As filed with the Securities and Exchange Commission on April 25,
1995.
File Nos.
33-7785
811-4787
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. 12 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 (X)
FRANKLIN NEW YORK TAX-FREE TRUST
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on May 1, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
On (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The Registrant has
registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuer's most recent fiscal year was filed on February 23,
1995.
FRANKLIN NEW YORK TAX-FREE TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(Franklin New York Tax-Exempt Money Fund)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Trust";
"Investment Objective and
Policies of the Fund";
"General Information"
5. Management of Trust "Management of the Fund"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to Shareholders
Performance
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation of
the Fund and Its
Shareholders"; "General
Information"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Taxation of the Fund
Offered and Its Shareholders"; "Other
Programs and Privileges
Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of
Fund Shares"
8. Redemption or "How to Redeem Shares of the
Repurchase Fund"; "Valuation of Fund
Shares"; "How to Get
Information Regarding an
Investment in the Fund";
"Exchange Privilege";
"General Information";
"Telephone Transactions"
9. Pending Legal Not Applicable
Proceedings
FRANKLIN NEW YORK TAX-FREE TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(Franklin New York Insured Tax-Free Income Fund)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Trust";
"Investment Objective and
Policies of the Fund";
"General Information"
5. Management of Trust "Management of the Fund"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to Shareholders
Performance
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation of
the Fund and Its
Shareholders"; "General
Information"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Taxation of the Fund
Offered and Its Shareholders"; "Other
Programs and Privileges
Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of
Fund Shares"
8. Redemption or "How to Sell Shares of the
Repurchase Fund"; "Valuation of Fund
Shares"; "How to Get
Information Regarding an
Investment in the Fund";
"Exchange Privilege";
"General Information";
"Telephone Transactions"
9. Pending Legal Not Applicable
Proceedings
FRANKLIN NEW YORK TAX-FREE TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(Franklin New York Intermediate-Term Tax-Free Income Fund)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Trust";
"Investment Objective and
Policies of the Fund";
"General Information"
5. Management of Trust "Management of the Fund"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to Shareholders
Performance
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "General
Information"; "Taxation of
the Fund and Its
Shareholders"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Taxation of the Fund
Offered and Its Shareholders"; "Other
Programs and Privileges
Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of
Fund Shares"
8. Redemption or "How to Sell Shares of the
Repurchase Fund"; "Valuation of Fund
Shares"; "How to Get
Information Regarding an
Investment In the Fund";
"Exchange Privilege";
"General Information";
"Telephone Transactions"
9. Pending Legal Not Applicable
Proceedings
FRANKLIN NEW YORK TAX-FREE TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
Statement of Additional Information
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information Cover Page; see also section
and History "About the Trust" in each
Fund's Prospectus
13. Investment Objectives "The Funds' Investment
and Policies Objectives and Policies";
"Description of Municipal and
Other Securities";
"Investment Restrictions";
"Insurance (Insured Fund
Only)"
14. Management of the "Officers and Trustees";
Trust "Investment Advisory and
Other Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Advisory and
Securities Other Services"
16. Investment Advisory "Investment Advisory and
and Other Services Other Services"
17. Brokerage Allocation "The Trust's Policies
Regarding Brokers Used on
Portfolio Transactions"
18. Capital Stock and "About the Trust"; "General
Other Services Information"
19. Purchase, Redemption "Additional Information
Pricing of Securities Regarding Trust Shares";
Being Offered "Financial Statements"
20. Tax Status "Additional Information
Regarding Distributions and
Taxation"; See section
"Taxation of the Fund and Its
Shareholders" in each Fund's
Prospectus; "Miscellaneous
Information"
21. Underwriters "The Trust's Underwriter"
22. Calculation of "General Information"
Performance Data
23. Financial Statements "Financial Statements"
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
Franklin New York Tax-Free Trust
PROSPECTUS
May 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
The Franklin New York Tax-Exempt Money Fund (the "Fund") is one
of three non-diversified series of the Franklin New York Tax-Free
Trust (the "Trust"), an open-end management investment company.
