As filed with the Securities and Exchange Commission on August 2, 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. 36 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 (X)
FRANKLIN HIGH INCOME TRUST
(Formerly Age High Income Fund, Inc.)
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404 (Address of
Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
HARMON E. BURNS, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ]immediately upon filing pursuant to paragraph (b)
[ ]on (date) pursuant to paragraph (b)
[ ]60 days after filing pursuant to paragraph (a)(i)
[X]on October 1, 1996 pursuant to paragraph (a)(i)
[ ]75 days after filing pursuant to paragraph (a)(ii)
[ ]on (date), pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The 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.
This amendment is being filed pursuant to Rule 414 under the Securities Act of
1933. The successor issuer, Franklin High Income Trust is filing the amendment
to the registration statement of the Age High Income Fund, Inc., the
predecessor issuer, and expressly adopting the registration statement as its own
for all purposes of the Securities Act of 1933 and the Investment Company Act of
1940.
The filing is made in anticipation of the reorganization of the Age High Income
Fund, Inc., a Colorado Corporation, whereby the Fund will merge into the
Franklin High Income Trust, a Delaware business trust.
Shareholders are expected to approve this reorganization at a meeting expressly
called for that purpose scheduled for August 28, 1996.
FRANKLIN HIGH INCOME TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: INFORMATION REQUIRED IN PROSPECTUS
N-1A Item Location in
Item No. Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How Does
Information the Fund Measure 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
N-1A Item Location in
Item No. Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and See Prospectus "How Is the Trust
History Organized?"
13. Investment Objective "How Does the Fund Invest Its
Assets?"; "Investment
Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Advisory and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Advisory 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 "How Does the Fund Measure
Performance Data Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS & APPLICATION
FRANKLIN'S AGE HIGH INCOME FUND
FRANKLIN HIGH INCOME TRUST
INVESTMENT STRATEGY
INCOME
OCTOBER 1, 1996
This prospectus describes the 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 October 1, 1996, 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.
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.
THE FUND MAY INVEST UP TO 100% OF ITS NET ASSETS IN NON-INVESTMENT GRADE BONDS
OF BOTH U.S. AND FOREIGN ISSUERS. THESE ARE COMMONLY KNOWN AS "JUNK BONDS."
THEIR DEFAULT AND OTHER RISKS ARE GREATER THAN THOSE OF HIGHER RATED SECURITIES.
YOU SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING IN THE FUND. PLEASE
SEE "WHAT ARE THE FUND'S POTENTIAL RISKS?"
The Fund may invest in both domestic and foreign securities.
FRANKLIN'S AGE
HIGH INCOME FUND
OCTOBER 1, 1996
WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN 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
Franklin's AGE High Income Fund
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of each class for the fiscal year
ended May 31, 1996. Your actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+ CLASS I CLASS II
Maximum Sales Charge Imposed on Purchases (as
a percentage of Offering Price)
4.25% 1.00%++
Deferred Sales Charge+++ None 1.00%
Exchange Fee (per transaction) $5.00* $5.00*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.46% 0.46%
Rule 12b-1 Fees 0.10%** 0.65%**
Other Expenses 0.14% 0.14%
----- -----
Total Fund Operating Expenses 0.70% 1.25%
===== -----
C. EXAMPLE
Assume the annual return for each class 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
CLASS I $49*** $64 $80 $126
CLASS II $33 $49 $78 $160
For the same Class II investment, you would pay projected expenses of $23 if you
did not sell your shares at the end of the first year. Your projected expenses
for the remaining periods would be the same.
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 each class and are not directly charged to
your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Deciding Which Class to Buy."
+++A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more if you sell the shares within one year and any Class II purchase
if you sell the shares within 18 months. There is no front-end sales charge if
you invest $1 million or more in Class I shares. See "How Do I Sell Shares?
Contingent Deferred Sales Charge" for details.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**These fees may not exceed 0.15% for Class I shares and 0.65% for Class II
shares. The combination of front-end sales charges and Rule 12b-1 fees could
cause long-term shareholders to pay more than the economic equivalent of the
maximum front-end sales charge permitted under the NASD's rules.
***Assumes a Contingent Deferred Sales Charge will not apply.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Fund's Annual Report to Shareholders for the fiscal
year ended May 31, 1996. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
CLASS I
YEAR ENDED MAY 31
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of Period $2.77 $2.70 $2.81 $2.72 $2.37 $2.53 $3.18 $3.37 $3.58 $3.83
----------------------------------------------------------------------------------------------------
Net investment income 0.25 0.26 0.27 0.30 0.31 0.34 0.41 0.43 0.44 0.44
Net realized & unrealized
gain (loss) on investments
and foreign currencies 0.034 0.074 (0.113) 0.054 0.340 (0.122) (0.636) (0.188) (0.218) (0.228)
----------------------------------------------------------------------------------------------------
Total from investment
operations 0.284 0.334 0.157 0.354 0.650 0.218 (0.226) 0.242 0.222 0.212
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.264) (0.264) (0.267) (0.264) (0.300) (0.359) (0.424) (0.432) (0.432) (0.462)
----------------------------------------------------------------------------------------------------
Distributions from
paid-in capital - - - - - (0.019) - - - -
Total distributions (0.264) (0.264) (0.267) (0.264) (0.300) (0.378) (0.424) (0.432) (0.432) (0.462)
Net asset value
at end of period $2.79 $2.77 $2.70 $2.81 $2.72 $2.37 $2.53 $3.18 $3.37 $3.58
====================================================================================================
Total Return* 10.75% 13.34% 5.19% 13.33% 28.48% 10.18% (8.13)% 6.97% 6.32% 5.25%
CLASS I
YEAR ENDED MAY 31
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period (in 000's) $2,183,738 $1,908,853 $1,817,481 $1,935,919 $1,864,195 $1,587,656 $1,675,212 $2,243,494 $1,828,108 $1,639,596
Ratio of expenses to
average net assets 0.70% 0.66% 0.59% 0.56% 0.58% 0.59% 0.56% 0.56% 0.57% 0.59%
Ratio of net investment
income to average net assets 9.07% 9.71% 9.61% 10.78% 12.18% 14.87% 14.47% 13.06% 12.72% 11.46%
Portfolio turnover rate 19.87% 28.56% 42.32% 38.33% 43.70% 28.55% 17.59% 28.82% 24.11% 22.50%
</TABLE>
CLASS II
YEAR ENDED MAY 31
---------------------
1996 1995**
------ ------
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of period $2.77 $2.76
------ ------
Net investment income 0.25 -
Net realized & unrealized gains on
investments and foreign currencies 0.017 0.01
------ ------
Total from investment operations 0.267 0.01
Distributions from net investment income (0.247) -
------ ------
Net asset value at end of period $2.79 $2.77
====== ======
Total Return* 10.06% 0.36%
RATIOS/SUPPLEMENTAL DATA+
Net assets at end of period (in 000's) $46,064 $713
Ratio of expenses to average net assets 1.25% 1.14%+
Ratio of net investment income to average
net assets 8.50% 6.91%+
Portfolio turnover rate 19.87% 28.56%
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the Contingent Deferred Sales Charge and assumes reinvestment of
dividends and capital gains, if any, at Net Asset Value. Prior to May 1, 1994,
dividends were reinvested at the maximum Offering Price.
**For the period May 16, 1995 (effective date) to May 31, 1995
+Annualized.
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 in both domestic and foreign securities and
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 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.
So long as these percentage restrictions are observed by the Fund at the time of
purchase of any such security, changes in values of particular Fund assets or
the assets of the Fund as a whole will not cause a violation of any of the
foregoing restrictions.
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 such issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, such issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific 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 such 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 such 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 prior to 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 such securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, 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 such obligations. In order to
generate cash to satisfy any or all of these distribution requirements, the Fund
may be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares.
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,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as 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 incur 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 which 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 such
security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Pay-in-kind bonds are securities that pay interest through the issuance of
additional bonds. The Fund will be deemed to receive interest over the life of
such bonds and be treated as if interest were paid on a current basis for
federal income tax purposes, although no cash interest payments are received by
the Fund until the cash payment date or until the bonds mature. Accordingly,
during periods when the Fund receives no cash interest payments on its zero
coupon securities or deferred interest or pay-in-kind bonds, it may be required
to dispose of portfolio securities to meet the distribution requirements and
such sales may be subject to the risk factors discussed above. The Fund is not
limited in the amount of its assets that may be invested in such securities.
ASSET COMPOSITION TABLE. A credit rating by a rating agency evaluates only the
safety of principal and interest of a bond, and does not consider the market
value risk associated with an investment in such a bond. 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.
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. Advisers manages the Fund's assets and makes its
investment decisions. Advisers also provides certain administrative services and
facilities for the Fund and performs similar services for other funds. Please
see "Investment Advisory 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. Total expenses of Class I and Class II shares, including fees paid to
Advisers, were 0.70% and 1.25%.
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.
THE RULE 12B-1 PLANS
Each class has a distribution plan or "Rule 12b-1 Plan" under which it may pay
or reimburse Distributors or others for activities primarily intended to sell
shares of the class. These expenses may include, among others, distribution or
service fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the Class I plan may not exceed 0.15% per year of
Class I's average daily net assets. All distribution expenses over this amount
will be borne by those who have incurred them.
Under the Class II plan, the Fund may pay Distributors up to 0.50% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the Class II
purchase.
The Fund may also pay a servicing fee of up to 0.15% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.
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. 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?
Shares of the Fund are considered Class I shares for redemption, exchange and
other purposes. In the future, additional series and classes of shares may be
offered.
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 Fund is
currently the only series of the Trust. The Fund began offering two classes of
shares on May 15, 1995: AGE High Income Fund, Inc., AGE High Income Fund Series,
AGE High Income Fund - Class I, and AGE High Income Fund, Inc., AGE High Income
Fund Series, AGE High Income Fund - Class II. All shares purchased before that
time are considered Class I shares. Additional classes of shares may be offered
in the future.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as the other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters (1) affecting only that class, (2) expressly
required to be voted on separately by state business trust law, or (3) required
to be voted on separately by the 1940 Act. Shares of each series of the Trust
have equal and exclusive rights to dividends and distributions declared by that
series and the net assets of the series in the event of liquidation or
dissolution.
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
electing or removing members of the Board.
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.
Foreign securities, which meet the definition in the Code of a Passive Foreign
Investment Company ("PFIC"), may subject the Fund to an income tax and interest
charge with respect to such investment. To the extent possible, the Fund will
avoid this treatment by not investing in PFIC securities or by adopting other
tax strategies for any PFIC securities it does buy.
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, it is anticipated that only a small portion of the
Fund's dividends during the current fiscal year will qualify for the corporate
dividends-received deduction because of the Fund's principal investment in
domestic debt securities. To the extent that the Fund pays dividends which
qualify for this deduction, the availability of the deduction is subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction.
The Fund will inform 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 a U.S. person for purposes of federal income taxation, 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. Please indicate which class of shares you want to buy. If you do not
specify a class, your purchase will be automatically invested in Class I shares.
MINIMUM
INVESTMENTS*
To Open Your Account...... $100
To Add to Your Account.... $ 25
*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.
DECIDING WHICH CLASS TO BUY
You should consider a number of factors when deciding which class of shares to
buy. If you plan to buy $1 million or more in a single payment or you qualify to
buy Class I shares without a sales charge, you may not buy Class II shares.
Generally, you should consider buying Class I shares if:
o you expect to invest in the Fund over the long term;
o you qualify to buy Class I shares at a reduced sales charge; or
o you plan to buy $1 million or more over time.
You should consider Class II shares if:
o you expect to invest less than $100,000 in the Franklin Templeton Funds;
and
o you plan to sell a substantial number of your shares within
approximately six years or less of your investment.
Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees. These may accumulate over time to outweigh
the lower Class II front-end sales charge and result in lower income dividends
for Class II shareholders. If you qualify to buy Class I shares at a reduced
sales charge based upon the size of your purchase or through our Letter of
Intent or cumulative quantity discount programs, but plan to hold your shares
less than approximately six years, you should evaluate whether it is more
economical for you to buy Class I or Class II shares.
For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of
$1 million or more is therefore automatically invested in Class I shares. You
may accumulate more than $1 million in Class II shares through purchases over
time, but if you plan to do this, you should determine whether it would be more
beneficial for you to buy Class I shares through a Letter of Intent.
Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.
PURCHASE PRICE OF FUND SHARES
For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.
TOTAL SALES CHARGE AMOUNT PAID TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- --------------------------------------------------------------------------------
CLASS I
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than 3.50% 3.63% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.15% 2.20% 2.00%
$1,000,000
$1,000,000 or more* None None None
CLASS II
Under $1,000,000* 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Deciding Which
Class to Buy."
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify to buy shares under one of the sales charge reduction or waiver
categories described below, please include a written statement with each
purchase order explaining which privilege applies. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your Class I and Class II
shares in other Franklin Templeton Funds, as well as those of your spouse,
children under the age of 21 and grandchildren under the age of 21. If you are
the sole owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT - CLASS I ONLY. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.
GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, such
as the Assembly of Governmental Employees ("AGE"), you may buy Class I shares at
a reduced sales charge that applies to the group as a whole. The sales charge is
based on the combined dollar value of the group members' existing investments,
plus the amount of the current purchase. Members of AGE who participate in the
payroll deduction plan described below or the group accumulation plan are
eligible for a reduced sales charge of 1% on investments of $500 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.
AGE members who select a payroll deduction plan should complete the payroll
deduction plan section of the supplement to the shareholder application and
submit it to their employer. Investments may be in any amount, with a minimum of
$12.50. Payroll deduction plans will normally be identified by a member's Social
Security number. Therefore, plans must be limited to one payroll deduction
account per member.
SALES CHARGE WAIVERS. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.
The Fund's sales charges will not apply if you are buying Class I shares with
money from the following sources or Class II shares with money from the sources
in waiver categories 1 or 4:
1. Dividend and capital gain distributions from any Franklin Templeton Fund or a
REIT sponsored or advised by Franklin Properties, Inc.
2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
3. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, Templeton Variable Annuity Fund, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.
4. Redemptions from any Franklin Templeton Fund if you:
o Originally paid a sales charge on the shares,
o Reinvest the money within 365 days of the redemption date, and
o Reinvest the money in the SAME CLASS of shares.
An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares reinvested were subject
to a Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier redemption,
but a new Contingency Period will begin.
If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within 365
days from the date the CD matures, including any rollover.
5. Redemptions from other mutual funds
If you sold shares of a fund that is not a Franklin Templeton Fund within
the past 60 days, you may invest the proceeds without any sales charge if (a)
the investment objectives were similar to the Fund's, and (b) your shares in
that fund were subject to any front-end or contingent deferred sales charges at
the time of purchase. You must provide a copy of the statement showing your
redemption.
The Fund's sales charges will also not apply to Class I purchases by:
6. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal funds
received by the close of business on the next business day following the order.
7. Group annuity separate accounts offered to retirement plans
8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more, or (iii) agree to invest
at least $500,000 in the Franklin Templeton Funds over a 13 month period.
