As filed with the Securities and Exchange Commission on September 28, 2000
File Nos.
2-77880
811-3479
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. 24 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 (X)
FRANKLIN NEW YORK TAX-FREE INCOME FUND
(formerly Franklin New York Tax-Free 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 (650) 312-2000
MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on October 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Prospectus
Franklin New York Tax-Free Income Fund
CLASS A , B & C
INVESTMENT STRATEGY TAX-FREE INCOME
OCTOBER 1, 2000
[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goal and Strategies
4 Main Risks
7 Performance
9 Fees and Expenses
11 Management
12 Distributions and Taxes
14 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
16 Choosing a Share Class
20 Buying Shares
23 Investor Services
26 Selling Shares
28 Account Policies
31 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The Fund's investment goal is to provide investors with as high a level
of income exempt from federal, New York state and New York City income taxes
as is consistent with prudent investment management and the preservation of
shareholders' capital.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
predominately in investment grade New York municipal securities whose
interest is free from federal income taxes, including the federal alternative
minimum tax, and from New York state and New York City personal income taxes.
Although the Fund tries to invest all of its assets in tax-free securities,
it is possible, although not anticipated, that up to 20% of its assets may be
in securities that pay taxable interest, including interest that may be
subject to the federal alternative minimum tax.
[Begin callout]
MUNICIPAL SECURITIES are issued by state and local governments, their
agencies and authorities, as well as by the District of Columbia and U.S.
territories and possessions, to borrow money for various public and private
projects. Municipal securities pay a fixed, floating or variable rate of
interest, and require that the amount borrowed (principal) be repaid at
maturity.
[End callout]
The Fund only buys securities rated in the top four ratings by U.S.
nationally recognized rating services (or comparable unrated securities). The
manager selects securities that it believes will provide the best balance
between risk and return within the Fund's range of allowable investments and
typically uses a buy and hold strategy. This means it holds securities in the
Fund's portfolio for income purposes, rather than trading securities for
capital gains, although the manager may sell a security at any time if it
believes it could help the Fund meet its goal.
The Fund may invest in municipal lease obligations, which generally are
issued to finance the purchase of public property. The property is leased to
a state or local government and the lease payments are used to pay the
interest on the obligations. These differ from other municipal securities
because the money to make the lease payments must be set aside each year or
the lease can be cancelled without penalty. If this happens, investors who
own the obligations may not be paid. The Fund also may invest up to 35% of
its assets in municipal securities issued by U.S. territories.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unusual or unfavorable for investors, the manager may invest up to 100%
of the Fund's assets in a temporary defensive manner by holding all or a
substantial portion of its assets in cash, cash equivalents or other high
quality short-term investments. Temporary defensive investments may include
securities that pay taxable interest. The manager also may invest in these
types of securities or hold cash when securities meeting the Fund's
investment criteria are unavailable or to maintain liquidity. In these
circumstances, the Fund may be unable to achieve its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
INCOME Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.
CREDIT An issuer of municipal securities may be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect a security's value and, thus, impact
Fund performance.
Many of the Fund's portfolio securities may be supported by credit
enhancements, which may be provided by either U.S. or foreign banks and
insurance companies. These securities have the credit risk of the entity
providing the credit support. Credit support provided by a foreign bank or
insurance company may be less certain because of the possibility of adverse
foreign economic, political or legal developments that may affect the ability
of that entity to meet its obligations. To the extent the Fund holds insured
securities, a change in the credit rating of any one or more of the municipal
bond insurers that insure securities in the Fund's portfolio may affect the
value of the securities they insure, the Fund's share price and Fund
performance. The Fund might also be adversely impacted by the inability of
an insurer to meet its insurance obligations.
[Begin callout]
Because interest rates and municipal security prices fluctuate, the amount of
the Fund's distributions, the Fund's yield, and the value of your investment
in the Fund will go up and down. This means you could lose money over short
or even extended periods.
[End callout]
INTEREST RATE When interest rates rise, municipal security prices fall. The
opposite is also true: municipal security prices rise when interest rates
fall. In general, securities with longer maturities are more sensitive to
these price changes.
CALL A municipal security may be prepaid (called) before maturity. Securities
are more likely to be called when interest rates are falling, because the
issuer can issue new securities with lower interest payments. If a security
is called, the Fund may have to replace it with a lower-yielding security. At
any time, the Fund may have a large amount of its assets invested in
municipal securities subject to call risk. A call of some or all of these
securities may lower the Fund's income and yield and its distributions to
shareholders.
MARKET A security's value may be reduced by market activity or the results
of supply and demand. This is a basic risk associated with all securities.
When there are more sellers than buyers, prices tend to fall. Likewise, when
there are more buyers than sellers, prices tend to rise.
The Fund may invest more than 25% of its assets in municipal securities that
finance similar types of projects, such as hospitals, housing, industrial
development, transportation or pollution control. A change that affects one
project, such as proposed legislation on the financing of the project, a
shortage of the materials needed for the project, or a declining need for the
project, would likely affect all similar projects, thereby increasing market
risk.
NEW YORK Since the Fund invests heavily in New York municipal securities,
events in New York are likely to affect the Fund's investments and its
performance. These events may include economic or political policy changes,
tax base erosion, state constitutional limits on tax increases, budget
deficits and other financial difficulties, and changes in the credit ratings
assigned to New York's municipal issuers. New York's economy and finances may
be especially vulnerable to changes in the performance of the financial
services sector, which historically has been volatile.
A negative change in any one of these or other areas could affect the ability
of New York's municipal issuers to meet their obligations. Both New York
state and New York City have experienced financial difficulties in the past.
It is important to remember that economic, budget and other conditions within
New York are unpredictable and can change at any time. The Fund may involve
more risk than an investment in a Fund that does not focus on securities of a
single state.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS Municipal securities may be
issued on a when-issued or delayed delivery basis, where payment and delivery
take place at a future date. Since the market price of the security may
fluctuate during the time before payment and delivery, the Fund assumes the
risk that the value of the security at delivery may be more or less than the
purchase price.
U.S. TERRITORIES As with New York municipal securities, events in any of the
territories where the Fund is invested may affect the Fund's investments and
its performance.
More detailed information about the Fund, its and risks and about municipal
securities ratings held by the Fund can be found in the Fund's Statement of
Additional Information (SAI).
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Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the Fund's returns, which is
one indicator of the risks of investing in the Fund. The bar chart shows
changes in the Fund's returns from year to year over the past 10 calendar
years. The table shows how the Fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS/1
[Insert bar graph]
4.75% 13.59% 11.08% 11.94% -3.58% 13.64% 4.14% 9.51% 6.59% -2.29%
----------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q1 '95 5.05%
WORST QUARTER:
Q1 '94 -3.70%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
----------------------------------------------------------------
Franklin New York Tax-Free -6.48% 5.26% 6.31%
Income Fund - Class A/2
Lehman Brothers Municipal -2.06% 6.91% 6.89%
Bond Index/3
SINCE
INCEPTION
1 YEAR (1/1/99)
----------------------------------------------------------------
Franklin New York Tax-Free -6.61% -6.61%
Income Fund - Class B/2
Lehman Brothers Municipal -2.06% -2.06%
Bond Index/3
SINCE
INCEPTION
1 YEAR (5/1/95)
-----------------------------------------------------------------
Franklin New York Tax-Free -4.72% 4.63%
Income Fund - Class C/2
Lehman Brothers Municipal -2.06% 5.84%
Bond Index/3
1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 2000, the Fund's year-to-date return was 4.36% for Class A.
2. Figures reflect sales charges.
All Fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's Micropal. The unmanaged Lehman Brothers
Municipal Bond Index includes investment grade bonds issued within the last
five years as part of a deal of over $50 million and with a maturity of at
least two years. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
--------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 4.25% 4.00% 1.99%
Load imposed on purchases 4.25% None 1.00%
Maximum deferred sales charge None/1 4.00%/2 0.99%/3
(load)
Please see "Choosing a Share Class" on page 16 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
--------------------------------------------------------------------
Management fees 0.45% 0.45% 0.45%
Distribution and service
(12b-1) fees 0.08% 0.65% 0.65%
Other expenses 0.07% 0.07% 0.07%
---------------------------
Total annual Fund operating expenses 0.60% 1.17% 1.17%
===========================
1. Except for investments of $1 million or more (see page 16)
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $484/1 $609 $746 $1,143
CLASS B $519 $672 $844 $1,261/2
CLASS C $317 $468 $737 $1,506
If you do not sell your
shares:
CLASS B $119 $372 $644 $1,261/2
CLASS C $218 $468 $737 $1,506
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404,is the Fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.
The team responsible for the Fund's management is:
SHEILA AMOROSO, senior vice president of advisers
Ms. Amoroso has been an analyst or portfolio manager of the Fund since 1987.
She is the co-Director of Franklin's Municipal Bond Department. She joined
Franklin Templeton Investments in 1986.
JAMES CONN, VICE PRESIDENT OF Advisers
Mr. Conn has been an analyst or portfolio manager of the Fund since 1999. He
joined Franklin Templeton Investments in 1996. Previously, he was a portfolio
manager with California Investment Trust.
JOHN POMEROY, VICE PRESIDENT of Advisers
Mr. Pomeroy has been an analyst or portfolio manager of the Fund since 1989.
He joined Franklin Templeton Investments in 1986.
The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal
year ended May 31, 2000, the Fund paid 0.45% of its average monthly net
assets to the manager for its services.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund intends to pay a dividend at
least monthly, on or about the 15th day of the month, representing its net
investment income. Capital gains, if any, may be distributed annually. The
amount of these distributions will vary and there is no guarantee the Fund
will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the Fund's distributions will vary. If you would like
information on upcoming record dates for the Fund's distributions, please
call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS Fund distributions will consist primarily of
exempt-interest dividends from interest earned on municipal securities. In
general, exempt-interest dividends are exempt from federal income tax. The
Fund, however, may invest a portion of its assets in securities that pay
income that is not tax-exempt. Fund distributions from such income are
taxable to you as ordinary income. Any capital gains the Fund distributes are
taxable to you as long-term capital gains no matter how long you have owned
your shares. Distributions of ordinary income or capital gains are taxable
whether you reinvest your distributions in additional fund shares or receive
them in cash.
[Begin callout]
BACKUP WITHHOLDING
By law, the Fund must withhold 31% of your taxable distributions and
redemption proceeds if you do not provide your correct social security or
taxpayer identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the Fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
Franklin Templeton fund is the same as a sale.
Exempt-interest dividends are taken into account when determining the taxable
portion of your social security or railroad retirement benefits. The Fund may
invest a portion of its assets in private activity bonds. The income from
these bonds is a preference item when determining your alternative minimum
tax.
Exempt-interest dividends from interest earned on municipal securities of the
state of New York, or its political subdivisions, generally are exempt from
New York's personal income tax. Investments in municipal securities of other
states generally do not qualify for tax-free treatment in New York.
Distributions of ordinary income and capital gains, and gains from the sale
or exchange of your Fund shares generally will be subject to state and local
taxes. Non-U.S. investors may be subject to U.S. withholding and estate tax.
You should consult your tax advisor about the federal, state, local or
foreign tax consequences of your investment in the Fund.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the Fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED MAY 31,
---------------------------------------------------------------------
2000 1999/3 1998 1997 1996
---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 11.91 12.08 11.66 11.46 11.75
-----------------------------------------
Net investment income1 .64 .64 .66 .68 .70
Net realized and
unrealized (.79) (.08) .45 .23 (.28)
gains (losses)
-----------------------------------------
Total from investment
operations (.15) .56 1.11 .91 .42
-----------------------------------------
Distributions from net
investment income (.63) (.64) (.66) (.68) (.71)
Distributions from net
realized gains (.07) (.09) (.03) (.03) -
-----------------------------------------
Total distributions (.70) (.73) (.69) (.71) (.71)
-----------------------------------------
Net asset value, end of 11.06 11.91 12.08 11.66 11.46
year
=========================================
Total return (%)/2 (1.24) 4.73 9.83 8.16 3.65
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1 million) 4,220 4,847 4,824 4,705 4,709
Ratios to average net
assets: (%)
Expenses .60 .59 .58 .59 .58
Net investment income 5.64 5.30 5.57 5.87 5.99
Portfolio turnover rate (%) 24.61 13.34 18.51 11.18 28.34
CLASS B
---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 11.89 12.06
-----------------------------------------
Net investment income1 .57 .77
Net realized and
unrealized (.78) (.70)
gains (losses)
-----------------------------------------
Total from investment
operations (.21) .07
-----------------------------------------
Distributions from net
investment income (.57) (.24)
Distributions from net
realized gains (.07) -
-----------------------------------------
Total distributions (.64) (.24)
-----------------------------------------
Net asset value, end of 11.04 11.89
year
=========================================
Total return (%)2 (1.80) .62
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 40,874 19,059
Ratios to average net
assets: (%)
Expenses 1.17 1.16/4
Net investment income 5.08 4.72/4
Portfolio turnover rate (%) 24.61 13.34
CLASS C YEAR ENDED MAY 31,
2000 1999 1998 1997 1996
---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 11.91 12.07 11.65 11.45 11.73
-----------------------------------------
Net investment income1 .57 .62 .59 .63 .65
Net realized and
unrealized (.78) (.12) .45 .21 (.29)
gains (losses)
-----------------------------------------
Total from investment
operations (.21) .50 1.04 .84 .36
Distributions from net
investment income (.57) (.57) (.59) (.61) (.64)
Distributions from net
realized gains (.07) (.09) (.03) (.03) -
-----------------------------------------
Total distributions (.64) (.66) (.62) (.64) (.64)
-----------------------------------------
Net asset value, end of 11.06 11.91 12.07 11.65 11.45
year
=========================================
Total return (%)/2 (1.80) 4.20 9.20 7.52 3.14
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 119,302 139,756 108,686 74,195 39,047
Ratios to average net
assets: (%)
Expenses 1.17 1.16 1.16 1.17 1.16
Net investment income 5.07 4.73 4.98 5.30 5.43
Portfolio turnover rate (%) 24.61 13.34 18.51 11.18 28.34
1. Based on average shares outstanding effective year ended May 2000.
2. Total return does not include sales charges, and is not annualized.
3. For the period January 1, 1999 (effective date) to May 31, 1999, for Class
B.
