As filed with the Securities and Exchange Commission on July 27, 1995.
File Nos.
2-30203
811-1608
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
Post Effective Amendment No. 34 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 (X)
AGE High Income Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404 (Address
of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ]immediately upon filing pursuant to paragraph (b)
[ ]on (date) pursuant to paragraph (b)
[ ]60 days after filing pursuant to paragraph (a)(i)
[X]on October 1, 1995 pursuant to paragraph (a)(i)
[ ]75 days after filing pursuant to paragraph (a)(ii)
[ ]on (date), pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Calculation of Registration Fee Under the Securities Act of 1933
Title of Proposed Amount
Securities Amount Maximum Proposed of
Being Being Offering Price Aggregate Offering
Registered Registered Per Share Price* Fee*
Common
Stock 10,092,468 $2.90 $290,000 $100
Shares
*Registrant elects to calculate the maximum aggregate offering price pursuant to
Rule 24e-2, 242,966,844 shares were redeemed during the fiscal year ended May
31, 1995. 232,974,376 shares were used for reductions pursuant to Paragraph (d)
of Rule 24f-2 during the current year. 9,992,468 shares is the amount of
redeemed shares used for reduction in this amendment. Pursuant to Rule 457(d)
under the Securities Act of 1933, the maximum public offering price of $2.90 per
share on July 20, 1995 is the price used as the basis for these calculations.
The Fund's maximum public offering price per share varies and, thus, may be
higher or lower than $2.90 in the future. While no fee is required for the
9,992,468 shares, the registrant has elected to register, for $100, an
additional $290,000 of shares (approximately 100,000 shares at $2.90 per share).
As a part of its initial Registration Statement, the Registrant has elected to
register an indefinite number of shares pursuant to Rule 24f-2 under the
investment Company Act of 1940, as amended and hereby continues such election.
The Registrant filed the notice required by Rule 24f-2 for its most recent
fiscal year on July 27, 1995.
<PAGE>
AGE High Income Fund, Inc.
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
N-1A Location in
Item No. Item Registration Statement
Part A: Information Required in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial Information "Financial Highlights"; "Performance"
4. General Description of Registrant "About the Fund"; "Investment
Objectives and Policies of the
Fund"; "General Information"
5. Management of the Fund "Management of the Fund"
5A. Management's Discussion of Fund Performance The response to this item is
contained in Registrant's Annual
Report to Shareholders
6. Capital Stock and Other Securities "Distributions to Shareholders";
"General Information"
7. Purchase of Securities Being Offered "How to Buy Shares of the Fund";
"Taxation of the Fund and Its
Shareholders"; "Purchasing Shares of
the Fund in Connection with
Retirement Plans Involving
Tax-Deferred Investments"; "Other
Programs and Privileges Available to
Fund Shareholders"; "Exchange
Privilege"; "Valuation of Fund
Shares"
8. Redemption or Repurchase "Exchange Privilege"; "How to Sell
Shares of the Fund"; "Valuation of
Fund Shares"; "How to Get
Information Regarding an Investment
in the Fund"; "General Information"
9. Pending Legal Proceedings Not applicable
Part B: Information Required in
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Cover Page; (See also the Prospectus
"About the Fund")
13. Investment Objective "Additional Information Regarding
the Fund's Investment Objectives and
Policies" (See also the Prospectus
"Investment Objectives and Policies
of the Fund")
14. Management of the Fund "Officers and Directors"
15. Control Persons and Principal Holders of "Officers and Directors"
Securities
16. Investment Advisory and Other Services "Investment Advisory and Other
Services" (See also the Prospectus
"Management of the Fund")
17. Brokerage Allocation and Other Practices "The Fund's Policies Regarding
Brokers Used on Portfolio
Transactions"
18. Capital Stock and Other Securities See the Prospectus "How to Get
Information Regarding an Investment
in the Fund" and "General
Information"
19. Purchase, Redemption and Pricing of "Additional Information Regarding
Securities Being Offered Fund Shares" (See also the
Prospectus "How to Buy Shares of the
Fund"; "How to Sell Shares of the
Fund"; "Valuation of Fund Shares")
20. Tax Status "Additional Information Regarding
Taxation" (See also the Prospectus
"Taxation of the Fund and Its
Shareholders")
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "General Information"
23. Financial Statements Financial Statements
</TABLE>
FRANKLIN'S
AGE HIGH
INCOME FUND
PROSPECTUS
OCTOBER 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
AGE High Income Fund, Inc. (the "Fund") is a diversified, open-end management
investment company with the principal investment objective of earning a high
level of current income. The Fund will also seek capital appreciation as a
secondary objective. The assets of the Fund will generally be invested in high
yield, high risk, lower rated, fixed-income debt securities and dividend-paying
common or preferred stocks. The Fund may invest in domestic and foreign
securities as described under "Investment Objectives and Policies of the Fund."
THE FUND MAY INVEST UP TO 100% OF ITS PORTFOLIO IN NON-INVESTMENT GRADE BONDS,
COMMONLY KNOWN AS "JUNK BONDS," WHICH ENTAIL DEFAULT AND OTHER RISKS GREATER
THAN THOSE ASSOCIATED WITH HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY
ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND IN LIGHT OF THE
SECURITIES IN WHICH THE FUND INVESTS. SEE "RISK CONSIDERATIONS - HIGH YIELDING,
FIXED-INCOME SECURITIES."
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
The Fund offers two classes to its investors: AGE High Income Fund - Class I
("Class I") and AGE High Income Fund - Class II ("Class II"). Investors can
choose between Class I shares, which generally bear a higher front-end sales
charge and lower ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and
Class II shares, which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. Investors should consider the differences between the
two classes, including the impact of sales charges and distribution fees, in
choosing the more suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund - Differences Between Class I
and Class II."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
A Statement of Additional Information (the "SAI"), concerning the Fund, dated
October 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objectives and
Policies of the Fund
Risk Considerations
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
Appendix
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of Fund shares for the fiscal year ended May 31, 1995.
<TABLE>
<CAPTION>
CLASS I CLASS II
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25% 1.00%^
Deferred Sales Charge NONE+ 1.00%++
Exchange Fee (per transaction) $5.00* $5.00*
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.46% 0.46%
Rule 12b-1 Fees 0.07%** 0.65%**
Other Expenses:
Shareholder Servicing Costs 0.04% 0.04%
Reports to Shareholders 0.05% 0.05%
Other 0.04% 0.04%
Total Other Expenses 0.13%** 0.13%**
------- -------
Total Fund Operating Expenses 0.66% 1.24%
===== =====
^Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fee for Class II may cause shareholders to pay more for
Class II shares than for Class I shares. Given the maximum front-end sales
charge and the rate of Rule 12b-1 fees of each class, it is estimated that this
will take less than six years for shareholders who maintain total shares valued
at less than $100,000 in the Franklin Templeton Funds. Shareholders with larger
investments in the Franklin Templeton Funds will reach the crossover point more
quickly. (See "How to Buy Shares of the Fund - Purchase Price of Fund Shares"
for the definition of Franklin Templeton Funds and similar references.)
+Class I investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally imposed
on certain redemptions within a "contingency period" of 12 months of the
calendar month following such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
++Class II shares redeemed within a "contingency period" of 18 months of
the calendar month following such investments are subject to a 1% contingent
deferred sales charge. See "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
**Rule 12b-1 fees incurred by the Class II shares represented an annualized rate
of 0.65%. Total Class II operating expenses for the fiscal year ended May 31,
1995 have been restated to reflect the maximum Rule 12b-1 fees allowed pursuant
to its plan of distribution as though the plan had been in effect for the entire
fiscal year. Class II's plan was effective May 15, 1995. Consistent with
National Association of Securities Dealers, Inc.'s rules, it is possible that
the combination of front-end sales charges and Rule 12b-1 fees could cause
long-term shareholders to pay more than the economic equivalent of the maximum
front-end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge and applicable contingent deferred
sales charges, that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period.
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Class I* $49 $63 $78 $121
Class II $32 $49 $77 $158
*assumes that a contingent deferred sales charge will not apply to Class I
shares.
A shareholder would pay the following expenses on the same investment, assuming
no redemption.
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
CLASS II $23 $49 $77 $158
THIS EXAMPLE IS BASED ON THE RESTATED ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund
and only indirectly by shareholders as a result of their investment in the Fund.
In addition, federal securities regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or less than 5%.
</TABLE>
FINANCIAL HIGHLIGHTS
Set forth below is a table containing financial highlights for Class I and Class
II shares of the Fund. The offering of Class II shares began May 16, 1995. The
information for each of the five fiscal years in the period ended May 31, 1995
has been audited by Coopers & Lybrand L.L.P., independent auditors, whose audit
report appears in the financial statements in the Fund's SAI. The remaining
figures, which are audited, are not covered by the auditors' current report.
Information regarding Class II shares will be included in this table after they
have been offered to the public for a reasonable period of time. See the
discussion "Reports to Shareholders" under "General Information."
<TABLE>
<CAPTION> Class I
-------------------------------------------------------------------------------
Six months Year ended May 31,
Ended -------------------------------------------------------------------------------
November 30, 1994 1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance*
Net asset value at
beginning of year.. $2.70 $ 2.81 $ 2.72 $ 2.37 $ 2.53 $ 3.18
----------- ---------- ---------- ---------- ---------- ----------
Net investment
income............. 0.13 0.27 0.30 0.31 0.34 0.41
Net realized
& unrealized
gains (losses) on
securities......... (0.98) (0.113) 0.054 .340 (0.122) (0.636)
--------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations......... 0.032 0.157 0.354 .650 0.218 (0.226)
========= ========== ========== ========== ========== ==========
Less distributions:
Dividends from net
investment income.. (0.132) (0.267) (0.264) (.300) (0.359) (0.424)
Distributions from
realized capital
gains -- -- -- -- -- --
Distributions from
paid-in capital ... -- -- -- -- (0.019) --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions. (0.132) (0.267) (0.264) (.300) (0.378) (0.424)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value
at end of year..... $2.60 $ 2.70 $2.81 2.72 $ 2.37 $ 2.53
========== ========== ========== ========== ========== ==========
Total Return**...... 1.19% 5.19% 13.33% 28.48% 10.18% (8.13)
Ratios/Supplemental Data
Net assets at end
of year (in 000's) $1,696,488 $1,817,481 $1,935,919 $1,864,195 $1,587,656 $1,675,212
Ratio of expenses to
average net assets. 0.62%+ .59% .56% .58% .59% .56%
Ratio of net investment
income to average
net assets......... 9.68%+ 9.61% 10.78% 12.18% 14.87% 14.47%
Portfolio turnover rate 19.05% 42.32% 38.33% 43.70% 28.55% 17.59%
</TABLE>
<TABLE>
<CAPTION>
Year ended May 31,
---------------------------------------------------------------
1989 1988 1987 1986
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Per Share Operating
Performance*
Net asset value at
beginning of year.. $ 3.37 $ 3.58 $3.83 $ 3.71
---------- ---------- ---------- ----------
Net investment
income............. 0.43 0.44 0.44 0.48
Net realized
& unrealized
gains (losses) on
securities......... (0.188) (0.218) (0.228) 0.133
---------- ---------- ---------- ----------
Total from
investment
operations......... 0.242 0.222 0.212 0.613
========== ========== ========== ==========
Less distributions:
Dividends from net
investment income.. (0.432) (0.432) (0.462) (0.492)
Distributions from
realized capital
gains -- -- -- (0.001)
Distributions from
paid-in capital ... -- -- -- --
---------- ---------- ---------- ----------
Total distributions. (0.432) (0.432) (0.462) (0.493)
---------- ---------- ---------- ----------
Net asset value
at end of year..... $ 3.18 $ 3.37 $ 3.58 $ 3.83
========== ========== ========== ==========
Total Return**...... 6.97% 6.32% 5.25% 17.02%
Ratios/Supplemental Data
Net assets at end
of year (in 000's). $2,243,494 $1,828,108 $1,639,596 $ 669,782
Ratio of expenses to
average net assets. .56% .57% .59% .67%
Ratio of net investment
income to average
net assets......... 13.06% 12.72% 11.46% 11.66%
Portfolio turnover rate 28.82% 24.11% 22.50% 21.88%
</TABLE>
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the deferred contingent sales charge. The total return for Class I
shares also assumes reinvestment of dividends at the maximum offering price and
capital gains, if any, at net asset value. Effective May 1, 1994, with the
implementation of the Rule 12b-1 distribution plan, as discussed in this
Prospectus, the sales charge on reinvested dividends was eliminated.
**Annualized
ABOUT THE FUND
The Fund is a diversified, open-end management investment company commonly
called a "mutual fund." The Fund was incorporated in Colorado in January 1968
under the sponsorship of the Assembly of Governmental Employees and registered
with the SEC under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund has two classes of shares of capital stock with a par value of
$.01: AGE High Income Fund - Class I and AGE High Income Fund - Class II. All
Fund shares outstanding before May 15, 1995, have been redesignated as Class I
shares, and will retain their previous rights and privileges, except for legally
required modifications to shareholder voting procedures, as discussed in
"General Information - Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price. The current public
offering price of the Class I shares is equal to the net asset value (see
"Valuation of Fund Shares"), plus a variable sales charge not exceeding 4.25% of
the offering price depending upon the amount invested. The current public
offering price of the Class II shares is equal to the net asset value, plus a
sales charge of 1.0% of the amount invested. (See "How to Buy Shares of the
Fund.")
INVESTMENT OBJECTIVES AND
POLICIES OF THE FUND
The Fund's principal investment objective is to earn a high level of current
income. As a secondary objective, the Fund seeks capital appreciation to the
extent it is possible and consistent with the Fund's principal objective. The
investment objectives are fundamental policies of the Fund and may not be
changed without shareholder approval.
TYPE OF SECURITIES THE FUND MAY PURCHASE
Yield and expected return are the primary criteria used by the Fund in selecting
portfolio securities. The Fund may invest in both fixed-income debt securities
and instruments (sometimes referred to as "corporate bonds") and dividend-paying
common or preferred stocks, and will seek to invest in whatever type of security
is offering the highest yield and expected total return without excessive risk
at the time of purchase. When purchasing fixed-income debt securities, the Fund
may invest in investment grade or lower grade securities, depending upon
prevailing market and economic conditions and may, for defensive purposes,
invest its assets in government securities, commercial paper (short-term debt
securities of large corporations), various bank debt instruments or other money
market instruments. The Fund may invest in both domestic and foreign securities
and instruments.
The Fund may invest up to 100% of its portfolio in non-investment grade bonds,
commonly known as junk bonds, which entail default and other risks greater than
those associated with higher rated securities. Investors should carefully assess
the risks associated with an investment in the Fund in light of the securities
in which the Fund invests.
Various investment services publish ratings of some of the types of securities
in which the Fund may invest. Higher yields are ordinarily available from
securities in the lower rated categories of the recognized rating services (that
is, securities rated Ba or lower by Moody's Investors Service ["Moody's"] or BB
or lower by Standard & Poor's Corporation ["S&P"]) or from unrated securities of
comparable quality. A list of these ratings is shown in the Appendix to this
Prospectus. These ratings, which represent the opinions of the rating services
with respect to the issuer's ability to pay interest and repay principal,
although they do not purport to reflect the risk of fluctuations in market value
and are not absolute standards of quality, will be considered in connection with
the investment of the Fund's assets, but will not be a determining or limiting
factor. The Fund may invest in securities regardless of their rating (including
securities in the lowest rating categories) or in securities which are not
rated. It is the Fund's intent, however, not to purchase securities rated below
CCC. With respect to unrated securities, it is the Fund's intent not to purchase
securities which, in the view of the Fund's investment manager, would be
comparable to securities rated below B by Moody's or S&P. Securities rated B and
CCC are regarded by S&P, on balance, as predominantly speculative with respect
to the capacity to pay interest and repay principal in accordance with the terms
of the obligation. As of May 31, 1995, approximately 83.4% of the Fund's net
assets were invested in lower rated bonds (those having a rating below the four
highest grades assigned by the rating services) or in unrated bonds with
comparable credit characteristics. (A breakdown of the bonds' ratings is
included under "Risk Considerations - Asset Composition Table.") As noted above,
the Fund will not invest in securities which are felt by management to involve
excessive risk. In the event the rating on an issue held in the Fund's portfolio
is changed by the ratings service or the security goes into default, such event
will be considered by the Fund in its evaluation of the overall investment
merits of that security but will not generally result in an automatic sale of
the security.
Rather than relying principally on the ratings assigned by rating services, the
investment analysis of securities being considered for the Fund's portfolio may
also include, among other things, consideration of relative values, based on
such factors as anticipated cash flow, interest or dividend coverage, asset
coverage, earnings prospects, the experience and managerial strength of the
issuer, responsiveness to changes in interest rates and business conditions,
debt maturity schedules and borrowing requirements and the issuer's changing
financial condition and public recognition thereof. Since a substantial portion
of the Fund's portfolio at any particular time may consist of debt securities,
changes in the level of interest rates, among other things, will likely affect
the value of the Fund's holdings and thus the value of a shareholder's
investment. Certain of the high yield, fixed income securities in which the Fund
may invest may be purchased at a discount to par value. Such securities, when
held to maturity or retired, may include an element of capital gain. The Fund
does not generally intend to hold securities solely for the purpose of achieving
such capital gain, but will generally hold them as long as expected returns on
such securities remain attractive. A capital loss may be realized when a
security is purchased at a premium, that is, in excess of its stated or par
value, is held to maturity or is called or redeemed at a price lower than its
purchase price. A capital gain or loss also may be realized upon the sale of
securities, whether purchased at par, a discount or a premium.
The Fund's average annual compounded rates of return for the Class I
shares, as calculated pursuant to the formula prescribed by the SEC, for the
one-, five- and ten-year periods ended on May 31, 1995, were 8.52%, 13.31% and
9.43%, respectively. See "Performance."
FOREIGN SECURITIES. The Fund may purchase foreign securities which are
traded in the United States or purchase American Depository Receipts ("ADRs")
which are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
The Fund may also purchase the securities of foreign issuers directly in foreign
markets and may purchase securities of U.S. issuers which are denominated in
foreign currency. See "Risk Considerations - Foreign Securities."
Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries, but investments will not be made in any
equity securities issued without stock certificates or in debt securities which
are not issued and transferable in fully registered form. Securities which are
acquired by the Fund outside the United States and which are publicly traded in
the United States, 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 reselling the
security in the foreign trading market, the Fund reasonably believes it can
readily dispose of the security for cash in the U.S. or foreign market and
current market quotations are readily available. The Fund presently has no
intention of investing more than 10% of its net assets in foreign securities not
publicly traded in the United States.
FORWARD CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward currency
exchange contracts ("Forward Contracts") to attempt to minimize the risk to the
Fund from adverse changes in the relationship between currencies or to enhance
income. A Forward Contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter) for hedging purposes to protect against declines in the U.S.
dollar value of foreign portfolio securities and against increases in the U.S.
dollar cost of foreign securities or other assets to be acquired. As in the case
of other kinds of options, however, the writing of an option on foreign currency
will constitute only a partial hedge, up to the amount of the premium received,
and the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, the Fund may forfeit the entire amount of the premium
plus related transaction costs.
OPTIONS ON SECURITIES. Although the Fund's policies permit it to write covered
call options, it does not currently anticipate that it will use such authority.
If, in the future, the Fund should engage in covered call options writing, it is
not limited in the extent to which it may write such options. Prior to engaging
in options writing the Fund will amend the Prospectus to discuss its
transactions in options.
INTEREST RATE SWAPS. The Fund may also participate in interest rate swaps. An
interest rate swap is the transfer between two counterparties of interest rate
obligations, one of which has an interest rate fixed to maturity while the other
has an interest rate that changes in accordance with changes in a designated
benchmark (e.g., London Interbank Offered Rate (LIBOR), prime, commercial paper,
or other benchmarks). The obligations to make repayment of principal on the
underlying securities are not exchanged. Such transactions generally require the
participation of an intermediary, frequently a bank. The entity holding the
fixed rate obligation will transfer the obligation to the intermediary, and such
entity will then be obligated to pay to the intermediary a floating rate of
interest, generally including a fractional percentage as a commission for the
intermediary. The intermediary also makes arrangements with a second entity
which has a floating-rate obligation which substantially mirrors the obligation
desired by the first party. In return for assuming a fixed obligation, the
second entity will pay the intermediary all sums that the intermediary pays on
behalf of the first entity, plus an arrangement fee and other agreed upon fees.
The Fund intends to participate in interest rate swaps with regard to
obligations held in the Fund's portfolio. To the extent, however, the Fund does
not own the underlying obligation, the Fund will maintain, in a segregated
account with the Fund's custodian, cash or liquid debt securities having an
aggregate value equal to the amount of the Fund's outstanding swap obligation.
Interest rate swaps are generally entered into to permit the party seeking a
floating rate obligation the opportunity to acquire such obligation at a lower
rate than is directly available in the credit market, while permitting the party
desiring a fixed rate obligation the opportunity to acquire such a fixed rate
obligation, also frequently at a price lower than is available in the capital
markets. The success of such a transaction depends in large part on the
availability of fixed rate obligations at a low enough coupon rate to cover the
cost involved.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board of Directors and will be held pursuant to a written agreement.
SHORT-TERM INVESTMENTS. The Fund may invest 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.
TRADE CLAIMS. The Fund may invest a portion of its assets in trade claims. Trade
claims are purchased from creditors of companies in financial difficulty. For
purchasers such as the Fund, trade claims offer the potential for profits since
they are often purchased at a significantly discounted value and, consequently,
may generate capital appreciation in the event that the value of the claim
increases as the debtor's financial position improves. In the event that the
debtor is able to pay the full obligation on the face of the claim as a result
of a restructuring or an improvement in the debtor's financial condition, trade
claims offer the potential for higher income due to the difference in the face
value of the claim as compared to the discounted purchase price.
An investment in trade claims is speculative and carries a high degree of risk.
There can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. Trading in claims is not regulated by federal
securities laws or the SEC. Currently, trading in claims is regulated primarily
by bankruptcy laws. Because trade claims are unsecured, holders of trade claims
may have a lower priority in terms of payment than most other creditors in a
bankruptcy proceeding. In light of the nature and risk of trade claims, the
Fund's investment in these instruments will not exceed 5% of its net assets at
time of acquisition.
DEFAULTED DEBT SECURITIES. The Fund may purchase defaulted debt securities if,
in the opinion of the investment manager, it appears likely that the issuer may
resume interest payments or other advantageous developments appear likely in the
near term. Such securities may be illiquid. The Fund will not invest more than
10% of its total assets (at the time of purchase) in defaulted debt securities,
although this is not a fundamental policy and may be changed by the Board of
Directors without shareholder approval.
LOAN PARTICIPATIONS. The Fund is authorized to acquire loan participations and
other related direct or indirect bank debt obligations ("Loan Participations"),
in which the Fund will purchase from a lender a portion of a larger loan which
it has made to a borrower. Generally, such Loan Participations are sold without
guarantee or recourse to the lending institution and are subject to the credit
risks of both the borrower and the lending institution. Such Loan
Participations, however, may enable the Fund to acquire an interest in a loan
from a financially strong borrower which it could not do directly. While Loan
Participations generally trade at par value, the Fund will be permitted to
purchase such securities which sell at a discount because of the borrower's
credit problems. To the extent the borrower's credit problems are resolved, such
Loan Participations may appreciate in value.
Investment in Loan Participations is permitted to the extent that such
securities, all of which may have speculative characteristics and some of which
may be in default, and other defaulted securities represent no more than 15% of
the Fund's net assets (at the time of investment).
INVESTMENT POLICIES OF THE FUND
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase debt obligations on a "when-issued" or "delayed delivery"
basis. Such securities are subject to market fluctuation prior to delivery to
the Fund and generally do not earn interest until their scheduled delivery date.
When the Fund is the buyer in such a transaction, it will maintain, in a
segregated account with its custodian, cash or high-grade marketable securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. To the extent the Fund engages in when-issued and delayed
delivery transactions, it will do so only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objectives and policies, and
not for the purpose of investment leverage. (The Fund's SAI contains a more
complete discussion regarding when-issued and delayed delivery transactions.)
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Directors and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value at least 102% of
the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund engages in
security loan arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
CONCENTRATION. The Fund will not invest more than 25% of the value of its total
assets in any one particular industry.
BORROWING. The Fund does not borrow money or mortgage or pledge any of its
assets, except that it may borrow for temporary or emergency purposes in an
amount not to exceed 5% of the Fund's total assets.
ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund. Subject to this limitation, the Board
of Directors has authorized the Fund to invest in restricted securities where
such investments are consistent with the Fund's investment objectives and has
authorized such securities to be considered liquid to the extent the investment
manager determines on a daily basis that there is a liquid institutional or
other market for such securities. Notwithstanding the determinations in this
regard, the Board of Directors remains responsible for such determinations and
will consider appropriate action to maximize the Fund's liquidity and its
ability to meet redemption demands if a security should become illiquid
subsequent to its purchase. To the extent the Fund invests in restricted
securities that are deemed liquid, the general level of illiquidity in the Fund
may be increased if qualified institutional buyers become uninterested in
purchasing these securities or the market for these securities contracts. See
"Additional Information Regarding the Fund's Investment Objectives and Policies"
in the SAI.
GENERAL
It is the present policy of the Fund (which may be changed without the approval
of shareholders) not to invest more than 5% of its total assets in companies
which have a record of less than three years continuous operations, including
predecessors; nor to invest in puts, calls, straddles or spreads, or any
combination thereof, except in connection with option writing activities; nor to
engage in joint or joint and several trading accounts in securities, except that
an order to purchase or sell may be combined with orders from other persons to
obtain lower brokerage commissions.
So long as these percentage restrictions are observed by the Fund at the time of
purchase of any such security, changes in values of particular Fund assets or
the assets of the Fund as a whole will not cause a violation of any of the
foregoing restrictions.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.
The Fund's investment in options, forward contracts, options on foreign
currencies and foreign securities may be limited by the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") for qualification as a
regulated investment company and are subject to special tax rules that may
affect the amount, timing and character of distributions to shareholders. These
securities require the application of complex and special tax rules and
elections, more information about which is included in the SAI.
The Fund's investment in zero coupon and delayed interest bonds, or bonds that
provide for payment of interest in kind may cause the Fund to recognize income
and make distributions to shareholders prior to the receipt of cash payments.
Payment-in-kind obligations are subject to special tax rules concerning the
amount, character and timing of income required to be accrued by the Fund.
The Fund may also be required under the Code and U.S. Treasury regulations to
accrue income for income tax purposes on defaulted obligations and to distribute
such income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on such obligations. In order to
generate cash to satisfy any or all of these distribution requirements, the Fund
may be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares.
RISK CONSIDERATIONS
HIGH YIELDING, FIXED-INCOME SECURITIES
Because of the Fund's policy of investing in higher yielding, higher risk
securities, an investment in the Fund is accompanied by a higher degree of risk
than is present with an investment in higher rated, lower yielding securities.
Accordingly, an investment in the Fund should not be considered a complete
investment program, and should be carefully evaluated for its appropriateness in
light of the investor's overall investment needs and goals. Persons on fixed
incomes, such as retired persons, should also consider the increased risk of
loss to principal which is present with an investment in higher risk securities
such as those in which the Fund invests.
The market values of lower rated, fixed-income securities and unrated securities
of comparable quality tend to reflect individual corporate developments to a
greater extent than do higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Such lower rated securities
also tend to be more sensitive to economic conditions than higher rated
securities. These lower-rated fixed-income securities are considered by the
NRSROs, on balance, to be predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation and will generally involve more credit risk than securities in the
higher rating categories. Even bonds rated BBB by S&P or Baa by Moody's, ratings
which are considered investment grade, possess some speculative characteristics.