Retirement plans that are not Qualified Retirement Plans or SEPS, such as 403(b)
or 457 plans, must also meet the requirements described under "Group Purchases -
Class I Only" above.
9. An Eligible Governmental Authority. Please consult your legal and investment
advisors to determine if an investment in the Fund is permissible and suitable
for you and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
10. Broker-dealers and qualified registered investment advisors who have entered
into a supplemental agreement with Distributors for their clients who are
participating in comprehensive fee programs, sometimes known as wrap fee
programs.
11. Registered Securities Dealers and their affiliates, for their investment
accounts only
12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
15. Accounts managed by the Franklin Templeton Group
16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
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.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments below apply to Securities Dealers who initiate and are responsible
for Class II purchases and certain Class I purchases made without a sales
charge. A Securities Dealer may only receive one of the following payments for
each qualifying purchase. The payments described below are paid by Distributors
or one of its affiliates, at its own expense, and not by the Fund or its
shareholders.
1. Securities Dealers may receive up to 1% of the purchase price for Class II
purchases. During the first year after the purchase, Distributors may keep a
part of the Rule 12b-1 fees associated with that purchase.
2. Securities Dealers will receive up to 0.75% of the purchase price for Class I
purchases of $1 million or more.
3. Securities Dealers may, in the sole discretion of Distributors, receive up to
1% of the purchase price for Class I purchases made under waiver category 8
above.
4. Securities Dealers may receive up to 0.25% of the purchase price for Class I
purchases made under waiver categories 6 and 9 above.
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI FOR ANY BREAKPOINTS THAT MAY APPLY.
Securities Dealers may receive additional compensation from Distributors or an
affiliated company in connection with selling shares of the Franklin Templeton
Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales or training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to Securities Dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities Dealers may not use sales of the Fund's shares to qualify for
this compensation if prohibited by the laws of any state or self-regulatory
agency, such as the NASD.
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 (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.
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 do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Class II 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.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.
We will not impose a Contingent Deferred Sales Charge when you exchange shares.
Any shares subject to a Contingent Deferred Sales Charge at the time of
exchange, however, will remain so in the new fund. See the discussion on
Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"
CONTINGENT DEFERRED SALES CHARGE - CLASS I. For accounts with Class I shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund in the order they were purchased. If you exchange Class I shares into one
of our money funds, the time your shares are held in that fund will not count
towards the completion of any Contingency Period.
CONTINGENT DEFERRED SALES CHARGE - CLASS II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
CDSC, such as shares from the reinvestment of dividends and capital gains ("free
shares"), $2,000 in shares that are no longer subject to a CDSC because you have
held them for longer than 18 months ("matured shares"), and $3,000 in shares
that are still subject to a CDSC ("CDSC liable shares"). If you exchange $3,000
into a new fund, $500 will be exchanged from free shares, $1,000 from matured
shares, and $1,500 from CDSC liable shares.
Likewise, CDSC liable shares purchased at different times will be exchanged into
a new fund proportionately. For example, assume you purchased $1,000 in shares 3
months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new
fund, $500 will be exchanged from shares purchased at each of these three
different times.
While Class II shares are exchanged proportionately, they are redeemed in the
order purchased. In some cases, this means exchanged shares may be CDSC liable
even though they would not be subject to a Contingent Deferred Sales Charge if
they were sold. We believe the proportional method of exchanging Class II shares
more closely reflects the expectations of Class II shareholders if shares are
sold during the Contingency Period. The tax consequences of a sale or exchange
are determined by the Code and not by the method used by the Fund to transfer
shares.
If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS.
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 if you Telephone requests will be accepted:
have completed and sent
to us the telephone o If the request is $50,000 or less. Institutional
redemption agreement accounts may exceed $50,000 by completing a
included with this separate agreement. Call Institutional Services
prospectus) to receive a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the Fund
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
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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.
CONTINGENT DEFERRED SALES CHARGE
A Contingent Deferred Sales Charge may apply to Class I purchases of $1 million
or more if you sell all or a portion of the shares within one year and any Class
II purchase if you sell the shares within 18 months. The charge is 1% of the
value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. Distributors keeps the charge to recover payments made to
Securities Dealers.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period, 2) Shares purchased with reinvested
dividends and capital gain distributions, and 3) Shares held longer than the
Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Exchanges
o Account fees
o Sales of shares purchased pursuant to a sales charge waiver
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up after February 1,
1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual balance
of $1 million in Class I shares, you can withdraw up to $120,000 annually
through a systematic withdrawal plan free of charge. Likewise, if you
maintain an annual balance of $10,000 in Class II shares, $1,200 may be
withdrawn annually free of charge.
o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy
o Tax-free returns of excess contributions from employee benefit plans
o Distributions from employee benefit plans, including those due to termination
or plan transfer
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. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of each class.
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 (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. If you own Class II 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 - 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 II 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 THE SAME CLASS
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. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. 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 Offering Price of the class you wish to purchase, unless
you qualify to buy shares at a reduced sales charge or with no sales charge. The
Offering Price of each class is based on the Net Asset Value per share of the
class and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You 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 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 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
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that identify
the general partners, or
2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
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 $50. We will only 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 $100.
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.
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.
Because of the front-end sales charge, you may not want to set up a systematic
withdrawal plan if you plan to buy shares on a regular basis. Shares sold under
the plan may also be subject to a Contingent Deferred Sales Charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
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 I and Class II are 105 and 205.
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.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.
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 THROUGH FRIDAY)
- --------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
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 Fund
CD - Certificate of deposit
CLASS I AND CLASS II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.
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."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.
EXCHANGE - New York Stock Exchange
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., 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.
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. The maximum
front-end sales charge is 4.25% for Class I and 1% for Class II.
QUALIFIED RETIREMENT PLAN(S) - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
REIT - Real Estate Investment Trust
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
OCTOBER 1, 1996
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 Advisory 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. 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.
The Prospectus, dated October 1, 1996, 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 information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "How Does the Fund Invest Its Assets?"
Loans of Portfolio Securities. As stated in the Prospectus, the Fund may make
loans of its portfolio securities, up to 10% of its total assets, in accordance
with guidelines adopted by the 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. To the extent that
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 also receive consent fees based on a variety of situations. For
example, the Fund may receive consent fees in situations where an issuer seeks
to "call" a bond it has issued which does not contain a provision permitting the
issuer to call the bond. The Fund may also receive a consent fee where its
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 illiquid equity securities, securities with
legal or contractual restrictions on resale, 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 such securities to be considered liquid to the extent Advisers
determines that there is a liquid institutional or other market for such
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 such a 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.
In response to state requirements:
(1) the Fund may not invest in warrants (valued at the lower of cost or market)
in excess of 5% of the value of the Fund's net assets. No more than 2% of the
value of the Fund's net assets may be invested in warrants (valued at the lower
of cost or market) which are not listed on the New York or American Stock
Exchanges. Warrants acquired by the Fund in units or attached to securities may
be deemed to be without value;
(2) the Fund may not invest in rights (valued at the lower of cost or market) in
excess of 5% of the value of the Fund's net assets. No more than 2% of the value
of the Fund's net assets may be invested in rights (valued at the lower of cost
or market) which are not listed on the New York or American Stock Exchanges.
Rights acquired by the Fund in units or attached to securities may be deemed to
be without value.
(3) the Fund will not invest in real estate limited partnerships or in interests
(other than publicly traded equity securities) in oil, gas, or other mineral
programs or leases, exploration or development.
(4) the Fund will limit its investments to a total of 15% of its total assets in
any mix of restricted securities for which there is not a liquid market,
securities of issuers which are not readily marketable, and securities of
issuers which have been in operation for less than three years.
(5) the Fund will not invest more than 10% of its assets in real estate
investment trusts or investment companies; and
(6) the Fund will not invest more than 5% of its assets in options, financial
futures, or stock index futures, other than hedging positions or positions that
are covered by cash or securities.
(7) the Fund will not invest in puts, calls, straddles or spreads, or any
combination thereof, except in connection with option writing activities; nor to
engage in joint or joint and several trading accounts in securities, except that
an order to buy or sell may be combined with orders from other persons to obtain
lower brokerage commissions.
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 Fund 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
Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS DURING
NAME, AGE AND ADDRESS WITH THE FUND PAST FIVE YEARS
- --------------------------------------------------------------------------------
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Director
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
*Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 60 of the investment companies in the Franklin Templeton Group of Funds.
Robert F. Carlson (68)
2120 Lambeth Way
Carmichael, CA 95608
Director
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)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
Roy V. Fox (78)
107 Deepwood Dr.
Georgetown, TX 78628-8301
Director
Retired; formerly Publishing Consultant, Franklin Resources, Inc. and formerly
National Administrative Officer of the Assembly of Governmental Employees, and
director of one investment company in the Franklin Group of Funds.
*Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
*R. Martin Wiskemann (69)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 21 of the
investment companies in the Franklin Group of Funds.
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President -
Financial Reporting
and Accounting
Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and
Principal
Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
The 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.
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME FROM THE TRUST* GROUP OF FUNDS** EACH SERVES***
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frank H. Abbott, III........................ $15,640 $162,420 31
Robert F. Carlson........................... 13,600 15,640 1
S. Joseph Fortunato......................... 15,640 344,745 58
Roy V. Fox.................................. 14,960 16,320 1
</TABLE>
*For the fiscal year ended May 31, 1996.
**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 July 17, 1996, the officers and Board members, as a group, owned of record
and beneficially approximately 700,645 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 ADVISORY 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 also maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services and provides certain telephone and other mechanical services. 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.
The management fee will be reduced as necessary to comply with the most
stringent limits on Fund expenses of any state where the Fund offers it shares.
Currently, the most restrictive limitation on a fund's allowable expenses for
each fiscal year, as a percentage of its average net assets, is 2.5% of the
first $30 million in assets, 2% of the next $70 million, and 1.5% of assets over
$100 million. Expense reductions have not been necessary based on state
requirements.
For the fiscal years ended May 31, 1994, 1995 and 1996, management fees totaling
$8,993,566, $8,263,271 and $9,614,852 were paid to Advisers.
Management Agreement. The management agreement is in effect until [April 30,
1997]. 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.
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 Fund's Annual Report to Shareholders for
the fiscal year ended May 31, 1996.
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, 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.
As of May 31, 1996, the Fund owned securities issued bythe following
broker-dealers:
BROKER-DEALERS AGGREGATE VALUE
- -------------- ---------------
Daiwa Securities America, Inc. $265,355
SBCI Swiss Bank Corp. Inv. Bank $265,355
Lehman Brothers Securities $265,355
Donaldson, Lufkin & Jenrette $265,355
Fuji Securities, Inc. $265,355
UBS Securities Inc. $265,355
Chase Manhattan Bank NA $265,355
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
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities dealers may at times receive the entire
sales charge. A Securities Dealer who receives 90% or more of the sales charge
may be deemed an underwriter under the Securities Act of 1933, as amended.
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the table under "How Do I Buy Shares? - Purchase
Price of Fund Shares" in the Prospectus.
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.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to these banks' trust accounts without a sales charge. The
banks may charge service fees to their customers who participate in the trusts.
A portion of these service fees may be paid to Distributors or one of its
affiliates to help defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and communication
facilities.
Class I shares of the Fund may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class I
shares may be offered with the following schedule of sales charges:
SALES
SIZE OF PURCHASE - U.S. DOLLARS CHARGE
- ----------------------------------------------
Under $30,000......................... 3%
$30,000 but less than $100,000........ 2%
$100,000 but less than $400,000....... 1%
$400,000 or more...................... 0%
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 0.75% on
sales of $1 million to $2 million, plus 0.60% on sales over $2 million to $3
million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales
over $50 million to $100 million, plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to Securities Dealers who initiate and are responsible for
purchases of Class I shares by certain retirement plans pursuant to a sales
charge waiver, as discussed in the Prospectus: 1% on sales of $500,000 to $2
million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on sales
over $3 million to $50 million, plus 0.25% on sales over $50 million to $100
million, plus 0.15% on sales over $100 million. Distributors may make these
payments in the form of contingent advance payments, which may be recovered from
the Securities Dealer or set off against other payments due to the dealer if
shares are sold within 12 months of the calendar month of purchase. Other
conditions may apply. All terms and conditions may be imposed by an agreement
between Distributors, or one of its affiliates, and the Securities Dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
LETTER OF INTENT. You may qualify for a reduced sales charge when you buy Class
I shares, as described in the Prospectus. At any time within 90 days after the
first investment that you want to qualify for a reduced sales charge, you may
file with the Fund a signed shareholder application with the Letter of Intent
section completed. After the Letter is filed, each additional investment will be
entitled to the sales charge applicable to the level of investment indicated on
the Letter. Sales charge reductions based on purchases in more than one Franklin
Templeton Fund will be effective only after notification to Distributors that
the investment qualifies for a discount. Your holdings in the Franklin Templeton
Funds, including Class II shares, acquired more than 90 days before the Letter
is filed, will be counted towards completion of the Letter but will not be
entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make during the 13 month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been completed. If
the Letter is not completed within the 13 month period, there will be an upward
adjustment of the sales charge, depending on the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to certain
retirement plans. If you execute a Letter prior to a change in the sales charge
structure of the Fund, you may complete the Letter at the lower of the new sales
charge structure or the sales charge structure in effect at the time the Letter
was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in Class I shares of the Fund registered in
your name until you fulfill the Letter. This policy of reserving shares does not
apply to certain retirement plans. If total purchases, less redemptions, equal
the amount specified under the Letter, the reserved shares will be deposited to
an account in your name or delivered to you or as you direct. If total
purchases, less redemptions, exceed the amount specified under the Letter and is
an amount that would qualify for a further quantity discount, a retroactive
price adjustment will be made by Distributors and the Securities Dealer through
whom purchases were made pursuant to the Letter (to reflect such further
quantity discount) on purchases made within 90 days before and on those made
after filing the Letter. The resulting difference in Offering Price will be
applied to the purchase of additional shares at the Offering Price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, you will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge that
would have applied to the aggregate purchases if the total of the purchases had
been made at a single time. Upon remittance, the reserved shares held for your
account will be deposited to an account in your name or delivered to you or as
you direct. If within 20 days after written request the difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize the difference will be made. In the event of a total redemption of
the account prior to fulfillment of the Letter, the additional sales charge due
will be deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter is executed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
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. 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 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 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 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 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 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 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 net capital loss carry forward 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 a notice to you mailed shortly after the end of the Fund's
fiscal year.
Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by the
Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the federal alternative
minimum tax is computed and may also result in a reduction in the shareholder's
tax basis in its Fund shares, under certain circumstances, if the shares have
been held for less than two years. Corporate shareholders whose investment in
the Fund is "debt financed" for these tax purposes should consult with their tax
advisors concerning the availability of the dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the 12 month period ending October 31 of each year (in
addition to amounts from the prior year that were neither distributed nor taxed
to the Fund) to shareholders by December 31 of each year in order to avoid the
imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to 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
Ftax 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.
All or a portion of a loss you realize 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
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn its distributions to 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 in effect until [April 30, 1997],
Distributors acts as principal underwriter in a continuous public offering for
both classes 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.
