As filed with the Securities and Exchange Commission on October 29, 1998
File Nos.
2-96634
811-4267
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. 28 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 (X)
INSTITUTIONAL FIDUCIARY TRUST
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404 (Address of
Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (650) 312-2000
HARMON E. BURNS 777 MARINERS ISLAND BLVD. SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on November 1, 1998 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
Adjustable Rate Securities Portfolios (the Master Fund) has executed this
registration statement.
Title of Securities Being Registered:
Shares of Beneficial Interest of:
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin U.S. Treasury Money Market Portfolio
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"
Information
4. General Description "How Is the Trust Organized?";
of Registrant "How Does the Fund Invest Its
Assets?"
5. Management of the Fund "Who Administers the Fund?"
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects the Fund and Its
Shareholders"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements"; "Services
to Help You Manage Your
Account"; "Who Administers the
Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "How Do I Sell Shares?"; "May I
Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"
Information
4. General Description "How Is the Trust Organized?";
of Registrant "How Do the Funds Invest Their
Assets?"; "What Are the Risks of
Investing in the Funds?"
5. Management of the Fund "Who Administers the Funds?"
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Funds?"; "How Taxation
Affects the Funds and Their
Shareholders"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements"; "Services
to Help You Manage Your
Account"; "Who Administers the
Funds?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "How Do I Sell Shares?"; "May I
Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin U.S. Government Agency Money Market Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"
Information
4. General Description "How Is the Trust Organized?";
of Registrant "How Does the Fund Invest Its
Assets?"; "What Are the Risks of
Investing in the Fund?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects the Fund and Its
Shareholders"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements"; "Services
to Help You Manage Your
Account"; "Who Manages the Fund?";
"Useful Terms and Definitions"
8. Redemption or Repurchase "How Do I Sell Shares?"; "May I
Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin U.S. Treasury Money Market Portfolio
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents "Table of Contents"
12. General Information and Not Applicable
History
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Management and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Portfolio Buy
Securities for Its Portfolio?"
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "How Does the Fund Measure
Data Performance?"
23. Financial Statements "Financial Statements"
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents "Table of Contents"
12. General Information and Not Applicable
History
13. Investment Objectives and "How Do the Funds Invest Their
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Funds'
Underwriter"
17. Brokerage Allocation "How Do the Portfolios Buy
Securities for Their Portfolio?"
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Funds' Underwriter"
22. Calculation of Performance "How Do the Funds Measure
Data Performance?"
23. Financial Statements "Financial Statements"
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin U.S. Government Agency Money Market Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents "Table of Contents"
12. General Information and Not Applicable
History
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Fund Buy Securities
for Its Portfolio?"
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "How Does the Fund Measure
Data Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS
INSTITUTIONAL FIDUCIARY TRUST
Franklin U.S. Treasury Money Market Portfolio
NOVEMBER 1, 1998
INVESTMENT STRATEGY INCOME
Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how the fund invests and the
services available to shareholders.
To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated November 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus. For a free copy of the
SAI or a larger print version of this prospectus, contact your investment
representative or call 1-800/321-8563.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE $1 SHARE PRICE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, 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.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
INSTITUTIONAL FIDUCIARY TRUST
November 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary..........................................3
Financial Highlights.....................................3
How Does the Fund Invest Its Assets?.....................4
Who Manages the Fund?....................................6
How Taxation Affects the Fund and Its Shareholders.......7
How Is the Trust Organized?..............................9
ABOUT YOUR ACCOUNT
How Do I Buy Shares?.....................................10
May I Exchange Shares for Shares of Another Fund?........12
How Do I Sell Shares?....................................15
What Distributions Might I Receive From the Fund?........17
Transaction Procedures and Special Requirements..........17
Services to Help You Manage Your Account.................21
What If I Have Questions About My Account?...............22
GLOSSARY
Useful Terms and Definitions.............................
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/321-8563
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
fund. It is based on the fund's historical expenses for the fiscal year ended
June 30, 1998. The fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Exchange Fee (per transaction) None*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.25%**
Rule 12b-1 Fees 0.00%***
Other Expenses 0.10%
-------
Total Fund Operating Expenses 0.35%**
=======
C. EXAMPLE
Assume the fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$4 $11 $20 $44
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The fund pays its operating expenses. The effects of these expenses are
reflected in its Net Asset Value or dividends and are not directly charged
to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*There is a $5.00 fee for exchanges by Market Timers.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.10% and total operating
expenses were 0.20%.
***These fees may not exceed 0.15%. The fund has not been required to make
payments for Rule 12b-1 plan expenses.
FINANCIAL HIGHLIGHTS
This table summarizes the fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the fund's independent auditor. The audit
report covering each of the most recent five years appears in the Trust's Annual
Report to Shareholders for the fiscal year ended June 30, 1998. The Annual
Report to Shareholders also includes more information about the fund's
performance. For a free copy, please call 1-800/321-8563.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992+
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------
Income from investment operations-
net investment income .050 .050 .052 .051 .032 .031 .035
Less distributions from
net investment income (.050) (.050) (.052) (.051) (.032) (.031) (.035)
---------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===============================================================
Total return** 5.13% 5.09% 5.29% 5.17% 3.23% 3.14% 3.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $66,745 $68,815 $123,157 $200,935 $195,135 $179,232 $194,223
Ratios to average net assets:
Expenses .20% .20% .19% .10% .05% .05% .02%*
Expenses excluding waiver and payments
by affiliate .35% .33% .30% .30% .30% .35% .31%
Net investment income 5.00% 4.97% 5.20% 5.05% 3.17% 3.12% 4.38%*
</TABLE>
*Annualized
**Total return is not annualized.
+For the period August 2, 1991 (effective date) to June 30, 1992.
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to obtain as high a level of current income
(in the context of the type of investments available to the fund) as is
consistent with capital preservation and liquidity. This goal is fundamental,
which means that it may not be changed without shareholder approval. The fund
also tries to maintain a stable Net Asset Value of $1 per share.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
QUALITY, DIVERSIFICATION AND MATURITY STANDARDS. The fund follows SEC guidelines
on the quality, maturity and diversification of its investments. These
guidelines are designed to help maintain a stable $1 share price. Generally,
they require the fund to maintain a dollar-weighted average portfolio maturity
of 90 days or less and to limit its investments to U.S. dollar denominated
instruments that:
o the Board determines present minimal credit risks;
o are rated by nationally recognized rating services in one of the two
highest rating categories, or are unrated but are considered to be
comparable in quality to securities that have been rated in one of the
two highest rating categories; and
o have remaining maturities of 397 calendar days or less.
The fund invests only in U.S. Treasury securities. By itself, the fund does not
constitute a balanced investment plan. You should recognize that many securities
can provide a higher yield than direct U.S. government obligations, although
they will not provide the same high quality and security of principal.
U.S. TREASURY SECURITIES. These securities are supported by the full faith and
credit of the U.S. and differ only in their interest rates, maturities and times
of issuance. Treasury bills have initial maturities of one year or less;
Treasury notes have initial maturities of one to ten years; and Treasury bonds
generally have initial maturities of more than ten years. The fund's investments
may bear fixed or variable rates of interest, and its share price and yield are
not guaranteed by the U.S. government. The fund does not invest in repurchase
agreements, securities issued by agencies or instrumentalities of the federal
government or any other type of money market instruments.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The fund may purchase short-term
securities on a when-issued or delayed-delivery basis. These transactions are
arrangements in which the fund buys securities with payment and delivery
scheduled for a future time. The price is subject to market fluctuation and the
value at delivery may be more or less than the purchase price.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
BORROWING. The Fund may borrow from banks, for temporary emergency purposes
only, and pledge its assets for these loans, up to 5% of its total net assets.
The Fund may also make loans of its portfolio securities not in excess of 10% of
the value of its total net assets. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the securities fail financially.
ACTIVE TRADING. Whenever the fund believes market conditions are such that
yields could be increased by actively trading the portfolio securities to take
advantage of short-term market variations, the fund may do so without
restriction or limitation. Typically, this trading involves additional risks of
loss to the extent the securities differ in maturity, credit quality or other
aspects, and to the extent of the brokerage, if any, or other transaction costs
involved. Brokerage or other commissions are not normally charged on the
purchase or sale of money market instruments in which the fund invests.
OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional investment
policies and restrictions that govern its activities. Those that are identified
as "fundamental" may only be changed with shareholder approval. The others may
be changed by the Board alone. For a list of these restrictions and more
information about the fund's investment policies, including those described
above, please see "How Does the Fund Invest Its Assets?" and "Investment
Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in the
SAI 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.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the fund and elects its
officers. The officers are responsible for the fund's day-to-day operations.
INVESTMENT MANAGER. Advisers manages the fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. Advisers
also provides certain administrative services and facilities for the fund. It is
wholly owned by Resources, a publicly owned company engaged in the financial
services industry through its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources. Together, Advisers and
its affiliates manage over $207 billion in assets. Please see "Investment
Management and Other Services" and "Miscellaneous Information" in the SAI for
information on securities transactions and a summary of the fund's Code of
Ethics.
MANAGEMENT FEES. During the fiscal year ended June 30, 1998, management fees,
before any advance waiver, totaled 0.25% of the average daily net assets of the
fund. Total operating expenses, including fees paid to Advisers before any
advance waiver, were 0.35%. Under an agreement by Advisers to limit its fees,
the fund paid management fees totaling 0.10%. Total expenses of the fund were
0.20%. Advisers may end this arrangement at any time upon notice to the Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Does the Fund Buy
Securities for Its Portfolio?" in the SAI for more information.
YEAR 2000 ISSUE. Like other mutual funds, the fund could be adversely affected
if the computer systems used by Advisers and other service providers do not
properly process date-related information on or after January 1, 2000 ("Year
2000 Issue"). The Year 2000 Issue could affect portfolio and operational areas
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions,
and others. While there can be no assurance that the fund will not be adversely
affected, Advisers and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Year 2000 Issue, including
seeking reasonable assurances from the fund's other major service providers.
THE RULE 12B-1 PLAN
The fund has a distribution plan or "Rule 12b-1 Plan" under which it may pay or
reimburse Distributors or others for the expenses of activities that are
primarily intended to sell shares of the fund. These expenses may include, among
others, distribution or service fees paid to Securities Dealers or others who
have executed a servicing agreement with the fund, Distributors or its
affiliates; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
Payments by the fund under the plan may not exceed 0.15% per year of the fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. For more information, please see "The
Fund's Underwriter" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
TAXATION OF THE FUND. As a regulated investment company, the fund generally pays
no federal income tax on the income and gains that it distributes to you.
DISTRIBUTIONS. Distributions from the fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The fund will send
you a statement in January of each year that reflects the amount of ordinary
dividends you received from the fund in the prior year. This statement will
include distributions declared in December and paid to you in January of the
following year, but which are taxable as if paid on December 31 of the prior
year. The IRS requires you to report these amounts on your income tax return for
the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you. Special rules apply to payouts from Roth and Education
IRAs.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the fund's
distributions will qualify for the corporate dividends-received deduction.
REDEMPTIONS AND EXCHANGES. Because the fund expects to maintain a $1 net asset
value per share, you should not have any gain or loss on the redemption or
exchange of fund shares.
U.S. GOVERNMENT AND STATE OBLIGATION INTERESt. Many states grant tax-free status
to dividends paid from interest earned on direct obligations of the U.S.
Government, subject to certain restrictions. The fund will provide you with
information at the end of each calendar year on the amount of such dividends
that may qualify for exemption from reporting on your individual income tax
returns.
MUNICIPAL INVESTORS. A municipality that invests the proceeds of a bond offering
in the fund should be aware that some or all of the earnings distributed by the
fund may need to be paid to the U.S. as a rebate of arbitrage profits. You may
wish to contact your tax advisor to determine the effect, if any, of payments by
the fund with respect to the arbitrage rebate requirements.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends. Fund shares
held by the estate of a non-U.S. investor may be subject to U.S. estate tax. You
may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in the fund.
STATE TAXES. Ordinary dividends that you receive from the fund will generally be
subject to state and local income tax. The holding of fund shares may also be
subject to state and local intangibles taxes. You may wish to contact your tax
advisor to determine the state and local tax consequences of your investment in
the fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the fund is
required to withhold 31% of all taxable distributions (including ordinary
dividends and capital gain distributions), and redemption proceeds paid to you.
The fund is also required to begin backup withholding on your account if the IRS
instructs the fund to do so. The fund reserves the right not to open your
account, or, alternatively, to redeem your shares at the current net asset
value, less any taxes withheld, if you fail to provide a correct TIN, fail to
provide the proper tax certifications, or the IRS instructs the fund to begin
backup withholding on your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. YOU MAY
REQUEST A FREE FRANKLIN TEMPLETON TAX INFORMATION HANDBOOK BY CONTACTING FUND
INFORMATION AT 1-800/DIAN BEN(R).
HOW IS THE TRUST ORGANIZED?
The fund is a no-load, diversified series of Institutional Fiduciary Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on January 15, 1985,
and is registered with the SEC. Shares of each series of the Trust have equal
and exclusive rights to dividends and distributions declared by that series and
the net assets of the series in the event of liquidation or dissolution. Shares
of the fund are considered Class I shares for redemption, exchange and other
purposes. Additional series may be offered in the future.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or 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.
As of June 30, 1998, Perry Baker & Co owned of record and beneficially more than
25% of the outstanding shares of the fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
The fund is designed for institutional investors, such as corporations, banks,
savings and loan associations, trust companies and for government entities for
investment of their own capital and of monies held in accounts for which they
act in a fiduciary, advisory, agency, custodial, or other similar capacity, to
the extent permitted by regulations pertaining to permissible investments of
these entities. Individuals may not buy shares of the fund. Fund shares are
offered without a sales charge.
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum
investments are:
o To open your account: $100,000
o To add to your account: No minimum
States, counties, cities, and their instrumentalities, departments,
agencies and authorities may open an account in the fund with a minimum
initial investment of $1,000.
We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.
3. Carefully complete and sign an Institutional Account application. It is
important that we receive a signed application since we will not be able
to process any redemptions from your account until we receive your signed
application.
4. Make your investment using the table below.
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METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your
check, Federal Reserve draft or negotiable bank
draft made payable to the fund. Instruments drawn
on other investment companies may not be
accepted.
For additional investments:
1. Send a check or use the deposit slips included
with your monthly statement.
2. If you send a check, please include your account
number on the check.
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BY WIRE 1. Call Institutional Services at 1-800/321-8563 or
See "Holiday Schedule" 650/312-3600 to advise of your intention to wire
under "Transaction funds for investment. We must receive your call
Procedures and Special before 11:15 a.m. Pacific time. The fund will
Requirements" supply a wire control number. You need a new wire
control number every time you wire money into
your account. If you do not have a currently
effective wire control number, we will return the
money to the bank, and we will not credit the
purchase to your account.
2. On the same day, wire the funds to Bank of
America, ABA routing number 121000358, for credit
to Institutional Fiduciary Trust-Franklin U.S.
Treasury Money Market Portfolio, A/C
1493-3-04779. Your account registration, account
number, and wire control number must be included.
The bank must receive the wired funds and report
the receipt of wired funds to the fund by 3:00
p.m. Pacific time. Later wires are credited the
following business day.
3. For an initial investment you must also return
your signed Institutional Account application to
the fund. For investments over $50,000, you also
need to complete the Institutional Telephone
Privileges Agreement.
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THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
Many of the fund's investments must be paid for in federal funds, which are
monies held by the fund's custodian bank on deposit at the San Francisco Fed and
elsewhere. The fund generally cannot invest money received from you until it is
converted into and is available to the fund in federal funds. Therefore, your
purchase order may not be considered in proper form until the money received
from you is available in federal funds, which may take up to two days. If the
fund is able to make investments immediately (within one business day), it may
accept your order with payment in other than federal funds.
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.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the fund on arbitrage rebate calculations.
MORE INFORMATION ABOUT BUYING SHARES BY WIRE
If the fund receives your order in proper form before 3:00 p.m. Pacific time, we
will credit the purchase to your account that day. Orders received after 3:00
p.m. will be credited the following business day.
Wire trades placed by the above deadline will receive same-day credit so long as
funds are received as described above. In order to maximize efficient fund
management, please place your order and wire your investment as early in the day
as possible. Prior business day notification of a trade may be required.
Requests to begin a wire order after the cut off time will not be in proper form
for that day's purchase and will receive credit on the next business day.
PAYMENTS TO SECURITIES DEALERS
If you buy shares through a Securities Dealer, Distributors may make a payment
to the Securities Dealer out of its own resources. Please contact Institutional
Services for more information.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal and
policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
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METHOD Steps to Follow
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BY MAIL Send us signed written instructions
- --------------------------------------------------------------------------------
BY PHONE Call Institutional Services at 1-800/321-8563
- For requests over $50,000, you must complete an
Institutional Telephone Privileges Agreement.
Call Institutional Services to receive a copy.
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THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors such as government
entities, certain retirement plans, trust companies and bank trust departments,
may buy Class I shares of other Franklin Templeton Funds without a sales charge.
HOW WE PROCESS YOUR EXCHANGE
FROM THE FUND INTO ANY OTHER SERIES OF THE TRUST. The exchange will be processed
at the Net Asset Value the day your request is received before 11:15 a.m.
Pacific time, with payment for the shares bought processed on the following
business day when the funds are made available from the fund.
FROM THE FUND INTO CLASS I SHARES OF OTHER FRANKLIN TEMPLETON FUNDS. The
exchange will be processed at the respective Net Asset Value or offering price
of the funds involved on the day your request is received in proper form before
11:15 a.m. Pacific time. Requests received after 11:15 a.m. will be processed on
the following business day.
FROM ANOTHER FUND IN THE FRANKLIN TEMPLETON FUNDS INTO THE FUND. The
transactions will be processed as a liquidation from the other fund at its Net
Asset Value on the day the exchange is received in proper form prior to the time
the valuation of shares for that fund is effected, generally 3:00 p.m. Pacific
time for money market funds (excluding the money market funds of the Trust) and
1:00 p.m. Pacific time for non-money market funds, and a purchase of the Fund's
shares on the following business day at the price computed on such following
business day when the money for the purchase is available and the purchase order
is considered to be in proper form.
RETIREMENT PLANS
Retirement plan participants may exchange shares in accordance with the options
available under, and the requirements of, their plan and plan administrator.
Retirement plan administrators may charge a fee in connection with exchanges.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the same class, except as noted below.
o The accounts must be identically registered.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the fund
at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions.
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under court
jurisdiction may have other requirements.
- --------------------------------------------------------------------------------
BY PHONE 1. Call Institutional Services at 1-800/321-8563
See "Holiday Schedule"
under "Transaction 2. For requests over $50,000, you must complete an
Procedures and Special Institutional Telephone Privileges Agreement.
Requirements" Call Institutional Services to receive a copy.
Telephone requests will be accepted unless the
address on your account was changed by phone within
the last 15 days.
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THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. We are not able to receive or pay out cash in the form
of currency. If you sell your shares by phone, the check may only be made
payable to all registered owners on the account and sent to the address of
record. If requested, redemption proceeds may also be wired directly to a
commercial bank previously designated by you on an application, or in a
signature-guaranteed letter of instruction.
A payment may be transmitted by wire the same business day if the phone request
is received before 11:15 a.m. Pacific time that day. For later requests,
payments will be transmitted by wire on the following business day. If you
anticipate requesting a same-day wire redemption over $5 million, please notify
the fund about this on the prior business day. In order to maximize efficient
fund management, please request your same-day wire redemption of any size as
early in the day as possible. Prior business day notification of the trade may
be required.
Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required.
The wiring of redemption proceeds 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 is not processed as described in
this section.
If you sell shares you 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.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
CONTINGENT DEFERRED SALES CHARGE
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if you sell shares that were exchanged into
the fund from another Franklin Templeton Fund and those shares would have been
assessed a Contingent Deferred Sales Charge in the other fund. The charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business that day. The
daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
The amount of these dividends will vary, depending on changes in the fund's net
investment income, and there is no guarantee the fund will pay dividends. THE
FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON
AN INVESTMENT IN ITS SHARES.
DIVIDEND OPTIONS
Dividends will automatically be reinvested monthly in the form of additional
shares of the fund at the Net Asset Value per share at the close of business on
or about the last business day of the month. You may, however, choose to receive
dividends in cash. To do so, please notify the fund or Institutional Services.
Certain restrictions may apply to retirement plans.
Since the net income of the fund is declared as a dividend each time the net
income is determined, the Net Asset Value per share of the fund is expected to
remain at $1 per share immediately after each such determination and dividend
declaration. Any increase in the value of your investment in the fund,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in your account.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the fund.
HOW AND WHEN SHARES ARE PRICED
The fund is open for business each day that both the NYSE and the San Francisco
Fed are open. We determine the Net Asset Value per share at 12:30 p.m. Pacific
time. To calculate Net Asset Value per share, the fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. The fund's assets are valued as
described under "How Are Fund Shares Valued?" in the SAI.
HOLIDAY SCHEDULE
In order to receive same-day credit for transactions, you need to transmit your
request to buy, sell, or exchange shares to the fund by 11:15 a.m. Pacific time,
except on holidays or the day before or after a holiday.
The fund is informed that the NYSE and/or the San Francisco Fed observe the
following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus Day
(observed), Veterans' Day, Thanksgiving Day and Christmas Day. Although the fund
expects the same holiday schedule to be observed in the future, the San
Francisco Fed or the NYSE may modify its holiday schedule at any time. On any
day before or after a NYSE or San Francisco Fed holiday, or on any day when the
Public Securities Association recommends an early closing, the fund reserves the
right to set an earlier time for notice and receipt of wire order purchase and
redemption orders submitted for same-day credit or redemption. Please place your
trades as early in the day as possible on a day before or after a holiday. To
the extent that the fund's portfolio securities are traded in other markets on
days the San Francisco Fed or the NYSE is closed, the fund's Net Asset Value may
be affected when investors do not have access to the fund to buy or sell shares.
Other Franklin Templeton Funds may follow different holiday closing schedules.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The fund's name,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates. This eliminates the costly problem of replacing lost, stolen or
destroyed certificates.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Institutional Services at 1-800/321-8563.
When you call, we will request personal, corporate, or other identifying
information to confirm that instructions are genuine. We may also record calls.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
RETIREMENT PLANS. The telephone transaction options available to retirement
plans are limited to those that are provided under the plan.
REQUIRED DOCUMENTS
For corporate, partnership and trust accounts, please send us the following
documents when you open your account. This will help avoid delays in processing
your transactions while we verify who may sign on the account.
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TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that identify
the general partners, or
2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $20,000 (or one-half the
minimum required investment, whichever is less). We will only do this if the
value of your account fell below this amount because you voluntarily sold your
shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to the
minimum amount.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
CUMULATIVE QUANTITY DISCOUNTS
You may include the cost or current value (whichever is higher) of your fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
For additional information regarding these programs, please call Institutional
Services at 1-800/321-8563.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the fund's code number to use TeleFACTS(R). The fund's code number
is 143.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the fund will be sent every six months. Call
Institutional Services if you would like an additional free copy of the
fund's financial reports.
SPECIAL SERVICES
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the fund.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the fund may not be able to offer these services directly to
you. Please contact your investment representative.
GENERAL
Government Accounting Standards Board (GASB) Statement No. 3 pertaining to
Deposits with Financial Institutions provides, in paragraph 69, that investments
in mutual funds should be disclosed, but not categorized.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Institutional
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The fund, Distributors, and Advisers are also located at this
address. You may also contact us by phone at 1-800/321-8563, Monday through
Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
ADVISERS - Franklin Advisers, Inc., the fund's investment manager
BOARD - The Board of Trustees of the Trust
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different classes have proportionate interests in the same
portfolio of investment securities. They differ, however, primarily in their
sales charge structures and Rule 12b-1 plans. Shares of the fund are considered
Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - The 12 month period during which a Contingent Deferred
Sales Charge may apply. The holding period begins on the day you buy your
shares. 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.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
INSTITUTIONAL SERVICES - Franklin Templeton Institutional Services Department
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SAN FRANCISCO FED - Federal Reserve Bank of San Francisco
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
PROSPECTUS
INSTITUTIONAL
FIDUCIARY TRUST
NOVEMBER 1, 1998
INVESTMENT STRATEGY
INCOME
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how the funds invest and the
services available to shareholders.
To learn more about the funds and their policies, you may request a copy of the
funds' Statement of Additional Information ("SAI"), dated November 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus, contact
your investment representative or call 1-800/321-8563.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, 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.
Unlike most funds that invest directly in securities, the Adjustable U.S.
Government Fund seeks to achieve its investment goal by investing all of its
assets in shares of the U.S. Government Adjustable Rate Mortgage Portfolio (the
"Mortgage Portfolio"), and the Adjustable Rate Securities Fund seeks to achieve
its investment goal by investing all of its assets in shares of the Adjustable
Rate Securities Portfolio (the "Securities Portfolio"). The Mortgage Portfolio
and the Securities Portfolio are series of Adjustable Rate Securities
Portfolios. Their investment goals are the same as the funds'.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
TABLE OF CONTENTS
ABOUT THE FUNDS
Expense Summary .................................................. 2
Financial Highlights ............................................. 3
How Do the Funds Invest Their Assets? ............................ 5
What Are the Risks of Investing in the Funds? .................... 17
Who Administers the Funds? ....................................... 20
How Taxation Affects the Funds and Their Shareholders ............ 22
How Is the Trust Organized? ...................................... 24
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............................................. 25
May I Exchange Shares for Shares of Another Fund? ................ 27
How Do I Sell Shares? ............................................ 29
What Distributions Might I Receive From the Funds? ............... 31
Transaction Procedures and Special Requirements .................. 31
Services to Help You Manage Your Account ......................... 34
What If I Have Questions About My Account? ....................... 34
GLOSSARY
Useful Terms and Definitions ..................................... 35
INSTITUTIONAL
FIDUCIARY
TRUST
NOVEMBER 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/321-8563
ABOUT THE FUNDS
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
funds. It is based on each fund's historical expenses, including its
proportionate share of the underlying portfolio's expenses, for the fiscal year
ended June 30, 1998. Each portfolio's expenses are based on its expenses for the
eight months ended June 30, 1998, and are annualized. The funds' actual expenses
may vary.
ADJUSTABLE U.S. ADJUSTABLE RATE
GOVERNMENT FUND SECURITIES FUND
- ----------------------------------------------------------------------------
A. SHAREHOLDER TRANSACTION EXPENSES+
Exchange Fee (per transaction)................ None* None*
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management and Administration Fees............ 0.45%** 0.45%**
Other Expenses of the Fund and the Portfolio.. 0.26% 0.07%
--------------------
Total Fund Operating Expenses................. 0.71%** 0.52%**
====================
C. EXAMPLE
Assume each fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are the
projected expenses for each $1,000 that you invest in each fund.
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------
Adjustable U.S. Government Fund $7 $23 $40 $88
Adjustable Rate Securities Fund $5 $17 $29 $65
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. Each
fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*There is a $5.00 fee for exchanges by Market Timers.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees of the Mortgage Portfolio and the
Securities Portfolio were 0.22% and 0.21%, respectively, and administration fees
of each fund were 0.05%. Total fund operating expenses were 0.53% for the
Adjustable U.S. Government Fund and 0.33% for the Adjustable Rate Securities
Fund.
FINANCIAL HIGHLIGHTS
This table summarizes each fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the funds' independent auditor. The audit
report covering each of the most recent five years appears in the Trust's Annual
Report to Shareholders for the fiscal year ended June 30, 1998. The Annual
Report to Shareholders also includes more information about each fund's
performance. For a free copy, please call Institutional Services at
1-800/321-8563.
<TABLE>
<CAPTION>
ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992+
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,
beginning of year $9.36 $9.28 $9.25 $9.40 $9.86 $9.99 $10.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .539 .570 .600 .551 .360 .480 .373
Net realized and
unrealized gains (losses) (.010) .090 .028 (.155) (.467) (.130) (.010)
---------------------------------------------------------------------------------
Total from investment operations .529 .660 .628 .396 (.107) .350 .363
Less distributions from
net investment income (.539) (.580) (.598) (.546) (.353) (.480) (.373)
---------------------------------------------------------------------------------
Net asset value, end of year $9.35 $9.36 $9.28 $9.25 $9.40 $9.86 $9.99
=================================================================================
Total return* 5.78% 7.37% 6.98% 4.41% (1.11)% 4.01% 3.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $3,497 $7,471 $9,448 $25,020 $51,738 $861,311 $1,265,392
Ratios to average net assets:
Expenses*** .53% .43% .38% .23% .07% .35% .35%**
Expenses excluding waiver
and payments by affiliate*** .71% .61% .55% .54% .45% .46% .49%**
Net investment income 5.83% 6.12% 5.90% 5.81% 3.49% 4.89% 6.24%**
Portfolio turnover rate 9.46% 6.78% 102.66% 14.86% 29.47% 66.55% 62.79%
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES FUND
YEAR ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992++
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,
beginning of year $9.93 $9.79 $9.78 $9.77 $10.04 $10.04 $10.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .618 .590 .600 .589 .437 .559 .239
Net realized and
unrealized gains (losses) .013 .140 .011 .010 (.270) -- .040
---------------------------------------------------------------------------------
Total from investment operations .631 .730 .611 .599 .167 .559 .279
Less distributions from
net investment income (.618) (.590) (.601) (.589) (.437) (.559) (.239)
---------------------------------------------------------------------------------
Net asset value, end of year $9.94 $9.93 $9.79 $9.78 $9.77 $10.04 $10.04
=================================================================================
Total return* 6.51% 7.66% 6.41% 6.35% 1.65% 5.72% 2.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $989 $4,754 $4,453 $8,596 $31,198 $44,734 --
Ratios to average net assets:
Expenses*** .33% .42% .36% .31% .25% -- --
Expenses excluding waiver
and payments by affiliate*** .52% .62% .61% .59% .50% .60% .69%**
Net investment income 6.21% 6.03% 6.16% 5.84% 4.32% 5.56% 7.13%**
Portfolio turnover rate 12.96% 18.02% 45.98% 12.44% 197.22% 74.77% --
</TABLE>
*Total return is not annualized.
**Annualized.
***The expense ratio includes the fund's share of the underlying portfolio's
allocated expenses. +For the period November 1, 1991 (effective date) to June
30, 1992.
++For the period January 3, 1992 (effective date) to June 30, 1992.
HOW DO THE FUNDS INVEST THEIR ASSETS?
WHAT ARE THE FUNDS' GOALS?
The investment goal of each fund is to seek a high level of current income,
consistent with lower volatility of principal. The Adjustable U.S. Government
Fund seeks to achieve its goal by investing all of its assets in the Mortgage
Portfolio, and the Adjustable Rate Securities Fund seeks to achieve its
investment goal by investing all of its assets in the Securities Portfolio. The
investment goal of each portfolio is the same as the funds'. Each fund's
investment policies are also substantially similar to the underlying portfolio's
except, in all cases, each fund may pursue its policies by investing in an
open-end management investment company with the same investment goal and
substantially similar policies and restrictions as the fund. Any additional
exceptions are noted below.
Each fund acquires shares of the underlying portfolio at Net Asset Value. An
investment in a fund is an indirect investment in the underlying portfolio. The
investment goals of the funds and the portfolios are fundamental, which means
that they may not be changed without shareholder approval.
WHAT KINDS OF SECURITIES DO THE PORTFOLIOS BUY?
The Mortgage Portfolio seeks to achieve its investment goal by investing at
least 65% of its total assets in adjustable rate mortgage securities ("ARMS") or
other securities collateralized by or representing an interest in mortgages
(collectively, "mortgage securities") and having interest rates that reset at
periodic intervals. The Mortgage Portfolio will only invest in mortgage
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Securities Portfolio seeks to achieve its investment goal by investing at
least 65% of its total assets in adjustable-rate securities collateralized by or
representing an interest in mortgages, including ARMS, issued or guaranteed by
private institutions or by the U.S. government, its agencies or
instrumentalities, and other adjustable-rate asset-backed securities
(collectively, "ARS"), which have interest rates that reset at periodic
intervals. The Securities Portfolio may invest in ARMS issued by private
institutions, such as commercial banks, savings and loan institutions, insurance
companies, private mortgage insurance companies, mortgage bankers, mortgage
conduits of investment banks, finance companies, real estate companies, private
corporations, and others, as long as they are consistent with its investment
goal. Privately issued mortgage securities are generally structured with one or
more types of credit enhancement. The Securities Portfolio will only invest in
securities rated at least AA by S&P or Aa by Moody's, two nationally recognized
statistical rating agencies. The Securities Portfolio may also invest in unrated
securities if Advisers determines that they are of comparable quality.
Each portfolio may also invest up to 35% of its total assets in (a) notes,
bonds, and discount notes of the Federal Home Loan Banks, Federal National
Mortgage Association ("FNMA"), Government National Mortgage Association
("GNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), and Small Business
Administration; (b) obligations of or guaranteed by the full faith and credit of
the U.S. government and repurchase agreements collateralized by such
obligations; (c) time and savings deposits (including CDs) in commercial or
savings banks or in institutions whose accounts are insured by the Federal
Deposit Insurance Corporation; and (d) with respect to the Securities Portfolio,
asset-backed and mortgage-backed securities issued by private and government
entities. The Securities Portfolio may invest in fixed-rate or adjustable-rate
securities. Each portfolio's investments in time deposits will not exceed 10% of
its total assets.
For temporary defensive purposes, each portfolio may invest up to 100% of its
assets in U.S. government securities, CDs of banks having total assets in excess
of $5 billion, and repurchase agreements.
MORTGAGE SECURITIES - General Characteristics. A mortgage security is an
interest in a pool of mortgage loans. The primary issuers or guarantors of
mortgage securities are GNMA, FNMA, and FHLMC. GNMA creates mortgage securities
from pools of government guaranteed or insured (Federal Housing Authority or
Veterans Administration) mortgages originated by mortgage bankers, commercial
banks, and savings and loan associations. FNMA and FHLMC issue mortgage
securities from pools of conventional and federally insured and/or guaranteed
residential mortgages obtained from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions, and mortgage
bankers. Many mortgage securities issued or guaranteed by GNMA, FHLMC, or FNMA
("certificates") are called pass-through certificates because a pro rata share
of both regular interest and principal payments (less GNMA's, FHLMC's, or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the certificate (i.e., a portfolio).
The principal and interest on GNMA securities are guaranteed by GNMA, and the
guarantee is backed by the full faith and credit of the U.S. government.
Mortgage securities of FNMA and FHLMC are not backed by the full faith and
credit of the U.S. government. FNMA guarantees full and timely payment of all
interest and principal, and FHLMC guarantees timely payment of interest and the
ultimate collection of principal. Securities issued by FNMA are supported by the
agency's right to borrow money from the U.S. Treasury under certain
circumstances. Securities issued by FHLMC are supported only by the credit of
the agency. There is no guarantee that the government will support government
agency securities and, accordingly, they may involve a risk of non-payment of
principal and interest. Nonetheless, because FNMA and FHLMC are
instrumentalities of the U.S. government, securities they issue are generally
considered to be high-quality investments having minimal credit risks. The
yields on these mortgage securities have historically exceeded the yields on
other types of U.S. government securities with comparable maturities due largely
to their prepayment risk. (See "What Are the Risks of Investing in the Funds?")
The Securities Portfolio may invest in private mortgage securities. Private
issuers of mortgage securities may be both the originators of the underlying
mortgage loans as well as the guarantors of the mortgage securities. Pools of
mortgage loans created by private issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government guarantees of payment. Timely payment of interest
and principal is, however, generally supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurance
companies, or the mortgage poolers. The insurance and guarantees and the
creditworthiness of their issuers will be considered when determining whether a
mortgage security meets the Securities Portfolio's quality standards. The
Securities Portfolio may buy mortgage securities without insurance or guarantees
if, through an examination of the loan experience and practices of the poolers,
Advisers determines that the securities meet the Securities Portfolio's quality
standards.
Most mortgage securities are pass-through securities. This means that they
provide investors with payments consisting of a pro rata share of both regular
interest and principal payments, as well as unscheduled early prepayments, on
the underlying mortgage pool. Guarantees as to the timely payment of principal
and interest do not extend to the value or yield of mortgage securities nor do
they extend to the value of the portfolios' or the funds' shares.