4. Annualized.
YOUR ACCOUNT
[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment
representative can help you decide.
CLASS A CLASS B CLASS C
---------------------------------------------------------------
o Initial sales o No initial o Initial
charge of 4.25% sales charge sales charge of
or less 1%
o Deferred sales o Deferred o Deferred
charge of 1% on sales charge of sales charge of
purchases of $1 4% on shares you 1% on shares
million or more sell within the you sell within
sold within 12 first year, 18 months
months declining to 1%
within six years
and eliminated
after that
o Lower annual o Higher annual o Higher
expenses than expenses than annual expenses
Class B or C due Class A (same as than Class A
to lower Class C) due to (same as Class
distribution fees higher B) due to
distribution higher
fees. Automatic distribution
conversion to fees. No
Class A shares conversion to
after eight Class A shares,
years, reducing so annual
future annual expenses do not
expenses. decrease.
SALES CHARGES - CLASS A
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING % OF YOUR NET
PRICE INVESTMENT
--------------------------------------------------------------------
Under $100,000 4.25 4.44
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 2.00 2.04
million
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 19), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 18).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution fees of up to 0.10% per year to those who sell and distribute
Class A shares and provide other services to shareholders. Because these fees
are paid out of Class A's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES
WITHIN THIS MANY YEARS AFTER THIS % IS DEDUCTED
BUYING THEM FROM YOUR PROCEEDS
AS A CDSC
------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 18). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 0.65% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SALES CHARGES - CLASS C
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING % OF YOUR NET
PRICE INVESTMENT
--------------------------------------------------------------------
Under $1 million 1.00 1.01
WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 0.65% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton fund (please see
page 24 for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases
in Franklin Templeton funds to take advantage of the lower sales charges for
large purchases of Class A shares.
[Begin callout]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
Franklin Templeton funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
SALES CHARGE WAIVERS Class A shares may be purchased without an initial
sales charge or CDSC by various individuals and institutions or by investors
who reinvest certain distributions and proceeds within 365 days. Certain
investors also may buy Class C shares without an initial sales charge. The
CDSC for each class may be waived for certain redemptions and distributions.
If you would like information about available sales charge waivers, call your
investment representative or call Shareholder Services at 1-800/632-2301. A
list of available sales charge waivers also may be found in the Statement of
Additional Information (SAI).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying Fund shares at a discount.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
------------------------------------------------------------------
INITIAL ADDITIONAL
------------------------------------------------------------------
Regular accounts $1,000 $50
------------------------------------------------------------------
Automatic investment plans $50 $50
------------------------------------------------------------------
------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
------------------------------------------------------------------
Broker-dealer sponsored wrap account
programs $250 $50
------------------------------------------------------------------
Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their
immediate family members $100 $50
------------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 23). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.
BUYING SHARES
----------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
----------------------------------------------------------------------
[Insert graphic
of hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
----------------------------------------------------------------------
[Insert graphic If you have another Before requesting a
of phone] Franklin Templeton fund telephone purchase,
account with your bank please make sure we
BY PHONE account information on have your bank account
file, you may open a new information on file. If
(Up to $100,000 account by phone. we do not have this
per day) information, you will
To make a same day need to send written
1-800/632-2301 investment, please call instructions with your
us by 1:00 p.m. Pacific bank's name and
time or the close of the address, a voided check
New York Stock Exchange, or savings account
whichever is earlier. deposit slip, and a
signature guarantee if
the bank and Fund
accounts do not have at
least one common owner.
To make a same day
investment, please call
us by 1:00 p.m. Pacific
time or the close of
the New York Stock
Exchange, whichever is
earlier.
----------------------------------------------------------------------
Make your check payable Make your check payable
[Insert graphic to Franklin New York to Franklin New York
of envelope] Tax-Free Income Fund. Tax-Free Income Fund.
Include your account
BY MAIL Mail the check and your number on the check.
signed application to
Investor Services. Fill out the deposit
slip from your account
statement. If you do
not have a slip,
include a note with
your name, the Fund
name, and your account
number.
Mail the check and
deposit slip or note to
Investor Services.
----------------------------------------------------------------------
[Insert graphic Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.
Wire the funds and mail To make a same day wire
your signed application investment, please call
BY WIRE to Investor Services. us by 1:00 p.m. Pacific
Please include the wire time and make sure your
1-800/632-2301 control number or your wire arrives by 3:00
(or new account number on p.m.
1-650/312-2000 the application.
collect)
To make a same day wire
investment, please call
us by 1:00 p.m. Pacific
time and make sure your
wire arrives by 3:00
p.m.
----------------------------------------------------------------------
[Insert graphic Call Shareholder Call Shareholder
of two arrows Services at the number Services at the number
pointing in below, or send signed below or our automated
opposite written instructions. TeleFACTS system, or
directions] The TeleFACTS system send signed written
cannot be used to open a instructions.
BY EXCHANGE new account.
(Please see page 24 for (Please see page 24 for
TeleFACTS(R) information on information on
1-800/247-1753 exchanges.) exchanges.)
(around-the-clock
access)
----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the Fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application and mail it to Investor
Services. If you are opening a new account, please include the minimum
initial investment of $50 with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically by
transferring money from your paycheck to the Fund by electronic funds
transfer. If you are interested, indicate on your application that you would
like to receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
Fund in an existing account in the same share class* of the Fund or another
Franklin Templeton fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to buy, sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone purchase, exchange or redemption privileges
on your account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
Because excessive trading can hurt fund performance, operations and
shareholders, the Fund, effective November 1, 2000, reserves the right to
revise or terminate the exchange privilege, limit the amount or number of
exchanges, reject any exchange, or restrict or refuse purchases if (i) the
Fund or its manager believes 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 (please see "Market Timers" on page
29).
*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge. Advisor Class shareholders of another
Franklin Templeton fund also may exchange into Class A without any sales
charge. Advisor Class shareholders who exchange their shares for Class A
shares and later decide they would like to exchange into another fund that
offers Advisor Class may do so.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
[Insert graphic of a certificate] SELLING SHARES
You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the Fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
Fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
SELLING SHARES
---------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
---------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
---------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed
envelope] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or trust
accounts may need to send additional
documents.
Specify the Fund, the account number
and the dollar value or number of
shares you wish to sell. If you own
both Class A and B shares, also specify
the class of shares, otherwise we will
sell your Class A shares first. Be sure
to include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
---------------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone] $100,000 or less, you do not hold share
certificates and you have not changed
BY PHONE your address by phone within the last
15 days, you can sell your shares by
1-800/632-2301 phone.
A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature
guarantee, are required to send the
check to another address or to make it
payable to another person.
---------------------------------------------------------------
[Insert graphic of You can call or write to have
three lightning redemption proceeds sent to a bank
bolts] account. See the policies above for
selling shares by mail or phone.
Before requesting to have redemption
proceeds sent to a bank account, please
BY ELECTRONIC FUNDS make sure we have your bank account
TRANSFER (ACH) information on file. If we do not have
this information, you will need to send
written instructions with your bank's
name and address, a voided check or
savings account deposit slip, and a
signature guarantee if the bank and
Fund accounts do not have at least one
common owner.
If we receive your request in proper
form by 1:00 p.m. Pacific time,
proceeds sent by ACH generally will be
available within two to three business
days.
---------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the
two arrows pointing fund you are considering.
in opposite
directions] Call Shareholder Services at the number
below or our automated TeleFACTS
BY EXCHANGE system, or send signed written
instructions. See the policies above
TeleFACTS(R) for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you
access) will need to return them to the Fund
before your exchange can be processed.
---------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The Fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
The Fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee and UGMA/UTMA accounts) because you sell some of your
shares, we may mail you a notice asking you to bring the account back up to
its applicable minimum investment amount. If you choose not to do so within
30 days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the Fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The Fund does not allow investments by Market Timers. You may
be considered a Market Timer if you have (i) requested an exchange out of any
of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect
the fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.
ADDITIONAL POLICIES Please note that the Fund maintains additional policies
and reserves certain rights, including:
o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o At any time, the Fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o The Fund may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the Fund reserves the right, in
the case of an emergency, to make payments in securities or other assets of
the Fund, if the payment of cash proceeds by check, wire or electronic
funds transfer would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Fund promptly.
DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. from sales charges, distribution and service (12b-1) fees
and its other resources.
CLASS A CLASS B CLASS C
--------------------------------------------------------------------
COMMISSION (%) --- 3.00 2.00
Investment under $100,000 4.00 --- ---
$100,000 but under $250,000 3.25 --- ---
$250,000 but under $500,000 2.25 --- ---
$500,000 but under $1 1.85 --- ---
million
$1 million or more up to 0.75/1 --- ---
12B-1 FEE TO DEALER 0.10 0.152 0.65/3
A dealer commission of up to 1% may be paid on Class C NAV purchases. A
dealer commission of up to 0.25% may be paid on Class A NAV purchases by
certain trust companies and bank trust departments, eligible governmental
authorities, and broker-dealers or others on behalf of clients participating
in comprehensive fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
[Insert graphic of question mark]QUESTIONS
If you have any questions about the Fund or your account, you can write to us
at P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
-----------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
TeleFACTS(R) 1-800/247-1753 (around-the-clock
(automated) access)
FOR MORE INFORMATION
You can learn more about the Fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and Fund strategies,
financial statements, detailed performance information, portfolio holdings
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com
You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: [email protected].
Investment Company Act file #811-3479 115 P 10/00
FRANKLIN NEW YORK TAX-FREE INCOME FUND
CLASS A , B & C
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the Fund's prospectus.
The Fund's prospectus, dated October 1, 2000, which we may amend from time to
time, contains the basic information you should know before investing in the
Fund. You should read this SAI together with the Fund's prospectus.
The audited financial statements and auditor's report in the Fund's Annual
Report to Shareholders, for the fiscal year ended May 31, 2000, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals, Strategies and Risks 2
Officers and Trustees 10
Management and Other Services 12
Portfolio Transactions 13
Distributions and Taxes 14
Organization, Voting Rights
and Principal Holders 16
Buying and Selling Shares 16
Pricing Shares 21
The Underwriter 22
Performance 23
Miscellaneous Information 26
Description of Ratings 27
-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
-------------------------------------------------------------------------------
GOALS, STRATEGIES AND RISKS
-------------------------------------------------------------------------------
The Fund's investment goal is to provide investors with as high a level of
income exempt from federal, New York state and New York City income taxes as
is consistent with prudent investment management and the preservation of
shareholders' capital. This goal is fundamental, which means that it may not
be changed without shareholder approval. Of course, there is no assurance
that the Fund will meet its goal.
As a fundamental policy, the Fund normally invests at least 80% of its total
assets in securities that pay interest free from federal income taxes. The
Fund also normally invests at least 65% of its total assets in securities
that pay interest free from New York state and New York City personal income
taxes, including the federal alternative minimum tax, and at least 65% of its
total assets in New York municipal securities.
The Fund tries to invest all of its assets in municipal securities of New
York State and New York City whose interest is free from personal income
taxes. Municipal securities issued by New York or its counties,
municipalities, authorities, agencies, or other subdivisions, as well as
qualifying municipal securities issued by U.S. territories such as Guam,
Puerto Rico, the Mariana Islands or the U.S. Virgin Islands, generally pay
interest free from federal income tax and from New York state and New York
City personal income taxes for New York residents. The issuer's bond counsel
generally gives the issuer an opinion on the tax-exempt status of a municipal
security when the security is issued.