Until April 30, 1994, income dividends for Class I shares were reinvested at the
Offering Price and Distributors allowed 50% of the entire commission to the
Securities Dealer of record, if any, on an account. Starting with any income
dividends paid after April 30, 1994, this reinvestment is at Net Asset Value.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended May 31, 1994, 1995 and 1996, were
$7,958,366, $5,036,874 and $10,228,931. After allowances to dealers,
Distributors retained $1,044,184, $322,400 and $519,430 in net underwriting
discounts and commissions for the respective years and received $14,004 in
connection with redemptions or repurchases of shares during the fiscal year
ended May 31, 1996. Distributors may be entitled to reimbursement under the Rule
12b-1 plan for each class, as discussed below. Except as noted, Distributors
received no other compensation from the Fund for acting as underwriter.
THE RULE 12B-1 PLANS
Each class has adopted a distribution plan or "Rule 12b-1 plan" pursuant to Rule
12b-1 of the 1940 Act.
The Class I Plan. Under the Class I plan, the Fund may pay up to a maximum of
0.15% per year of Class I's average daily net assets, payable quarterly, for
expenses incurred in the promotion and distribution of Class I shares.
In implementing the Class I plan, the Board has determined that the annual fees
payable under the plan will be equal to the sum of: (i) the amount obtained by
multiplying 0.15% by the average daily net assets represented by Class I shares
of the Fund that were acquired by investors on or after May 1, 1994, the
effective date of the plan ("New Assets"), and (ii) the amount obtained by
multiplying 0.05% by the average daily net assets represented by Class I shares
of the Fund that were acquired before May 1, 1994 ("Old Assets"). These fees
will be paid to the current Securities Dealer of record on the account. In
addition, until such time as the maximum payment of 0.15% is reached on a yearly
basis, up to an additional 0.02% will be paid to Distributors under the plan.
The payments made to Distributors will be used by Distributors to defray other
marketing expenses that have been incurred in accordance with the plan, such as
advertising.
The fee is a Class I expense. This means that all Class I shareholders,
regardless of when they purchased their shares, will bear Rule 12b-1 expenses at
the same rate. The initial rate will be at least 0.07% (0.05% plus 0.02%) of the
average daily net assets of Class I and, as Class I shares are sold on or after
May 1, 1994, will increase over time. Thus, as the proportion of Class I shares
purchased on or after May 1, 1994, increases in relation to outstanding Class I
shares, the expenses attributable to payments under the plan will also increase
(but will not exceed 0.15% of average daily net assets). While this is the
currently anticipated calculation for fees payable under the Class I plan, the
plan permits the Board to allow the Fund to pay a full 0.15% on all assets at
any time. The approval of the Board would be required to change the calculation
of the payments to be made under the Class I plan.
The Class I plan does not permit unreimbursed expenses incurred in a particular
year to be carried over to or reimbursed in later years.
The Class II Plan. Under the Class II plan, the Fund pays Distributors up to
0.50% per year of Class II's average daily net assets, payable quarterly, for
distribution and related expenses. These fees may be used to compensate
Distributors or others for providing distribution and related services and
bearing certain Class II expenses. All distribution expenses over this amount
will be borne by those who have incurred them without reimbursement by the Fund.
Under the Class II Plan, the Fund also pays an additional 0.15% year of Class
II's average daily net assets, payable quarterly, as a servicing fee. During the
first year after a purchase of Class II shares, Distributors may keep this
portion of the Rule 12b-1 fees associated with the Class II purchase.
The Class I and Class II Plans. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, Advisers or Distributors or other parties on behalf of the
Fund, Advisers or Distributors make payments that are deemed to be for the
financing of any activity primarily intended to result in the sale of shares of
each class within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been made pursuant to the plan. The terms and
provisions of each plan relating to required reports, term, and approval are
consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid pursuant to the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.,
Article III, Section 26(d)4.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the Board, including a majority vote
of the Board members who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such Board members be done by the non-interested
members of the Board. The plans and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
management agreement with Advisers, or by vote of a majority of the outstanding
shares of the class. Distributors or any dealer or other firm may also terminate
their respective distribution or service agreement at any time upon written
notice.
The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the plans
or any related agreements shall be approved by a vote of the non-interested
members of the Board, cast in person at a meeting called for the purpose of
voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the plans should be continued.
For the fiscal year ended May 31, 1996, Distributors had eligible expenditures
of $$2,089,262 and $$456,635 for advertising, printing, and payments to
underwriters and broker-dealers pursuant to the Class I and Class II plans, of
which the Fund paid Distributors $$1,910,366 and $$102,920 under the Class I and
Class II plans.
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 each class 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 the maximum front-end sales charge is
deducted from the initial $1,000 purchase, and income dividends and capital gain
distributions are reinvested at Net Asset Value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees. If a change is made
to the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge currently in effect.
The average annual total return for Class I for the one-, five- and ten-year
periods ended May 31, 1996, was 6.15%, 13.21% and 8.79%. The average annual
total return for Class II for the one-year period ended May 31, 1996, and from
inception was 7.89% and 7.90%.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the
one-, five- or ten-year periods
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. The cumulative total return for
Class I for the one-, five- and ten-year periods ended May 31, 1996, was 6.15%,
85.94% and 132.13%. The cumulative total return for Class II for the one-year
period ended May 31, 1996, and from inception was 7.89% and 8.28%.
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 applicable maximum Offering
Price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders of
the class during the base period. The yield for each class for the 30-day period
ended May 31, 1996, was 8.69% for Class I and 8.49% for Class II.
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
---
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum Offering Price per share on the last day of the period
CURRENT DISTRIBUTION RATE
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. The current distribution rate is usually computed by
annualizing the dividends paid per share by a class during a certain period and
dividing that amount by the current maximum Offering Price. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains and is calculated over a different period of time. The current
distribution rate for each class for the 30-day period ended May 31, 1996, was
9.07% for Class I and 8.77% for Class II.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For investors who are permitted to buy Class I shares without a sales charge,
sales literature about Class I may quote a current distribution rate, yield,
cumulative total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of Net
Asset Value for the public Offering Price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
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) Salomon Brothers Combined Corporate Index - an unmanaged composite of the
Salomon High Yield Market Index and the corporate component of the Salomon Broad
Investment Grade Index. The index includes corporate issues rated AAA to CCC.
Comparisons of performance assume reinvestment of dividends.
o) CS First Boston High Yield Index - an unmanaged index constructed to mirror
the public high yield debt market. The index represents a total of 250 sectors
and contains issues rated BBB and below. Comparisons of performance assume
reinvestment of dividends.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived 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 a class' performance 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 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 115 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.
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.
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.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended May 31, 1996, including the auditors'
report, are incorporated herein by reference.
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 Fund
CD - Certificate of deposit
Class I and Class II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.
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
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. The maximum
front-end sales charge is 4.25% for Class I and 1% for Class II.
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 - July 3, 1996
(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 attached, except exhibits 6(ii), 8(i),
8(ii), 8(iii), 8(iv), 10(i), 14(i), 14(ii), 14(iii), 14(iv), 14(v)
and 16(i) which are incorporated herein by reference.
(1) copies of the charter as now in effect;
(i) Form of Agreement and Declaration of Trust
(ii) Form of Certificate of Trust
(2) copies of the existing By-Laws or instruments corresponding
thereto;
(i) By-Laws
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
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.
(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.
(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
Registrant: Age High Income Fund, Inc.
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 dated July 30, 1996
(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;
(i) Letter of Understanding dated April 12, 1995
(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
(ii) Form of Class II Distribution Plan pursuant to Rule 12b-1
(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
(ii) Certificate of Secretary dated May 14, 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
(27) Financial Data Schedule
(1) Financial Data Schedule Class I
(2) Financial Data Schedule Class II
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of May 31, 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 110,116 2,692
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 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 Securities 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
day of August 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: August 1, 1996
Martin L. Flanagan* Principal Financial Officer
(Martin L. Flanagan) Dated: August 1, 1996
Diomedes Loo-Tam* Principal Accounting Officer
(Diomedes Loo-Tam) Dated: August 1, 1996
Frank H. Abbott III* Trustee
(Frank H. Abbott III) Dated: August 1, 1996
Harmon E. Burns* Trustee
(Harmon E. Burns) Dated: August 1, 1996
Robert F. Carlson* Trustee
(Robert F. Carlson) Dated: August 1, 1996
S. Joseph Fortunato* Trustee
(S. Joseph Fortunato) Dated: August 1, 1996
Roy V. Fox* Trustee
(Roy V. Fox) Dated: August 1, 1996
R. Martin Wiskemann* Trustee
(R. Martin Wiskemann) Dated: August 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 Attached
of Trust
EX-99.B1(ii) Form of Certificate of Trust Attached
EX-99.B2(i) By-Laws Attached
EX-99.B5(i) Form of Management Agreement Attached
between Registrant and Franklin
Advisers, Inc.
EX-99.B6(i) Form of Amended and Restated Attached
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
dated July 30, 1996
EX-99.B13(i) Letter of Understanding dated Attached
April 12, 1995
EX-99.B14(i) Franklin IRA Form *
EX-99.B14(ii) Franklin 403(b) Retirement Plan *
EX-99.B14(iii) Franklin Trust Company Insured CD *
IRA
EX-99.B14(iv) Franklin Business Retirement Plans *
EX-99.B14(v) Franklin SEP-IRA (5305-SEP and *
5305A-SEP)
EX-99.B15(i) Form of Class I Distribution Plan Attached
pursuant to Rule 12b-1
EX-99.B15(ii) Form of Class II Distribution Plan Attached
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 Attached
EX-99.B17(ii) Certificate of Secretary dated May Attached
14, 1996
EX-99.B18(i) Form of Multiple Class Plan Attached
EX-27.B1 Financial Data Schedule Class I Attached
EX-27.B2 Financial Data Schedule Class II Attached
* Incorporated by Reference
AGREEMENT AND DECLARATION OF TRUST
of
AGE HIGH INCOME FUND
a Delaware Business Trust
Principal Place of Business:
777 Mariners Island Boulevard
San Mateo, California 94404
TABLE OF CONTENTS
Page
ARTICLE I....................................................................1
Name and Definitions..................................................1
Section 1. Name.................................................1
Section 2. Definitions..........................................1
(a) Trust...........................................1
(b) Trust Property..................................1
(c) Trustees........................................1
(d) Shares..........................................2
(e) Shareholder.....................................2
(f) Person..........................................2
(g) 1940 Act........................................2
(h) Commission and Principal
Underwriter....................................2
(i) Declaration of Trust............................2
(j) By-Laws.........................................2
(k) Interested Person...............................2
(1) Investment Manager..............................2
(m) Series..........................................2
ARTICLE II...................................................................2
Purpose of Trust.......................................................2
ARTICLE III..................................................................3
Shares.................................................................3
Section 1. Division of Beneficial Interest......................3
Section 2. Ownership of Shares..................................3
Section 3. Investments in the Trust.............................4
Section 4. Status of Shares and Limitation of
Personal Liability.................................4
Section 5. Power of Board of Trustees to Change
Provisions Relating to Shares......................4
Section 6. Establishment and Designation of
Shares.............................................5
(a) Assets Held with Respect to a Particular
Series...............................................5
(b) Liabilities Held with Respect to a Particular
Series...............................................6
(c) Dividends, Distributions, Redemptions, and
Repurchases..........................................6
(d) Voting...............................................7
(e) Equality.............................................7
(f) Fractions............................................7
(g) Exchange Privilege...................................7
(h) Combination of Series................................7
(i) Elimination of Series................................8
Section 7. Indemnification of Shareholders......................8
ARTICLE IV...................................................................8
The Board of Trustees..................................................8
Section 1. Number, Election and
Tenure.............................................8
Section 2. Effect of Death, Resignation, etc. of
a Trustee..........................................9
Section 3. Powers...............................................9
Section 4. Payment of Expenses by the Trust....................13
Section 5. Payment of Expenses by Shareholders.................13
Section 6. Ownership of Assets of the Trust....................13
Section 7. Service Contracts...................................14
ARTICLE V 15
Shareholders' Voting Powers and Meetings..............................15
Section 1. Voting Powers.......................................15
Section 2. Voting Power and Meetings...........................16
Section 3. Quorum and Required Vote............................16
Section 4. Action by Written Consent...........................17
Section 5. Record Dates........................................17
Section 6. Additional Provisions...............................17
ARTICLE VI 18
Net Asset Value, Distributions, and Redemptions.......................18
Section 1. Determination of Net Asset Value, Net
Income, and Distributions.........................18
Section 2. Redemptions and Repurchases.........................18
Section 3. Redemptions at the Option of the
Trust.............................................19
ARTICLE VII 19
Compensation and Limitation of Liability of Trustees..................19
Section 1. Compensation........................................19
Section 2. Indemnification and Limitation of
Liability.........................................19
Section 3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety.........................20
Section 4. Insurance...........................................20
ARTICLE VIII................................................................20
Miscellaneous.........................................................20
Section 1. Liability of Third Persons Dealing
with Trustees.....................................20
Section 2. Termination of Trust or Series......................20
Section 3. Merger and Consolidation............................21
Section 4. Amendments..........................................21
Section 5. Filing of Copies, References, Headings..............22
Section 6. Applicable Law......................................22
Section 7. Provisions in Conflict with Law or
Regulations.......................................22
Section 8. Business Trust Only.................................23
Section 9. Use of the name "Franklin"..........................23
AGREEMENT AND DECLARATION OF TRUST
OF
AGE HIGH INCOME FUND
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is
made and entered into as of the date set forth below by the
Trustees named hereunder for the purpose of forming a Delaware
business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that a
Certificate of Trust be filed with the office of the Secretary of
State of the State of Delaware and do hereby declare that the
Trustees will hold IN TRUST all cash, securities and other assets
which the Trust now possesses or may hereafter acquire from time
to time in any manner and manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the
holders of Shares in this Trust.
ARTICLE I.
Name and Definitions
SECTION 1. Name. This trust shall be known as "AGE
High Income Fund" and the Trustees shall conduct the business of
the Trust under that name or any other name as they may from time
to time determine.
SECTION 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) The "Trust Property" means any and all property,
real or personal, tangible or intangible, which is owned or held
by or for the account of the Trust, including without limitation
the rights referenced in Article VIII, Section 9 hereof;
(c) "Trustees" refers to the persons who have signed
this Agreement and Declaration of Trust, so long as they continue
in office in accordance with the terms hereof, and all other
persons who may from time to time be duly elected or appointed to
serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees
hereunder;
(d) "Shares" means the shares of beneficial interest
into which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as
whole Shares;
(e) "Shareholder" means a record owner of outstanding
Shares;
(f) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures,
estates and other entities, whether or not legal entities, and
governments and agencies and political subdivisions thereof,
whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company
Act of 1940 and the Rules and Regulations thereunder, all as
amended from time to time;
(h) The terms "Commission" and "Principal Underwriter"
shall have the respective meanings given them in Section 2(a)(7)
and Section (2)(a)(29) of the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement
and Declaration of Trust, as amended or restated from time to
time;
(j) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given
it in Section 2(a)(19) of the 1940 Act;
(l) "Investment Manager" or "Manager" means a party
furnishing services to the Trust pursuant to any contract
described in Article IV, Section 7(a) hereof;
(m) "Series" refers to each Series of Shares
established and designated under or in accordance with the
provisions of Article III and shall mean an entity such as that
described in Section 18(f)(2) of the 1940 Act, and subject to
Rule 18f-2 thereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and
carry on the business of a management investment company
registered under the 1940 Act through one or more Series
investing primarily in securities.