ADJUSTABLE RATE MORTGAGE SECURITIES. ARMS, like traditional mortgage securities,
are interests in pools of mortgage loans. The interest rates on the mortgages
underlying ARMS are reset periodically. The adjustable interest rate feature of
the mortgages underlying the mortgage securities in which the portfolios invest
generally will act as a buffer to reduce sharp changes in each portfolio's Net
Asset Value in response to normal interest rate fluctuations. As the interest
rates are reset, the yields of the securities will gradually align themselves to
reflect changes in market rates so that their market value will remain
relatively stable compared to fixed-rate securities. As a result, each
portfolio's Net Asset Value should fluctuate less significantly than if the
portfolio invested in more traditional long-term, fixed-rate securities. During
periods of extreme fluctuation in interest rates, however, each portfolio's and
thus the corresponding fund's Net Asset Value will fluctuate.
Because the interest rates on the mortgages underlying ARMS are reset
periodically, a portfolio may participate in increases in interest rates,
resulting in both higher current yields and lower price fluctuations. This
differs from fixed-rate mortgages, which generally decline in value during
periods of rising interest rates. A portfolio, however, will not benefit from
increases in interest rates to the extent that interest rates exceed the maximum
allowable annual or lifetime reset limits (or "cap rates") for a particular
mortgage security. Since most mortgage securities held by the portfolios will
generally have annual reset limits or caps of 100 to 200 basis points,
short-term fluctuations in interest rates above these levels could cause these
mortgage securities to "cap out" and behave more like long-term, fixed-rate debt
securities. If prepayments of principal are made on the underlying mortgages
during periods of rising interest rates, a portfolio generally will be able to
reinvest these amounts in securities with a higher current rate of return.
Please keep in mind that during periods of rising interest rates, changes in the
interest rates on mortgages underlying ARMS lag behind changes in the market
rate. This may result in a lower Net Asset Value until the interest rate resets
to market rates. Thus, you could suffer some principal loss if you sell your
shares of a fund before the interest rates on the underlying mortgages in the
underlying portfolio reset to market rates. Also, a portfolio's Net Asset Value
could vary to the extent that current yields on mortgage-backed securities are
different from market yields during interim periods between coupon reset dates.
A portion of the ARMS in which the portfolios may invest may not reset for up to
five years.
During periods of declining interest rates, the interest rates may reset
downward, resulting in lower yields to a portfolio. As a result, the value of
ARMS is unlikely to rise during periods of declining interest rates to the same
extent as the value of fixed-rate securities. As with other mortgage-backed
securities, declining interest rates may result in accelerated prepayments of
mortgages, and a portfolio may have to reinvest the proceeds from the
prepayments at the lower prevailing interest rates.
For certain types of ARMS, the rate of amortization of principal, as well as
interest payments, change in accordance with movements in a pre-specified,
published interest rate index. The amount of interest due to an ARMS holder is
calculated by adding a specified additional amount, the "margin," to the index,
subject to limitations or "caps" on the maximum and minimum interest that is
charged to the mortgagor during the life of the mortgage or to maximum and
minimum changes to that interest rate during a given period.
Mortgage loan pools offering pass-through investments in addition to those
described above may be created in the future. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term, fixed-rate mortgages. As new types
of mortgage securities are developed and offered to investors, each portfolio
may invest in them if they are consistent with the portfolio's goal, policies,
and quality standards.
ADJUSTABLE RATE SECURITIES. The Securities Portfolio will invest primarily in
ARS. ARS are debt securities with interest rates that are adjusted
periodically pursuant to a pre-set formula and interval. Movements in the
relevant index, as well as the applicable spread relating to the ARS, will
affect the interest paid on ARS and, therefore, the current income earned by
the Securities Portfolio by investing in ARS. (See "Resets.")
The interest rates on ARS are generally readjusted periodically to an increment
over the chosen interest rate index. These readjustments occur at intervals
ranging from one to sixty months. The degree of volatility in the market value
of the securities held by the Securities Portfolio and of the Net Asset Value of
the Securities Portfolio's and thus the Adjustable Rate Securities Fund's shares
will be a function primarily of the length of the adjustment period and the
degree of volatility in the applicable indices. It will also be a function of
the maximum increase or decrease of the interest rate adjustment on any one
adjustment date, in any one year, and over the life of the securities. These
maximum increases and decreases are typically referred to as "caps" and
"floors," respectively. The Securities Portfolio does not seek to maintain an
overall average cap or floor, although Advisers will consider caps or floors in
selecting ARS for the Securities Portfolio.
While the Securities Portfolio does not attempt to maintain a stable Net Asset
Value per share, during periods when short-term interest rates move within the
caps and floors of the securities held by the Securities Portfolio, the
fluctuation in market value of the ARS held by the Securities Portfolio is
expected to be relatively limited, since the interest rates on the ARS generally
adjust to market rates within a short period of time. In periods of substantial
short-term volatility in interest rates, the value of the Securities Portfolio's
holdings may fluctuate more substantially because the caps and floors of its ARS
may not permit the interest rates to adjust to the full extent of the movements
in the market rates during any one adjustment period. In the event of dramatic
increases in interest rates, the lifetime caps on the ARS may prevent the
securities from adjusting to prevailing rates over the term of the loan. In this
case, the market value of the ARS may be substantially reduced, with a
corresponding decline in the Securities Portfolio's and thus the Adjustable Rate
Securities Fund's Net Asset Value.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"), REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS"), AND MULTI-CLASS PASS-THROUGHS. Each portfolio may invest in
CMOs issued and guaranteed by U.S. government agencies or instrumentalities. The
Securities Portfolio may also invest in REMICs issued and guaranteed by U.S.
government agencies and instrumentalities, in CMOs and REMICs issued by certain
financial institutions and other mortgage lenders, and in multi-class
pass-through securities. The Mortgage Portfolio will not invest in privately
issued CMOs and REMICs except to the extent that it invests in the securities of
entities that are instrumentalities of the U.S.
government.
CMOs and REMICs are debt instruments issued by special purpose entities that are
secured by pools of mortgage loans or other mortgage-backed securities.
Multi-class pass-through securities are equity interests in a trust composed of
mortgage loans or other mortgage-backed securities. Payments of principal and
interest on the underlying collateral provides the funds to pay the debt service
on CMOs or REMICs or to make scheduled distributions on the multi-class
pass-through securities. Unless the context indicates otherwise, the discussion
of CMOs below may also apply to REMICs and multi-class pass-through securities.
A CMO is a mortgage-backed security that separates mortgage pools into short-,
medium-, and long-term components. Each component pays a fixed rate of interest
at regular intervals. These components enable an investor, such as a portfolio,
to predict more accurately the pace at which principal is returned.
The Mortgage Portfolio may buy CMOs that are:
(1) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
(2) collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and the guarantee is collateralized
by U.S. government securities; or
(3) securities in which the proceeds of the issuance are invested in mortgage
securities, and payment of the principal and interest are supported by the
credit of an agency or instrumentality of the U.S.
government.
CMOs are issued in multiple classes. Each class, often referred to as a
"tranche," is issued at a specified coupon rate or adjustable rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying CMOs may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. Interest is paid or accrues
on all classes of a CMO on a monthly, quarterly, or semiannual basis. The
principal and interest on the mortgages underlying CMOs may be allocated among
the several classes in many ways. In a common structure, payments of principal
on the underlying mortgages, including any principal prepayments, are applied to
the classes of a series of a CMO in the order of their respective stated
maturities or final distribution dates, so that no payment of principal will be
made on any class until all other classes having an earlier stated maturity or
final distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates that reset periodically at a
specified increment over an index, such as the London Interbank Offered Rate
("LIBOR"). These adjustable-rate tranches, known as "floating-rate CMOs," will
be treated as ARMS by each portfolio. Floating-rate CMOs may be backed by fixed-
or adjustable-rate mortgages. To date, fixed-rate mortgages have been more
commonly used for this purpose. Floating-rate CMOs are typically issued with
lifetime "caps" on the coupon rate. These caps, similar to the caps on ARMS,
represent a ceiling beyond which the coupon rate may not be increased,
regardless of increases in the underlying interest rate index.
Yields on privately issued CMOs have been historically higher than the yields on
CMOs issued and guaranteed by U.S. government agencies or instrumentalities. The
risk of loss due to default on privately issued CMOs, however, is higher since
they are not guaranteed by the U.S. government. The trustees of the Adjustable
Rate Securities Portfolios believe that the risk of loss to the Securities
Portfolio relating to its investments in privately issued CMOs is justified by
the higher yield the Securities Portfolio will earn in light of the historic
loss experience on these instruments. The Securities Portfolio will not invest
in subordinated, privately issued CMOs.
REMICs, which are authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities. As with CMOs, the underlying mortgages include
those backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or issued
by private entities and not guaranteed by any government agency or
instrumentality.
Advisers currently intends to limit the Securities Portfolio's investment in
fixed-rate CMOs and REMICs to planned amortization classes ("PACs") and
sequential pay classes. A PAC is retired according to a payment schedule in
order to have a stable average life and yield even if expected prepayment rates
change. Within a specified broad range of prepayment possibilities, the
retirement of all classes is adjusted so that the PAC bond amortization schedule
will be met. Thus, PAC bonds offer more predictable amortization schedules at
the expense of less predictable cash flows for the other bonds in the structure.
Within a given structure, the Securities Portfolio currently intends to buy the
PAC bond with the shortest remaining average life. A sequential pay CMO is
structured so that only one class of bonds will receive principal until it is
paid off completely. Then the next sequential pay CMO class will begin receiving
principal until it is paid off. The Securities Portfolio currently intends to
buy sequential pay CMO securities in the class with the shortest remaining
average life.
To the extent any privately issued CMOs and REMICs in which the Securities
Portfolio invests are considered by the SEC to be investment companies, the
Securities Portfolio will limit its investments in those securities in a manner
consistent with the 1940 Act.
RESETS. The interest rates paid on ARMS, ARS, and CMOs generally are readjusted
at intervals of one year or less to an increment over some predetermined
interest rate index, although some securities in which the Securities Portfolio
may invest may have intervals as long as five years. There are three main
categories of indices: those based on LIBOR, those based on U.S. Treasury
securities, and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly used indices include the
one-, three-, and five-year constant-maturity Treasury rates; the three-month
Treasury bill rate; the 180-day Treasury bill rate; rates on longer-term
Treasury securities; the 11th District Federal Home Loan Bank Cost of Funds; the
National Median Cost of Funds; the one-, three-, six-month, or one-year LIBOR;
the prime rate of a specific bank; or commercial paper rates. Some indices, such
as the one-year constant-maturity Treasury rate, closely mirror changes in
market interest rate levels. Others, such as the 11th District Federal Home Loan
Bank Cost of Funds, tend to lag behind changes in market interest rate levels
and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages that collateralize ARMS and CMOs will
frequently have caps and floors that limit the maximum amount by which the loan
rate to the borrower may change up or down (a) per reset or adjustment interval
and (b) over the life of the loan. Some residential mortgage loans restrict
periodic adjustments by limiting changes in the borrower's monthly principal and
interest payments rather than limiting interest rate changes. These payment caps
may result in negative amortization.
STRIPPED MORTGAGE SECURITIES. The Securities Portfolio may invest in stripped
mortgage securities, which are derivative multi-class mortgage securities. The
stripped mortgage securities in which the Securities Portfolio may invest will
only be issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Stripped mortgage securities have greater market volatility
than other types of mortgage securities in which the Securities Portfolio
invests.
Stripped mortgage securities are usually structured with two classes, each
receiving different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security has one
class that receives some of the interest and most of the principal from the
mortgage assets, while the other class receives most of the interest and the
remainder of the principal. In the most extreme case, one class receives all of
the interest (the interest-only or "IO" class), while the other class receives
all of the principal (the principal-only or "PO" class). The yield to maturity
on an IO or PO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying mortgage assets. A rapid rate of principal
payments may have a material adverse effect on the yield to maturity of any IO
class held by the Securities Portfolio. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Securities
Portfolio may fail to recoup its initial investment fully, even if the
securities are rated in the highest rating categories, AAA or Aaa, by S&P or
Moody's, respectively.
Stripped mortgage securities are purchased and sold by institutional investors,
such as the Securities Portfolio, through several investment banking firms
acting as brokers or dealers. These securities were only recently developed, and
traditional trading markets have not yet been established for all stripped
mortgage securities. Accordingly, some of these securities may be illiquid. The
staff of the SEC has indicated that only government-issued IO or PO securities
that are backed by fixed-rate mortgages may be deemed to be liquid, if
procedures with respect to determining liquidity are established by a fund's
board. The Board of Trustees of the Adjustable Rate Securities Portfolios may,
in the future, adopt procedures that would permit the Securities Portfolio to
acquire, hold, and treat as liquid government-issued IO and PO securities. At
the present time, however, all such securities will continue to be treated as
illiquid and will, together with any other illiquid investments, not exceed 10%
of the Securities Portfolio's net assets. This position may be changed in the
future, without notice to shareholders, in response to the SEC staff's continued
reassessment of this matter, as well as to changing market conditions.
FLOATERS. Up to 5% of the Securities Portfolio's assets may be invested in
inverse floaters and super floaters. Please see the SAI for more information
about these investments.
ASSET-BACKED SECURITIES. The Securities Portfolio may invest in asset-backed
securities, including adjustable-rate asset-backed securities that have interest
rates that reset at periodic intervals. Asset-backed securities are similar to
mortgage-backed securities. The underlying assets, however, may include
receivables on home equity and credit card loans, and automobile, mobile home,
and recreational vehicle loans and leases. Asset-backed securities are issued in
either a pass-through structure (similar to a mortgage pass-through structure)
or a pay-through structure (similar to a CMO structure). There may be other
types of asset-backed securities that are developed in the future in which the
Securities Portfolio may invest. In general, collateral supporting asset-backed
securities has shorter maturities than mortgage loans and historically has been
less likely to experience substantial prepayment.
DERIVATIVES. Some of the types of investments discussed in this prospectus may
be considered "derivatives." Derivatives are broadly defined as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset. To the extent indicated, each portfolio may invest in
CMOs and uncovered mortgage dollar rolls, and the Securities Portfolio may also
invest in REMICs, multi-class pass-throughs, stripped mortgage securities, other
asset-backed securities, and structured notes. Some, all, or the component parts
of these instruments may be considered derivatives. The portfolios may use these
instruments to help manage risks relating to interest rates and other market
factors, to increase liquidity, and/or to invest in a particular instrument in a
more efficient or less expensive way. A portfolio will not necessarily use these
instruments or investment strategies to the full extent permitted unless
Advisers believes that doing so will help the portfolio achieve its goal, and a
portfolio will not use all instruments or strategies at all times.
WHAT ARE SOME OF THE FUNDS' AND THE PORTFOLIOS' OTHER INVESTMENT STRATEGIES
AND PRACTICES?
MORTGAGE DOLLAR ROLLS. Each portfolio may enter into mortgage "dollar rolls" in
which the portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (name,
type, coupon, and maturity) securities on a specified future date. During the
roll period, a portfolio forgoes principal and interest paid on the
mortgage-backed securities. The portfolio is compensated by the difference
between the current sale price and the lower forward price for the future
purchase (often referred to as the "drop"), as well as the interest earned on
the cash proceeds of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position.
REPURCHASE AGREEMENTS. In a repurchase agreement, a portfolio buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the portfolio by a
custodian bank approved by the Board. The bank or broker-dealer must transfer to
the custodian securities with an initial market value of at least 102% of the
repurchase price to help secure the obligation to repurchase the securities at a
later date. The securities are then marked-to-market daily to maintain coverage
of at least 100%. If the bank or broker-dealer does not repurchase the
securities as agreed, a portfolio may experience a loss or delay in the
liquidation of the securities underlying the repurchase agreement and may also
incur liquidation costs. The portfolios, however, intend to enter into
repurchase agreements only with banks or broker-dealers that are considered
creditworthy by Advisers.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The portfolios may buy U.S.
government obligations (or any securities in the case of the Securities
Portfolio) on a "when-issued" or "delayed-delivery" basis. These transactions
are arrangements under which a portfolio buys securities with payment and
delivery scheduled for a future time, generally within 30 to 60 days. Purchases
of securities on a when-issued or delayed-delivery basis are subject to market
fluctuation and the risk that the value or yield at delivery may be more or less
than the purchase price or the yield available when the transaction was entered
into. Although a portfolio will generally buy securities on a when-issued basis
with the intention of acquiring the securities, it may sell the securities
before the settlement date if the portfolio deems it to be advisable. When a
portfolio is the buyer, it will maintain, in a segregated account with its
custodian bank, cash or high-grade marketable securities having an aggregate
value equal to the amount of its purchase commitments until payment is made. To
the extent a portfolio engages in when-issued and delayed-delivery transactions,
it does so only for the purpose of acquiring portfolio securities consistent
with its investment goal and policies and not for the purpose of investment
leverage. In when-issued and delayed-delivery transactions, a portfolio relies
on the seller to complete the transaction. The seller's failure to do so may
cause the portfolio to miss a price or yield considered advantageous. Securities
purchased on a when-issued or delayed-delivery basis generally do not earn
interest until their scheduled delivery date. The portfolios are not subject to
any percentage limit on the amount of their respective assets that may be
invested in when-issued purchase obligations.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the
Adjustable Rate Securities Portfolios' Board of Trustees and subject to the
following conditions, each portfolio may lend its portfolio securities to
qualified securities dealers or other institutional investors, if such loans do
not exceed 10% of the value of the portfolio's total assets at the time of the
most recent loan. The borrower must deposit with the portfolio's custodian bank
collateral with an initial market value of at least 102% of the market value of
the securities loaned, including any accrued interest, with the value of the
collateral and loaned securities marked-to-market daily to maintain collateral
coverage of at least 102%. This collateral shall consist of cash. The lending of
securities is a common practice in the securities industry. Each portfolio may
engage in security loan arrangements with the primary objective of increasing
the portfolio's income either through investing cash collateral in short-term
interest-bearing obligations or by receiving a loan premium from the borrower.
Under the securities loan agreement, the portfolio continues to be entitled to
all dividends or interest on any loaned securities. As with any extension of
credit, there are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail financially.
BORROWING. The Securities Portfolio may borrow from banks from time to time to
increase its investments. Borrowings may be secured or unsecured and at fixed or
variable interest rates. The Securities Portfolio will borrow only to the extent
that the value of its assets, less its liabilities (excluding borrowings), is
equal to at least 300% of its borrowings. If the Securities Portfolio does not
meet the 300% test, it will be required to reduce its debt within three business
days to the extent necessary to meet the test. This may require the Securities
Portfolio to sell a portion of its investments at a disadvantageous time.
Borrowing for investment purposes is a speculative investment technique known as
"leveraging." When the Securities Portfolio leverages its assets, the Securities
Portfolio's Net Asset Value may increase or decrease at a greater rate than if
the Securities Portfolio were not leveraged. The interest payable on the amount
borrowed increases the Securities Portfolio's expenses (and thus reduces the
income to the Adjustable Rate Securities Fund), and if the appreciation and
income produced by the investments purchased with the borrowings do not exceed
the cost of the borrowing, leveraging may reduce the investment performance of
the Securities Portfolio.
Neither fund may borrow money or mortgage nor pledge any of its assets, except
that each fund may borrow (and pledge assets therefor) for temporary or
emergency purposes from banks in an amount up to 20% of the fund's total asset
value. The Adjustable U.S. Government Fund will not buy additional portfolio
securities (additional shares of the Mortgage Portfolio) while borrowings in
excess of 5% of its total assets are outstanding.
ILLIQUID INVESTMENTS. Each portfolio's policy is not to invest more than 10% of
its net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the portfolio has valued them.
OTHER POLICIES AND RESTRICTIONS. The funds and the portfolios have a number of
additional investment policies and restrictions that govern their activities.
Those that are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board or the Board of Trustees of the
Adjustable Rate Securities Portfolios alone. For a list of these restrictions
and more information about the funds' and the portfolios' investment policies,
including those described above, please see "How Do the Funds Invest Their
Assets?" and "Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in the
SAI apply when a fund or portfolio makes an investment. In most cases, a fund or
portfolio is not required to sell a security because circumstances change and
the security no longer meets one or more of the fund's or portfolio's policies
or restrictions.
THE ADVANTAGES OF INVESTING IN THE FUNDS
The Adjustable U.S. Government Fund enables you to invest easily in mortgage
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities without paying a sales charge or Rule 12b-1 fees. Similarly,
the Adjustable Rate Securities Fund enables you to invest easily in adjustable
rate securities rated in the top two rating categories by nationally recognized
statistical rating agencies or issued or guaranteed by the U.S. government, its
agencies or instrumentalities without paying a sales charge or Rule 12b-1 fees.
Any guarantee will extend to the payment of interest and principal due on the
securities and will not provide any protection from fluctuations in the market
value of the securities. Each fund believes that by investing in the underlying
portfolio, which in turn invests primarily in securities that provide for
variable interest rates, it will achieve a more consistent and less volatile Net
Asset Value than is characteristic of mutual funds that invest primarily in
similar securities paying a fixed interest rate. Principal payments received on
a portfolio's mortgage securities will be reinvested by the portfolio in other
securities. These securities may have a higher or lower yield than the mortgage
securities already held by the portfolio, depending on market conditions.
An investment in a fund also provides liquidity since you may redeem shares
of the fund at any time at the current Net Asset Value. Please see "How Do I
Sell Shares?"
IF YOU ARE AN INVESTOR WHOSE INVESTMENT AUTHORITY IS RESTRICTED BY APPLICABLE
LAW OR REGULATION, YOU SHOULD CONSULT YOUR LEGAL ADVISOR TO DETERMINE WHETHER
AND TO WHAT EXTENT SHARES OF A FUND CONSTITUTE LEGAL INVESTMENTS FOR YOU. If you
are a municipal investor considering investment of proceeds of bond offerings
into a fund, you should consult with expert counsel to determine the effect, if
any, of various payments made by the fund, Advisers, or Distributors on
arbitrage rebate calculations.
WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
There is no assurance that the funds will meet their investment goals.
The value of your shares of a fund will increase as the value of the securities
owned by the fund increases and will decrease as the value of the fund's
investments decrease. In this way, you participate in any change in the value of
the securities owned by the fund. Since each fund invests its assets in shares
of the underlying portfolio, as the value of the securities owned by the
portfolio fluctuates, the portfolio's Net Asset Value per share, and thus the
fund's Net Asset Value per share, will also fluctuate. In addition to the
factors that affect the value of any particular security that the underlying
portfolio owns, the value of fund shares may also change with movements in the
bond market as a whole.
MORTGAGE SECURITIES. The mortgage securities in which the portfolios invest
differ from conventional bonds in that principal is paid over the life of the
mortgage security rather than at maturity. As a result, the holder of the
mortgage securities (i.e., a portfolio) receives monthly scheduled payments of
principal and interest and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder reinvests
the payments and any unscheduled prepayments of principal it receives, it may
receive a rate of interest that is lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of U.S. government securities as a means of "locking in" long-term
interest rates. In general, fixed-rate mortgage securities have greater exposure
to this "prepayment risk" than ARMS.
The market value of mortgage securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. An unexpected
rise in interest rates could extend the life of a mortgage security because of a
lower than expected level of prepayments, potentially reducing the security's
value and increasing its volatility. ARMS, however, have less risk of a decline
in value during periods of rapidly rising rates but, like other mortgage
securities, may also have less potential for capital appreciation than other
investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. To the extent market
interest rates increase beyond applicable caps or maximum rates on ARMS or
beyond the coupon rates of fixed-rate mortgage securities, the market value of
the mortgage security would likely decline to the same extent as a conventional
fixed-rate security.
In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in some
loss of the holder's principal investment to the extent of the premium paid. On
the other hand, if mortgage securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal will
increase current and total returns and will accelerate the recognition of income
that, when distributed to shareholders, will be taxable as ordinary income.
Some of the CMOs in which the portfolios may invest may have less liquidity than
other types of mortgage securities. As a result, it may be difficult or
impossible to sell the securities at an advantageous price or time under certain
circumstances.
With respect to pass-through mortgage pools issued by private issuers, there is
no assurance that private insurers of the securities will be able to meet their
obligations. Although the market for privately issued mortgage securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. These securities are subject to the Securities
Portfolio's limit with respect to illiquid investments.
ADJUSTABLE RATE SECURITIES. ARS have several characteristics that you should
consider before investing in the Adjustable Rate Securities Fund. As indicated
above, the interest rate reset features of ARS held by the Securities Portfolio
will reduce the effect on the Securities Portfolio's Net Asset Value per share
caused by changes in market interest rates. The market value of ARS and,
therefore, the Securities Portfolio's and the Adjustable Rate Securities Fund's
Net Asset Value may vary, however, to the extent that the current interest rate
on ARS differs from market interest rates during periods between the interest
rate reset dates. These variations in value occur inversely to changes in the
market interest rates. Thus, if market interest rates rise above the current
rates on the securities, the value of the securities will decrease, and if
market interest rates fall below the current rate on the securities, the value
of the securities will rise. The longer the adjustment intervals on ARS held by
the Securities Portfolio, the greater the potential for fluctuations in the
Securities Portfolio's and thus the Adjustable Rate Securities Fund's Net Asset
Value.
As an investor in the Adjustable Rate Securities Fund, you will receive
increased income as a result of upward adjustments of the interest rates on ARS
held by the Securities Portfolio in response to market interest rates. The
Adjustable Rate Securities Fund and its shareholders, however, will not benefit
from increases in market interest rates once the rates rise to the point where
they cause the rates on ARS to reach their maximum adjustment rate annual or
lifetime caps. In addition, because of their interest rate adjustment feature,
ARS are not an effective means of "locking-in" attractive interest rates for
periods in excess of the adjustment period.
In the case of privately issued ARMS where the underlying mortgage assets carry
no agency or instrumentality guarantee, the mortgagors on the loans underlying
ARMS are often qualified for the loans on the basis of the original payment
amounts. The mortgagor's income may not be sufficient to enable the mortgagor to
continue making loan payments as the payments increase, resulting in a greater
likelihood of default. Conversely, any benefits to the Adjustable Rate
Securities Fund and its shareholders from an increase in the Securities
Portfolio's Net Asset Value caused by falling market interest rates is reduced
by the potential for a decline in the interest rates paid on ARS held by the
Securities Portfolio. The Adjustable Rate Securities Fund, therefore, is not
designed for investors seeking capital appreciation.
ASSET-BACKED SECURITIES. Asset-backed securities entail certain risks not
present with mortgage-backed securities, because they do not have the benefit of
the same type of security interests in the underlying collateral. Credit card
receivables are generally unsecured, and a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing the receivables due to
the large number of vehicles involved in a typical issuance and the technical
requirements imposed under state laws. Therefore, recoveries on repossessed
collateral may not always be available to support payments on securities backed
by these receivables. For more information about the risks of investing in
asset-backed securities, please see the SAI.
Investments in fixed-rate securities generally decline in value during periods
of rising interest rates and increase in value when interest rates fall. To the
extent the Securities Portfolio invests in fixed-rate securities, the value of
the Securities Portfolio's and thus the Adjustable Rate Securities Fund's shares
will be more sensitive to interest rate changes than if the Securities Portfolio
were fully invested in adjustable-rate securities.
INTEREST RATE RISK. Changes in interest rates will affect the value of each
portfolio's and thus the corresponding fund's assets and their share prices.
Rising interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of each portfolio's
and the corresponding fund's shares. Interest rates have increased and decreased
in the past. These changes are unpredictable.
WHO ADMINISTERS THE FUNDS?
THE BOARD. The Board oversees the management of the funds and elects their
officers. The officers are responsible for the funds' day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the funds and the Adjustable Rate Securities Portfolios
having substantially the same boards. These procedures call for an annual review
of each fund's relationship with the underlying portfolio. If a conflict exists,
the boards may take action, which may include the establishment of a new board.
The Board has determined that there are no conflicts of interest at the present
time. For more information, please see "Summary of Procedures to Monitor
Conflicts of Interest" and "Officers and Trustees" in the SAI.
INVESTMENT MANAGER AND ADMINISTRATOR. Advisers manages the portfolios' assets
and makes their investment decisions. Advisers also performs similar services
for other funds. It is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together, Advisers and its affiliates manage over $207 billion in assets.
Advisers is also the administrator of the funds. Please see "Investment
Management and Other Services" and "Miscellaneous Information" in the SAI for
information on securities transactions and a summary of the funds' Code of
Ethics.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
portfolios is: Mr. Coffey, Mr. Bayston, and Mr. Lemein since 1991.
T. Anthony Coffey
Portfolio Manager of Advisers
Mr. Coffey is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned a Bachelor of Arts degree in Applied Mathematics and Economics from
Harvard University. Mr. Coffey has been with the Franklin Templeton Group
since 1989. He is a member of several securities industry-related
associations.
Roger Bayston
Portfolio Manager of Advisers
Mr. Bayston is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned his Bachelor of Science degree from the University of Virginia. He has
been with the Franklin Templeton Group since earning his MBA degree in 1991.
Jack Lemein
Executive Vice President of Advisers
Mr. Lemein holds a Bachelor of Science degree in Finance from the University of
Illinois. He has been in the securities industry since 1967 and with the
Franklin Templeton Group since 1984. He is a member of several securities
industry-related associations.
Management Fees. You will bear a portion of a portfolio's operating expenses,
including its management fees, to the extent that your fund, as a shareholder of
the portfolio, bears these expenses. The portion of the underlying portfolio's
expenses borne by a fund depends on the fund's proportionate share of the
portfolio's net assets.
During the fiscal year ended June 30, 1998, each fund's proportionate share of
the underlying portfolio's management fees, before any advance waiver, totaled
0.40% of the average daily net assets of the fund. Each fund's administration
fees totaled 0.05%. Total operating expenses, including fees paid to Advisers
before any advance waiver, were 0.71% for the Adjustable U.S. Government Fund
and 0.52% for the Adjustable Rate Securities Fund. Under an agreement by
Advisers to limit its fees, the Adjustable U.S. Government Fund and the
Adjustable Rate Securities Fund paid a proportionate share of the underlying
portfolio's management fees totaling 0.22% and 0.21%, respectively. Total
expenses of the funds were 0.53% and 0.33%, respectively. Advisers may end this
arrangement at any time upon notice to the Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Do the Portfolios
Buy Securities for Their Portfolios?" in the SAI for more information.
YEAR 2000 ISSUE. Like other mutual funds, the funds could be adversely affected
if the computer systems used by Advisers and other service providers do not
properly process date-related information on or after January 1, 2000 ("Year
2000 Issue"). The Year 2000 Issue, and in particular foreign service providers'
responsiveness to the issue, could affect portfolio and operational areas
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions,
and others. While there can be no assurance that the funds will not be adversely
affected, Advisers and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Year 2000 Issue, including
seeking reasonable assurances from the funds' other major service providers.
HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS
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TAXATION OF THE FUNDS' INVESTMENTS. HOW DO THE FUNDS EARN INCOME AND GAINS?
Each fund invests your money in the Each fund earns income and gains on
underlying portfolio which, in turn, its investment in the underlying
invests in the bonds and other portfolio. The portfolio, in turn,
securities that are described in the earns interest on its investments.
section "How Do the Funds Invest Their When a portfolio sells a security for
Assets?" Special tax rules may apply a price that is higher than it paid,
in determining the income and gains it has a gain. When a portfolio sells
that the portfolios earn on their a security for a price that is lower
investments. These rules may, in turn, than it paid, it has a loss. If the
affect the amount of distributions portfolio has held the security for
that a fund pays to you. These special more than one year, the gain or loss
tax rules are discussed in the SAI. will be a long-term capital gain or
loss. If the portfolio has held the
TAXATION OF THE FUNDS. As a regulated security for one year or less, the
investment company, each fund gain or loss will be a short-term
generally pays no federal income tax capital gain or loss. Each portfolio's
on the income and gains that it gains and losses are netted together.
distributes to you. The portfolio's net short-term capital
gains and interest income are paid to
the fund as ordinary dividend income.
The portfolio's net long-term capital
gains are paid to the fund as capital
gain distributions.
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TAXATION OF SHAREHOLDERS. WHAT IS A DISTRIBUTION?
DISTRIBUTIONS. Distributions from a The ordinary dividend income a fund
fund, whether you receive them in cash receives from the underlying portfolio
or in additional shares, are generally and any net short-term capital gains
subject to income tax. The fund will realized by the fund on sale of
send you a statement in January of the portfolio shares are paid to you as
current year that reflects the amount ordinary dividends. The capital gain
of ordinary dividends, capital gain distributions the fund receives from
distributions and non-taxable the portfolio and any net long-term
distributions you received from the capital gains realized by the fund on
fund in the prior year. This statement sale of portfolio shares are paid to
will include distributions declared in you as capital gain distributions. If
December and paid to you in January of the fund pays you an amount in excess
the current year, but which are of its income and gains, including any
taxable as if paid on December 31 of gain realized on sale of portfolio
the prior year. The IRS requires you shares, this excess will generally be
to report these amounts on your income treated as a non-taxable distribution.
tax return for the prior year. These amounts, taken together, are
what we call the fund's distributions
DIVIDENDS-RECEIVED DEDUCTION. It is to you.
anticipated that no portion of the
funds' distributions will qualify for
the corporate dividends-received
deduction.
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REDEMPTIONS AND EXCHANGES. If you WHAT IS A REDEMPTION?
redeem your shares or if you exchange
your shares in the funds for shares in A redemption is a sale by you to a
another Franklin Templeton Fund, you fund of some or all of your shares in
will generally have a gain or loss the fund. The price per share you
that the IRS requires you to report on receive when you redeem fund shares
your income tax return. If you hold may be more or less than the price at
your shares for six months or less, which you purchased those shares. An
any loss you have will be treated as a exchange of shares in the fund for
long-term capital loss to the extent shares of another Franklin Templeton
of any capital gain distributions Fund is treated as a redemption of
received by you from the fund. All or fund shares and then a purchase of
a portion of any loss on the shares of the other fund. When you
redemption or exchange of your shares redeem or exchange your shares, you
will be disallowed by the IRS if you will generally have a gain or loss,
purchase other shares in the fund depending upon whether the amount you
within 30 days before or after your receive for your shares is more or
redemption or exchange. less than your cost or other basis in
the shares. Call Fund Information at
NON-U.S. INVESTORS. Ordinary dividends 1-800/DIALBEN for a free shareholder
generally will be subject to U.S. Tax Information Handbook if you need
income tax withholding. Your home more information in calculating the
country may also tax ordinary gain or loss on the redemption or
dividends, capital gain distributions exchange of your shares.
and gains arising from redemptions or
exchanges of your fund shares. Fund
shares held by the estate of a
non-U.S. investor may be subject to
U.S. estate tax. You may wish to
contact your tax advisor to determine
the U.S. and non-U.S. tax consequences
of your investment in the fund.
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STATE TAXES. Ordinary dividends and capital gain distributions that you receive
from the funds, and gains arising from redemptions or exchanges of your fund
shares will generally be subject to state and local income tax. It is
anticipated that no portion of a fund's distributions will qualify for exemption
from state and local income tax as dividends paid from interest earned on direct
obligations of the U.S. government. The holding of fund shares may also be
subject to state and local intangibles taxes. You may wish to contact your tax
advisor to determine the state and local tax consequences of your investment in
the fund.
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BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP
account, IRS regulations require that WITHHOLDING?
you provide your taxpayer
identification number ("TIN"), certify Backup withholding occurs when the
that it is correct, and certify that fund is required to withhold and pay
you are not subject to backup over to the IRS 31% of your
withholding under IRS rules. If you distributions and redemption proceeds.
fail to provide a correct TIN or the You can avoid backup withholding by
proper tax certifications, the fund is providing the fund with your TIN, and
required to withhold 31% of all the by completing the tax certifications
taxable distributions (including on your account application that you
ordinary dividends and capital gain were asked to sign when you opened
distributions) and redemption proceeds your account. However, if the IRS
paid to you. The fund is also required instructs the fund to begin backup
to begin backup withholding on your withholding, it is required to do so
account if the IRS instructs the fund even if you provided the fund with
to do so. The fund reserves the right your TIN and these tax certifications,
not to open your account, or, and backup withholding will remain in
alternatively, to redeem your shares place until the fund is instructed by
at the current Net Asset Value, less the IRS that it is no longer required.
any taxes withheld, if you fail to provide a correct TIN, fail to provide the
proper tax certifications, or the IRS instructs the fund to begin backup
withholding on your account.