BELOW IS A DESCRIPTION OF VARIOUS TYPES OF MUNICIPAL AND OTHER SECURITIES
THAT THE FUND MAY BUY. OTHER TYPES OF MUNICIPAL SECURITIES MAY BECOME
AVAILABLE THAT ARE SIMILAR TO THOSE DESCRIBED BELOW AND IN WHICH THE FUND
ALSO MAY INVEST, IF CONSISTENT WITH ITS INVESTMENT GOAL AND POLICIES.
MUNICIPAL BONDS have two principal classifications: general obligation bonds
and revenue bonds.
GENERAL OBLIGATION BONDS. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads. The basic
security behind general obligation bonds is the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited or
unlimited as to the rate or amount of special assessments.
REVENUE BONDS. The full faith, credit and taxing power of the issuer do not
secure revenue bonds. Instead, the principal security for a revenue bond
generally is the net revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety
of capital projects, including: electric, gas, water and sewer systems;
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security behind these bonds may
vary. For example, housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other
public projects. Many bonds provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest
payments. Some authorities have further security in the form of state
assurances (although without obligation) to make up deficiencies in the debt
service reserve fund.
ANTICIPATION NOTES are issued to provide interim financing of various
municipal needs in anticipation of the receipt of other sources of money for
repayment of the notes.
BOND ANTICIPATION NOTES are normally issued to provide interim financing
until a long-term bond financing can be arranged which provides the money for
the repayment of the notes.
REVENUE ANTICIPATION NOTES are issued in expectation of the receipt of
revenue sources, other than tax receipts, such as federal revenues available
under the Federal Revenue Sharing Program.
TAX ANTICIPATION NOTES are issued to finance the short-term working capital
needs of municipalities in anticipation of the receipt of various seasonal
tax revenues that are used to repay the notes. They are usually general
obligations of the issuer and are secured by the taxing power for the payment
of principal and interest.
CALLABLE BONDS The Fund may invest in callable bonds, which allow the issuer
to repay some or all of the bonds ahead of schedule. If a bond is called, the
Fund will receive the principal amount, the accrued interest, and may receive
a small additional payment as a call premium. The manager may sell a callable
bond before its call date, if it believes the bond is at its maximum premium
potential. When pricing callable bonds, the call feature is factored into the
price of the bonds and may impact the Fund's net asset value.
An issuer is more likely to call its bonds when interest rates are below the
rate at which the original bond was issued, because the issuer can issue new
bonds with lower interest payments. If a bond is called, the Fund may have to
replace it with a lower-yielding security. A call of some or all of these
securities may lower the Fund's income, its yield and its distributions to
shareholders. If the Fund originally paid a premium for the bond because it
had appreciated in value from its original issue price, the Fund also may not
be able to recover the full amount it paid for the bond. One way for the Fund
to protect itself from call risk is to buy bonds with call protection. Call
protection is an assurance that the bond will not be called for a specific
time period, typically five to 10 years from when the bond is issued.
COMMERCIAL PAPER is a promissory note issued by a corporation to finance its
short-term credit needs. The Fund may invest in taxable commercial paper only
for temporary defensive purposes.
CONVERTIBLE AND STEP COUPON BONDS The Fund may invest a portion of its assets
in convertible and step coupon bonds. Convertible bonds are zero-coupon
securities until a predetermined date, at which time they convert to a
specified coupon security. The coupon on step coupon bonds changes
periodically during the life of the security based on predetermined dates
chosen when the security is issued.
ESCROW-SECURED OR PRE-REFUNDED BONDS are created when an issuer uses the
proceeds from a new bond issue to buy high grade, interest bearing debt
securities, generally direct obligations of the U.S. government in order to
redeem (or pre-refund), before maturity, an outstanding bond issue that is
not immediately callable. These securities are then deposited in an
irrevocable escrow account held by a trustee bank to secure all future
payments of principal and interest on the pre-refunded bond. Pre-refunded
bonds often receive a triple A or equivalent rating. Because pre-refunded
bonds still bear the same interest rate, and have a very high credit quality,
their price may increase. However, as the original bond approaches its call
date, the bond's price will fall to its call price. The Fund's manager
attempts to manage the pre-refunded bonds in its portfolio so that it sells
them before this decline in price occurs.
MUNICIPAL LEASE OBLIGATIONS are created to finance the purchase of property
for public use. The property is then leased to the state or a local
government and these leases secure the municipal lease obligations. The lease
payments are used to pay the interest on the obligations. However, municipal
lease obligations differ from other municipal securities because each year
the lessee's governing body must appropriate (set aside) the money to make
the lease payments. If the money is not appropriated, the issuer or the
lessee can end the lease without penalty. If the lease is cancelled,
investors who own the municipal lease obligations may not be paid.
The board of trustees reviews the Fund's municipal lease obligations to try
to assure that they are liquid investments based on various factors reviewed
by the Fund's manager.
Since annual appropriations are required to make lease payments, municipal
lease obligations generally are not subject to constitutional limitations on
the issuance of debt, and may allow an issuer to increase government
liabilities beyond constitutional debt limits. When faced with increasingly
tight budgets, local governments have more discretion to curtail lease
payments under a municipal lease obligation than they do to curtail payments
on other municipal securities. If not enough money is appropriated to make
the lease payments, the leased property may be repossessed as security for
holders of the municipal lease obligations. If this happens, there is no
assurance that the property's private sector or re-leasing value will be
enough to make all outstanding payments on the municipal lease obligations or
that the payments will continue to be tax-free.
While cancellation risk is inherent to municipal lease obligations, the Fund
believes that this risk may be reduced, although not eliminated, by its
policies on the quality of municipal lease securities in which it may invest.
STRIPPED MUNICIPAL SECURITIES Municipal securities may be sold in "stripped"
form. Stripped municipal securities represent separate ownership of principal
and interest payments on municipal securities.
TAX-EXEMPT COMMERCIAL PAPER typically represents a short-term obligation (270
days or less) issued by a municipality to meet working capital needs.
TAX-EXEMPT INDUSTRIAL DEVELOPMENT REVENUE BONDS are issued by or on behalf of
public authorities to finance various privately operated facilities which are
expected to benefit the municipality and its residents, such as business,
manufacturing, housing, sports and pollution control, as well as public
facilities such as airports, mass transit systems, ports and parking. The
payment of principal and interest is solely dependent on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
the facility or other property as security for payment.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or by agencies and
instrumentalities of the U.S. government and are backed by the full faith and
credit of the U.S. government. They include Treasury bills, notes and bonds.
VARIABLE OR FLOATING RATE SECURITIES The Fund may invest in variable or
floating rate securities, including variable rate demand notes, which have
interest rates that change either at specific intervals (variable rate), from
daily up to monthly, or whenever a benchmark rate changes (floating rate).
The interest rate adjustments are designed to help stabilize the security's
price. While this feature helps protect against a decline in the security's
market price when interest rates rise, it lowers the Fund's income when
interest rates fall. Of course, the Fund's income from its variable rate
investments also may increase if interest rates rise.
Variable or floating rate securities may include a demand feature, which may
be unconditional. The demand feature allows the holder to demand prepayment
of the principal amount before maturity, generally on one to 30 days' notice.
The holder receives the principal amount plus any accrued interest either
from the issuer or by drawing on a bank letter of credit, a guarantee or
insurance issued with respect to the security. The Fund generally uses
variable or floating rate securities as short-term investments while waiting
for long-term investment opportunities.
ZERO-COUPON AND DELAYED INTEREST SECURITIES The Fund may invest in
zero-coupon and delayed interest securities. Zero-coupon securities make no
periodic interest payments, but are sold at a deep discount from their face
value. The buyer recognizes a rate of return determined by the gradual
appreciation of the security, which is redeemed at face value on a specified
maturity date. The discount varies depending on the time remaining until
maturity, as well as market interest rates, liquidity of the security, and
the issuer's perceived credit quality. The discount, in the absence of
financial difficulties of the issuer, typically decreases as the final
maturity date approaches. If the issuer defaults, the Fund may not receive
any return on its investment.
Because zero-coupon securities bear no interest and compound semiannually at
the rate fixed at the time of issuance, their value generally is more
volatile than the value of other fixed-income securities. Since zero-coupon
bondholders do not receive interest payments, when interest rates rise,
zero-coupon securities fall more dramatically in value than bonds paying
interest on a current basis. When interest rates fall, zero-coupon securities
rise more rapidly in value because the bonds reflect a fixed rate of return.
An investment in zero-coupon and delayed interest securities may cause the
Fund to recognize income and make distributions to shareholders before it
receives any cash payments on its investment. To generate cash to satisfy
distribution requirements, the Fund may have to sell portfolio securities
that it otherwise would have continued to hold or to use cash flows from
other sources such as the sale of Fund shares.
IN ADDITION TO STANDARD PURCHASES AND SALES OF VARIOUS MUNICIPAL SECURITIES,
THE FUND MAY ALSO ENGAGE IN OTHER STRATEGIES, WHICH ARE DESCRIBED BELOW.
SHOULD OTHER STRATEGIES, NOT SPECIFICALLY DESCRIBED BELOW, BECOME AVAILABLE
OR ATTRACTIVE, THE MANAGER MAY ENGAGE IN THEM SO LONG AS THEY ARE CONSISTENT
WITH THE FUND'S GOALS AND OBJECTIVES.
CREDIT QUALITY All things being equal, the lower a security's credit quality,
the higher the risk and the higher the yield the security generally must pay
as compensation to investors for the higher risk.
A security's credit quality depends on the issuer's ability to pay interest
on the security and, ultimately, to repay the principal. Independent rating
agencies, such as Fitch Investors Service Inc. (Fitch), Moody's Investors
Service, Inc. (Moody's), and Standard & Poor's Ratings Group (S&P(R)), often
rate municipal securities based on their analysis of the issuer's credit
quality. Most rating agencies use a descending alphabet scale to rate
long-term securities, and a descending numerical scale to rate short-term
securities. Securities in the top four ratings are "investment grade,"
although securities in the fourth highest rating may have some speculative
features. These ratings are described at the end of this SAI under
"Description of Ratings."
An insurance company, bank or other foreign or domestic entity may provide
credit support for a municipal security and enhance its credit quality. For
example, some municipal securities are insured, which means they are covered
by an insurance policy that guarantees the timely payment of principal and
interest. Other municipal securities may be backed by letters of credit,
guarantees, or escrow or trust accounts that contain securities backed by the
full faith and credit of the U.S. government to secure the payment of
principal and interest.
As discussed in the prospectus, the Fund has limitations on the credit
quality of the securities it may buy. These limitations generally are applied
when the Fund makes an investment so that the Fund is not required to sell a
security because of a later change in circumstances.
In addition to considering ratings in its selection of the Fund's portfolio
securities, the manager may consider, among other things, information about
the financial history and condition of the issuer, revenue and expense
prospects and, in the case of revenue bonds, the financial history and
condition of the source of revenue to service the bonds. Securities that
depend on the credit of the U.S. government are regarded as having a triple A
or equivalent rating.
DIVERSIFICATION The Fund is a diversified fund. As a fundamental policy, the
Fund will not buy a security if more than 5% of the value of its total assets
would be in the securities of any single issuer. This limitation does not
apply to investments issued or guaranteed by the U.S. government or its
instrumentalities. For this purpose, each political subdivision, agency, or
instrumentality, each multi-state agency of which a state is a member, and
each public authority that issues private activity bonds on behalf of a
private entity, is considered a separate issuer. Escrow-secured or
pre-refunded bonds are not generally considered an obligation of the original
municipality when determining diversification. For securities backed only by
the assets or revenues of a particular instrumentality, facility or
subdivision, the entity is considered the issuer.
The Fund intends to meet certain diversification requirements for tax
purposes. Generally, to meet federal tax requirements at the close of each
quarter, the Fund may not invest more than 25% of its total assets in any one
issuer and, with respect to 50% of total assets, may not invest more than 5%
of its total assets in any one issuer. These limitations do not apply to U.S.
government securities and may be revised if applicable federal income tax
requirements are revised.
ILLIQUID INVESTMENTS The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities generally are 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.
MATURITY Municipal securities are issued with a specific maturity date - the
date when the issuer must repay the amount borrowed. Maturities typically
range from the less than one-year (short term) to 30 years (long term). In
general, securities with longer maturities are more sensitive to price
changes, although they may provide higher yields. The Fund has no
restrictions on the maturity of the securities it may buy or on its average
portfolio maturity.
