As filed with the Securities and Exchange Commission on November 1, 1996
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. 37 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 (X)
FRANKLIN HIGH INCOME TRUST
(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 January 1, 1997, pursuant to paragraph (a)(i)
[ ]75 days after filing pursuant to paragraph (a)(ii)
[ ]on (date), pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to Rule
24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuers most recent fiscal year was filed on July 25, 1996.
FRANKLIN HIGH INCOME TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: INFORMATION REQUIRED IN PROSPECTUS
(AGE High Income Fund - Class Z shares)
N-1A Item Location in
Item No. Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "How does the Fund Measure
Information Performance?"
4. General Description of "How is the Trust Organized?" "How
Registrant does the Fund Invest its Assets?";
"What are the Fund's Potential
Risks?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6. Capital Stock and Other "How is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions
Might I Receive From the Fund?";
"How Taxation Affects You and the
Fund"
7. Purchase of Securities "How do I Buy Shares?"; "May I
Being Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account";
"Useful Terms and Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares
of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"
9. Pending Legal Proceedings Not applicable
FRANKLIN HIGH INCOME TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
(AGE High Income Fund - Class Z shares)
N-1A Item Location in
Item No. Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information See Prospectus "How is the Trust
and History Organized?"
13. Investment Objective "How does the Fund Invest its
Assets?"; "Investment
Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Management and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation and "How does the Fund Buy Securities
Other Practices For its Portfolio?"
18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"
19. Purchase, Redemption and "How do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "How does the Fund Measure
Data Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS & APPLICATION
FRANKLIN'S
AGE HIGH
INCOME FUND
INVESTMENT STRATEGY
INCOME
January 1, 1997
Franklin High Income Trust
This prospectus describes the CLASS Z shares of AGE High Income Fund (the
"Fund"). It contains information you should know before investing in the Fund.
Please keep it for future reference.
The Fund's SAI, dated January 1, 1997, as may be amended from time to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or
write the Fund at the address shown.
CLASS Z shares are available for purchase by certain financial institutions
(such as banks, savings institutions and credit unions); pension, profit sharing
and employee benefit plans; trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and individuals who meet certain
minimum investment requirements. See "About Your Account."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
FRANKLIN'S
AGE HIGH
INCOME FUND
January 1, 1997
WHEN READING THIS PROSPECTUS, YOU WILL SEE TERMS IN CAPITAL LETTERS. THIS MEANS
THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary
Financial Highlights
How does the Fund Invest its Assets?
What are the Fund's Potential Risks?
Who Manages the Fund?
How does the Fund Measure Performance?
How is the Trust Organized?
How Taxation Affects You and the Fund
ABOUT YOUR ACCOUNT
How Do I Buy Shares?
May I Exchange Shares for
Shares of Another Fund?
How Do I Sell Shares?
What Distributions Might I
Receive From the Fund?
Transaction Procedures and
Special Requirements
Services to Help You
Manage Your Account
GLOSSARY
Useful Terms and Definitions
APPENDIX
Description of Ratings
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
CLASS Z shares of the Fund. Because CLASS Z shares were not offered to the
public prior to the date of this prospectus, the table is based on the
historical expenses of the CLASS I shares of the Fund for the fiscal year ended
May 31, 1996+ Your actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES++
Maximum Sales Charge Imposed on Purchases
(as a percentage of OFFERING PRICE) None
Deferred Sales Charge None
Exchange Fee (per transaction) $5.00+++
B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.46%
Rule 12b-1 Fees 0.00%
Other Expenses 0.14%
Total Fund Operating Expenses 0.60%
C. EXAMPLE
The chart below assumes the annual return for CLASS Z shares is 5% and operating
expenses are as described above. For each $1,000 investment, you would pay the
following projected expenses if you sold your shares after the number of years
shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$6 $19 $33 $75
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
the NET ASSET VALUE or dividends of CLASS Z and are not directly charged to your
account.
+ Unlike CLASS Z shares, the CLASS I shares of the Fund have a front-end sales
charge and Rule 12b-1 fees.
++ If your transaction is processed through your SECURITIES DEALER, you may be
charged a fee by your SECURITIES DEALER for this service.
+++ $5.00 fee is only for MARKET TIMERS. WE process all other exchanges without
a fee.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
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
objectives are fundamental policies of the Fund and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's
objectives will be achieved.
TYPES OF SECURITIES THE FUND MAY INVEST IN
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.
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 buying 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 up to 100% of its portfolio in non-investment grade bonds.
These entail default and other risks greater than those associated with higher
rated securities. You 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 nationally recognized
statistical rating agencies or from unrated securities of comparable quality.
Lower rated securities are those rated Ba or lower by Moody's Investors Service
("Moody's") or BB or lower by Standard & Poor's Corporation ("S&P"). Lists of
these ratings are shown in the Appendices to this prospectus and the SAI. These
ratings 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 that are not rated.
It is the Fund's intent, however, not to buy securities rated below CCC. With
respect to unrated securities, it is the Fund's intent not to buy securities
which, in the view of ADVISERS, 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,
1996, approximately 84.75% of the Fund's net assets were invested in lower rated
bonds or in unrated bonds with comparable credit characteristics. A breakdown of
the bonds' ratings is included under "What Are the Fund's Potential Risks? -
Asset Composition Table." As noted above, the Fund will not invest in securities
that are felt by ADVISERS to involve excessive risk. If the rating on an issue
held in the Fund's portfolio is changed by a rating agency or the security goes
into default, this 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 of the change.
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 your investment. Certain of the high yield, fixed-income securities in which
the Fund may invest may be purchased at a discount to par value. These
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 capital gain, but will generally hold them as long as
expected returns on the 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.
DEFAULTED DEBT SECURITIES. The Fund may buy defaulted debt securities if, in the
opinion of ADVISERS, it appears likely that the issuer may resume interest
payments or other advantageous developments appear likely in the near future.
These 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 without
shareholder approval.
FOREIGN SECURITIES. The Fund may buy foreign securities that are traded in the
U.S. or buy American Depository Receipts ("ADRs"), which are certificates issued
by U.S. banks representing the right to receive securities of a foreign issuer
deposited with that bank or a correspondent bank. The Fund may also buy the
securities of foreign issuers directly in foreign markets and may buy securities
of U.S. issuers that are denominated in a foreign currency.
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 that
are not issued and transferable in fully registered form. Securities that are
acquired by the Fund outside the U.S. and that are publicly traded in the U.S.,
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 U.S.
Please see "What Are the Fund's Potential Risks? - Foreign Securities."
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 buy 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 buy 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 with other kinds of
options, however, the writing of an option on foreign currency will be only a
partial hedge, up to the amount of the premium received, and the Fund could be
required to buy or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may be
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 may write covered call options, it does
not currently anticipate that it will do so. If, in the future, the Fund writes
covered call options, it is not limited in the extent to which it may write such
options. Prior to writing options, the Fund will amend this prospectus to
discuss its transactions in options.
INTEREST RATE SWAPS. The Fund may participate in interest rate swaps. An
interest rate swap is the transfer between two counterparties of interest rate
obligations. One obligation has an interest rate fixed to maturity while the
other has an interest rate that changes with changes in a designated benchmark,
such as the London Interbank Offered Rate (LIBOR), prime, commercial paper, or
other benchmarks. The obligations to make repayment of principal on the
underlying securities are not transferred. These 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 the
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 that
has a floating-rate obligation which substantially mirrors the obligation
desired by the first entity. 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 its custodian bank, cash or liquid debt securities with 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 the 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 a fixed rate
obligation, also frequently at a price lower than is available in the capital
markets. The success of the transaction depends in large part on the
availability of fixed rate obligations at a low enough coupon rate to cover the
cost involved.
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
TEMPLETON FUNDS. For more information, see the SAI.
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. If 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. Trade claims are not regulated by federal
securities laws or the SEC. Currently, trade claims are 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
the time of purchase.
LOAN PARTICIPATIONS. The Fund may acquire loan participations and other related
direct or indirect bank debt obligations ("Loan Participations"), in which the
Fund will buy from a lender a portion of a larger loan that it has made to a
borrower. Generally, 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. 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 buy Loan Participations that sell at a
discount because of the borrower's credit problems. To the extent the borrower's
credit problems are resolved, Loan Participations may appreciate in value.