ARTICLE III.
Shares
SECTION 1. Division of Beneficial Interest. The
beneficial interest in the Trust shall at all times be divided
into an unlimited number of Shares, with a par value of $ .01 per
Share. The Trustees may authorize the division of Shares into
separate Series and the division of Series into separate classes
of Shares. The different Series shall be established and
designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and
determined, by the Trustees. If only one or no Series (or
classes) shall be established, the Shares shall have the rights
and preferences provided for herein and in Article III, Section 6
hereof to the extent relevant and not otherwise provided for
herein, and all references to Series (and classes) shall be
construed (as the context may require) to refer to the Trust.
Subject to the provisions of Section 6 of this Article
III, each Share shall have voting rights as provided in Article V
hereof, and holders of the Shares of any Series shall be entitled
to receive dividends, when, if and as declared with respect
thereto in the manner provided in Article VI, Section I hereof.
No Shares shall have any priority or preference over any other
Share of the same Series with respect to dividends or
distributions upon termination of the Trust or of such Series
made pursuant to Article VIII, Section 4 hereof. All dividends
and distributions shall be made ratably among all Shareholders of
a particular (class of a) Series from the assets held with
respect to such Series according to the number of Shares of such
(class of such) Series held of record by such Shareholder on the
record date for any dividend or distribution or on the date of
termination, as the case may be. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares
of that Series without thereby materially changing the
proportionate beneficial interest ' of the Shares of that Series
in the assets held with respect to that Series or materially
affecting the rights of Shares of any other Series.
SECTION 2. Ownership of Shares. The ownership of
Shares shall be recorded on the books of the Trust or a transfer
or similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series (or class). No
certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time
to time. The Trustees may make such rules as they consider
appropriate for the transfer of Shares of each Series (or class)
and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be,
shall be conclusive as to who are the Shareholders of each Series
(or class) and as to the number of Shares of each Series (or
class) held from time to time by each.
SECTION 3. Investments in the Trust. Investments may
be accepted by the Trust from such Persons, at such times, on
such terms, and for such consideration as the Trustees from time
to time may authorize. Each investment shall be credited to the
individual Shareholder's account in the form of full and
fractional Shares of the Trust, iii such Series (or class) as the
purchaser shall select, at the net asset value per Share next
determined for such Series (or class) after receipt of the
investment; provided, however, that the Trustees may, in their
sole discretion, impose a sales charge upon investments in the
Trust.
SECTION 4. Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving
only the rights provided in this instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but entitles such representative only
to the rights of said deceased Shareholder under this Trust.
ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust Property or
right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust shall have any
power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to
pay.
SECTION 5. Power of Board of Trustees to Change
Provisions Relating to Shares. Notwithstanding any other
provisions of this Declaration of Trust and without limiting the
power of the Board of Trustees to amend the Declaration of Trust
as provided elsewhere herein, the Board of Trustees shall have
the power to amend this Declaration of Trust, at any time and
from time to time, in such manner as the Board of Trustees may
determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this
Declaration of Trust, provided that before adopting any such
amendment without Shareholder approval the Board of Trustees
shall determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law. if
Shares have been issued, Shareholder approval shall be required
to adopt any amendments to this Declaration of Trust which would
adversely affect to a material degree the rights and preferences
of the Shares of any Series (or class) or to increase or decrease
the par value of the Shares of any Series (or class).
Subject to the foregoing Paragraph, the Board of
Trustees may amend the Declaration of Trust to amend any of the
provisions set forth in paragraphs (a) through (i) of Section 6
of this Article III.
SECTION 6. Establishment and Designation of Shares.
The establishment and designation of any Series (or class) of
Shares shall be effective upon the resolution by a majority of
the then Trustees, adopting a resolution which sets forth such
establishment and designation and the relative rights and
preferences of such Series (or class). Each such resolution
shall be incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant
to this Section 6, unless otherwise provided in the resolution
establishing such Series, shall have the following relative
rights and preferences:
(a) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES.
All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably be held with
respect to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source
derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as assets held
with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as the Trustees, in their sole discretion, deem
fair and equitable, and any General Asset so allocated to a
particular Series shall be held with respect to that Series.
Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR
SERIES. The assets of the Trust held with respect to each
particular Series shall be charged against the liabilities of the
Trust held with respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
being held with respect to any particular Series shall be
allocated and charged by the Trustees to and among any one or
more of the Series in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities held with respect
to" that Series. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive
and binding upon the holders of all Series for all purposes. All
Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been
allocated to any particular Series, shall look, and shall be
required by contract to look exclusively, to the assets of that
particular Series for payment of such credit, claim, or contract.
In the absence of an express contractual agreement so limiting
the claims of such creditors, claimants and contract providers,
each creditor, claimant and contract provider will be deemed
nevertheless to have impliedly agreed to such limitation unless
an express provision to the contrary has been incorporated in the
written contract or other document establishing the claimant
relationship.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND
REPURCHASES. Notwithstanding any other provisions of this
Declaration of Trust, including, without limitation, Article VI,
no dividend or distribution including, without limitation, any
distribution paid upon termination of the Trust or of any series
(or class) with respect to, nor any redemption or repurchase of,
the Shares of any Series (or class) shall be effected by the
Trust other than from the assets held with respect to such
Series, nor, except as specifically provided in Section 7 of this
Article III, shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with
respect to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder
of such other Series. The Trustees shall have full discretion,
to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as
capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
(d) VOTING. All Shares of the Trust entitled to vote
on a matter shall vote separately by Series (and, if applicable,
by class): that is, the Shareholders of each Series (or class)
shall have the right to approve or disapprove matters affecting
the Trust and each respective series (or class) as if the Series
(or classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if
the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series (or
classes), then all the Trust's Shares shall be entitled to vote
on a one-vote-per-Share basis. Second, if any matter affects
only the interests of some but not all Series (or classes), then
only the Shareholders of such affected Series (or classes) shall
be entitled to vote on the matter.
(e) EQUALITY. All the Shares of each particular
Series shall represent an equal proportionate undivided interest
in the assets held with respect to that Series (subject to the
liabilities held with respect to that Series and such rights and
preferences as may have been established and designated with
respect to classes of Shares within such Series), and each Share
of any particular Series shall be equal to each other Share of
that Series.
(f) FRACTIONS. Any fractional Share of a Series shall
carry proportionately all the rights and obligations of a whole
share of that Series, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have
the authority, without the approval of the Shareholders of any
Series unless otherwise required by applicable law, to combine
the assets and liabilities held with respect to any two or more
series into assets and liabilities held with respect to a single
series.
(i) ELIMINATION OF SERIES. At any time that there are
no Shares outstanding of any particular Series (or class)
previously established and designated, the Trustees may by
resolution of a majority of the then Trustees abolish that Series
(or class) and rescind the establishment and designation thereof.
SECTION 7. Indemnification of Shareholders. If any
Shareholder or former Shareholder shall be exposed to liability
by reason of a claim or demand relating to his or her being or
having been a Shareholder, and not because of his or her acts or
omissions, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators, or other legal representatives
or in the case of a corporation or other entity, its corporate or
other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust against all
loss and expense arising from such claim or demand.
ARTICLE IV.
The Board of Trustees
SECTION 1. NUMBER, ELECTION AND TENURE. The number of
Trustees constituting the Board of Trustees shall be fixed from
time to time by a written instrument signed, or by resolution
approved at a duly constituted meeting, by a majority of the
Board of Trustees, provided, however, that the number of Trustees
shall in no event be less than one (1) nor more than fifteen
(15). The Board of Trustees, by action of a majority of the then
Trustees at a duly constituted meeting, may fill vacancies in the
Board of Trustees or remove Trustees with or without cause. Each
Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and until the
election and qualification of his or her successor. Any Trustee
may resign at any time by written instrument signed by him and
delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to
the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any
right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of
such removal. The Shareholders may fix the number of Trustees
and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust. A meeting of Shareholders for
the purpose of electing or removing one or more Trustees may be
called (i) by the Trustees upon their own vote, or (ii) upon the
demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A
TRUSTEE. The death, declination, resignation, retirement,
removal, or incapacity of one or more Trustees, or all of them,
shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of
Trust. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled as provided in Article IV, Section
1, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees and shall discharge all
the duties imposed upon the Trustees by this Declaration of
Trust. As conclusive evidence of such vacancy, a written
instrument certifying the existence of such vacancy may be
executed by an officer of the Trust or by a majority of the Board
of Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then
Trustees within a short period of time and without the
opportunity for at least one Trustee being able to appoint
additional Trustees to fill vacancies, the Trust's Investment
Manager(s) are empowered to appoint new Trustees subject to the
provisions of Section 16(a) of the 1940 Act.
SECTION 3. POWERS. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Trustees in all instances shall
act as principals, and are and shall be free from the control of
the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any and
all contracts and instruments that they nay consider necessary or
appropriate in connection with the administration of the Trust.
Without limiting the foregoing, the Trustees may: adopt By-Laws
not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust and may
amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; fill vacancies in or
remove from their number, and may elect and remove such officers
and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and
terminate one or more committees consisting of two or more
Trustees which may exercise the powers and authority of the Board
of Trustees to the extent that the Trustees determine; employ one
or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any
part of such assets in a system or systems for the central
handling of securities or with a Federal Reserve Bank, retain a
transfer agent or a shareholder servicing agent, or both; provide
for the issuance and distribution of Shares by the Trust directly
or through one or more Principal underwriters or otherwise;
redeem, repurchase and transfer Shares pursuant to applicable
law; set record dates for the determination of Shareholders with
respect to various matters; declare and pay dividends and
distributions to Shareholders of each Series from the assets of
such Series; establish from time to time, in accordance with the
provisions of Article III, Section 6 hereof, any Series (or
class) of Shares, each such Series (or class) to operate as a
separate and distinct investment medium and with separately
defined investment objectives and policies and distinct
investment purpose; and in general delegate such authority as
they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the
Trust or to any such custodian, transfer or shareholder servicing
agent, or Principal Underwriter. Any determination as to what is
in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of a
grant of power to the Trustees. Unless otherwise specified or
required by law, any action by the Board of Trustees shall be
deemed effective if approved or taken by a majority of the
Trustees then in office. Any action required or permitted to be
taken at any meeting of the Board of Trustees, or any committee
thereof, may be taken without a meeting if all members of the
Board of Trustees or committee (as the case may be) consent
thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board of Trustees, or
committee.
Without limiting the foregoing, the Trust shall have
power and authority:
(a) To invest and reinvest cash, to hold cash
uninvested, and to subscribe for, invest in, reinvest in,
purchase or otherwise acquire, own, hold, pledge, sell, assign,
transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future
acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, preferred
stocks, negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, bankers'
acceptances, and other securities of any kind, issued, created
guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the
United States and the District of Columbia and any political
subdivision, agency, or instrumentality thereof, any foreign
government or any political subdivision of the U.S. Government or
any foreign government, or any international instrumentality, or
by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any
corporation or organization organized under any foreign law, or
in "when issued" contracts for any such securities, to change the
investments of the assets of the Trust; and to exercise any and
all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including, without limitation, the right to consent
and otherwise act with respect thereto, with power to designate
one or more Persons, to exercise any of said rights, powers, and
privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, lease, or write options with respect to or otherwise
deal in any property rights relating to any or all of the assets
of the Trust or any Series, subject to any requirements of the
1940 Act;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating that it is trust property, whether in bearer,
unregistered or other negotiable form, or in its own name or in
the name of a custodian or subcustodian or a nominee or nominees
or otherwise or to authorize the custodian or a subcustodian or a
nominee or nominees to deposit the same in a securities
depository, subject in each case to proper safeguards according
to the usual practice of investment companies or any rules or
regulations applicable thereto;
(f) To consent to, or participate in, any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise, and
in that connection to deposit any security with, or transfer any
security to, any such committee, depositary or trustee, and to
delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy, including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of
the Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes
or other obligations of any Person; to make contracts of guaranty
or suretyship, or otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust
Property such insurance as the Trustees may deem necessary or
appropriate for the conduct of the business, including, without
limitation, insurance policies insuring the assets of the Trust
or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers,
principal underwriters, or independent contractors of the Trust,
individually against all claims and liabilities of every nature
arising by reason of holding Shares, holding, being or having
held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such Person as
Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action
taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such
Person against liability; and
(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trust shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trust shall not in any way be
bound or limited by any present or future law or custom in regard
to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or
take any other action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The
Trustees are authorized to pay or cause to be paid out of the
principal or income of the Trust or Series (or class), or partly
out of the principal and partly out of income, and to charge or
allocate the same to, between or among such one or more of the
Series (or class) that may be established or designated pursuant
to Article III, Section 6, as they deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust or Series (or class), or in connection with the
management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser 'or manager,
principal underwriter, auditors, counsel, custodian, transfer
agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series, to pay directly, in advance or arrears, for
charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by
the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to
all of the assets of the Trust shall at all times be considered
as vested in the Trust, except that the Trustees shall have power
to cause legal title to any Trust Property to be held by or in
the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and
interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee.
Upon the resignation, removal or death of a Trustee he or she
shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have
been executed and delivered.
SECTION 7. SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as
nay be set forth in the By-Laws, the Trustees may, at any time
and from time to time, contract for exclusive or nonexclusive
advisory, management and/or administrative services for the Trust
or for any Series with any corporation, trust, association or
other organization; and any such contract may contain such other
terms as the Trustees may determine, including without
limitation, authority for the Investment Manager or administrator
to determine from time to time without prior consultation with
the Trustees what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time
to time, contract with any corporation, trust, association or
other organization, appointing it exclusive or nonexclusive
distributor or Principal Underwriter for the Shares of one or
more of the Series (or classes) or other securities to be issued
by the Trust. Every such contract shall comply with such
requirements and restrictions as may be set forth in the By-Laws;
and any such contract may contain such other terms as the
Trustees may determine.
(c) The Trustees are also empowered, at any time and
from time to time, to contract with any corporations, trusts,
associations or other organizations, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract
shall comply with such requirements and restrictions as may be
set forth in the By-Laws or stipulated by resolution of the
Trustees.
(d) The Trustees are further empowered, at any tine
and from time to time, to contract with any entity to provide
such other services to the Trust or one or more of the Series, as
the Trustees determine to be in the best interests of the Trust
and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or
officers of the Trust is a shareholder, director,
officer, partner, trustee, employee, Manager, adviser,
Principal Underwriter, distributor, or affiliate or
agent of or for any corporation, trust, association, or
other organization, or for any parent or affiliate of
any organization with which an advisory, management or
administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, shareholder
servicing or other type of service contract may have
been or may hereafter be made also has an advisory,
management or administration contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other service contract with
one or more other corporations, trust, associations, or
other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V.