Companies that issue high yielding, fixed-income securities are often highly
leveraged and may not have more traditional methods of financing available to
them. Therefore, the risk associated with acquiring the securities of such
issuers is generally greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yielding securities may experience
financial stress. During these periods, such issuers may not have sufficient
cash flow to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific projected
business forecasts, or the unavailability of additional financing. The risk of
loss due to default by the issuer may be significantly greater for the holders
of high yielding securities because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. As of May 31, 1995, two
issues (from one separate issuer) out of 174 issues (excluding short-term
securities and cash equivalents) in the Fund's portfolio were in default. In the
fiscal year ended May 31, 1995, two issues defaulted, and a total of seven
issues defaulted over the prior three years of which the Fund still holds the
two issues mentioned above. Defaulted issues represented 0.04% of the net assets
of the Fund at May 31, 1995. Current prices for defaulted bonds, however, are
generally significantly lower than their purchase price, and the Fund may have
unrealized losses on such defaulted securities which are reflected in the price
of the Fund's shares. In general, securities which default lose much of their
value in the time period prior to the actual default so that the Fund's net
assets are impacted prior to the default. The Fund may retain an issue which has
defaulted because such issue may present an opportunity for subsequent price
recovery. The high yield securities market is relatively new and much of its
growth prior to 1990 paralleled a long economic expansion. The recent recession
disrupted the market for high yield securities and adversely affected the value
of outstanding securities and the ability of issuers of such securities to meet
their obligations. Those adverse effects may continue even as the economy
recovers.
High yielding, fixed-income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the securities from the Fund.
Although such securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, the Fund would likely have to replace such
called securities with lower yielding securities, thus decreasing the net
investment income to the Fund and dividends to shareholders. The premature
disposition of a high yielding security due to a call or buy-back feature, the
deterioration of the issuer's creditworthiness, or a default may also make it
more difficult for the Fund to manage the timing of its receipt of income, which
may have tax implications. Further information is included under "Taxation of
the Fund and Its Shareholders."
The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. (See "Valuation of Fund Shares.")
The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. While many recent high yielding securities have
been sold with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell such restricted securities before
the securities have been registered, it may be deemed an underwriter of such
securities as defined in the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of such securities; however, the Fund will generally incur no costs when the
issuer is responsible for registering the securities.
The Fund may acquire high yielding, fixed-income securities during an initial
underwriting. Such securities involve special risks because they are new issues.
The Fund has no arrangement with its underwriters or any other person concerning
the acquisition of such securities, and the investment manager will carefully
review the credit and other characteristics pertinent to such new issues.
Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's net asset value. For example, adverse publicity
regarding lower rated bonds, which appeared during 1989 and 1990, along with
highly publicized defaults of some high yield issuers, and concerns regarding a
sluggish economy which continued in 1993, depressed the prices for many such
securities. In addition, the Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The Fund will rely on the investment
manager's judgment, analysis and experience in evaluating the creditworthiness
of an issuer. In this evaluation, the investment manager will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
The credit risk factors pertaining to lower rated securities also apply to lower
rated zero coupon, deferred interest and pay-in-kind bonds. Such bonds carry an
additional risk in that, unlike bonds which pay interest throughout the period
to maturity, the Fund will realize no cash until the cash payment date and, if
the issuer defaults, the Fund may obtain no return at all on its investment.
Zero coupon, deferred interest and pay-in-kind bonds involve additional special
considerations.
Zero coupon or deferred interest securities are debt obligations which do not
entitle the holder to any periodic payments of interest prior to maturity or a
specified date when the securities begin paying current interest (the "cash
payment date") and therefore are generally issued and traded at a discount from
their face amounts or par value. The discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, typically
decreases as the final maturity or cash payment date of the security approaches.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
or deferred interest securities having similar maturities and credit quality.
Current federal income tax law requires that a holder of a zero coupon security
report as income each year the portion of the original issue discount on such
security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Pay-in-kind bonds are securities which pay interest through the issuance of
additional bonds. The Fund will be deemed to receive interest over the life of
such bonds and be treated as if interest were paid on a current basis for
federal income tax purposes, although no cash interest payments are received by
the Fund until the cash payment date or until the bonds mature. The Fund,
however, intends to continue to qualify as a regulated investment company under
the Code. Accordingly, during periods when the Fund receives no cash interest
payments on its zero coupon securities or deferred interest or pay-in-kind
bonds, it may be required to dispose of portfolio securities to meet the
distribution requirements and such sales may be subject to the risk factors
discussed above. The Fund is not limited in the amount of its assets that may be
invested in such securities. Further information is included under "Taxation of
the Fund and Its Shareholders."
ASSET COMPOSITION TABLE
A credit rating by an NRSRO evaluates only the safety of principal and interest
of the bond, and does not consider the market value risk associated with an
investment in such a bond. The table below shows the percentage invested in each
of the specific S&P rating categories and those that are not rated by the NRSROs
but deemed by the investment manager to be of the same credit quality. The
information was prepared based on a dollar weighted average of the Fund's
portfolio composition based on month-end assets for each of the 12 months in the
fiscal year ended May 31, 1995. The Appendix includes a description of each
rating category.
AVERAGE WEIGHTED
S&P RATING PERCENTAGE OF ASSETS
----------- --------------------
AAA 6.33%
A- 0.59%
BBB 0.33%
BBB- 2.34%
BB+ 5.15%
BB 4.73%
BB- 12.41%
B+ 17.44%
B* 32.45%
B- 13.89%
CCC+ 1.59%
CCC 1.07%
CCC- 1.47%
D 0.21%
*7.09% of these securities, which are unrated by an NRSRO, have been included in
the B rating category.
FOREIGN SECURITIES
Investments in foreign securities where delivery takes place outside the U.S.
may involve risks that are different from investments in U.S. securities. These
risks may include future unfavorable political and economic developments,
possible withholding taxes, seizure of foreign deposits, currency exchange
controls, including currency blockage, higher transactional costs due to a lack
of negotiated commissions, or other governmental restrictions which might affect
the amount and types of foreign investments made or the payment of principal or
interest on securities the Fund holds. In addition, there may be less
information available about these securities and it may be more difficult to
obtain or enforce a court judgment in the event of a lawsuit. Fluctuations in
currency convertibility or exchange rates could result in investment losses for
the Fund. Investment in foreign securities may also subject the Fund to losses
due to nationalization, expropriation or differing accounting practices and
treatments.
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS
OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of Fund shares will fluctuate with movements in the broader equity and bond
markets, as well. To the extent the Fund's investments consist of debt
securities, changes in interest rates will affect the value of the Fund's
portfolio and thus its share price. Increased rates of interest which frequently
accompany higher inflation and/or a growing economy are likely to have a
negative effect on the value of Fund shares. To the extent the Fund's
investments consist of common stocks, a decline in the market, expressed for
example by a drop in the Dow Jones Industrials or the S&P's 500 average or any
other equity based index, may also be reflected in declines in the Fund's share
price. History reflects both increases and decreases in the prevailing rate of
interest and in the valuation of the market, and these may reoccur unpredictably
in the future.
MANAGEMENT OF THE FUND
The Board of Directors (the "Board") has the primary responsibility for the
overall management of the Fund and for electing the officers of the Fund who are
responsible for administering its day-to-day operations.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (112 separate series) with aggregate assets of over $76 billion.
Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
During the fiscal year ended May 31, 1995, management fees totaling 0.46% of the
average monthly net assets of the Fund were paid to Advisers.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "The
Fund's Policies Regarding Brokers Used on Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended May 31, 1995, expenses borne by Class I shares of
the Fund, including fees paid to Advisers and to Investor Services, totaled
0.66% of the average monthly net assets of such class. Class II's annualized
expenses for the period from May 15, 1995, to May 31, 1995, total 1.24%.
PLANS OF DISTRIBUTION
A separate Plan of Distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan," respectively, or "Plans") pursuant to Rule
12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees attributable to that
particular class. Any portion of fees remaining from either Plan after
distribution to securities dealers of up to the maximum amount permitted under
each Plan may be used by the class to reimburse Distributors for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any distribution or
service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may pay to Distributors or others under the
Class I Plan for such distribution expenses is 0.15% per annum of Class I's
average daily net assets payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.15% per annum will be borne by
Distributors, or others who have incurred them, without reimbursement from the
Fund.
Under the Class II Plan, the Fund pays to Distributors for distribution expenses
and related expenses up to 0.50% per annum of Class II's daily net assets,
payable quarterly. Such fees may be used in order to compensate Distributors or
others for providing distribution and related services and bearing certain
expenses of the Class. All expenses of distribution, marketing and related
services over that amount will be borne by Distributors or others who have
incurred them, without reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15% per annum of Class
II's average daily net assets as a servicing fee, payable quarterly. This fee
will be used to pay securities dealers or others for, among other things,
assisting in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from the Fund on behalf of
customers, or similar activities related to furnishing personal services and/or
maintaining shareholder accounts.
During the first year following the purchase of Class II shares, Distributors
will retain 0.50% per annum of Class II's average daily net assets to partially
recoup fees Distributors pays to securities dealers. Distributors, or its
affiliates, may pay, from its own resources, a commission of up to 1% of the
amount invested to securities dealers who initiate and are responsible for
purchases of Class II shares.
Both Plans also cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund. For more
information, including a discussion of the Board's policies with regard to the
amount of each Plan's fees, please see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to its
shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of dividends, interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
DISTRIBUTIONS TO EACH CLASS OF SHARES
According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
DISTRIBUTION DATE
Although subject to change by the Board of Directors, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends monthly for shareholders of record on the last business day of the
month, payable on or about the 15th day of the following month. The amount of
income dividend payments by the Fund is dependent upon the amount of net income
received by the Fund from its portfolio holdings, is not guaranteed and is
subject to the discretion of the Board of Directors. Fund shares are quoted
ex-dividend on the first business day following the record date. THE FUND DOES
NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS
SHARES.
In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets, rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a dividend or capital gain distribution received shortly
after purchasing shares represents, in effect, a return of a portion of the
shareholder's investment, it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the same
class of shares of the Fund or the same class of another of the Franklin
Templeton Funds. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which the record date is
seven or more business days after the Fund has been notified. See the SAI for
more information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to the
same class of another fund in the Franklin Templeton Funds, to another person,
or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing. Dividends
which may be paid in the interim will be sent to the address of record.
Additional information regarding automated fund transfers may be obtained from
Franklin's Shareholder Services Department. See "Purchases at Net Asset Value"
under "How to Buy Shares of the Fund."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the SAI.
The Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.
Foreign securities, which meet the definition in the Code of a Passive Foreign
Investment Company ("PFIC"), may subject the Fund to an income tax and interest
charge with respect to such investment. To the extent possible, the Fund will
avoid such treatment by not investing in PFIC securities or by adopting other
tax strategies for any PFIC securities it does purchase.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
paid by the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
For corporate shareholders, it is anticipated that only a small portion of the
Fund's dividends during the current fiscal year will qualify for the corporate
dividends-received deduction because of the Fund's principal investment in
domestic debt securities. To the extent that the Fund pays dividends which
qualify for this deduction, the availability of the deduction is subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares.
DIFFERENCES BETWEEN CLASS I AND CLASS II. The difference between Class I and
Class II shares lies primarily in their front-end and contingent deferred sales
charges and Rule 12b-1 fees as described below.
CLASS I. All Fund shares outstanding before the implementation of the multiclass
structure have been redesignated as Class I shares, and will retain their
previous rights and privileges. Voting rights of each class will be the same on
matters affecting the Fund as a whole, but each will vote separately on matters
affecting its class. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon redemption. Class
I shares are subject to Rule 12b-1 fees of up to an annual maximum of 0.15% of
average daily net assets of such shares. With this multiclass structure, Class I
shares have higher front-end sales charges than Class II shares and
comparatively lower Rule 12b-1 fees. Class I shares may be purchased at a
reduced front-end sales charges or at net asset value if certain conditions are
met. In most circumstances, contingent deferred sales charges will not be
assessed against redemptions of Class I shares. See "Management of the Fund,"
and "How to Sell Shares of the Fund" for more information.
CLASS II. The current public offering price of Class II shares is equal to the
net asset value, plus a front-end sales charge of 1% of the amount invested.
Class II shares are also subject to a contingent deferred sales charge of 1% if
shares are redeemed within 18 months of the calendar month following purchase.
In addition, Class II shares are subject to Rule 12b-1 fees of up to a maximum
of 0.65% per annum of average daily net assets of such shares, 0.50% of which
will be retained by Distributors during the first year of investment. Class II
shares have lower front-end sales charges than Class I shares and comparatively
higher Rule 12b-1 fees. See "Contingent Deferred Sales Charge" under "How to
Sell Shares of the Fund".
Purchases of Class II shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
shares, since that is more beneficial to investors. Such purchases, however, may
be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I shares through a Letter of Intent instead of
purchasing Class II shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which class
of shares to purchase. Generally, an investor who expects to invest less than
$100,000 in the Franklin Templeton Funds and who expects to make substantial
redemptions within approximately six years or less of investment should consider
purchasing Class II shares. However, the higher annual Rule 12b-1 fees on the
Class II shares will result in slightly higher operating expenses and lower
income dividends for Class II shares, which will accumulate over time to
outweigh the difference in initial sales charges. For this reason, Class I
shares may be more attractive to long-term investors even if no sales charge
reductions are available to them.
Investors who qualify to purchase Class I shares at reduced sales charges
definitely should consider purchasing Class I shares, especially if they intend
to hold their shares approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who intend to hold their
shares less than approximately six years should evaluate whether it is more
economical to purchase Class I shares through a Letter of Intent or under Rights
of Accumulation or other means, rather than purchasing Class II shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM
PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the Fund
and has the same rights, except that each class has a different sales charge,
bears the separate expenses of its Rule 12b-1 distribution plan, and has
exclusive voting rights with respect to such plan. The two classes also have
separate exchange privileges.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at their respective public
offering prices, which are determined by adding the net asset value per share
plus a front-end sales charge, next computed (1) after the shareholder's
securities dealer receives the order which is promptly transmitted to the Fund
or (2) after receipt of an order by mail from the shareholder directly in proper
form (which generally means a completed Shareholder Application accompanied by a
negotiable check).
CLASS I. The sales charge for Class I shares is a variable percentage of the
offering price depending upon the amount of the sale. The offering price will be
calculated to two decimal places using standard rounding criteria. A description
of the method of calculating net asset value per share is included under the
caption "Valuation of Fund Shares."
Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions for Class I shares.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
AS A DEALER CONCESSION
AS A PERCENTAGE PERCENTAGE OF AS A PERCENTAGE
NET OF OFFERING
SIZE OF TRANSACTION OF OFFERING PRICE AMOUNT PRICE
AT OFFERING PRICE INVESTED
- ----------------- --------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more NONE NONE (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within the contingency period.
See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the funds in the Franklin
Group of Funds(Registered Trademark) and the Templeton Group of Funds. Included
for these aggregation purposes are (a) the mutual funds in the Franklin Group of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to reduction) and (c)
the U.S. registered mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a discount.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors, or one of its affiliates,
may make payments, out of its own resources, of up to 0.75% of the amount
purchased to securities dealers who initiate and are responsible for purchases
made at net asset value by non-designated retirement plans, and up to 1% of the
amount purchased to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers), certain trust companies and trust departments
of banks and certain retirement plans of organizations with collective
retirement plan assets of $10 million or more. See definitions under
"Description of Special Net Asset Value Purchases" and as set forth in the SAI.
Class II. Unlike Class I shares, the front-end sales charges and dealer
concessions for Class II shares do not vary depending on the amount of purchase.
See table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
DEALER CONCESSION
AS A
AS A PERCENTAGE PERCENTAGE OF AS A PERCENTAGE
NET
SIZE OF TRANSACTION OF OFFERING PRICE AMOUNT OF OFFERING PRICE*
AT OFFERING PRICE INVESTED
<S> <C> <C> <C>
Any Amount (less than $1,000,000) 1.00% 1.01% 1.00%
</TABLE>
*Distributors, or one of its affiliates, may make additional payments to
securities dealers, from its own resources, of up to 1% of the amount invested.
During the first year following a purchase of Class II shares, Distributors will
keep a portion of the Rule 12b-1 fees assessed to those shares to partially
recoup fees Distributors pays to securities dealers.
Class II shares redeemed within 18 months of their purchase will be assessed a
contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such shares at the time of purchase,
unless such charge is waived as described under "How to Sell Shares of the Fund
- - Contingent Deferred Sales Charge."
Distributors, or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Franklin Templeton Funds and other dealer-sponsored programs or events.
In some instances, this compensation may be made available only to certain
securities dealers whose representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton Funds. Compensation may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
Additional terms concerning the offering of the Fund's shares are included in
the SAI.
Certain officers and directors of the Fund are also affiliated with
Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES -
CLASS I SHARES ONLY
Class I shares may be purchased under a variety of plans which provide for a
reduced sales charge. To be certain to obtain the reduction of the sales charge,
the investor or the securities dealer should notify Distributors at the time of
each purchase of shares which qualifies for the reduction. In determining
whether a purchase qualifies for a discount, an investment in any of the
Franklin Templeton Investments may be combined with those of the investor's
spouse and children under the age of 21 and grandchildren under the age of 21.
In addition, the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be considered in
determining whether a reduced sales charge is available, even though there may
be a number of beneficiaries of the account. The value of Class II shares owned
by the investor may also be included for this purpose.
In addition, an investment in Class I shares may qualify for a reduction in the
sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Investments may be combined with
the amount of the current purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a reduced sales
charge on a purchase of Class I shares by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in Class I shares registered in the investor's name,
to assure that the full applicable sales charge will be paid if the intended
purchase is not completed. The reserved shares will be included in the total
shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining a reduced sales charge to be paid on Class I shares pursuant to the
Letter of Intent and Rights of Accumulation programs.
GROUP PURCHASES OF CLASS I SHARES
An individual who is a member of a qualified group, such as the Assembly of
Governmental Employees ("AGE"), may also purchase Class I shares of the Fund at
the reduced sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of shares previously purchased and still
owned by the members of the group, plus the amount of the current purchase. For
example, if members of the group had previously invested and still held $80,000
of Fund shares and now were investing $25,000, the sales charge would be 3.50%.
Members of AGE who participate in the payroll deduction plan described below or
the group accumulation plan discussed above are eligible for a reduced sales
charge of 1% on investments of $500 or more. In addition, as stated above, no
front-end sales charge applies on investments of $1 million or more by
individuals or groups, but a contingent deferred sales charge of 1% is imposed
on certain redemptions within 12 months of the calendar month of the purchase.
Information concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and seek to arrange for
payroll deduction or other bulk transmission of investments to the Fund.
AGE members who select a payroll deduction plan should complete the payroll
deduction plan section of the supplement to the Shareholder Application and
submit it to their employer. Investments may be in any amount, with a minimum of
$12.50. Payroll deduction plans will normally be identified by a member's social
security number, therefore, such plans must be limited to one payroll deduction
account per member. Subsequent investments will be automatic and will continue
until such time as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures used to prepare,
process and forward the payroll deduction information to the Fund, there may be
a delay between the time of the payroll deduction and the time the money reaches
the Fund. The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll deduction data are
received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Class I shares may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors, and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including any subsequent payments made by such
parties after cessation of employment; (2) companies exchanging shares with or
selling assets pursuant to a merger, acquisition or exchange offer; (3)
insurance company separate accounts for pension plan contracts; (4) accounts
managed by the Franklin Templeton Group; (5) shareholders of Templeton
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Code in shares of
the Fund; (6) certain unit investment trusts and unit holders of such trusts
reinvesting their distributions from the trusts in the Fund; (7) registered
securities dealers and their affiliates, for their investment account only, and
(8) registered personnel and employees of securities dealers and by their
spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of shares of the Fund may be
purchased at net asset value by persons who have redeemed, within the previous
365 days, their shares of the Fund or another of the Franklin Templeton Funds
which were purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the time of purchase
of the new shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any contingent deferred
sales charge paid on the shares redeemed and subsequently repurchased, a new
contingency period will begin. Matured shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge. Shares
of the Fund redeemed in connection with an exchange into another fund (see
"Exchange Privilege") are not considered "redeemed" for this privilege. In order
to exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 365 days after the redemption. The 365 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the Fund or of
another of the Franklin Templeton Funds may be purchased at net asset value and
without a contingent deferred sales charge by persons who have received
dividends and capital gains distributions in cash from investments in that class
of shares of the Fund within 365 days of the payment date of such distribution.
To exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by investors who have, within the past 60
days, redeemed an investment in a mutual fund which is not part of the Franklin
Templeton Funds and which was subject to a front-end sales charge or a
contingent deferred sales charge upon redemption and which has investment
objectives similar to those of the Fund.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by broker dealers who have entered into a
supplemental agreement with Distributors, or by registered investment advisors
affiliated with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as a wrap fee
program).
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by anyone who has taken a distribution from
an existing retirement plan already invested in the Franklin Templeton Funds
(including former participants of the Franklin Templeton Profit Sharing 401(k)
plan, to the extent of such distribution. In order to exercise this privilege a
written order for the purchase of shares of the Fund must be received by
Franklin Templeton Trust Company (the "Trust Company"), the Fund or Investor
Services, within 365 days after the plan distribution.
Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a securities dealer who has executed a dealer
agreement with Distributors, Distributors or one of its affiliates may make a
payment, out of their own resources, to such securities dealer in an amount not
to exceed 0.25% of the amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trust companies and bank trust departments
for funds over which they exercise exclusive discretionary investment authority
and which are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with respect to
amount of purchase, which may be established by Distributors. Currently, those
criteria require that the amount invested or to be invested during the
subsequent 13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trustees or other fiduciaries purchasing
securities for certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, without regard to where such
assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases of
Class I shares.
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate which class of
shares they intend to purchase. A purchase order that fails to specify a class
will automatically be invested in Class I shares. Purchases of $1 million or
more in a single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset value should
purchase Class I rather than Class II shares. See the section "Purchases at Net
Asset Value" and "Description of Special Net Asset Value Purchases" above for a
discussion of when shares may be purchased at net asset value.
GENERAL
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
PURCHASING SHARES OF THE FUND IN
CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or Franklin Templeton Trust Company (
the "Trust Company") may provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
The Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for retirement plans. Brochures for the Trust Company plans contain
important information regarding eligibility, contribution and deferral limits
and distribution requirements. Please note that an application other than the
one contained in this Prospectus must be used to establish a retirement plan
account with the Trust Company. To obtain a retirement plan brochure or
application, call 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from Franklin Templeton Trust Company retirement
plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition,
retirement plan investors should consider consulting their investment
representatives or advisers concerning investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested by the shareholder or by the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder quarterly to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information concerning this
program from their securities dealers or from Distributors.
The market value of each class of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the investor should keep
in mind that such a program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal transaction, although
this is merely the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. Retirement plans subject to mandatory
distribution requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis. If the
shareholder establishes a plan, any capital gain distributions and income
dividends paid by the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made from the
liquidation of shares at net asset value on the day of the transaction (which is
generally the first business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to five days after the
date of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to another of the
Franklin Templeton Funds, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid in the interim
will be sent to the address of record. Liquidation of shares may reduce or
possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of Class I shares and
Class II shares may be subject to a contingent deferred sales charge if the
shares are redeemed within 12 months (Class I shares) or 18 months (Class II
shares) of the calendar month following purchase. The shareholder should
ordinarily not make additional investments of less than $5,000 or three times
the annual withdrawals under the plan during the time such a plan is in effect.
With respect to Class I shares, the contingent deferred sales charge is waived
for redemptions through a Systematic Withdrawal Plan set up prior to February 1,
1995. With respect to Systematic Withdrawal Plans set up on or after February 1,
1995, however, the applicable contingent deferred sales charge is waived for
Class I and Class II share redemptions of up to 1% monthly of an account's net
asset value (12% annually, 6% semiannually, 3% quarterly). For example, if a
Class I account maintained an annual balance of $1,000,000, only $120,000 could
be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge;
any amount over that $120,000 would be assessed a 1% (or applicable) contingent
deferred sales charge. Likewise, if a Class II account maintained an annual
balance of $10,000, only $1,200 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge.
A Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving written notice to
Investor Services at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
the Franklin Templeton Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for the same class of shares of other Franklin Templeton Funds which
are eligible for sale in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and investment minimums. Some
funds, however, may not offer Class II shares. Class I shares may be exchanged
for Class I shares of any Franklin Templeton Funds. Class II shares may be
exchanged for Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent deferred sales
charge will not be imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the original fund purchased and
shares are subsequently redeemed within 12 months (Class I shares) or 18 months
(Class II shares) of the calendar month following the original purchase date, a
contingent deferred sales charge will be imposed. Before making an exchange,
investors should review the prospectus of the fund they wish to exchange from
and the fund they wish to exchange into for all specific requirements or
limitations on exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(REGISTERED TRADEMARK) SYSTEM (DAY OR NIGHT)
AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A
PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account of the same class of shares in
one of the other available Franklin Templeton Funds. The Telephone Exchange
Privilege is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund and Investor
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges By Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges of the same class of shares are made on the basis of the net asset
values of the class involved, except as set forth below. Exchanges of shares of
a class which were originally purchased without a sales charge will be charged a
sales charge in accordance with the terms of the prospectus of the fund and the
class of shares being purchased, unless the original investment on which no
sales charge was paid was transferred in from a fund on which the investor paid
a sales charge. Exchanges of Class I shares of the Fund which were purchased
with a lower sales charge into a fund which has a higher sales charge will be
charged the difference in sales charges, unless the shares were held in the Fund
for at least six months prior to executing the exchange.
When an investor requests the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested at net asset
value. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
EXCHANGES OF CLASS I SHARES
The contingency period during which a contingent deferred sales charge may be
assessed for Class I shares will be tolled (or stopped) for the period such
shares are exchanged into and held in a Franklin or Templeton Class I money
market fund. If a Class I account has shares subject to a contingent deferred
sales charge, Class I shares will be exchanged into the new account on a
"first-in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the contingent
deferred sales charge and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if a
shareholder has $1,000 in free shares, $2,000 in matured shares, and $3,000 in
CDSC liable shares, and the shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free shares, $1,000 from matured shares, and $1,500 from
CDSC liable shares. Similarly, if CDSC liable shares have been purchased at
different periods, a proportionate amount will be taken from shares held for
each period. If, for example, a shareholder holds $1,000 in shares bought 3
months ago, $1,000 bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may shareholders purchase shares of Money Fund II directly. Class
II shares exchanged for shares of Money Fund II will continue to age and a
contingent deferred sales charge will be assessed if CDSC liable shares are
redeemed. No other money market funds are available for Class II shareholders
for exchange purposes. Class I shares may be exchanged for shares of any of the
money market funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these other money market
funds as described in their respective prospectuses.
To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free-shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a CDSC. The proportional method is believed by management to more
closely meet and reflect the expectations of Class II shareholders in the event
shares are redeemed during the contingency period. For federal income tax
purposes, the cost basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen by the Fund.
TRANSFERS
Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events, and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Shares of each class will be transferred on
the same basis as described above for exchanges.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be convertible to
Class I shares. A shareholder may, however, sell his Class II shares and use the
proceeds to purchase Class I shares, subject to all applicable sales charges.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may accomplish
exchanges directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1/4 of 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the class of shares redeemed based upon the net asset value
per share (less a contingent deferred sales charge, if applicable) next computed
after the written request in proper form is received by Investor Services.
Redemption requests received after the time at which the net asset value is
calculated at the scheduled close of the New York Stock Exchange ("Exchange"),
which is generally 1:00 p.m. Pacific time, each day that the Exchange is open
for business will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Share Certificates - Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by the share
certificate and a share assignment form signed by the registered shareholders
exactly as the account is registered, with the signature(s) guaranteed as
referenced above. Shareholders are advised, for their own protection, to send
the share certificate and assignment form in separate envelopes if they are
being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."