The Fund's investment in Loan Participations, all of which may have speculative
characteristics and some of which may be in default, and other defaulted
securities may not exceed 15% of the Fund's net assets at the time of
investment.
ZERO COUPON BONDS. The Fund may buy certain bonds issued at a discount which
defer payment of interest or pay no interest until maturity, known as zero
coupon bonds, or which pay the interest through the issuance of additional
bonds, known as pay-in-kind bonds. For federal tax purposes, holders of these
bonds, such as the Fund, are deemed to receive interest over the life of the
bonds and are taxed as if interest were paid on a current basis although no cash
interest payments are in fact received by the holder until the bonds mature.
Please see "What Are the Fund's Potential Risks? - High Yielding, Fixed-Income
Securities."
OTHER INVESTMENT POLICIES OF THE FUND
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions, in which
the Fund buys 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 ADVISERS. A
repurchase agreement is deemed to be a loan by the Fund under the 1940 ACT. The
U.S. government security subject to resale (the collateral) will be held on
behalf of the Fund by a custodian approved by the BOARD and will be held
pursuant to a written agreement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may buy debt obligations
on a "when-issued" or "delayed delivery" basis. These securities are subject to
market fluctuation before 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
bank, cash or high-grade marketable securities having an aggregate value equal
to the amount of its purchase commitments until payment is made. To the extent
the Fund engages in when-issued and delayed delivery transactions, it will do so
only to acquire securities consistent with its investment objectives and
policies, and not for investment leverage.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the BOARD
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 bank collateral with an initial market value of 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%. This
collateral shall consist of cash, securities issued by the U.S. government, its
agencies or instrumentalities, or irrevocable letters incur of credit. The
lending of securities is a common practice in the securities industry. The Fund
may engage 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 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 its total assets.
ILLIQUID INVESTMENTS. The Fund may not invest more than 10% of its net assets,
at the time of purchase, in illiquid securities. Illiquid securities are
generally securities that cannot be sold within seven days in the normal course
of business at approximately the amount at which the Fund has valued them.
Subject to this limitation, the BOARD has authorized the Fund to invest in
restricted securities where such investments are consistent with the Fund's
investment objectives and has authorized these securities to be considered
liquid to the extent ADVISERS determines on a daily basis that there is a liquid
institutional or other market for such securities. Notwithstanding the
determinations of ADVISERS, the BOARD 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 after 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 buying
these securities or the market for these securities contracts.
GENERAL
Options, including options on foreign currencies and foreign securities, forward
contracts and interest rate swaps are generally considered "derivative
securities."
The Fund's investment in options, including options on foreign currencies and
foreign securities, and forward contracts may be limited by the requirements of
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. For more information, please see
the SAI.
It is the present policy of the Fund (which may be changed without shareholder
approval) not to invest more than 5% of its total assets in companies that have
a record of less than three years continuous operation, including predecessors.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How Does the Fund Invest Its Assets?" and "Investment Restrictions" in the
SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the stock and bond markets as a whole.
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 your overall investment needs and
goals. If you are on a fixed income or retired, you should also consider the
increased risk of loss to principal that is present with an investment in higher
risk securities such as those in which the Fund invests.
The market value of lower rated, fixed-income securities and unrated securities
of comparable quality, commonly known as junk bonds, tends to reflect individual
developments affecting the issuer to a greater extent than the market value of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. 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 rating agencies, 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 securities rated triple B by S&P or Moody's, ratings which are
considered investment grade, possess some speculative characteristics.
Issuers of 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 these 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, these 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 developments affecting
the issuer, 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 the securities are generally unsecured and are often
subordinated to other creditors of the issuer. Current prices for defaulted
bonds are generally significantly lower than their purchase price, and the Fund
may have unrealized losses on defaulted securities that are reflected in the
price of the Fund's shares. In general, securities that default lose much of
their value in the time period before the actual default so that the Fund's net
assets are impacted prior to the default. The Fund may retain an issue that has
defaulted because the issue may present an opportunity for subsequent price
recovery.
High yielding, fixed-income securities frequently have call or buy-back features
that permit an issuer to call or repurchase the securities from the Fund.
Although these 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, ADVISERS may find it necessary to replace
the securities with lower yielding securities, which could result in less net
investment income to the Fund. 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. The
Fund may be required under the CODE and U.S. Treasury regulations to accrue
income for income tax purposes on defaulted obligations and to distribute the
income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on these 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.
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 that trade in a broader secondary retail market. Generally, buyers 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 a
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 "How Are Fund Shares Valued?" in the SAI.)
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 high yielding securities have been sold
with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell restricted securities before the
securities have been registered, it may be deemed an underwriter of the
securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may special costs in disposing of
restricted 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. These securities involve special risks because they are new
issues. ADVISERS will carefully review their credit and other characteristics.
The Fund has no arrangement with its underwriter or any other person concerning
the acquisition of these securities.
The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yielding securities and adversely affected the
value of outstanding securities and the ability of issuers of such securities to
meet their obligations. Although the economy has improved considerably and high
yielding securities have performed more consistently since that time, there is
no assurance that the adverse effects previously experienced will not reoccur.
For example, the highly publicized defaults of some high yield issuers during
1989 and 1990 and concerns regarding a sluggish economy that continued into
1993, depressed the prices for many of these securities. While market prices may
be temporarily depressed due to these factors, the ultimate price of any
security will generally reflect the true operating results of the issuer.
Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's NET ASSET VALUE. 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 ADVISERS' judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, ADVISERS 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. These bonds carry an
additional risk in that, unlike bonds that 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 that 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 the
security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Pay-in-kind bonds are securities that pay interest through the issuance of
additional bonds. The Fund will be deemed to receive interest over the life of
these 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. 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
these 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 these types of
securities.
ASSET COMPOSITION TABLE. A credit rating by a rating agency evaluates only the
safety of principal and interest of a security, and does not consider the market
value risk associated with the investment. The table below shows the percentage
of the Fund's assets invested in fixed-income securities rated in each of the
specific rating categories shown and those that are not rated by the rating
agency but deemed by ADVISERS to be of comparable 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, 1996. The Appendix to this prospectus includes a
description of each rating category.
AVERAGE WEIGHTED
S&P RATING PERCENTAGE OF ASSETS
AAA 5.55%
A- 1.08%
BBB+ 0.60%
BBB- 2.58%
BB+ 5.99%
BB 6.44%
BB- 14.10%
B+ 18.08%
B* 23.65%
B- 12.36%
CCC+ 1.41%
CCC 1.44%
CCC- 1.28%
* 4.50% of these securities, which are unrated by S&P, are included in the B
rating category.
The percentage of the Fund's assets invested in equity securities was 5.44%.
INTEREST RATE AND MARKET RISK. To the extent the Fund invests in debt
securities, changes in interest rates in any country where the Fund is invested
will affect the value of the Fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the Fund's shares.
To the extent the Fund invests in common stocks, a general market decline in any
country where the Fund is invested may also cause the Fund's share price to
decline. The value of worldwide stock markets and interest rates has increased
and decreased in the past. These changes are unpredictable and may happen again
in the future.
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 that
might affect the amount and types of foreign investments made or the payment of
principal or interest on securities the Fund holds. In addition, there may be
less information available about these securities and it may be more difficult
to obtain or enforce a court judgment in the event of a lawsuit. Fluctuations in
currency convertibility or exchange rates could result in investment losses for
the Fund. Investment in foreign securities may also subject the Fund to losses
due to nationalization, expropriation or differing accounting practices and
treatments.
WHO MANAGES THE FUND?
THE BOARD. The BOARD oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
BOARD also monitors the Fund to ensure no material conflicts exist between the
two classes of shares. While none is expected, the BOARD will act appropriately
to resolve any material conflict that may arise.
INVESTMENT MANAGER. ADVISERS is the investment manager of the Fund and other
funds with aggregate assets of over $81 billion. It is wholly owned by
RESOURCES, a publicly owned company engaged in the financial services industry
through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the
principal shareholders of RESOURCES.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: 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 from Stanford University and a
Master of Business Administration degree 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.