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THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. THE TAX
TREATMENT TO YOU OF DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, FOREIGN TAXES PAID
AND INCOME TAXES WITHHELD IS ALSO DISCUSSED IN A FREE FRANKLIN TEMPLETON TAX
INFORMATION HANDBOOK, WHICH YOU MAY REQUEST BY CONTACTING FUND INFORMATION AT
1-800/DIAL BEN(R).
HOW IS THE TRUST ORGANIZED?
Each fund is a no-load, diversified series of Institutional Fiduciary Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on January 15, 1985,
and is registered with the SEC. Shares of each series of the Trust have equal
and exclusive rights to dividends and distributions declared by that series and
the net assets of the series in the event of liquidation or dissolution. Shares
of each fund are considered Class I shares for redemption, exchange and other
purposes. Additional series and classes of shares may be offered in the future.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or 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.
As of October 2, 1998, Dai-Ichi Kangyo Bank of California owned of record and
beneficially more than 25% of the outstanding shares of the Adjustable Rate
Securities Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Each fund is available for investment by institutional investors, such as
corporations, banks, thrifts, credit unions, government authorities or agencies,
trust companies, and other institutional entities that are prohibited by law,
regulation, charter or stated policy from investing in a fund with a sales
charge or a "Rule 12b-1 Plan" under the 1940 Act. To be eligible to invest in a
fund you must also have, or will have after the purchase of fund shares, at
least $5,000,000 (valued at the higher of cost or current value) invested in the
Franklin Templeton Funds. For trust companies and bank trust departments buying
shares on behalf of accounts over which they exercise exclusive investment
discretion, the minimum amount is $1,000,000. We reserve the right to change the
amount of these minimums from time to time or to waive or lower these minimums
for certain purchases. We also reserve the right to refuse any order to buy
shares.
To determine if you meet the minimum investment requirement, you may combine
investments in the following accounts:
o all accounts registered in the name of your institution, for its own account
or for accounts under exclusive investment discretion (such as trust or
custodial accounts)
o all accounts with substantially identical ownership; for example, accounts of
all 80% or more owned subsidiaries of a holding company.
You must notify us in writing of all accounts that you would like combined.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. For an initial investment, complete and sign an account
application.
2. Return the application, if applicable, to the fund with
your check, Federal Reserve draft or negotiable bank draft
made payable to the fund.
- ------------------------------------------------------------------------------
BY WIRE 1. Call Institutional Services at 1-800/321-8563 or
650/312-3600 to receive a wire control number. You need
a new wire control number every time you wire money
into your account. If you do not have a currently
effective wire control number, we will return the money
to the bank, and we will not credit the purchase to
your account.
2. On the same day, wire the funds to Bank of America, ABA
routing number 121000358, for credit to either Franklin
Institutional Adjustable U.S. Government Securities Fund
or Franklin Institutional Adjustable Rate Securities Fund,
A/C 1493304779. Be sure to include your account number,
account registration, and wire control number.
3. For an initial investment, complete an application and
return it to the fund. For investments over $50,000, you
also need to complete the Institutional Telephone
Privileges Agreement.
IMPORTANT DEADLINES: If we receive your call before 1:00 p.m.
Pacific time and the bank receives the wired funds and reports
the receipt of wired funds to the fund by 3:00 p.m. Pacific
time, we will credit the purchase to your account that day. If
we receive your call after 1:00 p.m. or the bank receives the
wire after 3:00 p.m., we will credit the purchase to your
account the following business day.
- ------------------------------------------------------------------------------
THROUGH
YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
MORE INFORMATION ABOUT BUYING SHARES BY WIRE
Wire trades placed by the above deadlines will receive same day credit so long
as funds are received as described above. To maximize efficient fund management,
you should place and wire your investment as early in the day as possible. Prior
business day notification of a trade may be required. Requests to begin a wire
order after the cut off time for each fund will not be in proper form for that
day's purchase and will receive credit on the next business day.
Many of the funds' investments, through the portfolios, must be paid for in
federal funds, which are monies held by the funds' custodian bank on deposit at
the Federal Reserve Bank of San Francisco and elsewhere. A fund generally cannot
invest money received from you until it is converted into and is available to
the fund in federal funds. Therefore, your purchase order may not be considered
in proper form until the money received from you is available in federal funds,
which may take up to two days. If a fund is able to make investments immediately
(within one business day), it may accept your order with payment in other than
federal funds.
PAYMENTS TO SECURITIES DEALERS
If you buy shares through a Securities Dealer, Distributors may make a payment
to the Securities Dealer out of its own resources. Please contact Institutional
Services for more information.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the funds
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.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal and
policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL Send us signed written instructions
- ------------------------------------------------------------------------------
BY PHONE Call Institutional Services at 1-800/321-8563 or
1-650/312-3567
- For requests over $50,000, you must complete an
Institutional Telephone Privileges Agreement. Call
Institutional Services to receive a copy.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors such as government
entities, certain employee benefit plans, trust companies, and bank trust
departments may buy Class I shares of other Franklin Templeton Funds without a
sales charge.
EXCHANGING SHARES BETWEEN FUNDS IN THE TRUST
FROM THE FUND INTO A MONEY MARKET SERIES OF THE TRUST. To avoid dilution of the
money market fund, your exchange will be treated as a sale of fund shares at the
Net Asset Value next calculated after we receive your exchange request in proper
form before 1:00 p.m. Pacific time and a purchase of shares of the money market
series on the following business day when the funds for the purchase are
available and the purchase order is in proper form.
FROM A MONEY MARKET SERIES OF THE TRUST INTO THE FUND. Shares of the fund will
be purchased at the Net Asset Value next calculated after we receive your
exchange request in proper form before 11:15 a.m. Pacific time, with payment for
the purchased shares processed on the following business day when the funds are
made available from the money market fund.
RETIREMENT PLANS
Retirement plan participants may exchange shares in accordance with the options
available under, and the requirements of, their plan and plan administrator.
Retirement plan administrators may charge a fee in connection with exchanges.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
funds do not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the funds at Net Asset
Value. If you do so and you later decide you would like to exchange into a fund
that offers an Advisor Class, you may exchange your fund shares for Advisor
Class shares of that fund. Certain shareholders of Class Z shares of Franklin
Mutual Series Fund Inc. may also exchange their Class Z shares for shares of the
funds at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may
need to send additional documents. Accounts
under court jurisdiction may have other
requirements.
- ------------------------------------------------------------------------------
BY PHONE 1. Call Institutional Services at 1-800/321-8563
2. For requests over $50,000, you must complete
an Institutional Telephone Privileges
Agreement. Call Institutional Services to
receive a copy.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible. Redemption proceeds may be wired to a preauthorized bank
account. If we receive your request in proper form before 1:00 p.m. Pacific
time, your wire payment will be sent the next business day. For requests
received in proper form after 1:00 p.m. Pacific time, the payment will be sent
the second business day. If you anticipate requesting a wire redemption over $5
million, please notify the fund on the prior business day.
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 is not processed as described in this section.
If you sell shares you 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.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
CONTINGENT DEFERRED SALES CHARGE
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the funds generally do not impose a Contingent
Deferred Sales Charge, a fund will do so if you sell shares that were exchanged
into the fund from another Franklin Templeton Fund and those shares would have
been assessed a Contingent Deferred Sales Charge in the other fund. The charge
is 1% of the value of the shares sold or the Net Asset Value at the time of
purchase, whichever is less. The time the shares are held in the fund does not
count towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?
Each fund declares dividends each day that its Net Asset Value is calculated and
pays them monthly on or about the last day of the month. Shares begin earning
dividends on the day we receive the trade payment. For purchases by wire, we
must receive notification of the trade on the previous business day. If you
purchased shares with a check, your shares will begin earning dividends on the
day the check is converted into federal funds. This may take two or more days
depending on the banks involved.
Capital gains, if any, may be distributed annually, usually in December.
Dividend payments are not guaranteed, are subject to the Board's discretion, and
may vary with each payment. THE FUNDS DO NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN THEIR SHARES.
If you buy shares of a fund shortly before the fund deducts a capital gain
distribution from its Net Asset Value, please keep in mind that you will receive
a portion of the price you paid back in the form of a taxable distribution.
DIVIDEND OPTIONS
Dividends will automatically be reinvested monthly in the form of additional
shares of the fund at the Net Asset Value per share at the close of business on
or about the last business day of the month. You may, however, choose to receive
dividends in cash. To do so, please notify the fund or Institutional Services.
Certain restrictions may apply to retirement plans. If you sell all of your
shares at any time during the month, you will receive your dividends with your
redemption proceeds.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the fund.
HOW AND WHEN SHARES ARE PRICED
The funds are open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the close of the NYSE, normally 1:00 p.m. Pacific
time. To calculate Net Asset Value per share, each fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. Each fund's assets are valued as
described under "How Are Fund Shares Valued?" in the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The fund's name,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates. This eliminates the costly problem of replacing lost, stolen or
destroyed certificates.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Institutional Services at 1-800/321-8563.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
RETIREMENT PLANS. The telephone transaction options available to retirement
plans are limited to those that are provided under the plan.
REQUIRED DOCUMENTS
For corporate, partnership and trust accounts, please send us the following
documents when you open your account. This will help avoid delays in processing
your transactions while we verify who may sign on the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify
the trustees, or
2. A certification for trust
- ------------------------------------------------------------------------------
KEEPING YOUR ACCOUNT OPEN
We may close your account if the value of your shares is less than $1,000,000
($500,000 for trust companies and bank trust departments). We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to the
minimum amount.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
CUMULATIVE QUANTITY DISCOUNTS
You may include the cost or current value (whichever is higher) of your fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the funds will be sent every six months. Call
Institutional Services if you would like an additional free copy of the
funds' financial reports.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution or in a street name account the funds may
not be able to offer these services directly to you.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Institutional
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The funds, Distributors, and Advisers are also located at this
address. You may also contact us by phone at 1-800/321-8563, Monday through
Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
ADVISERS - Franklin Advisers, Inc., the portfolios' investment manager and
the funds' administrator
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer
multiple classes of shares. The different classes have proportionate interests
in the same portfolio of investment securities. They differ, however, primarily
in their sales charge structures and Rule 12b-1 plans. Shares of the funds are
considered Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares of most Franklin Templeton Funds, the 12
month period during which a Contingent Deferred Sales Charge may apply. The
holding period begins on the day you buy your shares. 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.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares of most Franklin Templeton Funds within the Contingency
Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
INSTITUTIONAL SERVICES - Franklin Templeton Institutional Services Department
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the funds and/or Institutional Services, Distributors, or other wholly owned
subsidiaries of Resources.
FGF09/98 IFT2 P 11/98
PROSPECTUS
INSTITUTIONAL FIDUCIARY TRUST
Franklin U.S. Government Agency Money Market Fund
NOVEMBER 1, 1998
INVESTMENT STRATEGY INCOME
Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how the fund invests and the
services available to shareholders.
To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated November 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus. For a free copy of the
SAI or a larger print version of this prospectus, contact your investment
representative or call 1-800/321-8563.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE $1 SHARE PRICE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, 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.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
FRANKLIN U.S.GOVERNMENT AGENCY MONEY MARKET FUND
November 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary..........................................
Financial Highlights.....................................
How Does the Fund Invest Its Assets?.....................
What Are the Risks of Investing in the Fund?.............
Who Manages the Fund?....................................
How Taxation Affects the Fund and Its Shareholders.......
How Is the Trust Organized?..............................
ABOUT YOUR ACCOUNT
How Do I Buy Shares?.....................................
May I Exchange Shares for Shares of Another Fund?........
How Do I Sell Shares?....................................
What Distributions Might I Receive From the Fund?........
Transaction Procedures and Special Requirements..........
Services to Help You Manage Your Account.................
What If I Have Questions About My Account?...............
GLOSSARY
Useful Terms and Definitions.............................
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/321-8563
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
fund. It is based on the fund's historical expenses for the fiscal year ended
June 30, 1998. The fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Exchange Fee (per transaction) None*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.15%**
Rule 12b-1 Fees 0.30%***
Other Expenses 0.04%
----------
Total Fund Operating Expenses 0.49%**
==========
C. EXAMPLE
Assume the fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$5 $16 $27 $62
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE shown.
The fund pays its operating expenses. The effects of these expenses are
reflected in its Net Asset Value or dividends and are not directly charged
to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*There is a $5.00 fee for exchanges by Market Timers.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.11% and total operating
expenses were 0.45%.
***These fees may not exceed 0.30%.
FINANCIAL HIGHLIGHTS
This table summarizes the fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the fund's independent auditor. The audit
report covering the periods shown below appears in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1998. The Annual Report to
Shareholders also includes more information about the fund's performance. For a
free copy, please call Institutional Services at 1-800/321-8563.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------
Income from investment operations-
net investment income .051 .049 .051 .051 .013
Less distributions from net investment income (.051) (.049) (.051) (.051) (.013)
------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
============================================================
Total return** 5.17% 5.06% 5.23% 5.22% 1.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $16,153 $134,362 $71,694 $34,285 $5,065
Ratios to average net assets:
Expenses .45% .45% .44% .30% .40%***
Expenses excluding waiver and payments by affiliate .49% .48% .47% .47% 1.43%***
Net investment income 5.07% 4.95% 5.04% 5.39% 3.32%***
</TABLE>
*For the period February 8, 1994 (effective date) to June 30, 1994.
**Total return is not annualized.
***Annualized
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to provide investors with as high a level of
current income as is consistent with the preservation of shareholders' capital
and liquidity. This goal is fundamental, which means that it may not be changed
without shareholder approval. The fund also tries to maintain a stable Net Asset
Value of $1 per share.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
Because the fund will limit its investments to high-quality securities, its
yields will be generally lower than if the fund purchased securities with a
lower rating and correspondingly greater risk.
QUALITY, MATURITY AND DIVERSIFICATION STANDARDS. The fund, like all money funds,
follows SEC guidelines on the quality, maturity and diversification of its
investments. These guidelines are designed to help reduce a money fund's risks
so that it is more likely to keep its share price at $1.
o The fund only buys securities that Advisers determines present minimal
credit risks and that are rated in one of the top two short-term rating
categories or that are comparable unrated securities in Advisers' opinion.
o The fund only buys securities with remaining maturities of 397 calendar days
or less and maintains a dollar-weighted average portfolio maturity of 90 days
or less.
o Generally, the Portfolio may not invest more than 5% of its total assets in
the securities of a single issuer, other than in U.S. government securities.
The fund invests only in U.S. government securities, which consist of marketable
fixed-, floating-, and variable-rate securities issued or guaranteed by the U.S.
government, its agencies, or various instrumentalities which have been
established or sponsored by the U.S. government. The fund invests at least 65%
of its net assets in notes, bonds, discount notes, and other short-term
securities issued by U.S. government agencies or instrumentalities, such as the
Federal Farm Credit System, Federal Home Loan Banks, Student Loan Marketing
Association, Tennessee Valley Authority, Federal Deposit Insurance Corporation,
Federal Intermediate Credit Bank, and General Services Administration ("U.S.
Government Agency Securities"). Some U.S. Government Agency Securities are
supported by the right of the issuer to borrow from the U.S. Treasury. Others
are supported only by the credit of the instrumentality. In addition, the fund
may invest in direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds. The fund does not invest in repurchase agreements or
any other type of money market instruments.
U.S. TREASURY SECURITIES. These securities are supported by the full faith
and credit of the U.S. and differ only in their interest rates, maturities,
and times of issuance. Treasury bills have initial maturities of one year or
less; Treasury notes have initial maturities of one to ten years; and
Treasury bonds generally have initial maturities of more than ten years. The
fund's investments may bear fixed or variable rates of interest, and its
share price and yield are not guaranteed by the U.S. government.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS are those where payment and
delivery for the security 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.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
PORTFOLIO TRADING. The Portfolio may actively trade securities in its portfolio,
without any limits, if Advisers believes that yields can be increased by doing
so. Advisers considers current market conditions, cash requirements and its
revised evaluations of a security when determining whether or not to hold
securities until maturity. The yield on some securities held by the Portfolio
may decline if the securities are sold before maturity.
OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional investment
policies and restrictions that govern its activities. Those that are identified
as "fundamental" may only be changed with shareholder approval. The others may
be changed by the Board alone. For a list of these restrictions and more
information about the fund's investment policies, including those described
above, please see "How Does the Fund Invest Its Assets?" and "Investment
Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in the
SAI 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.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
Like all investments, an investment in the fund involves risk. The risks of the
fund are basically the same as those of other investments in money market
securities. The short duration and high credit quality of the securities in
which the fund invests may help reduce the risks detailed below.
There is no assurance that the fund will meet its investment goal. Although the
fund tries to maintain a stable share price of $1, there is no assurance that it
will be able to do so.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. Generally when interest rates rise, the value of a security
falls. The opposite is also true: security prices rise when interest rates fall.
INCOME RISK is the risk that the fund's income will decrease due to falling
interest rates. Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value.
MARKET RISK is the risk that a security's value will 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, prices tend to rise.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the fund and elects its
officers. The officers are responsible for the fund's day-to-day operations.
INVESTMENT MANAGER. Advisers manages the fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. Advisers
also provides certain administrative services and facilities for the fund. It is
wholly owned by Resources, a publicly owned company engaged in the financial
services industry through its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources. Together, Advisers and
its affiliates manage over $207 billion in assets Please see "Investment
Management and Other Services" and "Miscellaneous Information" in the SAI for
information on securities transactions and a summary of the fund's Code of
Ethics.
MANAGEMENT FEES. During the fiscal year ended June 30, 1998, management fees,
before any advance waiver, totaled 0.15% of the average daily net assets of the
fund. Total operating expenses, including fees paid to Advisers before any
advance waiver, were 0.49%. Under an agreement by Advisers to limit its fees,
the fund paid management fees totaling 0.11%. Total expenses of the fund were
0.45%. Advisers may end this arrangement at any time upon notice to the Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Does the Fund Buy
Securities for Its Portfolio?" in the SAI for more information.
YEAR 2000 ISSUE. Like other mutual funds, the fund could be adversely affected
if the computer systems used by Advisers and other service providers do not
properly process date-related information on or after January 1, 2000 ("Year
2000 Issue"). The Year 2000 Issue could affect portfolio and operational areas
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions,
and others. While there can be no assurance that the fund will not be adversely
affected, Advisers and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Year 2000 Issue, including
seeking reasonable assurances from the fund's other major service providers.
THE RULE 12B-1 PLAN
The fund has a distribution plan or "Rule 12b-1 Plan" under which it may pay or
reimburse Distributors or others for the expenses of activities that are
primarily intended to sell shares of the fund. These expenses may include, among
others, distribution or service fees paid to Securities Dealers or others who
have executed a servicing agreement with the fund, Distributors or its
affiliates; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
Under the plan, the fund may pay Distributors up to 0.30% per year of the fund's
average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain fund expenses. All
distribution expenses over this amount will be borne by those who have incurred
them.
For more information, please see "The Fund's Underwriter" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
TAXATION OF THE FUND. As a regulated investment company, the fund generally pays
no federal income tax on the income and gains that it distributes to you.
DISTRIBUTIONS. Distributions from the fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The fund will send
you a statement in January of each year that reflects the amount of ordinary
dividends you received from the fund in the prior year. This statement will
include distributions declared in December and paid to you in January of the
following year, but which are taxable as if paid on December 31 of the prior
year. The IRS requires you to report these amounts on your income tax return for
the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you. Special rules apply to payouts from Roth and Education
IRAs.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the fund's
distributions will qualify for the corporate dividends-received deduction.
REDEMPTIONS AND EXCHANGES. Because the fund expects to maintain a $1.00 net
asset value per share, you should not have any gain or loss on the redemption or
exchange of fund shares.
MUNICIPAL INVESTORS. A municipality that invests the proceeds of a bond offering
in the fund should be aware that some or all of the earnings distributed by the
fund may need to be paid to the U.S. as a rebate of arbitrage profits. You may
wish to contact your tax advisor to determine the effect, if any, of payments by
the fund with respect to the arbitrage rebate requirements.
U.S. GOVERNMENT INTERESt. Many states grant tax-free status to dividends paid
from interest earned on direct obligations of the U.S. Government, subject to
certain restrictions. The fund will provide you with information after the end
of each calendar year on the amount of such dividends that may qualify for
exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends. Fund shares
held by the estate of a non-U.S. investor may be subject to U.S. estate tax. You
may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in the fund.
STATE TAXES. Ordinary dividends that you receive from the fund will generally be
subject to state and local income tax. The holding of fund shares may also be
subject to state and local intangibles taxes. You may wish to contact your tax
advisor to determine the state and local tax consequences of your investment in
the fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the fund is
required to withhold 31% of all taxable distributions (including ordinary
dividends and capital gain distributions), and redemption proceeds paid to you.
The fund is also required to begin backup withholding on your account if the IRS
instructs the fund to do so. The fund reserves the right not to open your
account, or, alternatively, to redeem your shares at the current Net Asset
Value, less any taxes withheld, if you fail to provide a correct TIN, fail to
provide the proper tax certifications, or the IRS instructs the fund to begin
backup withholding on your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. YOU MAY
REQUEST A FREE FRANKLIN TEMPLETON TAX INFORMATION HANDBOOK BY CONTACTING FUND
INFORMATION AT 1-800/DIAL BEN.
HOW IS THE TRUST ORGANIZED?
The fund is a no-load, diversified series of Institutional Fiduciary Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on January 15, 1985,
and is registered with the SEC. Shares of each series of the Trust have equal
and exclusive rights to dividends and distributions declared by that series and
the net assets of the series in the event of liquidation or dissolution. Shares
of the fund are considered Class I shares for redemption, exchange and other
purposes. Additional series may be offered in the future.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or 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.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
The fund is designed for institutional investors, such as corporations, banks,
savings and loan associations, trust companies and for government entities for
investment of their own capital and of monies held in accounts for which they
act in a fiduciary, advisory, agency, custodial, or other similar capacity.
Individuals may not buy shares of the fund. Fund shares are offered without a
sales charge.
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum
investments are:
o To open your account: $100,000
o To add to your account: No minimum
States, counties, cities, and their instrumentalities, departments,
agencies and authorities may open an account in each fund with a minimum
initial investment of $1,000.
We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.
3. Carefully complete and sign an Institutional Account application. It is
important that we receive a signed application since we will not be able
to process any redemptions from your account until we receive your signed
application.
4. Make your investment using the table below.
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METHOD STEPS TO FOLLOW
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BY MAIL For an initial investment:
Return the application to the fund with your check,
Federal Reserve draft or negotiable bank draft
made payable to the fund. Instruments drawn on
other investment companies may not be accepted.
For additional investments:
1. Send a check or use the deposit slips included
with your monthly statement.
2. If you send a check, please include your account
number on the check.
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BY WIRE 1. Call the fund at 1-800/321-8563 or 1-650/312-3600
See "Holiday Schedule" by 11:15 a.m. Pacific time to receive that day's
under "Transaction credit. The fund will supply a wire control
Procedures and Special number for the investment. You need a new wire
Requirements" control number every time you wire money into
your account. If you do not have a currently
effective wire control number, we will return the
money to the bank, and we will not credit the
purchase to your account.
2. Onthe same day, wire the funds to Bank of
America, ABA routing number 121000358, for credit
to Institutional Fiduciary Trust-Franklin U.S.
Government Agency Money Market Fund, A/C
1493-3-04779. Your name and wire control number
must be included.
3. For an initial investment you must also return
your signed Institutional Account application to
the fund. For investments over $50,000, you also
need to complete the Institutional Telephone
Privileges Agreement.
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Many of the fund's investments must be paid for in federal funds, which are
monies held by the fund's custodian bank on deposit at the Federal Reserve Bank
of San Francisco and elsewhere. The fund generally cannot invest money received
from you until it is converted into and is available to the fund in federal
funds. Therefore, your purchase order may not be considered in proper form until
the money received from you is available in federal funds, which may take up to
two days. If the fund is able to make investments immediately (within one
business day), it may accept your order with payment in other than federal
funds.
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.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the fund on arbitrage rebate calculations.
MORE INFORMATION ABOUT BUYING SHARES BY WIRE
If the fund receives your order in proper form before 3:00 p.m. Pacific time, we
will credit the purchase to your account that day. Orders received after 3:00
p.m. will be credited the following business day.
Wire trades placed by the above deadline will receive same day credit so long as
funds are received as described above. Prior business day notification of a
trade may be required. Requests to begin a wire order after the cut off time
will not be in proper form for that day's purchase and will receive credit on
the next business day.
PAYMENTS TO SECURITIES DEALERS
If you buy shares through a Securities Dealer, Distributors may make a payment
to the Securities Dealer out of its own resources. Please contact Institutional
Services for more information.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal and
policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
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METHOD STEPS TO FOLLOW
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BY MAIL Send us signed written instructions
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BY PHONE Call Institutional Services at 1-800/321-8563 or
1-650/312-3567
- For requests over $50,000, you must complete an
Institutional Telephone Privileges Agreement.
Call Institutional Services to receive a copy.
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THROUGH YOUR DEALER Call your investment representative
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Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors such as government
entities, certain retirement plans, trust companies and bank trust departments,
may buy Class I shares of other Franklin Templeton Funds without a sales charge.
HOW WE PROCESS YOUR EXCHANGE
FROM THE FUND INTO ANY OTHER SERIES OF THE TRUST. The exchange will be processed
the day your request is received, prior to 11:15 a.m. Pacific time, with payment
for the purchased shares processed on the following business day when the funds
are made available from the fund.
FROM THE FUND INTO CLASS I SHARES OF OTHER FRANKLIN TEMPLETON FUNDS. The
exchange will be effected at the respective Net Asset Value or offering price of
the funds involved next computed on the day on which the request is received in
proper form before 11:15 a.m. Pacific time. Requests received after 11:15 a.m.
will will be effective at the next day's price.
FROM ANOTHER FUND IN THE FRANKLIN TEMPLETON FUNDS INTO THE FUND. The transaction
will be processed as a liquidation from the other fund on the day the exchange
is received in proper form prior to the time of valuation for that fund (as
noted in that fund's prospectus) and shares of the fund will be bought on the
following business day when the money for purchase is available.
RETIREMENT PLANS
Retirement plan participants may exchange shares in accordance with the options
available under, and the requirements of, their plan and plan administrator.
Retirement plan administrators may charge a fee in connection with exchanges.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described in
this paragraph, you will be considered a Market Timer. Each exchange by a
Market Timer, if accepted, will be charged $5.00. Some of our funds do not
allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the fund
at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
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METHOD STEPS TO FOLLOW
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By Mail 1. Send us signed written instructions
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may
need to send additional documents. Accounts
under court jurisdiction may have other
requirements.
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BY PHONE 1. Call Institutional Services at 1-800/321-8563
See "Holiday Schedule" 2. For requests over $50,000, you must complete an
under "Transaction Institutional Telephone Privileges Agreement.
Procedures and Special Call Institutional Services to receive a copy.
Requirements"
o Telephone requests will be accepted unless:
- The address on your account was changed by phone
within the last 15 days.
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We will send your redemption check 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. If you sell your shares by phone, the check may only be made
payable to all registered owners on the account and sent to the address of
record. If requested, redemption proceeds may also be wired directly to a
commercial bank previously designated by you on an application, or in a
signature guaranteed letter of instruction.
A payment may be transmitted by wire the same business day if the phone request
is received before 11:15 a.m. Pacific time that day. For later requests,
payments will be transmitted by wire on the following business day. If you
anticipate requesting a same day wire redemption over $5 million, please notify
the fund about this on the prior business day. In order to maximize efficient
fund management, please request your same day wire redemption (regardless of
size) as early in the day as possible. Prior business day notification of the
trade may be required.
Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required.
The wiring of redemption proceeds 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 is not processed as described in
this section.
If you sell shares you 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.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
CONTINGENT DEFERRED SALES CHARGE
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if you sell shares that were exchanged into
the fund from another Franklin Templeton Fund and those shares would have been
assessed a Contingent Deferred Sales Charge in the other fund. The charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business that day. The
daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the fund's net investment income. THE FUND DOES NOT PAY
"INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON AN INVESTMENT IN
ITS SHARES.
DIVIDEND OPTIONS
Dividends will automatically be reinvested monthly in the form of additional
shares of the fund at the Net Asset Value per share at the close of business on
or about the last business day of the month. You may also choose to receive
dividends in cash. To do so, please notify the fund or Institutional Services.
Certain restrictions may apply to retirement plans.
Since the net income of the fund is declared as a dividend each time the net
income is determined, the Net Asset Value per share of the fund is expected to
remain at $1 per share immediately after each such determination and dividend
declaration. Any increase in the value of your investment in the fund,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in your account.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the fund.
HOW AND WHEN SHARES ARE PRICED
The fund is open for business each day that both the NYSE and the Federal
Reserve Bank of San Francisco are open. We determine the Net Asset Value per
share at 12:30 p.m. Pacific time. To calculate Net Asset Value per share, the
fund's assets are valued and totaled, liabilities are subtracted, and the
balance, called net assets, is divided by the number of shares outstanding. The
fund's assets are valued as described under "How Are Fund Shares Valued?" in the
SAI.
HOLIDAY SCHEDULE
In order to receive same day credit for transactions, you need to transmit your
request to buy, sell, or exchange shares before 11:15 a.m. Pacific time, except
on holidays or the day before or after a holiday.
The fund is informed that the NYSE and/or the Federal Reserve Bank of San
Francisco observe the following holidays: New Year's Day, Dr. Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Columbus Day (observed), Veterans' Day, Thanksgiving Day and
Christmas Day. Although the fund expects the same holiday schedule to be
observed in the future, the Federal Reserve Bank of San Francisco or the NYSE
may modify its holiday schedule at any time. On any day before or after a NYSE
or Federal Reserve Bank of San Francisco holiday, or on any day when the Public
Securities Association recommends an early closing, the fund reserves the right
to set an earlier time for notice and receipt of wire order purchase and
redemption orders submitted for same day credit or redemption. Please place your
trades as early in the day as possible on a day before or after a holiday. To
the extent the fund's portfolio securities are traded in other markets on days
the Federal Reserve Bank of San Francisco or the NYSE is closed, the fund's Net
Asset Value may be affected when investors do not have access to the fund to buy
or sell shares. Other Franklin Templeton Funds may follow different holiday
closing schedules.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The fund's name,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
A telephone number where we may reach you during the day, or in the evening if
preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates. This eliminates the costly problem of replacing lost, stolen or
destroyed certificates.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Institutional Services at 1-800/321-8563.
When you call, we will request personal, corporate, or other identifying
information to confirm that instructions are genuine. We may also record calls.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
RETIREMENT PLANS. The telephone transaction options available to retirement
plans are limited to those that are provided under the plan.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
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TYPE OF ACCOUNT DOCUMENTS REQUIRED
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CORPORATION Corporate Resolution
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
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TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
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STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $20,000 ($500 for states,
counties, cities and their instrumentalities, departments, agencies and
authorities). We will only do this if the value of your account fell below this
amount because you voluntarily sold your shares and your account has been
inactive (except for the reinvestment of distributions) for at least six months.
Before we close your account, we will notify you and give you 30 days to
increase the value of your account to the above minimums.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
CUMULATIVE QUANTITY DISCOUNTS
You may include the cost or current value (whichever is higher) of your fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
For additional information regarding these programs, please call Institutional
Services at 1-800/321-8563.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
and
o request duplicate statementsand deposit slips for Franklin Templeton
accounts.
You will need the fund's code number to use TeleFACTS(R). The fund's code number
is 146.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the fund will be sent every six months. Call
Institutional Services if you would like an additional free copy of the
fund's financial reports.
SPECIAL SERVICES
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the fund.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution or in a street name account, the fund may
not be able to offer these services directly to you.
GENERAL
Government Accounting Standards Board (GASB) Statement No. 3 pertaining to
Deposits with Financial Institutions provides, in paragraph 69, that investments
in mutual funds should be disclosed, but not categorized.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Institutional
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The fund, Distributors and Advisers are also located at this
address. You may also contact us by phone at 1-800/321-8563 Monday through
Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
ADVISERS - Franklin Advisers, Inc., the fund's investment manager
BOARD - The Board of Trustees of the Trust
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different classes have proportionate interests in the same
portfolio of investment securities. They differ, however, primarily in their
sales charge structures and Rule 12b-1 plans. Shares of the fund are considered
Class I shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - The 12 month period during which a Contingent Deferred
Sales Charge may apply. The holding period begins on the day you buy your
shares. 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.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
INSTITUTIONAL SERVICES - Franklin Templeton Institutional Services Department
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the fund and/or Institutional Services, Investor Services, Distributors, or
other wholly owned subsidiaries of Resources.
FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
INSTITUTIONAL FIDUCIARY TRUST
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1998
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/321-8563
TABLE OF CONTENTS
How Does the Fund Invest Its Assets?.........................2
Investment Restrictions......................................3
Officers and Trustees........................................4
Investment Management
and Other Services..........................................11
How Does the Fund Buy
Securities for Its Portfolio?...............................13
How Do I Buy, Sell and Exchange Shares?......................14
How Are Fund Shares Valued?..................................18
Additional Information on
Distributions and Taxes.....................................19
The Fund's Underwriter.......................................23
How Does the Fund Measure Performance?.......................25
Miscellaneous Information....................................28
Financial Statements.........................................31
Useful Terms and Definitions.................................31
- --------------------------------------------------------------------------------
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and
Definitions."
- -------------------------------------------------------------------------------
The fund is a no-load, diversified series of Institutional Fiduciary Trust (the
"Trust"), an open-end management investment company. The Prospectus, dated
November 1, 1998, which we may amend from time to time, contains the basic
information you should know before investing in the fund. For a free copy, call
1-800/321-8563.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- -------------------------------------------------------------------------------
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to obtain as high a level of current income
(in the context of the type of investments available to the fund) as is
consistent with capital preservation and liquidity. This goal is fundamental,
which means that it may not be changed without shareholder approval.
The following gives more detailed information about the fund's investment
policies and the types of securities that it may buy. Please read this
information together with the section "How Does the Fund Invest Its Assets?" in
the Prospectus.
MORE INFORMATION ABOUT THE KINDS OF SECURITIES THE FUND BUYS
The fund invests only in short-term U.S. Treasury securities. It does not invest
in repurchase agreements, securities issued by agencies or instrumentalities of
the federal government or any other type of money market instrument.
WHEN-ISSUED OR DELAYED-DELIVERY TRANSACTIONS. When the fund is the buyer in the
transaction, it will keep in a segregated account with its custodian bank, cash
or high-grade marketable securities having an aggregate value equal to the
amount of the purchase commitments until payment is made. To the extent the fund
engages in when-issued and delayed-delivery transactions, it will do so for the
purpose of acquiring securities for its portfolio consistent with its investment
objective and policies and not for the purpose of investment leverage.
INVESTMENT RESTRICTIONS
The fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the fund. Under the 1940 Act, this means the
approval of
(i) more than 50% of the outstanding shares of the fund or
(ii) 67% or more of the shares of the fund present at a shareholder meeting if
more than 50% of the outstanding shares of the fund are represented at the
meeting in person or by proxy, whichever is less. The fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objectives and policies of the fund, or (b) by the loan of
its portfolio securities in accordance with the policies of the fund.
3. Invest in any issuer for purposes of exercising control or management.
4. Buy any securities "on margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance of
transactions.
5. Purchase securities, in private placements or in other transactions, for
which there are legal or contractual restrictions on resale, which are not
readily marketable, if, as a result, more than 10% of the total assets of the
fund would be invested in such securities.
6. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition, or reorganization.
7. Invest more than 25% of its assets in securities of any industry. For
purposes of this limitation, U.S. government obligations are not considered to
be part of any industry. This prohibition does not apply where the policies of
the fund as described in its Prospectus specify otherwise.