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. Subject to the provisions
of Article III, Section 6(d), the Shareholders shall have power
to vote only (i) for the election or removal of Trustees as
provided in Article IV, Section 1, and (ii) with respect to such
additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall
rest on the challenger.
SECTION 2. VOTING POWER AND MEETINGS. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to tine
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven (7) days before such meeting, postage prepaid,
stating the time and place of the meeting, to each Shareholder at
the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his or her attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent
to such notice.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a
larger quorum is required by applicable law, by the By-Laws or by
this Declaration of Trust, forty percent (40%) of the Shares
entitled to vote shall constitute a quorum at a Shareholders'
meeting. When any one or more Series (or classes) is to vote as
a single class separate from any other Shares, forty percent
(40%) of the Shares of each such Series (or classes) entitled to
vote shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the
question of adjourning a meeting to another date and tine,
whether or not a quorum is present, and the meeting may be held
as adjourned within a reasonable time after the date set for the
original meeting without further notice. Subject to the
provisions of Article III, Section 6(d), when a quorum is present
at any meeting, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, except when a
larger vote is required by any provision of this Declaration of
Trust or the By-Laws or by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action
taken by Shareholders may be taken without a meeting if
Shareholders holding a majority of the Shares entitled to vote on
the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or
by the By-Laws) and holding a majority (or such larger proportion
as aforesaid) of the Shares of any Series (or class) entitled to
vote separately on the matter consent to the action in writing
and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
SECTION 5. RECORD DATES. For the purpose of
determining the Shareholders of any Series (or class) who are
entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which
shall be not more than ninety (90) days before the date of any
meeting of Shareholders, as the record date for determining the
Shareholders of such Series (or class) having the right to notice
of and to vote at such meeting and any adjournment thereof, and
in such case only Shareholders of record on such record date
shall have such right, notwithstanding any transfer of shares on
the books of the Trust after the record date. For the purpose of
determining the Shareholders of any Series (or class) who are
entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a date,
which shall be before the date for the payment of such dividend
or such other payment, as the record date for determining the
Shareholders of such Series (or class) having the right to
receive such dividend or distribution. Without fixing a record
date the Trustees may for voting and/or distribution purposes
close the register or transfer books for one or more Series for
all or any part of the period between a record date and a meeting
of Shareholders or the payment of a distribution. Nothing in
this Section shall be construed as precluding the Trustees from
setting different record dates for different Series (or classes).
SECTION 6. ADDITIONAL PROVISIONS. The By-Laws may
include further provisions for Shareholders' votes and meetings
and related matters.
ARTICLE VI.
Net Asset Value, Distributions, and Redemptions
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET
INCOME, AND DISTRIBUTIONS. Subject to Article III, Section 6
hereof, the Trustees, in their absolute discretion, may prescribe
and shall set forth in the By-laws or in a duly adopted vote of
the Trustees such bases and time for determining the per Share or
net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES. The Trust
shall purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
Person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, in accordance with
the By-Laws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation
set forth in this Section 2 is subject to the provision that in
the event that any time the New York Stock Exchange (the
"Exchange") is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency
which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the
value of the net assets held with respect to such Series or
during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or
postponed by the Trustees.
The redemption price may in any case or cases be paid
wholly or partly in kind if the Trustees determine that such
payment is advisable in the interest of the remaining
Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection
and quantity of securities or other property so paid or delivered
as all or part of the redemption price may be determined by or
under authority of the Trustees. In no case shall the Trust be
liable for any delay of any corporation or other Person in
transferring securities selected for delivery as all or part of
any payment in kind.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST.
The Trust shall have the right at its option and at any tine to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series having an aggregate
net asset value of less than an amount determined from time to
time by the Trustees prior to the acquisition of said Shares; or
(ii) to the extent that such Shareholder owns Shares of a
particular Series equal to or in excess of a percentage of the
outstanding Shares of that Series determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from
time to time by the Trustees, of the outstanding Shares of the
Trust or of any Series.
ARTICLE VII.
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees as such shall
be entitled to reasonable compensation from the Trust, and they
may fix the amount of such compensation. Nothing herein shall in
any way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
SECTION 2. INDEMNIFICATION AND LIMITATION OF
LIABILITY. The Trustees shall not be responsible or liable in
any event for any neglect or wrong-doing of any officer, agent,
employee, Manager or Principal Underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any
other Trustee, and the Trust out of its assets shall indemnify
and hold harmless each and every Trustee from and against any and
all claims and demands whatsoever arising out of or related to
each Trustee's performance of his or her duties as a Trustee of
the Trust; provided that nothing herein contained shall
indemnify, hold harmless or protect any Trustee from or against
an y liability to the Trust or any Shareholder to which he or she
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee,
and such Trustees or Trustee shall not be personally liable
thereon.
SECTION 3. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE,
NO BOND OR SURETY. The exercise by the Trustees of their powers
and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable to the Trust and to any
Shareholder solely for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
SECTION 4. INSURANCE. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee
or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust, whether or not
the Trust would have the power to indemnify him or her against
such liability under the provisions of this Article.
ARTICLE VIII.
Miscellaneous
SECTION 1. LIABILITY OF THIRD PERSONS DEALING WITH
TRUSTEES. No Person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
SECTION 2. TERMINATION OF TRUST OR SERIES. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of a majority of the Shares of each Series entitled to vote,
voting separately by Series, or by the Trustees by written notice
to the Shareholders. Any Series may be terminated at any time by
vote of a majority of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the
case may be), after paying or otherwise providing for all
charges, taxes, expenses and liabilities held, severally, with
respect to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined
by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the
remaining assets held, severally, with respect to each Series (or
the applicable Series, as the case may be), to distributable form
in cash or shares or other securities, or any combination
thereof, and distribute the proceeds held with respect to each
Series (or the applicable Series, as the case nay be), to the
Shareholders of that Series, as a Series, ratably according to
the number of Shares of that Series held by the several
Shareholders on the date of termination.
SECTION 3. MERGER AND CONSOLIDATION. The Trustees may
cause (i) the Trust or one or more of its Series to the extent
consistent with applicable law to be merged into or consolidated
with another Trust or company, (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this
Section 3 of Article VIII, or (iii) the Shares to be exchanged
under or pursuant to any state or federal statute to the extent
permitted by law. Such merger or consolidation, Share conversion
or Share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust, as a whole, or any affected
Series, as may be applicable; provided that in all respects not
governed by statute or applicable law, the Trustees shall have
power to prescribe the procedure necessary or appropriate to
accomplish a sale of assets, merger or consolidation including
the power to create one or more separate business trusts to which
all or any part of the assets, liabilities, profits or losses of
the Trust may be transferred and to provide for the conversion of
Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
SECTION 4. AMENDMENTS. This Declaration of Trust may
be restated and/or amended at any time by an instrument in
writing signed by a majority of the then Trustees and, if
required, by approval of such amendment by Shareholders in
accordance with Article V, Section 3 hereof. Any such
restatement and/or amendment hereto shall be effective
immediately upon execution and approval. The Certificate of
Trust of the Trust may be restated and/or amended by a similar
procedure, and any such restatement and/or amendment shall be
effective immediately upon filing with the Office of the
Secretary of State of the State of Delaware or upon such future
date as may be stated therein.
SECTION 5. FILING OF COPIES, REFERENCES, HEADINGS.
The original or a copy of this instrument and of each restatement
and/or amendment hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing
with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or
amendments have been made and as to any matters in connection
with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such
restatements and/or amendment, references to this instrument, and
all expressions like "herein," "hereof" and "hereunder," shall be
deemed to refer to this instrument as amended or affected by any
such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or
effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
SECTION 6. APPLICABLE LAW. This Agreement and
Declaration of Trust is created under and is to be governed by
and construed and administered according to the laws of the State
of Delaware and the Delaware Business Trust Act, as amended from
time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a business trust.
SECTION 7. PROVISIONS IN CONFLICT WITH LAW OR
REGULATIONS.
(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to
have constituted a part of the Declaration of Trust; provided,
however, that such determination shall not affect any of the
remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust shall
be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction or any other provision
of the Declaration of Trust in any jurisdiction.
SECTION 8. BUSINESS TRUST ONLY. It is the intention
of the Trustees to create a business trust pursuant to the
Delaware Business Trust Act, as amended from time to time (the
"Act"), and thereby to create only the relationship of trustee
and beneficial owners within the meaning of such Act between the
Trustees and each Shareholder. It is not the intention of the
Trustees to create a general partnership, limited partnership,
joint stock association, corporation, bailment, or any form of
legal relationship other than a business trust pursuant to such
Act. Nothing in this Declaration of Trust shall be construed to
make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
SECTION 9. USE OF THE NAME "FRANKLIN". The name
"Franklin" and all rights to the use of the name "Franklin"
belongs to Franklin Resources, Inc. ("Franklin"), the sponsor of
the Trust. Franklin has consented to the use by the Trust of the
identifying word "Franklin" and has granted to the Trust a non-
exclusive license to use the name "Franklin" as part of the name
of the Trust and the name of any Series of Shares. In the event
Franklin or an affiliate of Franklin is not appointed as Manager
and/or Principal Underwriter or ceases to be the Manager and/or
Principal Underwriter of the Trust or of any Series using such
names, the non-exclusive license granted herein may be revoked by
Franklin and the Trust shall cease using the name "Franklin" as
part of its name or the name of any Series of Shares, unless
otherwise consented to by Franklin or any successor to its
interests in such names.
IN WITNESS WHEREOF, the Trustees named below do hereby
make and enter into this Declaration of Trust as of the ___ day
of ____________, 1996.
Frank H. Abbott, III Harmon E. Burns
1045 Sansome Street 777 Mariners Island Boulevard
San Francisco, CA 94111 San Mateo, CA 94404
Robert F. Carlson Joseph Fortunato
2120 Lambeth Way Park Avenue at Morris County
Carmichael, CA 95608 P.O. Box 1945
Morristown, NJ 07962-1945
Roy V. Fox Rupert H. Johnson, Jr.
107 Deepwood Drive 777 Mariners Island Boulevard
Georgetown, TX 78628-8301 San Mateo, CA 94404
R. Martin Wiskemann
777 Mariners Island Boulevard
San Mateo, CA 94404
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners
Island Boulevard, San Mateo, California 94404
CERTIFICATE OF TRUST
OF
AGE HIGH INCOME FUND
a Delaware Business Trust
THIS Certificate of Trust of the AGE HIGH INCOME FUND
(the "Trust"), dated as of this ____ day of ________, 1996, is
being duly executed and filed, in order to form a business trust
pursuant to the Delaware Business Trust Act (the "Act"), Del. Code
Ann. tit. 12, ss.ss.3801-3819.
1. NAME. The name of the business trust formed
hereby is "AGE High Income Fund."
2. REGISTERED OFFICE AND REGISTERED AGENT. The
Trust will become, prior to the issuance of beneficial interests,
a registered investment company under the Investment Company Act
of 1940, as amended. Therefore, in accordance with section 3807(b)
of the Act, the Trust has and shall maintain in the State of
Delaware a registered office and a registered agent for service of
process.
(a) REGISTERED OFFICE. The registered office of
the Trust in Delaware is The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware
19801.
(b) REGISTERED AGENT. The registered agent for
service of process on the Trust in Delaware is The
Corporation Trust Company.
3. LIMITATION ON LIABILITY. Pursuant to section 3804
of the Act, in the event that the Trust's governing instrument, as
defined in section 3801(f) of the Act, creates one or more series
as provided in section 3806(b)(2) of the Act, the debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the Trust
shall be enforceable against the assets of such series only, and
not against the assets of the Trust generally.
IN WITNESS WHEREOF, the Trustees named below do hereby
execute this Certificate of Trust as of the date first-above
written.
Frank H. Abbott, III Harmon E. Burns
1045 Sansome St. 777 Mariners Island Blvd.
San Francisco, CA 94111 San Mateo, CA 94404
Robert F. Carlson S. Joseph Fortunato
2120 Lambeth Way Park Avenue at Morris County
Carmichael, CA 95608 P.O. Box 1945
Morristown, NJ 07962-1945
Roy V. Fox Rupert H. Johnson, Jr.
107 Deepwood Dr. 777 Mariners Island Blvd.
Georgetown, TX 78628-8301 San Mateo, CA 94404
R. Martin Wiskemann
777 Mariners Island Blvd.
San Mateo, CA 94404
BY-LAWS
OF
AGE HIGH INCOME FUND
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall
fix and, from time to time, may change the location of the
principal executive office of the Trust at any place within or
outside the State of Delaware.
Section 2. OTHER OFFICES. The Board of Trustees may at any
time establish branch or subordinate offices at any place or
places where the Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place within or outside the State of
Delaware designated by the Board of Trustees. In the absence of
any such designation, shareholders' meetings shall be held at the
principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders
may be called at any time by the Board of Trustees or by the
Chairman of the Board or by the president.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of
meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than seven
(7) nor more than seventy-five (75) days before the date of the
meeting. The notice shall specify (i) the place, date and hour
of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to
be elected also shall include the name of any nominee or nominees
whom at the time of the notice are intended to be presented for
election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a trustee has
a direct or indirect financial interest, (ii) an amendment of the
Declaration of Trust, (iii) a reorganization of the Trust, or
(iv) a voluntary dissolution of the Trust, the notice shall also
state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the
Trust for the purpose of notice. If no such address appears on
the Trust's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent
by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the Trust is returned
to the Trust by the United States Postal Service marked to
indicate that the Postal Service is unable to deliver the notice
to the shareholder at that address, all future notices or reports
shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the Trust
for a period of one year from the date of the giving of the
notice.
An affidavit of the mailing or other means of giving any
notice of any shareholder's meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the Trust
giving the notice and shall be filed and maintained in the minute
book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's
meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares
represented at that meeting, either in person or by proxy.
When any meeting of shareholders is adjourned to another
time or place, notice need not be given of the adjourned meeting
at which the adjournment is taken, unless a new record date of
the adjourned meeting is fixed or unless the adjournment is for
more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new
record date. Notice of any such adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 3 and 4 of
this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the
original meeting.