For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled close of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent only
to the address of record. Redemption requests by telephone will not be accepted
within 30 days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set forth in this
Prospectus. Institutional accounts (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents, as
described in the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt of a repurchase
order from the dealer, the Fund will still require a signed letter of
instruction and all other documents set forth above. A shareholder's letter
should reference the Fund and the class, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of the shareholder's redemption will be sent
will begin when the Fund receives all documents required to complete ("settle")
the repurchase in proper form. The redemption proceeds will not earn dividends
or interest during the time between receipt of the dealer's repurchase order and
the date the redemption is processed upon receipt of all documents necessary to
settle the repurchase. Thus, it is in a shareholder's best interest to have the
required documentation completed and forwarded to the Fund as soon as possible.
The shareholder's dealer may charge a fee for handling the order. The SAI
contains more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, Class I investments
of $1 million or more and any Class II investments redeemed within the
contingency period of 12 months (Class I) or 18 months (Class II) of the
calendar month following their purchase will be assessed a contingent deferred
sales charge, unless one of the exceptions described below applies. The charge
is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.
In determining if a contingent deferred sales charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (I) A calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period (12 months in the case of Class I shares and 18 months in the
case of Class II shares); (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held longer than the
contingency period; and followed by any shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds or
an adjustment to the cost basis of the shares redeemed.
The contingent deferred sales charge on each class of shares is waived, as
applicable, for: exchanges; any account fees; distributions to participants or
their beneficiaries in Trust Company individual retirement plan accounts due to
death, disability or attainment of age 59 1/2; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to termination or plan transfer; redemptions through
a Systematic Withdrawal Plan set up for shares prior to February 1, 1995, and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or 12%
annually); redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size; and redemptions following the
death of the shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of a
SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, a shareholder or securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, and (iv)
request the issuance of certificates (to be sent to the address of recond only)
and (v) exchange Fund shares as described in this Prospectus by telephone. In
addition, shareholders who complete and file an Agreement as described under
"How to Sell Shares of the Fund - Redemptions by Telephone" will be able to
redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain restrictions may apply to
other types of retirement plans. Changes to dividend options must also be made
in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020 for Franklin accounts, or
1-800/354-9191 (press "2" when prompted to do so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of each class of the Fund is determined as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum sales charge of each class of shares of the Fund).
The net asset value per share for each class of the Fund is determined in the
following manner: The aggregate of all liabilities, is deducted from the
aggregate gross value of all assets, and the difference is divided by the number
of shares of the respective class outstanding at the time. For the purpose of
determining the aggregate net assets of the Fund, cash and receivables are
valued at their realizable amounts. Interest is recorded as accrued and
dividends are recorded on the ex-dividend date. Portfolio securities listed on a
securities exchange or on the NASDAQ National Market System for which market
quotations are readily available are valued at the last quoted sale price of the
day or, if there is no such reported sale, within the range of the most recent
quoted bid and ask prices. [The value of a foreign security is determined as of
the close of trading on the foreign exchange on which it is traded or as of the
schedule closing of trading on the Exchange, if that is earlier, and that value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at noon, New York time, on the day the value of the foreign security
is determined. If no sale is reported at that time, the mean between the current
bid and ask price is used. Occasionally, events which affect the values of
foreign securities and foreign exchange rates may occur between the times at
which they are determined and the close of the exchange and will, therefore, not
be reflected in the computation of the Fund's net asset value. If events which
materially affect the value of these foreign securities occur during such
period, then these securities will be valued at fair value as determined by
management and approved in good faith by the Board of Directors.] Trading in
securities on European and Far Eastern securities exchanges and over-the-counter
markets is normally completed well before the scheduled close of business of the
Exchange on each day on which the Exchange is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every Exchange business day. Furthermore, trading takes place in
various foreign markets on days which are not business days for the Exchange and
on which the Fund's net asset value is not calculated. The Fund calculates net
asset value per share, and therefore effects sales and redemptions of its
shares, as of the close of the Exchange each day on which the Exchange is open.
Such calculation does not take place contemporaneously with the determination of
the prices of many of the portfolio securities used in such calculation and, if
events occur which materially affect the value of these foreign securities, they
will be valued at fair value as determined by the management and approved in
good faith by the Board of Directors.
Portfolio securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most representative
market as determined by the Manager. Other securities for which market
quotations are readily available are valued at the current market price, which
may be obtained from a pricing service, based on a variety of factors, including
recent trades, institutional size trading in similar types of securities
(considering yield, risk and maturity) and/or developments related to specific
issues. Securities and other assets for which market prices are not readily
available are valued at fair value as determined following procedures approved
by the Board of Directors. With the approval of directors, the Fund may utilize
a pricing service, bank or securities dealer to perform any of the above
described functions.
Each of the Fund's classes will bear, pro-rata, all of the common expenses of
the Fund. The net asset value of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of such classes, except that the Class I and Class II shares will bear the Rule
12b-1 expenses payable under their respective plans. Due to the specific
distribution expenses and other costs that will be allocable to each class, the
dividends paid to each class of the Fund may vary.
HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(Registered Trademark) system at
1-800/247-1753, shareholders may obtain Class I and Class II account
information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
Franklin Class I shareholders may process an exchange, within the same class,
into an identically registered Franklin account; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Franklin Class I and Class II share codes for the Fund, which will be needed to
access system information are 105 and 205, respectively. The system's automated
operator will prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin or Templeton
departments, telephone numbers and hours of operation to call. The same numbers
may be used when calling from a rotary phone:
HOURS OF OPERATION
DEPARTMENT NAME TELEPHONE NO. (PACIFIC TIME)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of the a class' performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for each class for other
periods or based on investments at various sales charge levels or at net asset
value. For such purposes, total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price.
Current yield for each class reflects the income per share earned by the Fund's
portfolio investments; it is calculated for each class by dividing that class'
net investment income per share during a recent 30-day period by the maximum
public offering price for that class of shares on the last day of that period
and annualizing the result.
Yield for each class, which is calculated according to a formula prescribed by
the SEC (see the SAI), is not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends or distributions paid
to shareholders of a class are reflected in the current distribution rate, which
may be quoted to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a class during the past
12 months by a current maximum offering price for that class of shares. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period such policies were
in effect, rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against a class' income and will assume the payment of the
maximum sales charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical performance figures
will be restated to reflect the new rate. The investment results of each class,
like all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what a class' yield, distribution rate or total return may be in any
future period.
Because Class II shares were not offered prior to May 15, 1995, no performance
data is available for these shares. After a sufficient period of time has
passed, Class II performance data will be available.
GENERAL INFORMATION
As of May 15, 1995, the full name of each class is as follows: AGE High Income
Fund, Inc., AGE High Income Fund Series, AGE High Income Fund - Class I, and AGE
High Income Fund, Inc., AGE High Income Fund Series, AGE High Income Fund -
Class II.
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends May 31. Annual Reports containing audited financial
statements of the Fund, including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically sent to
shareholders. Copies may be obtained, without charge, upon request to the Fund
at the telephone number or address set forth on the cover page of this
Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI.
ORGANIZATION AND VOTING RIGHTS
The Fund's authorized capital stock consists of 5,000,000,000 shares of common
stock of $.01 par value divided into two classes. Two billion, five hundred
million (2,500,000,000) shares of capital stock have been allocated to Class I
and Two billion, five hundred million (2,500,000,000) shares of stock have been
allocated to Class II. All shares have one vote and, when issued, are fully paid
and nonassessable. All shares have equal voting, participation and liquidation
rights, but have no subscription, preemptive or conversion rights.
To the extent required by applicable law, the Fund holds regular annual meetings
of its security holders. Shares of the Fund have noncumulative voting rights
which means that in all elections of directors, the holders of more than 50% of
the shares voting can elect 100% of the directors if they choose to do so, and
in such event, the holders of the remaining shares voting will not be able to
elect any person or persons to the Board of Directors.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as the other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only shareholders of that
class will be entitled to vote. Therefore each class of shares will vote
separately on matters (1) affecting only that class, (2) expressly required to
be voted on separately by Class by state corporation law, or (3) required to be
voted on separately by Class by the 1940 Act, or the rules adopted thereunder.
For instance, if a change to the Rule 12b-1 plan relating to Class I shares
requires shareholder approval, only shareholders of Class I may vote on the
change to the Rule 12b-1 plan affecting that class. Similarly, if a change to
the Rule 12b-1 plan relating to Class II shares requires approval, only
shareholders of Class II may vote on changes to such plan. On the other hand, if
there is a proposed change to the investment objective of the Fund, this affects
all shareholders, regardless of which class of shares they hold and, therefore,
each share has the same voting rights.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: R. Martin Wiskemann since 1972 and Chris Molumphy since
1991.
R. Martin Wiskemann Senior Vice President of Advisers
Mr. Wiskemann holds a degree in business administration from the Handelsschule
of the State of Zurich, Switzerland. He has been with Advisers since 1972 and in
the securities business for more than 30 years, managing mutual fund equity and
fixed income portfolios, and private investment accounts. He is a member of
several securities industry associations.
Chris Molumphy Portfolio Manager of Advisers
Mr. Molumphy holds a bachelor of arts degree in economics from Stanford
University and a master's degree in finance from the University of Chicago. He
has been with Advisers since 1988. He is a Chartered Financial Analyst (CFA) and
a member of several securities industry associations.
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
AAA - Bonds which are 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 by an 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 which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have predominantly speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be 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 which are 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 which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
DESCRIPTION OF S&P CORPORATE BOND RATINGS
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,
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - This 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
FRANKLIN'S
AGE HIGH
INCOME FUND
STATEMENT OF
ADDITIONAL INFORMATION
OCTOBER 1, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
Additional Information Regarding
the Fund's Investment Objectives
and Policies (See also the Prospectus
"Investment Objectives and Policies of the Fund")
Officers and Directors
Investment Advisory and Other Services
(See also the Prospectus "Management
of the Fund")
The Fund's Policies Regarding Brokers
Used on Portfolio Transactions
Additional Information Regarding Fund
Shares (See also the Prospectus
"How to Buy Shares of the Fund";
"How to Sell Shares of the Fund";
"Valuation of Fund Shares")
Additional Information Regarding
Taxation (See also the Prospectus
"Taxation of the Fund and Its Shareholders")
The Fund's Underwriter
General Information
Financial Statements
AGE High Income Fund, Inc. (the "Fund") is a diversified, open-end management
investment company with the principal investment objective of earning a high
level of current income. The Fund also seeks capital appreciation as a secondary
objective. The Fund's assets will generally be invested in both fixed-income
debt securities and dividend-paying common or preferred stocks.
A Prospectus for the Fund, dated October 1, 1995, as may be amended from time to
time, provides the basic information an investor should know before investing in
the Fund and may be obtained without charge from the Fund or from its principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors") at the
address shown above.
As explained in the Prospectus, this Fund offers two classes of shares to its
investors: AGE High Income Fund - Class I ("Class I") and AGE High Income Fund -
Class II ("Class II"). This new multiclass structure allows investors to
consider, among other features, the impact of sales charges and distribution
fees ("Rule 12b-1 fees") on their investments in this Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION (THE "SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE INVESTORS WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE
READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS.
ADDITIONAL INFORMATION REGARDING THE
FUND'S INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES AND POLICIES
LOANS OF PORTFOLIO SECURITIES. As stated in the Prospectus, the Fund may make
loans of its portfolio securities, up to 10% of its total assets, in accordance
with guidelines adopted by the Fund's Board of Directors. The lending of
securities is a common practice in the securities industry. The Fund will engage
in security loan arrangements with the primary objective of increasing the
Fund's income either through investing the collateral in short-term, interest
bearing obligations or by receiving loan premiums from the borrower. The Fund
will continue to be entitled to all dividends or interest on any loaned
securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially. The Fund will not lend its portfolio securities if
such loans are not permitted by the laws or regulations of any state in which
its shares are qualified for sale. Loans will be subject to termination by the
Fund in the normal settlement time, currently five business days after notice,
or by the borrower on one day's notice. Borrowed securities must be returned
when the loan is terminated. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan inures to the Fund
and its shareholders. The Fund may pay reasonable finders', borrowers',
administrative and custodial fees in connection with a loan of its securities.
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be sold without prior
registration under the Securities Act of 1933, unless such sale is pursuant to
an exemption therefrom. In recent years, the Fund's portfolio has included
several issues of such securities.
Notwithstanding the restriction on the sale of such securities, a secondary
market exists for many of these securities. As with other securities in the
Fund's portfolio, if there are readily available market quotations for a
restricted security, it will be valued, for purposes of determining the Fund's
net asset value, within the range of the bid and ask prices. To the extent that
no such quotations are available, the securities will be valued at fair value in
accordance with procedures adopted by the Board of Directors. The Fund's
purchases of restricted securities can result in the receipt of commitment fees.
For example, the transaction may involve an individually negotiated purchase of
short-term increasing rate notes. Maturities for this type of security typically
range from one to five years. Such notes are usually issued as temporary or
"bridge" financing to be replaced ultimately with permanent financing for the
project or transaction which the issuer seeks to finance. Typically, at the time
of commitment, the Fund receives the security and sometimes a cash commitment
fee. Because the transaction could possibly involve a delay between the time the
Fund commits to purchase the security and the Fund's payment for and receipt of
that security, the Fund will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. The Fund
will not purchase restricted securities in order to generate commitment fees,
although the receipt of such fees will assist the Fund in achieving its
principal objective of earning a high level of current income.
The Fund may also receive consent fees based on a variety of situations. For
example, the Fund may receive consent fees in situations where an issuer seeks
to "call" a bond it has issued which does not contain a provision permitting the
issuer to call the bond. The Fund may also receive a consent fee in situations
where its consent is required to facilitate a merger or other business
combination transaction. Such fees are received only occasionally, are privately
negotiated and may be in any amount. As is the case with commitment fees, the
Fund will not purchase securities with a view to generating consent fees,
although the receipt of such fees is consistent with the Fund's principal
investment objective.
ILLIQUID SECURITIES. As noted in the Prospectus, it is the policy of the Fund
that illiquid securities (including illiquid equity securities, securities with
legal or contractual restrictions on resale, repurchase agreements of more than
seven days duration and other securities which are not readily marketable) may
not constitute, at the time of purchase, more than 10% of the value of the total
net assets of the Fund. Generally, an "illiquid security" is any security that
cannot be disposed of promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the instrument. Subject to
this limitation, the Board of Directors has authorized the Fund to invest in
restricted securities where such investment is consistent with the Fund's
investment objectives and has authorized such securities to be considered liquid
to the extent the Fund's investment manager determines that there is a liquid
institutional or other market for such securities, such as restricted securities
which may be freely transferred among qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended, and for which a liquid
institutional market has developed. The Board of Directors will review on a
monthly basis any determination by the Fund's investment advisor to treat a
restricted security as liquid, including the investment advisor's assessment of
current trading activity and the availability of reliable price information. In
determining whether a restricted security is properly considered a liquid
security, the Fund's investment advisor and the Board of Directors will take
into account the following factors: (i) the frequency of trades and quotes for
the security; (ii) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; (iii) dealer undertakings
to make a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer). To
the extent the Fund invests in restricted securities that are deemed liquid, the
general level of illiquidity may be increased if qualified institutional buyers
become uninterested in purchasing these securities or the market for these
securities contracts.
FORWARD CURRENCY EXCHANGE CONTRACTS. As stated in the Prospectus, the Fund may
enter into forward currency exchange contracts ("Forward Contracts") to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies or to enhance income. A Forward Contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and is privately traded by currency traders and their
customers. When the Fund is the buyer or a seller in such a transaction, it will
either cover its position or maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregated value
equal to the amount of such commitment until payment is made.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase debt
securities on a "when-issued" or "delayed delivery" basis. These transactions
are arrangements under which the Fund purchases securities with payment and
delivery scheduled for a future time. Purchases of debt securities on a
when-issued or delayed delivery basis are subject to market fluctuation and are
subject to the risk that the value or yields at delivery may be more or less
than the purchase price or the yields available when the transaction was entered
into. Although the Fund will generally purchase debt securities on a when-issued
basis with the intention of acquiring such securities, it may sell them before
the settlement date if it is deemed advisable. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete the
transaction. The other party's failure may cause the Fund to miss a price or
yield considered advantageous. Securities purchased on a when- issued or delayed
delivery basis do not generally earn interest until their scheduled delivery
date. The Fund is not subject to any percentage limit on the amount of its
assets which may be invested in when-issued debt securities.
OPTIONS ON SECURITIES. The Fund may write covered call options which are listed
for trading on a national securities exchange. This means that the Fund will
only write options on securities which the Fund actually owns. A call option
gives the buyer the right to buy the security on which the option is written for
a specified period of time for a price agreed to at the time the option is sold,
even though that price may be less than the value of the security at the time
the option is exercised. When the Fund sells covered call options, the Fund
receives a cash premium which can be used in whatever way is felt to be most
beneficial to the Fund. The risks associated with covered call writing are such
that in the event of a price rise on the underlying security which would likely
trigger the exercise of the call option, the Fund will not participate in the
increase in price beyond the exercise price. If the Fund determines that it does
not wish to deliver the underlying securities from its portfolio, it would have
to enter into a "closing purchase transaction," the premium on which may be
higher or lower than that received by the Fund for writing the option. There is
no assurance that a closing purchase transaction will be available in every
instance.
FOREIGN SECURITIES. As noted in the Prospectus, the Fund may purchase foreign
securities which are traded in the United States or purchase American Depository
Receipts ("ADRs") which are certificates issued by U.S. banks representing the
right to receive securities of a foreign issuer deposited with that bank or a
correspondent bank. The Fund will only purchase ADRs which are "sponsored," that
is, an ADR in which establishment of the issuing facility is brought about by
the participation of the issuer and the depository institution pursuant to a
deposit agreement which sets out the rights and responsibilities of the issuer,
the depository and the ADR holder. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, thereby ensuring that ADR holders will be able to
exercise voting rights through the depository with respect to the deposited
securities.
SECURITIES TRANSACTIONS OF THE FUND
Normally, the Fund will purchase securities with the intention of holding them
for the long-term; however, it may on occasion purchase securities with the
expectation of selling within a short period of time. Changes in particular
portfolio holdings may be made whenever it is considered that a security no
longer is suitable for the Fund's portfolio or that another security appears to
offer a relatively greater opportunity, and will be made without regard to the
length of time a security has been held. The portfolio turnover for the fiscal
years ended May 31, 1994 and 1995 was 42.32% and 28.56%, respectively.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the Investment Company Act of
1940 (the "1940 Act"), a "vote of a majority of the outstanding voting
securities" of the Fund means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares
of the Fund present at a shareholders' meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy. The Fund may not:
1. Invest more than 25% of the value of the Fund's total assets in one
particular industry.
2. Purchase securities, if the purchase would cause the Fund at that time to
have more than 5% of the value of its total assets invested in the securities of
any one company or to own more than 10% of the voting securities of any one
company (except obligations issued or guaranteed by the U.S. government).
3. Underwrite or engage in the agency distributions of securities of other
issuers, except insofar as the Fund may be technically deemed an underwriter in
connection with the disposition of securities in its portfolio.
4. Make loans to other persons except on a temporary basis in connection with
the delivery or receipt of portfolio securities which have been bought or sold,
or by the purchase of bonds, debentures or similar obligations which have been
publicly distributed or of a character usually acquired by institutional
investors or through loans of the Fund's portfolio securities, or to the extent
the entry into a repurchase agreement may be deemed a loan.
5. Borrow money in excess of 5% of the value of the Fund's total assets, and
then only as a temporary measure for extraordinary or emergency purposes.
6. Sell securities short or buy on margin nor pledge or hypothecate any of the
Fund's assets.
7. Buy or sell real estate (other than interests in real estate investment
trusts), commodities or commodity contracts.
8. Invest in the securities of another investment company, except securities
acquired in connection with a merger, consolidation or reorganization; except to
the extent the Fund invests its uninvested daily cash balances in shares of the
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.
9. Invest in any company for the purpose of exercising control or management.
10. Purchase the securities of any company in which any officer or director of
the Fund or its investment manager owns more than 1/2 of 1% of the outstanding
securities and in which all of the officers and directors of the Fund and its
investment manager as a group, own more than 5% of such securities.
In response to state requirements:
(1) the Fund may not invest in warrants (valued at the lower of cost or market)
in excess of 5.0% of the value of the Fund's net assets. No more than 2.0% of
the value of the Fund's net assets may be invested in warrants (valued at the
lower of cost or market) which are not listed on the New York or American Stock
Exchanges. Warrants acquired by the Fund in units or attached to securities may
be deemed to be without value;
(2) the Fund may not invest in rights (valued at the lower of cost or market) in
excess of 5.0% of the value of the Fund's net assets. No more than 2.0% of the
value of the Fund's net assets may be invested in rights (valued at the lower of
cost or market) which are not listed on the New York or American Stock
Exchanges. Rights acquired by the Fund in units or attached to securities may be
deemed to be without value.
(3) the Fund will not invest in real estate limited partnerships or in interests
(other than publicly traded equity securities) in oil, gas, or other mineral
programs or leases, exploration or development.
(4) the Fund will limit its investments to a total of 15% of its total assets in
any mix of restricted securities for which there is not a liquid market,
securities of issuers which are not readily marketable, and securities of
issuers which have been in operation for less than three years.
(5) the Fund will not invest more than 10% of its assets in real estate
investment trusts or investment companies; and
(6) the Fund will not invest more than 5% of its assets in options, financial
futures, or stock index futures, other than hedging positions or positions that
are covered by cash or securities.
OFFICERS AND DIRECTORS
The Board of Directors has the responsibility for the overall management of the
Fund, including general supervision and review of its investment activities. The
directors, in turn, elect the officers of the Fund who are responsible for
administering day-to-day operations of the Fund. The affiliations of the
officers and directors and their principal occupations for the past five years
are listed below. Directors who are deemed to be "interested persons" of the
Fund, as defined in the 1940 Act, are indicated by an asterisk (*).
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
*Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 42 of the investment companies in the Franklin Templeton Group of Funds.
Robert F. Carlson (67)
2120 Lambeth Way
Carmichael, CA 95608
Director
Former member and past Chairman of the Board, Sutter Community Hospitals,
Sacramento, CA; former member Corporate Board, Blue Shield of California;
formerly Chief Counsel, California Department of Transportation; and member and
past President, Board of Administration, California Public Employees Retirement
Systems.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
Roy V. Fox (77)
107 Deepwood Dr.
Georgetown, TX 78628-8301
Director
Retired; formerly Publishing Consultant, Franklin Resources, Inc. and formerly
National Administrative Officer of the Assembly of Governmental Employees.
*Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies
in the Franklin Templeton Group of Funds.
*R. Martin Wiskemann (68)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 20 of the
investment companies in the Franklin Group of Funds.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
Directors not affiliated with the investment manager ("nonaffiliated directors")
are currently paid fees of $680 per month plus $680 per meeting attended. As
indicated above, certain of the Fund's nonaffiliated directors also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds (the
"Franklin Templeton Group of Funds") from which they may receive fees for their
services. The following table indicates the total fees paid to nonaffiliated
directors by the Fund and by other funds in the Franklin Templeton Group of
Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN THE
FRANKLIN TEMPLETON GROUP OF
TOTAL FEES RECEIVED FROM THE FUNDS ON WHICH EACH
FRANKLIN TEMPLETON GROUP OF SERVES***
TOTAL FEES RECEIVED FUNDS**
FROM FUND*
NAME
<S> <C> <C> <C>
Frank H. Abbott, III $15,640 $176,870 31
Robert F. Carlson $13,600 14,960 1
S. Joseph Fortunato $15,640 336,065 57
Roy V. Fox $14,960 14,960 1
</TABLE>
* For the fiscal year ended May 31, 1995.
** For the calendar year ended December 31, 1994.
*** The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
directors are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of more than 112 U.S.
based mutual funds or series.
Nonaffiliated directors are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director, trustee or managing general
partner. No officer or director received any other compensation directly from
the Fund. Certain officers or directors 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. For
additional information concerning director compensation and expenses, please see
the Fund's Annual Report to Shareholders.
As of July 5, 1995, the directors and officers, as a group, owned of record and
beneficially approximately 679,644 shares or less than 1% of the total
outstanding shares of the Fund. Many of the Fund's directors also own shares in
various of the other funds in the Franklin Templeton Group of Funds. Charles B.
Johnson and Rupert H.
Johnson, Jr. are brothers.
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange (the "Exchange"). Resources owns several other
subsidiaries which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of Resources currently
manage over $125 billion in assets worldwide for over 3.8 million shareholders,
in addition to foundations and endownments, employee benefit plans, and
individuals. The preceding table indicates those officers and directors who are
also affiliated persons of Distributors and Advisers.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Fund's Board of Directors to whom the
Manager renders periodic reports of the Fund's investment activities. Under the
terms of the management agreement, the Manager provides office space and office
furnishings, facilities and equipment required for managing the business affairs
of the Fund; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain telephone and other
mechanical services. The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of the Fund. See the
Statement of Operations in the financial statements included in the Fund's
Annual Report to Shareholders dated May 31, 1995.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed at the close of business on the last business day of each month
equal to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for the
first $100 million of average monthly net assets of the Fund; 1/24 of 1%
(approximately 1/2 of 1% per year) on average monthly net assets of the Fund in
excess of $100 million up to $250 million; and 9/240 of 1% (approximately 45/100
of 1% per year) of average monthly net assets of the Fund in excess of $250
million. Each class will pay its share of the fee as determined by the
proportion of the Fund that it represents.
Management fees for the fiscal years ended May 31, 1993, 1994 and 1995 were
$8,666,780, $8,993,566 and $8,263,271, respectively.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in any
fiscal year 2.5% of the first $30 million of average net assets of the Fund, 2%
of the next $70 million of average net assets of the Fund and 1.5% of average
net assets of the Fund in excess of $100 million. Expense reductions have not
been necessary based on state requirements.
The management agreement is in effect until April 30, 1996. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Fund's Board of
Directors or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the Fund's
directors who are not parties to the management agreement or interested persons
of any such party (other than as directors of the Fund), cast in person at a
meeting called for that purpose. The management agreement may be terminated
without penalty at any time by the Fund or by the Manager on 30 days' written
notice and will automatically terminate in the event of its assignment, as
defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank automated clearing
houses. The custodians do not participate in decisions relating to the purchase
and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended May 31, 1995,
their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Fund's Annual Report to Shareholders
dated May 31, 1995.
THE FUND'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Fund's Board of Directors may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions which are
done on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers which
are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage commissions
paid in connection with portfolio transactions are based to a large degree on
the professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of, among
other things, the experience of these individuals in the securities industry and
information available to them concerning the level of commissions being paid by
other institutional investors of comparable size. The Manager will ordinarily
place orders for the purchase and sale of over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the Manager, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price. The Fund seeks to obtain
prompt execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interests, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will have to
pay a higher commission than would be the case if no weight were given to the
broker's furnishing of these services. This will be done only if, in the opinion
of the Manager, the amount of any additional commission is reasonable in
relation to the value of the services. Higher commissions will be paid only when
the brokerage and research services received are bona fide and produce a direct
benefit to the Fund or assist the Manager in carrying out its responsibilities
to the Fund, or when it is otherwise in the best interest of the Fund to do so,
whether or not such data may also be useful to the Manager in advising other
clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the Fund's officers are satisfied that the best execution is obtained, the sale
of Fund shares may also be considered as a factor in the selection of
broker/dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when the Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Fund, any portfolio securities
tendered by the Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.
During the fiscal years ended May 31, 1993, 1994 and 1995, the Fund paid total
brokerage commissions of $103,351, $23,257 and $7,790, respectively. As of May
31, 1995, the Fund did not own securities of its regular broker/dealers.
ADDITIONAL INFORMATION
REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to a shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.
In connection with exchanges (see the Prospectus "Exchange Privilege"), it
should be noted that since the proceeds from the sale of shares of an investment
company generally are not available until the fifth business day following the
redemption, the funds into which the Fund shareholders are seeking to exchange
reserve the right to delay issuing shares pursuant to an exchange until said
fifth business day. The redemption of shares of the Fund to complete an exchange
for shares of any of the investment companies will be effected at the close of
business on the day the request for exchange is received in proper form at the
net asset value then effective.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
Dividend checks which are returned to the Fund marked "unable to forward" by the
postal service will be deemed to be a request by the shareholder to change the
dividend option and the proceeds will be reinvested in additional shares at net
asset value until new instructions are received.