8. Act as underwriter of securities issued by other persons except insofar as
the Trust may technically be deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities.
9. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or Advisers own beneficially more than 1/2 of 1% of
the securities of such issuer and all such officers and trustees together own
beneficially more than 5% of such securities.
10. Acquire, lease or hold real estate, provided that this limitation shall not
prohibit the purchase of municipal and other debt securities secured by real
estate or interests therein.
11. 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, except that it may purchase, hold, and
dispose of "obligations with puts attached" in accordance with its stated
investment policies.
In addition to these fundamental policies, it is the present policy of the fund
(which may be changed without the approval of shareholders) not to invest in
real estate limited partnerships (investments in marketable securities issued by
real estate investment trusts are not subject to this restriction) or in
interests (other than publicly traded equity securities) in oil, gas, or other
mineral leases, exploration or development.
If a percentage restriction 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 or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the fund who are responsible for
administering the fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below.
POSITIONS AND OFFICES PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS WITH THE TRUST THE PAST FIVE YEARS
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
Robert F. Carlson (70)
2120 Lambeth Way
Carmichael, CA 95608
Trustee
Member and past President, Board of Administration, California Public Employees
Retirement Systems (CALPERS); director or trustee, as the case may be, of nine
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals,
Sacramento, CA, member, Corporate Board, Blue Shield of California, and Chief
Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee, as
the case may be, of 51 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Director, General Host Corporation (nursery and
craft centers).
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and 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 50 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Director, General Host Corporation (nursery and craft
centers).
*Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, 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 34 of the investment companies in
the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission Systems,
Inc. (wireless communications); director or trustee, as the case may be, of 27
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Director, Fischer Imaging Corporation (medical imaging systems) and
General Partner, Peregrine Associates, which was the General Partner of
Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of 49
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman, White River Corporation (financial services) and Hambrecht
and Quist Group (investment banking), and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin Templeton
Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor 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 53 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal Officer
and Chief Operating Officer, Franklin Investment Advisory Services, Inc.; and
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (40)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
*This Board member is considered an "interested person" under the 1940 Act.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. As of June 1, 1998, nonaffiliated members of the
Board are paid $310 per month plus $225 per meeting attended. As shown above,
the nonaffiliated Board members also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds. They may receive
fees from these funds for their services. The fees payable to nonaffiliated
Board members by the Trust are subject to reductions resulting from fee caps
limiting the amount of fees payable to Board members who serve on other boards
within the Franklin Templeton Group of Funds. The following table provides the
total fees paid to nonaffiliated Board members by the Trust and by other funds
in the Franklin Templeton Group of Funds.
NUMBER OF
TOTAL FEES BOARDS IN THE
TOTAL FEES RECEIVED FROM THE FRANKLIN TEMPLETON
RECEIVED FROM FRANKLIN TEMPLETON GROUP OF FUNDS ON
NAME THE TRUST* GROUP OF FUNDS** WHICH EACH SERVES***
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Frank H. Abbott, III $4,810 $165,937 27
Harris J. Ashton 4,626 344,642 49
Robert Carlson 2,335 17,680 9
S. Joseph Fortunato 4,599 361,562 51
David W. Garbellano**** 800 91,317 N/A
Frank W.T. LaHaye 4,810 141,433 27
Gordon S. Macklin 4,626 337,292 49
*For the fiscal year ended June 30, 1998. During the period from July 1, 1997
through May 31, 1998, fees at the rate of $200 per month plus $200 per meeting
attended were in effect.
**For the calendar year ended December 31, 1997.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 168 U.S. based
funds or series.
****Deceased, September 27, 1997.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or Board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or Board members who are
shareholders of Resources may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
As of October 2, 1998, the officers and Board members did not own of record or
beneficially any shares of the fund. Many of the Board members own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
Board members historically have followed a policy of having substantial
investments in one or more of the Franklin Templeton Funds, as is consistent
with their individual financial goals. In February 1998, this policy was
formally adopted. Each board member is required to 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.
This is required until the value of such investments equals or exceeds five
times the board member's annual fees. For purposes of this policy, a board
member's investments include those in the name of family members or entities
controlled by the board member and, for investments made after February 27,
1998, are valued at cost. Investments that existed on February 27, 1998, were
valued as of that date. There is a three year phase-in period for newly elected
board members.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. Advisers is the investment manager of
the fund. Advisers provides investment research and portfolio management
services, including the selection of securities for the fund to buy, hold or
sell and the selection of brokers through whom the fund's portfolio transactions
are executed. Advisers' activities are subject to the review and supervision of
the Board to whom Advisers renders periodic reports of the fund's investment
activities. Advisers also provides various administrative, statistical, and
other services to the fund. Advisers and its officers, directors and employees
are covered by fidelity insurance for the protection of the fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action with
respect to any of the other funds it manages, or for its own account, that may
differ from action taken by Advisers on behalf of the fund. Similarly, with
respect to the fund, Advisers is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that Advisers and
access persons, as defined by the 1940 Act, may buy or sell for its or their own
account or for the accounts of any other fund. Advisers is not obligated to
refrain from investing in securities held by the fund or other funds that it
manages. Of course, any transactions for the accounts of Advisers and other
access persons will be made in compliance with the fund's Code of Ethics. Please
see "Miscellaneous Information - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the fund pays Advisers a
management fee (payable at the request of Advisers), equal to an annual rate of
0.25 of 1% of the fund's average daily net assets.
For the fiscal years ended June 30, 1998, 1997 and 1996, management fees, before
any advance waiver, totaled $145,231, $165,739 and $393,481, respectively. Under
an agreement by Advisers to limit its fees, the fund paid management fees
totaling $56,218, $81,993 and $227,079, for the same periods.
MANAGEMENT AGREEMENT. The management agreement is in effect until February 28,
1999. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the fund's outstanding voting
securities on 30 days' written notice to Advisers, or by Advisers on 30 days'
written notice to the fund, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the fund's shareholder servicing agent and acts as the fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The fund may also 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 may 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, New York 10286, acts as custodian of the securities and other assets of
the fund. The custodian does not participate in decisions relating to the
purchase and sale of portfolio securities.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the fund's independent auditor. During the fiscal year
ended June 30, 1998, the auditor's services consisted of rendering an opinion on
the financial statements of the Trust included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1998.
HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?
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. 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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the fund's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also 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 Advisers are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by
Advisers, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.
Depending on Advisers' view of market conditions, the fund may or may not buy
securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The fund may, however, sell
securities before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1998, 1997 and 1996, the fund paid no
brokerage commissions.
As of June 30, 1998, the fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Banks and financial institutions that sell shares
of the fund may be required by state law to register as Securities Dealers.
Once shares of the fund are purchased, they begin earning income immediately,
and income dividends will start being credited to your account on the effective
date of purchase and continue through the business day prior to the business day
those shares are sold.
All purchases of fund shares will be credited to you, in full and fractional
shares of the fund (rounded to the nearest 1/100 of a share), in an account
maintained for you by the fund's transfer agent. No share certificates will be
issued at any time. The offering of shares of the fund may be suspended at any
time and resumed at any time thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the fund under the exchange privilege, the fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally 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. Please see "May I Exchange Shares for Shares of Another
Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
The fund will attempt to make payment for all shares redeemed within one
business day, but in no event later than seven days after receipt by the fund of
the redemption request in proper form. The fund may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the NYSE is closed for periods other than weekends and holidays or when trading
on the NYSE is restricted as determined by the SEC; (b) an emergency exists as
determined by the SEC making disposal of portfolio securities or valuation of
net assets of a fund not reasonably practicable; or (c) for such other periods
as the SEC by order may permit for the protection of the shareholders of a fund.
At various times, the fund may be requested to redeem shares for which it has
not yet received proper payment. Accordingly, the fund may delay the sending of
redemption proceeds until such time as it has assured itself that proper payment
has been collected for the purchase of those shares.
REDEMPTIONS IN KIND. The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
fund's net assets and you may incur brokerage fees in converting the securities
to cash.
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.
All wires sent and received by the custodian bank and reported by the custodian
bank to the fund prior to 3:00 p.m. Pacific time, except holidays, the day
before a holiday or the day after a holiday, are normally effective on the same
day, provided the fund is notified on time as provided in the Prospectus. All
wire payments received or reported by the custodian bank to the fund after 3:00
p.m. will be effective on the next business day. All checks or other negotiable
bank drafts will normally be effective within two business days for checks drawn
on a member bank of the Federal Reserve System and longer for most other checks.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the fund may reimburse Investor
Services an amount not to exceed the per account fee that the fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account such as
processing a large number of checks each month. Fees for special services will
not increase the expenses borne by the fund.
Special procedures have been designed for banks and other institutions wishing
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 at the time the
master account is filed by listing them, or instructions may be provided to the
fund at a later date. These sub-accounts may be established by the institution
with registration either by name or number. The investment minimums applicable
to the fund are applicable to each sub-account. The fund will provide each
institution with a written confirmation for each transaction in a sub-account
and arrangements may be made at no additional charge for the transmittal of
duplicate confirmations to the beneficial owner of the sub-account.
The fund will provide to each institution, on a quarterly basis or more
frequently if requested, a statement setting forth each sub-account's share
balance, income earned for the period, income earned for the year to date, and
total current market value.
HOW ARE FUND SHARES VALUED?
The valuation of the fund's portfolio securities, including any securities held
in a separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in calculation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
fund computed as described above may tend to be higher than a like computation
made by a fund with identical investments but utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
fund would be able to obtain a somewhat higher yield than would result from an
investment in a fund utilizing only market values, and existing investors in the
fund would receive less investment income. The opposite would be true in a
period of rising interest rates.
The fund's use of amortized cost, which helps the fund maintain its Net Asset
Value per share of $1, is permitted by a rule adopted by the SEC. Under this
rule, the fund must adhere to certain conditions. The fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and only buy
instruments having remaining maturities of 397 calendar days or less. The fund
must also invest only in those U.S. dollar-denominated securities that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized rating services, or if
unrated are deemed comparable in quality, or are instruments issued by an issuer
that, with respect to an outstanding issue of short-term debt that is comparable
in priority and protection, has received a rating within the two highest rating
categories.
The Board has established procedures designed to stabilize, to the extent
reasonably possible, the fund's price per share at $1, as computed for the
purpose of sales and redemptions. These procedures include a review of the
fund's holdings by the Board, at such intervals as it may deem appropriate, to
determine if the fund's Net Asset Value calculated by using available market
quotations deviates from $1 per share based on amortized cost. The extent of any
deviation will be examined by the Board. If a deviation exceeds 1/2 of 1%, the
Board will promptly consider what action, if any, will be initiated. If the
Board determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, it will take
corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a Net Asset Value per share by using
available market quotations.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The fund declares dividends for each day
that the fund's net asset value is calculated. These dividends will equal all of
the fund's daily net income payable to shareholders of record as of the close of
business the preceding day. The fund's daily net income includes accrued
interest and any original issue or acquisition discount, plus or minus any gain
or loss on the sale of portfolio securities and changes in unrealized
appreciation or depreciation in portfolio securities (to the extent required to
maintain a constant net asset value per share), less the estimated expenses of
the fund.
The fund receives income generally in the form of interest derived from its
investments. This income, less expenses incurred in the operation of the fund,
constitutes its net investment income from which dividends may be paid to you.
Any distributions by the fund from such income will be taxable to you as
ordinary income, whether you take 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 derived from the excess of net short-term capital gain (over any
net long-term capital loss) will be taxable to you as ordinary income. Any
distributions paid from net long-term capital gains realized by the fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in the fund. Because the fund is a money market fund, it does not
anticipate realizing any long-term capital gains, however.
CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following year
will be treated for tax purposes as if they had been received by you on December
31 of the year in which they were declared. The fund will report this income to
you on your Form 1099-DIV for the year in which these distributions were
declared.
MAINTENANCE OF $1.00 NET ASSET VALUE. Gains and losses on the sale of portfolio
securities and unrealized appreciation or depreciation in the value of these
securities may require the fund to distribute income or make distribution
adjustments in order to maintain a $1.00 net asset value. These procedures may
result in under- or over-distributions of net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The fund will inform you of
the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year.
TAXES
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, has
qualified as such for its most recent fiscal year, and intends so to qualify
during the current fiscal year. 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 its 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 available earnings and profits.
In order to qualify as a regulated investment company for tax purposes, the fund
must meet certain specific requirements, including:
o The fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the fund's total assets,
and, with respect to 50% of the fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of the fund's total
assets or 10% of the outstanding voting securities of the issuer;
o The fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and
o The fund must distribute to its shareholders at least 90% of its
investment company taxable income (i.e., net investment income plus net
short-term capital gains) and net tax-exempt income for each of its fiscal
years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the fund to distribute
at least 98% of its taxable ordinary income earned during the calendar year and
98% of its capital gain net income earned during the twelve month period ending
October 31 (in addition to undistributed amounts from the prior year) to you by
December 31 of each year in order to avoid federal excise taxes. The fund
intends to declare and pay sufficient dividends in December (or in January of
the following year that are treated by you as received in December of the prior
year) but does not guarantee and can give no assurances that its distributions
will be sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. The tax law requires
that you recognize a gain or loss in an amount equal to the difference between
your tax basis and the amount you received in exchange for your shares, subject
to the rules described below. 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 for federal income tax purposes if you have held your shares for more
than one year at the time of redemption or exchange. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you purchase 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 purchase. Because the fund seeks to
maintain a constant $1.00 per share net asset value, you should not expect to
realize a gain or loss upon redemption of your fund shares, however.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by U.S. government securities do
not generally qualify for tax-free treatment. At the end of each calendar year,
the fund will provide you with the percentage of any dividends paid that may
qualify for tax-free treatment on your personal income tax return. You should
consult with your own tax advisor to determine the application of your state and
local laws to these distributions. Because the rules on exclusion of this income
are different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of their distributions may be exempt
from corporate income or franchise taxes.
MUNICIPAL INVESTORS. Municipalities may invest surplus money subject to the
arbitrage rebate requirements of section 148 of the Code in the fund. Section
115(1) of the Code provides, in part, that gross income does not include income
accruing to a state, territory, or any political subdivision thereof that is
derived from the exercise of any essential government function. To the extent
that an investment by a municipality in the fund is made in connection with such
functions, the municipality will not be liable for federal income tax on income
or gains derived from its investment. A municipality that invests money subject
to the arbitrage rebate requirements in the fund should be aware that some or
all of the earnings distributed by the fund may need to be paid to the U.S. as a
rebate of arbitrage profits.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the fund's income is
derived primarily from interest rather than dividends, no portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the fund for the
most recent fiscal year qualified for such deduction, and it is anticipated that
none of the current year's dividends will so qualify.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors may be entitled to reimbursement under the Rule 12b-1 plan for the
fund, as discussed below. Except as noted, Distributors received no other
compensation from the fund for acting as underwriter.
THE RULE 12B-1 PLAN
The fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to Rule
12b-1 of the 1940 Act. Under the plan, the fund may pay up to a maximum of 0.15%
per year of its average daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its shares.
In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the fund, Advisers or
Distributors or other parties on behalf of the fund, Advisers or Distributors
make payments that are deemed to be for the financing of any activity primarily
intended to result in the sale of shares of the fund within the context of Rule
12b-1 under the 1940 Act, then such payments shall be deemed to have been made
pursuant to the plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the plan, plus any other payments deemed to be made pursuant
to the plan, exceed the amount permitted to be paid under the rules of the NASD.
The terms and provisions of the plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
later years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1. The
plan is renewable annually by a vote of the Board, including a majority vote of
the Board members who are not interested persons of the fund and who have no
direct or indirect financial interest in the operation of the plan, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such Board members be done by the non-interested
members of the Board. The plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
management agreement with Advisers, or the underwriting agreement with
Distributors, or by vote of a majority of the fund's outstanding shares.
Distributors or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
The plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the fund's outstanding shares, and all material amendments to the plan or any
related agreements shall be approved by a vote of the non-interested members of
the Board, cast in person at a meeting called for the purpose of voting on any
such amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the plan and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the plan should be continued.
No payments have been made by the fund pursuant to the plan since the plan's
inception.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC. 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.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The fund's current yield for the seven day period ended June 30, 1998,
was 4.90%.
EFFECTIVE YIELD. The fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The fund's effective yield for the
seven day period ended June 30, 1998, was 5.02%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-1
OTHER PERFORMANCE QUOTATIONS
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the fund may satisfy your
investment goal, advertisements and other materials about the fund may discuss
certain measures of fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC Money Fund Report(R) - industry averages for seven-day annualized and
compounded yields of taxable, tax-free, and government money funds.
b) Bank Rate Monitor - a weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed-Income Fund
Performance Analysis, and Lipper Mutual Fund Yield Survey - measure total return
and average current yield for the mutual fund industry and rank individual
mutual fund performance over specified time periods, assuming reinvestment of
all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - a weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) Bond Buyer - a daily publication that reports various articles as well as
indexes.
f) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services, in major expenditure groups.
Advertisements or information may also compare the fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. 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.
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.
From time to time, advertisements may depict various ways in which investors may
utilize the fund to achieve their investment goals and various developments
affecting the fund, including historical developments in the securities markets.
The following list reflects some of the illustrations that may appear in future
advertisements:
COLLEGE COSTS - College cost estimates will be used to show how an investment in
the fund can help an investor save for a child's college education. Information
from the College Board may be cited.
MISCELLANEOUS - The fund may be used in shareholder newsletters as examples of
how investors can meet long-term investment goals. Advertisements may indicate
how Franklin Gift Certificates may be used to purchase shares of the fund.
Advertisements may indicate that as an established presence in the municipal
securities industry, Franklin currently manages over $46 billion in municipal
bond assets. Franklin's municipal bond experience and knowledge of municipal
issuers allows us to offer investment vehicles and services tailored to the
needs of government investors.
MISCELLANEOUS INFORMATION
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 50 years and
now services more than 3 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $207 billion in assets under
management for more than 6 million U.S. based mutual fund shareholder and other
accounts. The Franklin Templeton Group of Funds offers 117 U.S. based open-end
investment companies to the public. The fund may identify itself by its NASDAQ
symbol or CUSIP number.
As of October 2, 1998, the principal shareholders of the fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
Perry Baker & Co. 6,724,677.460 28.28%
C/O The Washington Trust Company
23 Broad St.
Westerly RI 02891-1827
Bank of Louisville & Trust Co. 1,861,890.000 7.83%
Attn. Trust Operations
500 W. Broadway
Louisville KY 40202-2210
City of Montclair 4,747,987.490 19.96%
Redevelopment Agency
Project Area III Account
5111 Benito St
Montclair CA 91763-2808
L & W Co. 2,491,685,480 10.48%
North Dallas Bank & Trust Co.
P.O. Box 679001
Dallas TX 75367-9001
Suffolk County National Bank 1,896,356.600 7.97%
Trust & Investment Division
295 N. Sea Rd.
Southhampton NY 11968-2038
Smico & Co. 1,866,343.390 7.85%
P.O. Box 307
Smith Center KS 66967-0307
From time to time, the number of fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the fund's assets if you are held personally liable for
obligations of the fund. The Declaration of Trust provides that the fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the fund and satisfy any judgment thereon. All such rights are
limited to the assets of the fund. The Declaration of Trust further provides
that the fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the fund's total assets. Thus, the risk that you
would incur financial loss on account of shareholder liability is limited to the
unlikely circumstance in which both inadequate insurance exists and the fund
itself is unable to meet its obligations.
Shareholders or prospective investors may utilize the Franklin/Templeton
Hypothetical Illustrations Program as a useful tool in considering investments.
The service, which is free of charge, enables an investor to make an actual,
dollar-for-dollar performance comparison of any of the Trust's funds to any
security, pool, or portfolio which the investor may currently be using. It is
based on historical information. The investor simply chooses a series of the
Trust to compare and provides Franklin with a starting date, a starting amount,
and all subsequent purchases or withdrawals. The illustration shows the actual
dollar performance of these actions in the selected series, which investors can
use to compare to that of their own investment or portfolio.
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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures:
(i) the trade must receive advance clearance from a compliance officer and must
be completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations and statements must be sent
to a compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, for the fiscal year ended June 30, 1998, including the auditor's
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the fund's investment manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the fund dated November 1, 1998, which we may
amend from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution 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.
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
INSTITUTIONAL
FIDUCIARY TRUST
FRANKLIN INSTITUTIONAL ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND
FRANKLIN INSTITUTIONAL ADJUSTABLE
RATE SECURITIES FUND
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1998
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/321-8563
TABLE OF CONTENTS
How Do the Funds Invest Their Assets? ............................ 2
Investment Restrictions .......................................... 4
Officers and Trustees ............................................ 5
Investment Management
and Other Services .............................................. 10
How Do the Portfolios Buy
Securities for Their Portfolios? ................................ 11
How Do I Buy, Sell
and Exchange Shares? ............................................ 12
How Are Fund Shares Valued? ...................................... 13
Additional Information on
Distributions and Taxes ......................................... 14
The Funds' Underwriter ........................................... 16
How Do the Funds
Measure Performance? ............................................ 17
Miscellaneous Information ........................................ 19
Useful Terms and Definitions ..................................... 20
Appendices
Summary of Procedures to
Monitor Conflicts of Interest .................................. 21
Description of Ratings .......................................... 22
Financial Statements ........................................... 23
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
- ------------------------------------------------------------------------------
The Adjustable U.S. Government Fund and the Adjustable Rate Securities Fund are
no-load, diversified series of Institutional Fiduciary Trust (the "Trust"), an
open-end management investment company. The Prospectus, dated November 1, 1998,
which we may amend from time to time, contains the basic information you should
know before investing in a fund. For a free copy, call 1-800/321-8563.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE
FUNDS, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
- ------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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HOW DO THE FUNDS INVEST THEIR ASSETS?
WHAT ARE THE FUNDS' GOALS?
The investment goal of each fund is to seek a high level of current income,
consistent with lower volatility of principal. This goal is fundamental, which
means that it may not be changed without shareholder approval.
The Adjustable U.S. Government Fund seeks to achieve its goal by investing all
of its assets in shares of the U.S. Government Adjustable Rate Mortgage
Portfolio (the "Mortgage Portfolio"). The Adjustable Rate Securities Fund seeks
to achieve its goal by investing all of its assets in shares of the Adjustable
Rate Securities Portfolio (the "Securities Portfolio"). Each portfolio's
investment goal is the same as the Funds'.
The following gives more detailed information about the portfolios' investment
policies and the types of securities that they may buy. Please read this
information together with the section "How Do the Funds Invest Their Assets?" in
the Prospectus.
Each fund's investment policies are substantially similar to those described
below for the underlying portfolio except, in all cases, the fund may pursue its
policies by investing in an open-end management investment company with the same
investment goal and substantially similar policies and restrictions as the fund.
MORE INFORMATION ABOUT THE
KINDS OF SECURITIES THE PORTFOLIOS BUY
The Mortgage Portfolio invests primarily in adjustable-rate mortgage securities
("ARMS") or other securities collateralized by or representing an interest in
mortgages and that have interest rates that reset at periodic intervals. The
Mortgage Portfolio will only invest in mortgage securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
The Securities Portfolio invests primarily in adjustable-rate securities
collateralized by or representing an interest in mortgages, including ARMS,
issued or guaranteed by private institutions or by the U.S. government, its
agencies or instrumentalities, and other adjustable-rate asset-backed securities
(collectively, "ARS"), which have interest rates that reset at periodic
intervals. The Securities Portfolio will only invest in securities rated at
least AA by S&P or Aa by Moody's, two nationally recognized statistical rating
agencies. The Securities Portfolio may also invest in unrated securities if
Advisers determines that they are of comparable quality to the ratings above.
The portfolios may invest without limit in obligations of the U.S. government
or of corporations chartered by Congress as federal government
instrumentalities. The portfolios may buy securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, such as those issued
by the Government National Mortgage Association ("GNMA"). GNMA guarantees are
backed by the full faith and credit of the U.S. Treasury. No assurances,
however, can be given that the U.S. government will provide financial support
to the obligations of other U.S. government agencies or instrumentalities in
which the portfolios may invest. Securities issued by these agencies and
instrumentalities are supported by the issuer's right to borrow an amount
limited to a specific line of credit from the U.S. Treasury, the
discretionary authority of the U.S. government to buy certain obligations of
an agency or instrumentality, or the credit of the agency or instrumentality.
Several of the Franklin Templeton Funds, including the portfolios, are major
buyers of government securities. Advisers will seek to negotiate attractive
prices for government securities and pass on any savings from these negotiations
to shareholders in the form of higher current yields.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS"). To the extent indicated in the Prospectus, each portfolio
may invest in CMOs, and the Securities Portfolio may also invest in REMICs. CMOs
and REMICs may be issued by governmental or government-related entities or by
private entities such as banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers, and other secondary market issuers and
are secured by pools of mortgages backed by residential or various types of
commercial properties. Privately issued CMOs and REMICs include obligations
issued by private entities that are collateralized by (a) mortgage securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal
National Mortgage Association, or GNMA, (b) pools of mortgages that are
guaranteed by an agency or instrumentality of the U.S. government, or (c) pools
of mortgages that are not guaranteed by an agency or instrumentality of the U.S.
government and that may or may not be guaranteed by the private issuer. The
Mortgage Portfolio will not invest in privately issued CMOs or REMICs.
ASSET-BACKED SECURITIES. The Securities Portfolio may invest in asset-backed
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets. The
payment rate may be affected by various economic and other factors. Therefore,
the yield may be difficult to predict, and actual yield to maturity may be more
or less than the anticipated yield to maturity.
The credit quality of most asset-backed securities depends primarily on the
credit quality of the underlying assets, how well the issuers of the securities
are insulated from the credit risk of the originator or affiliated entities, and
the amount of credit support provided to the securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on the underlying assets to make payments, asset-backed securities
may contain elements of credit support. Credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses from the
default by an obligor on the underlying assets. Liquidity protection refers to
advances, generally provided by the entity administering the pool of assets, to
ensure that the receipt of payments due on the underlying pool is timely.
Protection against losses from the default by an obligor enhances the likelihood
of payments of the obligations on at least some of the assets in the pool. This
protection may be provided through guarantees, insurance policies, or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction, or through a combination of these
approaches. The Securities Portfolio will not pay any additional fees for credit
support, although the existence of credit support may increase the price of a
security.
Examples of credit support arising out of the structure of the transaction
include "senior subordinated securities" (multiple class securities with one or
more classes that are subordinate to the other classes with respect to the
payment of principal and interest, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses), and "over-collateralization" (where the scheduled payments on,
or the principal amount of, the underlying assets exceeds that required to make
payments on the securities and pay any servicing or other fees). The degree of
credit support provided is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in the securities.
FLOATERS. The Securities Portfolio may invest up to 5% of its total assets in
inverse floaters. Inverse floaters are instruments with floating or variable
interest rates that move in the opposite direction of short-term interest rates
and move at an accelerated speed. The Securities Portfolio may also invest up to
5% of its total assets in super floaters. Super floaters are instruments that
float at a greater than 1 to 1 ratio with the London Interbank Offered Rate
("LIBOR") and are used as a hedge against the risk that LIBOR floaters become
"capped" and can no longer float higher.
CASH AND CASH EQUIVALENTS. Each portfolio may retain its underlying assets in
cash and cash equivalents, including Treasury bills, commercial paper, and
short-term bank obligations such as CDs, bankers' acceptances, and repurchase
agreements. Each portfolio intends, however, to retain in cash only as much of
its underlying assets as is considered desirable or expedient under existing
market conditions.
THE FUND'S MASTER/FEEDER STRUCTURE
The funds' structure, where each fund invests all of its assets in the
underlying portfolio, is sometimes known as a "Master/Feeder" structure. By
investing all of its assets in shares of the underlying portfolio, a fund, other
mutual funds and institutional investors can pool their assets. This may result
in asset growth and lower expenses, although there is no guarantee that this
will happen.
If a fund, as a shareholder of the underlying portfolio, has to vote on a matter
relating to the portfolio, it will hold a meeting of fund shareholders and will
cast its votes in the same proportion as the fund's shareholders voted.
There are some risks associated with the funds' Master/Feeder structure. If
other shareholders in a portfolio sell their shares, the corresponding fund's
expenses may increase. Additionally, any economies of scale a fund has achieved
as a result of the structure may be diminished. Institutional investors in a
portfolio that have a greater pro rata ownership interest in the portfolio than
the corresponding fund could also have effective voting control.
If a portfolio changes its investment goal or any of its fundamental policies
and fund shareholders do not approve the same change for the corresponding fund,
the fund may need to withdraw its investment from the portfolio. Likewise, if
the Board considers it to be in a fund's best interest, it may withdraw the
fund's investment from the underlying portfolio at any time. If either situation
occurs, the Board will decide what action to take. Possible solutions might
include investing all of the fund's assets in another pooled investment entity
with the same investment goal and policies as the fund, or hiring an investment
advisor to manage the fund's investments. Either circumstance could increase the
fund's expenses.
INVESTMENT RESTRICTIONS
Each fund, except as noted, has adopted the following restrictions as
fundamental policies. These restrictions may not be changed without the approval
of a majority of the outstanding voting securities of the fund. Under the 1940
Act, this means the approval of (i) more than 50% of the outstanding shares of
the fund or (ii) 67% or more of the shares of the fund present at a shareholder
meeting if more than 50% of the outstanding shares of the fund are represented
at the meeting in person or by proxy, whichever is less. Each fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in an amount up to 20% of total asset value. The Adjustable U.S.
Government Fund will not purchase additional portfolio securities (additional
shares of the Mortgage Portfolio) while borrowings in excess of 5% of total
assets are outstanding.
2. Buy any securities on "margin" or sell any securities "short," except for
any delayed-delivery or when-issued securities as described in the Prospectus.
3. Lend any funds or other assets, except by the purchase of bonds, debentures,
notes, or other debt securities as described in the Prospectus, and except that
securities of the fund may be loaned to qualified broker-dealers or other
institutional investors if at least 102% cash collateral is pledged and
maintained by the borrower, provided such 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. Also, the entry into repurchase agreements
is not considered a loan for purposes of this restriction.
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, and except that
all or substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objective and policies
of the fund.
5. Invest more than 5% of the value of the fund's total assets in the
securities of any one issuer, but this limitation does not apply to investments
in securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities; except that all or substantially all of the assets of the
fund may be invested in another registered investment company having the same
investment objective and policies of the fund.
6. Purchase the securities of any issuer which would result in owning more than
10% of any class of the outstanding voting securities of such issuer, except
that all or substantially all of the assets of the fund may be invested in
another registered investment company having the same investment objective and
policies of the fund.
7. Purchase from or sell to the officers and trustees of the Trust, or to 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; or retain securities of any issuer if, to the knowledge of the fund,
one or more of its officers, trustees, or the administrator, 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.
8. Purchase any securities issued by a corporation which has not been in
continuous operation for three years, but such period may include the operation
of a predecessor, except that, to the extent this restriction is applicable, all
or substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objective and policies
of the fund without regard to how long it has been in operation.
9. Acquire, lease, or hold real estate. (Does not preclude investments in
securities collateralized by real estate or interests therein.)
10. 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 program.
11. Invest in companies for the purpose of exercising control or management,
except that, to the extent this restriction is applicable, all or substantially
all of the assets of the fund may be invested in another registered investment
company having the same investment objective and policies of the fund which may
issue voting shares to the fund.
12. Purchase securities of other investment companies, except to the extent
permitted by the 1940 Act, except in connection with a merger, consolidation,
acquisition, or reorganization; provided that all or substantially all of the
assets of the fund may be invested in another registered investment company
having the same investment objective and policies of the fund. To the extent
permitted by exemptions which may be granted under the 1940 Act, the fund may
invest in shares of one or more money market funds managed by Advisers or its
affiliates.
13. Issue senior securities as defined in the 1940 Act except that this
restriction will not prevent the fund from entering into repurchase agreements
or making borrowings, mortgages, and pledges as permitted by restriction #1
above.
The portfolios' investment restrictions are substantially the same as the funds'
investment restrictions, except as indicated below and except as necessary to
reflect the policy of each fund to invest all of their assets in shares of the
underlying portfolio.
The Mortgage Portfolio may not:
1. Purchase securities of other investment companies, except to the extent
permitted by the 1940 Act. To the extent permitted by exemptions which may be
granted under the 1940 Act, the Mortgage Portfolio may invest in shares of one
or more money market funds managed by Advisers or its affiliates.
The Securities Portfolio may not:
1. Borrow money or mortgage or pledge any of its assets in an amount exceeding
331/3% of the value of the Portfolio's total assets (including the amount
borrowed) at the time the borrowing was made.
2. Purchase securities of other investment companies, except to the extent
permitted by the 1940 Act pursuant to an exemption therefrom, granted by the
SEC. To the extent permitted by exemptions which may be granted under the 1940
Act, the Securities Portfolio may invest in shares of one or more money market
funds managed by Advisers or its affiliates.
If a bankruptcy or other extraordinary event occurs concerning a particular
security owned by a fund, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. In this case, each fund
intends to dispose of the investment as soon as practicable while maximizing the
return to shareholders.
If a percentage restriction 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 or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the funds,
including general supervision and review of their investment activities. The
Board, in turn, elects the officers of the funds who are responsible for
administering the funds' day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
funds under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS WITH THE TRUST THE PAST FIVE YEARS
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Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
Robert F. Carlson (70)
2120 Lambeth Way
Carmichael, CA 95608
Trustee
Member and past President, Board of Administration, California Public Employees
Retirement Systems (CALPERS); director or trustee, as the case may be, of nine
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals,
Sacramento, CA, member, Corporate Board, Blue Shield of California, and Chief
Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee, as
the case may be, of 51 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Director, General Host Corporation (nursery and
craft centers).
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of
the Board
and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and 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 50 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Director, General Host Corporation (nursery and craft
centers).
*Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and
Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, 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 34 of the investment companies in
the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission Systems,
Inc. (wireless communications); director or trustee, as the case may be, of 27
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Director, Fischer Imaging Corporation (medical imaging systems) and
General Partner, Peregrine Associates, which was the General Partner of
Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of 49
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman, White River Corporation (financial services) and Hambrecht
and Quist Group (investment banking), and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin Templeton
Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor 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 53 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal Officer
and Chief Operating Officer, Franklin Investment Advisory Services, Inc.; and
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer
and Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (40)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The officers and Board members of the funds are also officers and trustees of
the Adjustable Rate Securities Portfolios, except that Thomas J. Runkel is not
an officer or trustee of the Adjustable Rate Securities Portfolios, and the
following trustee and officer of the Adjustable Rate Securities Portfolios are
not officers or trustees of the Trust:
POSITIONS AND OFFICES
WITH THE ADJUSTABLE RATE PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS SECURITIES PORTFOLIO THE PAST FIVE YEARS
- ------------------------------------------------------------------------------
William J. Lippman (73)
One Parker Plaza, 16th Floor
Fort Lee, NJ 07024
Trustee
Senior Vice President, Franklin Resources, Inc. and Franklin Management, Inc.;
President and Director, Franklin Advisory Services, Inc.; and officer and/or
director or trustee, as the case may be, of six of the investment companies in
the Franklin Templeton Group of Funds.
Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Mr. Lippmann is considered an "interested person" of the portfolios under the
1940 Act.
The tables above show the officers, Board members and the trustees of the
Adjustable Rate Securities Portfolios who are affiliated with Distributors and
Advisers. As of June 1, 1998, nonaffiliated members of the Board are paid $310
per month plus $225 per meeting attended. Also as of June 1, 1998, nonaffiliated
trustees of Adjustable Rate Securities Portfolios are paid $160 per month plus
$155 per meeting attended. As shown above, the nonaffiliated Board members and
trustees of the Adjustable Rate Securities Portfolios also serve as directors or
trustees of other investment companies in the Franklin Templeton Group of Funds.
They may receive fees from these funds for their services. The fees payable to
nonaffiliated Board members by the Trust are subject to reductions resulting
from fee caps limiting the amount of fees payable to Board members who serve on
other boards within the Franklin Templeton Group of Funds. The following table
provides the total fees paid to nonaffiliated Board members and trustees of the
Adjustable Rate Securities Portfolios by the Trust, by the Adjustable Rate
Securities Portfolios, and by other funds in the Franklin Templeton Group of
Funds.