PORTFOLIO TURNOVER The frequency of portfolio transactions, usually referred
to as the portfolio turnover rate, varies for the Fund from year to year,
depending on market conditions. Short-term trading increases portfolio
turnover and may increase costs. However, the execution costs for municipal
securities are substantially less than for equivalent dollar values of equity
securities.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unusual or unfavorable for investors, the manager may invest up to 100%
of the Fund's assets in a temporary defensive manner or hold a substantial
portion of its portfolio in cash, cash equivalents or other high quality
short-term investments. Unfavorable market or economic conditions may include
excessive volatility or a prolonged general decline in the securities markets
in the securities in which the Fund invests or in the economies of the state
and territories where the Fund invests.
Temporary defensive investments may include securities that pay taxable
interest, including (i) high quality commercial paper and obligations of U.S.
banks (including commercial banks and savings and loan associations) with
assets of $1 billion or more; (ii) securities issued by or guaranteed by the
full faith and credit of the U.S. government; or (iii) municipal securities
issued by a state or local government other than New York. The Fund also may
invest all of its assets in municipal securities issued by a U.S. territory
such as Guam, Puerto Rico, the Mariana Islands or the U.S. Virgin Islands.
The manager also may invest in these types of securities or hold cash when
securities meeting the Fund's investment criteria are unavailable or to
maintain liquidity.
WHEN-ISSUED TRANSACTIONS Municipal securities are frequently offered on a
"when-issued" basis. When so offered, the price, which is generally expressed
in yield terms, is fixed at the time the commitment to buy is made, but
delivery and payment take place at a later date. During the time between
purchase and settlement, no payment is made by the Fund to the issuer and no
interest accrues to the Fund. If the other party to the transaction fails to
deliver or pay for the security, the Fund could miss a favorable price or
yield opportunity, or could experience a loss.
When the Fund makes the commitment to buy a municipal security on a
when-issued basis, it records the transaction and includes the value of the
security in the calculation of its net asset value. The Fund does not believe
that its net asset value or income will be negatively affected by its
purchase of municipal securities on a when-issued basis. The Fund will not
engage in when-issued transactions for investment leverage purposes.
Although the Fund generally will buy municipal securities on a when-issued
basis with the intention of acquiring the securities, it may sell the
securities before the settlement date if it is considered advisable. When the
Fund is the buyer, it will set aside on its books cash or liquid securities,
with an aggregate value equal to the amount of its purchase commitments,
until payment is made. If assets of the Fund are held in cash pending the
settlement of a purchase of securities, the Fund will not earn income on
those assets.
INVESTMENT RESTRICTIONS The Fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the Fund's outstanding shares or (ii) 67% or
more of the Fund's shares present at a shareholder meeting if more than 50%
of the Fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that
borrowings for temporary or emergency purposes may be made in an amount up to
5% of the total asset value.
2. Buy any securities on "margin" or sell any securities "short."
3. Lend any of its funds or other assets, except by the purchase of a portion
of an issue of publicly distributed bonds, debentures, notes or other debt
securities, or to the extent the entry into a repurchase agreement may be
deemed a loan. Although such loans are not presently intended, this
prohibition will not preclude the Fund from loaning securities to
broker-dealers or other institutional investors if at least 102% cash
collateral is pledged and maintained by the borrower; provided such security
loans may not be made if, as a result, the aggregate of such loans exceeds
10% of the value of the Fund's total assets at the time of the most recent
loan.
4. Act as underwriter of securities issued by other persons except insofar as
the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
5. Purchase the securities of any issuer which would result in owning more
than 10% of the voting securities of such issuer.
6. Purchase from or sell to its officers and trustees, or any firm of which
any officer or trustee is a member, as principal, any securities, but may
deal with such persons or firms as brokers and pay a customary brokerage
commission; retain securities of any issuer if, to the knowledge of the Fund,
one or more of the its officers, trustees, or the manager, own beneficially
more than one-half of 1% of the securities of such issuer and all such
officers and trustees together own beneficially more than 5% of such
securities.
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices.
8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads or any combination thereof, or interests in oil, gas or other mineral
exploration or development programs. The Fund may, however, write covered
call options listed for trading on a national securities exchange and
purchase call options to the extent necessary to cancel call options
previously written. At present there are no options listed for trading on a
national securities exchange covering the types of securities which are
appropriate for investment by the Fund and, therefore, there are no option
transactions available for the Fund.
9. Invest in companies for the purpose of exercising control or management.
10. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization; except to the
extent the Fund invests its uninvested daily cash balances in shares of
Franklin New York Tax-Exempt Money Fund and other tax-exempt money market
funds in Franklin Templeton Investments 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) 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.
11. Purchase securities, in private placements or in other transactions, for
which there are legal or contractual restrictions on resale.
12. Invest more than 25% of assets in securities of any industry. For
purposes of this limitation, tax-exempt securities issued by governments or
political subdivisions of governments are not considered to be part of any
industry.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the Fund makes an investment. In most cases, the Fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the Fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
IN ADDITION TO THE RISKS DESCRIBED IN THE PROSPECTUS,
THE FUND IS SUBJECT TO VARIOUS RISKS RELATED TO
MUNICIPAL ISSUERS
NEW YORK Since the Fund mainly invests in New York municipal securities, its
performance is closely tied to the ability of issuers of New York municipal
securities to continue to make principal and interest payments on their
securities. The issuers' ability to do this is in turn dependent on economic,
political and other conditions within New York. Below is a discussion of
certain conditions that may affect New York municipal issuers. It is not a
complete analysis of every material fact that may affect the ability of
issuers of New York municipal securities to meet their debt obligations or
the economic or political conditions within New York and is subject to
change. The information below is based on data available to the Fund from
historically reliable sources, but the Fund has not independently verified it.
NEW YORK STATE. The ability of New York's issuers to continue to make
principal and interest payments is dependent in large part on their ability
to raise revenues, primarily through taxes, and to control spending. Many
factors can affect the state's revenues including the rate of population
growth, unemployment rates, personal income growth, federal aid, and the
ability to attract and keep successful businesses. A number of factors can
also affect the state's spending including the need for infrastructure
improvements, increased costs for education and other services, current debt
levels, and the existence of accumulated budget deficits.
In recent years, New York's economy has improved, in large part due to strong
growth in the state's financial services sector. Nonetheless, the state's
population and personal income growth rates have continued to lag national
growth rates. However 1999 marked the first time in 13 years that the
employment growth rate for the state surpassed the national growth rate. And
although the state unemployment rate has been higher than the national rate
since 1991, the gap between them has narrowed. Private sector jobs reached an
all-time high in New York state at 7,149,200 for May. This is a 2.1%
increase over May 1999. Employment is forecasted to grow 2.1% and 1.5% in
2000 and 2001 respectively. Both upstate and downstate posted overall job
gains over May 1999, 1.4% and 2.5% respectively. Unemployment rate for May
2000 was 4.6%, the same as April but down from 5.2% in May 1999.
With its improved economic performance, the state also has been able to
improve its finances. New York has had four consecutive years of budget
surpluses and has eliminated its accumulated GAAP general fund deficit. For
fiscal 1997, 1998, 1999 and 2000, the state's surpluses totaled $1.4 billion,
$2.0 billion, $1.6 billion and $1.5 billion, respectively. The state's
FY2001 adopted budget is $77.5 billion that is a 5.7% increase on an all
funds basis over FY2000. Going forward however, recent estimates have shown
a budget gap of nearly $2.0 billion by fiscal 2002, due to the continued
implementation of revenue reducing tax cuts along with increased spending.
This gap could widen if the recent strong performance of Wall Street and the
state's overall financial services sector does not continue. Strong
surpluses and increasing reserves have allowed the state to close these gaps
during the budget process. The state has been successful in building up its
financial reserves that are projected to be $3.2 billion at March 31, 2001.
Despite strong budget results, the state has had 14 consecutive budget
delays, with the FY2001 budget being adopted 35 days late (debt service and
school aid and employee wage bills were passed on time).
New York's debt burden has continued to be one of the highest among the
states. As of December 1999, New York ranked fourth with a debt per capita of
$2,029. In an effort to control the state's increasing debt burden, the
Legislature and Governor enacted the Debt Reform Act of 2000. This Act
provides statutory changes including:
1. Reduces maximum debt maturity to 30 years from 40 years
2. Limits outstanding debt to 4% of state personal income. This level is
currently at 6% and the 4% limit will be phased in over the next several
years.
3. Requires that all borrowing be for capital purposes only.
4. A phased-in cap on new state-supported debt service costs of 5% of total
government fund receipts
As a result of the Debt Reform Act, Moody's has changed the state's rating
outlook to positive from stable.
Despite recent improvements in New York's economic and financial performance,
its high debt levels and projected budget imbalances leave the state
vulnerable to an economic slowdown and volatility in its financial services
sector.
The state has either guaranteed or supported, through lease-purchase
arrangements or other contractual or moral obligations, a substantial
principal amount of securities issued by various state agencies and
authorities. Moral obligations do not impose immediate financial obligations
on the state and require appropriations by the legislature before any
payments can be made. If the state fails to appropriate necessary amounts or
to take other action to allow authorities and agencies to meet their
obligations, the authorities and agencies could default on their debt
obligations. If a default occurs, it would likely have a significant adverse
impact on the market price of the obligations of both the state and its
various authorities and agencies.
To the extent state agencies and local governments require state assistance
to meet their financial obligations, the ability of the state of New York to
meet its own obligations or to obtain additional financing could be adversely
affected. This financial situation could result not only in defaults of state
and agency obligations, but could also adversely affect the marketability of
New York municipal securities.
In addition, if constitutional challenges to state laws or other court
actions are brought against the state or its agencies and municipalities
relating to financing, or the amount and use of taxes, these actions could
adversely affect the ability of the state and its political subdivisions to
meet their debt obligations, and may require extraordinary appropriations,
expenditure reductions, or both.
NEW YORK CITY. In 1975, New York City suffered several financial crises. In
that year, the city lost access to public credit markets and was not able to
sell short-term notes until 1979 or long-term notes until 1981. In an effort
to help the city out of its financial difficulties, the state legislature
created the Municipal Assistance Corporation (MAC). MAC has the authority to
issue bonds and notes and to pay or lend the proceeds to New York City, as
well as to exchange its obligations for city obligations. MAC bonds are
payable out of certain state sales and use taxes imposed by the city, state
stock transfer taxes and per capita state aid to the city. The state is not,
however, obligated to continue these taxes, to continue appropriating
revenues from these taxes or to continue appropriating per capita state aid
to pay MAC obligations. MAC does not have taxing powers, and its bonds are
not obligations enforceable against either New York City or New York state.
From 1975 until June 30, 1986, the city's financial condition was subject to
oversight and review by the New York State Financial Control Board (FCB). To
be eligible for guarantees and assistance, the city was required to submit to
the FCB, at least 50 days before the beginning of each fiscal year, a
financial plan for the city and certain agencies covering the four-year
period beginning with the upcoming fiscal year. The four-year financial plans
had to show a balanced budget determined in accordance with generally
accepted accounting principles. On June 30, 1986, some of the FCB's powers
were suspended because the city had satisfied certain statutory conditions.
The powers suspended included the FCB's power to approve or disapprove
certain contracts, long-term and short-term borrowings and the four-year
financial plans. The city, however, is still required to develop four-year
financial plans each year and the FCB continues to have certain review
powers. The FCB must reimpose its full powers if there is the occurrence or a
substantial likelihood and imminence of the occurrence of any one of certain
events including the existence of an operating deficit greater than $100
million, or failure by the city to pay principal of or interest on any of its
notes or bonds when due or payable.
In recent years, the city's overall debt burden has been high and has
approached constitutional general obligation debt limits. At the same time,
the city recently adopted a 5-year, $16.6 billion capital plan to maintain
its essential infrastructure. To help finance the capital plan and allow the
city to operate under its constitutional debt limit, the state's legislature
created the New York City Transitional Finance Authority (TFA) in March 1997,
which is authorized to issue additional debt for the city's use. This debt
will be backed primarily by city personal income taxes. The initial
authorization was $7.5 billion, and due to additional overall debt limit
issues, had to approach the state legislature to increase TFA authorization
another $4.0 billion to $11.5 billion. Going forward, the city will need to
somehow balance the maintenance of its infrastructure with its growing debt
burden. For fiscal 2001, debt service costs are estimated at approximately
8.6% of the city's expenditures. This figure may grow to 10.0% by 2004 and
could reduce the city's future financial flexibility, especially in the event
of an economic downturn or other financial crisis.
On the positive side, the city ended FY2000 with a projected surplus of $3.2
billion, an increase over the FY1999 surplus of $2.6 billion and a Fiscal
1998 surplus of more than $2 billion. The FY2000 surplus will be used to
further bolster the budget stabilization account to $2.3 billion and pre-pay
FY2001 debt service costs. These surpluses are the result of an improving
economy, cost containment of social services expenses, a robust real-estate
market and the extraordinary strong performance of the financial industry.