Section 6. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of the Declaration of Trust, as in effect at
such time. The shareholders, vote may be by voice vote or by
ballot, provided, however, that any election for trustees must be
by ballot if demanded by any shareholder before the voting has
begun. on any matter other than elections of trustees, any
shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against
the proposal, but if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is
with respect to the total shares that the shareholder is entitled
to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
however called and noticed and wherever held, shall be as valid
as though had at a meeting duly held after regular call and
notice if a quorum be present either in person or by proxy and if
either before or after the meeting, each person entitled to vote
who was not present in person or by proxy signs a written waiver
of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any
meeting of shareholders.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects
at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened
and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at
the beginning of the meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action which may be taken at any meeting of
shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action so taken
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall
be maintained in the Trust's records. Any shareholder giving a
written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the
shareholder or their respective-proxy-holders may revoke the
consent by a writing received by the Secretary of the Trust
before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the action approved by
the shareholders without a meeting. This notice shall be given
in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a
trustee has a direct or indirect financial interest, (ii)
indemnification of agents of the Trust, and (iii) a
reorganization of the Trust, the notice shall be given at least
ten (10) days before the consummation of any action authorized by
that approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING AND
GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to action without a meeting, the Board of Trustees may
fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any
such meeting as provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at
the close of business on the business day next preceding the day
on which notice is given or if notice is waived, at the close of
business on the business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled
to give consent to action in writing without a meeting, (i) when
no prior action by the Board of Trustees has been taken, shall be
the day on which the first written consent is given, or (ii) when
prior action of the Board of Trustees has been taken, shall be at
the close of business on the day on which the Board of Trustees
adopt the resolution relating to that action or the seventy-fifth
day before the date of such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for
trustees or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to
the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice
of the death or incapacity of the maker of that proxy is received
by the Trust before the vote pursuant to that proxy is counted;
provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be
governed by the provisions of the General Corporation Law of the
State of California.
Section 11. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Trustees may appoint any persons other
than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders
or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may and on the request of any shareholder
or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and effect
of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of
the Declaration of Trust and these By-Laws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Trust shall be managed
and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact
number of trustees shall be set forth in the Agreement and
Declaration of Trust, until changed by a duly adopted amendment
to the Declaration of Trust.
Section 3. VACANCIES. Vacancies in the Board of Trustees
may be filled by a majority of the remaining trustees, though
less than a quorum, or by a sole remaining trustee, unless the
Board of Trustees calls a meeting of shareholders for the
purposes of electing trustees. In the event that at any time
less than a majority of the trustees holding office at that time
were so elected by the holders of the outstanding voting
securities of the Trust, the Board of Trustees shall forthwith
cause to be held as promptly as possible, and in any event within
sixty (60) days, a meeting of such holders for the purpose of
electing trustees to fill any existing vacancies in the Board of
Trustees, unless such period is extended by order of the United
States Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the
Trust is a participant in or otherwise has in effect a Plan under
which the Trust may be deemed to bear expenses of distributing
its shares as that practice is described in Rule 12b-i under the
Investment Company Act of 1940, then the selection and nomination
of the trustees who are not interested persons of the Trust (as
that term is defined in the Investment Company Act of 1940) shall
be, and is, committed to the discretion of such disinterested
trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
All meetings of the Board of Trustees may be held at any place
within or outside the State of Delaware that has been designated
from time to time by resolution of the Board. In the absence of
such a designation, regular meetings shall be held at the
principal executive office of the Trust. Any meeting, regular or
special, may be held by conference telephone or similar
communication equipment, so long as all trustees participating in
the meeting can hear one another and all such trustees shall be
deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board
of Trustees shall be held without call at such tine as shall from
time to time be fixed by the Board of Trustees. Such regular
meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board
of Trustees for any purpose or purposes may be called at any time
by the chairman of the board or the president or any vice
president or the secretary or any two (2) trustees.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each trustee or sent by
first-class mail or telegram, charges prepaid, addressed to each
trustee at that trustee's address as it is shown on the records
of the Trust. In case the notice is mailed, it shall be
deposited in the United States mail at least seven (7) days
before the tine of the holding of the meeting. In case the
notice is delivered personally, by telephone, to the telegraph
company, or by express mail or similar service, it shall be given
at least forty-eight (48) hours before the time of the holding of
the meeting. Any oral notice given personally or by telephone
may be communicated either to the trustee or to a person at the
office of the trustee who the person giving the notice has reason
to believe will promptly communicate it to the trustee. The
notice need not specify the purpose of the meeting or the place
if the meeting is to be held at the principal executive office of
the Trust.
Section 7. QUORUM. A majority of the authorized number of
trustees shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of
the trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Declaration of Trust. A meeting
at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of trustees if any action
taken is approved by a least a majority of the required quorum
for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need
not be given to any trustee who either before or after the
meeting signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents, and approvals shall be filed with the records
of the Trust or made a part of the minutes of the meeting.
Notice of a meeting shall also be deemed given to any trustee who
attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given unless
the meeting is adjourned for more than forty-eight (48) hours, in
which case notice of the time and place shall be given before the
time of the adjourned meeting in the manner specified in Section
7 of this Article III to the trustees who were present at the
time of the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required
or permitted to be taken by the Board of Trustees may be taken
without a meeting if a majority of the members of the Board of
Trustees shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same
force and effect as a majority vote of the Board of Trustees.
Such written consent or consents shall be filed with the minutes
of the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Trustees. This
Section 12 shall not be construed to preclude any trustee from
serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those
services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any
Trustee may, by power of attorney, delegate his power for a
period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall fewer than
two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration of Trust except as otherwise
expressly provided herein or by resolution of the Board of
Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees
may by resolution adopted by a majority of the authorized number
of trustees designate one or more committees, each consisting of
two (2) or more trustees, to serve at the pleasure of the Board.
The Board may designate one or more trustees as alternate members
of any committee who may replace any absent member at any meeting
of the committee. Any committee to the extent provided in the
resolution of the Board, shall have the authority of the Board,
except with respect to:
(a) the approval of any action which under applicable law
also requires shareholders' approval or approval of the
outstanding shares, or requires approval by a majority of the
entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in
any committee;
(c) the fixing of compensation of the trustees for serving
on the Board of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or
of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board
of Trustees which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the Trust, except
at a rate or in a periodic amount or within a designated range
determined by the Board of Trustees; or
(g) the appointment of any other committees of the Board of
Trustees or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these By-Laws,
with such changes in the context thereof as are necessary to
substitute the committee and its members for the Board of
Trustees and its members, except that the time of regular
meetings of committees may be determined either by resolution of
the Board of Trustees or by resolution of the committee. Special
meetings of committees may also be called by resolution of the
Board of Trustees, and notice of special meetings of committees
shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a
president, a secretary, and a treasurer. The Trust may also
have, at the discretion of the Board of Trustees, a chairman of
the board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held
by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
Trust, except such officers as may appointed in accordance with
the provisions of Section 3 or Section 5 of this Article V, shall
be chosen by the Board of Trustees, and each shall serve at the
pleasure of the Board of Trustees, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may
appoint and may empower the president to appoint such other
officers as the business of the Trust may require, each of whom
shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to
the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Trustees at any regular or special meeting
of the Board of Trustees or except in the case of an officer upon
whom such power of removal may be conferred by the Board of
Trustees.
Any officer may resign at any time by giving written notice
to the Trust. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that
notice; and unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights,
if any, of the Trust under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
because of death, resignation, removal, disqualification or other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the
board, if such an officer is elected, shall if present preside at
meetings of the Board of Trustees and exercise and perform such
other powers and duties as may be from time to time assigned to
him by the Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers,
if any, as may be given by the Board of Trustees to the chairman
of the board, if there be such an officer, the president shall be
the chief executive officer of the Trust and shall, subject to
the control of the Board of Trustees, have general supervision,
direction and control of the business and the officers of the
Trust. He shall preside at all meetings of the shareholders and
in the absence of the chairman of the board or if there be none,
at all meetings of the Board of Trustees. He shall have the
general powers and duties of management usually vested in the
office of president of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees
or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability
of the president, the vice presidents, if any, in order of their
rank as fixed by the Board of Trustees or if not ranked, a vice
president designated by the Board of Trustees, shall perform all
the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the
president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Trustees or by these By-
Laws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office of the Trust or such
other place as the Board of Trustees may direct a book of minutes
of all meetings and actions of trustees, committees of trustees
and shareholders with the time and place of holding, whether
regular or special, and if special, how authorized, the notice
given, the names of those present at trustees' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office of the Trust or at the office of the
Trust's transfer agent or registrar, as determined by resolution
of the Board of Trustees, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Board of Trustees
required by these By-Laws or by applicable law to be given and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief
financial officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and
records of accounts of the properties and business transactions
of the Trust, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all
reasonable times be open to inspection by-any trustee.
The treasurer shall deposit all monies and other valuables
in the name and to the credit of the Trust with such depositories
as may be designated by the Board of Trustees. He shall disburse
the funds of the Trust as may be ordered by the Board of
Trustees, shall render to the president and trustees, whenever
they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and
shall have other powers and perform such other duties as may be
prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purpose of this Article, "agent" means any person who is or was a
trustee, officer, employee or other agent of this Trust or is or
was serving at the request of this Trust as a trustee, director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise or was a trustee, director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor of
another enterprise at the request of such predecessor entity;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to
indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the
right of this Trust) by reason of the fact that such person is or
was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably.incurred in
connection with such proceeding if that person acted in good
faith and in a manner that person reasonably believed to be in
the best interests of this Trust and in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of
that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contenders or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best
interests of this Trust or that the person had reasonable cause
to believe that the person's conduct was unlawful.
Section 3. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or
in the right of this Trust to procure a judgment in its favor by
reason of the fact that the person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that
person believed to be in the best interests of this Trust and
with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar
circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding
any provision to the contrary contained herein, there shall be no
right to indemnification for any liability arising by reason of
willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the agent's
office with this Trust.
No indemnification shall be made under Sections 2 or 3 of
this Article:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and only
to the extent that the court in which that action was brought
shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason
of the disabling conduct set forth in the preceding paragraph and
is fairly and reasonably entitled to indemnity for the expenses
which the court shall determine; or
(b) In respect of any claim, issue, or matter as to which
that person shall have been adjudged to be liable on the basis
that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or
of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval,
unless the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this Trust has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party trustees, also determines that based
upon a review of the facts, the agent was not liable by reason of
the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this Trust only if authorized in the specific
case on a determination that indemnification of the agent is
proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because
of the disabling conduct set forth in Section 4 of this Article,
by:
(a) A majority vote of a quorum consisting of trustees who
are not parties to the proceeding and are not interested persons
of the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Trust before the
final disposition of the proceeding on receipt of an undertaking
by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article,
provided the agent provides a security for his undertaking, or a
majority of a quorum of the disinterested, non-party trustees, or
an independent legal counsel in a written opinion, determine that
based on a review of readily available facts, there is reason to
believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in
this Article shall affect any right to indemnification to which
persons other than trustees and officers of this Trust or any
subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Sections
5 or 6 in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Agreement and Declaration of Trust, a resolution of the
shareholders, or an agreement in effect at the time of accrual of
the alleged cause of action asserted in the proceeding in which
the expenses were incurred or other amounts were paid which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase
such insurance, this Trust shall purchase and maintain insurance
on behalf of any agent of this Trust against any liability
asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent
against that liability under the provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan
in that person' s capacity as such, even though that person may
also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right
to indemnification to which such a trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law
other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER.
This Trust shall keep at its principal executive office or at the
office of its transfer agent or registrar, if either be appointed
and as determined by resolution of the Board of Trustees, a
record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each
shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
Trust shall keep at its principal executive office the original
or a copy of these By-Laws as amended to date, which shall be
open to inspection by the shareholders at all reasonable times
during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Trustees and any committee or
committees of the Board of Trustees shall be kept at such place
or places designated by the Board of Trustees or in the absence
of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form
or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person
or by an agent or attorney and shall include the right to copy
and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall
have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical
properties of the Trust. This inspection by a trustee may be
made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of
documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial
statements and any income statement of the Trust for each
quarterly period of each fiscal year and accompanying balance
sheet of the Trust as of the end of each such period that has
been prepared by the Trust shall be kept on file in the principal
executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to
any shareholder demanding an examination of any such statement or
a copy shall be mailed to any such shareholder.
The quarterly income statements and balance sheets referred
to in this section shall be accompanied by the report, if any, of
any independent accountants engaged by the Trust or the
certificate of an authorized officer of the Trust that the
financial statements were prepared without audit from the books
and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts, or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of or payable
to the Trust shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Trustees, except as otherwise provided in these By-Laws,
may authorize any officer or officers, agent or agents, to enter
into any contract or execute any instrument in the name of and on
behalf of the Trust and this authority may be general or confined
to specific instances; and unless so authorized or ratified by
the Board of Trustees or within the agency power of an officer,
no officer, agent, or employee shall have any power or authority
to bind the Trust by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of beneficial interest in any series of
the Trust may be issued to a shareholder upon his request when
such shares are fully paid. All certificates shall be signed in
the name of the Trust by the chairman of the board or the
president or vice president and by the treasurer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the series of shares owned by the
shareholders. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued,
it may be issued by the Trust with the same effect as if that
person were an officer, transfer agent or registrar at the date
of issue. Notwithstanding the foregoing, the Trust may adopt and
use a system of issuance, recordation and transfer of its shares
by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this
Section 4, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the Trust and cancelled at the same time. The Board of Trustees
may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the
Board of Trustees may require, including a provision for
indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD
BY TRUST. The chairman of the board, the president or any vice
president or any other person authorized by resolution of the
Board of Trustees or by any of the foregoing designated officers,
is authorized to vote or represent on behalf of the Trust any and
all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust.
The authority granted may be exercised in person or by a proxy
duly executed by such designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall
be fixed and refixed or changed from time to time by resolution
of the Trustees. The fiscal year of the Trust shall be the
taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be
amended or repealed by the affirmative vote or written consent of
a majority of the outstanding shares entitled to vote, except as
otherwise provided by applicable law or by the Declaration of
Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of
shareholders as provided in Section 1 of this Article to adopt,
amend or repeal By-Laws, and except as otherwise provided by law
or by the Declaration of Trust, these By-Laws may be adopted,
amended, or repealed by the Board of Trustees.
FRANKLIN HIGH INCOME TRUST
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN HIGH INCOME TRUST, a
Delaware business trust (the "Trust"), on behalf of AGE HIGH INCOME FUND (the
"Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a California
corporation, (the "Manager").
WHEREAS, the Trust has been organized and operates as an investment
company registered under the Investment Company Act of 1940 (the "1940 Act")
for the purpose of investing and reinvesting its assets in securities, as set
forth in its Agreement and Declaration of Trust, its By-Laws and its
Registration Statements under the 1940 Act and the Securities Act of 1933,
all as heretofore amended and supplemented; and the Trust desires to avail
itself of the services, information, advice, assistance and facilities of an
investment manager and to have an investment manager perform for its various
management, statistical, research, investment advisory and other services for
the Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Adviser's Act of 1940, is engaged in the business of rendering
management, investment advisory, counselling and supervisory services to
investment companies and other investment counselling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE MANAGER. The Trust hereby employs the Manager
to manage the investment and reinvestment of the Fund's assets and to
administer its affairs, subject to the direction of the Board of Trustees and
the officers of the Trust, for the period and on the terms hereinafter set
forth. The Manager hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth
for the compensation herein provided. The Manager shall for all purposes
herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund in any way or otherwise be deemed
an agent of the Fund or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. OFFICE SPACE, FURNISHINGS, FACILITIES, EQUIPMENT, AND
PERSONNEL. The Manager shall furnish to the Fund adequate (i) office space,
which may be space within the offices of the Manager or in such other place
as may be agreed upon from time to time, (ii) office furnishings, facilities
and equipment as may be reasonably required for managing the corporate
affairs and conducting the business of the Fund, including complying with the
corporate and securities reporting requirements of the United States and the
various states in which the Fund does business, conducting correspondence and
other communications with the shareholders of the Fund, maintaining all
internal bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business activities, and computing
net asset value. The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers and employees of
the Trust who are officers or employees of the Manager.