SERVICES PROVIDED BY ADVISERS and FT SERVICES. ADVISERS manages the Fund's
assets and makes its investment decisions. FT SERVICES, the Fund's
administrator, provides certain administrative facilities and services for Fund,
under a subcontract with ADVISERS. Please see "Investment Management and Other
Services" and "Miscellaneous Information" in the SAI for information on
securities transactions and a summary of the Fund's Code of Ethics.
MANAGEMENT FEES. During the fiscal year ended May 31, 1996, management fees
totaling 0.46% of the average monthly net assets of the Fund were paid to
ADVISERS.
PORTFOLIO TRANSACTIONS. ADVISERS tries to obtain the best execution on all
transactions. If ADVISERS believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How Does the Fund
Buy Securities For Its Portfolio?" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, but certain figures may not include the sales charge.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current OFFERING PRICE of the
class or, in the case of CLASS Z shares, the NET ASSET VALUE of such class.
Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.
The investment results of each class will vary. Performance figures are always
based on past performance and do not indicate future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How Does the Fund Measure Performance?" in the SAI.
HOW IS THE TRUST ORGANIZED?
The Fund is a diversified series of Franklin High Income Trust (the "Trust"), an
open-end management investment company, commonly called a mutual fund. It was
incorporated in Colorado in January 1968 under the sponsorship of the Assembly
of Governmental Employees, reorganized as a trust in its present form on October
1, 1996, and is registered with the SEC under the 1940 ACT.
The Trust offers three classes of shares. The Fund began offering CLASS Z shares
as of the date of this prospectus and began offering the other two classes of
shares under the current multiclass structure on May 15, 1995: Franklin High
Income Trust, AGE High Income Fund Series, AGE High Income Fund - CLASS I, and
Franklin High Income Trust, AGE High Income Fund Series, AGE High Income Fund -
CLASS II. All shares purchased before May 15, 1995 are considered CLASS I
shares. A further description of CLASS I and CLASS II is set forth below.
Each class will vote separately on matters (1)submitted to shareholders in which
the interests of the class differ from the interests of any other class, (2)
expressly required to be voted on separately by state law, or (3) required to be
voted on separately by the 1940 ACT. Shares of each class of a series represent
proportionate interests in the assets of the Fund and have the same voting and
other rights and preferences as the other classes and series of the Trust for
matters that affect the Trust as a whole. In the future, additional series or
classes of shares may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the BOARD. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the BOARD.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting, however, for matters requiring shareholder approval under the
1940 ACT. A meeting may also be called by the BOARD in its discretion or by
shareholders holding at least 10% of the outstanding shares. The 1940 ACT
requires that WE help you communicate with other shareholders in connection with
removing members of the BOARD.
CLASS I AND CLASS II. Shares of CLASS I and CLASS II are described in a separate
prospectus relating only to those classes. Shares of CLASS I and CLASS II may be
purchased through your investment representative or directly by contacting the
Trust. To obtain a prospectus relating to the Fund's CLASS I and CLASS II
shares, contact your investment representative or DISTRIBUTORS.
CLASS I and CLASS II shares of the Fund have sales charges and rule 12b-1
charges that may affect performance. CLASS I shares have a front-end sales
charge of 4.25% (4.44% of the net amount invested) which is reduced on certain
transactions of $100,000 or more. CLASS I shares are subject to annual 12b-1
expenses equal to a maximum of 0.15%. CLASS II shares have a 1% (1.01% of the
amount invested) front-end sales charge and are subject to annual 12b-1 expenses
equal to a maximum of 1%. Shares of CLASS I may be subject and shares of CLASS
II are generally subject to a contingent deferred sales charge upon redemption.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the CODE. By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, the Fund will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends which you receive from the
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the CODE, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if paid by the
Fund and received by you on December 31 of the calendar year in which they are
declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
For corporate shareholders, 2.29% of ordinary income distributions (including
short-term capital gains) paid by the Fund for the fiscal year ended May 31,
1996, qualified for the corporate dividends-received deduction because of the
Fund's principal investment in domestic debt securities. 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 you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions received by you from the Fund
and the application of foreign tax laws to these distributions.
You should also consult your tax advisor with respect to the applicability of
any state and local intangible property or income taxes to your shares of the
Fund and distributions and redemption proceeds received from the Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check.
There is a minimum initial investment of $5 million ($xxx for subsequent
investments) for all CLASS Z shares except the following:
(a) Broker-dealers, qualified registered investment advisors and certified
financial planners who have entered into a special agreement with
DISTRIBUTORS for their clients who are participating in comprehensive fee
programs sometimes known as "wrap fee" programs;
(b) Registered investment advisors or registered certified financial planners
who have clients invested in MUTUAL SERIES on October 31, 1996;
(c) Employer stock, bonus, pension or profit-sharing plans that meet the
requirements for qualification under Section 401 of the CODE, including
salary reduction plans qualified under Section 401(k) of the CODE (subject
to initial investment amount, if they have 500 or more employees or the
plan has assets of $25 million or more);
(d) Effective xxx 1997, Franklin Templeton's 401(k) Plan;
(e) Trust companies and bank trust departments (subject to a $1 million initial
investment or an investment of $1 million over the subsequent 13-month
period in any of the funds in the FRANKLIN TEMPLETON FUNDS provided those
assets are held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments or
other plan fiduciaries or participants, in the case of certain retirement
plans, have full or shared investment discretion. Trust companies and bank
trust departments making such purchases may be required to register as
dealers pursuant to state law;
(f) Governments, municipalities and tax-exempt entities that meet the
requirements for qualification under Section 501 of the CODE (subject to an
initial investment in the Funds of $1 million`);
(g) Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group may also purchase
shares of the Fund if the group as a whole meets the minimum initial
investment of $5 million, at least $1 million of which is invested or to be
invested in the FRANKLIN TEMPLETON FUNDS. The minimum initial investment is
based upon the aggregate dollar value of shares previously purchased and
still owned by the group, plus the amount of the current purchase;
(h) Directors, trustees, officers and full-time employees (and members of their
immediate families) of FRANKLIN TEMPLETON GROUP, FRANKLIN TEMPLETON FUNDS
and MUTUAL SERIES who invest $100 or more;
(i) Accounts managed by FRANKLIN TEMPLETON GROUP;
(j) Investors who invest $5 million over the subsequent 13-month period in the
Fund; or
(k) Each series or class thereof of Franklin Templeton Fund Allocator Series
that invests $1,000 or more.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between OUR representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to
DISTRIBUTORS,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow DISTRIBUTORS to achieve cost
savings in distributing shares.
For those investments subject to the $5 million minimum investment requirement,
the cost or current value (whichever is higher) of an investor's shares of other
funds in the FRANKLIN TEMPLETON GROUP will be included for purposes of
determining compliance with the minimum investment amount, provided that at
least $1 million is invested in the Fund.
The minimum for subsequent investments of CLASS Z shares is; $25 for directors,
trustees, officers and full-time employees (and members of their immediate
families) of FRANKLIN TEMPLETON GROUP, FRANKLIN TEMPLETON FUNDS and MUTUAL
SERIES; and $1,000 for each series of Franklin Templeton Fund Allocator Series.
LETTER OF INTENT. You may buy CLASS Z shares with an initial investment of less
than $5 million by completing the LETTER section of the shareholder application.
A LETTER is a commitment by you to invest at least $5 million during a 13-month
period in the FRANKLIN TEMPLETON GROUP, including at least $1 million in the
Fund. The minimum initial investment under a LETTER is $1 million.
BY COMPLETING THE LETTER SECTION OF THE SHAREHOLDER APPLICATION, YOU ACKNOWLEDGE
AND AGREE TO THE FOLLOWING:
o You authorize that the Class Z shares of the Fund actually purchased will
be involuntarily redeemed and the proceeds sent to you at the address of
record if you do not invest at least $5 million in shares of the Fund or
other funds in the FRANKLIN TEMPLETON GROUP within the 13-month period. The
redemption price may be more or less than your original purchase price.
o You authorize that any redemptions made by you during the 13-month period
will be subtracted from the amount of the purchases for purposes of
determining whether the terms of the LETTER have been completed.
We will pay or reinvest dividend and capital gain distributions on the shares as
you direct.
If you would like more information about the LETTER privilege, please call
Shareholder Services.
