
Inc. Ltd. (UK)
__________________________________________________________________________________________
Franklin Asset Management IA Orion Fund Management Ltd. FIA
(Proprietary) Ltd.
__________________________________________________________________________________________
Templeton (Switzerland), Inc. FBD Templeton Global Advisors Ltd. IA
(Bahamas)
__________________________________________________________________________________________
Templeton Franklin Investment FBD Templeton Asset Management (India) FIA/FBD
Services (Asia) Ltd. Pvt. Ltd.
__________________________________________________________________________________________
`Templeton Investment Management IA/FIA Templeton Italia SIM S.p.A. (Italy) FBD
Limited (UK)
__________________________________________________________________________________________
Templeton Global Strategic Services FBD Templeton Global Strategic Services FBD
S.A. (Luxembourg) (Deutschland) GmbH (Germany)
__________________________________________________________________________________________
Templeton Investment Management FIA Templeton Funds Annuity Company INS
(Australia) Ltd.
__________________________________________________________________________________________
Franklin Templeton Investment TA
Services, Inc.
__________________________________________________________________________________________
Franklin Templeton Services, Inc. BM
__________________________________________________________________________________________
</TABLE>
Codes:
IA: US registered investment adviser
BD: US registered broker-dealer
FIA: Foreign equivalent investment adviser
FBD: Foreign equivalent broker-dealer
TA: US registered transfer agent
BM: Business manager to the funds
REA: Real estate adviser
INS: Insurance company
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING
A. LEGAL REQUIREMENT
Pursuant to the Insider Trading and Securities Fraud Enforcement Act of
1988, it is the policy of the Franklin Templeton Group to forbid any officer,
director, employee, consultant acting in a similar capacity, or other person
associated with the Franklin Templeton Group from trading, either personally or
on behalf of clients, including all client assets managed by the entities in the
Franklin Templeton Group, on material non-public information or communicating
material non-public information to others in violation of the law. This conduct
is frequently referred to as "insider trading." The Franklin Templeton Group's
Policy Statement on Insider Trading applies to every officer, director, employee
or other person associated with the Franklin Templeton Group and extends to
activities within and outside their duties with the Franklin Templeton Group.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding the Franklin Templeton Group's Policy Statement on
Insider Trading or the Compliance Procedures should be referred to the Legal
Department.
The term "insider trading" is not defined in the federal securities laws,
but generally is used to refer to the use of material non-public information to
trade in securities (whether or not one is an "insider") or to communications of
material non-public information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public
information; or
(2) trading by a non-insider, while in possession of material non-public
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated; or
(3) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful conduct
are discussed below. If, after reviewing this policy statement, you have any
questions, you should consult the Legal Department.
POLICY STATEMENT ON INSIDER TRADING
B. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
outside attorneys, accountants, consultants, bank lending officers, and the
employees of such organizations. In addition, an investment adviser may become a
temporary insider of a company it advises or for which it performs other
services. According to the U.S. Supreme Court, the company must expect the
outsider to keep the disclosed non-public information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
C. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of the company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.
Material information does not have to relate to a company's business. For
example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that case,
a WALL STREET JOURNAL reporter was found criminally liable for disclosing to
others the dates that reports on various companies would appear in the WALL
STREET JOURNAL and whether those reports would be favorable or not.
D. WHAT IS NON-PUBLIC INFORMATION?
Information is non-public until it has been effectively communicated to the
marketplace. One must be able to point to some fact to show that the information
is generally public. For example, information found in a report filed with the
Securities and Exchange Commission ("SEC"), or appearing in Dow Jones, Reuters
Economic Services, THE WALL STREET JOURNAL or other publications of general
circulation would be considered public.
E. BASIS FOR LIABILITY
1. FIDUCIARY DUTY THEORY
In 1980, the Supreme Court found that there is no general duty to disclose
before trading on material non-public information, but that such a duty arises
only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will not disclose any material non-public
information or refrain from trading. CHIARELLA V. U.S., 445 U.S. 22 (1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate
theories under which non-insiders can acquire the fiduciary duties of insiders.