The Fund may impose a $10 charge for each returned item, against any shareholder
account which, in connection with the purchase of Fund shares, submits a check
or a draft which is returned unpaid to the Fund.
The Fund may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail is returned as undeliverable or the Fund is
otherwise unable to locate the shareholder or verify the current mailing
address. These costs may include a percentage of the account when a search
company charges a percentage fee in exchange for its location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate of Distributors, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
Class I Shares of the Fund may be offered to investors in Taiwan through
securities firms known locally as Securities Investment Consulting Enterprises.
In conformity with local business practices in Taiwan, Class I shares of the
Fund will be offered with the following schedule of sales charges:
SALES
SIZE OF PURCHASE CHARGE
- ---------------- ------
Up to U.S. $100,000 3%
U.S. $100,000 to U.S. $1,000,000 2%
Over U.S. $1,000,000 1%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior to
the scheduled closing of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to
the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial institutions
after the scheduled closing of the Exchange will be effected at the Fund's
public offering price on the day it is next calculated. The use of the term
"securities dealer" herein shall include other financial institutions which,
pursuant to an agreement with Distributors (directly or through affiliates),
handle customer orders and accounts with the Fund. Such reference, however, is
for convenience only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so must be settled between
the customer and the securities dealer.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES -
CLASS I SHARES
As discussed in the Prospectus under "How to Buy Shares of the Fund -
Description of Special Net Asset Value Purchases," certain categories of
investors may purchase Class I shares of the Fund without a front-end sales
charge ("net asset value") or a contingent deferred sales charge. Distributors
or one of its affiliates may make payments, out of its own resources, to
securities dealers who initiate and are responsible for such purchases, as
indicated below. Distributors may make these payments in the form of contingent
advance payments, which may be recovered from the securities dealer, or set off
against other payments due to the securities dealer, in the event of investor
redemptions made within 12 months of the calendar month following purchase.
Other conditions may apply. All terms and conditions may be imposed by an
agreement between Distributors, or its affiliates, and the securities dealer.
The following amounts may be paid by Distributors or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and taxable-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 million, plus 0.80% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most
taxable income Franklin Templeton Funds made at net asset value by
non-designated retirement plans: 0.75% on sales of $1 million but less than $2
million, plus 0.60% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more.
These payment breakpoints are reset every 12 months for purposes of additional
purchases. With respect to purchases made at net asset value by certain trust
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
Distributors, or one of its affiliates, out of its own resources, may pay up to
1% of the amount invested.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on the
purchase of Class I shares of the Fund, as described in the Prospectus. At any
time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment will be entitled to the sales
charge applicable to the level of investment indicated on the Letter. Sales
charge reductions based upon purchases in more than one of the Franklin
Templeton Funds will be effective only after notification to Distributors that
the investment qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds, including Class II shares, acquired more than 90 days
before the Letter of Intent is filed will be counted towards completion of the
Letter of Intent but will not be entitled to a retroactive downward adjustment
in the sales charge. Any redemptions made by the shareholder, other than by a
designated benefit plan during the 13-month period will be subtracted from the
amount of the purchases for purposes of determining whether the terms of the
Letter of Intent have been completed. If the Letter of Intent is not completed
within the 13-month period, there will be an upward adjustment of the sales
charge, depending upon the amount actually purchased (less redemptions) during
the period. The upward adjustment does not apply to designated benefit plans. An
investor who executes a Letter of Intent prior to a change in the sales charge
structure for the Fund will be entitled to complete the Letter of Intent at the
lower of (i) the new sales charge structure; or (ii) the sales charge structure
in effect at the time the Letter of Intent was filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in the
investor's name, unless the investor is a designated benefit plan. If the total
purchases, less redemptions, equal the amount specified under the Letter, the
reserved shares will be deposited to an account in the name of the investor or
delivered to the investor or the investor's order. If the total purchases, less
redemptions, exceed the amount specified under the Letter of Intent and is an
amount which would qualify for a further quantity discount, a retroactive price
adjustment will be made by Distributors and the securities dealer through whom
purchases were made pursuant to the Letter of Intent (to reflect such further
quantity discount) on purchases made within 90 days before and on those made
after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, the investor will remit to Distributors an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single time. Upon such remittance the reserved
shares held for the investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the investor's order. If
within 20 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of reserved shares to realize such
difference will be made. In the event of a total redemption of the account prior
to fulfillment of the Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be forwarded
to the investor.
If a Letter of Intent is executed on behalf of a benefit plan (such plans are
described under "Purchases at Net Asset Value" in the Prospectus), the level and
any reduction in sales charge for these designated benefit plans will be based
on actual plan participation and the projected investments in the Franklin
Templeton Funds under the Letter of Intent. Benefit plans are not subject to the
requirement to reserve 5% of the total intended purchase, or to any penalty as a
result of the early termination of a plan, nor are benefit plans entitled to
receive retroactive adjustments in price for investments made before executing
the Letter of Intent.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission ("SEC"). In the
case of requests for redemption in excess of such amounts, the directors reserve
the right to make payments in whole or in part in securities or other assets of
the Fund from which the shareholder is redeeming, in case of an emergency, or if
the payment of such a redemption in cash would be detrimental to the existing
shareholders of the Fund. In such circumstances, the securities distributed
would be valued at the price used to compute the Fund's net assets. Should the
Fund do so, a shareholder may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to timely recover their
investment and may also incur brokerage costs in selling such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund reserves
the right to redeem, involuntarily, at net asset value, the shares of any
shareholder whose account has a value of less than one-half of the initial
minimum investment required for that shareholder, but only where the value of
such account has been reduced by the shareholder's prior voluntary redemption of
shares. Until further notice, it is the present policy of the Fund not to
exercise this right with respect to any shareholder whose account has a value of
$50 or more. In any event, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in the account is less than the minimum amount and allow the
shareholder 30 days to make an additional investment in an amount which will
increase the value of the account to at least $100.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, the Fund generally calculates net asset value as of
the scheduled closing of the Exchange (generally 1:00 p.m. Pacific time) each
day that the Exchange is open for trading. As of the date of this SAI, the Fund
is informed that the Exchange observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
As stated in the Prospectus, the net asset value per share for each class of the
Fund is determined in the following manner: The aggregate of all liabilities,
including, without limitation, the current market value of any outstanding
options written by the Fund, accrued expenses and taxes and any necessary
reserves is deducted from the aggregate gross value of all assets, and the
difference is divided by the number of shares of the respective class of the
Fund outstanding at the time. For the purpose of determining the aggregate net
assets of the Fund, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sale price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Directors. With the approval of directors, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.
The Fund's portfolio securities are valued as stated in the Prospectus.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the scheduled closing of the Exchange (generally 1:00 p.m. Pacific time). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Occasionally, events affecting the
values of such securities may occur between the time at which they are
determined and the scheduled closing of the Exchange which will not be reflected
in the computation of the Funds net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by the Board of
Directors.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the Exchange on each day on which the Exchange is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every Exchange business day. Furthermore, trading takes
place in various foreign markets on days which are not business days for the
Exchange and on which the Fund's net asset value is not calculated. The Fund
calculates net asset value per share, and therefore effects sales and
redemptions of its shares, as of the scheduled close of the Exchange each day on
which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in such calculation and, if events occur which materially affect
the value of these foreign securities, they will be valued at fair value as
determined by the management and approved in good faith by the Board of
Directors.]
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be purchased at the
net asset value determined on the business day following the dividend record
date (sometimes known as "ex-dividend date"). The processing date for the
reinvestment of dividends may vary from month to month, and does not affect the
amount or value of the shares acquired.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semiannual reports to its shareholders regarding the
Fund's performance and its portfolio holdings. Shareholders who would like to
receive an interim quarterly report may phone Fund Information at 1-800/DIAL
BEN.
SPECIAL SERVICES
The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping, for institutional investors of
the Fund. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions which maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such beneficial owners. For each beneficial
owner in the omnibus account, the Fund may reimburse Investor Services an amount
not to exceed the per account fee which the Fund normally pays Investor
Services. Such financial institutions may also charge a fee for their services
directly to their clients.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The directors reserve the right not to maintain the
qualification of the Fund as a regulated investment company if they determine
such course of action to be beneficial to the shareholders. In such case, the
Fund will be subject to federal and possibly state corporate taxes on its
taxable income and gains, and distributions to shareholders will be taxable to
the extent of the Fund's available earnings and profits.
Subject to the limitations discussed below, a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in which
is not debt-financed by the Fund and is held for at least a minimum holding
period) is less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be designated as
eligible for such deduction will not exceed the aggregate qualifying dividends
received by the Fund for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be provided by
the Fund annually in a notice to shareholders mailed shortly after the end of
the Fund's fiscal year.
Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by the
Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the federal alternative
minimum tax is computed and may also result in a reduction in the shareholder's
tax basis in its Fund shares, under certain circumstances, if the shares have
been held for less than two years. Corporate shareholders whose investment in
the Fund is "debt financed" for these tax purposes should consult with their tax
advisors concerning the availability of the dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the 12-month period ending October 31 of each year (in
addition to amounts from the prior year that were neither distributed nor taxed
to the Fund) to shareholders by December 31 of each year in order to avoid the
imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared. The Fund
intends, as a matter of policy, to declare such dividends, if any, in December
and to pay these dividends in December or January to avoid the imposition of
this tax, but does not guarantee that its distributions will be sufficient to
avoid any or all federal excise taxes.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the shareholder's basis
in the shares and the amount received, subject to the rules described below. If
such shares are a capital asset in the hands of the shareholder, gain or loss
will be capital gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one year.
All or a portion of the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of such shares sold or exchanged
within ninety (90) days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are reinvested in the
Fund or in another fund in the Franklin Templeton Group and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. Shareholders
should consult with their tax advisor concerning the tax rules applicable to the
redemption or exchange of Fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn its distributions to shareholders.
In order for the Fund to qualify as a regulated investment company, at least 90%
of the Fund's annual gross income must consist of dividends, interest and
certain other types of qualifying income, and no more than 30% of its annual
gross income may be derived from the sale or other disposition of securities or
certain other instruments held for less than three months. Foreign exchange
gains derived by the Fund with respect to the Fund's business of investing in
stock or securities, or options or forward contracts with respect to such stock
or securities, constitute qualifying income for purposes of this 90% limitation.
Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not
directly related to the Fund's principal business of investing in stock or
securities and related options or forward contracts. Under current law,
non-directly-related gains arising from foreign currency positions or
instruments held for less than three months are treated as derived from the
disposition of securities held less than three months in determining the Fund's
compliance with the 30% limitation. The Fund will limit its activities involving
foreign exchange gains to the extent necessary to comply with these
requirements.
The federal income tax treatment of interest rate swaps is unclear in certain
respects and may in some circumstances result in the realization of income not
qualifying under the 90% test described above or be deemed to be derived from
the disposition of securities held less than three months in determining the
Fund's compliance with the 30% limitation. The Fund will limit its interest rate
swaps to the extent necessary to comply with these requirements.
If the Fund owns shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax purposes and the
Fund does not elect to treat the foreign corporation as a "qualified electing
fund" within the meaning of the Code, the Fund may be subject to U.S. federal
income taxation on a portion of any "excess distribution" it receives from the
PFIC or any gain it derives from the disposition of such shares, even if such
income is distributed as a taxable dividend by the Fund to its U.S.
shareholders. The Fund may also be subject to additional interest charges in
respect of deferred taxes arising from such distributions or gains. Any federal
income tax paid by the Fund as a result of its ownership of shares in a PFIC
will not give rise to a deduction or credit to the Fund or to any shareholder. A
PFIC means any foreign corporation if, for the taxable year involved, either (i)
it derives at least 75 percent of its gross income from "passive income"
(including, but not limited to, interest, dividends, royalties, rents and
annuities), or (ii) on average, at least 50 percent of the value (or adjusted
basis, if elected) of the assets held by the corporation produce "passive
income."
On April 1, 1992, proposed U.S. Treasury regulations were issued regarding a
special mark-to-market election for regulated investment companies. Under these
regulations, the annual mark-to-market gain, if any, on shares of stock held by
the Fund in a PFIC would be treated as an excess distribution received by the
Fund in the current year, eliminating the deferral and the related interest
charge. Such excess distribution amounts are treated as ordinary income, which
the Fund will be required to distribute to shareholders even though the Fund has
not received any cash to satisfy this distribution requirement. These
regulations would be effective for taxable years ending after promulgation of
the proposed regulations as final regulations.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1996,
Distributors acts as principal underwriter in a continuous public offering for
both classes of the Fund's shares.
Distributors pays the expenses of distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The underwriting agreement will continue in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Fund's Board of Directors, or by a vote of the holders of a majority
of the Fund's outstanding voting securities, and in either event by a majority
vote of the Fund's directors who are not parties to the underwriting agreement
or interested persons of any such party (other than as directors of the Fund),
cast in person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated by
either party on 90 days' written notice.
Until April 30, 1994, income dividends for the Class I shares were reinvested at
the offering price (which includes the sales charge) and Distributors allowed
50% of the entire commission to the securities dealer of record, if any, on an
account. Starting with any income dividends paid after April 30, 1994, such
reinvestment is at net asset value.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended May 31, 1993, 1994 and 1995 were
$7,108,307, $7,958,366 and 5,036,874, respectively. After payments to dealers,
Distributors retained $1,021,018, $1,044,184 and $306,163 during the fiscal
years ended May 31, 1993, 1994 and 1995, respectively. Distributors may be
entitled to reimbursement or compensation under the Rule 12b-1 distribution plan
relating to both classes as discussed in "Plans of Distribution" below. Except
as noted, Distributors received no other compensation from the Fund with respect
to the Class I shares for acting as underwriter.
PLANS OF DISTRIBUTION
Each class of the Fund has adopted a Distribution Plan ("Class I Plan" and
"Class II Plan," respectively, or "Plans") pursuant to Rule 12b-1 under the 1940
Act.
THE CLASS I PLAN
Pursuant to the Class I Plan, the Fund may pay up to a maximum of 0.15%% per
annum (0.15 of 1%) of its average daily net assets for expenses incurred in the
promotion and distribution of its shares. In implementing the Class I Plan, the
Board of Directors determined that the annual fees payable thereunder will be
equal to the sum of: (i) the amount obtained by multiplying 0.15% by the average
daily net assets represented by Class I shares of the Fund that were acquired by
investors on or after May 1, 1994 ("New Assets"), and (ii) the amount obtained
by multiplying 0.05% by the average daily net assets represented by Class I
shares of the Fund that were acquired before May 1, 1994 ("Old Assets"). Such
fees will be paid to the current securities dealer of record on the
shareholder's account. In addition, until such time as the maximum payment of
0.15% is reached on a yearly basis, up to an additional 0.02% will be paid to
Distributors under the Plan. The payments to be made to Distributors will be
used by Distributors to defray other marketing expenses that have been incurred
in accordance with the Plan, such as advertising.
The fee relating to the Class I Plan is an expense of Class I as a whole, so
that all Class I shareholders, regardless of when they purchased their shares,
will bear Rule 12b-1 expenses at the same rate. That rate initially will be at
least 0.07% (0.05% plus 0.02%) of Class I's average daily net assets and, as
Class I shares are sold on or after May 1, 1994 (the "Effective Date"), will
increase over time. Thus, as the proportion of Class I shares purchased on or
after May 1, 1994 increases in relation to outstanding Class I shares, the
expenses attributable to payments under the Plan will also increase (but will
not exceed 0.15% of average daily net assets). While this is the currently
anticipated calculation for fees payable under the Class I Plan, the Class I
Plan permits the Fund's directors to allow the Fund to pay a full 0.15% on all
assets at any time. The approval of the Fund's Board of Directors would be
required to change the calculation of the payments to be made under the Class I
Plan.
Pursuant to the Class I Plan, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum as stated above) for actual expenses
incurred in the distribution and promotion of Class I shares, including, but not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Class I shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.
The Class I Plan does not permit unreimbursed expenses incurred in a particular
year to be carried over to or reimbursed in subsequent years.
THE CLASS II PLAN
Under the Class II Plan, the Fund pays to Distributors annual distribution fees,
payable quarterly, of 0.50% of Class II's average daily net assets. Such fees
may be used in order to compensate Distributors or others for providing
distribution and related services and bearing certain expenses of the Class. All
expenses of distribution and marketing over that amount will be borne by
Distributors, or others who have incurred them, without reimbursement by the
Fund. In addition to this amount, under the Class II Plan, the Fund shall pay
0.15% per annum, payable quarterly, of the Class' average daily net assets as a
servicing fee. This fee will be used to pay dealers or others for, among other
things, assisting in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from the Fund on behalf of the
customers, and similar activities related to furnishing personal services and
maintaining shareholder accounts. Distributors may pay the securities dealer,
from its own resources, a commission of up to 1% of the amount invested at the
time of investment.
IN GENERAL
In addition to the payments to which Distributors or others are entitled under
the Plans, the Plans also provide that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of each class of shares of
the Fund within the context of Rule 12b-1 under the 1940 Act, then such payments
shall be deemed to have been made pursuant to the Plans.
In no event shall the aggregate asset-based sales charges which include payments
made under a Plan, plus any other payments deemed to be made pursuant to a Plan,
exceed the amount permitted to be paid pursuant to the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article III, Section
26(d)4. The terms and provisions of the Plans relating to required reports,
term, and approval are consistent with Rule 12b-1. The Plans do not permit
unreimbursed expenses incurred in a particular year to be carried over or
reimbursed in subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not be
entitled to participate in the Plans to the extent that applicable federal law
prohibits certain banks from engaging in the distribution of mutual fund shares.
Such banking institutions, however, are permitted to receive fees under the
Plans for administrative servicing or for agency transactions. If a bank were
prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of the Fund, and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Fund may be required to register as
dealers pursuant to state law.
The Class I Plan was approved by shareholders on April 22, 1994, and the Class
II Plan was approved by the sole initial shareholder prior to May 15, 1995, the
date as of which the Class II Plan became effective. Both the Class I and Class
II Plans were approved by the directors of the Fund, including those directors
who are not interested persons, as defined in the 1940 Act. The Class I Plan and
the Class II Plan are effective through April 30, 1996, and are renewable
annually by a vote of the Fund's Board of Directors, including a majority vote
of the directors who are non-interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such directors be done by the non-interested
directors. The Plans and any related agreement may be terminated at any time,
without any penalty, by vote of a majority of the non-interested directors on
not more than 60 days' written notice, by Distributors on not more than 60 days'
written notice, by any act that constitutes an assignment of the management
agreement with the Manager or by vote of a majority of the Fund's outstanding
shares. Distributors or any dealer or other firm may also terminate their
respective distribution or service agreement at any time upon written notice.
With respect to a Plan, the Plan and any related agreements may not be amended
to increase materially the amount to be spent for distribution expenses without
approval by a majority of such class of the Fund's outstanding shares, and all
material amendments to the Plan or any related agreements shall be approved by a
vote of the non-interested directors, cast in person at a meeting called for the
purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Directors at least
quarterly on the amounts and purpose of any payment made under the Plans and any
related agreements, as well as to furnish the Board of Directors with such other
information as may reasonably be requested in order to enable the Board of
Directors to make an informed determination of whether the Plans should be
continued.
For the fiscal year ended May 31, 1995, the total amounts paid by the Fund
pursuant to the Plans for Class I and Class II shares were $1,293,780 and $97,
respectively, which were used for the following purposes.
DOLLAR AMOUNT
Advertising $165,676
Printing and mailing of prospectuses to other than current $119,509
shareholders.
Payments to underwriters $ 46,633
Payments to brokers or dealers $962,059
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, each class may from time to time quote various
performance figures to illustrate its past performance. Each Class also may
occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
class be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by a class are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the classes to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum front-end sales charge is deducted from the
initial $1,000 purchase order, and income dividends and capital gains are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year period and the deduction of
all applicable charges and fees. If a change is made in the sales charge
structure, historical performance information will be restated to reflect the
maximum front-end sales charge in effect currently.
The average annual compounded rates of return for the Class I shares of the Fund
for the one-, five- and ten-year periods ended on the date of the financial
statements included herein were 8.52%, 13.31% and 9.43%, respectively.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the
one-, five- or ten-year periods (or fractional portion thereof)
As discussed in the Prospectus, each class may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as a class' average annual compounded rate, except that such
quotations will be based on such class' actual return for a specified period
rather than on its average return over one-, five- and ten-year periods. The
total rates of return for the Class I shares of the Fund for the one-, five- and
ten-year periods ended on the date of the financial statements included herein
were 8.52%, 86.75% and 146.26%, respectively.
In considering the quotations of total return by the Class I shares, investors
should remember that the 4.25% 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 an investor's investment in the
Fund. The actual performance of an investment will be affected less by this
charge the longer an investor retains the investment in the Fund.
YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments.
Current yield for each class is determined by dividing the net investment income
per share earned by a class during a 30-day base period by the maximum offering
price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders of
a class during the base period. The yield for the Class I shares for the 30-day
period ended on the date of the financial statements included herein was 9.26%.
This figure was obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
CURRENT DISTRIBUTION RATE
Yield, which is calculated according to a formula prescribed by the SEC, is not
indicative of the amounts which were or will be paid to a class' shareholders.
Amounts paid to shareholders are reflected in the quoted "current distribution
rate." The current distribution rate is computed by dividing the total amount of
dividends per share paid by a class during the past 12 months by a current
maximum offering price. Under certain circumstances, such as when there has been
a change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gains, and is calculated over a different period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market as represented by the
Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates volatility
greater than the market, and a beta of less than 1.00 indicates volatility less
than the market. Another measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net asset value or total
return around an average over a specified period of time. The premise is that
greater volatility connotes greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted to purchase
Class I shares at net asset value, sales literature pertaining to such class may
quote a current distribution rate, yield, total return, average annual total
return and other measures of performance as described elsewhere in this SAI with
the substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds and classes belonging
to the Templeton Group of Funds. Resources is the parent company of the advisers
and underwriter of both the Franklin Group of Funds and Templeton Group of
Funds.
COMPARISONS
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various measures of Fund and class performance as reported by
various financial publications. Materials may also compare performance (as
calculated above) to performance as reported by other investments, indices, and
averages. Such comparisons may include, but are not limited to, the following
examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal and Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill, Lynch,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and five financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
n) Salomon Brothers Combined Corporate Index - an unmanaged composite of the
Salomon High Yield Market Index and the corporate component of the Salomon Broad
Investment Grade Index. The index includes corporate issues rated AAA to CCC.
Comparisons of performance assume reinvestment of dividends.
o) CS First Boston High Yield Index - an unmanaged index constructed to mirror
the public high yield debt market. The index represents a total of 250 sectors
and contains issues rated BBB and below. Comparisons of performance assume
reinvestment of dividends.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's or class' performance
to the return on certificates of deposit or other investments. Investors should
be aware, however, that an investment in the Fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment in
a certificate of deposit issued by a bank. For example, as the general level of
interest rates rise, the value of the Fund's fixed-income investments, as well
as the value of its shares which are based upon the value of such portfolio
investments, can be expected to decrease. Conversely, when interest rates
decrease, the value of the Fund's shares can be expected to increase.
Certificates of deposit are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Fund's portfolio, that the indices and averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home, college
cost and/or other long-term goals. The Franklin College Costs Planner may assist
an investor in determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund a child's
college education. (Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin Retirement Planning Guide
leads an investor through the steps to start a retirement savings program. Of
course, an investment in the Fund cannot guarantee that such goals will be met.
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group, one of the largest mutual
fund organizations in the United States and may be considered in a program for
diversification of assets.
Founded in 1947, Franklin, one of the oldest mutual fund organizations, has
managed mutual funds for over 47 years and now services more than 2.4 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined forces
with Templeton Worldwide, Inc., a pioneer in international investing. Together,
the Franklin Templeton Group has over $125 billion in assets under management
for more than 3.8 million shareholder accounts and offers 115 U.S.-based mutual
funds. The Fund may identify itself by its NASDAQ or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one in
service quality for five of the past seven years.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
Compliance Officer and within 10 days after the end of each calendar quarter, a
report of all securities transactions must be provided to the Compliance
Officer; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance Officer (or
other designated personnel) if they own a security that is being considered for
a fund or other client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale by a fund or other
client.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, the Fund has the right (but has no obligation)
to: (a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account, prior
to executing instructions regarding the account; (b) interplead disputed funds
or accounts with a court of competent jurisdiction; or (c) surrender ownership
of all or a portion of the account to the Internal Revenue Service in response
to a Notice of Levy.
FINANCIAL STATEMENTS
The financial statement contained in the Annual Report to Shareholders of the
Fund dated May 31, 1995, are incorporated herein by reference.
AGE High Income Fund, Inc.
File Nos. 2-30203
811-1608
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements filed in Part B
(1) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated May 31, 1995 as
filed with the SEC electronically on Form Type N-30D on July 27,
1995
(i) Report of Independent Auditors - June 30, 1995
(ii) Statement of Investments in Securities and Net Assets - May
31, 1995.
(iii)Statement of Assets and Liabilities - May 31, 1995.
(iv) Statement of Operations - for the year ended May 31, 1995.
(v) Statements of Changes in Net Assets - for the years ended
May 31, 1995 and 1994.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are attached herewith, except Exhibits 6(ii),
8(ii), 8(iii), 14(i), 14(ii), 14(iii), 14(iv), 14(v) and 16(i), which
are incorporated by reference as noted.
(1) copies of the charter as now in effect;
(i) Restated Articles of Incorporation dated February 28, 1969
(ii) Articles of Amendment of Articles of Incorporation dated November
28, 1980
(iii)Articles of Amendment of Articles of Incorporation dated June 27,
1986
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws as amended on March 1, 1969, and July 30, 1970
(ii) Amendment to By-Laws dated November 15, 1973
(iii)Amendment to By-Laws dated September 26, 1989
(iv) Amendment to By-Laws dated October 23, 1992
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not applicable
(4) specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the rights
of the holders of such securities, and copies of each security being
registered;
Not applicable
(5) copies of all investment advisory contracts relating to the management
of the assets of the Registrant;
(i) Management Agreement between Registrant and Franklin Advisers,
Inc. dated October 1, 1986
(6) copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;
(i) Amended and Restated Distribution Agreement between Registrant
and Franklin/Templeton Distributors, Inc. dated May 16, 1995
(ii) Form of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and dealers Registrant: Franklin Federal
Tax-Free Income Fund Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A File No. 2-75925 Filing Date:
March 27, 1995
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as such; any
such plan that is not set forth in a formal document, furnish a
reasonably detailed description thereof;
Not applicable
(8) copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and similar
investments of the Registrant, including the schedule of remuneration;
(i) Custodian Agreement between Registrant and Bank of America NT &
SA dated September 17, 1991.
(ii) Copy of Custodian Agreements between Registrant and Citibank
Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposits and Disbursements of
Funds
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iii)Amendment to Custodian Agreement between Registrant and Bank of
America
NT & SA dated December 1, 1994
Registrant: Franklin Premier Return Fund
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(9) copies of all other material contracts not made in the ordinary course
of business which are to be performed in whole or in part at or after
the date of filing the Registration Statement;
Not applicable
(10) an opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally
issued, fully paid and nonassessable;
(i) Opinion and Consent of Counsel dated July 25, 1995
(11) copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this registration
statement and required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors dated July 26, 1995
(12) all financial statements omitted from Item 23;
Not applicable
(13) copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;
Not applicable
(14) copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
(i) Franklin IRA Form
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(ii) Franklin 403(b) Retirement Plan
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(iii)Franklin Trust Company Insured CD IRA
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(iv) Franklin Business Retirement Plans
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(v) Franklin SEP-IRA (5305-SEP and 5305A-SEP)
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1
under the 1940 Act, which describes all material aspects of the
financing of distribution of Registrant's shares, and any agreements
with any person relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 effective May 1, 1994
(ii) Class II Distribution Plan pursuant to Rule 12b-1 dated March 30,
1995
(16) schedule for computation of each performance quotation provided in the
registration statement in response to Item 22 (which need not be
audited)
(i) Schedule for computation of performance
quotation
Registrant: Franklin Tax-Advantaged U.S.