PURCHASE PRICE OF FUND SHARES
CLASS Z shares are purchased at NET ASSET VALUE without a sales charge.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. TRUST COMPANY can provide
the plan documents for you and serve as custodian or trustee.
TRUST COMPANY can provide you with brochures containing important information
about its plans. To establish a TRUST COMPANY retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call OUR Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
WE offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund or (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction for taxable
investors.
As a holder of CLASS Z shares, you may exchange into any of OUR money funds
except Franklin Templeton Money Fund II ("Money Fund II").
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some FRANKLIN TEMPLETON FUNDS and
MUTUAL SERIES do not accept exchanges and others may have different investment
minimums. Some FRANKLIN TEMPLETON FUNDS and MUTUAL SERIES do not offer CLASS Z
shares.
- ---------------------- ---------------------------------------------------------
Method Steps to Follow
- ---------------------- ---------------------------------------------------------
- ---------------------- ---------------------------------------------------------
BY MAIL 1. Send US written instructions signed by all
account owners
- ---------------------- ---------------------------------------------------------
- ---------------------- ---------------------------------------------------------
2. Include any outstanding share certificates for
the shares you're exchanging
- ---------------------- ---------------------------------------------------------
- ---------------------- ---------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- ---------------------- ---------------------------------------------------------
- ---------------------- ---------------------------------------------------------
If you do not want the ability to exchange by phone to
apply to your account, please let US know.
- ---------------------- ---------------------------------------------------------
- ---------------------- ---------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ---------------------- ---------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges by the
holders of CLASS Z shares:
o You may only exchange shares into the other FRANKLIN TEMPLETON FUNDS (and,
expect as described below, excluding Templeton Developing Markets Trust,
Templeton Foreign Fund and Templeton Growth Fund) and which offer CLASS Z
shares, and Templeton Institutional Funds, Inc., provided that shareholders
meet the investment requirements of such funds;
o The following holders of the Fund's CLASS Z shares may exchange into the
CLASS Z shares of Templeton Developing Markets Trust, Templeton Foreign
Fund and Templeton Growth Fund: (i) broker-dealers, qualified registered
investment advisors and certified financial planners who have entered into
a special agreement with DISTRIBUTORS for their clients who are
participating in comprehensive fee programs sometimes known as "wrap fee"
programs; (ii) registered investment advisors or registered certified
financial planners who have clients invested in on October 31, 1996; (iii)
directors, trustees, officers and full-time employees (and members of their
immediate families) of FRANKLIN TEMPLETON GROUP, Franklin Templeton Fund
and ; (iv) accounts managed by the FRANKLIN TEMPLETON GROUP; and (v) each
series and each class thereof of Franklin Templeton Fund Allocator Series.
o If the fund you are exchanging into does not offer CLASS Z shares, you may
exchange into the CLASS I shies of such Fund at NET ASSET VALUE.
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all
transactions. Please notify US in writing if you do not want this option to
be available on your account(s). Additional procedures may apply. Please
see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact OUR Retirement Plans Department for information on exchanges
within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o WE may modify or discontinue OUR exchange policy if WE give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange
out of the Fund within two weeks of an earlier exchange request, (ii)
exchange shares out of the Fund more than twice in a calendar quarter, or
(iii) exchange shares equal to at least $5 million, or more than 1/4 of 1%
of the Fund's net assets. Shares under common ownership or control are
combined for these limits. If you exchange shares as described in this
paragraph, you will be considered a MARKET TIMER. Each exchange by a MARKET
TIMER, if accepted, will be charged $5.00. Some of OUR funds do not allow
investments by MARKET TIMERS.
Because excessive trading can hurt Fund performance and shareholders, WE may
refuse any exchange purchase if (i)WE believe the Fund would be harmed or unable
to invest effectively, or (ii) the Fund receives or anticipates simultaneous
orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
Method Steps to Follow
- --------------------------------------------------------------------------------
BY MAIL 1. Send US written instructions signed by all
account owners
2. Include any outstanding share certificates for
the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may
need to send additional documents. Accounts under
court jurisdiction may have additional requirements.
BY PHONE Call Shareholder Services
- --------------------------------------------------------------------------------
(Only available Telephone requests will be accepted:
if you have
completed and sent o If the request is $50,000 or less. Institutional
to US the telephone accounts may exceed $50,000 by completing a
redemption agreement separate agreement. Call Institutional Services to
included with this receive a copy.
prospectus)
o If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the Fund
- --------------------------------------------------------------------------------
BY PHONE o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed by
phone within the last 30 days
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
WE will send your redemption check within seven days after WE receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. WE are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, WE may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, WE may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the CODE. To obtain
the necessary forms, please call OUR Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends from its net investment income monthly to
shareholders of record on the last business day of that month and pays them on
or about the 15th day of the next month.
Capital gains, if any, may be distributed annually, usually in December.
Dividends and capital gains are calculated and distributed the same way for each
class of the Fund. The amount of any income dividends per share will differ,
however, generally due to the existence or non-existence of a Rule 12b-1 fee
associated with a class and the difference in the Rule 12b-1 fees of any class
which has a Rule 12b-1 fee. CLASS Z shares are not subject to 12b-1 fees.
Dividend payments are not guaranteed, are subject to the BOARD's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, or both dividend
and capital gain distributions. [If you own CLASS Z shares, you may also
reinvest your distributions in CLASS I shares of the Fund. This is a convenient
way to accumulate additional shares and maintain or increase your earnings
base.]
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS or MUTUAL SERIES - You may
direct your distributions to buy the same class of shares of another Franklin
Templeton Fund [(without a sales charge or imposition of a CONTINGENT DEFERRED
SALES CHARGE)]. [If you own CLASS Z shares, you may also direct your
distributions to buy CLASS I shares of another Franklin Templeton Fund. Many
shareholders find this a convenient way to diversify their investments.]
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. If you send
the money to a checking account, please see "Electronic Fund Transfers" under
"Services to Help You Manage Your Account."
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS [6 AND 7] OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN CLASS Z SHARES
OF THE FUND. For Trust Company retirement plans, special forms are required to
receive distributions in cash. You may change your distribution option at any
time by notifying US by mail or phone. Please allow at least seven days prior to
the record date for US to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the EXCHANGE is open. WE determine the
NET ASSET VALUE per share of each class as of the scheduled close of the
EXCHANGE, generally 1:00 p.m. Pacific time. You can find the prior day's closing
NET ASSET VALUE and OFFERING PRICE for each class in many newspapers.
The NET ASSET VALUE of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate NET
ASSET VALUE per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy shares at the NET ASSET VALUE per share of CLASS Z shares. WE calculate
it to two decimal places using standard rounding criteria. You also sell shares
at NET ASSET VALUE.
WE will use the NET ASSET VALUE next calculated after WE receive your
transaction request in proper form. If you buy or sell shares through your
SECURITIES DEALER, however, WE will use the NET ASSET VALUE next calculated
after your SECURITIES DEALER receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time WE receive the order from your dealer and the time we receive any
required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. WE must also receive any outstanding share
certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
SIGNATURE GUARANTEES
For OUR mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) WE receive instructions from an agent, not the registered owners,
5) WE believe a signature guarantee would protect US against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
SHARE CERTIFICATES
WE will credit your shares to your Fund account. WE do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
WE will not be liable for following instructions communicated by telephone that
we reasonably believe to be genuine. WE may only be liable for losses resulting
from unauthorized telephone transactions if we do not follow reasonable
procedures designed to verify the identity of the caller. When you call, WE will
request personal or other identifying information, and will also record calls.
For your protection, WE may delay a transaction or not implement one if WE are
not reasonably satisfied that telephone instructions are genuine. If this
occurs, WE will not be liable for any loss.
If OUR lines are busy or you are otherwise unable to reach US by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, WE will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call OUR Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell US how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, WE register the
account as "joint tenants with rights of survivorship" unless you tell US
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send US a current power of
attorney. GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for
a minor under your state's Uniform Gifts/Transfers to Minors Act. Other than
this form of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document (except Franklin Templeton Fund Allocator Series) to avoid future
disputes or possible court action over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
US the following documents when you open your account. This will help avoid
delays in processing your transactions while WE verify who may sign on the
account.