They can enter into a confidential relationship with the company through which
they gain information (E.G., attorneys, accountants), or they can acquire a
fiduciary duty to the company's shareholders as "tippees" if they are aware or
should have been aware that they have been given confidential information by an
insider who has violated his fiduciary duty to the company's shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the
insider personally benefits, directly or indirectly, from the disclosure. The
benefit does not have to be pecuniary but can be a gift, a reputational benefit
that will translate into future earnings, or even evidence of a relationship
that suggests a quid pro quo.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory, under which liability is established when trading occurs on material
non-public information that was stolen or misappropriated from any other person.
In U.S. V. CARPENTER, SUPRA, the Court found, in 1987, a columnist defrauded THE
WALL STREET JOURNAL when he stole information from the WALL STREET JOURNAL and
used it for trading in the securities markets. It should be noted that the
misappropriation theory can be used to reach a variety of individuals not
previously thought to be encompassed under the fiduciary duty theory.
F. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
o civil injunctions;
o treble damages;
o disgorgement of profits;
o jail sentences;
o fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited; and
o fines for the employer or other controlling person of up to the greater
of $1,000,000 or three times the amount of the profit gained or loss
avoided.
In addition, any violation of this policy statement can result in serious
sanctions by the Franklin Templeton Group, including dismissal of any person
involved.
G. INSIDER TRADING PROCEDURES
Each access person, Compliance Officer, the Risk Management Department, and
the Legal Department, as the case may be, shall comply with the following
procedures.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including investment companies or
private accounts managed by the Franklin Templeton Group, in the securities of a
company about which you may have potential inside information, ask yourself the
following questions:
o Is the information material?
o Is this information that an investor would consider important in
making his or her investment decisions?
o Is this information that would substantially affect the market price
of the securities if generally disclosed?
o Is the information non-public?
o To whom has this information been provided?
o Has the information been effectively communicated to the marketplace
(e.g., published in REUTERS, THE WALL STREET JOURNAL or other
publications of general circulation)?
If, after consideration of these questions, you believe that the information may
be material and non-public, or if you have questions as to whether the
information is material and non-public, you should take the following steps:
(i) Report the matter immediately to the designated Compliance Officer, or if
he or she is not available, to the Legal Department.
(ii) Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by the Franklin
Templeton Group.
(iii) Do not communicate the information inside or outside the Franklin
Templeton Group, other than to the Compliance Officer or the Legal
Department.
(iv) The Compliance Officer shall immediately contact the Legal Department for
advice concerning any possible material, non-public information.
(v) After the Legal Department has reviewed the issue and consulted with the
Compliance Officer, you will be instructed either to continue the
prohibitions against trading and communication noted in (ii) and (iii), or
you will be allowed to trade and communicate the information.
(vi) In the event the information in your possession is determined by the Legal
Department or the Compliance Officer to be material and non-public, it may
not be communicated to anyone, including persons within the Franklin
Templeton Group, except as provided in (i) above. In addition, care should
be taken so that the information is secure. For example, files containing
the information should be sealed and access to computer files containing
material non-public information should be restricted to the extent
practicable.
2. RESTRICTING ACCESS TO OTHER SENSITIVE INFORMATION
All Franklin Templeton Group personnel also are reminded of the need to be
careful to protect from disclosure other types of sensitive information that
they may obtain or have access to as a result of their employment or association
with the Franklin Templeton Group.
(I) GENERAL ACCESS CONTROL PROCEDURES
The Franklin Templeton Group has established a process by which access to
company files that may contain sensitive or non-public information such as the
Bargain List and the Source of Funds List is carefully limited. Since most of
the Franklin Templeton Group files which contain sensitive information are
stored in computers, personal identification numbers, passwords and/or code
access numbers are distributed to Franklin Templeton Group computer access
persons only. This activity is monitored on an ongoing basis. In addition,
access to certain areas likely to contain sensitive information is normally
restricted by access codes.
________
1 "Director" includes trustee.