These benefits are also felt in the city's cash position that has resulted in
the reduction and elimination of short-term borrowing. Despite these
surpluses, the city continues to show out-year budget gaps. But there has
been improvement as these gaps are about 60% of the gaps experienced in
1996. The gaps for 2002, 2003 and 2004 are $2.6 billion, $2.7 billion and
$2.7 billion respectively. Although improved, they do not include potential
increased spending as a result of union contract negotiations to occur
through the latter part of the year 2000. The city is required to have a
balanced budget and has successfully been able to close these gaps in the
past.
The strong New York City economy has increased total employment to the
highest since before the recession of the early 1990s and as far back as the
1980s. In 1999, the city posted the highest annual job growth of 2.8% since
the 1980s. However, unemployment still remains high at 5.7% in May 2000,
versus the 4.6% state rate and 4.1% national rate.
However, the city has become increasingly reliant on the financial services
industry for its revenues. City employment and income are concentrated in
this sector which is 13.8% of employment but 30.4% of personal income in 1997
(the most recent data). A weakening or decline in this sector would have a
negative effect on the economic condition of New York City.
U.S. TERRITORIES Since the Fund may invest up to 35% of its assets in
municipal securities issued by U.S. territories, the ability of municipal
issuers in U.S. territories to continue to make principal and interest
payments also may affect the Fund's performance. As with New York municipal
issuers, the ability to make these payments is dependent on economic,
political and other conditions. Below is a discussion of certain conditions
within some of the territories where the Fund may invest. It is not a
complete analysis of every material fact that may affect the ability of
issuers of U.S. territory municipal securities to meet their debt obligations
or the economic or political conditions within the territories and is subject
to change. It is based on data available to the Fund from historically
reliable sources, but it has not been independently verified by the Fund.
PUERTO RICO. In recent years, Puerto Rico's financial performance has
improved. Overall, as of March 2000, Moody's considered Puerto Rico's outlook
to be positive. Relatively strong revenue growth and more aggressive tax
collection procedures resulted in a general fund surplus for fiscal 1999
(audited) of $497 million, including an unreserved balance of $185.4 million.
Between fiscal years 1993 and 1999, Puerto Rico has experienced a 4.3% drop
in the unemployment rate, a 54% increase in hotel registrations, a 31% in
retail sales, a 76% increase in exports, and a 22% decrease in welfare
recipients.
While Puerto Rico's debt per capita levels are at the higher end of the
spectrum compared to American states that is partly explained by the fact
that Puerto Rico generally centralizes its debt issuance at the state level.
Going forward, these debt levels may increase as Puerto Rico attempts to
finance significant capital and infrastructure improvements. Puerto Rico also
will need to address its large unfunded pension liability of more than $6
billion. S&P rates Puerto Rico's general obligation debt at A, with a stable
outlook.
Puerto Rico also faces challenges from the 1996 passage of a bill eliminating
Section 936 of the Internal Revenue Code. This section has given certain U.S.
corporations operating in Puerto Rico significant tax advantages. These
incentives have helped considerably with Puerto Rico's economic growth,
especially with the development of its manufacturing sector. U.S. firms that
have benefited from these incentives have provided a significant portion of
Puerto Rico's revenues, employment and deposits in local financial
institutions. The section 936 incentives are being phased out over a 10-year
period ending in 2006. It is hoped that this long phase-out period will give
Puerto Rico sufficient time to lessen the potentially negative effects of
section 936's elimination. In the fifth year of this phase-out period,
business continues to show interest in Puerto Rico as manufacturing and
services/commerce continue to represent the largest sector of employment.
Outstanding issues relating to the potential for a transition to statehood
also may have broad implications for Puerto Rico and its financial and credit
position.
GUAM. Guam's economy has been heavily dependent on tourism. It has been
especially dependent on Japanese tourism, which has made Guam vulnerable to
fluctuations in the relationship between the U.S. dollar and the Japanese
yen. The recent Asian economic crisis and Typhoon Paka, which hit Guam in
December 1997, negatively affected both tourism and other economic activities
in Guam and contributed to a decline of 1.8% in gross island product between
1997 and 1998.
In the early to mid-1990s, Guam's financial position deteriorated due to a
series of natural disasters that led to increased spending on top of already
significant budget gaps. As a result, the government introduced a
comprehensive financial plan in June 1995 to help balance the budget and
reduce the general fund deficit by fiscal 1999. For fiscal 1998, however,
Guam incurred a $21 million deficit and ended the year with a negative
unreserved general fund balance of $158.9 million. Another deficit is
expected in 1999.
While Guam's debt burden has been manageable, Guam's ability to maintain
current debt levels may be challenged in the near future. U.S. military
downsizing has reduced the federal presence on the island and also may reduce
federal support for infrastructure projects. At the same time, Guam has faced
increasing pressure to improve its infrastructure to help generate economic
development.
Overall, as of May 18, 2000, S&P's outlook for Guam was negative due to
Guam's continued weak financial position and inability to meet the goals of
the financial plan.
MARIANA ISLANDS. The Mariana Islands became a U.S. territory in 1975. At that
time, the U.S. government agreed to exempt the islands from federal minimum
wage and immigration laws in an effort to help stimulate industry and the
economy. The islands' minimum wage has been more than $2 per hour below the
U.S. level and tens of thousands of workers have emigrated from various Asian
countries to provide cheap labor for the islands' industries. Recently, the
islands' tourism and apparel industries combined to help increase gross
business receipts from $224 million in 1985 to $2.575 billion in 1997. By
sector, the breakdown was garment manufacturing 33%, tourism 23%, retail
trade 18%, services 17% and other 9%. Gross business revenue tax collections
totaled $68.6 million in fiscal year 1998. Also in fiscal year 1998, general
fund revenues totaled $234 million while expenditures totaled $238 million.
The population of all the islands combined was 67,212 at fiscal year end 1996
and average earnings per capita totaled $9,702. At fiscal year end 1995, the
most recent year available, unemployment among eligible labor force
participants stood at 2.3%.
U.S. VIRGIN ISLANDS. The U.S. Virgin Islands has suffered numerous years of
budget imbalances. Since fiscal 1989, the Virgin Islands has incurred budget
deficits in all but four fiscal years. As of June 30, 1999, the accumulated
deficit was close to $341 million. To help finance this deficit, the
government issued a $300 million bond, which allowed it to meet a $13 million
payroll payment and to begin to pay off the backlog of payments to vendors.
The Virgin Islands' large public sector payroll (approximately 32.8% of
employment), relatively small private sector that is dependent on tourism and
related services (21% of employment), and heavy reliance on taxes as a
revenue source (close to 97% of all revenues), together with the effects of
three major hurricanes in the past ten years, have contributed to its
financial problems.
The U.S. Virgin Islands are not experiencing the record economic boom that
the mainland is. In 1999, employment decreased 1.7% following two years of
minimal growth. The unemployment rate for 1999 was 4.8%, which is the lowest
level since 1993. The Virgin Islands are highly dependent on tourism, which
contracted in 1999. While the islands have experienced an increase in hotel
occupancy, the majority of visitors come via cruise ships. The number of
cruise ship passengers decreased 12% in 1999, which resulted in an overall
decline of 8% for the year. A significant reason for the decrease in cruise
ships was due to the damage suffered to the docks from recent hurricanes.
After Hurricane Jose in October 1999, only 39 ships were able to dock in
October compared to 65 in October 1998.
In September 1998, the Department of Interior Office of Inspector General
issued an audit report on the Virgin Islands. It noted that while the Virgin
Islands had made improvements in its financial situation, problems remained
in the areas of overall financial management, expenditure control and revenue
collections. To help improve its financial position, the Virgin Islands has
developed a five-year economic recovery plan. Central to this plan is a
reduction in government spending. In June 1999, the governor implemented a
strict hiring freeze and mandated a 5% reduction in personnel expenditures
each year through fiscal 2004, a 50% reduction in overtime expenses, and
various other cost saving initiatives. In October, the government and the
Department of Interior entered into a Memorandum of Understanding stipulating
that federal grants will be awarded contingent on several financial
performance and accountability standards being met that will demonstrate
improvement in the economic and financial condition of the islands. Since the
plan is new, it is not yet certain whether or to what extent the plan will be
successful in helping the Virgin Islands improve its financial condition.
OFFICERS AND TRUSTEES
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The New York Tax-Free Income Fund (Trust) has a board of trustees. The board
is responsible for the overall management of the Trust, including general
supervision and review of the Fund's investment activities. The board, in
turn, elects the officers of the Trust who are responsible for administering
the Trust's day-to-day operations. The board also monitors the Fund to ensure
no material conflicts exist among share classes. While none is expected, the
board will act appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.
Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in Franklin
Templeton Investments.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 27 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
Assistant to the President of the United States and Secretary of the Cabinet
(1990-1993), General Counsel to the United States Treasury Department
(1989-1990), and Counselor to the Secretary and Assistant Secretary for Public
Affairs and Public Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Investment Advisory Services, Inc.; Vice President,
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.
*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.;
Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in Franklin
Templeton Investments.
Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 47 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until 1987).
Sheila Amoroso (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the
investment companies in Franklin Templeton Investments.
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin Investment Advisory Services, Inc., Franklin/Templeton
Investor Services, Inc. and Franklin Templeton Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments.
Rafael R. Costas, Jr. (35)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the
investment companies in Franklin Templeton Investments.
Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Executive Vice President
and Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Executive Vice President, Franklin Advisers, Inc. and Franklin
Investment Advisory Services, Inc.; Chief Financial Officer, Franklin
Advisory Services, LLC; Chairman and Director, Franklin Templeton Services,
Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be,
of 51 of the investment companies in Franklin Templeton Investments.
David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Associate General Counsel, Franklin Resources, Inc.; President, Chief
Executive Officer and Director, Franklin Select Realty Trust, Property
Resources, Inc., Property Resources Equity Trust, Franklin Real Estate
Management, Inc. and Franklin Properties, Inc.; officer and director of some
of the other subsidiaries of Franklin Resources, Inc.; officer of 52 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Director, Franklin Real Estate Income
Fund and Franklin Advantage Real Estate Income Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells (until 1986), and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in Franklin Templeton Investments.
Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).
Thomas Walsh (38)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the
investment companies in Franklin Templeton Investments.
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The Trust pays noninterested board members $950 per month plus $940 per
meeting attended. Noninterested board members also may serve as directors or
trustees of other funds in Franklin Templeton Investments and may receive
fees from these funds for their services. The fees payable to noninterested
board members by the Trust are subject to reductions resulting from fee caps
limiting the amount of fees payable to board members who serve on other
boards within Franklin Templeton Investments. The following table provides
the total fees paid to noninterested board members by the Trust and by
Franklin Templeton Investments.
NUMBER OF
TOTAL FEES BOARDS IN
TOTAL FEES RECEIVED FROM FRANKLIN
RECEIVED FRANKLIN TEMPLETON
FROM THE TEMPLETON INVESTMENTS
TRUST/1 INVESTMENTS/2 ON WHICH
($) ($) EACH SERVES/3
-----------------------------------------------------------------------
Harris J. Ashton 17,309 363,165 47
S. Joseph Fortunato 16,124 363,238 49
Edith E. Holiday 21,740 237,265 27
Gordon S. Macklin 17,309 363,165 47
1. For the fiscal year ended May 31, 2000.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment
companies in Franklin Templeton Investments. This number does not include the
total number of series or funds within each investment company for which the
board members are responsible. Franklin Templeton Investments currently
includes 52 registered investment companies, with approximately 157 U.S.
based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments for which they serve as director or trustee.
No officer or board member received any other compensation, including pension
or retirement benefits, directly or indirectly from the Fund or other funds
in Franklin Templeton Investments. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to
its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as
is consistent with their individual financial goals. In February 1998, this
policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee
of a Templeton fund in shares of one or more Templeton funds and one-third of
fees received for serving as a director or trustee of a Franklin fund in
shares of one or more Franklin funds until the value of such investments
equals or exceeds five times the annual fees paid such board member.
Investments in the name of family members or entities controlled by a board
member constitute fund holdings of such board member for purposes of this
policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
-------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The Fund's manager is Franklin Advisers, Inc.
The manager is a wholly owned subsidiary of Franklin Resources, Inc.
(Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for the Fund to buy, hold or sell. The manager's
extensive research activities include, as appropriate, traveling to meet with
issuers and to review project sites. The manager also selects the brokers who
execute the Fund's portfolio transactions. The manager provides periodic
reports to the board, which reviews and supervises the manager's investment
activities. To protect the Fund, the manager and its officers, directors and
employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the Fund. Similarly, with respect to
the Fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the Fund or other funds it manages.
The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the Fund or that are currently held by the Fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).