Type of Account Documents Required
CORPORATION Corporate Resolution
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PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
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2. A certification for a partnership agreement
TRUST (except 1. The pages from the trust document that
Franklin Templeton identify the trustees, or
Fund Allocator)
Series) 2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your SECURITIES DEALER, you may transfer the shares
to the street or nominee name account of another SECURITIES DEALER. Both dealers
must have an agreement with DISTRIBUTORS or WE will not process the transfer.
Contact your SECURITIES DEALER to initiate the transfer. WE will process the
transfer after WE receive authorization in proper form from your delivering
SECURITIES DEALER. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, WE may take instructions
directly from the SECURITIES DEALER or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a SECURITIES DEALER or other representative
of record on your account, WE are authorized to use and execute electronic
instructions. WE can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, WE must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires US to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
SECURITIES DEALER notifies the Fund that the number you gave US is incorrect, or
(iv) you are subject to backup withholding.
WE may refuse to open an account if you fail to provide the required tax
identification number and certifications. WE may also close your account if the
IRS notifies US that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, WE must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, WE may close
your account if the value of your shares is less than $xx. WE will do this if
the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before WE close your account, WE will
notify you and give you 30 days to increase the value of your account to $xx.
If you do not fulfill the terms of the Letter you may also have your accounts
closed involuntarily.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
OUR automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. The
market value of the Fund's shares may fluctuate and a systematic investment plan
such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by notifying INVESTOR SERVICES by mail or
phone.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, WE must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time WE receive
the money.
If you are an AGE member, you should complete the payroll deduction plan section
of the supplement to the shareholder application and submit it to your employer.
Investments may be in any amount, with a minimum of $12.50. Payroll deduction
plans will normally be identified by Social Security number. Therefore, plans
must be limited to one payroll deduction account per member.
SYSTEMATIC WITHDRAWAL PLAN
OUR systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers" below. You will
generally receive your payment by the fifth business day of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying US in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions from the Fund or
payments under a systematic withdrawal plan sent directly to a checking account.
If the checking account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. WE will send any payments made during that time to the
address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call OUR TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips.
You will need the code number for each class to use TeleFACTS. The code numbers
for CLASS Z is _________________.
STATEMENTS AND REPORTS TO SHAREHOLDERS
WE will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, WE attempt to identify related shareholders within a household
and send only one copy of a report. Call Fund Information if you would like
an additional free copy of the Fund's financial reports or an interim
quarterly report.
BROKERS AND DEALERS AND PLAN ADMINISTRATORS
Purchases and redemptions of Fund shares may be effected through registered
broker-dealers. There is no sales or service charge imposed by the Fund, but
such broker-dealers may charge the investor a transaction fee. Such transaction
fees and services may vary among broker-dealers, and such broker-dealers may
impose higher initial or subsequent investment requirements than those
established by the Fund. Services provided by broker-dealers may include
allowing the investor to establish a margin account and to borrow on the value
of the Fund's shares in that account. If a broker-dealer receives an order prior
to pricing on a given day, the broker-dealer is required to forward such order
to the Fund on that day prior to pricing. A broker's failure to timely forward
an order may give rise to a claim by the investor against the broker.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases, the
Fund may pay the third party an annual sub-transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
INSTITUTIONAL ACCOUNTS
Institutional investors will likely be required to complete an institutional
account application. There may be additional methods of opening accounts and
purchasing, redeeming or exchanging shares of the Fund available for
institutional accounts. To obtain an institutional application or additional
information regarding institutional accounts, contact Franklin Templeton
Institutional Services at 1-800/321-8563 Monday through Friday, from 9:00 a.m.
Eastern Standard time to 8:00 p.m. Eastern Standard time.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to INVESTOR SERVICES
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, DISTRIBUTORS and ADVISERS are also located at this address. You may
also contact US by phone at one of the numbers listed below.
Hours of Operation
(Pacific time)
Department Name Telephone No. (Monday-Friday)
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Shareholder Services 1-800/632-2301 5:30am to 5:00pm
Dealer Services 1-800/524-4040 5:30am to 5:00pm
Fund Information 1-800/DIAL BEN 5:30am to 8:00pm
(1-800/342-5236) 6:30am to 2:30pm (Saturday)
Retirement Plans 1-800/527-2020 5:30am to 5:00pm
Institutional Services 1-800/321-8563 6:00am to 5:00pm
TDD (hearing impaired) 1-800/851-0637 5:30am to 5:00pm
Your phone call may be monitored or recorded to ensure WE provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS I, CLASS II AND CLASS Z - The Fund offers three classes of shares,
designated "CLASS I," "CLASS II," and "CLASS Z." The three classes have
proportionate interests in the Fund's portfolio. CLASS I and CLASS II differ,
however, primarily in their sales charge structures and Rule 12b-1 plans. CLASS
Z shares are purchased without a sales charge and do not have a Rule 12b-1 plan.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For CLASS I shares, the 12 month period during which a
CONTINGENT DEFERRED SALES CHARGE may apply. For CLASS II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the CONTINGENCY PERIOD.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and BOARD members who are affiliated
with DISTRIBUTORS. See "Officers and Trustees."
EXCHANGE - New York Stock Exchange
FT SERVICES - Franklin Templeton Services, Inc.
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The FRANKLIN FUNDS and the TEMPLETON FUNDS
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMER(S) - MARKET TIMERS generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
MUTUAL SERIES - Franklin Mutual Series Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
OFFERING PRICE - The public offering price is based on the NET ASSET VALUE per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 4.25% for CLASS I and 1% for CLASS II. CLASS Z
has no front-end sales charge.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with DISTRIBUTORS to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the CODE
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TRUST COMPANY - Franklin Templeton Trust Company. TRUST COMPANY is an affiliate
of DISTRIBUTORS and both are wholly owned subsidiaries of RESOURCES.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or INVESTOR SERVICES, DISTRIBUTORS, or another wholly owned
subsidiary of RESOURCES.
APPENDIX
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN'S
AGE HIGH
INCOME FUND
FRANKLIN HIGH INCOME TRUST
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1997
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
How does the Fund Invest its Assets?
Investment Restrictions
Officers and Trustees
Investment Management and Other Services
How does the Fund Buy Securities
For its Portfolio?
How Do I Buy, Sell and Exchange Shares?
How are Fund Shares Valued?
Additional Information on
Distributions and Taxes
The Fund's Underwriter
How does the Fund
Measure Performance?
Miscellaneous Information
Financial Statements
Useful Terms and Definitions
Appendix
Additional Description of Ratings
When reading this SAI, you will see certain terms in capital letters. This means
the term is explained under "Useful Terms and Definitions."
AGE High Income Fund (the "Fund") is a diversified series of Franklin High
Income Trust (the "Trust"), an open-end management investment company. This SAI
relates to the CLASS Z shares of the Fund. The Fund's investment objective is to
earn a high level of current income. The Fund also seeks capital appreciation as
a secondary objective. The Fund seeks to achieve its objectives by investing in
both fixed-income debt securities and dividend-paying common or preferred
stocks.
CLASS Z shares are available for purchase by certain financial institutions
(such as banks, savings institutions and credit unions); pension, profit sharing
and employee benefit plans and trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and individuals who meet certain
minimum investment requirements.
The PROSPECTUS, dated January 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
- ------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- ------------------------------------------------------------------------------
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the PROSPECTUS entitled "How Does the Fund Invest Its Assets?"
LOANS OF PORTFOLIO SECURITIES. The Fund may make loans of its portfolio
securities, up to 10% of its total assets, in accordance with guidelines adopted
by the BOARD. The Fund will not lend its portfolio securities if such loans are
not permitted by the laws or regulations of any state where its shares are
qualified for sale. Loans will be subject to termination by the Fund in the
normal settlement time, currently three 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
that 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 one that has been purchased
through a private offering and cannot be sold without prior registration under
the Securities Act of 1933, as amended (the "1933 Act") unless the sale is
pursuant to an exemption under the 1933 Act. In recent years, the Fund's
portfolio has included several issues of restricted securities.