2 The term "employee or employees" includes management trainees, as well as
regular employees of the Franklin Templeton Group.
3 SEE Appendix A. II., for definition of "Proprietary Accounts."
4 Generally, a person has "beneficial ownership" in a security if he or she,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary
interest in the security. There is a presumption of a pecuniary interest in
a security held or acquired by a member of a person's immediate family
sharing the same household.
5 Proprietary Information: Information that is obtained or developed during
the ordinary course of employment with the Franklin Templeton Group,
whether by you or someone else, and is not available to persons outside the
Franklin Templeton Group. Examples of such Proprietary Information include,
among other things, internal research reports, research materials supplied
to the Franklin Templeton Group by vendors and broker-dealers not generally
available to the public, minutes of departmental/research meetings and
conference calls, and communications with company officers (including
confidentiality agreements). Examples of non-Proprietary Information
include mass media publications (e.g., The Wall Street Journal, Forbes, and
Fortune), certain specialized publications available to the public (e.g.,
Morningstar, Value Line, Standard and Poors), and research reports
available to the general public.
6 The Director of Compliance is designated on Schedule A. The "Appropriate
Analyst" means any securities analyst or portfolio manager, other than you,
making recommendations or investing funds on behalf of any associated
client, who may be reasonably expected to recommend or consider the
purchase or sale of the security in question.
7 Associated Client: A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
8 You are a "Portfolio Person" if you are an employee of the Franklin
Templeton Group, and, in connection with your regular functions or duties,
make or participate in the decision to purchase or sell a security by a
Fund in the Franklin Templeton Group, or any other client or if your
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else so designated by the Compliance Officer.
9 This restriction applies equally to transactions occurring in margin and
option accounts which may not be due to direct actions by the Portfolio
Person. For example, a stock held less than 60 days that is sold to meet a
margin call or the underlying stock of a covered call option held less than
60 days that is called away, would be a violation of this restriction if
these transactions resulted in a profit for the Portfolio Person.
10 You are not required to separately report the vesting of shares or options
of Franklin Resources, Inc., received pursuant to a deferred compensation
plan as such information is already maintained.
11 See Sections 3.2 and 4.6 of the Code. Also, confirmations and statements of
transactions in open-end mutual funds, including mutual funds sponsored by
the Franklin Templeton Group are not required. See Section 3.3 above for a
list of other securities that need not be reported. If you have any
beneficial ownership in a discretionary account, transactions in that
account are treated as yours and must be reported by the manager of that
account (see Section 6.1.C below).
12 Officers, directors and certain other key management personnel who perform
significant policy-making functions of Franklin Resources, Inc., the
closed-end funds, and/or real estate investment trusts may have ownership
reporting requirements in addition to these reporting requirements. Contact
the Legal Compliance Department for additional information. SEE also the
"Insider Trading Policy" attached.
13 Please note that these conditions apply to any discretionary account in
existence prior to the effective date of this Code or prior to your
becoming an access person. Also, the conditions apply to transactions in
any discretionary account, including pre-existing accounts, in which you
have any direct or indirect beneficial ownership, even if it is not in your
name.
14 Any pre-existing agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account
statement if they are filed by the applicable deadline.
15 An "advisory person" of a registered investment company or an investment
adviser is any employee, who in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by an advisory client , or
whose functions relate to the making of any recommendations with respect to
such purchases or sales. Advisory person also includes any natural person
in a control relationship to such company or investment adviser who obtains
information concerning recommendations made to such company with regard to
the purchase or sale of a security.
16 Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection
with his duties, obtains any information concerning which securities are
being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations. See
Section II of Appendix A for the legal definition of "Advisory
Representative."
17 Security includes any option to purchase or sell, and any security that is
exchangeable for or convertible into, any security that is held or to be
acquired by a fund.
18 Special circumstances include but are not limited to, for example,
differences in time zones, delays due to travel, and the unusual size of
proposed trades or limit orders. Limit orders must expire within the
applicable clearance period.
19 As of February 2000