MANAGEMENT FEES The Fund pays the manager a fee equal to a monthly rate of:
o 5/96 of 1% of the value of net assets up to and including $100 million;
and
o 1/24 of 1% of the value of net assets over $100 million and not over
$250 million; and
o 9/240 of 1% of the value of net assets over $250 million and not over
$10 billion; and
o 11/300 of 1% of the value of net assets over $10 billion and not over
$12.5 billion; and
o 7/200 of 1% of the value of net assets over $12.5 billion and not over
$15 billion; and
o 1/30 of 1% of the value of net assets over $15 billion and not over
$17.5 billion; and
o 19/600 of 1% of the value of net assets over $17.5 billion and not over
$20 billion; and
o 3/100 of 1% of the value of net assets in excess of $20 billion.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
Fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended May 31, the Fund paid the following
management fees:
MANAGEMENT FEES PAID ($)
-------------------------------------------
2000 21,061,316
1999 22,815,525
1998 22,245,150
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the Fund. FT Services is wholly owned by
Resources and is an affiliate of the Fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the Fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended May 31, the manager paid FT Services
the following administration fees:
ADMINISTRATION FEES PAID ($)
------------------------------------------
2000 4,054,693
1999 4,325,628
1998 4,231,884
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the Fund's shareholder servicing agent
and acts as the Fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please
send all correspondence to Investor Services to P.O. Box 997151, Sacramento,
CA 95899-9983.
For its services, Investor Services receives a fixed fee per account. The
Fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
Fund. The amount of reimbursements for these services per benefit plan
participant Fund account per year will not exceed the per account fee payable
by the Fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the Fund's securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the Fund's independent auditor. The auditor gives an opinion on the
financial statements included in the Trust's Annual Report to Shareholders
and reviews the Trust's registration statement filed with the SEC.
PORTFOLIO TRANSACTIONS
-------------------------------------------------------------------------------
Since most purchases by the Fund are principal transactions at net prices,
the Fund incurs little or no brokerage costs. The Fund deals directly with
the selling or buying principal or market maker without incurring charges for
the services of a broker on its behalf, unless it is determined that a better
price or execution may be obtained by using the services of a broker.
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 prices. As a general
rule, the Fund does not buy securities in underwritings where it is given no
choice, or only limited choice, in the designation of dealers to receive the
commission. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers in return for
research and statistical information, as well as for special services
provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the Fund's officers are satisfied that the best execution is obtained, the
sale of Fund shares, as well as shares of other funds in Franklin Templeton
Investments, also may be considered a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the Fund.
During the fiscal years ended May 31, 2000, 1999 and 1998, the Fund did not
pay any brokerage commissions.
As of May 31, 2000, the Fund did not own securities of its regular
broker-dealers.
DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------------------
INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund calculates dividends and
capital gains the same way for each class. The amount of any income
dividends per share will differ, however, generally due to the difference in
the distribution and service (Rule 12b-1) fees of each class. Distributions
are subject to approval by the board. The Fund does not pay "interest" or
guarantee any fixed rate of return on an investment in its shares.
The Fund intends to pay a dividend at least monthly, on or about the 15th day
of the month, representing its net investment income. Capital gains, if any,
may be distributed annually. The amount of these distributions will vary and
there is no guarantee the Fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the Fund's distributions will vary. Please keep in mind
that if you invest in the Fund shortly before the record date of a
distribution, any distribution will lower the value of the Fund's shares by
the amount of the distribution. If you invest in the Fund shortly before the
Fund deducts a capital gain distribution from its net asset value, you will
receive some of your investment back in the form of a taxable distribution.
If you would like information on upcoming record dates for the Fund's
distributions, please call 1-800/DIAL BEN(R).
DISTRIBUTIONS OF NET INVESTMENT INCOME The Fund receives income generally in
the form of interest on its investments. This income, less expenses incurred
in the operation of the Fund, constitutes the Fund's net investment income
from which dividends may be paid to you.
By meeting certain requirements of the Internal Revenue Code (the Code), the
Fund has qualified and continues to qualify to pay exempt-interest dividends
to you. These dividends are derived from interest income exempt from regular
federal income tax, and are not subject to regular federal income tax when
they are distributed to you. In addition, to the extent that exempt-interest
dividends are derived from interest on obligations of New York or its
political subdivisions, or from interest on qualifying U.S. territorial
obligations (including qualifying obligations of Puerto Rico, the U.S. Virgin
Islands or Guam), they also may be exempt from New York's personal income
taxes. New York generally does not grant tax-free treatment to interest on
state and municipal securities of other states.
The Fund may earn taxable income from many sources, including on any
temporary investments, the discount from stripped obligations or their
coupons, income from securities loans or other taxable transactions, or
ordinary income derived from the sale of market discount bonds. Any
distributions by the Fund from such income will be taxable to you as ordinary
income, whether you receive them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The Fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the Fund. Any net capital gains realized by the Fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, to reduce or eliminate excise or income taxes on
the Fund.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain distributions from the Fund's sale of securities held for more
than five years may be subject to a reduced tax rate.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The Fund will inform you
of the amount of your ordinary income dividends and capital gain
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year, including the portion of the distributions that on average
comprise taxable income or interest income that is a tax preference item
under the alternative minimum tax. If you have not held Fund shares for a
full year, the Fund may designate and distribute to you, as taxable,
tax-exempt or tax preference income, a percentage of income that is not equal
to the actual amount of such income earned during the period of your
investment in the Fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The Fund has elected
to be treated as a regulated investment company under Subchapter M of the
Code. The Fund has qualified as a regulated investment company for its most
recent fiscal year, and intends to continue to qualify during the current
fiscal year. As a regulated investment company, the Fund generally pays no
federal income tax on the income and gains it distributes to you. The board
reserves the right not to maintain the qualification of the Fund as a
regulated investment company if it determines such course of action to be
beneficial to shareholders. In such case, the Fund will be subject to
federal, and possibly state, corporate taxes on its taxable income and gains,
and distributions to you will be taxed as ordinary dividend income to the
extent of the Fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires the Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during
the twelve month period ending October 31; and 100% of any undistributed
amounts from the prior year. The Fund intends to declare and pay these
distributions in December (or to pay them in January, in which case you must
treat them as received in December) but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your Fund shares, or exchange your Fund
shares for shares of a different Franklin Templeton fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be
subject to a reduced tax rate.
Any loss incurred on the redemption or exchange of shares held for six months
or less will be disallowed to the extent of any exempt-interest dividends
distributed to you with respect to your Fund shares, and any remaining loss
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the Fund on those shares. All or a
portion of any loss that you realize upon the redemption of your Fund shares
will be disallowed to the extent that you buy other shares in the Fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in the Fund, and
then reinvest the sales proceeds in the Fund or in another Franklin Templeton
fund within 90 days of buying the original shares, the sales charge that
would otherwise apply to your reinvestment may be reduced or eliminated. The
IRS will require you to report any gain or loss on the redemption of your
original shares in the Fund. In doing so, all or a portion of the sales
charge that you paid for your original shares in the Fund will be excluded
from your tax basis in the shares sold (for the purpose of determining gain
or loss upon the sale of such shares). The portion of the sales charge
excluded will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis in
the shares sold will be added to the tax basis of the shares you acquire from
your reinvestment.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the Fund's income is
derived primarily from interest rather than dividends, none of its
distributions will be eligible for the corporate dividends-received
deduction.
INVESTMENT IN COMPLEX SECURITIES The Fund may invest in complex securities,
including zero coupon and step-up bonds. These investments may be subject to
special tax rules that could accelerate the recognition of income to the Fund
(possibly causing the Fund to sell securities to raise the cash for necessary
distributions). These rules may affect the amount, timing or character of the
income distributed to you by the Fund.
TREATMENT OF PRIVATE ACTIVITY BOND INTEREST Interest on certain private
activity bonds, while exempt from regular federal income tax, is a preference
item for taxpayers when determining their alternative minimum tax under the
Code and under the income tax provisions of several states. Private activity
bond interest could subject you to or increase your liability under federal
and state alternative minimum taxes, depending on your individual or
corporate tax position. Persons who are defined in the Code as substantial
users (or persons related to such users) of facilities financed by private
activity bonds should consult with their tax advisors before buying fund
shares.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
-------------------------------------------------------------------------------
The Fund is a series of the Trust, an open-end management investment company,
commonly called a mutual fund. The Fund was organized as a New York
corporation, on May 14, 1982, reorganized as a Delaware business trust in its
present form on May 1, 1997, and is registered with the SEC.
The Fund currently offers three classes of shares, Class A, Class B and Class
C. The Fund began offering Class B shares on January 1, 1999. The Fund may
offer additional classes of shares in the future. The full title of each
class is:
o Franklin New York Tax-Free Income Fund - Class A
o Franklin New York Tax-Free Income Fund - Class B
o Franklin New York Tax-Free Income Fund - Class C
Shares of each class represent proportionate interests in the Fund's assets.
On matters that affect the Fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law.
The Trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a board member. A special meeting also may be called by the board in its
discretion.
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 outstanding shares of any class.
As of September 1, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in Franklin Templeton
Investments.
BUYING AND SELLING SHARES
-------------------------------------------------------------------------------
The Fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the Fund. This reference is for convenience only and
does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the Fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the Fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the Fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 4.25% for Class A
and 1% for Class C. There is no initial sales charge for Class B.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in Franklin Templeton funds to take advantage of the
lower sales charges for large purchases. Franklin Templeton funds include the
U.S. registered mutual funds in Franklin Templeton Investments except
Franklin Templeton Variable Insurance Products Trust and Templeton Capital
Accumulator Fund, Inc.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in
Franklin Templeton funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may add any company accounts, including
retirement plan accounts.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge
by completing the letter of intent section of your account application. A
letter of intent is a commitment by you to invest a specified dollar amount
during a 13 month period. The amount you agree to invest determines the sales
charge you pay. By completing the letter of intent section of the
application, you acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares
you own, and we will pay or reinvest dividend and capital gain
distributions on the reserved shares according to the distribution option
you have chosen.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with the Fund, you may buy Class A shares at the
sales charge applicable to the amount specified in your LOI. Sales charge
reductions based on purchases in more than one Franklin Templeton fund will
be effective only after notification to Distributors that the investment
qualifies for a discount. Any Class A purchases you made within 90 days
before you filed your LOI also may qualify for a retroactive reduction in the
sales charge. If you file your LOI with the Fund before a change in the
Fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.
Your holdings in Franklin Templeton funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but
they will not be entitled to a retroactive reduction in the sales charge. Any
redemptions you make during the 13 month period will be subtracted from the
amount of the purchases for purposes of determining whether the terms of the
LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.
If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, the
reserved shares held for your account will be deposited to an account in your
name or delivered to you or as you direct. If within 20 days after written
request the difference in sales charge is not paid, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class
A shares at a reduced sales charge that applies to the group as a whole. The
sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be
purchased without an initial sales charge or contingent deferred sales charge
(CDSC) by investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton
fund. The distributions generally must be reinvested in the same share
class. Certain exceptions apply, however, to Class C shareholders who chose
to reinvest their distributions in Class A shares of the Fund before
November 17, 1997, and to Advisor Class or Class Z shareholders of a
Franklin Templeton fund who may reinvest their distributions in the Fund's
Class A shares. This waiver category also applies to Class B and C shares.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option
the Franklin Templeton Variable Insurance Products Trust. You should
contact your tax advisor for information on any tax consequences that may
apply.
o Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD or
a Franklin Templeton money fund, you may reinvest them as described above.
The proceeds must be reinvested within 365 days from the date the CD
matures, including any rollover, or the date you redeem your money fund
shares.
o Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of Fund shares
and the CDSC holding period will begin again. We will, however, credit your
Fund account with additional shares based on the CDSC you previously paid
and the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions due
to anticipated economies in sales efforts and expenses, including:
o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which
the trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following the order.
o Any state or local government or any instrumentality, department,
authority or agency thereof that has determined the Fund is a legally
permissible investment and that can only buy Fund shares without paying
sales charges. Please consult your legal and investment advisors to
determine if an investment in the Fund is permissible and suitable for you
and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their investment
accounts only
o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
o Officers, trustees, directors and full-time employees of Franklin
Templeton Investments, and their family members, consistent with our
then-current policies
o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by Franklin Templeton Investments
o Certain unit investment trusts and their holders reinvesting
distributions from the trusts
In addition, Class C shares may be purchased without an initial sales charge
by any investor who buys Class C shares through an omnibus account with
Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the
shares are sold within 18 months of purchase.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the Fund's shares are available to these banks' trust accounts without
a sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
The Fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $100,000 2.0
$100,000 but less than $400,000 1.0
$400,000 or more 0
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may
be deemed an underwriter under the Securities Act of 1933, as amended.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the Fund's prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 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.
These breakpoints are reset every 12 months for purposes of additional
purchases.