Notwithstanding the restriction on the sale of restricted 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. If no quotations
are available, the securities will be valued at fair value in accordance with
procedures adopted by the BOARD. The Fund may receive commitment fees when it
buys restricted securities. 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. These 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 buy the security and the
Fund's payment for and receipt of that security, the Fund will maintain, in a
segregated account with its custodian bank, cash or high-grade marketable
securities with an aggregate value equal to the amount of its commitments until
payment is made. The Fund will not buy restricted securities to generate
commitment fees, although the receipt of fees will help the Fund achieve its
principal objective of earning a high level of current income.
The Fund may receive consent fees based on a variety of situations. For example,
the Fund may receive consent fees if an issuer seeks to "call" a bond it has
issued which does not contain a provision permitting the issuer to call the
bond, or if the Fund's consent is required to facilitate a merger or other
business combination transaction. Consent 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 buy 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 repurchase agreements of more than seven
days duration and other securities that are not readily marketable) may not
constitute, at the time of purchase, more than 10% of the value of the Fund's
net assets. 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 has authorized the Fund to invest in restricted securities where such
investment is consistent with the Fund's investment objectives and has
authorized the securities to be considered liquid if ADVISERS determines that
there is a liquid institutional or other market for the securities, such as
restricted securities that may be freely transferred among qualified
institutional buyers pursuant to Rule 144A under the 1933 Act, as amended, and
for which a liquid institutional market has developed. The BOARD will review on
a monthly basis any determination by ADVISERS to treat a restricted security as
liquid, including Adviser'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, ADVISERS and the BOARD will
take into account the following factors: (i) the frequency of trades and quotes
for the security; (ii) the number of dealers willing to buy or sell the security
and the number of other potential buyers; (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 buying 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
buy 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 the transaction, it will
either cover its position or maintain, in a segregated account with its
custodian bank, cash or high-grade marketable securities having an aggregate
value equal to the amount of such commitment until payment is made.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may buy debt securities
on a "when-issued" or "delayed delivery" basis. These transactions are
arrangements under which the Fund buys 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 buy 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 that are listed
for trading on a national securities exchange. This means that the Fund will
only write options on securities that 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 increase 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.
AMERICAN DEPOSITORY RECEIPTS. As noted in the PROSPECTUS, the Fund may buy
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 buy ADRs that 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 buy securities with the intention of holding them for
the long-term. It may on occasion, however, buy 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 ACT, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. 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 Trustees of the Fund and its
investment manager as a group, own more than 5% of such securities.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
OFFICERS AND TRUSTEES
The BOARD has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
BOARD, in turn, elects the officers of the Trust who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and BOARD members and their principal occupations for the past five years are
shown below. Members of the BOARD who are considered "interested persons" of the
Trust under the 1940 ACT are indicated by an asterisk (*).
Positions and Principal Occupation
Name, Age Offices with During the Past
and Address the Trust Five Years
Frank H. Abbott, III (75) Trustee
1045 Sansome St.
San Francisco, CA 94111
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 (51) Vice President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
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 60 of the investment companies in the FRANKLIN TEMPLETON GROUP OF FUNDS.
Robert F. Carlson (68) Trustee
2120 Lambeth Way
Carmichael, CA 95608
Member and past President, Board of Administration, California Public Employees
Retirement Systems (CALPERS); 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; director of one investment company in the Franklin Group of
Funds.
S. Joseph Fortunato (64) Trustee
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 0796945
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 (78) Trustee
107 Deepwood Dr.
Georgetown, TX 78628-8301
Retired; formerly Publishing Consultant, Franklin Resources, Inc. and
formerly National Administrative Officer of the Assembly of Governmental
Employees, and director of one investment company in the Franklin Group of
Funds.
*Rupert H. Johnson, Jr. (56) President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
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 60 of the investment companies
in the FRANKLIN TEMPLETON GROUP OF FUNDS.
*R. Martin Wiskemann (69) Vice President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 21 of the
investment companies in the Franklin Group of Funds.
Kenneth V. Domingues (64) Vice President
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 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 (36) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
FRANKLIN TEMPLETON GROUP OF FUNDS.
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the FRANKLIN
TEMPLETON GROUP OF FUNDS.
Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (59) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
The table above shows the officers and BOARD members who are affiliated with
DISTRIBUTORS and Advisers. Nonaffiliated members of the BOARD are currently paid
$680 per month plus $680 per meeting attended. As shown above, some of the
nonaffiliated BOARD members also serve as directors, trustees or managing
general partners of other investment companies in the FRANKLIN TEMPLETON GROUP
OF FUNDS. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated BOARD members by
the Trust and by other funds in the FRANKLIN TEMPLETON GROUP OF FUNDS.
Total Fees Number of
Received from Boards in
Total Fees the FRANKLIN the FRANKLIN
Name Received TEMPLETON TEMPLETON
From the GROUP OF GROUP OF
Trust* FUNDS** FUNDS on
Which Each
Serves***
- --------------------------------------------------------------------------------
Frank H. Abbott, III 15,640 $162,420 31
Robert F. Carlson 13,600 15,640 1
S. Joseph Fortunato 15,640 344,745 57
Roy V. Fox 14,960 16,320 1
*For the fiscal year ended May 31, 1995.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the FRANKLIN TEMPLETON GROUP OF FUNDS. This number does not include the total
number of series or funds within each investment company for which the BOARD
members are responsible. The FRANKLIN TEMPLETON GROUP OF FUNDS currently
includes 60 registered investment companies, with approximately 166 U.S. based
funds or series.
Nonaffiliated members of the BOARD 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 BOARD member received any other
compensation, including pension or retirement benefits, directly or indirectly
from the Fund or other funds in the FRANKLIN TEMPLETON GROUP OF FUNDS. Certain
officers or BOARD members who are shareholders of RESOURCES may be deemed to
receive indirect remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries.
As of October 4, 1996, the officers and BOARD members, as a group, owned of
record and beneficially approximately 512,359 shares or less than 1% of the
Fund's total outstanding shares. Many of the BOARD members also own shares in
other funds in the FRANKLIN TEMPLETON GROUP OF FUNDS.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is
Advisers. Advisers provides investment research and portfolio management
services, including the selection of securities for the Fund to buy, hold or
sell and the selection of brokers through whom the Fund's portfolio transactions
are executed. Advisers' activities are subject to the review and supervision of
the BOARD to whom ADVISERS renders periodic reports of the Fund's investment
activities.
ADVISERS provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Fund. ADVISERS is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Fund.
ADVISERS acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. ADVISERS may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by ADVISERS on behalf of the Fund.
Similarly, with respect to the Fund, ADVISERS is not obligated to recommend, buy
or sell, or to refrain from recommending, buying or selling any security that
ADVISERS and access persons, as defined by the 1940 ACT, may buy or sell for its
or their own account or for the accounts of any other fund. ADVISERS is not
obligated to refrain from investing in securities held by the Fund or other
funds that it manages or administers. Of course, any transactions for the
accounts of ADVISERS and other access persons will be made in compliance with
the Fund's Code of Ethics.
MANAGEMENT FEES. Under its management agreement, the Fund pays ADVISERS a
management fee 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. The fee is computed at the close of business on the
last business day of each month. Each class will pay its proportionate share of
the management fee.
For the fiscal years ended May 31, 1994, 1995 and 1996, management fees totaling
$8,993,566, $8,263,271 and $9,614,852, respectively, were paid to ADVISERS.
MANAGEMENT AGREEMENT. The management agreement is in effect until September 30,
1998. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the BOARD or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the BOARD members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the BOARD), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the BOARD
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, or by ADVISERS on 30 days' written notice, and will automatically
terminate in the event of its assignment, as defined in the 1940 ACT.
SHAREHOLDER SERVICING AGENT. INVESTOR SERVICES, a wholly-owned subsidiary of
RESOURCES, is the Fund's shareholder servicing agent 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.
FUND ADMINISTRATION. FT SERVICES, a wholly owned subsidiary of RESOURCES,
provides certain administrative services and facilities for the Fund, including
preparation and maintenance of books and records, preparation of tax and
financial reports, and monitoring compliance with regulatory requirements. FT
SERVICES is employed through a subcontract with ADVISERS and receives a monthly
fee equivalent on an annual basis to 0.15% of the Fund's average daily net
assets up to $200 million, 0.135% of average daily net assets over $200 million
up to $700 million, 0.10% of average daily net assets over $700 million up to
$1.2 billion, and 0.075% of average daily net assets in excess of $1.2 billion.