Government Securities Fund
Filing: Post Effective Amendment No. 8 to
Registration Statement of Registrant on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995
(17) Power of Attorney
(i) Power of Attorney dated January 17, 1995
(ii) Certificate of Secretary dated January 17, 1995
(18) Copies of any plan entered into by registrant pursuant to Rule 18f-3
under the 1940 Act
(i) Form of Multiple Class Plan
(27) Financial Data Schedule Computation
(i) Financial Data Schedule for Class I shares
(ii) Financial Data Schedule for Class II Shares
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of May 31, 1995, the number of record holders of the only class of securities
of the Registrant was as follows:
Number of Record Holders
Title of Class Class I Class II
Capital Stock 105,435 35
Item 27 Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with 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.
Item 28 Business and Other Connections of Investment Adviser
The officers and directors of the Registrant's investment advisor also serve as
officers and/or directors for (1) the advisor's corporate parent, Franklin
Resources, Inc., and/or (2) other investment companies in the Franklin Group of
Funds. In addition, Mr. Charles B. Johnson is a director of General Host
Corporation. For additional information please see Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of Franklin Gold Fund, Franklin Premier Return
Fund, Franklin Equity Fund, Franklin Custodian Funds, Inc., Franklin Money Fund,
Franklin Templeton Money Fund, Franklin California Tax-Free Income Fund, Inc.,
Franklin Federal Money Fund, Franklin Tax-Exempt Money Fund, Franklin New York
Tax-Free Income Fund, Inc., Franklin Federal Tax-Free Income Fund, Franklin
Tax-Free Trust, Franklin California Tax-Free Trust, Franklin New York Tax-Free
Trust, Franklin Investors Securities Trust, Institutional Fiduciary Trust,
Franklin Balance Sheet Investment Fund, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government Securities Fund, Franklin
Tax-Advantaged High Yield Securities Fund, Franklin Municipal Securities Trust,
Franklin Managed Trust, Franklin Strategic Series, Franklin International Trust,
Franklin Real Estate Securities Trust, Franklin/Templeton Global Trust, Franklin
Templeton Japan Fund, Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Developing Markets Trust, Templeton Funds,
Inc., Templeton Global Investment Trust, Templeton Global Opportunities Trust,
Templeton Growth Fund, Inc., Templeton Income Trust, Templeton Institutional
Funds, Inc., Templeton Real Estate Securities Fund, Templeton Smaller Companies
Growth Fund, Inc., Templeton Variable Products Series Fund
(b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this N-1A and
Schedule A of Form BD filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File No. 8-5889).
(c) Not Applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.
Item 30 Location of Accounts and Records
The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA. 94404.
Item 31 Management Services
There are no management-related service contracts not discussed in Part A or
Part B.
Item 32 Undertakings
a) The Registrant hereby undertakes to comply with the information requirement
in Item 5A of the Form N-1A including the required information in the Fund's
annual report and to furnish each person to whom a prospectus is delivered a
copy of the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this 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 July 1995.
AGE HIGH INCOME FUND, INC.
(Registrant)
By: Rupert H. Johnson, Jr.*
Rupert H. Johnson, Jr., 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:
Rupert H. Johnson, Jr.* Director and Principal
(Rupert H. Johnson) Executive Officer
Dated: July 27, 1995
Martin L. Flanagan* Principal Financial Officer
(Martin L. Flanagan) Dated: July 27, 1995
Diomedes Loo-Tam* Principal Accounting Officer
(Diomedes Loo-Tam) Dated: July 27, 1995
Frank H. Abbott III* Director
(Frank H. Abbott III) Dated: July 27, 1995
Harmon E. Burns* Director
(Harmon E. Burns) Dated: July 27, 1995
Robert F. Carlson* Director
(Robert F. Carlson) Dated: July 27, 1995
S. Joseph Fortunato* Director
(S. Joseph Fortunato) Dated: July 27, 1995
Roy V. Fox* Director
(Roy V. Fox) Dated: July 27, 1995
R. Martin Wiskemann* Director
(R. Martin Wiskemann) Dated: July 27, 1995
*By:/s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
AGE HIGH INCOME FUND, INC.
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Restated Articles of Attached
Incorporation dated
February 28, 1969
EX-99.B1(ii) Articles of Amendment of Attached
Articles of Incorporation
dated November 28, 1980
EX-99.B1(iii) Articles of Amendment of Attached
Articles of Incorporation
dated June 27, 1986
EX-99.B2(i) By Laws as amended on March Attached
1, 1969, and July 30, 1970
EX-99.B2(ii) Amendments to By-Laws dated Attached
November 15, 1973
EX-99.B2(iii) Amendment to By-Laws dated Attached
September 26, 1989
EX-99.B2(iv) Amendment to By-Laws dated Attached
October 23, 1992
EX-99.B5(i) Management Agreement Attached
between Registrant and
Franklin Advisers, Inc.
dated October 1, 1986
EX-99.B6(i) Amended and Attached
Restated Distribution
Agreement between
Registrant and
Franklin/Templeton
Distributors, Inc. dated
May 16, 1995
EX-99.B6(ii) Form of Dealer Agreements *
between Franklin/Templeton
Distributors, Inc. and
dealers
EX-99.B8(i) Custodian Agreement between Attached
Registrant and Bank of
America NT & SA dated
September 17, 1991
EX-99.B8(ii) Copy of Custodian *
Agreements between
Registrant and Citibank
Delaware
EX-99.B8(iii) Amendment to Custodian *
Agreement between
Registrant and Bank of
America NT & SA dated
December 1, 1994
EX-99.B10(i) Opinion and Consent Attached
of Counsel dated
July 25, 1995
EX-99.B11(i) Consent of Independent Attached
Auditors dated July
26, 1995
EX-99.B14(i) Franklin Ira Form *
Ex-99.B14(ii) Franklin 403(b) Retirement *
Plan
EX-99.B14(iii) Franklin Trust Company *
Insured CD IRA
EX-99.B14(iv) Franklin Business *
Retirement Plans
EX-99.B14(v) Franklin SEP-IRA (5305-SEP *
and 5305A-SEP)
EX-99.B15(i) Distribution Plan Attached
pursuant to Rule 12b-1
effective May 1, 1994
EX-99.B15(ii) Class II Attached
Distribution Plan pursuant
to Rule 12b-1 dated
March 30, 1995
EX-99.B16(i) Schedule for computation *
of performance quotation
EX-99.B17(i) Power of Attorney dated Attached
January 17, 1995
EX-99.B17(ii) Certificate of Secretary Attached
dated January 17, 1995
EX-99.B18(i) Form of Multiple Class Plan Attached
EX-27.B(i) Financial Data Schedule Attached
for Class I shares
EX-27.B(ii) Financial Data Schedule Attached
for Class II shares
RESTATED ARTICLES OF INCORPORATION
OF
AGE FUND, INC.
Know All Men by These Presents, That I, SAMUEL G.
HANSON, President of AGE FUND, INC. a corporation duly organized
and existing under and by virtue of the laws of the State of
Colorado, do hereby make this Restatement of the Articles of
Incorporation in accordance with the laws of the State of
Colorado, and state, to wit:
FIRST. That at a meeting of the Board of Directors of
said corporation, duly and regularly called as provided by the
by-laws of said corporation and in accordance with the statutes
of the State of Colorado, and held at 315 Montgomery Street, San
Francisco, California, on the 28th day of February A. D. 1969, a
resolution was presented and regularly adopted by an affirmative
vote of a majority of the Board of Directors, in accordance with
the statutes of the State of Colorado so made and provided,
which approved the restatement of the Articles of Incorporation
as follows:
ARTICLE I
The name of the corporation shall be:
AGE FUND, INC.
ARTICLE II
The registered office of this Corporation shall be 1700
Broadway, Denver, Colorado 80202 and the initial registered
agent of this Corporation at such address shall be The
Corporation Company.
ARTICLE III
The nature of the business and the objects and
purposes proposed to be transacted, promoted and carried on are:
To engage generally in the business of an incorporated
investment company of the management type, investing and
reinvesting as more specifically set forth herein, subject to
the provisions of this Certificate of Incorporation,
particularly the limitations of Article ELEVENTH hereof, and the
By-Laws of the Corporation, its assets in all forms of
securities and other personal property, of every kind and
description; to consolidate or merge with, to acquire and take
over the assets of, and to assume the liabilities of, any other
corporation or trust with similar powers; to make contracts;
and, generally to do any or all acts and things necessary or
desirable in furtherance of any of the corporate purposes or
designed to protect, preserve, or enhance the value of the
corporate assets, or to the extent permitted to business
corporations authorized under the State of Colorado as now or
may in the future be enforced; and to do any or all of the
things in furtherance of the above purposes as natural persons
might do.
To invest and reinvest its capital and any surplus and
any reserves it may have, and to acquire by exchange, purchase,
subscription, contract or otherwise, and to receive, own, hold,
guarantee, se11, assign, exchange, transfer, mortgage, pledge,
hypothecate, or otherwise dispose of and generally deal in and
with all forms of securities and investments of every kind and
description, including, but not by way of limitation, shares,
stock (preferred, common and debenture) notes, bonds,
debentures, script, warrants, participation certificates,
mortgages, commercial papers, choses in action, evidences of
indebtedness and other obligations of every kind and
disposition; (a) of any private, public, quasi-public,
municipal, corporation, syndicate, association, common law
trust, firm or individual existing or carrying on business in
the United States or elsewhere throughout the world; (b) of any
government, United States or foreign, or subdivision thereof,
whether state, county, municipality or other political or
government division or subdivision;
And also, all trust, partnership or other certificates
of rights, evidencing interest in any such securities or
instruments, both within and without the State of Colorado; and
while the owners of any such securities or investments to
exercise all the rights, powers, privileges of ownership or
interest in respect to the same, including the right to vote, to
subscribe for additional stock, and to purchase or exercise
"rights" in connection therewith; to do any or all acts and
things for the preservation, protection, improvement,
management, and enhancement in value thereof, or designated to
accomplish any such purpose, all to such extent as permitted
under the laws of the State of Colorado, and not otherwise;
To conduct researches, investigations, and analyses of
enterprises of every kind and description in the United States
and elsewhere throughout the world.
To acquire or become interested in any such securities
or evidences of interest therein as aforesaid by original
subscription, or otherwise, and to make payment thereon as
called for, and to subscribe for the same conditionally or
otherwise.
Subject to the limitations of Article ELEVENTH of the
Certificate of Incorporation, the By-Laws of the Corporation and
other governing laws and regulations, to acquire, and pay for in
cash, stock or evidences of indebtedness of this Corporation or
otherwise, the assets and property, and to undertake or assume
the whole or any part of the obligations or liabilities of any
person, firm, association or corporation which is in the nature
of a private investment portfolio or company or personal holding
company.
To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage or otherwise dispose of letters
patent of the United States or any foreign country, patent
rights, licenses and privileges, inventions, improvements and
processes, copyrights, trademarks and trade names, relating to
or useful in connection with the business of this Corporation as
an investment company.
To enter into, make and perform contracts of every
kind and description with any person, firm, association,
corporation, municipality, county, state, body politic or
government or colony or dependency thereof relating to or useful
in connection with the business of this Corporation as an
investment company.
Subject to the limitations of Article ELEVENTH of this
Certificate of Incorporation, the By-Laws of the Corporation and
other governing laws and regulations, to borrow or raise moneys
for any of the purposes of the Corporation and, from time to
time without limit as to amount, to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-
negotiable instruments and evidences of indebtedness, and to
secure the payment of any thereof and of the interest thereon by
pledge, conveyance or assignment in trust of the whole or any
part of the property of the Corporation whether at the time
owned or thereafter acquired, and to sell, pledge, or otherwise
dispose of such bonds or other obligations of the Corporation
for its corporate purposes.
To purchase, hold, sell and transfer the shares of its
own capital stock; provided it shall not use its funds or
property for the purchase of its own shares of capital stock
when such use would cause any impairment of its capital except
as otherwise permitted by law, and provided further that shares
of its own capital stock beonging to it shall not be voted upon
directly or indirectly.
To have one or more offices, to carry on all or any of
its operations and business and without restriction or limit as
to amount but subject to the restrictions above set forth and to
the limitations of Article ELEVENTH of this Certificate of
Incorporation and the By-Laws of the Corporation, to purchase or
otherwise acquire, hold, own, mortgage, sell, convey or
otherwise dispose of personal property of every class and
description but subject to the restrictions above set forth and
to the limitations of Article ELEVENTH of this Certificate of
Incorporation and the By-Laws of the Corporation, in any of the
states, districts, territories or colonies of the United States,
and in any and all foreign countries subject to the laws of such
state, district, territory, colony or country.
In general, to carry on any other activities in
connection with the foregoing, and to have and exercise all the
powers conferred by the laws of Colorado upon corporations
formed under the General Corporation Law of the State of
Colorado, and to do any or all of the things hereinbefore set
forth to the same extent as natural persons might or could do;
provided, however, that this shall not permit the Corporation to
conduct any business other than that of an investment company.
Subject to the restrictions contained in Article
ELEVENTH and the By-Laws of the Corporation, the objects and
purposes specified in the foregoing clauses shall, except where
otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clauses
in this Certificate of Incorporation, but the objects and
purposes specified in each of the foregoing clauses of this
Article shall be regarded as independent objects and purposes.
ARTICLE IV
The amount of the total authorized capital stock of
this corporation is two million dollars ($2,000,000), divided
into two hundred million (200,000,000) shares of the par value
of one cent ($.01) each, all of one class. Such stock may be
issued as full or fractional shares, and each fractional share
shall have the same rights with respect to dividends,
liquidation, voting or otherwise as a full share, but in the
proportion that such fractional share bears to a full share.
ARTICLE V
The members of the governing Board of this corporation
shall be styled directors and the number of directors may be
increased or decreased in accordance with the By-Laws, provided
that the number shall not be reduced to less than three. The
names and post office addresses of the first Board of Directors,
consisting of five members, who shall act until the first annual
meeting or until their successors shall have been elected and
qualified, are as follows:
1. Samuel G. Hanson
Assembly of Government Employees
1108 "O" Street
Sacramento, California 95814
2. Thomas C. Enright
1515 State Street
Salem, Oregon
3. Henry L. Jamieson
315 Montgomery Street
San Francisco, California 94104
4. George E. Jones, Jr.
Mitchum, Jones & Templeton, Inc.
510 S. Spring Street
Los Angeles, California 90013
5. H. Boyd Seymour, Jr.
315 Montgomery Street
San Francisco, California 94104
6. David H. Meid
315 Montgomery Street
San Francisco, California 94104
7. Harry C. Reese
1390 Logan Street
Denver, Colorado 80203
ARTICLE VI
In furtherance and not in limitation of the powers
conferred by the laws of the State of Colorado, the Board of
Directors is expressly authorized:
If there be a vacancy on the Board of Directors by
reason of death, resignation or otherwise, to fill such vacancy
for the unexpired term by majority vote of the remaining
directors; provided that after filling any such vacancy, at
least two-thirds of the directors shall have been elected by the
stockholders, and provided further that if at any time less than
a majority of the directors then holding office were elected by
the stockholders, a stockholders' meeting shall be called for
the purpose of electing directors to fill existing vacancies.
From time to time to determine whether and to what
extent and at what times and places and under what conditions
and regulations the books and accounts of this Corporation, or
any of them other than the stock ledger, shall be open to the
inspection of the stockholders. No stockholder shall have any
right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by
resolution of the directors or of the stockholders.
This Corporation may in its By-Laws confer powers
additional to the foregoing upon the directors, in addition to
the powers and authorities expressly conferred upon them by law.
ARTICLE VII
The names and post office addresses of each of the incorporators
are as follows:
Name Post Office Address
David G. Burlingame 950 Broadway
Denver, Colorado, 80201
John M. Butler 950 Broadway
Denver,Colorado, 80201
George W. Ratternman 950 Broadway
Denver, Colorado,80201
ARTICLE VIII
The period of existence of this corporation shall be
perpetual.
ARTICLE IX
Meetings of stockholders may be held outside the State
of Colorado if the By-Laws so provide. The books of the
Corporation may be kept (subject to any provision contained in
the statutes) outside the State of Colorado at such place or
places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation. Elections of
directors need not be by ballot unless the By-Laws of the
Corporation shall so provide.
ARTICLE X
The shares of the capital stock of the Corporation may
be issued to such persons and at such prices from time to time
as the Board of Directors may determine. Such issuance shall be
on a non-assessable basis and, unless it be pro rata to then
existing stockholders as stock or optional dividend, stock
split, or stock combination, shall be only in exchange for cash
or for such other property as the Board of Directors may deem
proper, which shall in no event be less than the market value as
herein defined in section (a) of this Article TENTH nor the par
value of such shares, whichever shall be greater. The value of
property received in exchange for the issuance of shares shall
be that resulting from an appraisal of such property by the
Board of Directors in such manner as shall be deemed by it to
reflect its fair value and when so determined in good faith
shall be conclusive. Any excess received by the Corporation upon
the issuance and sale of the shares of the capital stock of the
Corporation over the then par value thereof shall be carried on
the books of the Corporation as paid-in surplus.
(a) The market value of a share of the capital stock
of the Corporation shall be determined as soon as possible after
the close of the New York Stock Exchange, on each business day
on which the Exchange is open, such market price taking effect
as of such close and remaining in effect until the effective
time of the next succeeding determination of market value. The
market value of a share of the capital stock of the Corporation
shall be the net asset value thereof, and each of the aforesaid
determinations shall be made as set forth in Section (d) of this
Article TENTH. In addition, in its discretion, the Board of
Directors may make or cause to be made a more frequent
determination of the market value where it deems necessary or to
comply with any applicable provision of federal or state law,
which determination shall become effective at the time
established by the Board of Directors; the foregoing
determinations of market value shall at the discretion of the
Board of Directors, be based on a calculation as set forth in
Section (d) of Article TENTH on an adjustment of the market
value established immediately prior thereto, such adjustment to
be made in such manner as the Board of Directors shall deem
reasonable to reflect any material changes in the fair value of
securities and other assets held by the Corporation and any
other material changes in the assets or liabilities of the
Corporation and the number of its outstanding shares which shall
have taken place since the immediately preceding determination
of market value.
(b) So long as it has assets legally available to do
so and such right is not suspended under the provisions of the
Investment Company Act of 1940, the Corporation agrees to redeem
any shares of its capital stock tendered to it at the next
effective redemption price. In addition, the distributors of the
shares of the Corporation's stock (if any) may, but are not
required to, maintain a bid to repurchase the shares tendered at
the last previously effective or next calculated and effective
redemption price. The redemption price shall be determined as
hereinafter defined in Section (c) of this Article TENTH.
Payment for such shares shall be made within seven days after
the date upon which such shares are deposited. If the
determination of the redemption price is postponed beyond the
date on which it would normally occur by reason of a declaration
by the Board of Directors suspending determination of net asset
value pursuant to Section (e) of this Article TENTH, the right
of the stockholder to have his shares redeemed by the
corporation shall be similarly suspended and he may withdraw his
certificate or certificates from deposit if he so elects, or if
he does not so elect, the redemption price shall be the net
asset value determined as of the close of the New York Stock
Exchange, on the first business day after the suspension, upon
which such a determination is made. Payment for such shares may
at the option of the Board of Directors, or such officer or
officers as they may duly authorize for the purpose, in their
complete discretion be made in cash, or in kind, or partially in
cash and partially in kind. In case of payment in kind the Board
of Directors, or their delegate, shall have absolute discretion
as to what security or securities shall be distributed in kind
and the amount of the same, and the securities shall be valued
for purposes of distribution at the figure at which they were
appraised in computing the net asset value of the Fund's shares,
provided that any stockholder who cannot legally acquire
securities so distributed in kind by reason of the prohibitions
of the Investment Company Act of 1940 shall receive cash. Shares
so redeemed by the Corporation shall become authorized but
unissued shares and may be resold by the Corporation.
(c) The redemption price of a share of the capital
stock of the Corporation shall be determined and become
effective each time the market value of a share is determined
and becomes effective under the provisions of Section (a) of
this Article TENTH. Such redemption price shall be the net asset
value thereof, determined as set forth in Section (d) of this
Article TENTH.
(d) The net asset value of a share of the capital
stock of the Corporation shall be the quotient resulting from
dividing the net assets of the Corporation as of the valuation
time by the number of the then outstanding shares. The net
assets of the Corporation shall be calculated in the following
manner:
(1) The gross assets shall be valued as follows:
(A) All securities shall be appraised at the most
recent quoted sales price. If there was no reported sale on the
day on which such valuation is made, the security shall be
valued in the manner provided by the Board of Directors at a
price not lower than the most recent quoted bid nor greater than
the most recent quoted asked price. If such quoted bid and asked
prices are not readily available, the securities shall be
appraised in such manner as the Board of Directors of the
Corporation deem will reflect their fair value.
(B) All other assets of the Corporation including
cash, prepaid and accrued items, dividends and other
receivables, shall be appraised in such manner as will reflect
their fair value.
(2) From the gross assets shall be deducted the
liabilities of the Corporation, including accrued items, and
other payables, and proper reserves, if any, as may be
determined by the Board of Directors.
(3) The resulting difference shall be the net assets
of the Corporation.
(e) The Board of Directors may declare a suspension of
the determination of net asset value for the whole or any part
of any period (i) during which the New York Stock Exchange is
closed other than customary week-end and holiday closings, (ii)
during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result
of which disposal by the Corporation of securities owned by it
is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of
its net assets, or (iv) during any other period when the
Securities and Exchange Commission (or any succeeding
governmental authority) may for the protection of security
holders of the Corporation by order permit suspension of the
right of redemption or postponement of the date of payment on
redemption; provided that applicable rules and regulations of
the Securities and Exchange Commission (or any succeeding
governmental authority) shall govern as to whether the
conditions prescribed in (ii), (iii) or (iv) exist. Such
suspension shall take effect at such time as the Board of
Directors shall specify but not later than the close of business
on the business day next following the declaration, and
thereafter there shall be no determination of asset value until
the Board of Directors shall declare the suspension at an end,
except that the suspension shall terminate in any event on the
first day on which said Stock Exchange shall have reopened or
the period specified in (ii) or (iii) shall have expired (as to
which in the absence of an official ruling by said Commission or
succeeding authority, the determination of the Board of
Directors shall be conclusive.
ARTICLE XI
The Corporation is further expressly empowered and
limited as follows:
(a) The Corporation may enter into a written contract
with any person, including any firm, corporation, trust or
association in which any officer, other employee, director or
stockholder of this Corporation may be interested, to act as
investment advisers and managers of this Corporation and to
provide such advice and management as the Board of Directors of
this Corporation may from time to time consider necessary for
the proper management of the investment portfolio of this
Corporation and also to provide such research and statistical
services, office space, and/or bookkeeping services for this
Corporation as the said Board of Directors may deem necessary
and desirable. The compensation payable by this Corporation
under such a contract shall be such as is deemed fair and
equitable to both parties by the said Board of Directors.
Any such contract shall in all respects be consistent
with and subject to the requirements of the investment Company
Act of 1940 as then in effect and regulations of the United
States Securities and Exchange Commission promulgated
thereunder, such contract shall specify that it may not be
amended, transferred, assigned, sold, hypothecated or pledged
without the affirmative vote or written consent of the holders
of a majority of the outstanding shares of the Corporation
entitled to vote; in the event of the cancellation or expiration
by its own terms of any such contract, no new such contract
shall become effective without the affirmative vote or written
consent of the holders of a majority of the outstanding shares
of the Corporation entitled to vote. The foregoing sentence
shall not, however, apply to the extent that by regulation,
rule, or order the Securities and Exchange Commission shall
exempt such contract from the provisions of the Investment
Company Act of 1940.
(b) The Corporation may appoint one or more
distributors or agents or both for the sale of the shares of the
Corporation, may allow such person or persons a commission on
the sale of such shares and may enter into such contract or
contracts with such person or persons as the Board of Directors
of this Corporation in its discretion may deem reasonable and
proper. Any such contract or contracts for the sale of the
shares of this Corporation may be made with any person even
though such person may be an officer, other employee, director
or stockholder of this Corporation or a corporation,
partnership, trust or association in which any such officer,
other employee, director or stockholder may be the investment
adviser and manager retained pursuant to the powers granted in
Section (a) of this Article ELEVENTH.
Such contract or contracts shall in all respects be
consistent with and subject to the requirements of the
Investment Company Act of 1940 as then in effect and regulations
of the United States Securities and Exchange Commission
promulgated thereunder and shall specify that any such person
shall offer shares of the Corporation for sale and shall
purchase shares from anyone else only as agent of the
Corporation.
(c) The Corporation may employ such custodian or
custodians for the safekeeping of the property of the
Corporation and of its shares, such dividend disbursing agent or
agents, and such transfer agent or agents and registrar or
registrars for its shares, and may make and perform such
contracts for the aforesaid purposes as in the opinion of the
Board of Directors of this Corporation may be reasonable,
necessary or proper for the conduct of the affairs of the
Corporation, and may pay the fees and disbursements of such
custodians, dividend disbursing agent, transfer agents, and
registrars out of the income and/or any other property of the
Corporation. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws of the Corporation,
the Board of Directors may cause any or all of the property of
the Corporation to be transferred or to be acquired and held in
the name of a custodian so appointed or in the name of any
nominee or nominees of this Corporation or nominee or nominees
of such custodian satisfactory to the said Board of Directors.
(d) The Corporation may, by resolution of its Board of
Directors adopted at a meeting thereof within thirty days before
or after the beginning of any fiscal year or within thirty days
before the annual meeting of stockholders appoint any reputable
certified public accountant or firm of certified public
accountants to act as the independent auditor of the books and
records of the Corporation for such fiscal year provided that
such resolution is adopted both by a majority vote of the
directors then in office and a majority vote of the directors
who are neither officers or employees of the Corporation nor
investment advisers nor officers, directors, principal owners or
otherwise affiliated with any investment adviser, selling or
distributing agent or principal broker of the Corporation. Such
auditor or firm shall not be financially interested directly or
indirectly in the Corporation as owner or otherwise and such
appointment shall be subject to ratification by a majority vote
of the stockholders of the Corporation at the next annual
meeting thereof.
(e) No officer, other employee or director of this
Corporation and no investment adviser and manager or distributor
or selling agent or any partner, officer, director, or trustee
of any such investment adviser and manager or distributor or
selling agent shall take "long" or "short" positions in
purchasing or selling shares of the Corporation except as
permitted by applicable law and regulations.
(g) Each director and officer (and his heirs,
executors, and administrators) may be indemnified by the
Corporation against reasonable costs and expenses incurred by
him in connection with any action, suit or proceeding to which
he may be made a party by reason of his being or having been a
director or officer of the Corporation, except in relation to
any actions, suits or proceedings, in which he has been adjudged
liable because of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office. In the absence of an adjudication which
expressly absolves the director or officer of liability to the
Corporation or its stockholders for willful misfeasance, bad
faith, gross negligence and reckless disregard of the duties
involved in the conduct of his office, or in the event of a
settlement, each director and officer (and his heirs, executors
and administrators) may be indemnified by the Corporation
against payments made, including reasonable costs and expenses,
provided that such indemnity shall be conditioned upon the prior
determination by a resolution of two-thirds of those members of
the Board of Directors of the Corporation who are not involved
in the action, suit or proceeding that the director of officer
has no liability by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office, and provided further that if a
majority of the members of the Board of Directors of the
Corporation are involved in action, suit or proceeding, such
determination shall have been made by a written opinion of
independent counsel. Amounts paid in settlement shall not exceed
costs, fees and expenses which would have been reasonably
incurred if the action, suit or proceeding had been litigated to
a conclusion. Such determination by the Board of Directors, or
by independent counsel, and the payments of amounts by the
Corporation on the basis thereof shall not prevent a stockholder
from challenging such indemnification by appropriate legal
proceedings on the grounds that the person indemnified was
liable to the Corporation or its security holders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
The foregoing rights and indemnification shall be exclusive of
any other rights against the Corporation to which the officers
and directors may be entitled according to law.