The Fund is a no-load, non-diversified, open-end series of the
Trust offering individual investors, corporations and other
institutions a convenient way to invest in a professionally
managed portfolio of high quality, short-term municipal
securities, primarily of the state of New York, its political
subdivisions and New York City. The Fund's investment objective
is to provide investors with as high a level of income exempt
from federal income taxes and New York State and New York City
personal income taxes as is consistent with prudent investment
management, while seeking preservation of shareholders' capital
and liquidity in its investments.
This Prospectus is intended to set forth in a clear and concise
manner information about the Fund that a prospective investor
should know before investing. After reading the Prospectus, it
should be retained for future reference; it contains information
about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
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 net asset value of $1.00.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank; further, such shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency. Shares of the
Fund involve investment risks, including the possible loss of
principal.
A Statement of Additional Information ("SAI") concerning the
Trust, dated May 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
This Prospectus is not an offering of the securities herein
described in any state in which the offering is not authorized.
No sales representative, dealer, or other person is authorized to
give any information or make any representations other than those
contained in this Prospectus. Further information may be obtained
from the underwriter.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents Page
Expense Table
Financial Highlights
About the Trust
Investment Objective and
Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
How to Redeem Shares of the Fund
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
Telephone Transactions
Valuation of Fund Shares
How to Get Information
Regarding an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Risk Factors in New York
Expense Table
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. These figures are based on aggregate operating
expenses of the Fund, before fee waivers and expense reductions,
for the fiscal year ended December 31, 1994.
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.63%*
12b-1 Fees NONE
Other Expenses:
Shareholder Servicing Costs 0.13%
Reports to Shareholders 0.12%
Other 0.05%
Total Other Expenses 0.30%
Total Fund Operating Expenses 0.93%*
*Represents the amount that would have been payable to the
investment manager absent a fee reduction by the investment
manager. The investment manager, however, agreed in advance to
waive a portion of its management fees and to assume
responsibility for making payments to offset certain operating
expenses otherwise payable by the Fund. With this reduction,
management fees and total operating expenses represented 0.30%
and 0.60%, respectively, of the average net assets of the Fund.
This arrangement may be terminated by the investment manager at
any time.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates
the expenses that apply to a $1,000 investment in the Fund over
various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period.
1 year 3 years 5 years 10 years
$9 $30 $51 $114
This example is based on the aggregate annual operating expenses,
before fee waivers or expense reductions, shown above and should
not be considered a representation of past or future expenses,
which may be more or less than those shown. The operating
expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In
addition, federal regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or
less than 5%.
Financial Highlights
Set forth below is a table containing the financial highlights
for a share of the Fund outstanding throughout the nine fiscal
years ended December 31, 1994. The information for each of the
five fiscal years in the period ended December 31, 1994, has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose
audit report appears in the Trust's Annual Report dated December
31, 1994. The remaining figures, which are also audited, are not
covered by the auditors' current report. See the discussion
"Reports to Shareholders" under "General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE+
- -------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE NET & UNREALIZED TOTAL FROM FROM NET VALUE
ENDED BEGINNING INVESTMENT GAINS ON INVESTMENT INVESTMENT AT END
DECEMBER 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME OF YEAR
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1986* $1.00 $.014 $ - $.014 $(.014) $1.00
1987** 1.00 .041 - .041 (.041) 1.00
1988** 1.00 .044 - .044 (.044) 1.00
1989 1.00 .056 - .056 (.056) 1.00
1990 1.00 .050 - .050 (.050) 1.00
1991 1.00 .036 - .036 (.036) 1.00
1992 1.00 .021 - .021 (.021) 1.00
1993 1.00 .017 - .017 (.017) 1.00
1994 1.00 .021 - .021 (.021) 1.00
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------
NET ASSETS RATIO OF RATIO OF
YEAR AT END EXPENSES NET INCOME PORTFOLIO
ENDED TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
DECEMBER 31 RETURN++ (IN 000'S) NET ASSETS++ NET ASSETS RATE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1986* 1.07% $ 3,825 -% 4.27%*** -%
1987** 4.17 54,886 .44 4.04 -
1988** 4.51 53,877 .46 4.46 -
1989 5.75 75,556 .57 5.59 -
1990 5.13 92,277 .59 5.02 -
1991 3.63 70,503 .69 3.52 -
1992 2.10 54,122 .65 2.12 -
1993 1.67 50,317 .63 1.68 -
1994 2.11 64,835 .60 2.12 -
</TABLE>
*For the period October 10, 1986 (effective date of registration)
to December 31, 1986.