B. INVESTMENT MANAGEMENT SERVICES
(a) The Manager shall manage the Fund's assets subject to
and portfolio subject to and in accordance with the investment objectives and
policies of the Fund and any directions which the Trust's Board of Trustees
may issue from time to time. In pursuance of the foregoing, the Manager
shall make all determinations with respect to the investment of the Fund's
assets and the purchase and sale of portfolio securities, and shall take such
steps as may be necessary to implement the same. Such determinations and
services shall also include determining the manner in which voting rights,
rights to consent to corporate action and any other rights pertaining to the
Fund's portfolio securities shall be exercised. The Manager shall render
regular reports to the Trust, at regular meetings of the Board of Trustees
and at such other times as may be reasonably requested by the Trust's Board
of Trustees, of (i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and sale of portfolio
securities, (ii) the reasons for such decisions and (iii) the extent to which
those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
portfolio transactions. When placing such orders the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement
shall not be deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set
forth in this section have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers are equally able to
provide such best price and execution and that, in selecting among such
brokers with respect to particular trades, it is desirable to choose those
brokers who furnish research, statistical quotations and other information to
the Fund and the Manager in accord with the standards set forth below.
Moreover, to the extent that it continues to be lawful to do so and so long
as the Board determines that the Fund will benefit, directly or indirectly,
by doing so, the Manager may place orders with a broker who charges a
commission for that transaction which is in excess of the amount of
commission that another broker would have charged for effecting that
transaction, provided that the excess commission is reasonable in relation to
the value of "brokerage and research services" (as defined in Section
28(e)(3) of the Securities Exchange Act of 1934) provided by that broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Fund's portfolio
transactions from among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be
required in light of such services;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which relate directly to portfolio securities, actual or
potential, of the Fund or which place the Manager in a
better position to make decisions in connection with the
management of the Fund's assets and portfolio, whether or
not such data may also be useful to the Manager and its
affiliates in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required. Provided that the Trust's officers
are satisfied that the best execution is obtained the sale
of Fund shares may also be considered as a factor in the
selection of broker-dealers to execute the Fund's portfolio
transactions.
(c) When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated as
the "tendering dealer" so long as it is legally permitted to act in such
capacity under the Federal securities laws and rules thereunder and the rules
of any securities exchange or association of which it may be a member.
Neither the Manager nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement and this Agreement
shall not obligate the Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which they might reasonably
believe that liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender, unless
the Trust on behalf of the Fund shall enter into an agreement with the
Manager to reimburse them for all expenses connected with attempting to
collect such fees including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the time
involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the
Trust, not more frequently than quarterly, of how much total brokerage
business has been placed by the Manager with brokers falling into each of the
foregoing categories and the manner in which the allocation has been
accomplished.
(e) The Manager agrees that no investment decision will
be made or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such allocation of
brokerage shall not interfere with the Manager's paramount duty to obtain the
best net price and execution for the Fund.
C. PROVISIONS OF INFORMATION NECESSARY FOR PREPARATION OF
SECURITIES REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The
Manager, its officers and employees will make available and provide
accounting and statistical information required by the Underwriter in the
preparation of registration statements, reports and other documents required
by Federal and state securities laws and with such information as the
Underwriter may reasonably request for use in the preparation of such
documents or of other materials necessary or helpful for the underwriting and
distribution of the Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Manager shall make
available its officers and employees to the Board of Trustees and officers of
the Trust for consultation and discussions regarding the administrative
management of the Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay
all its expenses other than those expressly assumed by the Manager herein,
which expenses payable by the Fund shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, trustees, stockholders or employees of the
Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Funds shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
K. Costs of printing stock certificates representing shares of
the Fund;
L. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. COMPENSATION OF THE MANAGER. The Fund shall pay a monthly
management fee in cash to the Manager based upon a percentage of the value of
the Fund's net assets, calculated as set forth below, on the first business
day of each month in each year as compensation for the services rendered and
obligations assumed by the Manager during the preceding month. The initial
management fee under this Agreement shall be payable on the first business
day of the first month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made by the Fund
relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the net assets computed as of the close of
business on the last business day of the month preceding the month in which
the payment is being made, determined in the same manner as the Fund uses to
compute the value of its net assets in connection with the determination of
the net asset value of its shares, all as set forth more fully in the Fund's
current prospectus. The rate of the monthly management fee shall be as
follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over
$100,000,000 and not over $250,000,000; and
9/240 of 1% of the value of net assets in excess
of $250,000,000.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith; and to the extent necessary to comply with
the limitations on expenses which may be borne by the Fund as set forth in
the laws, regulations and administrative interpretations of those states in
which the Fund's shares are registered.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for the portion of any
month in which this Agreement is in effect which is not a complete month
according to the proportion which the number of calendar days in the month
during which the Agreement is in effect bears to the number of calendar days
in the month, and shall be payable within 10 days after the date of
termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the
Fund hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to
and in accordance with the Agreement and Declaration of Trust and By-Laws of
the Trust and to Section 10(a) of the Investment Company Act of 1940, it is
understood that trustees, officers, agents and stockholders of the Trust are
or may be interested in the Manager or its affiliates as trustees, officers,
agents or stockholders, and that trustees, officers, agents or stockholders
of the Manager or its affiliates are or may be interested in the Trust as
trustees, officers, agents, stockholders or otherwise, that the Manager or
its affiliates may be interested in the Fund as stockholders or otherwise;
and that the effect of any such interests shall be governed by said Agreement
and Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security
by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation, printing
and distribution of proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or trustees, the conduct
of factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Trust incurs as the result of action or
inaction of the Manager or any of its affiliates or any of their officers,
trustees, employees or shareholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or proposed or future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or,
(ii) is within the control of the Manager or any of its affiliates or any of
their officers, trustees, employees or shareholders. The Manager shall not
be obligated pursuant to the provisions of this Subsection 6(B), to reimburse
the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any
shareholder of the Manager or any of its affiliates from the sale of his
shares of the Manager, or similar matters. So long as this Agreement is in
effect the Manager shall pay to the Trust the amount due for expenses subject
to this Subsection 6(B) Agreement within 30 days after a bill or statement
has been received by the Manager therefore. This provision shall not be
deemed to be a waiver of any claim the Trust may have or may assert against
the Manager or others for costs, expenses or damages heretofore incurred by
the Trust or for costs, expenses or damages the Trust may hereafter incur
which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Trust, or the Manager, from liability
in violation of Sections 17(h) and (i) of the Investment Company Act of 1940.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two years. The Agreement is renewable
annually thereafter for successive periods not to exceed one year (i) by a
vote of a majority of the outstanding voting securities of the Fund or by a
vote of the Board of Trustees of the Trust, and (ii) by a vote of a majority
of the trustees of the Trust who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as Trustees of
the Trust) cast in person at a meeting called for the purpose of voting on
the Agreement.
B. This Agreement.
(i) may at any time be terminated without the
payment of any penalty either by vote of the Board of Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Fund, on
30 days' written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days' written
notice to the Fund.
C. As used in this Section the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall
have the meanings set forth for any such terms in the Investment Company Act
of 1940, as amended.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any
office of such party.
8. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the ___ day of ___________, 1996.
FRANKLIN HIGH INCOME TRUST
By_____________________________
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By___________________________
Harmon E. Burns
Executive Vice President
FRANKLIN HIGH INCOME TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are
registered under the Securities Act of 1933 (the "1933 Act"). We desire to
issue one or more series or classes of our authorized but unissued shares of
capital stock or beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws. The Fund's
Shares may be made available in one or more separate series, each of which
may have one or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company
is a member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of our Board of
Directors or Trustees ("Board") passed at a meeting at which a majority of
Board members, including a majority who are not otherwise interested persons
of the Fund and who are not interested persons of our investment adviser, its
related organizations or with you or your related organizations, were present
and voted in favor of the said resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement
and in consideration of the agreements on your part herein expressed and upon
the terms and conditions set forth herein, we hereby appoint you as the
exclusive sales agent for our Shares and agree that we will deliver such
Shares as you may sell. You agree to use your best efforts to promote the
sale of Shares, but are not obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally
authorized transactions in its Shares which do not involve the sale of Shares
to the general public. Such other transactions may include, without
limitation, transactions between the Fund or any series or class and its
shareholders only, transactions involving the reorganization of the Fund or
any series, and transactions involving the merger or combination of the Fund
or any series with another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind us by your actions, conduct or
contracts except that you are authorized to promote the sale of Shares. You
may appoint sub-agents or distribute through dealers or otherwise as you may
determine from time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale or
repurchase on our behalf or otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you
with the net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective prospectus.
All Shares will be sold in the manner set forth in our then effective
prospectus and statement of additional information, and in compliance with
applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and
class of each Fund's Shares in the amount of any initial, deferred or
contingent deferred sales charge as set forth in our then effective
prospectus. You may allow any sub-agents or dealers such commissions or
discounts from and not exceeding the total sales commission as you shall deem
advisable, so long as any such commissions or discounts are set forth in our
current prospectus to the extent required by the applicable Federal and State
securities laws. You may also make payments to sub-agents or dealers from
your own resources, subject to the following conditions: (a) any such
payments shall not create any obligation for or recourse against the Fund or
any series or class, and (b) the terms and conditions of any such payments
are consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement of
additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted
as to any series and class of any Fund's Shares pursuant to Rule 12b-1 under
the 1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale
only in those jurisdictions where they have been properly registered or are
exempt from registration, and only to those groups of people which the Board
may from time to time determine to be eligible to purchase such shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be
directed to the Fund's shareholder services agent, for acceptance on behalf
of the Fund. At or prior to the time of delivery of any of our Shares you
will pay or cause to be paid to the custodian of the Fund's assets, for our
account, an amount in cash equal to the net asset value of such Shares.
Sales of Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and shareholder
services agent shall be identified in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our
Shares for your own account for purposes of resale to the public, but you may
purchase Shares for your own investment account upon your written assurance
that the purchase is for investment purposes and that the Shares will not be
resold except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net
asset value to certain of your and our affiliated persons pursuant to the
applicable provisions of the federal securities statutes and rules or
regulations thereunder (the "Rules and Regulations"), including Rule 22d-1
under the 1940 Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our company to be included in any
Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940 Act,
including the prospectus and statement of additional
information included therein;
(b) Of the preparation, including legal fees, and printing of
all Amendments or supplements filed with the Securities and
Exchange Commission, including the copies of the
prospectuses included in the Amendments and the first 10
copies of the definitive prospectuses or supplements
thereto, other than those necessitated by your (including
your "Parent's") activities or Rules and Regulations
related to your activities where such Amendments or
supplements result in expenses which we would not otherwise
have incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our existing
shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering our
Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer our
Shares;
(b) Of the preparation, excluding legal fees, and printing of
all Amendments and supplements to our prospectuses and
statements of additional information if the Amendment or
supplement arises from your (including your "Parent's")
activities or Rules and Regulations related to your
activities and those expenses would not otherwise have been
incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we
have prepared for distribution to our existing
shareholders; and
(d) Incurred by you in advertising, promoting and selling our
Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such
information with respect to each series and class of Shares, in such form and
signed by such of our officers as you may reasonably request, and we warrant
that the statements therein contained, when so signed, will be true and
correct. We will also furnish you with such information and will take such
action as you may reasonably request in order to qualify our Shares for sale
to the public under the Blue Sky Laws of jurisdictions in which you may wish
to offer them. We will furnish you with annual audited financial statements
of our books and accounts certified by independent public accountants, with
semi-annual financial statements prepared by us, with registration statements
and, from time to time, with such additional information regarding our
financial condition as you may reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective
prospectus, you will not issue any sales material or statements except
literature or advertising which conforms to the requirements of Federal and
State securities laws and regulations and which have been filed, where
necessary, with the appropriate regulatory authorities. You will furnish us
with copies of all such materials prior to their use and no such material
shall be published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are
tendered to us for redemption or repurchase by us within seven business days
after your acceptance of the original purchase order for such Shares, you
will immediately refund to us the full sales commission (net of allowances to
dealers or brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or brokers of the
balance of sales commissions reallowed by you. We shall notify you of such
tender for redemption within 10 days of the day on which notice of such
tender for redemption is received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement shall
not be deemed to be exclusive, and you may render similar services and act as
an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2)
years. The Agreement is renewable annually thereafter, with respect to the
Fund or, if the Fund has more than one series, with respect to each series,
for successive periods not to exceed one year (i) by a vote of (a) a majority
of the outstanding voting securities of the Fund or, if the Fund has more
than one series, of each series, or (b) by a vote of the Board, AND (ii) by a
vote of a majority of the members of the Board who are not parties to the
Agreement or interested persons of any parties to the Agreement (other than
as members of the Board), cast in person at a meeting called for the purpose
of voting on the Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the
Board or by vote of a majority of the outstanding voting securities of the
Fund or any series on 90 days' written notice to you; or (ii) by you on 90
days' written notice to the Fund; and shall immediately terminate with
respect to the Fund and each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice
to you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of
the State of California and shall be interpreted and construed to further
promote the operation of the Fund as an open-end investment company. This
Agreement shall supersede all Distribution Agreements and Amendments
previously in effect between the parties. As used herein, the terms "Net
Asset Value," "Offering Price," "Investment Company," "Open-End Investment
Company," "Assignment," "Principal Underwriter," "Interested Person,"
"Parent," "Affiliated Person," and "Majority of the Outstanding Voting
Securities" shall have the meanings set forth in the 1933 Act or the 1940 Act
and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or
to our securities holders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
your duties hereunder, or by reason of your reckless disregard of your
obligations and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance
by signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN HIGH INCOME TRUST
By:_______________________________
Deborah R. Gatzek
Vice President & Secretary
Accepted:
Franklin/Templeton Distributors, Inc.
By:_______________________________
Harmon E. Burns
Executive Vice President
DATED:______________
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 36
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
July 30, 1996
To: All Franklin Templeton Funds Listed on Schedule A
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to invest $100.00 in the Class II shares (the "Shares") of
each of the Funds listed on the attached Schedule A (the "Funds"), on the
business day immediately preceding the effective date for each Fund's Class
II shares, at a purchase price per share equivalent to the net asset value
per share of each Fund's Class I shares on the date of purchase. We will
purchase the Shares in a private offering prior to the effectiveness of the
post-effective amendment to the Form N-1A registration statement under which
each Fund's Class II shares are initially offered, as filed by the Fund under
the Securities Act of 1933. The Shares are being purchased to serve as the
seed money for each Fund's Class II shares prior to the commencement of the
public offering of Class II shares.