ARTICLE XII
No shareholder of the Corporation shall be entitled as
a matter of right to purchase or subscribe for any shares of the
capital stock of the Corporation which it may issue or sell,
whether out of the number of shares authorized by this
Certificate of Incorporation or out of any shares of the capital
stock of Corporation acquired by it after the issue thereof.
Each share of stock the Corporation is entitled to one vote.
Cumulative voting of shares of stock of the Corporation is not
authorized. Although share certificates will not to be issued
automatically to persons becoming shareholders, the Corporation
will issue a share certificate to any shareholder evidencing his
ownership of shares of the Corporation upon request of the
shareholder and upon payment of a fee by him not to exceed $1.00
per certificate to repay the costs of issue.
ARTICLE XIII
Except as otherwise provided in the By-Laws, the Board of
Directors shall have the power to make, amend and repeal the By-
Laws of the Corporation which may contain any provision not
inconsistent with the laws of Colorado or this Certificate of
Incorporation for the regulation and management of the affairs
of the Corporation.
ARTICLE XIV
The principal office of this Corporation shall be located at 315
Montgomery Street, San Francisco, California 94104.
SECOND. That the President of the said Corporation
was, at said Directors meeting, duly authorized and directed to
make, and file such Restated Articles of Incorporation, as
provided by law, setting forth without change the corresponding
provisions of the Articles of Incorporation as theretofore
amended.
THIRD. That the Restated Articles of Incorporation as
set forth herein, shall supersede the original Articles of
Incorporation and all amendments thereto.
IN WITNESS WHEREOF, I, the President of said
Corporation have hereunto set my hands this 28th day of
February A.D. 1969
/s/Samuel G. Hanson
By:Samuel G. Hanson, President
/s/William E. Courtley
By:William E. Courtley, Secretary
STATE OF CALIFORNIA :
: SS
COUNTY OF SAN FRANCISCO :
Before me, /s/Karen Elayne McLennis, a Notary Public in and for
the said County and State, personally appeared Samuel G. Hanson
who being first duly sworn upon his oath deposes and says: that
he is the President of AGE FUND, INC., a Colorado corporation;
that he has read the foregoing certificate of amendment by him
subscribed, and that the facts therein set forth are true to the
best of his knowledge and belief.
/s/Samuel G. Hanson
By:Samuel G. Hanson
SUBSCRIBED AND SWORN TO
BEFORE ME THIS FOURTH
DAY OF MARCH, A.D. 1969.
My commission expires Dec 3, 1972
/s/ Karen Elayne McLennis
By: Karen Elayne Mclennis
Notary Public
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
AGE FUND, INC.
RUPERT H. JOHNSON, JR. and HARMON E. BURNS certify that:
1. They are the vice president and secretary, respectively of
AGE FUND, INC., a Colorado corporation.
2. Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
The name of the corporation shall be:
AGE HIGH INCOME FUND, INC.
3. The foregoing Amendment of the Articles of Incorporation has
been duly approved by the corporation's board of directors.
4. The foregoing Amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on November 10, 1980.
The total number of shares of the only class of shares of the
corporation outstanding and entitled to vote was 1,783,974.959. Of
these shares, 1,199,390.186 were voted in favor of the amendment and
73,380.520 were voted against the Amendment.
/s/ RUPERT H. JOHNSON, Jr.
By: RUPERT H. JOHNSON, Jr.
/s/ Harmon E. Burns
By: Harmon E. Burns
The undersigned declare that the matters set forth in the
foregoing Certificate are true to the best of their information and
belief.
Executed at San Mateo, California on November 28, 1980.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
/s/ Harmon E. Burns
By: Harmon E. Burns
STATE OF California )
)ss
COUNTY OF San Mateo )
I Linda Irvine , a Notary Public in and for said County in State
aforesaid, do hereby certify that the undersigned, Rupert H. Johnson,
Jr. and Harmon E. Burns personally known to me to be Vice President
and Secretary, respectively of AGE High Income Fund Inc. and as the
persons who subscribed to the foregoing instrument appeared before me
this day and acknowledged that they signed said instrument for and on
behalf of said corporation.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, November 28, 1980
/s/ Harmon E. Burns
By: Harmon E. Burns, November 28, 1980
Given under my hand and notarial seal this 28 day of November A.D.
1980.
/s/ Linda Irvine
By: Linda Irvine
Notary Public
My commission expires 9/2/84
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
AGE HIGH INCOME FUND, INC.
R. MARTIN WISKEMANN and HARMON E. BURNS certify that:
1. They are the vice president and secretary, respectively of AGE
HIGH INCOME FUND, INC., a Colorado corporation.
2. Article IV of the Articles of Incorporation is hereby amended
to read in its entirety:
"The amount of the total authorized capital stock of this corporation is
fifty million dollars ($50,000,000) divided into five billion
(5,000,000,000) shares of the par value of one cent ($.01) each, all of
one class. Such stock may be issued as full or fractional shares and each
fractional share shall have the same rights with respect to dividends,
liquidation, voting or otherwise as a full share, but in the proportion
that such fractional share bears to a full share."
3. The foregoing Amendment of the Articles of Incorporation has
been duly approved by the corporation's board of directors.
4. The foregoing Amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation at a special meeting held
on June 27, 1986. The total number of shares of the only class of
shares of the corporation outstanding and entitled to vote was
154,946,128.835. Of these shares, 105,048,601.176 were voted in favor of
the Amendment and 2,920,678.147 were voted against the Amendment.
/s/ R. Martin Wiskemann
R. Martin Wiskemann
/s/ Harmon E. Burns
Harmon E. Burns
The undersigned declare that the matters set forth in the foregoing
Certificate are true to the best of their information and belief.
Executed at San Mateo, California on June 27, 1986.
/s/ R. Martin Wiskemann
R. Martin Wiskemann
/s/ Harmon E. Burns
Harmon E. Burns
STATE OF California )
)
COUNTY OF San Mateo )
I /s/Lenell Marie Thomas, a Notary Public in and for said County in State
aforesaid, do hereby certify that the undersigned, R. Martin Wiskemann
and Harmon E. Burns personally known to me to be Vice President and
Secretary, respectively of AGE High Income Fund, Inc. and as the persons
who subscribed to the foregoing instrument appeared before me this day
and acknowledged that they signed said instrument for and on behalf of
said corporation.
/s/ R. Martin Wiskemann
R. Martin Wiskemann
/s/ Harmon E. Burns
Harmon E. Burns
Given under my hand and notarial seal this 27 day of June A.D 1986.
/s/ Lenell Marie Thomas
Notary Public
My commission expires December 9, 1986
BY-LAWS
OF
AGE FUND, INC.
(As amended on March 1, 1969, and July 30, 1970)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Denver, State of Colorado.
Section 2. The Corporation may also have offices at such
other places both within and without the State of Colorado as the
Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the
election of directors shall be held in the City of San Francisco,
State of California, or at such place as may be fixed from time
to time by the Board of Directors. Meetings of stockholders for
any other purpose may be held at such time and place, within or
without the State of California, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. The Annual Meeting of Shareholders shall be held
on the third Thursday in November each year, if not a legal
holiday; and, if a legal holiday, then on the first day following
which is not a legal holiday, at 11 o'clock in the afternoon, or
at such time as the Board of Directors may deem.
Section 3. Written notice of the annual meeting shall be
given to each stockholder entitled to vote thereat at least ten
days before the date of the meeting, stating the time and place
thereof.
Section 4. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten days
before every meeting, a complete list of the stockholders
entitled to vote at the meeting, arrange in alphabetical order,
showing the address of and the number of shares registered in the
name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least
ten days prior to the election, either at a place within the
city, town or village where the election is to be held and which
place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the
list shall be produced and kept at the time and place of election
during the whole time thereof, and subject to the inspection of
any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by
the certificates of incorporation, may be called by the President
and shall be called by the President or Secretary at the request
in writing of a majority of the Board of Directors, or at the
request in writing of stockholders owning a majority in amount of
the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting of
stockholders, stating the time, place and object thereof, shall
be given to each stockholder entitled to vote thereat, at least
ten days before the date fixed for the meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purpose stated in the
notice.
Section 8. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a quorum at all
meetings of stockholders for the transaction of business except
as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time, to
time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 9. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one
upon which by express provision of the statutes or of the
Certificate of Incorporation, a different vote is required in
which case such express provision shall govern and control the
decision of such question.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for
each share of the capital stock having voting power held by such
stockholder; fractional shares, however, shall not be entitled to
vote. No proxy shall be voted on after three years from its
date, unless the proxy provides for a longer period, and, except
where a date has been fixed as a record date for the
determination of its stockholders entitled to vote, no share of
stock shall be voted on at any election for directors which has
been transferred on the books of the Corporation within twenty
days next preceding such election of directors.
Section 11. Whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken in connection with
any corporate action by any provisions of the statutes or of the
Certificate of Incorporation, the meeting and vote of
stockholders may be dispensed with, if all the stockholders who
would have been entitled to vote upon the action if such meeting
were held, shall consent in writing to such corporate actions
being taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute
the whole board shall be not less than five nor more than eleven.
The initial board of directors shall have seven members. The
directors shall be elected at the annual meeting of the
stockholders, except as provided in the Certificate of
Incorporation; and each director elected shall hold office until
his successor is elected and qualified, or until his death,
resignation or removal. Directors need not be stockholders.
Section 2. Any vacancy occurring in the Board of Directors
for any cause other than by reason of an increase in the number
of directors may be filled by a majority of the remaining members
of the Board of Directors, although such majority is less than a
quorum. Any vacancy occurring by reason of an increase in the
number of directors may be filled by action of a majority of the
entire Board of Directors. A director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is
elected and qualifies. Notwithstanding the foregoing, no
vacancies occurring in the Board of Directors may be filled by
vote of the remaining members of the Board if immediately after
filling any such vacancy less than two-thirds of the directors
then holding office shall have been elected to such office by the
holders of the outstanding voting securities of the Corporation
at any annual or special meeting. In the event that at any time
less than a majority of the directors of the Corporation holding
office at that time were so elected by the holders of the
outstanding voting securities, the Board of Directors of the
Corporation shall forthwith cause to be held as promptly as
possible, and in any event within 60 days, a meeting of such
holders for the purpose of electing directors to fill any
existing vacancies in the Board of Directors, unless such period
is extended by order of the Securities and Exchange Commission.
Section 3. The business of the Corporation shall be managed
by its Board of Directors which may exercise all such power of
the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these By-
Laws directed or required to be exercised or done by the
stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without
the State of Colorado.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed
by the vote of the stockholders at the annual meeting and no
notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of
the newly elected Board of Directors, or in the event such
meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 7. Special meetings of the Board may be called by
the Chairman of the Board or the President on one day's notice to
each director, either personally or by mail or by telegram;
special meetings shall be called by the Chairman of the Board,
President or Secretary in like manner and on like notice on the
written request of two directors.
Section 8. At all meetings of the Board, a majority of the
directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically
provided by statute or by the Certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the Certificate
of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if prior
to such action a written consent thereto is signed by all members
of the Board or of such committee as the case may be, and such
written consent is filed with the minutes of proceedings of the
Board or committee.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the
directors of the Corporation, which, to the extent provided in
the resolution, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs
of the Corporation and may authorize, the seal of the Corporation
to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of
Directors.
Section 11. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when
required.
COMPENSATION OF DIRECTORS
Section 12. The Directors may be paid their reasonable and
necessary expenses, if any, of attendance at each meeting of the
Board of Directors, or while engaged on business of the
Corporation, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as
Directors, as determined by the Board of Directors. No such
payment shall preclude any Directors from serving the Corporation
in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be
in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the
books of the Corporation. Notice by mail shall be deemed to be
given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Vice
President, a Secretary and a Treasurer. The Board of Directors
may choose one or more Assistant Secretaries and Assistant
Treasurers. Two or more offices may be held by the same person,
except that where the offices of President and Secretary are held
by the same person, such person shall not hold any other office.
No officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law,
the charter or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. The Board of Directors at its first meeting
after each annual meeting of stockholders shall choose a
President from among the directors, and shall choose one or more
Vice Presidents, a Secretary and a Treasurer, none of whom need
be a member of the Board.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by
the Board.
Section 4. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the
Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
THE PRESIDENT
Section 6. The President shall be the chief executive
officer of the Corporation, shall preside at all meetings of the
stockholders and the Board of Directors at which the Chairman of
the Board is not present, shall have general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect. If an Executive Vice President is designated by the
Board of Directors, the President shall have the power to
delegate to the Executive Vice President such of his powers and
duties as he deems should be so delegated in the interests of the
proper operation of the Corporation.
Section 7. He shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation,
except where required or permitted by law or be otherwise signed
and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
THE VICE PRESIDENT
Section 8. The Vice President shall be the principal
executive assistant to the President and, as such, shall
coordinate the activities of all other officers and employees of
the Corporation, shall oversee the general administration of the
Corporation, and shall perform such other duties and have such
other powers as shall be delegated by the Board of Directors and
the President. In addition, the Vice President shall, in the
absence or disability of the President, perform the duties and
exercise the powers of the President.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The Secretary shall attend all meetings of the
Board of Directors, and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and
of the Board of Directors in a book to be kept for that purpose
and shall perform like duties for the standing committees when
required. He shall give, or cause to be given notice of all
meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or President, under whose
supervision he shall be. He shall keep in safe custody the seal
of the Corporation and when authorized by the Board of Directors,
affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the
signature of an Assistant Secretary.
Section 10. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by
the Board of Directors, shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The Treasurer shall keep full and accurate
accounts of corporate assets and liabilities and of receipts and
disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be
designated by the Board of Directors.
Section 12. He shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the
President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation.
Section 13. If required by the Board of Directors, he shall
give the Corporation a bond (which shall be renewed every year)
in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement
or removal from office, of a11 books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the Corporation.
Section 14. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined
by the Board of Directors, shall, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of
the Corporation by the President, or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation, except that no
certificate shall be issued for fractional shares.
Section 2. Where a certificate is signed (1) by a transfer
agent or an assistant transfer agent or (2) by a transfer clerk
acting on behalf of the Corporation and a registrar, the
signature of any such President, Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary may be
facsimile. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any
such certificate or certificates shall cease to be such officer
or officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon had not ceased to
be such officer or officers of the Corporation.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation
alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of
stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate
or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or
destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession,
assignment, or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction
upon its books.
FIXING RECORD DATE
Section 5. The Board of Directors may fix in advance a
date, not exceeding fifty nor less than ten days preceding the
date of any meeting of stockholders, or the date for payment of
any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock
shall go into effect, or a date in connection with obtaining such
consent as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such
meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights,
or to exercise the rights in respect of any change, conversion or
exchange of capital stock, or to give such consent, and in such
case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, or to give
such consent, as the case may be notwithstanding any transfer of
any stock on the books of the Corporation after any such record
date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner,
and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Colorado.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of
Incorporation and to the following provisions:
(a) The Board of Directors may from time to time
declare and pay dividends, and, subject to the limitations
contained in this Section 1, the amount of such dividends and the
payment of them shall be wholly in the discretion of the Board of
Directors.
(b) The total cash dividends paid for any one fiscal
year, subject to the exceptions noted below, shall not
substantially exceed the sum of
(1) the net income for such fiscal year, determined in
accordance with good accounting practice, adjusted for amounts
included as such accrued net income in the price of shares of
capital stock of the Corporation issued or repurchased, exclusive
of profits or losses realized upon the sale of securities or
other property; plus
(2) the excess of profits over losses on sales of
securities or other property for such fiscal year.
Inasmuch as the computation of net income and gains for
Federal income tax purposes may vary from the computation thereof
on the books, the above provision shall be interpreted to give
the Board of Directors the power in its discretion to distribute
for any fiscal year as ordinary dividends and as capital gains
distributions, respectively, amounts sufficient to enable the
corporation as a regulated investment company to avoid any
liability for Federal income tax in respect of that year.
Any dividend payment made to shareholders from any source other
than (1) above shall be accompanied by a written statement
showing the source or sources of such payment, and the basis of
computation thereof.
The Board of Directors shall not be under any obligation to
distribute any income unless it sees fit. The decision of the
Board of Directors as to what, in accordance with good accounting
practice, is income and what is principal shall be final, and
except as specifically provided herein the decision of the Board
of Directors as to what expenses and charges of the Corporation
shall be charged against principal and what against the income
shall be final. Any income not distributed in any year may be
permitted to accumulate and as long as not distributed may be
invested from time to time in the same manner as the principal
funds of the Corporation.
(c) The Board of Directors shall have power, to the
fullest extent permitted by the laws of Colorado, but subject to
the limitation as to cash dividends imposed by paragraph (b), at
any time or from time to time to declare and cause to be paid
dividends payable at the election of any of the shareholders
(whether exercised before or after the declaration of the
dividend) either in cash or in shares of Capital Stock and to
establish the particular net asset value of the shares which is
to be used in determining the number of shares which a
shareholder may receive in lieu of cash. In the case of a
dividend payable in cash or shares of Capital Stock at the
election of the shareholder, the Board of Directors may prescribe
whether a shareholder failing to express his election before a
given time shall be deemed to have elected to take shares rather
than cash, or to take cash rather than shares, or to take shares
with cash adjustment of fractions.
(d) Anything in these By-Laws to the contrary
notwithstanding the Board of Directors may at any time declare
and distribute pro rata among the shareholders as of a record
date fixed as provided in Article VI, Section 5, a "stock
dividend" out of either authorized but unissued or treasury
shares of the Corporation, or both.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends
such sum or sums as the directors may from time to time, in their
absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear
statement of the business and condition of the Corporation,
including financial statements certified by an independent public
accountant.
CHECKS
Section 4. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time
to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall begin
on the first day of August of each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the
words "Corporate Seal, Colorado." The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
INSPECTION OF BOOKS
Section 7. The directors shall from time to time determine
whether and to what extent, and at what times and places, and
under what conditions and regulations the accounts and books of
the Corporation or any of them shall be open to the inspection of
the stockholders; and no stockholder shall have any right of
inspecting any account or book or document of the Corporation
except as conferred by law or authorized by the Directors.
CUSTODIAN
Section 8. The Corporation shall designate a custodian for
the safekeeping of cash and securities. Such custodian shall be
a bank or trust company having not less than $2 million aggregate
capital, surplus and undivided profits, provided such a custodian
can be found ready and willing to act. If any custodian shall
resign or be unable to serve, the Corporation will use its best
efforts to obtain a successor and obtain the delivery of the
property of the Corporation directly to the successor custodian.
If no successor custodian can be found, the property of the
Corporation shall not be delivered to a person other than a
qualified successor custodian unless it shall have permitted the
shareholders to vote upon the question whether the Corporation
shall be liquidated or function without a qualified custodian.
This provision shall not prevent the termination of the agreement
between the Corporation and a custodian by the vote of a majority
of the stockholders of the Corporation.
FUNDAMENTAL POLICIES AND RESTRICTIONS
Section 9. The registrant shall not borrow money in excess
of 5% of its gross assets. Borrowing in any event may only be
done as a temporary measure for emergency purposes.
Section 10. The registrant will not underwrite the
securities of other issuers, except in those instances where the
registrant acquires portfolio securities under circumstances
where it would not be free to sell them without being deemed an
underwriter for purposes of the Securities Act of 1933 and
without registration of such securities under that Act.
Section 11. The Corporation will not acquire any securities
of companies within any one industry if, after acquisition, more
than twenty five percent (25%) of the total value of the assets
of the Corporation would be invested in securities of companies
within such industry.
Section 12. The Corporation shall not purchase or sell real
estate.
Section 13. The Corporation shall not purchase or sell
commodities or commodity contracts.
Section 14. The registrant will make no loans to other
persons, except on a temporary basis in connection with the
delivery or receipt of portfolio securities which have been
bought or sold. However, the purchase of bonds, debentures or
other debt securities, whether publicly distributed or of a type
commonly purchased by institutional investors, shall not
constitute the making of a loan.
Section 15. The registrant may not invest more than 5% of
the value of its assets in the securities of any one issuer.
Section 16. The registrant may not acquire more than 10% of
the voting securities of any one issuer.
Section 17. The Corporation may not acquire securities of
any issuer for the purpose of exercising management or control.
Section 18. The registrant will not invest in securities of
other investment companies, except securities purchased or
acquired in connection with a plan of merger, consolidation or
reorganization.
Section 19. In seeking its objective, the registrant will
normally purchase securities with potential for capital growth.
It is not the policy of the registrant to trade for the purpose
of making short-term profits, but the registrant expects to act
quickly to dispose of all or part of its position in a security
if for any reason such action is deemed advisable, regardless of
the length of time the security has been held.
Section 20. The registrant will not purchase securities on
margin, except such short-term credits as are necessary for the
clearance of transactions, and shall not participate on a joint
or a joint and several basis in any trading account in securities
The registrant will not effect a short sale of any security.
Section 21. The Corporation shall not at any time purchase
securities or other things of value on margin, or sell any such
securities or things of value short.
INTERESTS OF MANAGEMENT
Section 22. The officers and directors of the Corporation,
the manager and general distributor and officers and directors
thereof, shall have no dealings on its behalf as principal or
agent with themselves or with any corporation or partnership in
which they have a financial interest, except in the case of the
purchase or sale of securities on an agency or commission basis
at a commission not exceeding that which would be paid any
independent, established and reputable investment or brokerage
firms, or except in the case of dealings in the shares of the
Corporation. This prohibition shall not prevent the officers and
directors of the corporation from having a financial interest in
the Corporation, the manager, or the general distributor.
ARTICLE VIII
AMENDMENTS
Section 1. These By-Laws may be altered or repealed by a
majority vote of the outstanding voting securities of the
Corporation (determined in accordance with the way the phrase
majority vote of the outstanding voting securities is defined in
the Investment Company Act of 1940) at any regular meeting of the
stockholders, or at any special meeting thereof if notice of such
alteration or repeal be contained in the notice of such special
meeting.
Section 2. In addition, any of these By-Laws except
Sections 3 through 11 of Article II, Sections 1 and 2 of Article
IV, Sections 4 and 5 of Article VI, Sections 9 through 22 of
Article VII, and Sections 1 and 2 of Article VIII, may be altered
or repealed at any regular meeting of the Board of Directors, or
at any special meeting thereof if notice of such alteration or
repeal be contained in the notice of such special meeting. This
shall not, however, prevent the amendment of any of these By-Laws
by the Board of Directors prior to the issuance of 5,335 shares
of the stock of the Corporation.
AGE FUND, INC.
AMENDMENTS TO THE BY-LAWS
November 15, 1973, Article VIII, Section 10 of the By-Laws was
amended to read as follows:
Section 10. The Corporation shall not underwrite or
engage in the agency distribution of securities of
other issuers, and shall not acquire securities
which, at the time of acquisition, could be
disposed of publicly by the Fund only after
registration under the Securities Act of 1933.
November 13, 1973, Article VII, Section 14 of the By-Laws was
amended read as follows:
"Section 14. The Corporation will not make loans to
other persons except on a temporary basis in
connection with the delivery or receipt of
portfolio securities which have been bought or sold
or by the purchase of bonds, debentures, or similar
obligations which are publicly distributed or of a
character usually acquired by institutional
investors; provided however, the Corporations
Board of Directors may, on the request of broker-
dealers or other institutional investors which it
deems qualified, authorize the Corporation to lend
securities, but only when the borrower pledges cash
collateral to the Corporation and agrees to
maintain such collateral so that it amounts to at
least 100% of the value of the securities. Such
security loans may not be made if as a result the
aggregate of such loans exceeds 10% of the value of
the Corporation's total assets at the time of most
recent loan."
On May 9, 1974, Article II, Section 2 of the By-Laws was amended
to read follows:
Section 2. The Annual Meeting of Shareholders shall
be held on the third Friday of August of each year
if not a legal holiday; and, if a legal holiday,
then on the first day following which is not a
legal holiday, at 11:00 o'clock in the forenoon; or
on such other date and time as may be determined by
the Board of Directors.
On June 18, 1976, Article III, Section 1 of the By-Laws was
amended so that the second sentence thereof reads as follows:
The Board of Directors shall be composed of 6 members.
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of AGE High Income Fund (the
"Fund"), a corporation organized under the laws of the State of
Colorado, do hereby certify that the following resolution was
adopted by a majority of the shareholders present at a meeting held
at the offices of the Fund at 777 Mariners Island Boulevard, San
Mateo, California, on September 26, 1989.
RESOLVED, that Article VII, Section 10 of the By-Laws will
read as follows:
The Corporation will not underwrite the securities of
other issuers except insofar as the Corporation may be
technically deemed an underwriter in connection with the
disposition of securities in its portfolio.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Deborah R. Gatzek
Dated: 1/8/90 Deborah R. Gatzek
Secretary
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of AGE High Income Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of
Colorado, do hereby certify that the following resolution was
adopted by a majority of the directors present at a meeting held
at the Mauna Kea Beach Hotel, One Mauna Kea Beach Drive, Kohala
Coast, Hawaii, on October 23, 1992:
RESOLVED, that the second sentence of Article III, Section 1,
of the Corporation's By-Laws, as amended, for a Board of
Directors composed of six (6) members be, and it hereby is,
amended to read as follows:
The Board of Directors shall be composed of seven (7)
members.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
Dated: 10/23/92 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
AGE HIGH INCOME FUND, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between AGE HIGH INCOME FUND,
INC., a Colorado Corporation, hereinafter called the "Fund"
and FRANKLIN ADVISERS, INC., a California Corporation,
hereinafter called the "Manager."
WHEREAS, the Fund has been organized and operates as an
investment company registered under the Investment Company
Act of 1940 for the purpose of investing and reinvesting its
assets in securities, as set forth in its Articles of
Incorporation, its By-Laws and its Registration Statements
under the Investment Company Act of 1940 and the Securities
Act of 1933, all as heretofore amended and supplemented; and
the Fund desires to avail itself of the services,
information, advice, assistance and facilities of an
investment manager and to have an investment manager perform
for its various management, statistical, research,
investment advisory and other services; and,
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisor's Act of 1940, is engaged in
the business of rendering management, investment advisory,
counselling and supervisory services to investment companies
and other investment counselling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the
Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of the
Fund, for the period and on the terms hereinafter set forth.
The Manager hereby accepts such employment and agrees during
such period to render the services and to assume the
obligations herein set forth for the compensation herein
provided. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the
Manager. The Manager undertakes to provide the services
hereinafter set forth and to assume the following
obligations:
A. Office Space, Furnishings, Facilities, Equipment,
and Personnel. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the
offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required
for managing the corporate affairs and conducting the
business of the Fund, including complying with the
corporate and securities reporting requirements of the
United States and the various states in which the Fund
does business, conducting correspondence and other
communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and
auditing services and records in connection with the
Fund's investment and business activities, and computing
net asset value. The Manager shall employ or provide
and compensate the executive, secretarial and clerical
personnel necessary to provide such services. The
Manager shall also compensate all officers and employees
of the Fund who are officers or employees of the
Manager.