**Restated for change in fiscal year from August 31 to December
31.
***Annualized.
+Total return measures the change in value of an investment over
the periods indicated. It assumes reinvestment of dividends and
capital gains, if any, at net asset value.
++During the periods indicated, the investment manager agreed in
advance to waive a portion of its management fees and to assume
responsibility for making payments to offset certain operating
expenses otherwise payable by the Fund. Had such action not been
taken, the ratio of operating expenses to average net assets for
the periods ended December 31, 1987, 1988, 1989, 1990, 1991,
1992, 1993 and 1994 would have been: .78%, .82%, .82%, .79%,
.84%, .89%, .97% and .93%.
About the Trust
The Trust is an open-end management investment company, or mutual
fund, organized as a Massachusetts business trust in July 1986
and registered with the SEC under the Investment Company Act of
1940 (the "1940 Act"). The Trust currently consists of three
series, each of which issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio.
This Prospectus relates only to the Franklin New York Tax-Exempt
Money Fund.
The Fund attempts to maintain a stable net asset value of $1.00
per share, although there is no assurance that this will be
achieved. Although a shareholder may write redemption drafts
(similar to checks) against the account, the purchase of shares
of the Fund does not create a checking or other bank account.
Shares of the Fund may be purchased at net asset value (without a
sales charge) with an initial investment of at least $500 and
subsequent investments of $25 or more. (See "How to Buy Shares of
the Fund.")
Investment Objective and Policies of the Fund
The Fund seeks to provide investors with as high a level of
income exempt from federal income taxes and from the personal
income taxes of New York State and New York City as is consistent
with prudent investment management, while seeking the
preservation of shareholders' capital and liquidity. This
objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. As with any investment,
there is no assurance that the Fund's objective will be achieved.
Under normal market conditions, the Fund attempts to invest 100%
and, as a matter of fundamental policy, will invest at least 80%
of its total assets in debt obligations issued by or on behalf of
the state of New York or any state, territory or possession of
the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political sub-
divisions, the interest on which is exempt from regular federal
income taxes and is not subject to the federal alternative
minimum tax. It is possible, although not anticipated, that up to
20% of the Fund's net assets could be in municipal securities
subject to the alternative minimum tax and/or in taxable
obligations.
In addition, under normal market conditions, the Fund will invest
at least 65% of its total assets in high quality municipal
securities and obligations issued by or on behalf of the state of
New York and its local governments, municipalities, authorities,
agencies and political subdivisions, and those of certain other
governmental issuers, such as the Commonwealth of Puerto Rico,
which pay income exempt from regular federal and New York State
and New York City income taxes ("New York Municipal Securities").
Dividends paid by the Fund which are derived from interest on tax-
exempt obligations that are not New York Municipal Securities
will be exempt from federal income tax, but will be subject to
New York State and New York City personal income taxes. It is
possible, although not anticipated, that up to 35% of the Fund's
net assets could be in municipal securities from a state other
than New York.