These fees are not separate expenses of the Fund, but are paid by ADVISERS.
CUSTODIANS. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian in connection with transfer services through
bank automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
AUDITORS. 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,
1996, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Trust's Annual Report to Shareholders for
the fiscal year ended May 31, 1996. CLASS Z shares of the Fund were not offered
to the public prior to the date of this SAI.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by ADVISERS in accordance with criteria set forth in the
management agreement and any directions that the BOARD may give.
When placing a portfolio transaction, ADVISERS seeks to obtain prompt execution
of orders at the most favorable net price. When portfolio transactions are done
on a securities exchange, the amount of commission paid by the Fund is
negotiated between ADVISERS and the broker executing the transaction. 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 the transactions. These opinions are based on, among others, the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. ADVISERS will ordinarily place
orders to buy and sell over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of ADVISERS, 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 amount of commission is not the only factor ADVISERS considers in the
selection of a broker to execute a trade. If ADVISERS believes it is in the
Fund's best interest, ADVISERS may place portfolio transactions with brokers who
provide the types of services described below, even if it means the Fund will
pay a higher commission than if no weight were given to the broker's furnishing
of these services. This will be done only if, in the opinion of ADVISERS, 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 ADVISERS in carrying out its responsibilities to the Fund, or
when it is otherwise in the best interest of the Fund to do so, whether or not
such services may also be useful to ADVISERS in advising other clients.
When ADVISERS believes several brokers are equally able to provide the best net
price and execution, it may decide to execute transactions through brokers who
provide quotations and other services to the Fund, in an amount of total
brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine the Fund's NET ASSET VALUE, including , as well as research,
statistical and other data.
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, ADVISERS and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Fund's
officers are satisfied that the best execution is obtained, the sale of Fund
shares may also be considered 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 may sometimes receive 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 will be reduced by the
amount of any fees received by DISTRIBUTORS in cash, less any costs and expenses
incurred in connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by ADVISERS are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by
ADVISERS, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
During the fiscal years ended May 31, 1994, 1995 and 1996, the Fund paid
brokerage commissions totaling $23,257, $7,790 and $29,739, respectively.
As of May 31, 1996, the Fund owned securities issued by the following
broker-dealers:
BROKER-DEALERS AGGREGATE VALUE
- ------------------------------------------------------
Donaldson, Lufkin & Jenrette $17,151,636
Securities Corp.
Bank of America NT & SA $13,855,354
Bear Stearns & Co., Inc. $13,855,354
B.T. Securities Corp. $13,855,354
Daiwa Securities America, Inc. $13,855,354
Nikko Securities Co. $13,855,354
International, Inc.
SBC Capital Markets, Inc. $13,855,354
Except as noted, the Fund did not own any securities issued by its regular
broker-dealers as of the end of the fiscal year.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund WE may impose a $10 charge against your account for each returned item.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the NET ASSET VALUE determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at NET ASSET VALUE, including . Backup
withholding and information reporting may apply. Information regarding the
possible tax consequences of an exchange is included in the tax section in this
SAI and in the PROSPECTUS.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objectives exist
immediately. This money will then be withdrawn from the short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at NET ASSET VALUE, including at the close of business on the day the
request for exchange is received in proper form. Please see "May I Exchange
Shares for Shares of Another Fund?" in the PROSPECTUS.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the first business day of the month in
which a payment is scheduled.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your SECURITIES
DEALER, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your SECURITIES DEALER.
REDEMPTIONS IN KIND. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the BOARD reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, WE will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at NET ASSET VALUE, including until WE receive new
instructions.
If mail is returned as undeliverable or WE are unable to locate you or verify
your current mailing address, WE may deduct the costs of OUR efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. WE may, in OUR sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
INVESTOR SERVICES may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse INVESTOR SERVICES an amount not to
exceed the per account fee that the Fund normally pays INVESTOR SERVICES. These
financial institutions may also charge a fee for their services directly to
their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the NET ASSET VALUE, including per share of each class as of the
scheduled close of the EXCHANGE, generally 1:00 p.m. Pacific time, each day that
the EXCHANGE is open for trading. As of the date of this SAI, the Fund is
informed that the EXCHANGE observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that 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 ADVISERS.
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, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the EXCHANGE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and ask prices is used.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the NET ASSET VALUE, including of each class. If events materially affecting
the values of these foreign securities occur during this period, the securities
will be valued in accordance with procedures established by the BOARD.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the EXCHANGE. The value of these securities used in
computing the NET ASSET VALUE, including of each class is determined as of such
times. Occasionally, events affecting the values of these securities may occur
between the times at which they are determined and the scheduled close of the
EXCHANGE that will not be reflected in the computation of the NET ASSET VALUE,
including of each class. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their fair
value as determined in good faith by the BOARD.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the BOARD. With the approval of the BOARD, the
Fund may utilize a pricing service, bank or SECURITIES DEALER to perform any of
the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) 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 capital gains from the prior
fiscal year. 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.
TAXES
As stated in the PROSPECTUS, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the CODE. The BOARD reserves the right
not to maintain the qualification of the Fund as a regulated investment company
if it determines this course of action to be beneficial to shareholders. In that
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 the Fund's Annual Report to Shareholders.
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 you until the following January, will be treated for
tax purposes as if paid by the Fund and received by you 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. Gain or loss will be recognized in an amount
equal to the difference between your basis in the shares and the amount you
received, subject to the rules described below. If such shares are a capital
asset in your hands, gain or loss will be capital gain or loss and will be
long-term for federal income tax purposes if your shares have been held for more
than one year.
All or a portion of the sales charge incurred in buying shares of the Fund will
not be included in the federal tax basis of shares sold or exchanged within
ninety (90) days of their purchase (for purposes of determining gain or loss
with respect to such shares) if you reinvest the sale proceeds in the Fund or in
another fund in the FRANKLIN TEMPLETON FUNDS, and a sales charge which would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of the
sales charge excluded from the tax basis of the shares sold will be added to the
tax basis of the shares acquired in the reinvestment. You should consult with
your tax advisor concerning the tax rules applicable to the sale or exchange of
Fund shares repurchased.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent you buy other shares of the Fund (through reinvestment
of dividends or otherwise) within 30 days before or after the redemption. Any
loss disallowed under these rules will be added to your 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
generally subject to Section 988 of the CODE 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 you.
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, are 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 is 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. These excess distribution amounts are treated as ordinary income, which
the Fund will be required to distribute to you 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, DISTRIBUTORS acts as principal
underwriter in a continuous public offering for each class of the Fund's shares.
The underwriting agreement will continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
BOARD or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the BOARD members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the BOARD), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
DISTRIBUTORS pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of DISTRIBUTORS) and of sending
prospectuses to existing shareholders.
DISTRIBUTORS will not receive compensation from the Fund for acting as
underwriter with respect to the CLASS Z shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Fund to compute or express performance for the CLASS Z shares follows.
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.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual 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 income dividends and capital gain
distributions are reinvested at NET ASSET VALUE, including . 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.
These returns will be calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods at the end of
the one-, five- or ten-year periods
CUMULATIVE TOTAL RETURN. The Fund may also quote the cumulative total return for
each class, in addition to the average annual total return. These quotations are
computed the same way, except the cumulative total return will be based on the
actual return for each class for a specified period rather than on the average
return over one-, five- and ten-year periods.
YIELD
CURRENT YIELD. Current yield of each class shows the income per share earned by
the Fund. It is calculated by dividing the net investment income per share of
each class earned during a 30-day base period by the NET ASSET VALUE, including
per share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders of the class
during the base period.
These returns will be calculated using the following SEC formula:
Yield = 2 [(A-B + 1)6 - 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 NET ASSET VALUE, including per share on the last day of the
period
CURRENT DISTRIBUTION RATE
Current yield which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to shareholders of a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. For CLASS Z, the current distribution rate is usually
computed by annualizing the dividends paid per share by the class during a
certain period and dividing that amount by the current NET ASSET VALUE,
including . 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 show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's NET
ASSET VALUE, including or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of NET
ASSET VALUE, including or total return around an average over a specified period
of time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS
Sales literature about CLASS Z may quote a current distribution rate, yield,
cumulative total return, average total return and other measures of performance
as described elsewhere in this SAI with the substitution of the Class I
performance, excluding the effect of the maximum sales charge, and including the
effect of Rule 12b-1 fees, applicable to Class I.