B. Investment Management Services
(a) The Manager shall manage the Fund's assets and
portfolio subject to and portfolio subject to and in
accordance with the investment objectives and policies
of the Fund and any directions which the Fund's Board of
Directors may issue from time to time. In pursuance of
the foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and shall
take such steps as may be necessary to implement the
same. Such determinations and services shall also
include determining the manner in which voting rights,
rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities
shall be exercised. The Manager shall render regular
reports to the Fund, at regular meetings of the Board of
Directors and at such other times as may be reasonably
requested by the Fund's Board of Directors, of (i) the
decisions which it has made with respect to the
investment of the Fund's assets and the purchase and
sale of portfolio securities, (ii) the reasons for such
decisions and (iii) the extent to which those decisions
have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Fund's Board of Directors may issue
from time to time, shall place, in the name of the Fund,
orders for the execution of the Fund's portfolio
transactions. When placing such orders the Manager
shall seek to obtain the best net price and execution
for the Fund, but this requirement shall not be deemed
to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the
other standards set forth in this section have been
satisfied. The parties recognize that there are likely
to be many cases in which different brokers are equally
able to provide such best price and execution and that,
in selecting among such brokers with respect to
particular trades, it is desirable to choose those
brokers who furnish research, statistical quotations and
other information to the Fund and the Manager in accord
with the standards set forth below. Moreover, to the
extent that it continues to be lawful to do so and so
long as the Board determines that the Fund will benefit,
directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for
that transaction which is in excess of the amount of
commission that another broker would have charged for
effecting that transaction, provided that the excess
commission is reasonable in relation to the value of
"brokerage and research services" (as defined in Section
28(e)(3) of the Securities Exchange Act of 1934)
provided by that broker. Accordingly, the Fund and the
Manager agree that the Manager shall select brokers for
the execution of the Fund's portfolio transactions from
among:
(i) Those brokers and dealers who provide quotations
and other services to the Fund, specifically including
the quotations necessary to determine the Fund's net
assets, in such amount of total brokerage as may
reasonably be required in light of such services;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which relate directly to portfolio
securities, actual or potential, of the Fund or which
place the Manager in a better position to make
decisions in connection with the management of the
Fund's assets and portfolio, whether or not such data
may also be useful to the Manager and its affiliates
in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
Provided that the Fund's officers are satisfied that the
best execution is obtained the sale of Fund shares may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio
transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the Federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which it may be a member.
Neither the Manager nor Distributors shall be obligated
to make any additional commitments of capital, expense
or personnel beyond that already committed (other than
normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National
Association of Securities Dealers, Inc.) as of the date
of this Agreement and this Agreement shall not obligate
the Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which
they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees
which may be considered to be due from others to it as a
result of such a tender, unless the Fund shall enter
into an agreement with the Manager to reimburse them for
all expenses connected with attempting to collect such
fees including legal fees and expenses and that portion
of the compensation due to their employees which is
attributable to the time involved in attempting to
collect such fees.
(d) The Manager shall render regular reports to the
Fund, not more frequently than quarterly, of how much
total brokerage business has been placed by the Manager
with brokers falling into each of the foregoing
categories and the manner in which the allocation has
been accomplished.
(e) The Manager agrees that no investment decision will
be made or influenced by a desire to provide brokerage
for allocation in accordance with the foregoing, and
that the right to make such allocation of brokerage
shall not interfere with the Manager's paramount duty to
obtain the best net price and execution for the Fund.
C. Provisions of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will
make available and provide accounting and statistical
information required by the Underwriter in the
preparation of registration statements, reports and
other documents required by Federal and state securities
laws and with such information as the Underwriter may
reasonably request for use in the preparation of such
documents or of other materials necessary or helpful for
the underwriting and distribution of the Fund's shares.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of
Directors and officers of the Fund for consultation and
discussions regarding the administrative management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund
will pay all its expenses other than those expressly assumed
by the Manager herein, which expenses payable by the Fund
shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-keeping
services;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, directors, stockholders
or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to corporate meetings of the Fund,
reports to the Fund to its shareholders, the filing of
reports with regulatory bodies and the maintenance of
the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund
shares for sale;
K. Costs of printing stock certificates representing shares
of the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance
premium.
4. Compensation of the Manager. The Fund shall pay a
monthly management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, on the first business day of each month
in each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding
month. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be the net assets computed
as of the close of business on the last business day of
the month preceding the month in which the payment is
being made, determined in the same manner as the Fund
uses to compute the value of its net assets in
connection with the determination of the net asset value
of Fund shares, all as set forth more fully in the
Fund's current prospectus. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over $100,000,000
and not over $250,000,000; and
9/240 of 1% of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced
or eliminated to the extent that Franklin Distributors,
Inc. has actually received cash payments of tender offer
solicitation fees less certain costs and expenses
incurred in connection therewith; and to the extent
necessary to comply with the limitations on expenses
which may be borne by the Fund as set forth in the laws,
regulations and administrative interpretations of those
states in which the Fund's shares are registered.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for
the portion of any month in which this Agreement is in
effect which is not a complete month according to the
proportion which the number of calendar days in the
month during which the Agreement is in effect bears to
the number of calendar days in the month, and shall be
payable within 10 days after the date of termination.
5. Activities of the Manager. The services of the Manager
to the Fund hereunder are not to be deemed exclusive, and
the Manager and any of its affiliates shall be free to
render similar services to others. Subject to and in
accordance with the Articles of Incorporation and By-Laws of
the Fund and to Section 10(a) of the Investment Company Act
of 1940, it is understood that directors, officers, agents
and stockholders of the Fund are or may be interested in the
Manager or its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Fund as directors, officers, agents,
stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders
or otherwise; and that the effect of any such interests
shall be governed by said Articles of Incorporation, the By-
Laws and the Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or
duties hereunder on the part of the Manager, the Manager
shall not be subject to liability to the Fund or to any
shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the
Fund in the preparation, printing and distribution of
proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or
directors, the conduct of factual investigations, any
legal or administrative proceedings (including any
applications for exemptions or determinations by the
Securities and Exchange Commission) which the Fund
incurs as the result of action or inaction of the
Manager or any of its affiliates or any of their
officers, directors, employees or shareholders where the
action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transactions or
proposed transaction in the shares or control of the
Manager or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares
or control) which shall have been undertaken without the
prior, express approval of the Fund's Board of
Directors; or, (ii) is within the control of the Manager
or any of its affiliates or any of their officers,
directors, employees or shareholders. The Manager shall
not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any
expenditures related to the institution of an
administrative proceeding or civil litigation by the
Fund or a Fund shareholder seeking to recover all or a
portion of the proceeds derived by any shareholder of
the Manager or any of its affiliates from the sale of
his shares of the Manager, or similar matters. So long
as this Agreement is in effect the Manager shall pay to
the Fund the amount due for expenses subject to this
Subsection 6(B) Agreement within 30 days after a bill
or statement has been received by the Fund therefore.
This provision shall not be deemed to be a waiver of any
claim the Fund may have or may assert against the
Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses
or damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Fund, or the
Manager, from liability in violation of Sections 17(h)
and (i) of the Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two years. The
Agreement is renewable annually thereafter for
successive periods not to exceed one year (i) by a vote
of a majority of the outstanding voting securities of
the Fund or by a vote of the Board of Directors of the
Fund, and (ii) by a vote of a majority of the directors
of the Fund who are not parties to the Agreement or
interested persons of any parties to the Agreement
(other than as Directors of the Fund) cast in person at
a meeting called for the purpose of voting on the
Agreement.
B. This Agreement.
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Directors
of the Fund or by vote of a majority of the outstanding
voting securities of the Fund, on 30 days' written
notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days'
written notice to the Fund.
C. As used in this Section the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings
set forth for any such terms in the Investment Company
Act of 1940, as amended.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall
be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the 1st day of October, 1986.
AGE HIGH INCOME FUND, INC.
By /s/ Charles B. Johnson
FRANKLIN ADVISERS, INC.
By /s/ Rupert H. Johnson, Jr.
AGE HIGH INCOME FUND, INC.
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We (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 (the "1940 Act") and whose shares are registered
under the Securities Act of 1933 (the "1933 Act"). We desire to issue one or
more series or classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in accordance with
applicable Federal and State securities laws. The Fund's Shares may be made
available in one or more separate series, each of which may have one or more
classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Directors or
Trustees ("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 with you or your related organizations, were present and voted
in favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of Shares, but are
not obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. Offering Price. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you with
the net asset value of the Shares of each available series and class which shall
be determined in accordance with our then effective prospectus. All Shares will
be sold in the manner set forth in our then effective prospectus and statement
of additional information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to compensation for your
services as provided in any Distribution Plan adopted as to any series and class
of any Fund's Shares pursuant to Rule 12b-1 under the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered for sale only
in those jurisdictions where they have been properly registered or are exempt
from registration, and only to those groups of people which the Board may from
time to time determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall be directed
to the Fund's shareholder services agent, for acceptance on behalf of the Fund.
At or prior to the time of delivery of any of our Shares you will pay or cause
to be paid to the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Fund's shareholder services
agent. The Fund's custodian and shareholder services agent shall be identified
in its prospectus.
7. Purchases for Your Own Account. You shall not purchase our Shares
for your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included in
any Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940 Act,
including the prospectus and statement of additional
information included therein;
(b) Of the preparation, including legal fees, and printing
of all Amendments or supplements filed with the
Securities and Exchange Commission, including the
copies of the prospectuses included in the Amendments
and the first 10 copies of the definitive prospectuses
or supplements thereto, other than those necessitated
by your (including your "Parent's") activities or Rules
and Regulations related to your activities where such
Amendments or supplements result in expenses which we
would not otherwise have incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our existing
shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to continue
offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer
our Shares;
(b) Of the preparation, excluding legal fees, and printing
of all Amendments and supplements to our prospectuses
and statements of additional information if the
Amendment or supplement arises from your (including
your "Parent's") activities or Rules and Regulations
related to your activities and those expenses would not
otherwise have been incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we
have prepared for distribution to our existing
shareholders; and
(d) Incurred by you in advertising, promoting and selling
our Shares.
10. Furnishing of Information. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. Conduct of Business. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws
and regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares are tendered
to us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. Other Activities. Your services pursuant to this Agreement shall
not be deemed to be exclusive, and you may render similar services
and act as an underwriter, distributor or dealer for other investment
companies in the offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2) years.
The Agreement is renewable annually thereafter, with respect to the Fund or, if
the Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, and (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the Board
or by vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times to suspend or
limit the public offering of Shares upon two days' written notice to you.
16. Miscellaneous. This Agreement shall be subject to the laws of the State
of California and shall be interpreted and construed to further promote the
operation of the Fund as an open-end investment company. This Agreement shall
supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
AGE HIGH INCOME FUND, INC.
By: /s/ Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By:/s/ Gregory E. Johnson
DATED: May 16, 1995
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered
into as of September 17, 1991 by and between AGE High Income
Fund, Inc., a Colorado Corporation (the "Fund"), and Bank of
America National Trust and Savings Association, a banking
association organized under the laws of the United States (the
"Custodian").
RECITALS
A. The Fund is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment
Company Act") that invests and reinvests, in Domestic Securities
and Foreign Securities.
B. The Custodian is, and has represented to the
Fund that the Custodian is, a "bank" as that term is defined in
Section 2(a)(5) of the Investment Company Act of 1940, as amended
and is eligible to receive and maintain custody of investment
company assets pursuant to Section 17(f) and Rule 17f-2
thereunder.
C. The Fund and the Custodian desire to provide for
the retention of the Custodian as the custodian of the assets of
the Fund on the terms and subject to the provisions set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS
For purposes of this Agreement, the following terms
shall have the respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board of Directors" shall mean the Board of Directors
of the Fund.
"Business Day" with respect to any Domestic Security
means any day, other than a Saturday or Sunday, that is not a day
on which banking institutions are authorized or required by law
to be closed in The City of New York and, with respect to Foreign
Securities, a London Business Day. "London Business Day" shall
mean any day on which dealings and deposits in U.S. dollars are
transacted in the London interbank market.
"Custodian" shall mean Bank of America National Trust and
Savings Association.
"Domestic Securities" shall have the meaning provided in
Subsection 2.1 hereof.
"Executive Committee" shall mean the executive committee
of the Board of Directors.
"Foreign Custodian" shall have the meaning provided in
Section 4.1 hereof.
"Foreign Securities" shall have the meaning provided in
Section 2.1 hereof.
"Foreign Securities Depository" shall have the meaning
provided in Section 4.1 hereof.
"Fund" shall mean the AGE High Income Fund, Inc.
"Guidelines" shall have the meaning provided in
Subsection 3.5(a) hereof.
"Investment Company Act" shall mean the Investment
Company Act of 1940, as amended.
"Securities" shall have the meaning provided in Section
2.1 hereof.
"Securities System" shall have the meaning provided in
Section 3.1 hereof.
"Securities System Account" shall have the meaning
provided in Subsection 3.8(a) hereof.
"Shares" shall mean shares of beneficial interest of the
Fund.
"Subcustodian" shall have the meaning provided in
Subsection 3.7 hereof, but shall not include any Foreign
Custodian.
"Transfer Agent" shall mean the duly appointed and
acting transfer agent for the Fund.
"U.S." shall mean United States.
"Writing" shall mean a communication in writing, a
communication by telex, the Custodian's Global Custody
Instruction SystemTM, facsimile transmission, bankwire or other
teleprocess or electronic instruction system acceptable to the
Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. The Fund hereby appoints
and designates the Custodian as the custodian of the assets of
the Fund including cash, securities the Fund desires to be held
within the United States ("Domestic Securities") and securities
it desires to be held outside the United States ("Foreign
Securities"). Domestic Securities and Foreign Securities are
sometimes referred to herein, collectively, as "Securities." The
Custodian hereby accepts such appointment and designation and
agrees that it shall maintain custody of the assets of the Fund
delivered to it hereunder in the manner provided for herein.
2.2 Delivery of Assets. The Fund agrees to deliver to
the Custodian Securities and cash owned by the Fund, payments of
income, principal or capital distributions received by the Fund
with respect to Securities owned by the Fund from time to time,
and the consideration received by it for such Shares or other
securities of the Fund as may be issued and sold from time to
time. The Custodian shall have no responsibility whatsoever for
any property or assets of the Fund held or received by the Fund
and not delivered to the Custodian pursuant to and in accordance
with the terms hereof. All Securities accepted by the Custodian
on behalf of the Fund under the terms of this Agreement shall be
in "street name" or other good delivery form as determined by the
Custodian.
2.3 Subcustodians. Upon receipt of Proper Instructions
and a certified copy of a resolution of the Board of Directors or
of the Executive Committee certified by the Secretary or an
Assistant Secretary of the Fund, the Custodian may from time to
time appoint one or more Subcustodians or Foreign Custodians to
hold assets of the Fund in accordance with the provisions of this
Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian
or a Foreign Custodian shall not have any duty or responsibility
to manage or recommend investments of the assets of the Fund held
by them or to initiate any purchase, sale or other investment
transaction in the absence of Proper Instructions or except as
otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO
ASSETS OF THE FUND HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and
physically segregate from any property owned by the Custodian,
for the account of the Fund, all non-cash property delivered by
the Fund to the Custodian hereunder other than Securities which,
pursuant to Subsection 3.8 hereof, are held through a registered
clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein,
individually, as a "Securities System"), or held by a
Subcustodian, Foreign Custodian or in a Foreign Securities
Depository.
3.2 Delivery of Securities. Except as otherwise
provided in Subsection 3.5 hereof, the Custodian, upon receipt of
Proper Instructions, shall release and deliver Securities owned
by the Fund and held by the Custodian in the following cases or
as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein,
upon sale of such Securities for the account of the
Fund and receipt by the Custodian, a Subcustodian or a
Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the
Custodian, a Subcustodian or a Foreign Custodian in
connection with any repurchase agreement related to
such Securities entered into by the Fund;
(c) in the case of a sale effected through a
Securities System, in accordance with the provisions of
Subsection 3.8 hereof;
(d) to a tender agent or other authorized
agent in connection with (i) a tender or other similar
offer for Securities owned by the Fund, or (ii) a
tender offer or repurchase by the Fund of its own
Shares;
(e) to the issuer thereof or its agent when
such Securities are called, redeemed, retired or
otherwise become payable; provided, that in any such
case, the cash or other consideration is to be
delivered to the Custodian, a Subcustodian or a Foreign
Custodian;
(f) to the issuer thereof, or its agent, for
transfer into the name or nominee name of the Fund, the
name or nominee name of the Custodian, the name or
nominee name of any Subcustodian or Foreign Custodian;
or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new Securities are to be
delivered to the Custodian, a Subcustodian or Foreign
Custodian;
(g) to the broker selling the same for
examination in accordance with the "street delivery"
custom;
(h) for exchange or conversion pursuant to
any plan of merger, consolidation, recapitalization, or
reorganization of the issuer of such Securities, or
pursuant to a conversion of such Securities; provided
that, in any such case, the new Securities and cash, if
any, are to be delivered to the Custodian or a
Subcustodian;
(i) in the case of warrants, rights or
similar securities, the surrender thereof in connection
with the exercise of such warrants, rights or similar
Securities or the surrender of interim receipts or
temporary Securities for definitive Securities;
provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian, a
subcustodian or a Foreign Custodian;
(j) for delivery in connection with any
loans of Securities made by the Fund, but only against
receipt by the Custodian, a Subcustodian or a Foreign
Custodian of adequate collateral as determined by the
Fund (and identified in Proper Instructions
communicated to the Custodian), which may be in the
form of cash or obligations issued by the United
States government, its agencies or instrumentalities,
except that in connection with any loans for which
collateral is to be credited to the account of the
Custodian, a Subcustodian or a Foreign Custodian in
the Federal Reserve's book-entry securities system, the
Custodian will not be held liable or responsible for
the delivery of Securities owned by the Fund prior to
the receipt of such collateral;
(k) for delivery as security in connection
with any borrowings by the Fund requiring a pledge of
assets by the Fund, but only against receipt by the
Custodian, a Subcustodian or a Foreign Custodian of
amounts borrowed;
(l) for delivery in accordance with the
provisions of any agreement among the Fund, the
Custodian, a Subcustodian or a Foreign Custodian and a
broker-dealer relating to compliance with the rules of
registered clearing corporations and of any registered
national securities exchange, or of any similar
organization or organizations, regarding escrow or
other arrangements in connection with transactions by
the Fund;
(m) for delivery in accordance with the
provisions of any agreement among the Fund, the
Custodian, a Subcustodian or a Foreign Custodian and a
futures commission merchant, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar
organization or organizations, regarding account
deposits in connection with transactions by the Fund;
(n) upon the receipt of instructions from
the Transfer Agent for delivery to the Transfer Agent
or to the holders of Shares in connection with
distributions in kind in satisfaction of requests by
holders of Shares for repurchase or redemption; and
(o) for any other proper purpose, but only
upon receipt of Proper Instructions, and a certified
copy of a resolution of the Directors or of the
Executive Committee certified by the Secretary or an
Assistant Secretary of the Fund, specifying the
securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person
or persons to whom delivery of such securities shall be
made.
3.3 Registration of Securities. Securities held by the
Custodian, a Subcustodian or a Foreign Custodian (other than
bearer Securities) shall be registered in the name or nominee
name of the Fund, in the name or nominee name of the Custodian or
in the name or nominee name of any Subcustodian or Foreign
Custodian. The Fund agrees to hold the Custodian, any such
nominee, Subcustodian or Foreign Custodian harmless from any
liability as a holder of record of such Securities.
3.4 Bank Accounts. The Custodian shall open and
maintain a separate bank account or accounts for the Fund,
subject only to draft or order by the Custodian acting pursuant
to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it hereunder from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act.
Funds held by the Custodian for the Fund may be deposited by it
to its credit as Custodian in the banking departments of the
Custodian, a Subcustodian or a Foreign Custodian. It is
understood and agreed by the Custodian and the Fund that the rate
of interest, if any, payable on such funds (including foreign
currency deposits) that are deposited with the Custodian may not
be a market rate of interest and that the rate of interest
payable by the Custodian to the Fund shall be agreed upon by the
Custodian and the Fund from time to time. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall
be withdrawable by the Custodian only in that capacity.
3.5 Collection of Income; Trade Settlement; Crediting
of Accounts. The Custodian shall collect income payable with
respect to Securities owned by the Fund, settle Securities trades
for the account of the Fund and credit and debit the Fund's
account with the Custodian in connection therewith as follows:
(a) Upon receipt of Proper Instructions, the
Custodian shall effect the purchase of a Security by
charging the account of the Fund on the contractual
settlement date; provided, however, that in the case of
Foreign Securities, Proper Instructions are provided to
the Custodian by the Fund prior to the contractual
settlement date in accordance with, and within the time
period specified in the "Global Custody Guidelines for
the AGE High Income Fund, Inc." (the "Guidelines") as
adopted for the use of this Fund, as may be amended by
the Custodian from time to time in its sole discretion.
The Custodian shall have no liability of any kind to
any person, including the Fund, if the Custodian
effects payment on behalf of the Fund as provided for
herein or in Proper Instructions, and the seller or
selling broker fails to deliver the Securities
purchased.
(b) Upon receipt of Proper Instructions, the
Custodian shall effect the sale of a Security by
delivering a certificate or other indicia of ownership,
and shall credit the account of the Fund with the
proceeds of such sale on the contractual settlement
date; provided, however, that in the case of Foreign
Securities, Proper Instructions are provided to the
Custodian by the Fund prior to the contractual
settlement date in accordance with, and within the time
period specified in, the Guidelines. The Custodian
shall have no liability of any kind to any person,
including the Fund, if the Custodian delivers such a
certificate(s) or other indicia of ownership as
provided for herein or in Proper Instructions, and the
purchaser or purchasing broker fails to effect payment
to the Fund within a reasonable time period, as
determined by the Custodian in its sole discretion. In
such event, the Custodian shall be entitled to
reimbursement of the amount so credited to the account
of the Fund in connection with such sale.
(c) The Fund is responsible for ensuring
that the Custodian receives timely and accurate Proper
Instructions to enable the Custodian to effect
settlement of any purchase or sale. If the Custodian
does not receive such instructions within the required
time period, the Custodian shall have no liability of
any kind to any person, including the Fund, for failing
to effect settlement on the contractual settlement
date. However, the Custodian shall use its best
reasonable efforts to effect settlement as soon as
possible after receipt of Proper Instructions.
(d) The Custodian shall credit the account
of the Fund with interest income payable on interest
bearing Securities on payable date. Interest income on
cash balances will be credited monthly to the account
of the Fund on the first Business Day (on which the
Custodian is open for business) following the end of
each month. Dividends and other amounts payable with
respect to Domestic Securities and Foreign Securities
shall be credited to the account of the Fund when
received by the Custodian. The Custodian shall not be
required to commence suit or collection proceedings or
resort to any extraordinary means to collect such
income and other amounts payable with respect to
Securities owned by the Fund. The collection of income
due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the
responsibility of the Fund. The Custodian will have
no duty or responsibility in connection therewith,
other than to provide the Fund with such information or
data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of
the income to which the Fund is entitled. The
Custodian shall have no liability to any person,
including the Fund, if the Custodian credits the
account of the Fund with such income or other amounts
payable with respect to Securities owned by the Fund
(other than Securities loaned by the Fund pursuant to
Subsection 3.2(j) hereof) and the Custodian
subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable
time period, as determined by the Custodian in its
sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to
the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper
Instructions the Custodian shall pay out monies of the Fund in
the following cases or as otherwise directed in Proper
Instructions:
(a) upon the purchase of Securities, futures
contracts or options on futures contracts for the
account of the Fund but only, except as otherwise
provided herein, (i) against the delivery of such
securities, or evidence of title to futures contracts
or options on futures contracts, to the Custodian or a
Subcustodian registered pursuant to Subsection 3.3
hereof or in proper form for transfer; (ii) in the case
of a purchase effected through a Securities System, in
accordance with the conditions set forth in Subsection
3.8 hereof; or (iii) in the case of repurchase
agreements entered into between the Fund and the
Custodian, another bank or a broker-dealer (A) against
delivery of the Securities either in certificated form
to the Custodian or a Subcustodian or through an entry
crediting the Custodian's account at the appropriate
Federal Reserve Bank with such Securities or (B)
against delivery of the confirmation evidencing
purchase by the Fund of Securities owned by the
Custodian or such broker-dealer or other bank along
with written evidence of the agreement by the Custodian
or such broker-dealer or other bank to repurchase such
Securities from the Fund;
(b) in connection with conversion, exchange
or surrender of Securities owned by the Fund as set
forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of
Shares issued by the Fund;
(d) for the payment of any expense or
liability incurred by the Fund, including but not
limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management,
accounting, transfer agent and legal fees and operating
expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as
deferred expenses; and
(e) for the payment of any dividends or
distributions declared by the Board of Directors with
respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may,
upon receipt of Proper Instructions, appoint another bank or
trust company, which is itself qualified under the Investment
Company Act to act as a custodian (a "Subcustodian"), as the
agent of the Custodian to carry out such of the duties of the
Custodian hereunder as the Custodian may from time to time
direct; provided, however, that the appointment of any
Subcustodian shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain Domestic Securities owned
by the Fund in a Securities System in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic
Securities of the Fund in the Depository Trust Company
or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities
System provided that such securities are held in an
account of the Custodian in the Securities System
("Securities System Account") which shall not include
any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(b) the records of the Custodian with
respect to Domestic Securities of the Fund which are
maintained in a Securities System shall identify by
book-entry those Domestic Securities belonging to the
Fund;
(c) the Custodian shall pay for Domestic
Securities purchased for the account of the Fund upon
(i) receipt of advice from the Securities System that
such securities have been transferred to the Securities
System Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account
of the Fund upon (A) receipt of advice from the
Securities System that payment for such securities has
been transferred to the Securities System Account, and
(B) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Securities System of transfers of Domestic Securities
for the account of the Fund shall be maintained for the
Fund by the Custodian and be provided to the Fund at
its request. Upon request, the Custodian shall furnish
the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or
notice; and
(d) upon request, the Custodian shall
provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system,
internal accounting control and procedures for
safeguarding domestic securities deposited in the
Securities System.
3.9 Segregated Account. The Custodian shall upon
receipt of Proper Instructions establish and maintain a
segregated account or accounts for and on behalf of the Fund,
into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the
Custodian pursuant to Section 3.8 hereof, (i) in accordance with
the provisions of any agreement among the Fund, the Custodian and
a broker-dealer or futures commission merchant, relating to
compliance with the rules of registered clearing corporations and
of any national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii)
for purposes of segregating cash or securities in connection with
options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the
Fund and (iii) for other proper corporate purposes, but only, in
the case of this clause (iii), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
3.10 Ownership Certificates for Tax Purposes. The
Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to domestic
securities of the Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to
the Securities held hereunder, promptly deliver to the Fund all
proxies, all proxy soliciting materials and all notices relating
to such Securities. If the Securities are registered otherwise
than in the name of the Fund or a nominee of the Fund, the
Custodian shall use its best reasonable efforts, consistent with
applicable law, to cause all proxies to be promptly executed by
the registered holder of such Securities in accordance with
Proper Instructions.
3.12 Communications Relating to Fund Portfolio
Securities. The Custodian shall transmit promptly to the Fund
all written information (including, without limitation, pendency
of calls and maturities of Securities and expirations of rights
in connection therewith and notices of exercise of put and call
options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from
issuers of Securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly
to the Fund all written information received by the Custodian
from issuers of the Securities whose tender or exchange is sought
and from the party (or its agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar transaction,
the Fund shall notify the Custodian at least three Business Days
prior to the date of which the Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall supply
to the Fund the daily, weekly and monthly reports described in
the Guidelines as well as any other reports which the Custodian
and the Fund may agree upon from time to time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT
TO ASSETS OF THE FUND HELD OUTSIDE THE UNITED
STATES
4.1 Custody outside the United States. The Fund
authorizes the Custodian to hold Foreign Securities and cash in
custody accounts which have been established by the Custodian
with (i) its foreign branches, (ii) foreign banking institutions,
foreign branches of United States banks and subsidiaries of
United States banks or bank holding companies (each a "Foreign
Custodian") and (iii) Foreign Securities depositories or clearing
agencies (each a "Foreign Securities Depository"); provided,
however, that the Board of Directors or the Executive Committee
has approved in advance the use of each such Foreign Custodian
and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is
set forth in Proper Instructions and a certified copy of a
resolution of the Board of Directors or of the Executive
Committee certified by the Secretary or an Assistant Secretary of
the Fund. Unless expressly provided to the contrary in this
Section 4, custody of Foreign Securities and assets held outside
the United States by the Custodian, a Foreign Custodian or
through a Foreign Securities Depository shall be governed by
Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the
securities and other assets maintained in the custody of its
foreign branches, Foreign Custodians and Foreign Securities
Depositories to: (i) "foreign securities", as defined in
paragraph (c) (1) of Rule 17f-5 under the Investment Company Act,
and (ii) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's Foreign Securities transactions.