In connection with such purchase, we understand that we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired.
We consent to the filing of this Investment Letter as an exhibit to the
form N-1A registration statement of each Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
Date: April 12, 1995
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
</TABLE>
FRANKLIN HIGH INCOME TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by
FRANKLIN HIGH INCOME TRUST (the "Trust"), which Plan shall take effect on the
___ day of _________, 1996 (the "Effective Date of the Plan"). The Plan has
been approved by a majority of the Board of Trustees of the Trust (the "Board
of Trustees"), including a majority of the trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan (the "non-interested trustees"), cast in person at
a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the schedule
and nature of payments and terms of the Management Agreement between the
Trust and Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between the Trust and Franklin/Templeton Distributors,
Inc. ("Distributors"). The Board of Trustees concluded that the compensation
of Advisers under the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive; however, the Board of
Trustees also recognized that uncertainty may exist from time to time with
respect to whether payments to be made by the Trust to Advisers,
Distributors, or others or by Advisers or Distributors to others may be
deemed to constitute distribution expenses. Accordingly, the Board of
Trustees determined that the Plan should provide for such payments and that
adoption of the Plan would be prudent and in the best interest of the Trust
and its shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Trust and its shareholders.
DISTRIBUTION PLAN
1. The Trust shall reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
shares of the Trust, including but not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Trust shares, as well
as any distribution or service fees paid to securities dealers or their firms
or others who have executed a servicing agreement with the Trust,
Distributors or its affiliates, which form of agreement has been approved
from time to time by the trustees, including the non-interested trustees.
2. The maximum amount which may be reimbursed by the Trust to Distributors
or others pursuant to Paragraph 1 herein shall be 0.15% per annum of the
average daily net assets of the Trust. Said reimbursement shall be made
quarterly by the Trust to Distributors or others.
3. In addition to the payments which the Trust is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Trust,
Advisers, Distributors or other parties on behalf of the Trust, Advisers or
Distributors make payments that are deemed to be payments for the financing
of any activity primarily intended to result in the sale of shares issued by
the Trust within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to
be made pursuant to the Plan under this paragraph, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for their review,
on a quarterly basis, a written report of the monies reimbursed to it and to
others under the Plan, and shall furnish the Board of Trustees with such
other information as the Board of Trustees may reasonably request in
connection with the payments made under the Plan in order to enable the Board
of Trustees to make an informed determination of whether the Plan should be
continued.
5. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually
by a vote of the Board of Trustees, including the non-interested trustees,
cast in person at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the or by vote of a majority of the
non-interested trustees, on not more than sixty (60) days' written notice, or
by Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 2 hereof without approval by a majority of the Trust's
outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by a vote of the non-interested
trustees cast in person at a meeting called for the purpose of voting on any
such amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested trustees shall be committed to the discretion of such
non-interested trustees.
This Plan and the terms and provisions thereof are hereby accepted and agreed
to by the Trust and Distributors as evidenced by their execution hereof.
FRANKLIN HIGH INCOME TRUST
By:
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Harmon E. Burns
Executive Vice President
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN HIGH INCOME TRUST
II. Fund and Class: AGE HIGH INCOME FUND - CLASS II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.50%
B. Service Fee: 0.15%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class II shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors or
Trustees of the Investment Company (the "Board"), including a majority of the
Board members who are not interested persons of the Investment Company and who
have no direct, or indirect financial interest in the operation of the Plan (the
"non-interested Board members"), cast in person at a meeting called for the
purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company
and Franklin Advisers, Inc. and the terms of the Underwriting Agreement between
the Investment Company and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the Underwriting Agreement,
was fair and not excessive. The approval of the Plan included a determination
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee not to exceed
the above-stated maximum distribution fee per annum of the Class' average daily
net assets represented by shares of the Class, as may be determined by the Board
from time to time.
(b) In addition to the amounts described in (a) above, the Fund shall
pay (i) to Distributors for payment to dealers or others, or (ii) directly to
others, an amount not to exceed the above-stated maximum service fee per annum
of the Class' average daily net assets represented by shares of the Class, as
may be determined by the Fund's Board from time to time, as a service fee
pursuant to servicing agreements which have been approved from time to time by
the Board, including the non-interested Board members.
2. (a) Distributors shall use the monies paid to it pursuant to Paragraph
1(a) above to assist in the distribution and promotion of shares of the Class.
Payments made to Distributors under the Plan may be used for, among other
things, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a pro-rated
portion of Distributors' overhead expenses attributable to the distribution of
Class shares, as well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements with the
Investment Company, Distributors or its affiliates, which form of agreement has
been approved from time to time by the Trustees, including the non-interested
trustees. In addition, such fees may be used to pay for advancing the commission
costs to dealers or others with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include, among
other things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; arranging for bank
wires; monitoring dividend payments from the Fund on behalf of customers;
forwarding certain shareholder communications from the Fund to customers;
receiving and answering correspondence; and aiding in maintaining the investment
of their respective customers in the Class. Any amounts paid under this
paragraph 2(b) shall be paid pursuant to a servicing or other agreement, which
form of agreement has been approved from time to time by the Board.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of Class shares issued by
the Fund within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under the
Plan, and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.
5. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Board, including the non-interested Board members, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund or by vote of a majority of the
non-interested Board members, on not more than sixty (60) days' written notice,
or by Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an assignment
of the Management Agreement between the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 1 hereof without approval by a majority of the Fund's
outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Board members shall be committed to the discretion of such
non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and Distributors as evidenced by their
execution hereof.
Date: __________________, 1996
Investment Company
By:________________________________
Franklin/Templeton Distributors, Inc.
By:_____________________________________
POWER OF ATTORNEY
The undersigned officers and trustees of AGE HIGH INCOME FUND (the
"Registrant"), hereby appoint MARK H. PLAFKER, HARMON E BURNS, DEBORAH R.
GATZEK, KAREN L. SKIDMORE AND LARRY L. GREENE (with full power to each of them
to act alone) as attorney-in-fact and agent, in all capacities, to execute, and
to file any of the documents referred to below relating to the Notification of
Registration on Form N-8A registering the Registrant as an investment company
under the Investment Company Act of 1940, as amended, and the Registrant's
registration statement on Form N-1A under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933, including any and all amendments
thereto, covering the registration of the Registrant as an investment company
and the sale of shares by the Registrant, including all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, including applications for exemptive order rulings. Each of the
undersigned grants to each of said attorneys, full authority to do every act
necessary to be done in order to effectuate the same as fully, to all intents
and purposes, as he could do if personally present, thereby ratifying all that
said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
The undersigned officers and trustees hereby execute this Power of Attorney
as of this 14TH day of MAY, 1996.
/S/ RUPERT H. JOHNSON, JR. /S/ FRANK H. ABBOTT, III
Rupert H. Johnson, Jr., Frank H. Abbott, III,
Principal Executive Officer Trustee
and Trustee
/S/ HARMON E. BURNS /S/ ROBERT F. CARLSON
Harmon E. Burns, Robert F. Carlson,
Trustee Trustee
/S/ ROY V. FOX /S/ S. JOSEPH FORTUNATO
Roy V. Fox, S. Joseph Fortunato,
Trustee Trustee
/S/ R. MARTIN WISKEMANN /S/ MARTIN L. FLANAGAN
R. Martin Wiskemann, Martin L. Flanagan,
Trustee Principal Financial
Officer
/S/ DIOMEDES LOO-TAM
Diomedes Loo-Tam
Principal Accounting
Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of AGE HIGH INCOME FUND
(the "Trust").
As Secretary of the Trust, I further certify that the following resolution was
adopted by a majority of the Trustees of the Trust present at a meeting held at
777 Mariners Island Boulevard, San Mateo, California, on May 14, 1996.
RESOLVED, that a Power of Attorney, substantially in the form of
the Power of Attorney presented to this Board, appointing Mark H.
Plafker, Harmon E. Burns, Deborah R. Gatzek, Karen L. Skidmore
and Larry L. Greene as attorneys-in-fact for the purpose of
filing documents with the Securities and Exchange Commission, be
executed by a majority of the Trustees and designated officers.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
/S/ DEBORAH R. GATZEK
Dated: May 14, 1996 Deborah R. Gatzek
Secretary
FRANKLIN HIGH INCOME TRUST
on behalf of
AGE HIGH INCOME FUND
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Trustees of the FRANKLIN HIGH INCOME FUND (the "Trust"), on behalf
of its series AGE High Income Fund (the "Fund"). The Board has determined that
the Plan is in the best interests of each class of the Fund. The Plan sets forth
the provisions relating to the establishment of multiple classes of shares of
the Fund, and supersedes the Plan previously adopted for the Fund
1. The Fund shall offer three classes of shares, to be known as Class I,
Class II shares and Class Z shares.
2. Class I Shares shall carry a front-end sales charge ranging from 0% -
4.25%, and Class II Shares shall carry a front-end sales charge of 1.00%. Class
Z Shares shall not be subject to any front-end sales charges.
3. Class I Shares shall not be subject to a contingent deferred sales
charge ("CDSC") except in the following limited circumstances. On investments of
$1 million or more, a contingent deferred sales charge of 1.00% of the lesser of
the then-current net asset value or the original net asset value at the time of
purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in the Fund's prospectus.
Class II Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Trust pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended, (the "Rule 12b-1 Plan")
associated with the Class I Shares may be used to reimburse Franklin/Templeton
Distributors, Inc. (the "Distributor") or others for expenses incurred in the
promotion and distribution of the Class I Shares. Such expenses include, but are
not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including a
prorated portion of the Distributor's overhead expenses attributable to the
distribution of the Class I Shares, as well as any distribution or service fees
paid to securities dealers of their firms or others who have executed a
servicing agreement with the Trust for the Class I Shares, the Distributor or
its affiliates.
The Rule 12b-1 Plan associated with the Class II Shares has two
components. The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class II Shares, in a manner similar to that described above for Class I Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares, and
therefore, the Class Z Shares shall not be subject to deductions relating to
rule 12b-1 fees.
The Rule 12b-1 Plans for the Class I and Class II Shares shall operate in
accordance with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, section 26(d).
6. The only difference in expenses as between Class I, Class II, and Class
Z Shares shall relate to differences in Rule 12b-1 plan expenses, as described
in the applicable Rule 12b-1 Plans.
7. There shall be no conversion features associated with the Class I,
Class II, and Class Z Shares.
8. Shares of Class I and Class II may be exchanged for shares of another
investment company within the Franklin Templeton Group of Funds according to the
terms and conditions stated in each fund's prospectus, as it may be amended from
time to time, to the extent permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder. There is no conversion feature
applicable to Class Z Shares.
9. Each class will vote separately with respect to any Rule 12b-1 Plan
related to that class.
10. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund for the
existence of any material conflicts between the Board members interests of the
various classes of shares. The Trustees, including a majority of the independent
Trustees, shall take such action as is reasonably necessary to eliminate any
such conflict that may develop. Franklin Advisers, Inc. and Franklin/Templeton
Distributors, Inc. shall be responsible for alerting the Board to any material
conflicts that arise.
11. All material amendments to this Plan must be approved by a majority of
the Board of Trustees, including a majority of the trustees who are not
interested persons of the Trust.
12. I, Deborah R. Gatzek, Secretary of the Franklin Templeton Group of
Funds, do hereby certify that this Multiple Class Plan was adopted by Franklin
High Income Trust, on behalf of its series, AGE High Income Fund, by a majority
of the Trustees of the Trust on ______________, 1996.
---------------------
Deborah R. Gatzek
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AGE
HIGH INCOME FUND, INC. MAY 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000002768
<NAME> FRANKLIN HIGH INCOME TRUST
<SERIES>
<NUMBER> 011
<NAME> AGE HIGH INCOME FUND - CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 1,910,138,244
<INVESTMENTS-AT-VALUE> 1,852,136,631
<RECEIVABLES> 75,834,422
<ASSETS-OTHER> 1,009,064
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,928,980,117
<PAYABLE-FOR-SECURITIES> 14,150,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,264,674
<TOTAL-LIABILITIES> 19,414,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,419,763,408
<SHARES-COMMON-STOCK> 690,087,848
<SHARES-COMMON-PRIOR> 673,135,886
<ACCUMULATED-NII-CURRENT> 16,419,841
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (468,689,725)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (57,928,081)
<NET-ASSETS> 1,909,565,443
<DIVIDEND-INCOME> 2,566,121
<INTEREST-INCOME> 181,840,658
<OTHER-INCOME> 0
<EXPENSES-NET> (11,738,564)
<NET-INVESTMENT-INCOME> 172,668,215
<REALIZED-GAINS-CURRENT> (4,004,670)
<APPREC-INCREASE-CURRENT> 55,295,775
<NET-CHANGE-FROM-OPS> 223,959,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (176,150,325)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 232,716,756
<NUMBER-OF-SHARES-REDEEMED> (242,966,844)
<SHARES-REINVESTED> 27,202,050
<NET-CHANGE-IN-ASSETS> 92,084,800
<ACCUMULATED-NII-PRIOR> 19,300,345
<ACCUMULATED-GAINS-PRIOR> (499,248,524)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (8,263,271)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,738,564)
<AVERAGE-NET-ASSETS> 1,783,776,225
<PER-SHARE-NAV-BEGIN> 2.700
<PER-SHARE-NII> .260
<PER-SHARE-GAIN-APPREC> .074
<PER-SHARE-DIVIDEND> (0.264)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 2.770
<EXPENSE-RATIO> .660
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AGE
HIGH INCOME FUND, INC. MAY 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000002768
<NAME> FRANKLIN HIGH INCOME TRUST
<SERIES>
<NUMBER> 012
<NAME> AGE HIGH INCOME FUND - CLASS II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 1,910,138,244
<INVESTMENTS-AT-VALUE> 1,852,136,631
<RECEIVABLES> 75,834,422
<ASSETS-OTHER> 1,009,064
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,928,980,117
<PAYABLE-FOR-SECURITIES> 14,150,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,264,674
<TOTAL-LIABILITIES> 19,414,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,419,763,408
<SHARES-COMMON-STOCK> 257,620
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 16,419,841
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (468,689,725)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (57,928,081)
<NET-ASSETS> 1,909,565,443
<DIVIDEND-INCOME> 2,566,121
<INTEREST-INCOME> 181,840,658
<OTHER-INCOME> 0
<EXPENSES-NET> (11,738,564)
<NET-INVESTMENT-INCOME> 172,668,215
<REALIZED-GAINS-CURRENT> (4,004,670)
<APPREC-INCREASE-CURRENT> 55,295,775
<NET-CHANGE-FROM-OPS> 223,959,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 257,620
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 92,084,800
<ACCUMULATED-NII-PRIOR> 19,300,345
<ACCUMULATED-GAINS-PRIOR> (499,248,524)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (8,263,271)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,738,564)
<AVERAGE-NET-ASSETS> 346,833
<PER-SHARE-NAV-BEGIN> 2.760
<PER-SHARE-NII> .000
<PER-SHARE-GAIN-APPREC> .010
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 2.770
<EXPENSE-RATIO> 1.140
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