In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of Franklin
Templeton Investments. This support is based primarily on the amount of sales
of fund shares and/or total assets with Franklin Templeton Investments. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing
efforts in Franklin Templeton Investments; a securities dealer's support of,
and participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to Franklin Templeton
Investments . Financial support to securities dealers may be made by payments
from Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from
payments to Distributors under such plans. In addition, certain securities
dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the rules of the National Association of
Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in Franklin
Templeton funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity
discount or letter of intent programs, a CDSC may apply on any shares you
sell within 12 months of purchase. For Class C shares, a CDSC may apply if
you sell your shares within 18 months of purchase. The CDSC is 1% of the
value of the shares sold or the net asset value at the time of purchase,
whichever is less.
For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.
IF YOU SELL YOUR CLASS B
SHARES WITHIN THIS MANY YEARS THIS % IS DEDUCTED
AFTER BUYING THEM FROM YOUR PROCEEDS
AS A CDSC
------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
CDSC WAIVERS. The CDSC for any share class generally will be waived for:
o Account fees
o Redemptions of Class A shares by investors who purchased $1 million or
more without an initial sales charge if the securities dealer of record
waived its commission in connection with the purchase
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's net asset value depending on the frequency of
your plan
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is the Fund's general policy to initially invest this money in
short-term, tax-exempt municipal securities, unless it is believed that
attractive investment opportunities consistent with the Fund's investment
goal exist immediately. This money will then be withdrawn from the
short-term, tax-exempt municipal securities and invested in portfolio
securities in as orderly a manner as is possible when attractive investment
opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of Fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. There are no service charges for establishing or maintaining a
systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
Fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The Fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
REDEMPTIONS IN KIND The Fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the Fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the Fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the Fund. In these circumstances, the securities
distributed would be valued at the price used to compute the Fund's net
assets and you may incur brokerage fees in converting the securities to cash.
The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
SHARE CERTIFICATES We will credit your shares to your Fund account. We do
not issue share certificates unless you specifically request them. This
eliminates the costly problem of replacing lost, stolen or destroyed
certificates. If a certificate is lost, stolen or destroyed, you may have to
pay an insurance premium of up to 2% of the value of the certificate to
replace it.
Any outstanding share certificates must be returned to the Fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the Fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The Fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the Fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the Fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the Fund at a later date. These sub-accounts may be
registered either by name or number. The Fund's investment minimums apply to
each sub-account. The Fund will send confirmation and account statements for
the sub-accounts to the institution.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the Fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the Fund in a timely fashion. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the Fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling Fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the Fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
-------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.
The Fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the Fund values cash and receivables at their
realizable amounts, and records interest as accrued. The Fund values
over-the-counter portfolio securities within the range of the most recent
quoted bid and ask prices. If portfolio securities trade both in the
over-the-counter market and on a stock exchange, the Fund values them
according to the broadest and most representative market as determined by the
manager. Municipal securities generally trade in the over-the-counter market
rather than on a securities exchange. In the absence of a sale or reported
bid and ask prices, information with respect to bond and note transactions,
quotations from bond dealers, market transactions in comparable securities,
and various relationships between securities are used to determine the value
of municipal securities.
Generally, trading in U.S. government securities and money market instruments
is substantially completed each day at various times before the close of the
NYSE. The value of these securities used in computing the NAV is determined
as of such times. Occasionally, events affecting the values of these
securities may occur between the times at which they are determined and the
close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during
this period, the securities will be valued at their fair value as determined
in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, the Fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
-------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the Fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the Fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances
to dealers, and the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended
May 31:
AMOUNT RECEIVED IN
CONNECTION WITH
TOTAL AMOUNT RETAINED BY REDEMPTIONS AND
COMMISSIONS DISTRIBUTORS ($) REPURCHASES ($)
RECEIVED ($)
--------------------------------------------------------------------
2000 4,578,728 296,196 196,589
1999 8,455,439 533,482 139,155
1998 8,118,501 513,903 16,090
Distributors may be entitled to payments from the Fund under the Rule 12b-1
plans, as discussed below. Except as noted, Distributors received no other
compensation from the Fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Fund and its
shareholders. The plans are expected to, among other things, increase
advertising of the Fund, encourage sales of the Fund and service to its
shareholders, and increase or maintain assets of the Fund so that certain
fixed expenses may be spread over a broader asset base, resulting in lower
per share expense ratios. In addition, a positive cash flow into the Fund is
useful in managing the Fund because the manager has more flexibility in
taking advantage of new investment opportunities and handling shareholder
redemptions.
Under each plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others
who have executed a servicing agreement with the Fund, Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for
sales purposes, and of preparing and distributing sales literature and
advertisements; and a prorated portion of Distributors' overhead expenses
related to these activities. Together, these expenses, including the service
fees, are "eligible expenses." The 12b-1 fees charged to each class are based
only on the fees attributable to that particular class.
THE CLASS A PLAN. The Fund may pay up to 0.10% per year of Class A's average
daily net assets. The Class A plan is a reimbursement plan. It allows the
Fund to reimburse Distributors for eligible expenses that Distributors has
shown it has incurred. The Fund will not reimburse more than the maximum
amount allowed under the plan.
For the fiscal year ended May 31, 2000, the amounts paid by the Fund pursuant
to the plan were:
($)
----------------------------------------------
Advertising 120,583
Printing and mailing 72,879
prospectuses
other than to current
shareholders
Payments to underwriters 33,273
Payments to broker-dealers 3,105,570
Other 227,527
------------
Total 3,559,832
============
THE CLASS B AND C PLANS. The Fund pays Distributors up to 0.65% per year of
the class's average daily net assets, out of which 0.15% may be paid for
services to the shareholders (service fees). The Class B and C plans also may
be used to pay Distributors for advancing commissions to securities dealers
with respect to the initial sale of Class B and C shares. Class B plan fees
payable to Distributors are used by Distributors to pay third party financing
entities that have provided financing to Distributors in connection with
advancing commissions to securities dealers. Franklin Resources owns a
minority interest in one of the third party financing entities.
The Class B and C plans are compensation plans. They allow the Fund to pay a
fee to Distributors that may be more than the eligible expenses Distributors
has incurred at the time of the payment. Distributors must, however,
demonstrate to the board that it has spent or has near-term plans to spend
the amount received on eligible expenses. The Fund will not pay more than the
maximum amount allowed under the plans.
Under the Class B plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended May 31, 2000, were:
($)
----------------------------------------------
Advertising 3,088
Printing and mailing 288
prospectuses
other than to current
shareholders
Payments to underwriters 2,698
Payments to broker-dealers 180,805
Other 4,758
------------
Total 191,637
============
Under the Class C plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended May 31, 2000, were:
($)
----------------------------------------------
Advertising 16,696
Printing and mailing 5,115
prospectuses
other than to current
shareholders
Payments to underwriters 8,576
Payments to broker-dealers 799,905
Other 24,837
------------
Total 855,129
============
THE CLASS A , B AND C PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, the manager or Distributors or other parties on behalf of
the Fund, the manager or Distributors make payments that are deemed to be for
the financing of any activity primarily intended to result in the sale of
Fund shares within the context of Rule 12b-1 under the Investment Company Act
of 1940, as amended, then such payments shall be deemed to have been made
pursuant to the plan.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks may not participate in the plans because of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banks, however, are allowed to receive fees under the plans for
administrative servicing or for agency transactions.
Distributors must provide written reports to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board
may reasonably request to enable it to make an informed determination of
whether the plans should be continued.
Each plan has been approved according to the provisions of Rule 12b-1. The
terms and provisions of each plan also are consistent with Rule 12b-1.
PERFORMANCE
-------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return and current yield quotations used by the
Fund are based on the standardized methods of computing performance mandated
by the SEC. Performance figures reflect Rule 12b-1 fees from the date of the
plan's implementation. An explanation of these and other methods used by the
Fund to compute or express performance follows. Regardless of the method
used, past performance does not guarantee future results, and is an
indication of the return to shareholders only for the limited historical
period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum initial sales charge is
deducted from the initial $1,000 purchase, and income dividends and capital
gain distributions are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum initial sales charge currently in effect.
When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge
reflected in each quotation is a one time fee charged on all direct
purchases, which will have its greatest impact during the early stages of
your investment. This charge will affect actual performance less the longer
you retain your investment in the Fund. The average annual total returns for
the indicated periods ended May 31, 2000, were:
1 YEAR (%) 5 YEARS 10 YEARS
(%) (%) (%)
------------------------------------------------------------------
Class A -5.45 4.05 6.37
SINCE
1 YEAR INCEPTION
(%) (1/1/99) (%)
------------------------------------------------------------------
Class B -5.52 -3.46
SINCE
1 YEAR 5 YEARS INCEPTION
($) ($) (5/1/95) (%)
------------------------------------------------------------------
Class C -3.70 4.17 4.61
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end of
each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the end
of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over the periods indicated
above. The cumulative total returns for the indicated periods ended May 31,
2000, were:
1 YEAR 5 YEARS 10 YEARS
(%) (%) (%)
---------------------------------------------------------------
Class A -5.45 21.95 85.52
SINCE
1 YEAR INCEPTION
(%) (1/1/99) (%)
---------------------------------------------------------------
Class B -5.52 -4.86
SINCE
1 YEAR 5 YEARS INCEPTION
(%) (%) (5/1/95) (%)
---------------------------------------------------------------
Class C -3.70 22.66 25.77
CURRENT YIELD Current yield shows the income per share earned by the Fund.
It is calculated by dividing the net investment income per share earned
during a 30-day base period by the applicable maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders of the
class during the base period. The yields for the 30-day period ended May 31,
2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
---------------------------------------
5.00 4.68 4.64
The following SEC formula was used to calculate these figures:
6
Yield = 2 [(a-b + 1) - 1]
---
cd
where:
a = 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
TAXABLE-EQUIVALENT YIELD The Fund also may quote a taxable-equivalent
yield that shows the before-tax yield that would have to be earned from a
taxable investment to equal the yield. Taxable-equivalent yield is
computed by dividing the portion of the yield that is tax-exempt by one
minus the highest applicable combined federal, state and city income tax
rate and adding the product to the portion of the yield that is not
tax-exempt, if any. The taxable-equivalent yields for the 30-day period
ended May 31, 2000, were:
CLASS A (%) CLASS B CLASS C
(%) (%) (%)
---------------------------------------
9.26 8.67 8.60
As of June 16, 2000, the combined federal, state and city income tax rate
upon which the taxable-equivalent yield quotations were based was 46.02%.
From time to time, as any changes to the rate become effective,
taxable-equivalent yield quotations advertised by the Fund will be updated
to reflect these changes. The Fund expects updates may be necessary as tax
rates are changed by federal, state and city governments. The advantage of
tax-free investments, like the Fund, will be enhanced by any tax rate
increases. Therefore, the details of specific tax increases may be used in
sales material for the Fund.
CURRENT DISTRIBUTION RATE Current yield and taxable-equivalent yield, which
are calculated according to a formula prescribed by the SEC, are not
indicative of the amounts that were or will be paid to shareholders. Amounts
paid to shareholders are reflected in the quoted current distribution rate or
taxable-equivalent 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 interest, if any, and is calculated over a different period of
time. The current distribution rates for the 30-day period ended May 31,
2000, were:
CLASS A CLASS B CLASS C
(%) (%) (%)
---------------------------------------
5.45 5.15 5.07
A taxable-equivalent distribution rate shows the taxable distribution rate
equivalent to the current distribution rate. The advertised
taxable-equivalent distribution rate will reflect the most current federal,
state and city tax rates available to the Fund. The taxable-equivalent
distribution rates for the 30-day period ended May 31, 2000, were:
CLASS A (%) CLASS B (%) CLASS C (%)
---------------------------------------
10.10 9.54 9.39
VOLATILITY Occasionally statistics may be used to show the Fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
Fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS The Fund also may quote the performance of
shares without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.
The Fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
Franklin Templeton Investments. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of Franklin Templeton funds.
COMPARISONS To help you better evaluate how an investment in the Fund may
satisfy your investment goal, advertisements and other materials about the
Fund may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o Salomon Smith Barney Broad Bond Index or its component indices -
measures yield, price and total return for Treasury, agency, corporate
and mortgage bonds.
o Lehman Brothers Aggregate Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate, mortgage
and Yankee bonds.
o Lehman Brothers Municipal Bond Index or its component indices - measures
yield, price and total return for the municipal bond market.
o Bond Buyer 20 Index - an index of municipal bond yields based upon
yields of 20 general obligation bonds maturing in 20 years.
o Bond Buyer 40 Index - an index composed of the yield to maturity of 40
bonds. The index attempts to track the new-issue market as closely as
possible, so it changes bonds twice a month, adding all new bonds that
meet certain requirements and deleting an equivalent number according
to their secondary market trading activity. As a result, the average
par call date, average maturity date, and average coupon rate can and
have changed over time. The average maturity generally has been about
29-30 years.
o Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK,
FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines - provide
performance statistics over specified time periods.
o Salomon Smith Barney Composite High Yield Index or its component indices
- measures yield, price and total return for the Long-Term High-Yield
Index, Intermediate-Term High-Yield Index and Long-Term Utility
High-Yield Index.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R) companies, Salomon Smith Barney Inc.,
Merrill Lynch, Lehman Brothers(R) and Bloomberg(R) L.P
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
o Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield
for the mutual fund industry and rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
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 sales material issued by the Fund also may discuss or be
based upon information in a recent issue of the Special Report on Tax Freedom
Day published by the Tax Foundation, a Washington, D.C. based nonprofit
research and public education organization. The report illustrates, among
other things, the annual amount of time the average taxpayer works to satisfy
his or her tax obligations to the federal, state and local taxing authorities.