For temporary defensive purposes only, the Fund may invest (i)
more than 20% of its assets (which could be up to 100%) in money
market instruments the interest on which is subject to regular
federal income tax and/or the alternative minimum tax, and (ii)
more than 35% of the value of its net assets (which could be up
to 100%) in money market instruments the interest on which is
exempt from regular federal income taxes but not New York State
and New York City personal income taxes. Periods when a defensive
posture is warranted include those periods when the Fund's monies
available for investment exceed the New York Municipal Securities
then available for purchase and which meet the Fund's objective
or, in the investment manager's opinion, there exist uncertain
economic, market, political, or legal conditions which may
jeopardize the value of some or all types of municipal
securities.
In accordance with procedures adopted pursuant to Rule 2a-7 under
the 1940 Act, the Fund limits its investments to those U.S.
dollar denominated instruments which the Board of Trustees of the
Trust determines present minimal credit risks and which are, as
required by the federal securities laws, rated in one of the two
highest rating categories (within which there may be sub-
categories or gradations indicating relative standing) as
determined by nationally recognized statistical rating
organizations, or which are unrated and of comparable quality,
with remaining maturities of 397 calendar days or less ("Eligible
Securities"). The Fund maintains a dollar weighted average
maturity of the securities in its portfolio of 90 days or less.
These procedures are not fundamental policies of the Fund. See
the SAI for a description of ratings.
If a security ceases to be rated in the highest rating category,
or the investment manager becomes aware that a security has been
rated below the second highest rating category, not including
changes in a security's relative standing within a category,
subsequent to its purchase by the Fund, the Board of Trustees
will promptly reassess whether such security presents minimal
credit risks and shall take such action as it deems to be in the
best interest of the Fund and its shareholders, unless such
security is sold or matures within five business days of the
investment manager becoming aware of the new rating category and
the trustees are notified of the investment manager's actions. In
addition to considering ratings assigned by the rating services
in its selection of portfolio securities for the Fund, the
investment manager will consider, among other things, information
concerning the financial history and condition of the issuer, the
revenue and expense prospects and, in the case of revenue bonds,
the financial history and condition of the source of revenue to
service the bonds. Because the Fund limits its investments to
high quality securities, the Fund's portfolio will generally earn
lower yields than if the Fund purchased securities with a lower
rating and correspondingly greater risk and the yield to
shareholders in the Fund is accordingly likely to be lower.
The Fund may borrow from banks for temporary or emergency
purposes and pledge up to 5% of its total assets therefor.
Although the Fund does not currently intend to do so, consistent
with procedures approved by the Board of Trustees and subject to
the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the
value of the Fund's total assets at the time of the most recent
loan. See the SAI for more information.
It is the policy of the Fund that restricted securities and other
illiquid securities (securities that cannot be disposed of within
seven days in the normal course of business at approximately the
amount at which the Fund has valued the securities) may not
constitute, at the time of the purchase, more than 10% of the
value of the total net assets of the Fund.
Municipal Securities
The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of the state of New York
or any state, territory or possession of the U.S. and the
District of Columbia, and their political subdivisions, agencies,
and instrumentalities, the interest on which is exempt from
federal income tax. An opinion as to the tax-exempt status of a
municipal security is generally rendered to the issuer by the
issuer's bond counsel at the time of issuance of the security.
Municipal securities are used to raise money for various public
purposes, such as constructing public facilities and making loans
to public institutions. Certain types of municipal bonds are
issued to obtain funding for privately operated facilities. The
Fund will purchase municipal securities only to the extent the
purchase of such securities would be consistent with the maturity
and other requirements of Rule 2a-7 under the 1940 Act. Further
information on the maturity and funding classifications of
municipal securities is included in the SAI.
The Fund may invest up to 25% of its net assets in the debt
obligations of a single municipal issuer. It is possible, from
time to time, that the Fund will invest more than 25% of its
assets in a particular segment of the municipal securities
market, including, but not limited to, hospital revenue bonds,
housing agency bonds, industrial development bonds,
transportation bonds, or pollution control revenue bonds. In such
circumstances, economic, business, political or other changes
affecting one bond (such as proposed legislation affecting the
financing of a project; shortages or price increases of needed
materials; or declining markets or needs for the projects) might
also affect other bonds in the same segment, thereby potentially
increasing market risk.