<TABLE>
<CAPTION>
TOTAL FEES NUMBER OF BOARDS
RECEIVED FROM IN THE FRANKLIN
TOTAL FEES TOTAL FEES THE FRANKLIN TEMPLETON GROUP OF
RECEIVED RECEIVED FROM TEMPLETON GROUP FUNDS ON WHICH
NAME FROM THE TRUST* THE PORTFOLIOS** OF FUNDS*** EACH SERVES****
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank H. Abbott, III... $4,810 $992 $165,937 27
Harris J. Ashton....... 4,626 952 344,642 49
Robert Carlson......... 2,335 N/A 17,680 9
S. Joseph Fortunato.... 4,599 935 361,562 51
David W. Garbellano+... 800 N/A 91,317 N/A
Frank W.T. LaHaye...... 4,810 992 141,433 27
Gordon S. Macklin...... 4,626 952 337,292 49
</TABLE>
*For the fiscal year ended June 30, 1998. During the period from July 1, 1997,
through May 31, 1998, fees at the rate of $200 per month plus $200 per meeting
attended were in effect for the Trust.
**For the eight months ended June 30, 1998. During the period from November 1,
1997, through May 31, 1998, fees at the rate of $50 per month plus $50 per
meeting attended were in effect for the Adjustable Rate Securities Portfolios.
***For the calendar year ended December 31, 1997.
****We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not include
the total number of series or funds within each investment company for which the
Board members and trustees of the Adjustable Rate Securities Portfolios are
responsible. The Franklin Templeton Group of Funds currently includes 54
registered investment companies, with approximately 168 U.S. based funds or
series.
+Deceased, September 27, 1997.
Nonaffiliated members of the Board and trustees of the Adjustable Rate
Securities Portfolios are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director or trustee. No officer or Board
member or trustee of the Adjustable Rate Securities Portfolios received any
other compensation, including pension or retirement benefits, directly or
indirectly from the funds, the Adjustable Rate Securities Portfolios, or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members and trustees of the Adjustable Rate Securities Portfolios who are
shareholders of Resources may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
As of October 2, 1998, the officers and Board members did not own of record
or beneficially any shares of the funds. Many of the Board members own shares
in other funds in the Franklin Templeton Group of Funds. Charles B. Johnson
and Rupert H. Johnson, Jr. are brothers and the father and uncle,
respectively, of Charles E. Johnson.
INVESTMENT MANAGEMENT
AND OTHER SERVICES
INVESTMENT MANAGER AND ADMINISTRATOR AND SERVICES PROVIDED. Advisers is the
investment manager of the portfolios and is also the administrator of the funds.
Advisers provides investment research and portfolio management services,
including the selection of securities for the portfolios to buy, hold or sell
and the selection of brokers through whom the portfolios' portfolio transactions
are executed. Advisers' activities are subject to the review and supervision of
the Board of Trustees of the Adjustable Rate Securities Portfolios to whom
Advisers renders periodic reports of the portfolios' investment activities.
Advisers and its officers, directors and employees are covered by fidelity
insurance for the protection of the funds and the portfolios.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action with
respect to any of the other funds it manages, or for its own account, that may
differ from action taken by Advisers on behalf of the portfolios. Similarly,
with respect to the portfolios, Advisers is not obligated to recommend, buy or
sell, or to refrain from recommending, buying or selling any security that
Advisers and access persons, as defined by the 1940 Act, may buy or sell for its
or their own account or for the accounts of any other fund. Advisers is not
obligated to refrain from investing in securities held by the portfolios or
other funds that it manages. Of course, any transactions for the accounts of
Advisers and other access persons will be made in compliance with the
portfolios' Code of Ethics. Please see "Miscellaneous Information - Summary of
Code of Ethics."
MANAGEMENT AND ADMINISTRATION FEES. Under its management agreement, each
portfolio pays Advisers a management fee equal to an annual rate of 40/100 of 1%
of average daily net assets up to and including $5 billion; 35/100 of 1% of net
assets in excess of $5 billion up to and including $10 billion; 33/100 of 1% of
net assets in excess of $10 billion up to and including $15 billion; and 30/100
of 1% of net assets in excess of $15 billion. The fee is computed at the close
of business on the last business day of each month.
Advisers provides various administrative, statistical, and other services to the
funds. Under its administration agreement, each fund pays Advisers an
administration fee equal to an annual rate of 5/100 of 1% of the value of the
fund's average daily net assets. The fee is computed at the close of business on
the last business day of each month.
The table below shows the management fees of the portfolios, before any advance
waiver, and the management fees paid by the portfolios under an agreement by
Advisers to limit its fees for the eight month period ended June 30, 1998 and
the fiscal years ended October 31, 1997, 1996 and 1995.
MANAGEMENT FEES BEFORE MANAGEMENT
ADVANCE WAIVER FEES PAID
- ------------------------------------------------------------------------------
1998
Mortgage Portfolio ............. $865,204 $481,155
Securities Portfolio ........... 61,046 31,780
1997
Mortgage Portfolio ............. $1,487,256 $830,598
Securities Portfolio ........... 96,727 51,453
1996
Mortgage Portfolio ............. $1,891,159 $1,090,876
Securities Portfolio ........... 89,969 41,378
1995
Mortgage Portfolio ............. $2,456,413 $968,077
Securities Portfolio ........... 119,324 55,384
For the fiscal years ended June 30, 1998, 1997 and 1996, the Adjustable U.S.
Government Fund paid Advisers administration fees totaling $2,694, $4,327 and
$7,276, respectively, and the Adjustable Rate Securities Fund paid Advisers
administration fees totaling $897, $2,368 and $4,313, respectively.
MANAGEMENT AGREEMENTS. The management agreements for the portfolios are in
effect until February 28, 1999. Each agreement may continue in effect for
successive annual periods if its continuance is specifically approved at least
annually by a vote of the Board of Trustees of the Adjustable Rate Securities
Portfolios or by a vote of the holders of a majority of the relevant portfolio's
outstanding voting securities, and in either event by a majority vote of the
trustees of the Adjustable Rate Securities Portfolios who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board of Trustees of the Adjustable Rate Securities Portfolios),
cast in person at a meeting called for that purpose. Each management agreement
may be terminated without penalty at any time by the Board of Trustees of the
Adjustable Rate Securities Portfolios or by a vote of the holders of a majority
of the relevant portfolio's outstanding voting securities on 60 days' written
notice to Advisers, or by Advisers on 60 days' written notice to the portfolio,
and will automatically terminate in the event of its assignment, as defined in
the 1940 Act.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the funds' shareholder servicing agent and acts as the funds'
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. Each fund may also 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 may not exceed the per
account fee payable by the fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. Investor Services, in its capacity as the transfer agent for the
portfolios, effectively acts as the funds' custodian and holds each fund's
shares of the underlying portfolio on its books. Bank of New York, Mutual Funds
Division, 90 Washington Street, New York, New York 10286, acts as custodian of
each fund's cash, pending investment in shares of the underlying portfolio. Bank
of New York also acts as custodian of the securities and other assets of the
portfolios. The custodian does not participate in decisions relating to the
purchase and sale of portfolio securities.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the funds' independent auditor. During the fiscal year
ended June 30, 1998, the auditor's services consisted of rendering an opinion on
the financial statements of the Trust included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1998.
HOW DO THE PORTFOLIOS
BUY SECURITIES FOR THEIR PORTFOLIOS?
A fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the underlying portfolio.
Since most purchases by the portfolios are principal transactions at net prices,
the portfolios incur little or no brokerage costs. Each portfolio 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. The portfolios seek 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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the funds'
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the portfolios' transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when a portfolio tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of a
portfolio, any portfolio securities tendered by the portfolio will be tendered
through Distributors if it is legally permissible to do so. In turn, the next
management fee payable to Advisers will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
If purchases or sales of securities of a portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by Advisers, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as a
portfolio 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 portfolio.
During the eight months ended June 30, 1998, and the fiscal years ended October
31, 1997, 1996 and 1995, the portfolio paid no brokerage commissions.
As of June 30, 1998, neither the funds nor the portfolios owned securities of
their regular broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The funds continuously offer their shares through Securities Dealers who have an
agreement with Distributors.
Banks and financial institutions that sell shares of the funds may be required
by state law to register as Securities Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
Under agreements with certain banks in Taiwan, Republic of China, the funds'
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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, accrued but
unpaid income dividends and capital gain distributions will be reinvested in the
fund at the Net Asset Value on the date of the exchange, and then the entire
share balance will be exchanged into the new fund. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
The proceeds from the sale of shares of an investment company are generally 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. Please see "May I Exchange Shares for Shares of Another
Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. Each fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
fund's net assets and you may incur brokerage fees in converting the securities
to cash.
GENERAL INFORMATION
If dividend checks are returned to a 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 funds nor their
affiliates will be liable for any loss caused by your failure to cash such
checks. The funds are 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.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the funds must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in any
other currency or (b) honor the transaction or make adjustments to your account
for the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the funds on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, a fund may reimburse Investor Services
an amount not to exceed the per account fee that the fund normally pays Investor
Services. These financial institutions may also charge a fee for their services
directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. Fees for special services will not increase the
expenses borne by the funds.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share as of the close of the NYSE, normally
1:00 p.m. Pacific time, each day that the NYSE is open for trading. As of the
date of this SAI, the funds are informed that the NYSE observes the following
holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
For the purpose of determining the aggregate net assets of each portfolio, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by Advisers.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the Net
Asset Value of a fund's shares 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 a fund's Net Asset Value. 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 of Trustees of the Adjustable Rate
Securities Portfolios. With the approval of the trustees, the portfolios may use
a pricing service, bank or Securities Dealer to perform any of the above
described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. A fund earns income and gains on its
investment in the underlying portfolio. A portfolio, in turn, earns income
generally in the form of interest, original issue, market and acquisition
discount, and other income derived from its investments. This income, together
with the excess of any net short-term capital gain over net long-term capital
loss realized by a portfolio, less expenses incurred in the operation of a
portfolio, is paid to the corresponding fund as ordinary dividend income. The
ordinary dividend income received from a portfolio, less expenses incurred in
the operation of the corresponding fund, constitute a fund's net investment
income from which dividends may be paid to you. Any distributions by a fund from
such income will be taxable to you as ordinary income, whether you take them in
cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. A fund may receive capital gain distributions
from the underlying portfolio, consisting of the excess of any net long-term
capital gain over net short-term capital loss realized by the portfolio on the
sale or disposition of its underlying portfolio securities. A fund may also
derive capital gains and losses in connection with the sale of underlying
portfolio shares. Distributions derived from the excess of net short-term
capital gain over net long-term capital loss will be taxable to you as ordinary
income. Distributions derived from the excess of net long-term capital gain over
net short-term capital loss, including capital gain distributions received from
a portfolio, will be taxable to you as long-term capital gain, regardless of how
long you have held your shares in the fund. Any net short-term or long-term
capital gains realized by a fund (net of any capital loss carryovers) generally
will be distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on
such fund.
Gains from securities sold by a fund that are held for more than one year will
be taxable at a maximum rate of 20% for individual investors in the 28% or
higher federal income tax brackets; or at a maximum rate of 10% for individual
investors in the 15% federal income tax bracket. Gains from securities sold by a
fund prior to January 1, 1998, are taxable at different rates depending on the
length of time the fund held such assets.
For "qualified 5-year gains," the maximum capital gains tax rate is 18% for
individuals in the 28% or higher federal income tax brackets; 8% for individuals
in the 15% federal income tax bracket. For individuals in the 15% bracket,
qualified 5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are subject to tax
at higher rates, qualified 5-year gains are net gains on securities which are
purchased after December 31, 2000 and are held for more than 5 years. Taxpayers
subject to tax at the higher rates may also make an election for shares held on
January 1, 2001 to recognize gain on their shares in order to qualify such
shares as qualified 5-year property.
Additional information on reporting capital gain distributions on your personal
income tax returns is available in Franklin Templeton's Tax Information
Handbook. Please call Fund Information at 1-800/DIAL BEN(R) to request a copy.
CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following year
will be treated for tax purposes as if they had been received by you on December
31 of the year in which they were declared. A fund will report this income to
you on your Form 1099-DIV for the year in which these distributions were
declared.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. A fund will inform you of the
amount and character of your distributions at the time they are paid, and will
advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held fund shares for a full year, you may have designated and distributed to you
as ordinary income or capital gain a percentage of income that is not equal to
the actual amount of such income earned during the period of your investment in
the fund.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. Each fund has elected to
be treated as a regulated investment company under Subchapter M of the Code, has
qualified as such for its most recent fiscal year, and intends so to qualify
during the current fiscal year. The Board reserves the right not to maintain the
qualification of a fund as a regulated investment company if it determines such
course of action to be beneficial to its shareholders. In such case, a 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 available earnings and profits.
In order to qualify as a regulated investment company for tax purposes, a fund
must meet certain specific requirements, including:
o A fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the fund's total assets,
and, with respect to 50% of the fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of other
regulated investment companies) can exceed 5% of the fund's total assets or
10% of the outstanding voting securities of the issuer;
o A fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale
or disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities,
or currencies; and
o A fund must distribute to its shareholders at least 90% of its investment
company taxable income (i.e., net investment income plus net short-term
capital gains) and net tax-exempt income for each of its fiscal years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires each fund to distribute
at least 98% of its taxable ordinary income earned during the calendar year and
98% of its capital gain net income earned during the twelve month period ending
October 31 (in addition to undistributed amounts from the prior year) to you by
December 31 of each year in order to avoid federal excise taxes. Each fund
intends to declare and pay sufficient dividends in December (or in January that
are treated by you as received in December) but does not guarantee and can give
no assurances that its distributions will be sufficient to eliminate all such
taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. The tax law requires
that you recognize a gain or loss in an amount equal to the difference between
your tax basis and the amount you received in exchange for your shares, subject
to the rules described below. 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 for federal income tax purposes if you have held your shares for more
than one year at the time of redemption or exchange. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by a 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 purchase 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 purchase.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends paid
to shareholders from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by a fund. Investments in GNMA/FNMA securities, bankers' acceptances,
commercial paper and repurchase agreements collateralized by U.S. government
securities do not generally qualify for tax-free treatment. It is anticipated
that no portion of a fund's distributions from income earned on its shares in
the portfolio will qualify for exemption from state and local income tax as
dividends paid from interest earned on direct obligations of the U.S.
government. At the end of each calendar year, a fund will provide you with the
percentage of any dividends paid that may qualify for tax-free treatment on your
personal income tax return. You should consult with your own tax advisor to
determine the application of your state and local laws to these distributions.
Because the rules on exclusion of this income are different for corporations,
corporate shareholders should consult with their corporate tax advisors about
whether any of their distributions may be exempt from corporate income or
franchise taxes.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because a fund's income is
derived primarily from interest rather than dividends, no portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by a fund for the most
recent calendar year qualified for such deduction, and it is anticipated that
none of the current year's dividends will so qualify.
CONVERSION TRANSACTIONS. Gains realized by a fund from transactions that are
deemed to be "conversion transactions" under the Code, and that would otherwise
produce capital gain may be recharacterized as ordinary income to the extent
that such gain does not exceed an amount defined as the "applicable imputed
income amount." A conversion transaction is any transaction in which
substantially all of the fund's expected return is attributable to the time
value of the fund's net investment in such transaction, and any one of the
following criteria are met:
1) there is an acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in the
future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the fund on the basis that it would
have the economic characteristics of a loan but would be taxed as capital
gain; or
4) the transaction is specified in Treasury regulations to be promulgated in
the future.
The applicable imputed income amount, which represents the deemed return on the
conversion transaction based upon the time value of money, is computed using a
yield equal to 120 percent of the applicable federal rate, reduced by any prior
recharacterizations under this provision or the provisions of Section 263(g) of
the Code dealing with capitalized carrying costs.
INVESTMENTS IN ORIGINAL ISSUE DISCOUNT (OID) AND MARKET DISCOUNT (MD) BONDS. A
fund's investments in zero coupon bonds, bonds issued or acquired at a discount,
delayed interest bonds, or bonds that provide for payment of interest-in-kind
(PIK) may cause the fund to recognize income and make distributions to you prior
to its receipt of cash payments. Zero coupon and delayed interest bonds are
normally issued at a discount and are therefore generally subject to tax
reporting as OID obligations. A fund is required to accrue as income a portion
of the discount at which these securities were issued, and to distribute such
income each year (as ordinary dividends) in order to maintain its qualification
as a regulated investment company and to avoid income reporting and excise taxes
at the fund level. PIK bonds are subject to similar tax rules concerning the
amount, character and timing of income required to be accrued by a fund. Bonds
acquired in the secondary market for a price less than their stated redemption
price, or revised issue price in the case of a bond having OID, are said to have
been acquired with market discount. For these bonds, a fund may elect to accrue
market discount on a current basis, in which case the fund will be required to
distribute any such accrued discount. If a fund does not elect to accrue market
discount into income currently, gain recognized on sale will be recharacterized
as ordinary income instead of capital gain to the extent of any accumulated
market discount on the obligation.
DEFAULTED OBLIGATIONS. A fund may be required to accrue income on defaulted
obligations and to distribute such income to you even though it is not currently
receiving interest or principal payments on such obligations. In order to
generate cash to satisfy these distribution requirements, a fund may be required
to dispose of portfolio securities that it otherwise would have continued to
hold or to use cash flows from other sources such as the sale of fund shares.
THE FUNDS' UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of each fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each 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.
HOW DO THE FUNDS MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a 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 funds are
based on the standardized methods of computing performance mandated by the SEC.
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.
TOTAL RETURN
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 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.
The average annual total return for the one- and five-year periods ended June
30, 1998, and the period from inception to June 30, 1998, was 5.78%, 4.64%, and
4.61%, respectively, for the Adjustable U.S. Government Fund and 6.51%, 5.71%,
and 5.73%, respectively, for the Adjustable Rate Securities Fund. The Adjustable
U.S. Government Fund and Adjustable Rate Securities Fund commenced operations on
December 2, 1991, and January 3, 1992, respectively.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. 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 return for the one- and five-year periods
ended June 30, 1998, and the period from inception to June 30, 1998, was 5.78%,
25.43%, and 34.54%, respectively, for the Adjustable U.S. Government Fund and
6.51%, 31.99%, and 43.55%, respectively, for the Adjustable Rate Securities
Fund.
YIELD
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 Net Asset Value 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 during the base period. The yield for the
30-day period ended June 30, 1998, was 5.19% for the Adjustable U.S. Government
Fund and 5.45% for the Adjustable Rate Securities Fund.
These figures were obtained using the following SEC formula:
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 Net Asset Value per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to shareholders.
Amounts paid to shareholders are reflected in the quoted current distribution
rate. The current distribution rate is usually computed by annualizing the
dividends paid per share during a certain period and dividing that amount by the
current Net Asset Value. The current distribution rate differs from the current
yield computation because it may include distributions to shareholders from
sources other than dividends and interest, such as short-term capital gains and
is calculated over a different period of time. The current distribution rate for
the 30-day period ended June 30, 1998, was 5.22% for the Adjustable U.S.
Government Fund and 5.42% for the Adjustable Rate Securities Fund.
VOLATILITY
Occasionally statistics may be used to show the funds' volatility or risk.
Measures of volatility or risk are generally used to compare a 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 funds may include in their advertising or sales material information
relating to investment goals and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in a fund may satisfy your
investment goal, advertisements and other materials about the funds may discuss
certain measures of fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey, and Lipper Mutual
Fund Indices - 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.
b) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
c) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.
d) Financial publications: THE WALL STREET JOURNAL, and BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines provide performance
statistics over specified time periods.
e) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
g) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
h) Salomon Brothers Broad Bond Index or its component indices - measures yield,
price, and total return for Treasury, agency, corporate and mortgage bonds.
i) Salomon Brothers 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.
j) Lehman Brothers Aggregate Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate, mortgage and
Yankee bonds.
k) Lehman Brothers Short 1-2 Year Government Index - total return index which
includes fixed rate debt securities issued by the U.S. government rated
investment grade or higher by Moody's, S&P, or Fitch with one- to two-year
maturity range.
l) Other taxable investments, including CDs, money market deposit accounts,
checking accounts, savings accounts, money market mutual funds, and repurchase
agreements.
m) Standard & Poor's Bond Indices - measure yield and price of corporate,
municipal, and government bonds.
n) IBC/Donoghue's Money Fund Report(R) - industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
o) Historical data supplied by the research departments of CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
p) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk adjusted performance of a fund over specified
time periods relative to other funds within its category.
From time to time, advertisements or information for a fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare a fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in a fund involves the risk of fluctuation of principal value, a risk
generally not present in an investment in a CD issued by a bank. For example, as
the general level of interest rates rise, the value of each portfolio's
fixed-income investments, as well as the value of its and the fund's shares that
are based upon the value of such portfolio investments, can be expected to
decrease. Conversely, when interest rates decrease, the value of each
portfolio's and thus each fund's shares can be expected to increase. CDs are
frequently insured by an agency of the U.S. government. An investment in a 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 funds' portfolios, 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 funds to calculate their figures. In
addition, there can be no assurance that the funds will continue their
performance as compared to these other averages.
From time to time, the Adjustable U.S. Government Fund may advertise offers for
the general public to attend free seminars where a guest speaker will discuss
the benefits of investing in Franklin's professionally managed portfolio of U.S.
government securities.
In addition, in promoting the sale of fund shares, advertisements or information
for the funds may also include quotes from Benjamin Franklin, especially Poor
Richard's Almanac.
MISCELLANEOUS INFORMATION
Each fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 50 years and
now services more than 3 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $207 billion in assets under
management for more than 6 million U.S. based mutual fund shareholder and other
accounts. The Franklin Templeton Group of Funds offers 117 U.S. based open-end
investment companies to the public. Each fund may identify itself by its NASDAQ
symbol or CUSIP number.
As of October 2, 1998, the principal shareholders of the funds, beneficial or of
record, were as follows:
SHARE
NAME AND ADDRESS AMOUNT PERCENTAGE
- ------------------------------------------------------------------------------
ADJUSTABLE U.S.
GOVERNMENT FUND
Centco For Western 17,570.058 5.2%
Quality Concrete
FBO Employer Match 401K
P.O. Box 1488
Provo, UT 84603-1488
SHARE
NAME AND ADDRESS AMOUNT PERCENTAGE
Key Trust Company 26,526.070 7.8%
of the West Trste
FBO Laurel W. Murphy
#30103000130180
Attn: Mutual Funds
P.O. Box 94871
Cleveland, OH 44101-4871
ISTCO A Partnership 50,750.900 14.9%
c/o Magna Trust Co.
222 E. Main St.
P.O. Box 523
Belleville, IL 62222-0523
Bank of Stockton 114,265.804 33.6%
Trust Department
P.O. Box 1110
Stockton, CA 95201-1110
ADJUSTABLE RATE
SECURITIES FUND
WEBAT & Co. 19,095.900 19.7%
107 Post Rd. E.
P.O. Box 5177
Westport, CT 06881-5177
WEBAT & Co. 12,998.270 13.4%
107 Post Rd. E.
P.O. Box 5177
Westport, CT 06881-5177
Dai-Ichi Kangyo 65,061.016 67.0%
Bank of CA Ttee
for the Employees
Retirement Plan of the
Dai-Ichi Kangyo Bank Ltd.
c/o BAC/Plan Member Services
1200 5th Ave., Ste. 600
Seattle, WA 98101-1188
From time to time, the number of fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
funds' Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the funds. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of a fund's assets if you are held personally liable for
obligations of the fund. The Declaration of Trust provides that a fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the fund and satisfy any judgment thereon. All such rights are
limited to the assets of the fund. The Declaration of Trust further provides
that the funds may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the funds, their
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of a fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the fund's total assets. Thus, the risk that you
would incur financial loss on account of shareholder liability is limited to the
unlikely circumstance in which both inadequate insurance exists and the fund
itself is unable to meet its obligations.
In the event of disputes involving multiple claims of ownership or authority to
control your account, each 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.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations and statements must be sent
to a compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the portfolios' investment manager and
the funds' administrator
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the funds'
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the funds dated November 1, 1998, which we may
amend from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the funds and/or Institutional Services, Investor Services,
Distributors, or other wholly owned subsidiaries of Resources.
APPENDICES
SUMMARY OF PROCEDURES
TO MONITOR CONFLICTS OF INTEREST
The Board of Trustees of the Adjustable Rate Securities Portfolios, on behalf of
its series ("master funds"), and the Board of the funds ("feeder funds"), both
of which, except in the case of one trustee, are composed of the same
individuals, recognize that there is the potential for certain conflicts of
interest to arise between the master fund and the feeder fund in this format.
These potential conflicts of interest could include, among others: the creation
of additional feeder funds with different fee structures; the creation of
additional feeder funds that could have controlling voting interests in any
pass-through voting which could affect investment and other policies; a proposal
to increase fees at the master fund level; and any consideration of changes in
fundamental policies at the master fund level that may or may not be acceptable
to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Board
of Trustees of the Adjustable Rate Securities Portfolios and the Board of the
funds have adopted certain procedures under which i) management of the master
fund and the feeder fund will, on a yearly basis, report to each board,
including the independent members of each board, on the operation of the
master/feeder fund structure; ii) the independent members of each board will
have ongoing responsibility for reviewing all proposals at the master fund level
to determine whether any proposal presents a potential for a conflict of
interest and to the extent any other potential conflicts arise before the normal
annual review, they will act promptly to review the potential conflict; iii) if
the independent members of each board determine that a situation or proposal
presents a potential conflict, they will request a written analysis from the
master fund management describing whether the apparent potential conflict of
interest will impede the operation of the constituent feeder fund and the
interests of the feeder fund's shareholders; and iv) upon receipt of the
analysis, the independent members of each board shall review the analysis and
present their conclusion to the full boards.
If no actual conflict is deemed to exist, the independent board members will
recommend that no further action be taken. If the analysis is inconclusive, they
may submit the matter to and be guided by the opinion of independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following actions: i) suggest a course of action
designed to eliminate the potential conflict of interest; ii) if appropriate,
request that the full boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected feeder fund no
longer invest in its designated master fund and propose either a search for a
new master fund in which to invest the feeder fund's assets or the hiring of an
investment manager to manage the feeder fund's assets in accordance with its
investment goals and policies; iv) recommend to the full boards that a new board
be recommended to shareholders for approval; or v) recommend such other action
as may be considered appropriate.
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
MOODY'S
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, 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.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, for the fiscal year ended June 30, 1998, including the auditor's
report and the unaudited financial statements of the Adjustable Rate Securities
Portfolios for the period ended June 30, 1998, are incorporated herein by
reference. Following are the audited financial statements for the portfolios for
the fiscal year ended October 31, 1997, including the auditor's report.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Highlights
<TABLE>
<CAPTION>
U.S. Government Adjustable Rate Mortgage Portfolio
Year ended October 31,
----------------------------------------------------------
1997 1996 1995 1994 19931
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $9.37 $9.33 $9.19 $9.82 $9.91
----------------------------------------------------------
Income from investment operations:
Net investment income ........................ .593 .589 .572 .415 .313
Net realized and unrealized gain (loss) ...... .110 .040 .140 (.630) (.090)
----------------------------------------------------------
Total from investment operations .............. .703 .629 .712 (.215) .223
Less distributions from net investment income . (.593) (.589) (.572) (.415) (.313)
----------------------------------------------------------
Net asset value, end of year .................. $9.48 $9.37 $9.33 $9.19 $9.82
==========================================================
Total return* ................................. 7.74% 6.95% 7.99% (2.22)% 2.28%
Ratios/supplemental data
Net assets, end of year (000's) ............... $342,541 $406,431 $522,802 $747,471 $2,130,229
Ratio of average net assets:
Expenses ..................................... .25% .25% .18% .02% .27%**
Expenses excluding waiver and payments by affiliate .43% .42% .43% .42% .41%**
Net investment income ....................... 6.31% 6.31% 6.17% 4.01% 4.15%**
Portfolio turnover rate ....................... 20.84% 24.63% 20.16% 56.43% 76.55%
1For the nine months ended October 31, 1993
*Total return is not annualized
**Annualized
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments, October 31, 1997
PRINCIPAL
U.S. Government Adjustable Rate Mortgage Portfolio AMOUNT VALUE
<S> <C> <C>
Adjustable Rate Mortgage Securities 97.2%
Federal Home Loan Mortgage Corp. (FHLMC) 19.8%
FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.625%, 11/01/16 ..... $ 4,718,503 $ 4,969,670
FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.853%, 4/01/19 ..... 2,117,740 2,225,491
FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.685%, 7/01/18 ...... 4,267,699 4,428,848
FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.847%, 4/01/18 ...... 6,712,722 7,098,301
FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.654%, 9/01/19 ...... 5,388,451 5,675,171
FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.644%, 12/01/16 .... 2,637,333 2,776,901
FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.831%, 10/01/18 .... 2,528,652 2,664,694
FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.762%, 3/01/19 ..... 2,164,913 2,281,234
FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.62%, 3/01/18 ...... 4,072,207 4,288,319
FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.665%, 4/01/19 ....... 8,453,614 8,881,030
FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.994%, 7/01/20 ...... 6,081,007 6,401,842
FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.944%, 11/01/19 .... 2,733,821 2,875,488
FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.746%, 4/01/18 ..... 7,879,212 8,285,070
FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 8.751%, 12/01/21 1,847,307 1,940,153
FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.096%, 2/01/19 ...... 2,959,606 3,174,947
-------------
Total Federal Home Loan Mortgage Corp. (Cost $66,725,193) ..................... 67,967,159
-------------
Federal National Mortgage Association (FNMA) 68.0%
FNMA, Cap 12.00%, Margin 1.25% + COFI, Resets Monthly, 6.112%, 11/01/35 ....... 9,394,906 9,401,953
FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR,
Resets Semi-Annually, 7.673%, 11/01/18 ................................... 2,264,248 2,363,898
FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.913%, 11/01/17 ...... 15,260,761 15,507,986
FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.686%, 3/01/19 ........ 3,993,972 4,179,732
FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR,
Resets Semi-Annually, 6.929%, 1/01/19 ......................................... 10,589,417 10,916,418
FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.888%, 1/01/19 ....... 2,967,682 2,985,132
FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.103%, 9/01/18 ....... 11,214,476 11,133,284
FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.477%, 1/01/19 ....... 2,903,508 2,992,297
FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.821%, 11/01/20 ...... 3,739,582 3,952,066
FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.426%, 5/01/19 ....... 4,860,978 5,107,430
FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually,
7.85%, 6/01/17................................................................ 3,007,607 3,163,462
FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 8.257%, 10/01/17 4,798,997 4,983,183
FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR,
Resets Semi-Annually, 7.280%, 7/01/17........................................ 6,765,613 7,063,369
FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.103%, 2/01/19 ....... 7,059,067 7,005,771
FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.745%, 12/01/19 ..... 3,268,174 3,456,454
FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 8.167%, 11/01/17 4,936,608 5,146,167
FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Annually, 7.733%, 6/01/19 ........ 4,872,351 5,152,804
FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.917%, 2/01/20 ........ 8,468,598 8,518,393
FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.158%, 12/01/20 .............................................................. 5,205,039 5,372,278
FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.749%, 4/01/19 ...... 5,414,705 5,729,138
FNMA, Cap 13.083%, Margin 2.005% + CMT, Resets Annually, 7.635%, 6/01/19 ...... 4,708,480 4,977,241
FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.584%, 4/01/19 ...... 4,364,388 4,612,504
FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR,
Resets Semi-Annually, 7.683%, 11/01/26 ........................................ 2,536,223 2,672,418
FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.636%, 6/01/19 2,893,430 3,025,284
FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.637%, 10/01/19 ...... 7,435,748 7,860,181
FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.434%, 4/01/03 ........ 6,372,700 6,460,007
FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.84%, 9/01/22 ....... 11,322,763 11,927,173
FNMA, Cap 13.457%, Margin 1.903% + CMT, Resets Annually, 7.601%, 6/01/18 ...... 5,587,954 5,905,686
FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.86%, 3/01/21 ....... 4,946,037 5,233,996
FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 7.916%, 12/01/20 $ 7,701,866 $ 8,153,889
FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.747%, 3/01/19 ....... 2,392,531 2,517,278
FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.794%, 7/01/245,287,705 5,287,441
FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.775%, 2/01/19 ....... 3,659,439 3,855,915
FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.989%, 12/01/18 2,866,026 3,034,148
FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.755%, 1/01/19 ...... 6,096,910 6,448,397
FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.77%, 3/01/21 ....... 1,906,283 2,005,067
FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 8.168%, 5/01/21 . 9,771,483 10,140,454
FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.799%, 3/01/20 ....... 3,044,716 3,221,492
FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.421%, 1/01/16 ....... 7,983,277 8,267,243
FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 8.356%, 5/01/19 ...... 2,885,536 3,098,172
-------------
Total Federal National Mortgage Association (Cost $231,376,068) ............... 232,835,201
-------------
Government National Mortgage Association (GNMA) 9.4%
GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 1/20/24 6,821,605 7,014,589
dGNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 5.50%, 12/01/27 ........ 9,000,000 8,980,313
dGNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 12/01/27 ........ 10,000,000 10,078,125
GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 7.00%, 7/20/25 ......... 5,959,124 6,249,333
-------------
Total Government National Mortgage Association (Cost $31,957,224) ............. 32,322,360
-------------
bRepurchase Agreements 8.0%
Joint Repurchase Agreement, 5.671%, 11/03/97, (Maturity Value $27,393,124)
(Cost $27,380,185) ............................................................. 27,380,185 27,380,185
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $357,438,670) 105.2% .................................. 360,504,905
Other Assets, less Liabilities (5.2%) ......................................... (17,963,815)
-------------
Net Assets 100.0% ............................................................. $342,541,090
=============
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
</TABLE>
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At October 31, 1997, all repurchase agreements held
by the Portfolio had been entered into on that date.
dSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Highlights
<TABLE>
<CAPTION>
Adjustable Rate Securities Portfolio
Year ended October 31,
----------------------------------------------------
1997 1996 1995 1994 19931
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $9.86 $9.81 $9.69 $10.03 $10.02
----------------------------------------------------
Income from investment operations:
Net investment income ........................ .616 .607 .625 .469 .368
Net realized and unrealized gain (loss) ...... .090 .050 .120 (.340) .010
----------------------------------------------------
Total from investment operations .............. .706 .657 .745 .129 .378
Less distributions from net investment income . (.616) (.607) (.625) (.469) (.368)
----------------------------------------------------
Net asset value, end of year .................. $9.95 $9.86 $9.81 $9.69 $10.03
====================================================
Total return* ................................. 7.38% 6.91% 7.94% 1.32% 3.83%
Ratios/supplemental data
Net assets, end of period (000's) ............. $22,540 $20,534 $27,079 $41,619 $124,309
Ratio of average net assets:
Expenses ..................................... .25% .25% .25% .25% .11%**
Expenses excluding waiver and payments by affiliate .44% .47% .47% .43% .47%**
Net investment income ........................ 6.20% 6.19% 6.36% 4.55% 4.76%**
Portfolio turnover rate ....................... 138.32% 46.78% 50.29% 192.06% 158.70%
</TABLE>
1For the nine months ended October 31, 1993.