Advertisements or information also may compare the Fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the Fund to calculate its figures. In
addition, there can be no assurance that the Fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
-------------------------------------------------------------------------------
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by
the College Board.) The Franklin Retirement Planning Guide leads you through
the steps to start a retirement savings program. Of course, an investment in
the Fund cannot guarantee that these goals will be met.
The Fund is a member of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest
mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together,
Franklin Templeton Investments has over $229 billion in assets under
management for more than 5 million U.S. based mutual fund shareholder and
other accounts. Franklin Templeton Investments offers 108 U.S. based open-end
investment companies to the public. The Fund may identify itself by its
Nasdaq symbol or CUSIP number.
Franklin is a leader in the tax-free mutual fund industry and manages more
than $44 billion in municipal security assets for over three quarters of a
million investors.
Under current tax laws, municipal securities remain one of the few
investments offering the potential for tax-free income. In 2000, taxes could
cost almost $47 on every $100 earned from a fully taxable investment (based
on the maximum combined 39.6% federal tax rate and the highest state tax rate
of 12% for 2000). Franklin tax-free funds, however, offer tax relief through
a professionally managed portfolio of tax-free securities selected based on
their yield, quality and maturity. An investment in a Franklin tax-free fund
can provide you with the potential to earn income free of federal taxes and,
depending on the fund, state and local taxes as well, while supporting state
and local public projects. Franklin tax-free funds also may provide tax-free
compounding, when dividends are reinvested. An investment in Franklin's
tax-free funds can grow more rapidly than similar taxable investments.
Municipal securities are generally considered to be creditworthy, second in
quality only to securities issued or guaranteed by the U.S. government and
its agencies. The market price of municipal securities, however, may
fluctuate. This fluctuation will have a direct impact on the net asset value
of the Fund's shares.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the Fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
DESCRIPTION OF RATINGS
-------------------------------------------------------------------------------
MUNICIPAL BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
Aaa: Municipal 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: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present that make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and
are considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Municipal bonds rated Baa are considered medium-grade obligations. They
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. These bonds lack outstanding investment characteristics
and, in fact, have speculative characteristics as well.
BELOW INVESTMENT GRADE
Ba: Municipal 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 may be very moderate and,
thereby, not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Municipal 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: Municipal bonds rated Caa are of poor standing. These issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Municipal bonds rated Ca represent obligations that are speculative to a
high degree. These issues are often in default or have other marked
shortcomings.
C: Municipal bonds rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Con.(-): Municipal bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals that
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon the completion of construction or the elimination of the basis
of the condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa in its municipal bond ratings. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
INVESTMENT GRADE
AAA: Municipal bonds rated AAA are the highest-grade obligations. They
possess the ultimate degree of protection as to principal and interest. In
the market, they move with interest rates and, hence, provide the maximum
safety on all counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in
the majority of instances differ from AAA issues only in a small degree.
Here, too, prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse
effects of changes in economic and trade conditions. Interest and principal
are regarded as safe. They predominantly reflect money rates in their market
behavior but also, to some extent, economic conditions.
BBB: Municipal bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BELOW INVESTMENT GRADE
BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the highest
degree of speculation. While these bonds will likely have some quality and
protective characteristics, they are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C: This rating is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FITCH INVESTORS SERVICE, INC. (FITCH)
INVESTMENT GRADE
AAA: Municipal bonds rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal that is unlikely to be affected by
reasonably foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong although not quite as strong as bonds rated AAA and
not significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BELOW INVESTMENT GRADE
BB: Municipal bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over time by
adverse economic changes. Business and financial alternatives can be
identified, however, that could assist the obligor in satisfying its debt
service requirements.
B: Municipal bonds rated B are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the probability
of continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Municipal bonds rated CCC have certain identifiable characteristics
which, if not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC: Municipal bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C: Municipal bonds rated C are in imminent default in the payment of interest
or principal.
DDD, DD and D: Municipal bonds rated DDD, DD and D are in default on interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery while D represents the lowest potential for recovery.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus signs
are not used with the AAA, DDD, DD or D categories.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade (MIG). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as
follows:
MIG 1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or
less, the ratings below will usually be assigned. Notes maturing beyond three
years will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity
to pay principal and interest. Issues determined to possess overwhelming
safety characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings, which are also applicable to municipal paper investments, are
opinions of the ability of issuers to repay punctually their promissory
obligations not having an original maturity in excess of nine months. Moody's
employs the following designations for both short-term debt and commercial
paper, all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes. The short-term rating places greater emphasis than a
long-term rating on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
FRANKLIN NEW YORK TAX-FREE INCOME FUND
FILE NOS. 2-77880
811-3479
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS. The following exhibits are incorporated by reference to
the previously filed document indicated below, except as noted:
(a) Agreement and Declaration of Trust
(i) Agreement and Declaration of Trust dated July 15, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: February 28, 1997
(ii) Certificate of Trust dated July 29, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: February 28, 1997
(iii) Agreement and Plan of Reorganization dated July 30, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 20, 1998
(b) By-laws
(i) By-Laws
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: February 28, 1997
(c) Instruments Defining Rights of Security Holders
Not Applicable
(d) Investment Advisory Contracts
(i) Management Agreement between Registrant and Franklin
Advisers, Inc., dated October 1, 1998
(e) Underwriting Contracts
(i) Amended and Restated Distribution Agreement between
Registrant and Franklin/Templeton Distributors, Inc., dated
May 1, 1997
Filing: Post-Effective Amendment No. 20 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: September 22, 1997
(ii) Amendment of Amended and Restated Distribution Agreement
between Registrant and Franklin/Templeton Distributors, Inc.,
dated January 12, 1999
Filing: Post-Effective Amendment No. 23 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 26, 1999
(iii) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers dated March 1, 1998
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: December 23, 1998
(f) Bonus or Profit Sharing Contracts
Not Applicable
(g) Custodian Agreements
(i) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: September 26, 1996
(ii) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: September 26, 1996
(iii) Amendment dated May 7, 1997, to Master Custody Agreement
between Registrant and Bank of New York dated February 16,
1996
Filing: Post-Effective Amendment No. 23 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 26, 1999
(iv) Amendment dated February 27, 1998, to Master Custody Agreement
between Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 20, 1998
(v) Amendment dated August 30, 2000 to Exhibit A of the Master
Custody Agreement between Registrant and the Bank of New York
dated February 16, 1996
(h) Other Material Contracts
(i) Subcontract for Fund Administrative Services between Franklin
Advisers, Inc. and Franklin Templeton Services, Inc. dated
October 1, 1996 and amendment thereto dated December 1, 1998
Filing: Post-Effective Amendment No. 23 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 26, 1999
(i) Legal Opinion
(i) Opinion and consent of counsel dated July 14, 1998
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 20, 1998
(j) Other Opinions
(i) Consent of Independent Auditors
(k) Omitted Financial Statements
Not Applicable
(l) Initial Capital Agreements
(i) Letter of Understanding dated April 12, 1995
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 31, 1995
(m) Rule 12b-1 Plan
(i) Class A Distribution Plan pursuant to Rule 12b-1 between
Franklin/Templeton Distributors, Inc., and the Registrant on
behalf of Franklin New York Tax-Free Income Fund dated May 1,
1997
Filing: Post-Effective Amendment No. 20 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: September 22, 1997
(ii) Class C Distribution Plan pursuant to Rule 12b-1 between
Franklin/Templeton Distributors, Inc., and the Registrant on
behalf of Franklin New York Tax-Free Income Fund dated May 1,
1997
Filing: Post-Effective Amendment No. 20 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: September 22, 1997
(iii) Class B Distribution Plan pursuant to Rule 12b-1 dated October
16, 1998
Filing: Post-Effective Amendment No. 23 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 26, 1999
(n) Rule 18f-3 Plan
(i) Multiple Class Plan dated March 19, 1998
Filing: Post-Effective Amendment No. 23 to Registration
Statement on Form N-1A
File No. 2-77880
Filing Date: July 26, 1999
(p) Code of Ethics
(i) Code of Ethics
(q) Power of Attorney
(i) Power of Attorney dated May 16, 2000
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None
ITEM 25. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a Court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Please see the Declaration of Trust, By-Laws, Management Agreement and
Distribution Agreements previously filed as exhibits and incorporated herein
by reference.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The officers and directors of the Registrant's manager also serve as officers
and/or trustees for (1) Franklin Advisers, Inc.'s (Advisers) corporate
parent, Franklin Resources, Inc., and/or (2) other investment companies in
the Franklin Templeton Investments. In addition, Mr. Charles B. Johnson was
formerly a director of General Host Corporation. For additional information
please see Part B and Schedules A and D of Form ADV of Advisers (SEC File
801-26292), incorporated herein by reference, which sets forth the officers
and directors of Advisers and information as to any business, profession,
vocation or employment of a substantial nature engaged in by those officers
and directors during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., (Distributors) also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Master Trust
Franklin Floating Rate Trust
Franklin Gold and Precious Metals Fund
Franklin Growth and Income Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Franklin Templeton Variable Insurance Products Trust
Institutional Fiduciary Trust
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 are kept by the 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 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 30. UNDERTAKINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of
California, on the 27th day of September, 2000.
FRANKLIN NEW YORK TAX-FREE INCOME FUND
(Registrant)
By: /S/ DAVID P. GOSS
David P. Goss
Vice 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:
CHARLES B. JOHNSON* Principal Executive Officer
Charles B. Johnson and Trustee
Dated: September 27, 2000
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: September 27, 2000
KIMBERLEY H. MONASTERIO* Principal Accounting Officer
Kimberley H. Monasterio Dated: September 27, 2000
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: September 27, 2000
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: September 27, 2000
EDITH E. HOLIDAY* Trustee
Edith E. Holiday Dated: September 27, 2000
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: September 27, 2000
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: September 27, 2000
*By /s/ David P. Goss, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN NEW YORK TAX-FREE INCOME FUND
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
*
EX-99.(a)(i) Agreement and Declaration of Trust
dated July 15, 1996
EX-99.(a)(ii) Certificate of Trust dated July 29, *
1996
EX-99.(a)(iii) Agreement and Plan of Reorganization *
dated July 30, 1996
EX-99.(b)(i) By-Laws *
EX-99.(d)(i) Management Agreement between Attached
Registrant and Franklin Advisers,
Inc., dated October 1, 1998
EX-99.(e)(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors,
Inc., dated May 1, 1997
EX-99.(e)(ii) Amendment of Amended and Restated *
Distribution Agreement between
Registrant and Franklin/Templeton
Distributors, Inc. dated January 12,
1999
EX-99.(e)(iii) Forms of Dealer Agreements between *
Franklin/Templeton Distributors,
Inc. and Securities Dealers dated
March 1, 1998
EX-99.(g)(i) Master Custody Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(g)(ii) Terminal Link Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(g)(iii) Amendment dated May 7, 1997, to the
Master Custody Agreement between
Registrant and Bank of New York
dated February 16, 1996
EX-99.(g)(iv) Amendment dated February 27, 1998, *
to the Master Custody Agreement
between Registrant and Bank of New
York dated February 16, 1996
EX-99.(g)(iv) Amendment dated August 30, 2000 to Attached
Exhibit A of the Master Custody
Agreement between Registrant and the
Bank of New York dated February 16,
1996
EX-99.(h)(i) Subcontract for Fund Administrative *
Services between Franklin Advisers,
Inc. and Franklin Templeton
Services, Inc. dated October 1, 1996
and amendment thereto dated December
1, 1998
EX-99.(i)(i) Opinion and consent of counsel *
EX-99.(j)(i) Consent of Independent Auditors Attached
EX-99.(l)(i) Letter of Understanding dated April *
12, 1995
EX-99.(m)(i) Class A Distribution Plan pursuant *
to Rule 12b-1 dated May 1, 1997
EX-99.(m)(ii) Class C Distribution Plan pursuant *
to Rule 12b-1 dated May 1, 1997
EX-99.(m)(iii) Class B Distribution Plan pursuant *
to Rule 12b-1 dated October 16, 1998
EX-99.(n)(i) Multiple Class Plan dated March 19, *
1998
EX-99.(p)(i) Code of Ethics Attached
EX-99.(q)(i) Power of Attorney dated May 16, 2000 Attached
* Incorporated by Reference