The interest on bonds issued to finance public purpose state and
local government operations is generally tax-exempt for regular
federal income tax purposes. Interest on certain "private
activity bonds" (including those for housing and student loans)
issued after August 7, 1986, while still tax-exempt, constitutes
a preference item for taxpayers in determining the federal
alternative minimum tax under the Internal Revenue Code of 1986,
as amended (the "Code"), and under the income tax provisions of
some states. This interest could subject a shareholder to, or
increase the shareholder's liability under, the federal
alternative minimum tax, depending on the shareholder's tax
situation. In addition, all distributions derived from interest
exempt from regular federal income tax may subject a corporate
shareholder to, or increase its liability under, the federal
alternative minimum tax, because such distributions are included
in the corporation's "adjusted current earnings." In states with
a corporate franchise tax, distributions of the Fund may also be
fully taxable to a corporate shareholder under its state
franchise tax system. Consistent with the Fund's investment
objective, the Fund may acquire such private activity bonds if,
in the investment manager's opinion, such bonds represent the
most attractive investment opportunity then available to the
Fund. As of December 31, 1994, the Fund had derived 6.07% of its
income from bonds, the interest on which constitutes a preference
item subject to the federal alternative minimum tax for certain
investors.
The Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that are
not fixed, but that vary with changes in prevailing market rates
on predesignated dates. The Fund may also invest in variable or
floating rate demand notes ("VRDNs"), which carry a demand
feature that permits the Fund to tender the obligation back to
the issuer or a third party at par value plus accrued interest
prior to maturity, according to the terms of the obligation,
which amount may be more or less than the amount the Fund paid
for such obligation. Because of the demand feature, the prices of
VRDNs may be higher and the yields lower than they otherwise
would be for obligations without a demand feature. The Fund may
invest in floating rate and variable rate obligations carrying
stated maturities in excess of one year at the date of purchase
by the Fund if such obligations carry demand features that comply
with certain conditions and rules adopted by the SEC. The Fund
will limit its purchase of municipal securities that are floating
rate and variable rate obligations to those meeting the quality
standards set forth in this Prospectus. Frequently, such
obligations are secured by letters of credit or other credit
support arrangements. The quality of the underlying creditor
must, as determined by the investment manager under the
supervision of the Board of Trustees, also be equivalent to the
quality standards set forth in this Prospectus. In addition, the
investment manager monitors the earning power, cash flow and
other liquidity ratios of the issuers of such obligations, as
well as the creditworthiness of the institution responsible for
paying the principal amount of the obligation under the demand
feature.
The Fund may purchase and sell municipal securities on a "when-
issued" and "delayed delivery" basis. These transactions are
subject to market fluctuation and the value at delivery may be
more or less than the purchase price. Although the Fund will
generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such
securities before the settlement date if it is deemed advisable.
When the Fund is the buyer in such a transaction, it will
maintain, in a segregated account with its custodian, cash or
high-grade marketable securities having an aggregate value equal
to the amount of such purchase commitments until payment is made.
To the extent the Fund engages in "when-issued" and "delayed
delivery" transactions, it will do so for the purpose of
acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of
investment leverage.
The Fund may also invest in municipal lease obligations primarily
through Certificates of Participation ("COPs"). COPs, which are
widely used by state and local governments to finance the
purchase of property, function much like installment purchase
agreements. For example, a COP may be created when long-term
lease revenue bonds are issued by a governmental corporation to
pay for the acquisition of property or facilities which are then
leased to a municipality. The payments made by the municipality
under the lease are used to repay interest and principal on the
bonds issued to purchase the property. Once these lease payments
are completed, the municipality gains ownership of the property
for a nominal sum. The lessor is, in effect, a lender secured by
the property being leased. This lease format is generally not
subject to constitutional limitations on the issuance of state
debt, and COPs enable a governmental issuer to increase
government liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that
the lease which is the subject of the transaction must contain a
"nonappropriation" or "abatement" clause. A nonappropriation
clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate
the lease without penalty if the municipalityOs appropriating
body does not allocate the necessary funds. Local
administrations, being faced with increasingly tight budgets,
therefore have more discretion to curtail payments under COPs
than they do to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate
sufficient monies to make lease payments, the lessor or its agent
is typically entitled to repossess the property. In most cases,
however, the private sector value of the property will be less
than the amount the government lessee was paying.