*Total return is not annualized
**Annualized
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments, October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
Adjustable Rate Securities Portfolio AMOUNT VALUE
Adjustable Rate Mortgage Securities 80.1%
<S> <C> <C>
FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%, 10/01/28 .......... $ 837,463 $ 842,388
FNMA, Cap 13.86%, Margin 1.84% + CMT, Resets Annually, 7.490%, 8/01/16 .......... 375,448 394,318
FNMA, Cap 14.68%, Margin 2.125% + 3CMT, Resets Every 3 Years, 8.627%, 8/01/22 ... 1,844,163 1,959,885
dGNMA, Cap 10.50%, Margin 1.50% + CMT, Resets Annually, 5.50%, 12/01/27 .......... 1,000,000 997,813
Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT,
Resets Annually, 7.407%, 1/25/18 ................................................ 887,457 902,710
PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 8.359%, 7/25/22 .......... 1,152,236 1,177,442
PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.144%, 4/25/22 .......... 598,746 602,676
RFC, Cap 10.00%, Margin 0.85% + COFI, Resets Monthly, 5.713%, 2/25/22 ........... 846,607 844,169
RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.705%, 11/25/22 .......... 1,184,262 1,225,982
RTC, Cap 12.39%, Margin 1.61% + 6 Month DR, Resets Semi-Annually, 6.868%, 1/25/25 1,166,767 1,166,767
RTC, Cap 13.82%, Margin 0.92% + 3CMT, Resets Every 3 Years, 7.099%, 4/25/22 ..... 1,235,919 1,239,009
RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.582%, 6/25/22 ..... 1,483,767 1,438,790
RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.549%, 7/25/20 .......... 1,059,548 1,064,846
Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR,
Resets Annually, 8.121%, 10/25/16 ............................................... 1,408,400 1,407,961
Saxon Mortgage Securities Corp., Cap 10.78%, Margin 2.78% + 6 Month LIBOR,
Resets Semi-Annually, 8.683%, 5/25/24 .......................................... 517,538 536,725
Saxon Mortgage Securities Corp., Cap 11.68%, Margin 2.13% + 6 Month LIBOR,
Resets Semi-Annually, 8.128%, 2/25/23 .......................................... 1,138,876 1,141,723
Travelers Mortgage Services, Inc., Cap 13.95%, Margin 2.25% + CMT,
Resets Annually, 7.902%, 12/25/18 ............................................... 757,017 758,674
Western Federal Savings and Loan Association, Cap 13.00%,
Margin 1.80% + COFI, Resets Monthly, 6.664%, 3/25/19 ........................... 335,058 342,938
-------------
Total Adjustable Rate Mortgage Securities (Cost $18,203,747) .................... 18,044,816
-------------
Fixed Rate Mortgage Securities 4.1%
Countrywide Mortgage-Backed Securities, Inc., Series 1994-I,
Class A8, 6.25%, 7/25/09 (Cost $917,871) ........................................ 943,825 931,160
-------------
Other Adjustable Rate Securities 4.3%
SBA, Cap 12.625%, Margin -0.125% + Prime, Resets Quarterly,
8.375%, 8/25/20 (Cost $975,901) ................................................. 905,183 971,941
-------------
U.S. Government Securities 8.9%
U.S. Treasury Notes, 5.75%, 9/30/99 (Cost $1,998,945) ........................... 2,000,000 2,005,002
-------------
bRepurchase Agreements 6.9%
Joint Repurchase Agreement, 5.671%, 11/03/97, (Maturity Value $1,547,322)
(Cost $1,546,591) ................................................................ 1,546,591 1,546,591
-------------
Aubrey G. Lanston & Co., Inc.
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson North America, L.L.C.
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
SBC Warburg, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $23,643,055) 104.3% ..................................... 23,499,510
Other Assets, less Liabilities (4.3%) ........................................... (959,648)
-------------
Net Assets 100.0% ............................................................... $22,539,862
=============
</TABLE>
PORTFOLIO ABBREVIATIONS
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
NCI - National Median Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
SBA - Small Business Administration
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At October 31, 1997, all repurchase agreements held
by the Portfolio had been entered into on that date.
dSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
October 31, 1997
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost ................................................................... $357,438,670 $23,643,055
======================================
Value .................................................................. 360,504,905 23,499,510
Cash .................................................................... -- 7,274
Receivables:
Investment securities sold ............................................. 821,558 1,105
Interest ............................................................... 2,373,126 135,508
---------------------------------------
Total assets ...................................................... 363,699,589 23,643,397
---------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................................ 19,129,729 999,924
Capital shares redeemed ................................................ 1,946,394 93,797
Affiliates ............................................................. 68,239 4,009
Other liabilities ....................................................... 14,137 5,805
---------------------------------------
Total liabilities ................................................. 21,158,499 1,103,535
---------------------------------------
Net assets, at value ............................................. $342,541,090 $22,539,862
======================================
Net assets consist of:
Net unrealized appreciation (depreciation) ............................. $ 3,066,235 $ (143,545)
Accumulated net realized loss .......................................... (137,126,881) (2,729,247)
Capital shares ......................................................... 476,601,736 25,412,654
---------------------------------------
Net assets, at value .................................................... $342,541,090 $22,539,862
======================================
Shares outstanding ...................................................... 36,140,971 2,265,903
======================================
Net asset value and maximum offering price per share .................... $9.48 $9.95
======================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Operations
for the year ended October 31, 1997
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------------------------------------
<S> <C> <C>
Investment income:
Interest ............................................................... $24,396,969 $1,562,033
---------------------------------------
Expenses:
Management fees (Note 5) ............................................... 1,487,256 96,727
Custodian fees ......................................................... 3,641 205
Reports to shareholders ................................................ 906 689
Professional fees ...................................................... 53,470 4,455
Trustees' fees and expenses ............................................ 6,531 387
Other .................................................................. 37,399 4,233
---------------------------------------
Total expenses .................................................... 1,589,203 106,696
Expenses waived/paid by affiliate (Note 5) ........................ (656,658) (45,274)
---------------------------------------
Net expenses ..................................................... 932,545 61,422
---------------------------------------
Net investment income ........................................... 23,464,424 1,500,611
---------------------------------------
Realized and unrealized gain:
Net realized gain from investments ..................................... 693,708 14,469
Net unrealized appreciation on investments ............................. 3,675,679 260,606
---------------------------------------
Net realized and unrealized gain ........................................ 4,369,387 275,075
---------------------------------------
Net increase in net assets resulting from operations .................... $27,833,811 $1,775,686
======================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
for the years ended October 31, 1997 and 1996
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
--------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 23,464,424 $ 29,813,817 $ 1,500,611 $ 1,391,109
Net realized gain (loss) from investments 693,708 (419,303) 14,469 (37,828)
Net unrealized appreciation on investments 3,675,679 2,011,283 260,606 139,862
--------------------------------------------------------------
Net increase in net assets resulting
from operations 27,833,811 31,405,797 1,775,686 1,493,143
Distributions to shareholders from:
Net investment income (23,464,424) (29,813,817) (1,500,611) (1,391,109)
Capital share transactions (Note 2) (68,259,294) (117,962,940) 1,730,540 (6,646,687)
--------------------------------------------------------------
Net increase (decrease) in net assets (63,889,907) (116,370,960) 2,005,615 (6,544,653)
Net assets (there is no undistributed net investment
income at beginning or end of year):
Beginning of year 406,430,997 522,801,957 20,534,247 27,078,900
--------------------------------------------------------------
End of year $342,541,090 $406,430,997 $22,539,862 $20,534,247
==============================================================
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is registered under the
Investment Company Act of 1940 as an open-end, diversified investment company,
consisting of two separate portfolios (the Portfolios) the U.S. Government
Adjustable Rate Mortgage Portfolio (Mortgage Portfolio) and the Adjustable Rate
Securities Portfolio (Securities Portfolio). The shares of the Trust are issued
in private placements and are thus exempt from registration under the Securities
Act of 1933. The investment objective of each Portfolio is to seek current
income.
The following summarizes the Portfolios' significant accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. Income Taxes:
No provision has been made for income taxes because each Portfolio's policy is
to qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
c. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividends from net
investment income are normally declared daily and distributed monthly to
shareholders.
Common expenses incurred by the Trust are allocated among the Portfolios based
on the ratio of net assets of each Portfolio to the combined net assets. Other
expenses are charged to each Portfolio on a specific identification basis.
d. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. TRUST SHARES:
At October 31, 1997, there were an unlimited number of shares authorized ($0.01
par value). Transactions in each of the Portfolios' shares were as follow:
<TABLE>
<CAPTION>
U.S. Government Adjustable Adjustable Rate
Rate Mortgage Portfolio Securities Portfolio
------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Shares sold ....................................... 14,468,647 $136,195,699 2,195,631 $21,698,569
Shares issued in reinvestment of distributions .... 2,492,654 23,464,406 151,507 1,500,610
Shares redeemed ...................................(24,217,403) (227,919,399) (2,164,571) (21,468,639)
------------------------------------------------------
Net Increase (decrease) ...................... (7,256,102)$ (68,259,294) 182,567 $ 1,730,540
======================================================
1996
Shares sold ....................................... 8,516,434 $ 79,504,622 741,450 $ 7,267,077
Shares issued in reinvestment of distributions .... 3,196,067 29,832,645 141,790 1,391,107
Shares redeemed ...................................(24,351,072) (227,300,207) (1,560,875) (15,304,871)
------------------------------------------------------
Net Decrease .................................(12,638,571)$(117,962,940) (677,635)$ (6,646,687)
======================================================
</TABLE>
3. INCOME TAXES
At October 31, 1997, the Portfolios had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
Capital loss carryovers
Expiring in:
2000 $ 44,745,908 $ 42,138
2001 17,182,002 50,908
2002 67,102,060 1,987,888
2003 7,677,608 609,391
2004 419,303 37,828
----------------------------
$137,126,881 $2,728,153
----------------------------
3. INCOME TAXES (cont.)
The cost of securities for income tax purposes is the same as that shown in the
investment portfolio.
At October 31, 1997, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------------------------------------
Investments
at cost $357,438,670 $23,643,055
---------------------------------------
Unrealized
appreciation $ 4,622,271 98,232
Unrealized
depreciation (1,556,036) (241,777)
---------------------------------------
Net unrealized
appreciation
(depreciation) $ 3,066,235 $ (143,545)
---------------------------------------
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended October 31, 1997 were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------------------------------------
Purchases $ 74,103,904 $35,649,657
Sales $124,530,053 $32,484,549
5. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Trust are also officers and/or directors
of Franklin Advisers, Inc. (Advisers), the Portfolios' investment manager (a
wholly-owned subsidiary of Franklin Resources, Inc.) and of Franklin Investors
Securities Trust and Institutional Fiduciary Trust.
The Portfolios pay an investment management fee to Advisers based on the average
net assets of the Portfolios as follows:
Annualized
Fee Rate Month End Net Assets
0.400% First $5 billion
0.350% Over $5 billion, up to and including $10 billion
0.330% Over $10 billion, up to and including $15 billion
Fees are further reduced on net assets over $15 billion.
Advisers agreed in advance to waive management fees as noted in the Statement of
Operations.
5. TRANSACTIONS WITH AFFILIATES (cont.)
<TABLE>
<CAPTION>
At October 31, 1997, 36,140,971 shares of the Mortgage Portfolio were owned by
the following:
Shares Percentage of
Name Owned Outstanding Shares
<S> <C> <C>
Franklin Adjustable U.S. Government Securities Fund ......................... 35,474,557 98%
Franklin Institutional Adjustable U.S. Government Securities Fund ........... 666,414 2%
At October 31, 1997, 2,265,903 shares of the Securities Portfolio were owned by the following:
Shares Percentage of
Name Owned Outstanding Shares
<S> <C> <C>
Franklin Adjustable Rate Securities Fund .................................... 2,131,679 94%
Franklin Institutional Adjustable Rate Securities Fund ...................... 132,707 6%
Franklin Resources, Inc. .................................................... 1,517 --
</TABLE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Adjustable Rate Securities Portfolios:
We have audited the accompanying statements of assets and liabilities of the two
Portfolios comprising the Adjustable Rate Securities Portfolios (the Trust),
including each Portfolio's statement of investments, as of October 31, 1997, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
two Portfolios comprising the Adjustable Rate Securities Portfolios as of
October 31, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 5, 1997
INSTITUTIONAL FIDUCIARY TRUST
FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1998
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/321-8563
TABLE OF CONTENTS
How Does the Fund Invest Its Assets?.........................
Investment Restrictions......................................
Officers and Trustees........................................
Investment Management
and Other Services..........................................
How Does the Fund Buy
Securities for Its Portfolio?...............................
How Do I Buy, Sell and Exchange Shares?......................
How Are Fund Shares Valued?..................................
Additional Information on
Distributions and Taxes.....................................
The Fund's Underwriter.......................................
How Does the Fund Measure Performance?.......................
Miscellaneous Information....................................
Financial Statements.........................................
Useful Terms and Definitions.................................
- ------------------------------------------------------------------------------
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and
Definitions."
- ------------------------------------------------------------------------------
The fund is a no-load, diversified series of Institutional Fiduciary Trust (the
"Trust"), an open-end management investment company. The investment goal of the
fund is to provide investors with as high a level of current income as is
consistent with the preservation of shareholders' capital and liquidity. This
goal is fundamental, which means that it may not be changed without shareholder
approval. The fund also tries to maintain a stable Net Asset Value of $1 per
share.
The Prospectus, dated November 1, 1998, which we may amend from time to time,
contains the basic information you should know before investing in the fund.
For a free copy, call 1-800/321-8563.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
- ------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- ------------------------------------------------------------------------------
HOW DOES THE FUND INVEST ITS ASSETS?
The following gives more detailed information about the fund's investment
policies and the types of securities it may buy. Please read this information
together with the section "How Does the Fund Invest Its Assets?" in the
Prospectus.
ILLIQUID INVESTMENTS. The fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the fund has valued them.
BORROWING. The fund may borrow up to 5% of its total assets from banks for
temporary or emergency purposes.
WHEN-ISSUED OR DELAYED-DELIVERY TRANSACTIONS. When the fund is the buyer in the
transaction, it will maintain cash or liquid securities, with an aggregate value
equal to the amount of its purchase commitments, in a segregated account with
its custodian bank until payment is made. The fund will not engage in
when-issued and delayed-delivery transactions for investment leverage purposes.
CONVERSION TO A MASTER/FEEDER STRUCTURE
Currently, in seeking to accomplish its goal to provide investors with as high a
level of current income as is consistent with the preservation of shareholders'
capital and liquidity, the fund invests directly in a portfolio of securities
issued by the U.S. government, its agencies or instrumentalities. Certain funds
administered by Advisers participate as feeder funds in master/feeder fund
structures. Under a master/feeder structure, one or more feeder funds, such as
the fund, invests its assets in a master fund, which, in turn, invests its
assets directly in the securities. The fund hereby reserves the right to convert
to a master/feeder fund structure at a future date. Unless shareholder approval
is otherwise required by applicable law, shareholders will be deemed to have
consented to the conversion by their purchase of fund shares, and no further
shareholder approval will be sought or needed. Shareholders will, however, be
informed in writing in advance of the conversion. The determination to convert
the fund to a master/feeder fund structure is not expected to result in an
increase in the fees or expenses paid by the fund or its shareholders. The
investment objectives and other fundamental policies of the fund, which can be
changed only with shareholder approval, are structured so as to permit the fund
to invest directly in securities or indirectly in securities through a
master/feeder fund structure.
INVESTMENT RESTRICTIONS
The fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the fund or (ii) 67%
or more of the shares of the fund present at a shareholder meeting if more than
50% of the outstanding shares of the fund are represented at the meeting in
person or by proxy, whichever is less. The fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objectives and policies of the fund, or (b) by the loan of
its portfolio securities in accordance with the policies of the fund.
3. Invest in any issuer for purposes of exercising control or management except
that, to the extent this restriction is applicable, all or substantially all of
the assets of the fund may be invested in another registered investment company
having the same investment objectives and policies as the fund.
4. Buy any securities "on margin" or sell any securities "short," except that
it may use such short-term credits as are necessary for the clearance of
transactions.
5. Purchase securities, in private placements or in other transactions, for
which there are legal or contractual restrictions on resale, which are not
readily marketable, if, as a result, more than 10% of the total assets of the
fund would be invested in such securities except that, to the extent this
restriction is applicable, the fund may purchase, in private placements, shares
of another registered investment company having the same investment objectives
and policies as the fund.
6. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition, or reorganization, provided that all or
substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objectives and policies
as the fund.
7. Invest more than 25% of its assets in securities of any industry, except
that this policy is inapplicable to the extent all or substantially all of the
assets of the fund may be invested in another registered investment company
having the same investment objectives and policies as the fund. For purposes of
this limitation, U.S. government obligations are not considered to be part of
any industry. This prohibition does not apply where the policies of the fund as
described in its Prospectus specify otherwise.
8. Act as underwriter of securities issued by other persons, except insofar as
the Trust may technically be deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities, except that all
or substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objectives and policies
as the fund.
9. Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or Advisers own beneficially more than 1/2 of 1% of
the securities of such issuer and all such officers and trustees together own
beneficially more than 5% of such securities.
10. Acquire, lease, or hold real estate, provided that this limitation shall not
prohibit the purchase of municipal and other debt securities secured by real
estate or interests therein.
11. 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, except that it may purchase, hold, and
dispose of "obligations with puts attached" in accordance with its stated
investment policies.
12. The fund will not invest more than 5% of its total assets in the securities
of companies (including predecessors) which have been in continuous operation
for less than three years.
If a percentage restriction 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 or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the fund who are responsible for
administering the fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
Robert F. Carlson (70)
2120 Lambeth Way
Carmichael, CA 95608
Trustee
Member and past President, Board of Administration, California Public Employees
Retirement Systems (CALPERS); director or trustee, as the case may be, of nine
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals,
Sacramento, CA, member, Corporate Board, Blue Shield of California, and Chief
Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee, as
the case may be, of 51 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Director, General Host Corporation (nursery and
craft centers).
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and 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 50 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Director, General Host Corporation (nursery and craft
centers).
*Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, 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 34 of the investment companies in
the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission Systems,
Inc. (wireless communications); director or trustee, as the case may be, of 27
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Director, Fischer Imaging Corporation (medical imaging systems) and
General Partner, Peregrine Associates, which was the General Partner of
Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of 49
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman, White River Corporation (financial services) and Hambrecht
and Quist Group (investment banking), and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin Templeton
Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor 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 53 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal Officer
and Chief Operating Officer, Franklin Investment Advisory Services, Inc.; and
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (40)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. As of June 1, 1998, nonaffiliated members of the
Board are paid $310 per month plus $225 per meeting attended. As shown above,
the nonaffiliated Board members also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds. They may receive
fees from these funds for their services. The fees payable to nonaffiliated
Board members by the Trust are subject to reductions resulting from fee caps
limiting the amount of fees payable to Board members who serve on other boards
within the Franklin Templeton Group of Funds. The following table provides the
total fees paid to nonaffiliated Board members by the Trust and by other funds
in the Franklin Templeton Group of Funds.
NUMBER OF
TOTAL FEES BOARDS IN THE
TOTAL FEES RECEIVED FROM THE FRANKLIN TEMPLETON
RECEIVED FROM FRANKLIN TEMPLETON GROUP OF FUNDS ON
NAME THE TRUST* GROUP OF FUNDS** WHICH EACH SERVES***
- --------------------------------------------------------------------------------
Frank H. Abbott, III.... $4,810 $165,937 27
Harris J. Ashton........ 4,626 344,642 49
Robert Carlson****...... 2,335 17,680 9
S. Joseph Fortunato..... 4,599 361,562 51
David Garbellano*****... 800 91,317 N/A
Frank W.T. LaHaye....... 4,810 141,433 27
Gordon S. Macklin....... 4,626 337,292 49
*For the fiscal year ended June 30, 1998. During the period from July 1, 1997
through May 31, 1998,fees at the rate of $200 per month plus $200 per meeting
attended were in effect for the Trust.
**For the calendar year ended December 31, 1997.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 168 U.S. based
funds or series.
****Elected January 15, 1998.
*****Deceased, September 27, 1997.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or Board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or Board members who are
shareholders of Resources 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 Franklin Templeton Funds, as is consistent
with their individual financial goals. In February 1998, this policy was
formally adopted. Each board member is required to 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.
This is required until the value of such investments equals or exceeds five
times the board member's annual fees. For purposes of this policy, a board
member's investments include those in the name of family members or entities
controlled by the board member and, for investments made after February 27,
1998, are valued at cost. Investments that existed on February 27, 1998, were
valued as of that date. There is a three year phase-in period for newly elected
board members.
As of October 2, 1998, the officers and Board members did not own of record or
beneficially any shares of the fund. Many of the Board members own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. Advisers is the investment manager of
the fund. Advisers provides investment research and portfolio management
services, including the selection of securities for the fund to buy, hold or
sell and the selection of brokers through whom the fund's portfolio transactions
are executed. Advisers' activities are subject to the review and supervision of
the Board to whom Advisers renders periodic reports of the fund's investment
activities. Advisers also provides various administrative, statistical, and
other services to the fund. Advisers and its officers, directors and employees
are covered by fidelity insurance for the protection of the fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action with
respect to any of the other funds it manages, or for its own account, that may
differ from action taken by Advisers on behalf of the fund. Similarly, with
respect to the fund, Advisers is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that Advisers and
access persons, as defined by the 1940 Act, may buy or sell for its or their own
account or for the accounts of any other fund. Advisers is not obligated to
refrain from investing in securities held by the fund or other funds that it
manages. Of course, any transactions for the accounts of Advisers and other
access persons will be made in compliance with the fund's Code of Ethics. Please
see "Miscellaneous Information - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the fund pays Advisers a
management fee equal to an annual rate of 0.15% of the the fund's average daily
net assets. The fee is computed on the last business day of each month.
For the fiscal years ended June 30, 1998, 1997 and 1996, management fees, before
any advance waiver, totaled $187,785, $161,912 and $115,022, respectively. Under
an agreement by Advisers to limit its fees, the fund paid management fees
totaling $132,657, $129,722 and $94,095 for the same periods.
MANAGEMENT AGREEMENT. The management agreement is in effect until February 28,
1999. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the fund's outstanding voting
securities on 60 days' written notice to Advisers, or by Advisers on 60 days'
written notice to the fund, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the fund's shareholder servicing agent and acts as the fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The fund may also 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 may 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, New York 10286, acts as custodian of the securities and other assets of
the fund. The custodian does not participate in decisions relating to the
purchase and sale of portfolio securities.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the fund's independent auditor. During the fiscal year
ended June 30, 1998, the auditor's services consisted of rendering an opinion on
the financial statements of the fund included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1998.
HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?
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. 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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the fund's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also 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 Advisers are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by
Advisers, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.
Depending on Advisers' view of market conditions, the fund may or may not buy
securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The fund may, however, sell
securities before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1998, 1997 and 1996, the fund paid no
brokerage commissions.
As of June 30, 1998, the fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Banks and financial institutions that sell shares
of the fund may be required by state law to register as Securities Dealers.
Payments transmitted by wire and received by the custodian and reported by the
custodian to the fund prior to 3:00 p.m. Pacific time on any business day are
normally effective on the same day as received, provided the fund is timely
notified as described in the fund's Prospectus. Wire payments received or
reported by the custodian to the fund after the time set forth above will be
effective on the next business day. Payments transmitted by check or other
negotiable bank draft will normally be effective within two business days for
checks drawn on a member bank of the Federal Reserve System, and longer for most
other checks.
All purchases of fund shares will be credited to you, in full and fractional
shares of the fund (rounded to the nearest 1/100 of a share), in an account
maintained for you by the fund's transfer agent. No share certificates will be
issued. The offering of shares of the fund may be suspended at any time and
resumed at any time thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the fund under the exchange privilege, the fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally 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. Please see "May I Exchange Shares for Shares of Another
Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
The fund will attempt to make payment for all shares redeemed within one
business day, but in no event later than seven days after receipt by the fund of
the redemption request in proper form. The fund may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the NYSE is closed for periods other than weekends and holidays or when trading
on the NYSE is restricted as determined by the SEC; (b) an emergency exists as
determined by the SEC making disposal of portfolio securities or valuation of
net assets of a fund not reasonably practicable; or (c) for such other periods
as the SEC by order may permit for the protection of the shareholders of a fund.
At various times, the fund may be requested to redeem shares for which it has
not yet received proper payment. Accordingly, the fund may delay the sending of
redemption proceeds until such time as it has assured itself that proper payment
has been collected for the purchase of those shares.
REDEMPTIONS IN KIND. The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
fund's net assets and you may incur brokerage fees in converting the securities
to cash.
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.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency, or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the fund may reimburse Investor
Services an amount not to exceed the per account fee that the fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. Fees for special services will not increase the
expenses borne by the fund.
HOW ARE FUND SHARES VALUED?
The valuation of the fund's portfolio securities, including any securities held
in a separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in calculation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
fund computed as described above may tend to be higher than a like computation
made by a fund with identical investments but utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
fund would be able to obtain a somewhat higher yield than would result from an
investment in a fund utilizing only market values, and existing investors in the
fund would receive less investment income. The opposite would be true in a
period of rising interest rates.
The fund's use of amortized cost, which helps the fund maintain its Net Asset
Value per share of $1, is permitted by a rule adopted by the SEC. Under this
rule, the fund must adhere to certain conditions. The fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and only buy
instruments having remaining maturities of 397 calendar days or less. The fund
must also invest only in those U.S. dollar-denominated securities that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized rating services, or if
unrated are deemed comparable in quality, or are instruments issued by an issuer
that, with respect to an outstanding issue of short-term debt that is comparable
in priority and protection, has received a rating within the two highest rating
categories.
The Board has established procedures designed to stabilize, to the extent
reasonably possible, the fund's price per share at $1, as computed for the
purpose of sales and redemptions. These procedures include a review of the
fund's holdings by the Board, at such intervals as it may deem appropriate, to
determine if the fund's Net Asset Value calculated by using available market
quotations deviates from $1 per share based on amortized cost. The extent of any
deviation will be examined by the Board. If a deviation exceeds 1/2 of 1%, the
Board will promptly consider what action, if any, will be initiated. If the
Board determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, it will take
corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a Net Asset Value per share by using
available market quotations.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The fund declares dividends for each day
that the fund's net asset value is calculated. These dividends will equal all of
the fund's daily net income payable to shareholders of record as of the close of
business the preceding day. The fund's daily net income includes accrued
interest and any original issue or acquisition discount, plus or minus any gain
or loss on the sale of portfolio securities and changes in unrealized
appreciation or depreciation in portfolio securities (to the extent required to
maintain a constant net asset value per share), less the estimated expenses of
the fund.
The fund receives income generally in the form of interest derived from its
investments. This income, less expenses incurred in the operation of the fund,
constitutes its net investment income from which dividends may be paid to you.
Any distributions by the fund from such income will be taxable to you as
ordinary income, whether you take 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 derived from the excess of net short-term capital gain (over any
net long-term capital loss) will be taxable to you as ordinary income. Any
distributions paid from net long-term capital gains realized by the fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in the fund. Because the fund is a money market fund, it does not
anticipate realizing any long-term capital gains, however.
CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following year
will be treated for tax purposes as if they had been received by you on December
31 of the year in which they were declared. The fund will report this income to
you on your Form 1099-DIV for the year in which these distributions were
declared.
MAINTENANCE OF $1.00 NET ASSET VALUE. Gains and losses on the sale of portfolio
securities and unrealized appreciation or depreciation in the value of these
securities may require the fund to distribute income or make distribution
adjustments in order to maintain a $1.00 net asset value. These procedures may
result in under- or over-distributions of net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The fund will inform you of
the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year.
TAXES
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, has
qualified as such for its most recent fiscal year, and intends so to qualify
during the current fiscal year. 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 its 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 available earnings and profits.
In order to qualify as a regulated investment company for tax purposes, the fund
must meet certain specific requirements, including:
o The fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the fund's total assets,
and, with respect to 50% of the fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of other
regulated investment companies) can exceed 5% of the fund's total assets or
10% of the outstanding voting securities of the issuer;
o The fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale
or disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities,
or currencies; and
o The fund must distribute to its shareholders at least 90% of its investment
company taxable income (i.e., net investment income plus net short-term
capital gains) and net tax-exempt income for each of its fiscal years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the fund to distribute
at least 98% of its taxable ordinary income earned during the calendar year and
98% of its capital gain net income earned during the twelve month period ending
October 31 (in addition to undistributed amounts from the prior year) to you by
December 31 of each year in order to avoid federal excise taxes. The fund
intends to declare and pay sufficient dividends in December (or in January of
the following year that are treated by you as received in December of the prior
year) but does not guarantee and can give no assurances that its distributions
will be sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. The tax law requires
that you recognize a gain or loss in an amount equal to the difference between
your tax basis and the amount you received in exchange for your shares, subject
to the rules described below. 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 for federal income tax purposes if you have held your shares for more
than one year at the time of redemption or exchange. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you purchase 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 purchase. Because the fund seeks to
maintain a constant $1.00 per share Net Asset Value, you should not expect to
realize a gain or loss upon redemption of your fund shares, however.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. After the end of each calendar year,
the fund will provide you with the percentage of any dividends paid that may
qualify for tax-free treatment on your personal income tax return. You should
consult with your own tax advisor to determine the application of your state and
local laws to these distributions. Because the rules on exclusion of this income
are different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of their distributions may be exempt
from corporate income or franchise taxes.
MUNICIPAL INVESTORS. Municipalities may invest surplus money subject to the
arbitrage rebate requirements of section 148 of the Code in the fund. Section
115(1) of the Code provides, in part, that gross income does not include income
accruing to a state, territory, or any political subdivision thereof that is
derived from the exercise of any essential government function. To the extent
that an investment by a municipality in the fund is made in connection with such
functions, the municipality will not be liable for federal income tax on income
or gains derived from its investment. A municipality that invests money subject
to the arbitrage rebate requirements in the fund should be aware that some or
all of the earnings distributed by the fund may need to be paid to the U.S. as a
rebate of arbitrage profits.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the fund's income is
derived primarily from interest rather than dividends, no portion of its
distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the fund for the
most recent fiscal year qualified for such deduction, and it is anticipated that
none of the current year's dividends will so qualify.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors may be entitled to reimbursement under the Rule 12b-1 plan for the
fund, as discussed below. Except as noted, Distributors received no other
compensation from the fund for acting as underwriter.
THE RULE 12B-1 PLAN
The fund has a distribution plan or "Rule 12b-1 plan" that was adopted pursuant
to Rule 12b-1 of the 1940 Act.
Under the plan, the fund pays Distributors up to 0.30% per year of the fund's
average daily net assets, payable quarterly, for distribution and related
expenses. These fees may be used to compensate Distributors or others for
providing distribution and related services and bearing certain fund expenses.
All distribution expenses over this amount will be borne by those who have
incurred them without reimbursement by the fund.
In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the fund, Advisers or
Distributors or other parties on behalf of the fund, Advisers or Distributors
make payments that are deemed to be for the financing of any activity primarily
intended to result in the sale of fund shares within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to have been made
pursuant to the plan. The terms and provisions of the plan relating to required
reports, term, and approval are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under the plan, plus any other payments deemed to be made pursuant
to the plan, exceed the amount permitted to be paid under the rules of the NASD.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1. The
plan is renewable annually by a vote of the Board, including a majority vote of
the Board members who are not interested persons of the fund and who have no
direct or indirect financial interest in the operation of the plan, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such Board members be done by the non-interested
members of the Board. The plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
management agreement with Advisers, or the underwriting agreement with
Distributors, or by vote of a majority of the fund's outstanding shares.
Distributors or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
The plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the fund, and all material amendments to the plan
or any related agreements shall be approved by a vote of the non-interested
members of the Board, cast in person at a meeting called for the purpose of
voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the plan and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the plan should be continued.
For the fiscal year ended June 30, 1998, Distributors had eligible expenditures
of $434,578 for advertising, printing, and payments to underwriters and
broker-dealers pursuant to the plan, of which the fund paid Distributors
$428,797 under the plan.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC. 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.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The fund's current yield for the seven day period ended June 30, 1998,
was 5.03%.
EFFECTIVE YIELD. The fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The fund's effective yield for the
seven day period ended June 30, 1998, was 5.15%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-1
OTHER PERFORMANCE QUOTATIONS
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the fund may satisfy your
investment goal, advertisements and other materials about the fund may discuss
certain measures of fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC Money Fund Report(R) - industry averages for seven-day annualized and
compounded yields of taxable, tax-free, and government money funds.
b) Bank Rate Monitor - a weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - a weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) Bond Buyer - a daily publication that reports various articles as well as
indexes.
f) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services, in major expenditure groups.
Advertisements or information may also compare the fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. 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 is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 50 years and
now services more than 3 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $207 billion in assets under
management for more than 6 million U.S. based mutual fund shareholder and other
accounts. The Franklin Templeton Group of Funds offers 117 U.S. based open-end
investment companies to the public. The fund may identify itself by its NASDAQ
symbol or CUSIP number.
As of October 2, 1998, the principal shareholders of the fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
CCD Business
Development Corp.
744 S.E. Rose St.
Roseburg, OR
97470-3941 1,748,730.510 21.54%
Catholic Central High
School of Detroit, Inc.
14200 Breakfast Dr.
Redford, MI
48239-2909 1,720,378.620 21.19%
Jackson State University
Development Fund, Inc.
Attn: Melvin Miller
Director of Development
1400 Lynch St. Box 17050
Jackson, MS
39217-0002 534,675.210 6.59%
Terrain Tamers Chip
Hauling, Inc.
2385 Old Hwy. 99 S
P.O. Box 1457
Roseburg, OR
97470-0348 498,040.570 6.14%
Garden Villa Motel, Inc.
760 N.W. Garden Valley Blvd.
Roseburg, OR
97470-1919 434,466.310 5.35%
Neskia Health Group
2371 N.E. Stephens Ste. 400
Roseburg, OR
97470 423,119.510 5.21%
South Douglas Supply, Inc.
P.O. Box 1017
Canyonville, OR
97417-1017 415,469.880 5.12%
From time to time, the number of fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the fund's assets if you are held personally liable for
obligations of the fund. The Declaration of Trust provides that the fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the fund and satisfy any judgment thereon. All such rights are
limited to the assets of the fund. The Declaration of Trust further provides
that the fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the fund's total assets. Thus, the risk that you
would incur financial loss on account of shareholder liability is limited to the
unlikely circumstance in which both inadequate insurance exists and the fund
itself is unable to meet its obligations.
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.
Shareholders or prospective investors may utilize the Franklin/Templeton
Hypothetical Illustrations Program as a useful tool in considering investments.
The service, which is free of charge, enables an investor to make an actual,
dollar-for-dollar performance comparison of any of the Trust's funds to any
security, pool, or portfolio which the investor may currently be using. It is
based on historical information. The investor simply chooses a series of the
Trust to compare and provides Franklin with a starting date, a starting amount,
and all subsequent purchases or withdrawals. The illustration shows the actual
dollar performance of these actions in the selected series, which investors can
use to compare to that of their own investment or portfolio.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations and statements must be sent
to a compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust for the fiscal year ended June 30, 1998, including the auditor's
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
- ------------------------------------------------------------------------------
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the fund's investment manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the fund dated November 1, 1998, which we may
amend from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution 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.
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the fund and/or Institutional Services, Investor Services,
Distributors, or other wholly owned subsidiaries of Resources.