4.3 Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Custodian and the
Fund, assets of the Fund shall be maintained in Foreign
Securities Depositories only through arrangements implemented by
the Custodian or Foreign Custodians pursuant to the terms hereof.
4.4 Segregation of Securities. The Custodian shall
identify on its books and records as belonging to the Fund, the
Foreign Securities of the Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each
agreement with a Foreign Custodian shall provide generally that:
(a) the Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
Foreign Custodian or its creditors, except a claim of payment for
their safe custody or administration; (b) beneficial ownership
for the Fund's assets will be freely transferable without the
payment of money or value other than for custody or
administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) the
independent public accountants for the Fund, will be given access
to the records of the Foreign Custodian relating to the assets of
the Fund or confirmation of the contents of those records; (e)
the disposition of assets of the Fund held by the Foreign
Custodian will be subject only to the instructions of the
Custodian or its agents; (f) the Foreign Custodian shall
indemnify and hold harmless the Custodian and the Fund from and
against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Foreign Custodian's
performance of its obligations under such agreement; (g) to the
extent practicable, the Fund's assets will be adequately insured
in the event of loss; and (h) the Custodian will receive periodic
reports with respect to the safekeeping of the Fund's assets,
including notification of any transfer to or from the Fund's
account.
4.6 Access of Independent Accountants of the Fund.
Upon request of the Fund, the Custodian will use its best
reasonable efforts to arrange for the independent accountants of
the Fund to be afforded access to the books and records of any
Foreign Custodian insofar as such books and records relate to the
custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall instruct the
appropriate Foreign Custodian to transfer, exchange or deliver
Foreign Securities owned by the Fund, but, except to the extent
explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the
Custodian shall pay out or instruct the appropriate Foreign
Custodian to pay out monies of the Fund in any of the cases
specified in Subsection 3.6. Notwithstanding anything herein to
the contrary, settlement and payment for Foreign Securities
received for the account of the Fund and delivery of Foreign
Securities maintained for the account of the Fund may be effected
in accordance with the customary or established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser
or dealer. Foreign Securities maintained in the custody of a
Foreign Custodian may be maintained in the name of such entity or
its nominee name to the same extent as set forth in Section 3.3
of this Agreement and the Fund agrees to hold any Foreign
Custodian and its nominee harmless from any liability as a holder
of record of such securities.
4.8 Liability of Foreign Custodian. Each agreement
between the Custodian and a Foreign Custodian shall require the
Foreign Custodian to exercise reasonable care in the performance
of its duties and to indemnify and hold harmless the Custodian
and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the
Foreign Custodian's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform the
Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a
Foreign Custodian or is notified by (i) a foreign
banking institution employed as a Foreign Custodian
that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200
million or that its shareholders' equity has declined
below $200 million (in each case computed in accordance
with generally accepted United States accounting
principles) and denominated in U.S. dollars, or (ii) a
subsidiary of a United States bank or bank holding
company acting as a Foreign Custodian that there
appears to be a substantial likelihood that its
shareholders' equity will decline below $100 million or
that its shareholders' equity has declined below $100
million (in each case computed in accordance with
generally accepted United States accounting principles)
and denominated in U.S. dollars.
(b) The custodian will furnish such
information as may be reasonably necessary to assist
the Fund's Board of Directors in its annual review and
approval of the continuance of all contracts or
arrangements with Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper
Instructions" means instructions of the Fund received by the
Custodian via telephone or in Writing which the Custodian
believes in good faith to have been given by Authorized Persons
(as defined below) or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the
Custodian may specify. Any Proper Instructions delivered to the
Custodian by telephone shall promptly thereafter be confirmed in
Writing by an Authorized Person, but the Fund will hold the
Custodian harmless for its failure to send such confirmation in
writing, the failure of such confirmation to conform to the
telephone instructions received or the Custodian's failure to
produce such confirmation at any subsequent time. Unless
otherwise expressly provided, all Proper Instructions shall
continue in full force and effect until cancelled or superseded.
If the Custodian requires test arrangements, authentication
methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Fund
thereafter shall be given and processed in accordance with such
terms and conditions for the use of such arrangements, methods or
devices as the Custodian may put into effect and modify from time
to time. The Fund shall safeguard any testkeys, identification
codes or other security devices which the Custodian shall make
available to it. The Custodian may electronically record any
Proper Instructions given by telephone, and any other telephone
discussions, with respect to its activities hereunder. As used
in this Agreement, the term "Authorized Persons" means such
officers or such agents of the Fund as have been designated by a
resolution of the Board of trustees or of the Executive
Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement.
Each of such persons shall continue to be an Authorized Person
until such time as the Custodian receives Proper Instructions
that any such officer or agent is no longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express
authority from the Fund:
(a) make payments to itself or others for
minor expenses of handling Securities or other similar
items relating to its duties under this Agreement,
provided that all such payments shall be accounted for
to the Fund;
(b) endorse for collection, in the name of
the Fund, checks, drafts and other negotiable
instruments; and
(c) in general, attend to all
non-discretionary details in connection with the sale,
exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund
except as otherwise provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any
instructions (conveyed by telephone or in Writing), notice,
request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly given or
executed by or on behalf of the Fund. The Custodian may receive
and accept a certified copy of a resolution of the Board of
Directors or Executive Committee as conclusive evidence (a) of
the authority of any person to act in accordance with such
resolution or (b) of any determination or of any action by the
Board of Directors or Executive Committee as described in such
resolution, and such resolution may be considered as in full
force and effect until receipt by the Custodian of written notice
by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary
information in its possession (to the extent permissible under
applicable law) to the entity or entities appointed by the Board
of Directors to keep the books of account of the Fund and/or
compute the net asset value per Share of the outstanding Shares
of the Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records
relating to its activities under this Agreement which are
required with respect to such activities under Section 31 of the
Investment Company Act and Rules 31a-1 and 31a-2 thereunder. All
such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents
of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of Securities owned by the Fund
and held by the Custodian and shall, when requested to do so by
the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers
in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Fund and the Custodian.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance
of only such duties as are set forth herein or contained in
Proper Instructions and shall use reasonable care in carrying out
such duties. The Custodian shall be liable to the Fund for any
loss which shall occur as the result of the failure of a Foreign
Custodian or a Foreign Securities Depository engaged by such
Foreign Custodian or the Custodian to exercise reasonable care
with respect to the safekeeping of securities and other assets of
the Fund to the same extent that the Custodian would be liable to
the Fund if the Custodian itself were holding such securities and
other assets. In the event of any loss to the Fund by reason of
the failure of the Custodian, a Foreign Custodian or a Foreign
Securities Depository engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be
liable to the Fund to the extent of the Fund's damages, to be
determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances.
The Custodian shall be held to the exercise of reasonable care in
carrying out this Agreement. The Fund agrees to indemnify and
hold harmless the Custodian and its nominees from all taxes,
charges, expenses, assessments, claims and liabilities (including
legal fees and expenses) incurred by any of them in connection
with the performance of this Agreement, except such as may arise
from any negligent action, negligent failure to act or willful
misconduct on the part of the indemnified entity or any Foreign
Custodian or Foreign Securities Depository. The Custodian shall
be entitled to rely, and may act, on advice of counsel (who may
be counsel for the Fund) on all matters and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice. The Custodian need not maintain any insurance for
the benefit of the Fund.
All collections of funds or other property paid or
distributed in respect of Securities held by the Custodian,
agent, Subcustodian or Foreign Custodian hereunder shall be made
at the risk of the Fund. The Custodian shall have no liability
for any loss occasioned by delay in the actual receipt of notice
by the Custodian, agent, Subcustodian or by a Foreign Custodian
of any payment, redemption or other transaction regarding
securities in respect of which the Custodian has agreed to take
action as provided in Section 3 hereof. The Custodian shall not
be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the
Board of Directors and may rely on the genuineness of any such
documents which it may in good faith believe to be validly
executed. The Custodian shall not be liable for any loss
resulting from, or caused by, the direction of the Fund to
maintain custody of any Securities or cash in a foreign country
including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, civil
disturbance, acts of war or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation or other similar occurrences
or events beyond the control of the Custodian. Finally, the
Custodian shall not be liable for any taxes, including interest
and penalties with respect thereto, that may be levied or
assessed upon or in respect of any assets of the Fund held by the
Custodian.
Section 12. LIMITED LIABILITY OF THE FUND
The Custodian acknowledges that it has received notice
of and accepts the limitations of the Fund's liability as set
forth in its Agreement and Declaration of Fund. The Custodian
agrees that the Fund's obligation hereunder shall be limited to
the assets of the Fund, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the
Fund nor from any Director, officer, employee, or agent of the
Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of
its execution and shall continue in full force and effect until
terminated as hereinafter provided. This Agreement may be
terminated by the Fund or the Custodian by 60 days notice in
Writing to the other provided that any termination by the Fund
shall be authorized by a resolution of the Board of Directors, a
certified copy of which shall accompany such notice of
termination, and provided further, that such resolution shall
specify the names of the persons to whom the Custodian shall
deliver the assets of the Fund held by it. If notice of
termination is given by the Custodian, the Fund shall, within 60
days following the giving of such notice, deliver to the
Custodian a certified copy of a resolution of the Board of
Directors specifying the names of the persons to whom the
Custodian shall deliver assets of the Fund held by it. In either
case the Custodian will deliver such assets to the persons so
specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it hereunder (including all
costs and expenses of delivery or transfer of Fund assets to the
persons so specified). If within 60 days following the giving of
a notice of termination by the Custodian, the Custodian does not
receive from the Fund a certified copy of a resolution of the
Board of Directors specifying the names of the persons to whom
the Custodian shall deliver the assets of the Fund held by it,
the Custodian, at its election, may deliver such assets to a bank
or trust company doing business in the State of California to be
held and disposed of pursuant to the provisions of this Agreement
or may continue to hold such assets until a certified copy of one
or more resolutions as aforesaid is delivered to the Custodian.
The obligations of the parties hereto regarding the use of
reasonable care, indemnities and payment of fees and expenses
shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this
Agreement shall (i) create any fiduciary, joint venture or
partnership relationship between the Custodian and the Fund or
(ii) be construed as or constitute a prohibition against the
provision by the Custodian or any of its affiliates to the Fund
of investment banking, securities dealing or brokerages services
or any other banking or financial services.
14.2 Further Assurances. Each party hereto shall
furnish to the other party hereto such instruments and other
documents as such other party may reasonably request for the
purpose of carrying out or evidencing the transactions
contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action
or proceeding relating to this Agreement is brought by a party
hereto against the other party hereto, the prevailing party shall
be entitled to recover reasonable attorneys' fees, costs and
disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the
prevailing party may be entitled.
14.4 Notices. Except as otherwise specified herein,
each notice or other communication hereunder shall be in Writing
and shall be delivered to the intended recipient at the following
address (or at such other address as the intended recipient shall
have specified in a written notice given to the other parties
hereto):
if to the Fund :
AGE High Income Fund, Inc.
c/o Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Fund Manager
if to the Custodian:
Bank of America NT&SA
International Securities Services
25 Cannon Street
London EC4P HN
England
Attention: Manager
14.5 Headings. The underlined headings contained
herein are for convenience of reference only, shall not be deemed
to be a part of this Agreement and shall not be referred to in
connection with the interpretation hereof.
14.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and both
of which, when taken together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed
in accordance with, and governed in all respects by, the laws of
the State of California (without giving effect to principles of
conflict of laws).
14.8 Force Majeure. Subject to the provisions of
Section 11 hereof regarding the Custodian's general standard of
care, no failure, delay or default in performance of any
obligation hereunder shall constitute an event of default or a
breach of this agreement, or give rise to any liability
whatsoever on the part of one party hereto to the other, to the
extent that such failure to perform, delay or default arises out
of a cause beyond the control and without negligence of the party
otherwise chargeable with failure, delay or default; including,
but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute;
flood; war; riot; theft; earthquake; natural disaster; breakdown
of public or common carrier communications facilities; computer
malfunction; or act, negligence or default of the other party.
This paragraph shall in no way limit the right of either party to
this Agreement to make any claim against third parties for any
damages suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to
exercise any power, right, privilege or remedy hereunder, and no
delay on the part of any person in the exercise of any power,
right, privilege or remedy hereunder, shall operate as a waiver
thereof; and no single or partial exercise of any such power,
right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or
remedy.
14.11 Amendments. This Agreement may not be amended,
modified, altered or supplemented other than by means of an
agreement or instrument executed on behalf of each of the parties
hereto.
14.12 Severability. In the event that any provision
of this Agreement, or the application of any such provision to
any person or set of circumstances, shall be determined to be
invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such
provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and enforceable to the fullest extent
permitted by law.
14.13 Parties in Interest. None of the provisions of
this Agreement is intended to provide any rights or remedies to
any person other than the Fund and the Custodian and their
respective successors and assigns, if any.
14.14 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto and supersedes all
prior agreements and understandings between the parties hereto
relating to the subject matter hereof.
14.15 Variations of Pronouns. Whenever required by
the context hereof, the singular number shall include the
plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above
written.
"Custodian": BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ John B. Housen
Its_____________________________
"Fund" AGE High Income Fund, Inc.
By: /s/ Rupert H. Johnson, Jr.
Its: President
Stradley Ronon Stevens and Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
Direct Dial: (215) 564-8101
July 25, 1995
AGE High Income Fund, Inc.
777 Mariners Island Boulevard
San Mateo, Ca 94404
Re: AGE High Income Fund, Inc.
Gentlemen:
We have examined the Articles of Incorporation of AGE High Income Fund,
Inc. ("Fund"), a corporation organized under Colorado law, the Bylaws of the
Fund, and its form of Share Certificate, all as amended to date, and the various
pertinent corporate documents and proceedings we deem material. We have also
examined the Notification of Registration and the Registration Statements filed
under the Investment Company Act of 1940 ("Investment Company Act") and the
Securities Act of 1933 ("Securities Act"), all as amended to date, as well as
other items we deem material to this opinion.
You have indicated that, pursuant to Section 24(e)(1) of the Investment
Company Act, the Fund intends to file Post-Effective Amendment No. 34 to its
registration statement under the Securities Act to register 10,092,468
additional shares for sale pursuant to its currently effective registration
statement under the Securities Act.
Based upon the foregoing information and examination, it is our opinion
that the Fund is a valid and subsisting corporation organized under the laws of
the State of Colorado and that the proposed registration of the 10,092,468
shares is proper and such shares, when issued for a consideration deemed by the
Board of Directors to be consistent with the Articles of Incorporation, and as
described in the Fund's prospectus contained in its Securities Act registration
statement, will be legally outstanding, fully-paid and non-assessable shares,
and the holders of such shares will have all the rights provided for with
respect to such holding by the Articles of Incorporation as amended and the laws
of the State of Colorado.
We hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 34 to be filed by the Fund, covering the
registration of the said shares under the Securities Act and the applications
and registration statements, and amendments thereto, filed in accordance with
the securities laws of the several states in which shares of the Fund are
offered, and we further consent to reference in the Prospectus and Statement of
Additional Information of the Fund to the fact that this opinion concerning the
legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG
By: /s/ Audrey C. Talley
Audrey C. Talley
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
AGE High Income Fund, Inc.
We consent to the incorporation by reference in Post-Effective Amendment No. 34
to the Registration Statement of AGE High Income Fund, Inc. on Form N-1A (File
No.811-1608 and 2-30203) of our report dated June 30, 1995 on our audit of the
financial statements and financial highlights of the Fund, which report is
included in the Annual Report to Shareholders for the year ended May 31, 1995
which is incorporated by reference in the Registration Statement.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Francisco, California
July 26, 1995
AGE HIGH INCOME FUND, INC.
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by AGE High Income Fund, Inc. (the "Fund"),
which Plan shall take effect on the 1st day of May, 1994 (the
"Effective Date of the Plan"). The Plan has been approved by a
majority of the Board of Directors of the Fund (the "Board of
Directors"), including a majority of the directors who are not
interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan (the
"non-interested directors"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the
schedule and nature of payments and terms of the Management
Agreement between the Fund and Franklin Advisers, Inc.
("Advisers") and the terms of the Underwriting Agreement between
the Fund and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board of Directors concluded that the
compensation of Advisers under the Management Agreement, and of
Distributors, under the Underwriting Agreement, was fair and not
excessive; however, the Board of Directors also recognized that
uncertainty may exist from time to time with respect to whether
payments to be made by the Fund to Advisers, Distributors, or
others or by Advisers or Distributors to others may be deemed to
constitute distribution expenses. Accordingly, the Board of
Directors determined that the Plan should provide for such
payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its
affiliates, which form of agreement has been approved from time
to time by the directors, including the non-interested directors.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.15% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund
within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Directors with such other information as the
Board of Directors may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors,
including the non-interested directors, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the or by
vote of a majority of the non-interested directors, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Fund and
Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested directors cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested directors shall be
committed to the discretion of such non-interested directors.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Fund and Distributors as evidenced
by their execution hereof.
AGE HIGH INCOME FUND, INC.
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
CLASS II DISTRIBUTION PLAN
I. Investment Company: AGE HIGH INCOME FUND, INC.
II. Fund: AGE HIGH INCOME FUND, INC.
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.50%
B. Service Fee: 0.15%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by the Investment Company named above
("Investment Company") for the class II shares (the "Class") of
each Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors or Trustees of the Investment Company (the
"Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and
nature of payments and terms of the Management Agreement between
the Investment Company and Franklin Advisers, Inc. and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting
Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee
not to exceed the above-stated maximum distribution fee per annum
of the Class' average daily net assets represented by shares of
the Class, as may be determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or
others, or (ii) directly to others, an amount not to exceed the
above-stated maximum service fee per annum of the Class' average
daily net assets represented by shares of the Class, as may be
determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved
from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to assist in the distribution
and promotion of shares of the Class. Payments made to
Distributors under the Plan may be used for, among other things,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead
expenses attributable to the distribution of Class shares, as
well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements
with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by
the Trustees, including the non-interested trustees. In
addition, such fees may be used to pay for advancing the
commission costs to dealers or others with respect to the sale of
Class shares.
(b) The monies to be paid pursuant to paragraph 1(b)
above shall be used to pay dealers or others for, among other
things, furnishing personal services and maintaining shareholder
accounts, which services include, among other things, assisting
in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf
of customers; forwarding certain shareholder communications from
the Fund to customers; receiving and answering correspondence;
and aiding in maintaining the investment of their respective
customers in the Class. Any amounts paid under this paragraph
2(b) shall be paid pursuant to a servicing or other agreement,
which form of agreement has been approved from time to time by
the Board.
3. In addition to the payments which the Fund is authorized
to make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of Class shares issued
by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review,
on a quarterly basis, a written report of the monies reimbursed
to it and to others under the Plan, and shall furnish the Board
with such other information as the Board may reasonably request
in connection with the payments made under the Plan in order to
enable the Board to make an informed determination of whether the
Plan should be continued.
5. The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically
approved at least annually by the Board, including the non-
interested Board members, cast in person at a meeting called for
the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to
this Plan, may be terminated at any time, without penalty, by
vote of a majority of the outstanding voting securities of the
Fund or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to
this Plan, may not be amended to increase materially the amount
to be spent for distribution pursuant to Paragraph 1 hereof
without approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested Board members cast in person at a meeting called for
the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be
committed to the discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Investment Company and Distributors
as evidenced by their execution hereof.
Date: March 30, 1995
Investment Company
By: /s/ Deborah R. Gatzek
Franklin/Templeton Distributors, Inc.
By: /s/ Gregory E. Johnson
POWER OF ATTORNEY
The undersigned officers and directors of AGE HIGH INCOME
FUND, INC. (the "Registrant") hereby appoint HARMON E. BURNS,
DEBORAH R. GATZEK, KAREN L. SKIDMORE, LARRY L. GREENE AND MARK H.
PLAFKER,(with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to Post-
Effective Amendments to the Registrant's registration statement
on Form N-1A under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933 covering the sale
of shares by the Registrant under prospectuses becoming effective
after this date, including any amendment or amendments increasing
or decreasing the amount of securities for which registration is
being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory
authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and
purposes as he could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and directors hereby execute this
Power of Attorney as of this 17th day of January 1995.
/s/ Rupert H. Johnson, Jr. /s/ Frank H. Abbott
Rupert H. Johnson, Jr., Frank H. Abbott, III,
Director
Principal Executive Officer
and Director
/s/ Harmon E. Burns /s/ Robert F. Carlson
Harmon E. Burns, Director Robert F. Carlson, Director
/s/ Roy V. Fox /s/ S. Joseph Fortunato
Roy V. Fox, Director S. Joseph Fortunato, Director
/s/ R. Martin Wiskemann /s/ Martin L. Flanagan
R. Martin Wiskemann, Director Martin L. Flanagan, Principal
Financial Officer
/s/ Diomedes Loo-Tam
Diomedes Loo-Tam,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of AGE High
Income Fund, Inc. (the "Fund").
As Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of the Directors of the Fund
present at a meeting held at 777 Mariners Island Boulevard, San
Mateo, California, on January 17, 1995.
RESOLVED, that a Power of Attorney, substantially in the
form of the Power of Attorney presented to this Board,
appointing Harmon E. Burns, Deborah R. Gatzek, Karen L.
Skidmore, Larry L. Greene and Mark H. Plafker as attorneys-
in-fact for the purpose of filing documents with the
Securities and Exchange Commission, be executed by each
Director and designated officer.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Deborah R. Gatzek
Dated: January 17, 1995 Deborah R. Gatzek
Secretary
Franklin Fund
Form of Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a
majority of the Board of [Directors/Trustees] of the Franklin
Fund (the "Fund") [for its series]. The Board has
determined that the Plan is in the best interests of each class
and the Fund as a whole. The Plan sets forth the provisions
relating to the establishment of multiple classes of shares for
the Fund.
1. The Fund shall offer two classes of shares, to be
known as Franklin Fund - Class I and Franklin
Fund - Class II.
2. Class I shares shall carry a front-end sales charge ranging
from
[ % - %], and Class II shares shall carry a front-end
sales charge of 1.00%.
3. Class I shares shall not be subject to a contingent deferred
sales charge ("CDSC") except in the following limited
circumstances. On investments of $1 million or more, a contingent
deferred sales charge of 1.00% of the lesser of the then-current
net asset value or the original net asset value at the time of
purchase applies to redemptions of those investments within the
contingency period of 12 months from the calendar month following
their purchase. The CDSC is waived in certain circumstances, as
described in the Fund's prospectus.
4. Class II shares redeemed within 18 months of their purchase
shall be assessed a CDSC of 1.00% on the lesser of the then-
current net asset value or the original net asset value at the
time of purchase. The CDSC is waived in certain circumstances as
described in the Fund's prospectus.
5. The Rule 12b-1 Plan associated with Class I shares may be used
to reimburse Franklin/Templeton Distributors, Inc. (the
"Distributor") or others for expenses incurred in the promotion
and distribution of the shares of Class I. Such expenses include,
but are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of
the Distributor's overhead expenses attributable to the
distribution of Class shares, as well as any distribution or
service fees paid to securities dealers or their firms or others
who have executed a servicing agreement with the Fund for the
Class, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with Class II shares has two
components. The first component is a shareholder servicing fee,
to be paid to broker-dealers, banks, trust companies and others
who will provide personal assistance to shareholders in servicing
their accounts. The second component is an asset-based sales
charge to be retained by the Distributor during the first year
after sale of shares, and, in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the
promotion and distribution of Class II shares, in a manner
similar to that described above for (Class I shares.
The Plans shall operate in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.,
Article III, section 26(d).
6. The only difference in expenses as between Class I and Class
It shares shall relate to differences in the Rule 12b-1 plan
expenses of each class, as described in each class' Rule 12b-1
Plan.
7. There shall be no conversion features associated with the
Class I and Class II shares.
8. Shares of Class I of the Fund may only be exchanged for shares
of Class I of any other fund in the Franklin/Templeton Group and
may not be exchanged into the Franklin/Templeton Money Fund I! of
the Franklin/Templeton Money Fund Trust. Shares of Class II of
the Fund may only be exchanged for shares of Class II of any
other fund in the Franklin/Templeton Group and may also be
exchanged into the Franklin/Templeton Money Fund II of the
Franklin/Templeton Money Fund Trust.
9. Each Class will vote separately with respect to the Rule 12b-1
Plan related to that Class.
10. On an ongoing basis, the [directors/trustees] pursuant to
their fiduciary responsibilities under the 1940 Act and
otherwise, will monitor the Fund for the existence of any
material conflicts between the interests of the two classes of
shares. The [directors/trustees], including a majority of the
independent [directors/trustees], shall take such action as is
reasonably necessary to eliminate any such conflict that may
develop. Franklin Advisers, Inc. and Franklin/Templeton
Distributors, Inc. shall be responsible for alerting the Board to
any material conflicts that arise.
11. All material amendments to this Plan must be approved by a
majority of the [directors/trustees] of the Fund, including a
majority of the [directors/trustees] who are not interested
persons of the Fund.
SCHEDULE A
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AGE
HIGH INCOME FUND, INC. MAY 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000002768
<NAME> AGE HIGH INCOME FUND
<SERIES>
<NUMBER> 011
<NAME> AGE HIGH INCOME FUND - CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 1,910,138,244
<INVESTMENTS-AT-VALUE> 1,852,136,631
<RECEIVABLES> 75,834,422
<ASSETS-OTHER> 1,009,064
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,928,980,117
<PAYABLE-FOR-SECURITIES> 14,150,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,264,674
<TOTAL-LIABILITIES> 19,414,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,419,763,408
<SHARES-COMMON-STOCK> 690,087,848
<SHARES-COMMON-PRIOR> 673,135,886
<ACCUMULATED-NII-CURRENT> 16,419,841
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (468,689,725)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (57,928,081)
<NET-ASSETS> 1,909,565,443
<DIVIDEND-INCOME> 2,566,121
<INTEREST-INCOME> 181,840,658
<OTHER-INCOME> 0
<EXPENSES-NET> (11,738,564)
<NET-INVESTMENT-INCOME> 172,668,215
<REALIZED-GAINS-CURRENT> (4,004,670)
<APPREC-INCREASE-CURRENT> 55,295,775
<NET-CHANGE-FROM-OPS> 223,959,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (176,150,325)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 232,716,756
<NUMBER-OF-SHARES-REDEEMED> (242,966,844)
<SHARES-REINVESTED> 27,202,050
<NET-CHANGE-IN-ASSETS> 92,084,800
<ACCUMULATED-NII-PRIOR> 19,300,345
<ACCUMULATED-GAINS-PRIOR> (499,248,524)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (8,263,271)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,738,564)
<AVERAGE-NET-ASSETS> 1,783,776,225
<PER-SHARE-NAV-BEGIN> 2.700
<PER-SHARE-NII> .260
<PER-SHARE-GAIN-APPREC> .074
<PER-SHARE-DIVIDEND> (0.264)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 2.770
<EXPENSE-RATIO> .660
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AGE
HIGH INCOME FUND, INC. MAY 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000002768
<NAME> AGE HIGH INCOME FUND
<SERIES>
<NUMBER> 012
<NAME> AGE HIGH INCOME FUND - CLASS II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 1,910,138,244
<INVESTMENTS-AT-VALUE> 1,852,136,631
<RECEIVABLES> 75,834,422
<ASSETS-OTHER> 1,009,064
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,928,980,117
<PAYABLE-FOR-SECURITIES> 14,150,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,264,674
<TOTAL-LIABILITIES> 19,414,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,419,763,408
<SHARES-COMMON-STOCK> 257,620
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 16,419,841
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (468,689,725)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (57,928,081)
<NET-ASSETS> 1,909,565,443
<DIVIDEND-INCOME> 2,566,121
<INTEREST-INCOME> 181,840,658
<OTHER-INCOME> 0
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</TABLE>