While the risk of nonappropriation is inherent to COP financing,
the Fund believes that this risk is mitigated by its policy of
investing only in COPS in the two highest rating categories as
determined by Moody's, S&P or Fitch, or in unrated COPs believed
to be of comparable quality. Criteria considered by the rating
agencies and the investment manager in assessing such risk
include the issuing municipality's credit rating, evaluation of
how essential the leased property is to the municipality and the
term of the lease compared to the useful life of the leased
property. The Board of Trustees reviews the COPs held in the
Fund's portfolio to assure that they constitute liquid
investments based on various factors reviewed by the investment
manager and monitored by the Board. Such factors include (a) the
credit quality of such securities and the extent to which they
are rated or, if unrated, comply with existing criteria and
procedures followed to ensure that they are of comparable quality
to the ratings required for the Fund's investment, including an
assessment of the likelihood that the leases will not be
canceled; (b) the size of the municipal securities market, both
in general and with respect to COPs; and (c) the extent to which
the type of COPs held by the Fund trade on the same basis and
with the same degree of dealer participation as other municipal
bonds of comparable credit rating or quality. While there is no
limit as to the amount of assets which the Fund may invest in
COPs, as of December 31, 1994, the Fund did not hold any COPs or
other municipal leases.
Yields on municipal securities vary, depending on a variety of
factors, including the general condition of the financial markets
and of the municipal securities market, the size of a particular
offering, the maturity of the obligation and the credit rating of
the issuer. Generally, municipal securities of longer maturities
produce higher current yields than municipal securities with
shorter maturities, but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general
market factors. Lower rated municipal securities generally
produce a higher yield than higher rated municipal securities due
to the perception of a greater degree of risk as to the ability
of the issuer to pay principal and interest obligations.
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. For a
list of these restrictions and more information concerning the
policies discussed herein, please see the SAI.
Investment Risk Considerations
While an investment in the Fund is not without risk, certain
policies are followed in managing the Fund which may help to
reduce the investor's risk. There are two categories of risks to
which the Fund is subject: credit risk and market risk. Credit
risk is a function of the ability of an issuer of a municipal
security to maintain timely interest payments and to pay the
principal of a security upon maturity. It is generally reflected
in a security's underlying credit rating and its stated interest
rate (normally the coupon rate). A change in the credit risk
associated with a municipal security may cause a corresponding
change in the security's price. Market risk is the risk of price
fluctuation of a municipal security caused by changes in general
economic and interest rate conditions generally affecting the
market as a whole. A municipal security's maturity length also
affects its price. As with other debt instruments, the price of
the securities in which the Fund invests are likely to decrease
in times of rising interest rates. Conversely, when rates fall,
the value of the Fund's investments may rise. Since the Fund will
generally invest primarily in New York Municipal Securities,
there are certain specific factors and considerations concerning
New York which may affect the credit and market risk of the
municipal securities that the Fund may purchase. See "Risk
Factors in New York" for a discussion of these factors.
As a non-diversified series of the Trust, the Fund is not subject
to any statutory restriction under the 1940 Act with respect to
the concentration of its investments in the assets of one or more
issuers. This concentration may present greater risks than in the
case of a diversified series of an investment company. (See the
SAI for the diversification requirements the Fund intends to meet
in order to qualify as a regulated investment company under the
Code.)
Management of the Fund
The Board of Trustees has the primary responsibility for the
overall management of the Fund and for electing the officers of
the Fund who are responsible for administering its day-to-day
operations.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares. Through
its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager
or administrator to 33 U.S. registered investment companies (111
separate series) with aggregate assets of over $74 billion,
approximately $40 billion of which are in the municipal
securities market.