INSTITUTIONAL FIDUCIARY TRUST
File Nos. 2-96634
811-4267
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
(1) Incorporated herein by reference to the following Annual Reports to
Shareholders dated June 30, 1998 as filed with the SEC
electronically on Form Type N-30D
on August 20, 1998:
(A) Franklin U.S. Treasury Money Market Portfolio
(i) Financial Highlights
(ii) Statement of Investments - June 30, 1998
(iii) Statements of Assets and Liabilities - June 30, 1998
(iv) Statement of Operations - for the year ended June 30, 1998
(v) Statements of Changes in Net Assets - for the years ended
June 30, 1998 and 1997
(vi) Notes to Financial Statements
(vii) Independent Auditor's Report
(B) Franklin U.S. Government Agency Money Market Fund
(i) Financial Highlights
(ii) Statement of Investments - June 30, 1998
(iii) Statements of Assets and Liabilities - June 30, 1998
(iv) Statement of Operations - for the year ended June 30, 1998
(v) Statements of Changes in Net Assets - for the years ended
June 30, 1998 and 1997
(vi) Notes to Financial Statements
(vii) Independent Auditor's Report
(C) Franklin Institutional Adjustable U.S. Government Securities Fund
and Franklin Institutional Adjustable Rate Securities Fund
(i) Financial Highlights
(ii) Statement of Investments - June 30, 1998
(iii) Statements of Assets and Liabilities - June 30, 1998
(iv) Statements of Operations - for the year ended June 30, 1998
(v) Statements of Changes in Net Assets - for the years ended
June 30, 1998 and 1997
(vi) Notes to Financial Statements
(vii) Independent Auditors Report
(viii) Financial Highlights of Adjustable Rate Securities
Portfolios (unaudited)
(ix) Statement of Investments of Adjustable Rate
Securities Portfolios - June 30, 1998 (unaudited)
(x) Statements of Assets and Liabilities of Adjustable
Rate Securities Portfolios - June 30, 1998 (unaudited)
(xi) Statements of Operations of Adjustable Rate Securities
Portfolios - for the eight months ended June 30, 1998
(unaudited)
(xii) Statements of Changes in Net Assets of Adjustable Rate
Securities Portfolios - for the eight months ended June 30,
1998(unaudited) and the year ended October 31, 1997
(xiii) Notes to Financial Statements (unaudited)
(xiv) Report of Independent Accountants
(2) Filed in Part B
(xv) Financial Highlights of Adjustable Rate Securities
Portfolios
(xvi) Statement of Investments of Adjustable Rate
Securities Portfolios - October 31, 1997
(xvii) Statements of Assets and Liabilities of Adjustable
Rate Securities Portfolios - October 31, 1997
(xviii) Statements of Operations of Adjustable Rate Securities
Portfolios - for the year ended October 31, 1997
(xix) Statements of Changes in Net Assets of Adjustable Rate
Securities Portfolios - for the year ended October 31, 1997
and the year ended October 31, 1996
(xx) Notes to Financial Statements
(xxi) Report of Independent Accountants
b) Exhibits
The following exhibits are incorporated by reference herein, except
exhibits 6(ii), 11(i), 27(i), 27(ii), 27(iii) and 27(iv) which are
attached.
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated January
15, 1985
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Certificate of Amendment of Agreement and Declaration of
Trust dated May 12, 1987 Filing: Post-Effective Amendment No.
24 to Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii) Certificate of Amendment of Agreement and
Declaration of Trust dated October 9, 1987
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iv) Certificate of Amendment of Agreement and
Declaration of Trust dated November 17, 1987
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Certificate of Amendment of Agreement and
Declaration of Trust dated December 8, 1987
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vi) Certificate of Amendment of Agreement and
Declaration of Trust dated December 12, 1989
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Certificate of Amendment of By-Laws dated October 9, 1987
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not Applicable
(4) copies of all instruments defining the rights of the holders of the
securities being registered including, where applicable, the
relevant portion of the articles of incorporation or by-laws of the
Registrant;
Not Applicable
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Administration Agreement between Registrant, on
behalf of Franklin Institutional Adjustable U.S.
Government Securities Fund, and Franklin
Advisers, Inc. dated November 1, 1991
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Management Agreement between Registrant, on
behalf of Franklin U.S. Treasury Money Market
Portfolio, and Franklin Advisers, Inc. dated
August 20, 1991
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii) Administration Agreement between Registrant, on behalf of
Franklin Institutional Adjustable Rate Securities Fund, and
Franklin Advisers, Inc. dated January 2, 1992
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(iv) Administration Agreement between Registrant, on
behalf of Franklin U.S. Government Securities
Money Market Portfolio, and Franklin Advisers,
Inc. dated November 1, 1992
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Administration Agreement between Registrant, on
behalf of Money Market Portfolio, and Franklin
Advisers, Inc. dated November 1, 1992
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vi) Management Agreement between Registrant, on
behalf of Franklin U.S. Government Agency
Money Market Fund, and Franklin Advisers, Inc.
dated February 8, 1994
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vii) Administration Agreement between Registrant, on
behalf of Franklin Cash Reserves Fund, and
Franklin Advisers, Inc. dated July 1, 1994
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(viii) Amendment to Administration Agreement between
Registrant, on behalf of Money Market Portfolio,
and Franklin Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(ix) Amendment to Administration Agreement between
Registrant, on behalf of Franklin U.S. Government
Securities Money Market Portfolio, and Franklin
Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(x) Amendment to Management Agreement between
Registrant, on behalf of Franklin U.S. Treasury
Money Market Portfolio, and Franklin Advisers,
Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(xi) Amendment to Administration Agreement between Registrant, on
behalf of Franklin Institutional Adjustable Rate Securities
Fund, and Franklin Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(xii) Amendment to Administration Agreement between Registrant, on
behalf of Franklin Institutional Adjustable U.S. Securities
Fund, and Franklin Advisers, Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(xiii) Amendment to Management Agreement between
Registrant, on behalf of Franklin U.S. Government
Agency Money Market Fund, and Franklin Advisers,
Inc. dated August 1, 1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(xiv) Amendment to Administration Agreement between
Registrant, on behalf of Franklin Cash Reserves
Fund, and Franklin Advisers, Inc. dated August 1,
1995
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(6) copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of
all agreements between principal underwriters and dealers;
(i) Amended and Restated Distribution Agreement
between Registrant and Franklin/Templeton
Distributors, Inc. dated April 23, 1995
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Forms of Dealer Agreements effective March 1, 1998 between
Franklin/Templeton Distributors, Inc. and Securities
Dealers
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as such;
any such plan that is not set forth in a formal document, furnish a
reasonably detailed description thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and
similar investments of the Registrant, including the schedule of
remuneration;
(i) Master Custody Agreement between Registrant and
Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: October 31, 1996
(ii) Terminal Link Agreement between Registrant and
Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: October 31, 1996
(iii) Amendment to Master Custody Agreement between
Registrant and Bank of New York dated May 7, 1997
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: October 30, 1997
(iv) Amendment dated February 27, 1998 to Exhibit A in the Master
Custody Agreement between the Registrant and Bank of New
York dated February 16, 1996 Filing: Post-Effective
Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: August 24, 1998
(9) copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part at
or after the date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will then be
legally issued, fully paid and nonassessable;
(i) Opinion and consent of counsel dated August 18, 1998
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: August 24, 1998
(11) copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this registration
statement and required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) All financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their
purchases were made for investment purposes without any present
intent of redeeming or reselling;
Not Applicable
(14) copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model
plan. Such form(s) should disclose the costs and fees charged in
connection therewith;
Not Applicable
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1
under the 1940 Act, which describes all material aspects of the
financing of distribution of Registrant's shares, and any agreements
with any person relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between
Registrant, on behalf of Franklin U. S.
Government Agency Money Market Fund, and
Franklin/Templeton Distributors, Inc. dated
February 8, 1994
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Distribution Plan pursuant to Rule 12b-1 between
Registrant, on behalf of Franklin Cash
Reserves Fund, and Franklin/Templeton
Distributors, Inc. dated July 1, 1994
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii) Amended and Restated Distribution Plan pursuant
to Rule 12b-1 between Registrant, on behalf of
Franklin U.S. Treasury Money Market Portfolio,
and Franklin/Templeton Distributors, Inc. dated
December 1, 1993
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iv) Amended and Restated Distribution Plan pursuant
to Rule 12b-1 between Registrant, on behalf of
Franklin U.S. Government Securities Money Market
Portfolio, and Franklin/Templeton Distributors,
Inc. dated December 1, 1993
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Amended and Restated Distribution Plan pursuant
to Rule 12b-1 between Registrant, on behalf of
Money Market Portfolio, and Franklin/Templeton
Distributors, Inc. dated December 1, 1993
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(16) Schedule for computation of each performance quotation provided in
the registration statement in response to Item 22 (which need not be
audited).
Not Applicable
(17) Powers of Attorney
(i) Institutional Fiduciary Trust dated May 19, 1998
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: August 24, 1998
(ii) Adjustable Rate Securities Portfolios dated February 16,
1995
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii) The Money Market Portfolios dated June 16, 1998
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: August 24, 1998
Certificates of Secretary
(iv) Institutional Fiduciary Trust dated May 19, 1998
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: August 24, 1998
(v) Adjustable Rate Securities Portfolios dated February 16,
1995
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vi) The Money Market Portfolios dated June 16, 1998
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 2-96634
Filing date: August 24, 1998
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act
Not Applicable
(27) Financial Data Schedules
(i) Financial Data Schedule for Franklin U.S. Treasury Money
Market Portfolio
(ii) Financial Data Schedule for Franklin Institutional
Adjustable U.S. Government Securities Fund
(iii) Financial Data Schedule for Franklin Institutional
Adjustable Rate Securities Fund
(iv) Financial Data Schedule for Franklin U.S. Government
Agency Money Market Fund
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
Not Applicable
ITEM 27 INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Please see the Declaration of Trust, By-Laws, Management, Administration,
and Distribution Agreements, previously filed as exhibits and incorporated
herein by reference.
Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant to
said By-Laws, any indemnification under said Article shall be made by Registrant
only if authorized in the manner provided in such By-Laws.
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The officers and directors of Franklin Advisers, Inc. ("Advisers"), the
investment advisor of the Registrant's Franklin U.S. Treasury Money Market
Portfolio and Franklin U.S. Government Agency Money Market Fund, administrator
of Money Market Portfolio, Franklin U. S. Government Securities Money Market
Portfolio, Franklin Cash Reserves Fund, Franklin Institutional Adjustable U.S.
Government Securities Fund and Franklin Institutional Adjustable Rate Securities
Fund, and investment advisor of the Master Funds also serve as officers and/or
directors for (1) Advisers corporate parent, Franklin Resources, Inc., and/or
(2) other investment companies in the Franklin Templeton Group of Funds. In
addition, Mr. Charles B. Johnson was formerly a director of General Host
Corporation. For additional information please see Part B and Schedules A and D
of Form ADV of Advisers (SEC File 801-26292), incorporated herein by reference,
which sets forth the officers and directors of Advisers and information as to
any business, profession, vocation or employment of a substantial nature engaged
in by those officers and directors during the past two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
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
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this N-1A and
Schedule A of Form BD filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889).
c) Not Applicable. Registrant's principal underwriter is an affiliated person of
an affiliated person of the Registrant.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA 94404.
ITEM 31 MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32 UNDERTAKINGS
a) Registrant hereby undertakes to promptly call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustees when
requested in writing to do so by the record holders of not less than 10 per cent
of the Registrant's outstanding shares and to assist its shareholders in the
communicating with other shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940.
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 29th day
of October, 1998.
INSTITUTIONAL FIDUCIARY TRUST
(Registrant)
By: CHARLES E. JOHNSON *
Charles E. Johnson
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 E. Johnson* Trustee and Principal
Charles E. Johnson Executive Officer
Dated: October 29, 1998
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: October 29, 1998
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 29, 1998
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: October 29, 1998
Harris J. Ashton* Trustee
Harris J. Ashton Dated: October 29, 1998
Robert F. Carlson* Trustee
Robert F. Carlson Dated: October 29, 1998
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: October 29, 1998
Charles B. Johnson* Trustee
Charles B. Johnson Dated: October 29, 1998
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: October 29, 1998
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: October 29, 1998
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: October 29, 1998
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the undersigned has duly consented to the
filing of this Registration Statement of Institutional Fiduciary Trust 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 29th day of October, 1998.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
By: CHARLES E. JOHNSON*
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following Officers and Trustees of
Adjustable Rate Securities Portfolios in the capacities and on the dates
indicated:
Charles E. Johnson* Trustee and Principal
Charles E. Johnson Executive Officer
Dated: October 29, 1998
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: October 29, 1998
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 29, 1998
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: October 29, 1998
Harris J. Ashton* Trustee
Harris J. Ashton Dated: October 29, 1998
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: October 29, 1998
Charles B. Johnson* Trustee
Charles B. Johnson Dated: October 29, 1998
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: October 29, 1998
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: October 29, 1998
William J. Lippman* Trustee
William J. Lippman Dated: October 29, 1998
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: October 29, 1998
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
INSTITUTIONAL FIDUCIARY TRUST
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust dated *
January 15, 1985
EX-99.B1(ii) Certificate of Amendment to Agreement and *
Declaration of Trust dated May 12, 1987
EX-99.B1(iii) Certificate of Amendment to Agreement and *
Declaration of Trust dated October 9, 1987
EX-99.B1(iv) Certificate of Amendment to Agreement and *
Declaration of Trust dated November 17, 1987
EX-99.B1(v) Certificate of Amendment to Agreement and *
Declaration of Trust dated December 8, 1987
EX-99.B1(vi) Certificate of Amendment to Agreement and *
Declaration of Trust dated December 12, 1989
EX-99.B2(i) By-Laws *
EX-99.B2(ii) Certificate of Amendment to By-Laws dated *
October 9, 1987
EX-99.B5(i) Administration Agreement between Registrant, *
on behalf of Franklin Institutional Adjustable
U.S. Government Securities Fund, and Franklin
Advisers, Inc. dated November 1, 1991
EX-99.B5(ii) Management Agreement between Registrant, on *
behalf of Franklin U.S. Treasury Money Market
Portfolio, and Franklin Advisers, Inc. dated
August 20, 1991
EX-99.B5(iii) Administration Agreement between Registrant, *
on behalf of Franklin Institutional Adjustable
Rate Securities Fund, and Franklin Advisers,
Inc. dated January 2, 1992
EX-99.B5(iv) Administration Agreement between Registrant, *
on behalf of Franklin U.S. Government
Securities Money Market Portfolio, and
Franklin Advisers, Inc. dated November 1, 1992
EX-99.B5(v) Administration Agreement between Registrant, *
on behalf of Money Market Portfolio, and
Franklin Advisers, Inc., dated November 1, 1992
EX-99.B5(vi) Management Agreement between Registrant, on *
behalf of the Franklin U. S. Government Agency
Money Market Fund, and Franklin Advisers,
Inc., dated February 8, 1994
EX-99.B5(vii) Administration Agreement between Registrant, *
on behalf of the Franklin Cash Reserve Fund,
and Franklin Advisers, Inc. dated July 1, 1994
EX-99.B5(viii) Amendment to Administration Agreement between *
Registrant, on behalf of Money Market
Portfolio, and Franklin Advisers, Inc. dated
August 1, 1995
EX-99.B5(ix) Amendment to Administration Agreement between *
Registrant, on behalf of Franklin U.S.
Government Securities Money Market Portfolio,
and Franklin Advisers, Inc. dated August 1,
1995
EX-99.B5(x) Amendment to Management Agreement between *
Registrant, on behalf of Franklin U.S.
Treasury Money Market Portfolio, and Franklin
Advisers, Inc. dated August 1, 1995
EX-99.B5(xi) Amendment to Administration Agreement between *
Registrant, on behalf of Franklin
Institutional Adjustable Rate Securities Fund,
and Franklin Advisers, Inc. dated August 1, 1995
EX-99.B5(xii) Amendment to Administration Agreement between *
Registrant, on behalf of Franklin
Institutional Adjustable U.S. Securities Fund,
and Franklin Advisers, Inc. dated August 1, 1995
EX-99.B5(xiii) Amendment to Management Agreement between *
Registrant, on behalf of Franklin U.S.
Government Agency Money Market Fund, and
Franklin Advisers, Inc. dated August 1, 1995
EX-99.B5(xiv) Amendment to Administration Agreement between *
Registrant, on behalf of Franklin Cash
Reserves Fund, and Franklin Advisers, Inc.
dated August 1, 1995
EX-99.B6(i) Amended and Restated Distribution Agreement *
between Registrant and Franklin/Templeton
Distributors, Inc. dated April 23, 1995
EX-99.B6(ii) Forms of Dealer Agreements effective March Attached
1, 1998 between Franklin/Templeton Distributors,
Inc. and Securities Dealers
EX-99.B8(i) Master Custody Agreement between Registrant *
and Bank of New York dated February 16, 1996
EX-99.B8(ii) Terminal Link Agreement between Registrant and *
Bank of New York dated February 16, 1996
EX-99.B8(iii) Amendment to Master Custody Agreement between *
Registrant and Bank of New York dated May 7,
1997
EX-99.B8(iv) Amendment dated February 27, 1998 to Exhibit A *
in the Master Custody Agreement between
Registrant and Bank of New York dated
February 16, 1996
EX-99.B10(i) Opinion and consent of counsel dated August *
18, 1998
EX-99.B11(i) Consent of Independent Auditors Attached
EX-99.B15(i) Distribution Plan pursuant to Rule 12b-1 *
between Registrant, on behalf of Franklin U.
S. Government Agency Money Market Fund, and
Franklin/Templeton Distributors, Inc. dated
February 8, 1994
EX-99.B15(ii) Distribution Plan pursuant to Rule 12b-1 *
between Registrant, on behalf of Franklin Cash
Reserves Fund, and Franklin/Templeton
Distributors, Inc. dated July 1, 1994
EX-99.B15(iii) Amended and Restated Distribution Plan *
pursuant to Rule 12b-1 between Registrant, on
behalf of Franklin U.S. Treasury Money Market
Portfolio, and Franklin/Templeton
Distributors, Inc. dated December 1, 1993
EX-99.B15(iv) Amended and Restated Distribution Plan *
pursuant to Rule 12b-1 between Registrant, on
behalf of Franklin U.S. Government Securities
Money Market Portfolio, and Franklin/Templeton
Distributors, Inc. dated December 1, 1993
EX-99.B15(v) Amended and Restated Distribution Plan *
pursuant to Rule 12b-1 between Registrant, on
behalf of Money Market Portfolio, and
Franklin/Templeton Distributors, Inc. dated
December 1, 1993
EX-99.B16(i) Schedule for Computation of Performance *
Quotation
EX-99.B17(i) Power of Attorney for Institutional Fiduciary *
Trust dated May 19, 1998
EX-99.B17(ii) Power of Attorney for Adjustable Rate *
Securities Portfolio dated February 16, 1995
EX-99.B17(iii) Power of Attorney for The Money Market *
Portfolios dated June 16, 1998
EX-99.B17(iv) Certificate of Secretary for the Institutional *
Fiduciary Trust dated May 19, 1998
EX-99.B17(v) Certificate of Secretary for Adjustable Rate *
Securities Portfolio dated February 16, 1995
EX-99.B17(vi) Certificate of Secretary for The Money Market *
Portfolios dated June 16, 1998
EX-27.B(i) Financial Data Schedule for Franklin U.S. Attached
Treasury Money Market Portfolio
EX-27.B(ii) Financial Data Schedule for Franklin Attached
Institutional Adjustable U.S. Government
Securities Fund
EX-27.B(iii) Financial Data Schedule for Franklin Attached
Institutional Adjustable Rate Securities Fund
EX-27.B(iv) Financial Data Schedule for Franklin U.S. Attached
Government Agency Money Market Fund
*Incorporated by Reference
DEALER AGREEMENT
Effective: March 1, 1998
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites you to
participate in the distribution of shares of the Franklin Templeton
investment companies (the "Funds") for which we now or in the future serve as
principal underwriter, subject to the terms of this Agreement. We will notify
you from time to time of the Funds which are eligible for distribution and
the terms of compensation under this Agreement. This Agreement supersedes any
prior dealer agreements between us, as stated in Section 18, below.
1. LICENSING.
(a) You represent that you are (i) a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are presently
licensed to the extent necessary by the appropriate regulatory agency of each
jurisdiction in which you will offer and sell shares of the Funds, or (ii) a
broker, dealer or other company licensed, registered or otherwise qualified to
effect transactions in securities in a country (a "foreign country") other than
the United States of America (the "U.S.") where you will offer or sell shares of
the Funds. You agree that termination or suspension of such membership with the
NASD, or of your license to do business by any regulatory agency having
jurisdiction, at any time shall terminate or suspend this Agreement forthwith
and shall require you to notify us in writing of such action. If you are not a
member of the NASD but are a broker, dealer or other company subject to the laws
of a foreign country, you agree to conform to the Conduct Rules of the NASD.
This Agreement is in all respects subject to the Conduct Rules of the NASD,
particularly Conduct Rule 2830 of the NASD, which shall control any provision to
the contrary in this Agreement.
(b) You agree to notify us immediately in writing if at any time you are
not a member in good standing of the Securities Investor Protection Corporation
("SIPC").
2. SALES OF FUND SHARES. You may offer and sell shares of each Fund and class of
each Fund only at the public offering price which shall be applicable to, and in
effect at the time of, each transaction. The procedures relating to all orders
and the handling of them shall be subject to the terms of the applicable then
current prospectus and statement of additional information (hereafter, the
"prospectus") and new account application, including amendments, for each such
Fund and each class of such Fund, and our written instructions from time to
time. This Agreement is not exclusive, and either party may enter into similar
agreements with third parties.
3. DUTIES OF DEALER: You agree:
(a) To act as principal, or as agent on behalf of your customers, in all
transactions in shares of the Funds except as provided in Section 4 hereof. You
shall not have any authority to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any respect, nor will you
represent to any third party that you have such authority or are acting in such
capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds only from us
and only for the purpose of covering purchase orders you have already received
from your customers or for your own bona fide investment.
(d) To maintain records of all sales, redemptions and repurchases of shares
made through you and to furnish us with copies of such records on request.
(e) To distribute prospectuses and reports to your customers in compliance
with applicable legal requirements, except to the extent that we expressly
undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for shares so as
to profit yourself as a result of such withholding or place orders for shares in
amounts just below the point at which sales charges are reduced so as to benefit
from a higher sales charge applicable to an amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are repurchased or
redeemed by any of the Funds within seven business days after such confirmation
of your original order, you shall forthwith refund to us the full concession,
allowed to you on such orders, including any payments we made to you from our
own resources as provided in Section 6(b) hereof with respect to such orders. We
shall forthwith pay to the appropriate Fund the share, if any, of the sales
charge we retained on such order and shall also pay to such Fund the refund of
the concession we receive from you as herein provided (other than the portion of
such concession we paid to you from our own resources as provided in Section
6(b) hereof). We shall notify you of such repurchase or redemption within a
reasonable time after settlement. Termination or suspension of this Agreement
shall not relieve you or us from the requirements of this subsection.
(h) That if payment for the shares purchased is not received within the
time customary or the time required by law for such payment, the sale may be
canceled without notice or demand and without any responsibility or liability on
our part or on the part of the Funds, or at our option, we may sell the shares
which you ordered back to the Funds, in which latter case we may hold you
responsible for any loss to the Funds or loss of profit suffered by us resulting
from your failure to make payment as aforesaid. We shall have no liability for
any check or other item returned unpaid to you after you have paid us on behalf
of a purchaser. We may refuse to liquidate the investment unless we receive the
purchaser's signed authorization for the liquidation.
(i) That you shall assume responsibility for any loss to the Funds caused
by a correction made subsequent to trade date, provided such correction was not
based on any error, omission or negligence on our part, and that you will
immediately pay such loss to the Funds upon notification.
(j) That if on a redemption which you have ordered, instructions in proper
form, including outstanding certificates, are not received within the time
customary or the time required by law, the redemption may be canceled forthwith
without any responsibility or liability on our part or on the part of any Fund,
or at our option, we may buy the shares redeemed on behalf of the Fund, in which
latter case we may hold you responsible for any loss to the Fund or loss of
profit suffered by us resulting from your failure to settle the redemption.
(k) To obtain from your customers all consents required by applicable
privacy laws to permit us, any of our affiliates or the Funds to provide you
either directly or through a service established for that purpose with
confirmations, account statements and other information about your customers'
investments in the Funds.
4. DUTIES OF DEALER: RETIREMENT ACCOUNTS. In connection with orders for the
purchase of shares on behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone, or wire, you
shall act as agent for the custodian or trustee of such plans (solely with
respect to the time of receipt of the application and payments), and you shall
not place such an order until you have received from your customer payment for
such purchase and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan and enrollment in
the plan. You agree to indemnify us and Franklin Templeton Trust Company and/or
Templeton Funds Trust Company as applicable for any claim, loss, or liability
resulting from incorrect investment instructions received from you which cause a
tax liability or other tax penalty.
5. CONDITIONAL ORDERS; CERTIFICATES. We will not accept from you any conditional
orders for shares of any of the Funds. Delivery of certificates or confirmations
for shares purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your concession and our
portion of the sales charge, if any, on such sale. No certificates for shares of
the Funds will be issued unless specifically requested.
6. DEALER COMPENSATION.
(a) On each purchase of shares by you from us, the total sales charges and
your dealer concessions shall be as stated in each Fund's then current
prospectus, subject to NASD rules and applicable laws. Such sales charges and
dealer concessions are subject to reductions under a variety of circumstances as
described in the Funds' prospectuses. For an investor to obtain these
reductions, we must be notified at the time of the sale that the sale qualifies
for the reduced charge. If you fail to notify us of the applicability of a
reduction in the sales charge at the time the trade is placed, neither we nor
any of the Funds will be liable for amounts necessary to reimburse any investor
for the reduction which should have been effected.
(b) In accordance with the Funds' prospectuses, we or our affiliates may,
but are not obligated to, make payments to you from our own resources as
compensation for certain sales which are made at net asset value ("Qualifying
Sales"). If you notify us of a Qualifying Sale, we may make a contingent advance
payment up to the maximum amount available for payment on the sale. If any of
the shares purchased in a Qualifying Sale are repurchased or redeemed within
twelve months of the month of purchase, we shall be entitled to recover any
advance payment attributable to the repurchased or redeemed shares by reducing
any account payable or other monetary obligation we may owe to you or by making
demand upon you for repayment in cash. We reserve the right to withhold advances
to you, if for any reason we believe that we may not be able to recover unearned
advances from you. Termination or suspension of this Agreement shall not relieve
you or us from the requirements of this subsection.
7. REDEMPTIONS OR REPURCHASES. Redemptions or repurchases of shares of the Funds
will be made at the net asset value of such shares, less any applicable deferred
sales or redemption charges, in accordance with the applicable prospectuses.
Except as permitted by applicable law, you agree not to purchase any shares from
your customers at a price lower than the net asset value of such shares next
computed by the Funds after the purchase (the "Redemption/Repurchase Price").
You shall, however, be permitted to sell shares of the Funds for the account of
the record owner to the Funds at the Redemption/Repurchase Price for such
shares.
8. EXCHANGES. Telephone exchange orders will be effective only for
uncertificated shares or for which share certificates have been previously
deposited and may be subject to any fees or other restrictions set forth in the
applicable prospectuses. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold with a sales
charge to a Fund which carries a higher sales charge may be subject to a sales
charge in accordance with the terms of the applicable Fund's prospectus. You
will be obligated to comply with any additional exchange policies described in
the applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
9. TRANSACTION PROCESSING. All orders are subject to acceptance by us and by the
Fund or its transfer agent, and become effective only upon confirmation by us.
If required by law, each transaction shall be confirmed in writing on a fully
disclosed basis and if confirmed by us, a copy of each confirmation shall be
sent simultaneously to you if you so request. All sales are made subject to
receipt of shares by us from the Funds. We reserve the right in our discretion,
without notice, to suspend the sale of shares of the Funds or withdraw the
offering of shares of the Funds entirely. Orders will be effected at the
price(s) next computed on the day they are received if, as set forth in the
applicable Fund's current prospectus, the orders are received by us, an agent
appointed by us or the Funds prior to the time the price of the Fund's shares is
calculated. Orders received after that time will be effected at the price(s)
computed on the next business day. All orders must be accompanied by payment in
U.S. Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a
U.S. bank, for the full amount of the investment.
10. MULTIPLE CLASSES. We may from time to time provide to you written compliance
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of shares (each, a "Class") with different sales charges and
distribution related operating expenses. In addition, you will be bound by any
applicable rules or regulations of government agencies or self-regulatory
organizations generally affecting the sale or distribution of shares of
investment companies offering multiple classes of shares.
11. RULE 12B-1 PLANS. You are invited to participate in all distribution plans
(each, a "Plan") adopted for a Class of a Fund or for a Fund that has only a
single Class (each, a "Plan Class") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act").
To the extent you provide administrative and other services, including, but
not limited to, furnishing personal and other services and assistance to your
customers who own shares of a Plan Class, answering routine inquiries regarding
a Fund or Class, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, we shall pay you
a Rule 12b-1 servicing fee. To the extent that you participate in the
distribution of Fund shares that are eligible for a Rule 12b-1 distribution fee,
we shall also pay you a Rule 12b-1 distribution fee. All Rule 12b-1 servicing
and distribution fees shall be based on the value of shares attributable to
customers of your firm and eligible for such payment, and shall be calculated on
the basis and at the rates set forth in the compensation schedule then in effect
for the applicable Plan (the "Schedule"). Without prior approval by a majority
of the outstanding shares of a particular Class of a Fund which has a Plan, the
aggregate annual fees paid to you pursuant to such Plan shall not exceed the
amounts stated as the "annual maximums" in such Plan Class' prospectus, which
amount shall be a specified percent of the value of such Plan Class' net assets
held in your customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as such Plan Class uses to compute its
net assets as set forth in its effective prospectus).
You shall furnish us and each Fund that has a Plan Class (each, a "Plan
Fund") with such information as shall reasonably be requested by the Board of
Directors, Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Plan Fund with respect to the fees paid to you pursuant to
the Schedule of such Plan Fund. We shall furnish to the Boards of Directors of
the Plan Funds, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
Each Plan and the provisions of any agreement relating to such Plan must be
approved annually by a vote of the Directors of the Fund that has such Plan,
including such persons who are not interested persons of such Plan Fund and who
have no financial interest in such Plan or any related agreement ("Rule 12b-1
Directors"). Each Plan or the provisions of this Agreement relating to such Plan
may be terminated at any time by the vote of a majority of the Rule 12b-1
Directors, or by a vote of a majority of the outstanding shares of the Class
that has such Plan, on sixty (60) days' written notice, without payment of any
penalty. A Plan or the provisions of this Agreement may also be terminated by
any act that terminates the Underwriting Agreement between us and the Fund that
has such Plan, and/or the management or administration agreement between
Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and such Plan Fund. In the event of the termination of a Plan for any
reason, the provisions of this Agreement relating to such Plan will also
terminate.
Continuation of a Plan and provisions of this Agreement relating to such
Plan are conditioned on Rule 12b-1 Directors being ultimately responsible for
selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, a Plan Fund is permitted to implement or continue a Plan or the
provisions of this Agreement relating to such Plan from year-to-year only if,
based on certain legal considerations, the Board of Directors of such Plan Fund
is able to conclude that such Plan will benefit the Plan Class. Absent such
yearly determination, such Plan and the provisions of this Agreement relating to
such Plan must be terminated as set forth above. In addition, any obligation
assumed by a Fund pursuant to this Agreement shall be limited in all cases to
the assets of such Fund and no person shall seek satisfaction thereof from
shareholders of a Fund. You agree to waive payment of any amounts payable to you
by us under a Fund's Plan until such time as we are in receipt of such fee from
the Fund.
The provisions of the Plans between the Plan Funds and us shall control
over the provisions of this Agreement in the event of any inconsistency.
12. REGISTRATION OF SHARES. Upon request, we shall notify you of the states or
other jurisdictions in which each Fund's shares are currently noticed,
registered or qualified for offer or sale to the public. We shall have no
obligation to make notice filings of, register or qualify, or to maintain notice
filings of, registration of or qualification of, Fund shares in any state or
other jurisdiction. We shall have no responsibility, under the laws regulating
the sale of securities in any U.S. or foreign jurisdiction, for the
registration, qualification or licensed status of persons offering or selling
Fund shares or for the manner of offering or sale of Fund shares. If it is
necessary to file notice of, register or qualify Fund shares in any foreign
jurisdictions in which you intend to offer the shares of any Funds, it will be
your responsibility to arrange for and to pay the costs of such notice filing,
registration or qualification; prior to any such notice filing, registration or
qualification, you will notify us of your intent and of any limitations that
might be imposed on the Funds, and you agree not to proceed with such notice
filing, registration or qualification without the written consent of the
applicable Funds and of ourselves. Except as stated in this section, we shall
not, in any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by us in this Agreement shall
be implied. Nothing in this Agreement shall be deemed to be a condition,
stipulation or provision binding any person acquiring any security to waive
compliance with any provision of the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, the rules and regulations of the U.S. Securities and Exchange
Commission, or any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offer or sale of shares of the Funds, or to relieve the parties hereto from any
liability arising under such laws, rules and regulations.
13. CONTINUOUSLY OFFERED CLOSED-END FUNDS. This Section 13 relates solely to
shares of Funds that represent a beneficial interest in the Franklin Floating
Rate Trust and shares issued by any other continuously offered closed-end
investment company registered under the 1940 Act for which we or an affiliate of
ours serve as principal underwriter and that periodically repurchases its shares
(each, a "Trust"). Shares of a Trust that are offered to the public will be
registered under the 1933 Act, and are expected to be offered during an offering
period that may continue indefinitely ("Continuous Offering Period"). There is
no guarantee that such a continuous offering will be maintained by a Trust. The
Continuous Offering Period, shares of a Trust and certain of the terms on which
such shares are offered shall be as described in the prospectus of the Trust.
As set forth in a Trust's then current prospectus, we may, but are not
obligated to, provide you with appropriate compensation for selling shares of
the Trust. In addition, you may be entitled to a fee for servicing your clients
who are shareholders in a Trust, subject to applicable law and NASD Conduct
Rules. You agree that any repurchases of shares of a Trust that were originally
purchased as Qualifying Sales shall be subject to Subsection 6(b) hereof.
You expressly acknowledge and understand that, notwithstanding anything to
the contrary in this Agreement:
(a) No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or
have any obligation to pay, any compensation directly or indirectly to
you.
(b) Shares of a Trust will not be repurchased by either the Trust (other
than through repurchase offers by the Trust from time to time, if any)
or by us and no secondary market for such shares exists currently, or
is expected to develop. Any representation as to a repurchase or
tender offer by a Trust, other than that set forth in the Trust's then
current prospectus, notification letters, reports or other related
material provided by the Trust, is expressly prohibited.
(c) An early withdrawal charge payable by shareholders of a Trust to us
may be imposed on shares accepted for repurchase by the Trust that
have been held for less than a stated period, as set forth in the
Trust's then current Prospectus.
(d) In the event your customer cancels his or her order for shares of a
Trust after confirmation, such shares will not be repurchased,
remarketed or otherwise disposed of by or though us.
14. FUND INFORMATION. No person is authorized to give any information or make
any representations concerning shares of any Fund except those contained in the
Fund's then current prospectus or in materials issued by us as information
supplemental to such prospectus. We will supply reasonable quantities of
prospectuses, supplemental sales literature, sales bulletins, and additional
information as issued by the Fund or us. You agree not to use other advertising
or sales material relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offering or sale of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in whole or in part
upon notice to you, and you shall, upon receipt of such notice, immediately
discontinue the use of such sales literature, sales material and advertising.
You are not authorized to modify or translate any such materials without our
prior written consent.
15. INDEMNIFICATION. You agree to indemnify, defend and hold harmless us, the
Funds, and the respective officers, directors and employees of the Funds and us
from any and all losses, claims, liabilities and expenses arising out of (1) any
alleged violation of any statute or regulation (including without limitation the
securities laws and regulations of the U.S. or any state or foreign country) or
any alleged tort or breach of contract, in or related to the offer or sale by
you of shares of the Funds pursuant to this Agreement (except to the extent that
our negligence or failure to follow correct instructions received from you is
the cause of such loss, claim, liability or expense), (2) any redemption or
exchange pursuant to telephone instructions received from you or your agents or
employees, or (3) the breach by you of any of the terms and conditions of this
Agreement. This Section 15 shall survive the termination of this Agreement.
16. TERMINATION; SUCCESSION; ASSIGNMENT; AMENDMENT. Each party to this Agreement
may terminate its participation in this Agreement by giving written notice to
the other parties. Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally to the other
parties or any officer or member thereof, or was mailed postpaid or delivered by
electronic transmission to the other parties' chief legal officers at the
addresses shown herein or in the most recent NASD Manual. This Agreement shall
terminate immediately upon the appointment of a Trustee under the Securities
Investor Protection Act or any other act of insolvency by you. The termination
of this Agreement by any of the foregoing means shall have no effect upon
transactions entered into prior to the effective date of termination. A trade
placed by you subsequent to your voluntary termination of this Agreement will
not serve to reinstate the Agreement. Reinstatement, except in the case of a
temporary suspension of a dealer, will be effective only upon written
notification by us to you. This Agreement will terminate automatically in the
event of its assignment by us. For purposes of the preceding sentence, the word
"assignment" shall have the meaning given to it in the 1940 Act. This Agreement
may not be assigned by you without our prior written consent. This Agreement may
be amended by us at any time by written notice to you and your placing of an
order or acceptance of payments of any kind after the effective date and receipt
of notice of any such Amendment shall constitute your acceptance of such
Amendment.