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.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. RESOURCES is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of each 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.
These comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis, 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, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and five financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
n) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk adjusted performance of a fund over specified
time periods relative to other funds within its class.
o) 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.
p) 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 from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the performance of CLASS Z to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. 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 that 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. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College BOARD.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the FRANKLIN TEMPLETON GROUP OF FUNDS, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the FRANKLIN TEMPLETON GROUP has over $145
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The FRANKLIN TEMPLETON GROUP OF FUNDS
offers 116 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
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.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of RESOURCES or its subsidiaries who are
access persons under the 1940 ACT are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, for the fiscal year ended May 31, 1996, including the auditors'
report, are incorporated herein by reference. These audited financial statements
do not include information for CLASS Z as these shares were not publicly offered
prior to the date of this SAI.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS I, CLASS II AND CLASS Z - The Fund offers three classes of shares,
designated "CLASS I," "CLASS II" and "CLASS Z." The three classes have
proportionate interests in the Fund's portfolio. CLASS I and CLASS II differ,
however, primarily in their sales charge structures and Rule 12b-1 plans. CLASS
Z shares are purchased without a sales charge and do not have a Rule 12b-1 plan.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
EXCHANGE - New York Stock Exchange
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The FRANKLIN FUNDS and the TEMPLETON FUNDS
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
OFFERING PRICE - The public offering price is based on the NET ASSET VALUE per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 4.25% for Class I and 1% for Class II. CLASS Z
shares have no front-end sales charge.
PROSPECTUS - The prospectus for the Fund dated October 1, 1996, as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution which, either directly or through
affiliates, has an agreement with DISTRIBUTORS to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or INVESTOR SERVICES, DISTRIBUTORS, or another
wholly-owned subsidiary of RESOURCES.
APPENDIX
ADDITIONAL DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
MOODY'S
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds 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 rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
FRANKLIN HIGH INCOME TRUST
File Nos. 2-30203
811-1608
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements
(1) Audited Financial Statements incorporated herein by reference to the
Registrant's Annual Report to shareholders dated May 31, 1996 as
filed with the SEC electronically on Form Type N-30D on August 1,
1996
(i) Report of Independent Auditors
(ii) Statement of Investments in Securities and Net Assets - May
31, 1996
(iii) Statement of Assets and Liabilities - May 31, 1996
(iv) Statement of Operations - for the year ended May 31, 1996
(v) Statements of Changes in Net Assets - for the years ended
May 31, 1996 and 1995
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are incorporated by reference except exhibits
11(i) which is attached herewith
(1) copies of the charter as now in effect;
(i) Form of Agreement and Declaration of Trust
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(ii) Form of Certificate of Trust
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(2) copies of the existing By-Laws or instruments corresponding
thereto;
(i) By-Laws
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(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) Form of Management Agreement between Registrant and Franklin
Advisers, Inc.
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(6) copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of
all agreements between principal underwriters and dealers;
(i) Form of Amended and Restated Distribution Agreement between
Registrant and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(ii) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and dealers
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(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.
Filing: Post-Effective Amendment No. 34 to Registration
Statement on Form N-1A
File No. 2-30203
Filing Date: July 27, 1995
(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 Asset Allocation Fund
Filing: Post-Effective Amendment No. 56 to
Registration on Form N-1A
File No. 2-12647
Filing Date: May 17, 1996
(iii)Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 35 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: July 19, 1996
(iv) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 35 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: July 19, 1996
(9) copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part at
or after the date of filing the Registration Statement;
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
Filing: Post-Effective Amendment No. 34 to Registration
Statement on Form N-1A
File No. 2-30203
Filing Date: July 27, 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
(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) Form of Class I Distribution Plan pursuant to Rule 12b-1
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(ii) Form of Class II Distribution Plan pursuant to Rule 12b-1
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(16) schedule for computation of each performance quotation provided in
the registration statement in response to Item 22 (which need not be
audited)
(i) Schedule for computation of performance
quotation
Registrant: Franklin Tax-Advantaged U.S.
Government Securities Fund
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995
(17) Power of Attorney
(i) Power of Attorney dated May 14, 1996
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(ii) Certificate of Secretary dated May 14, 1996
Filing: Post-Effective Amendment No. 36 to Registration
Statement on Form N-1A
File No. 1-30203
Filing Date: August 1, 1996
(18) Copies of any plan entered into by registrant pursuant to Rule
18f-3 under the 1940 Act
(i) Form of Multiple Class Plan
Filing: Post-Effective Amendment No. 34 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: July 27, 1995
(27) Financial Data Schedule
Not Applicable
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of October 04, 1996, 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 1,829,669 3,602
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 manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Group of Funds(R).
In addition, Mr. Charles B. Johnson is a director of General Host Corporation.
For additional information please see Part B and Schedules A and D of Form ADV
of the Funds' Investment Manager (SEC File 801-26292), incorporated herein by
reference, which sets forth the officers and directors of the Investment Manager
and information as to any business, profession, vocation or employment of a
substantial nature engaged in by those officers and directors during the past
two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc.
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
(b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to 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 Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Mateo and the State of California, on the 1st
of November 1996.
FRANKLIN HIGH INCOME TRUST
(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.* Trustee and Principal
(Rupert H. Johnson) Executive Officer
Dated: November 1, 1996
Martin L. Flanagan* Principal Financial Officer
(Martin L. Flanagan) Dated: November 1, 1996
Diomedes Loo-Tam* Principal Accounting Officer
(Diomedes Loo-Tam) Dated: November 1, 1996
Frank H. Abbott III* Trustee
(Frank H. Abbott III) Dated: November 1, 1996
Harmon E. Burns* Trustee
(Harmon E. Burns) Dated: November 1, 1996
Robert F. Carlson* Trustee
(Robert F. Carlson) Dated: November 1, 1996
S. Joseph Fortunato* Trustee
(S. Joseph Fortunato) Dated: November 1, 1996
Roy V. Fox* Trustee
(Roy V. Fox) Dated: November 1, 1996
R. Martin Wiskemann* Trustee
(R. Martin Wiskemann) Dated: November 1, 1996
*By:/s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
FRANKLIN HIGH INCOME TRUST
(formerly Age High Income Fund, Inc.)
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Form of Agreement and Declaration *
of Trust
EX-99.B1(ii) Form of Certificate of Trust *
EX-99.B2(i) By-Laws *
EX-99.B5(i) Form of Management Agreement *
between Registrant and Franklin
Advisers, Inc.
EX-99.B6(i) Form of Amended and Restated *
Distribution Agreement between
Registrant and Franklin/Templeton
Distributors, Inc.
EX-99.B6(ii) Forms of Dealer Agreements between *
Franklin/Templeton Distributors,
Inc. and dealers
EX-99.B8(i) Custodian Agreement between *
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) Master Custody Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(iv) Terminal Link Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.B10(i) Opinion and Consent of Counsel *
dated July 25, 1995
EX-99.B11(i) Consent of Independent Auditors Attached
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) Form of Class I Distribution Plan *
pursuant to Rule 12b-1
EX-99.B15(ii) Form of Class II Distribution Plan *
pursuant to Rule 12b-1
EX-99.B16(i) Schedule for Computation of *
Performance Quotation
EX-99.B17(i) Power of Attorney dated May 14, 1996 *
EX-99.B17(ii) Certificate of Secretary dated May *
14, 1996
EX-99.B18(i) Form of Multiple Class Plan *
* Incorporated by Reference
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 37
to the Registration Statement of Franklin High Income Trust (formerly Age High
Income Fund, Inc.) on Form N-1A File Nos. 2-30203 and 811-1608 of our report
dated July 3, 1996, on our audit of the financial statements and financial
highlights of Age High Income Fund, Inc., which report is included in the Annual
Report to Shareholders for the year ended May 31, 1996, which is incorporated by
reference in the Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
October 1, 1996