Pursuant to the management agreement, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business.
During the fiscal year ended December 31, 1994, fees totaling
0.63% of the average daily net assets of the Fund would have
accrued to Advisers. Total operating expenses, including
management fees, would have represented 0.93% of the average
daily net assets of the Fund. Pursuant to an agreement by
Advisers to limit its fees, the Fund paid management fees
totaling 0.30% of the average daily net assets of the Fund and
operating expenses totaling 0.60%.
It is not anticipated that the Fund will incur a significant
amount of brokerage expenses because municipal securities are
generally traded on a "net" basis, that is, in principal
transactions without the addition or deduction of brokerage
commissions or transfer taxes. In the event that the Fund does
participate in transactions involving brokerage commissions, it
is the Manager's responsibility to select brokers through which
such transactions will be effected. The Manager will try to
obtain the best execution on all such transactions. If it is felt
that more than one broker is able to provide the best execution,
the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for
the Manager and its affiliates, as well as the sale of shares of
the Fund, as factors in selecting a broker. Further information
is included under "The Trust's Policies Regarding Brokers Used on
Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent"), in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
Distributions to Shareholders
The Fund declares dividends for each day that its net asset value
is calculated, payable to shareholders of record as of the close
of business the preceding day. The amount of dividends may
fluctuate from day to day and dividends may be omitted on some
days, depending on changes in the factors that comprise the
Fund's net investment income. The Fund does not pay "interest" to
its shareholders, nor is any amount of dividends or return
guaranteed in any way.
Dividends are automatically reinvested daily in the form of
additional shares of the Fund at the net asset value per share at
the close of business each day. The daily dividend includes
accrued interest and any original issue and market 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 stable net asset
value per share), less amortization of any premium paid on the
purchase of portfolio securities and the estimated expenses of
the Fund.
The federal income tax treatment of dividends and distributions
is the same whether received in cash or reinvested in Fund
shares.
The SAI includes a further discussion of distributions.
Dividends in Cash
Shareholders may request to have their dividends paid out monthly
in cash by notifying Investor Services. For such shareholders,
the shares reinvested and credited to their account during the
month will be redeemed as of the close of business on the last
business day of the month and the proceeds will be paid to them
in cash. By completing the "Special Payment Instructions for
Dividends" section of the Shareholder Application included with
this Prospectus, a shareholder may direct the selected
distributions to another fund in the Franklin Group of Fundsr or
the Templeton Group, to another person, or directly to a checking
account. If the bank at which the account is maintained is a
member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option
is requested, the shareholder should allow at least 15 days for
initial processing. Dividends which may be paid in the interim
will be sent to the address of record. Additional information
regarding automated fund transfers may be obtained from
Franklin's Shareholder Services Department.
Taxation of the Fund and Its Shareholders
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled "Additional
Information Regarding Distributions and Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for
federal income tax purposes. The Fund intends to continue to
qualify for treatment as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be
liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has
qualified and continues to qualify to pay exempt-interest
dividends to its shareholders. Such exempt-interest dividends are
derived from interest income exempt from regular federal income
tax and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest
dividends are derived from interest on obligations of New York
and its political subdivisions, from interest on direct
obligations of the federal government, or from interest on U.S.
territorial obligations (including Puerto Rico, the U.S. Virgin
Islands and Guam), they will also be exempt from New York State
and New York City personal income taxes. For corporate taxpayers
subject to the New York State franchise tax, however, the
foregoing categories of interest income will generally be
taxable.
To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from securities
loans or other taxable transactions), from the excess of net
short-term capital gain over net long-term capital loss, or from
ordinary income derived from the sale or disposition of bonds
purchased with market discount after April 30, 1993, they are
treated as ordinary income whether the shareholder has elected to
receive them in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in
December but which, for operational reasons, may not be paid to
the shareholder until the following January will be treated for
tax purposes as if received by the shareholder on December 31 of
the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or loss. Any loss incurred
on the sale or exchange of Fund shares, held for six months or
less, will be disallowed to the extent of exempt interest
dividends paid with respect to such shares.