17. SETOFF; DISPUTE RESOLUTION. Should any of your concession accounts with us
have a debit balance, we may offset and recover the amount owed to us or the
Funds from any other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this Agreement, either
party may require the dispute to be submitted to binding arbitration under the
commercial arbitration rules of the NASD or the American Arbitration
Association. Judgment upon any arbitration award may be entered by any court
having jurisdiction. This Agreement shall be construed in accordance with the
laws of the State of California, not including any provision that would require
the general application of the law of another jurisdiction.
18. ACCEPTANCE; CUMULATIVE EFFECT. This Agreement is cumulative and supersedes
any agreement previously in effect. It shall be binding upon the parties hereto
when signed by us and accepted by you. If you have a current dealer agreement
with us, your first trade or acceptance of payments from us after your receipt
of this Agreement, as it may be amended pursuant to Section 16, above, shall
constitute your acceptance of its terms. Otherwise, your signature below shall
constitute your acceptance of its terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
415/312-2000
700 Central Avenue
St. Petersburg, Florida 33701-3628
813/823-8712
- --------------------------------------------------------------------------------
Dealer: If you have NOT previously signed a Dealer Agreement with us, please
complete and sign this section and return the original to us.
__________________________________
DEALER NAME:
By _______________________________
(Signature)
Name:_____________________________
Title: ___________________________
Address: ______________________________
_______________________________________
_______________________________________
Telephone: _______________________
NASD CRD # _______________________
- --------------------------------------------------------------------------------
Franklin Templeton Dealer # ______________________
(Internal Use Only)
- --------------------------------------------------------------------------------
Version 12/31/97
232567.4
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
May 15, 1998
Re: Amendment of Dealer Agreement - Notice Pursuant to Section 16
Dear Securities Dealer:
This letter constitutes notice of amendment of the current Dealer Agreement (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("we" or "us") and
you pursuant to Section 16 of the Agreement. The Agreement is hereby amended as
follows:
1. Defined terms in this amendment have the meanings as stated in the
Agreement unless otherwise indicated.
2. Section 6 is modified to add a subsection 6(c), as follows:
(c) The following limitations apply with respect to shares of each Trust as
described in Section 13 of this Agreement.
(1) Consistent with the NASD Conduct Rules, the total compensation to
be paid to us and selected dealers and their affiliates, including you and your
affiliates, in connection with the distribution of shares of a Trust will not
exceed the underwriting compensation limitation prescribed by NASD Conduct Rule
2710. The total underwriting compensation to be paid to us and selected dealers
and their affiliates, including you and your affiliates, may include: (i) at the
time of purchase of shares a payment to you or another securities dealer of 1%
of the dollar amount of the purchased shares by the Distributor; and (ii) a
quarterly payment at an annual rate of .50% to you or another securities dealer
based on the value of such remaining shares sold by you or such securities
dealer, if after twelve (12) months from the date of purchase, the shares sold
by you or such securities dealer remain outstanding.
(2) The maximum compensation shall be no more than as disclosed in the
section "Payments to Dealers" of the prospectus of the applicable Trust.
Pursuant to Section 16 of the Agreement, your placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute your acceptance of this amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
--------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
MUTUAL FUND PURCHASE AND SALES AGREEMENT
FOR ACCOUNTS OF BANK AND TRUST COMPANY CUSTOMERS
EFFECTIVE: APRIL 1, 1998
1. INTRODUCTION
The parties to this Agreement are the undersigned bank or trust company
("Bank") and Franklin/Templeton Distributors, Inc. ("FTDI"). This Agreement sets
forth the terms and conditions under which FTDI will execute purchases and
redemptions of shares of the Franklin or Templeton investment companies or
series of such investment companies for which FTDI now or in the future serves
as principal underwriter (each, a "Fund"), at the request of the Bank upon the
order and for the account of Bank's customers ("Customers"). In this Agreement,
"Customer" shall include the beneficial owners of an account and any agent or
attorney-in-fact duly authorized or appointed to act on the owners' behalf with
respect to the account; and "redemptions" shall include redemptions of shares of
Funds that are open-end management investment companies and repurchases of
shares of Funds that are closed-end investment companies by the Fund that is the
issuer of such shares. FTDI will notify Bank from time to time of the Funds
which are eligible for distribution and the terms of compensation under this
Agreement. This Agreement is not exclusive, and either party may enter into
similar agreements with third parties.
2. REPRESENTATIONS AND WARRANTIES OF BANK
Bank warrants and represents to FTDI and the Funds that:
a) Bank is a "bank" as defined in section 3(a)(6) of the Securities
Exchange Act of 1934, as amended (the "1934 Act");
b) Bank is authorized to enter into this Agreement as agent for the
Customers, and Bank's performance of its obligations and receipt of
consideration under this Agreement will not violate any law,
regulation, charter, agreement, or regulatory restriction to which
Bank is subject; and
c) Bank has received all regulatory agency approvals and taken all legal
and other steps necessary for offering the services Bank will provide
to Customers and receiving any applicable compensation in connection
with this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL UNDERWRITER
FTDI warrants and represents to Bank that:
a) FTDI is a broker/dealer registered under the 1934 Act; and
b) FTDI is the principal underwriter of the Funds.
4. COVENANTS OF BANK
a) For each purchase or redemption transaction under this Agreement
(each, a "Transaction"), Bank will:
1) be authorized to engage in the Transaction;
2) act as agent for the Customer, unless Bank is the Customer;
3) act solely at the request of and for the account of the Customer,
unless Bank is the Customer;
4) not submit an order unless Bank has already received the order
from the Customer, unless Bank is the Customer;
5) not offer to sell shares of Fund(s) or submit a purchase order
unless Bank has already delivered to the Customer a copy of the
then current prospectuses for the Fund(s) whose shares are
offered or are to be purchased;
6) not withhold placing any Customer's order for the purpose of
profiting from the delay or place orders for shares in amounts
just below the point at which sales charges are reduced so as to
benefit from a higher Fee (as defined in Paragraph 5(e) below)
applicable to a Transaction in an amount below the breakpoint;
7) have no beneficial ownership of the securities in any purchase
Transaction (the Customer will have the full beneficial
ownership), unless Bank is the Customer (in which case, Bank will
not engage in the Transaction unless the Transaction is legally
permissible for Bank);
8) not accept or withhold any Fee (as defined in Paragraph 5(e) of
this Agreement) otherwise allowed under Paragraphs 5(d) and (e)
of this Agreement, if prohibited by the Employee Retirement
Income Security Act of 1974, as amended, or trust or similar laws
to which Bank is subject, in the case of Transactions of Fund
shares involving retirement plans, trusts, or similar accounts;
9) maintain records of all Transactions of Fund shares made through
Bank and furnish FTDI with copies of such records on request; and
10) distribute prospectuses, statements of additional information and
reports to Customers in compliance with applicable legal
requirements, except to the extent that FTDI expressly undertakes
to do so on behalf of Bank.
b) While this Agreement is in effect, Bank will:
1) not purchase any Fund shares from any person at a price lower
than the redemption or repurchase price as applicable next
determined by the applicable Fund;
2) repay FTDI the full Fee received by Bank under Paragraphs 5(d)
and (e) of this Agreement, and any payments FTDI or its
affiliates made to Bank from their own resources under Paragraph
5(e) of this Agreement ("FTDI Payments"), for any Fund shares
purchased under this Agreement which are redeemed or repurchased
by the Fund within 7 business days after the purchase; in turn,
FTDI shall pay to the Fund the amount repaid by Bank (other than
any portion of such repayment that is a repayment of FTDI
Payments) and will notify Bank of any such redemption within a
reasonable time (termination or suspension of this Agreement
shall not relieve Bank or FTDI from the requirements of this
subparagraph);
3) in connection with orders for the purchase of Fund shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, act as agent for the custodian or trustee of such plans
(solely with respect to the time of receipt of the application
and payments) and shall not place such an order until Bank has
received from its Customer payment for such purchase and, if such
purchase represents the first contribution to such a plan, the
completed documents necessary to establish the plan and
enrollment in the plan (Bank agrees to indemnify FTDI and
Franklin Templeton Trust Company and/or Templeton Funds Trust
Company as applicable for any claim, loss, or liability resulting
from incorrect investment instructions received from Bank which
cause a tax liability or other tax penalty);
4) be responsible for compliance with all laws and regulations,
including those of the applicable federal and state bank and
securities regulatory authorities, with regard to Bank and Bank's
Customers; and
5) obtain from its Customers any consents required by applicable
federal and/or state privacy laws to permit FTDI, any of its
affiliates or the Funds to provide Bank with confirmations,
account statements and other information about Customers'
investments in the Funds.
5. TERMS AND CONDITIONS FOR TRANSACTIONS
a) Price
Purchase orders for Fund shares received from Bank will be accepted only at
the public offering price and in compliance with procedures applicable to each
purchase order as set forth in the then current prospectus and statement of
additional information (hereinafter, collectively, "prospectus") for the
applicable Fund. All purchase orders must be accompanied by payment in U.S.
Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a U.S.
bank, for the full amount of the investment. All sales are made subject to
receipt of shares by FTDI from the Funds. FTDI reserves the right in its
discretion, without notice, to suspend the sale of shares or withdraw the
offering of shares entirely.
b) Orders and Confirmations
All orders are subject to acceptance or rejection by FTDI and by the Fund
or its transfer agent at their sole discretion, and become effective only upon
confirmation by FTDI. Transaction orders shall be made using the procedures and
forms required by FTDI from time to time. Orders received by FTDI or an agent
appointed by FTDI or the Funds on any business day after the time for
calculating the price of Fund shares as set forth in each Fund's current
prospectus will be effected at the price determined on the next business day. No
order will be accepted unless Bank or the Customer shall have provided FTDI with
the Customer's full name, address and other information normally required by
FTDI to open a customer account, and FTDI shall be entitled to rely on the
accuracy of the information provided by Bank. A written confirming statement
will be sent to Bank and to Customer upon settlement of each Transaction.
c) Multiple Class Guidelines
FTDI may from time to time provide to Bank written compliance guidelines or
standards relating to the sale or distribution of Funds offering multiple
classes of shares (each, a "Class") with different sales charges and
distribution-related operating expenses. Bank will comply with FTDI's written
compliance guidelines and standards, as well as with any applicable rules or
regulations of government agencies or self-regulatory organizations generally
affecting the sale or distribution of investment companies offering multiple
classes of shares, whether or not Bank deems itself otherwise subject to such
rules or regulations.
d) Payments by Bank for Purchases
On the settlement date for each purchase, Bank shall either (i) remit the
full purchase price by wire transfer to an account designated by FTDI, or (ii)
following FTDI's procedures, wire the purchase price less the Fee allowed by
Paragraph 5(e) of this Agreement. Twice monthly, FTDI will pay Bank Fees not
previously paid to or withheld by Bank. Each calendar month, FTDI, as
applicable, will prepare and mail an activity statement summarizing all
Transactions.
e) Fees and Payments
Where permitted by the prospectus for a Fund, a charge, concession, or fee
(each of the foregoing forms of compensation, a "Fee") may be paid to Bank,
related to services provided by Bank in connection with Transactions in shares
of such Fund. The amount of the Fee, if any, is set by the relevant prospectus.
Adjustments in the Fee are available for certain purchases, and Bank is solely
responsible for notifying FTDI when any purchase or redemption order is
qualified for such an adjustment. If Bank fails to notify FTDI of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither FTDI nor any of the Funds will be liable for amounts necessary
to reimburse any Customer for the reduction which should have been effected.
In accordance with the Funds' prospectuses, FTDI or its affiliates may, but
are not obligated to, make payments from their own resources to Bank as
compensation for certain sales that are made at net asset value ("Qualifying
Sales"). If Bank notifies FTDI of a Qualifying Sale, FTDI may make a contingent
advance payment up to the maximum amount available for payment on the sale. If
any of the shares purchased in a Qualifying Sale are redeemed or repurchased
within twelve months of the month of purchase, FTDI shall be entitled to recover
any advance payment attributable to the redeemed or repurchased shares by
reducing any account payable or other monetary obligation FTDI may owe to Bank
or by making demand upon Bank for repayment in cash. FTDI reserves the right to
withhold any one or more advances, if for any reason FTDI believes that FTDI may
not be able to recover unearned advances. Termination or suspension of this
Agreement does not relieve Bank from the requirements of this paragraph.
f) Rule 12b-1 Plans
Bank is also invited to participate in all distribution plans (each, a
"Plan") adopted for a Class of a Fund or for a Fund that has only a single Class
(each, a "Plan Class") pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended (the "1940 Act").
To the extent Bank provides administrative and other services, including,
but not limited to, furnishing personal and other services and assistance to
Customers who own shares of a Plan Class, answering routine inquiries regarding
a Fund or Class, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, FTDI shall pay
Bank a Rule 12b-1 servicing fee. To the extent that Bank participates in the
distribution of Fund shares that are eligible for a Rule 12b-1 distribution
fee,FTDI shall also pay Bank a Rule 12b-1 distribution fee. All Rule 12b-1
servicing and distribution fees shall be based on the value of shares
attributable to Customers and eligible for such payment, and shall be calculated
on the basis and at the rates set forth in the compensation schedule then in
effect for the applicable Plan (the "Schedule"). Without prior approval by a
majority of the outstanding shares of a particular Class of a Fund, the
aggregate annual fees paid to Bank pursuant to such Plan shall not exceed the
amounts stated as the "annual maximums" in such Plan Class' prospectus, which
amount shall be a specified percent of the value of such Plan Class' net assets
held in Customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as such Plan Class uses to compute its
net assets as set forth in its effective Prospectus).
Bank shall furnish FTDI and each Fund that has a Plan Class (each, a "Plan
Fund") with such information as shall reasonably be requested by the Board of
Directors, Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Plan Fund with respect to the fees paid to Bank pursuant to
the Schedule of such Plan Fund. FTDI shall furnish to the Boards of Directors of
the Plan Funds, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
Each Plan and the provisions of any agreement relating to such Plan must be
approved annually by a vote of the Directors of the Fund that has such Plan,
including such persons who are not interested persons of such Plan Fund and who
have no financial interest in such Plan or any related agreement ("Rule 12b-1
Directors"). Each Plan or the provisions of this Agreement relating to such Plan
may be terminated at any time by the vote of a majority of Rule 12b-1 Directors
of the Fund that has such Plan, or by a vote of a majority of the outstanding
shares of the Class that has such Plan on sixty (60) days' written notice,
without payment of any penalty. A Plan or the provisions of this Agreement may
also be terminated by any act that terminates the Underwriting Agreement between
FTDI and the Fund that has such Plan, and/or the management or administration
agreement between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc.
or their affiliates and such Plan Fund. In the event of the termination of a
Plan for any reason, the provisions of this Agreement relating to such Plan will
also terminate.
Continuation of a Plan and the provisions of this Agreement relating to
such Plan are conditioned on Rule 12b-1 Directors being ultimately responsible
for selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, a Plan Fund is permitted to implement or continue a Plan or the
provisions of this Agreement relating to such Plan from year-to-year only if,
based on certain legal considerations, the Board of Directors of such Plan Fund
is able to conclude that the Plan will benefit the Plan Class. Absent such
yearly determination, a Plan and the provisions of this Agreement relating to
such Plan must be terminated as set forth above. In addition, any obligation
assumed by a Fund pursuant to this Agreement shall be limited in all cases to
the assets of such Fund and no person shall seek satisfaction thereof from
shareholders of a Fund. Bank agrees to waive payment of any amounts payable to
Bank by FTDI under a Fund's Plan until such time as FTDI is in receipt of such
fee from the Fund.
The provisions of the Plans between the Plan Funds and FTDI shall control
over the provisions of this Agreement in the event of any inconsistency.
g) Other Distribution Services
From time to time, FTDI may offer telephone and other augmented services in
connection with Transactions under this Agreement. If Bank uses any such
service, Bank will be subject to the procedures applicable to the service,
whether or not Bank has executed any agreement required for the service.
h) Conditional Orders; Certificates
FTDI will not accept any conditional Transaction orders. Delivery of
certificates or confirmations for shares purchased shall be made by a Fund only
against constructive receipt of the purchase price, subject to deduction of any
Fee and FTDI's portion of the sales charge, if any, on such sale. No
certificates for shares of the Funds will be issued unless specifically
requested.
i) Cancellation of Orders
If payment for shares purchased is not received within the time customary
or the time required by law for such payment, the sale may be canceled without
notice or demand, and neither FTDI nor the Fund(s) shall have any responsibility
or liability for such a cancellation; alternatively, at FTDI's option, the
unpaid shares may be sold back to the Fund, and Bank shall be liable for any
resulting loss to FTDI or to the Fund(s). FTDI shall have no liability for any
check or other item returned unpaid to Bank after Bank has paid FTDI on behalf
of a purchaser. FTDI may refuse to liquidate the investment unless FTDI receives
the purchaser's signed authorization for the liquidation.
j) Order Corrections
Bank shall assume responsibility for any loss to a Fund(s) caused by a
correction made subsequent to trade date, provided such correction was not based
on any error, omission or negligence on FTDI's part, and Bank will immediately
pay such loss to the Fund(s) upon notification.
k) Redemptions; Cancellation
Redemptions or repurchases of shares will be made at the net asset value of
such shares, less any applicable deferred sales or redemption charges, in
accordance with the applicable prospectuses. If Bank sells shares for the
account of the record owner to the Funds, Bank shall be deemed to represent to
FTDI that Bank is doing so as agent for the Customer and that Bank is authorized
to do so in such capacity. Such sales to the Funds shall be at the redemption or
repurchase price then currently in effect for such shares. If on a redemption
which Bank has ordered, instructions in proper form, including outstanding
certificates, are not received within the time customary or the time required by
law, the redemption may be canceled forthwith without any responsibility or
liability on the part of FTDI or any Fund, or at the option of FTDI, FTDI may
buy the shares redeemed on behalf of the Fund, in which latter case FTDI may
hold Bank responsible for any loss to the Fund or loss of profit suffered by
FTDI resulting from Bank's failure to settle the redemption.
l) Exchanges
Telephone exchange orders will be effective only for uncertificated shares
or for which share certificates have been previously deposited and may be
subject to any fees or other restrictions set forth in the applicable
prospectuses. Exchanges from a Fund sold with no sales charge to a Fund which
carries a sales charge, and exchanges from a Fund sold with a sales charge to a
Fund which carries a higher sales charge may be subject to a sales charge in
accordance with the terms of the applicable Fund's prospectus. Bank will be
obligated to comply with any additional exchange policies described in the
applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
m) Qualification of Shares; Indemnification
Upon request, FTDI shall notify Bank of the states or other jurisdictions
in which each Fund's shares are currently noticed, registered or qualified for
offer or sale to the public. FTDI shall have no obligation to make notice
filings of, register or qualify, or to maintain notice filings of, registration
of or qualification of, Fund shares in any state or other jurisdiction. FTDI
shall have no responsibility, under the laws regulating the sale of securities
in any U.S. or foreign jurisdiction, for the registration, qualification or
licensed status of Bank or any of its agents or sub-agents in connection with
the purchase or sale of Fund shares or for the manner of offering, sale or
purchase of Fund shares. Except as stated in this paragraph, FTDI shall not, in
any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by FTDI in this Agreement
shall be implied. If it is necessary to file notice of, register or qualify
shares of any Fund in any country, state or other jurisdiction having authority
over the purchase or sale of Fund shares that are purchased by a Customer, it
will be Bank's responsibility to arrange for and to pay the costs of such notice
filing, registration or qualification; prior to any such notice filing,
registration or qualification, Bank will notify FTDI of its intent and of any
limitations that might be imposed on the Funds, and Bank agrees not to proceed
with such notice filing, registration or qualification without the written
consent of the applicable Funds and of FTDI. Nothing in this Agreement shall be
deemed to be a condition, stipulation, or provision binding any person acquiring
any security to waive compliance with any provision of the Securities Act of
1933, as amended (the "1933 Act"), the 1934 Act, the 1940 Act, the rules and
regulations of the U.S. Securities and Exchange Commission, or any applicable
laws or regulations of any government or authorized agency in the U.S. or any
other country having jurisdiction over the offer or sale of shares of the Funds,
or to relieve the parties hereto from any liability arising under such laws,
rules or regulations.
Bank further agrees to indemnify, defend and hold harmless FTDI, the Funds,
their officers, directors and employees from any and all losses, claims,
liabilities and expenses, arising out of (1) any alleged violation of any
statute or regulation (including without limitation the securities laws and
regulations of the United States of America or any state or foreign country) or
any alleged tort or breach of contract, in or related to any offer, sale or
purchase of shares of the Funds involving Bank or any Customer pursuant to this
Agreement (except to the extent that FTDI's negligence or failure to follow
correct instructions received from Bank is the cause of such loss, claim,
liability or expense), (2) any redemption or exchange pursuant to telephone
instructions received from Bank or its agents or employees, or (3) the breach by
Bank of any of the terms and conditions of this Agreement. This Paragraph 5(m)
shall survive the termination of this Agreement.
n) Prospectus and Sales Materials; Limit on Advertising
No person is authorized to give any information or make any representations
concerning shares of any Fund except those contained in the Fund's current
prospectus or in materials issued by FTDI as information supplemental to such
prospectus. FTDI will supply prospectuses, reasonable quantities of supplemental
sale literature, sales bulletins, and additional information as issued. Bank
agrees not to use other advertising or sales material or other material or
literature relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offering or sale of shares of the Funds, and (b) is approved in writing by FTDI
in advance of such use. Such approval may be withdrawn by FTDI in whole or in
part upon notice to Bank, and Bank shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales material and
advertising. Bank is not authorized to modify or translate any such materials
without the prior written consent of FTDI.
o) Customer Information
1) DEFINITION. For purposes of this Paragraph 5(o), "Customer
Information" means customer names and other identifying
information pertaining to one or more Customers which is
furnished by Bank to FTDI in the ordinary course of business
under this Agreement. Customer Information shall not include any
information obtained from any sources other than the Customer or
the Bank.
2) PERMITTED USES. FTDI may use Customer Information to fulfill its
obligations under this Agreement, the Distribution Agreements
between the Funds and FTDI, the Funds' prospectuses, or other
duties imposed by law. In addition, FTDI or its affiliates may
use Customer Information in communications to shareholders to
market the Funds or other investment products or services,
including without limitation variable annuities, variable life
insurance, and retirement plans and related services. FTDI may
also use Customer Information if it obtains Bank's prior written
consent.
3) PROHIBITED USES. Except as stated above, FTDI shall not disclose
Customer Information to third parties, and shall not use Customer
Information in connection with any advertising, marketing or
solicitation of any products or services, provided that Bank
offers or soon expects to offer comparable products or services
to mutual fund customers and has so notified FTDI.
4) SURVIVAL; TERMINATION. The agreements described in this paragraph
5(o) shall survive the termination of this Agreement, but shall
terminate as to any account upon FTDI's receipt of valid
notification of either the termination of that account with Bank
or the transfer of that account to another bank or dealer.
6. CONTINUOUSLY OFFERED CLOSED-END FUNDS
This Paragraph 6 relates solely to shares of Funds that represent a
beneficial interest in the Franklin Floating Rate Trust or that are issued by
any other continuously offered closed-end investment company registered under
the 1940 Act for which FTDI or an affiliate of FTDI serves as principal
underwriter and that periodically repurchases its shares (each, a "Trust").
Shares of a Trust being offered to the public will be registered under the 1933
Act and are expected to be offered during an offering period that may continue
indefinitely ("Continuous Offering Period"). There is no guarantee that such a
continuous offering will be maintained by the Trust. The Continuous Offering
Period, shares of a Trust and certain of the terms on which such shares are
being offered are more fully described in the prospectus of the Trust.
As set forth in a Trust's then current prospectus, FTDI shall provide Bank
with appropriate compensation for purchases of shares of the Trust made by the
Bank for the account of Customers or by Customers. In addition, Bank may be
entitled to a fee for servicing Customers who are shareholders in a Trust,
subject to applicable law. Bank agrees that any repurchases of shares of a Trust
that were originally purchased as Qualifying Sales shall be subject to Paragraph
5(e) hereof.
Bank expressly acknowledges and understands that, notwithstanding anything
to the contrary in this Agreement:
a) No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or
have any obligation to pay, any compensation directly or indirectly to
Bank.
b) Shares of a Trust will not be repurchased by either the Trust (other
than through repurchase offers by the Trust from time to time, if any)
or by FTDI and no secondary market for such shares exists currently,
or is expected to develop. Any representation as to a repurchase or
tender offer by the Trust, other than that set forth in the Trust's
then current Prospectus, notification letters, reports or other
related material provided by the Trust, is expressly prohibited.
c) An early withdrawal charge payable by shareholders of a Trust to FTDI
may be imposed on shares accepted for repurchase by the Trust that
have been held for less than a stated period, as set forth in the
Trust's then current Prospectus.
d) In the event a Customer cancels his or her order for shares of a Trust
after confirmation, such shares will not be repurchased, remarketed or
otherwise disposed of by or though FTDI.
7. GENERAL
a) Successors and Assignments
This Agreement shall extend to and be binding upon the parties hereto and
their respective successors and assigns; provided that this Agreement will
terminate automatically in the event of its assignment by FTDI. For purposes of
the preceding sentence, the word "assignment" shall have the meaning given to it
in the 1940 Act. Bank may not assign this Agreement without the advance written
consent of FTDI.
b) Paragraph Headings
The paragraph headings of this Agreement are for convenience only, and
shall not be deemed to define, limit, or describe the scope or intent of this
Agreement.
c) Severability
Should any provision of this Agreement be determined to be invalid or
unenforceable under any law, rule, or regulation, that determination shall not
affect the validity or enforceability of any other provision of this Agreement.
d) Waivers
There shall be no waiver of any provision of this Agreement except a
written waiver signed by Bank and FTDI. No written waiver shall be deemed a
continuing waiver or a waiver of any other provision, unless the waiver
expresses such intention.
e) Sole Agreement
This Agreement is the entire agreement of Bank and FTDI and supersedes all
oral negotiations and prior writings.
f) Governing Law
This Agreement shall be construed in accordance with the laws of the State
of California, not including any provision which would require the general
application of the law of another jurisdiction, and shall be binding upon the
parties hereto when signed by FTDI and accepted by Bank, either by Bank's
signature in the space provided below or by Bank's first trade entered after
receipt of this Agreement.
g) Arbitration
Should Bank owe any sum of money to FTDI under or in relation to this
Agreement for the purchase, sale, redemption or repurchase of any Fund shares,
FTDI may offset and recover the amount owed by Bank to FTDI or the Funds from
any amount owed by FTDI to Bank or from any other account Bank has with FTDI,
without notice or demand to Bank. Either party may submit any dispute under this
Agreement to binding arbitration under the commercial arbitration rules of the
American Arbitration Association. Judgment upon any arbitration award may be
entered by any court having jurisdiction.
h) Amendments
FTDI may amend this Agreement at any time by depositing a written notice of
the amendment in the U.S. mail, first class postage pre-paid, addressed to
Bank's address given below. Bank's placement of any Transaction order or
acceptance of any payments after the effective date and receipt of notice of any
such amendment shall constitute Bank's acceptance of the amendment.
i) Term and Termination
This Agreement shall continue in effect until terminated and shall
terminate automatically in the event that Bank ceases to be a "bank" as set
forth in paragraph 2(a) of this Agreement. FTDI or Bank may terminate this
Agreement at any time by written notice to the other, but such termination shall
not affect the payment or repayment of Fees on Transactions prior to the
termination date. Termination also will not affect the indemnities given under
this Agreement.
j) Acceptance; Cumulative Effect
This Agreement is cumulative and supersedes any agreement previously in
effect. It shall be binding upon the parties hereto when signed by FTDI and
accepted by Bank. If Bank has a current agreement with FTDI, Bank's first trade
or acceptance of payments from FTDI after receipt of this Agreement, as it may
be amended pursuant to paragraph 7(h), above, shall constitute Bank's acceptance
of the terms of this Agreement.
Otherwise, Bank's signature below shall constitute Bank's acceptance of
these terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Greg Johnson
-----------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal
notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, Florida 33716
813/299-8712
- --------------------------------------------------------------------------------
To the Bank or Trust Company: If you have not previously signed an agreement
with FTDI for the sale of mutual fund shares to your customers, please complete
and sign this section and return the original to us.
BANK OR TRUST COMPANY:
____________________________________
(Bank's name)
By: ____________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
May 15, 1998
Re: Amendment of Mutual Fund Purchase and Sales Agreement for Accounts of
Bank and Trust Company Customers - Notice Pursuant to Paragraph 7(h)
Dear Bank or Trust Company:
This letter constitutes notice of amendment of the current Mutual Fund Purchase
and Sales Agreement for Accounts of Bank and Trust Company Customers (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("FTDI") and the bank
or trust company ("the Bank") pursuant to Paragraph 7(h) of the Agreement. The
Agreement is hereby amended as follows:
1. Defined terms in this amendment have the meanings as stated in the
Agreement unless otherwise indicated.
2. Paragraph 5(e) is modified to add the following language:
With respect to shares of each Trust as described in Paragraph 6 of this
Agreement, the total compensation to be paid to FTDI and selected dealers and
their affiliates, including the Bank and the Bank's affiliates, in connection
with the distribution of shares of a Trust will not exceed the underwriting
compensation limitation prescribed by NASD Conduct Rule 2710. The total
underwriting compensation to be paid to FTDI and selected dealers and their
affiliates, including the Bank and the Bank's affiliates, may include: (i) at
the time of purchase of shares a payment to the Bank or a securities dealer of
1% of the dollar amount of the purchased shares by FTDI; and (ii) a quarterly
payment at an annual rate of .50% to the Bank or a securities dealer based on
the value of such remaining shares sold by the Bank or such securities dealer,
if after twelve (12) months from the date of purchase, the shares sold by the
Bank or such securities dealer remain outstanding.
The maximum compensation shall be no more than as disclosed in the section
"Payments to Dealers" of the prospectus of the applicable Trust.
Pursuant to Paragraph 7(h) of the Agreement, the Bank's placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute the Bank's acceptance of this
amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective
Amendment No. 27 to the Registration Statement of Institutional Fiduciary
Trust on Form N-1A File No. 2-96634 of our reports dated July 30, 1998 on our
audit of the financial statements and financial highlights of the
Institutional Fiduciary Trust, for the year ended June 30, 1998 and the
inclusion in the aforementioned Post-Effective Amendment of our report dated
December 5, 1997 on our audit of the financial statements and financial
highlights of the Adjustable Rate Securities Portfolios for the year ended
October 31, 1997.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
October 26, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1998 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 66,136,279
<INVESTMENTS-AT-VALUE> 66,136,279
<RECEIVABLES> 722,851
<ASSETS-OTHER> 39,605
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,898,735
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 154,234
<TOTAL-LIABILITIES> 154,234
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,744,501
<SHARES-COMMON-STOCK> 66,744,501
<SHARES-COMMON-PRIOR> 68,815,101
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 66,744,501
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,024,202
<OTHER-INCOME> 0
<EXPENSES-NET> (116,230)
<NET-INVESTMENT-INCOME> 2,907,972
<REALIZED-GAINS-CURRENT> 4,753
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,912,725
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,912,725)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 182,325,365
<NUMBER-OF-SHARES-REDEEMED> (185,836,900)
<SHARES-REINVESTED> 1,440,935
<NET-CHANGE-IN-ASSETS> (2,070,600)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (145,231)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (205,243)
<AVERAGE-NET-ASSETS> 58,112,663
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .050
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> (.050)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .200
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>DISTRIBUTIONS WERE INCREASED BY NET REALIZED GAINS FROM SCEURITY
TRANSACTIONS OF $4,753 FOR THE YEAR ENDED JUNE 30, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1998 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> FRANKLIN INST. ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 3,528,270
<INVESTMENTS-AT-VALUE> 3,503,322
<RECEIVABLES> 0
<ASSETS-OTHER> 187
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,503,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,099
<TOTAL-LIABILITIES> 6,099
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,086,812
<SHARES-COMMON-STOCK> 374,099
<SHARES-COMMON-PRIOR> 798,274
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (30,564,454)
<ACCUM-APPREC-OR-DEPREC> (24,948)
<NET-ASSETS> 3,497,410
<DIVIDEND-INCOME> 329,104
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (14,939)
<NET-INVESTMENT-INCOME> 314,165
<REALIZED-GAINS-CURRENT> (229,051)
<APPREC-INCREASE-CURRENT> 232,193
<NET-CHANGE-FROM-OPS> 317,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (314,165)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,440
<NUMBER-OF-SHARES-REDEEMED> (445,054)
<SHARES-REINVESTED> 5,439
<NET-CHANGE-IN-ASSETS> (3,974,073)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (30,335,403)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (2,694)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (14,939)
<AVERAGE-NET-ASSETS> 5,389,612
<PER-SHARE-NAV-BEGIN> 9.360
<PER-SHARE-NII> .539
<PER-SHARE-GAIN-APPREC> (.010)
<PER-SHARE-DIVIDEND> (.539)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.350
<EXPENSE-RATIO> .450<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
<FN>
<F1>THE EXPENSE RATIO INCLUDES THE FUND'S SHARE OF THE PORTFOLIO'S
ALLOCATED EXPENSES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1998 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 985,202
<INVESTMENTS-AT-VALUE> 992,476
<RECEIVABLES> 0
<ASSETS-OTHER> 46
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 992,522
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,062
<TOTAL-LIABILITIES> 3,062
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,027,081
<SHARES-COMMON-STOCK> 99,514
<SHARES-COMMON-PRIOR> 478,842
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,044,895)
<ACCUM-APPREC-OR-DEPREC> 7,274
<NET-ASSETS> 989,460
<DIVIDEND-INCOME> 112,743
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1,408)
<NET-INVESTMENT-INCOME> 111,335
<REALIZED-GAINS-CURRENT> (36,837)
<APPREC-INCREASE-CURRENT> 51,779
<NET-CHANGE-FROM-OPS> 126,277
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (111,335)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,680
<NUMBER-OF-SHARES-REDEEMED> (395,776)
<SHARES-REINVESTED> 5,768
<NET-CHANGE-IN-ASSETS> (3,764,480)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,008,058)
<GROSS-ADVISORY-FEES> (897)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,408)
<AVERAGE-NET-ASSETS> 1,792,734
<PER-SHARE-NAV-BEGIN> 9.930
<PER-SHARE-NII> .618
<PER-SHARE-GAIN-APPREC> .013
<PER-SHARE-DIVIDEND> (.618)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.940
<EXPENSE-RATIO> .330<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
<FN>
<F1>THE EXPENSE RATIO INCLUDES THE FUNDS' SHARE OF THE PORTFOLIO'S
ALLOCATED EXPENSES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1998 ANNUAL REPORT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 16,226,426
<INVESTMENTS-AT-VALUE> 16,226,426
<RECEIVABLES> 0
<ASSETS-OTHER> 30,489
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,256,915
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 104,264
<TOTAL-LIABILITIES> 104,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,152,651
<SHARES-COMMON-STOCK> 16,152,651
<SHARES-COMMON-PRIOR> 134,361,712
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 16,152,651
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,911,395
<OTHER-INCOME> 0
<EXPENSES-NET> (563,565)
<NET-INVESTMENT-INCOME> 6,347,830
<REALIZED-GAINS-CURRENT> (6,981)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,340,849
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,340,849)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 332,809,628
<NUMBER-OF-SHARES-REDEEMED> (455,557,065)
<SHARES-REINVESTED> 4,538,376
<NET-CHANGE-IN-ASSETS> (118,209,061)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (187,785)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (618,693)
<AVERAGE-NET-ASSETS> 125,236,522
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .051
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> (.051)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .450
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
<FN>
<F1> DISTRIBUTIONS WERE DECREASED BY NET REALIZED LOSSES FROM SECURITY
TRANSACTIONS OF $6,981.
</FN>
</TABLE>