Since the Fund's income is derived from interest and gain on the
sale of portfolio securities rather than dividend income, no
portion of the Fund's distributions will generally be eligible
for the corporate dividends-received deduction. None of the
distributions paid by the Fund for the fiscal year ended December
31, 1994, qualified for this deduction and it is not anticipated
that any of the current year's dividends will so qualify.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and will,
promptly after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions, including the portion of the dividends on an
average basis which constitutes interest income that is a tax
preference item under the alternative minimum tax. Shareholders
who have not held shares of the Fund for a full calendar year may
have designated as tax-exempt or as tax preference income a
percentage of income which is not equal to the actual amount of
tax-exempt or tax preference income earned during the period of
their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from
regular federal income tax in the hands of a shareholder, are
includible in the tax base for determining the extent to which a
shareholder's social security or railroad retirement benefits
will be subject to federal income tax. Shareholders are required
to disclose the receipt of tax-exempt interest on their federal
income tax returns.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry Fund shares will not be
deductible for federal income tax purposes.
The foregoing description relates solely to federal income tax
law and to New York State and New York City personal income tax
treatment to the extent indicated. Shareholders should consult
their tax advisors with respect to the applicability of other
state and local income tax laws to distributions and redemption
proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the
impact of Fund dividend distributions under the alternative
minimum tax that may be applicable to a shareholder's particular
tax situation.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
How to Buy Shares of the Fund
Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares, and by the Fund
directly. The use of the term "securities dealer" shall include
other financial institutions which, pursuant to an agreement with
Distributors (directly or through affiliates), handle customer
orders and accounts with the Fund. Such reference, however, is
for convenience only and does not indicate a legal conclusion of
capacity. All shares of the Fund are purchased at the net asset
value, without a sales charge, next determined after receipt of a
purchase order in proper form. The minimum initial investment is
$500 and subsequent investments must be $25 or more. These
minimums may be waived when the shares are purchased through
plans established at Franklin. The Fund currently does not permit
investment by market timing or allocation services ("Timing
Accounts"), which generally include accounts administered so as
to redeem or purchase shares based upon certain predetermined
market indicators.
Purchases in proper form received by the Fund prior to 3:00 p.m.
Pacific time (6:00 p.m. Eastern time) will be credited to the
shareholder's account on that business day. If received after
3:00 p.m., the purchase will be credited the following business
day. Many of the types of instruments in which the Fund invests
must be paid for in federal funds, which are monies held by its
custodian bank on deposit at the Federal Reserve Bank of San
Francisco and elsewhere. Therefore, the monies paid by an
investor for shares of the Fund generally cannot be invested by
the Fund until they are converted into and are available to the
Fund in federal funds, which may take up to two days. In such
cases, purchases by investors may not be considered in proper
form and effective until such conversion and availability. In the
event the Fund is able to make investments immediately (within
one business day), it may accept a purchase order with payment
other than in federal funds; in such event, shares of the Fund
will be purchased at the net asset value next determined after
receipt of the order and payment.
Shares may be purchased in any of the following ways:
By Mail
(1) For an initial investment, include the completed Shareholder
Application contained in this Prospectus. For subsequent
investments, the deposit slips which are included with the
shareholder's monthly statement or checkbook (if one has
been requested) may be used, or the shareholder should
reference the account number on the check.
(2) Make the check, Federal Reserve draft or negotiable bank
draft payable to Franklin New York Tax-Exempt Money Fund.
Instruments drawn on other investment companies may not be
accepted.
(3) Send the check, Federal Reserve draft or negotiable bank
draft to Franklin New York Tax-Exempt Money Fund, 777
Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777.
By Wire
(1) Call Franklin's Shareholder Services Department at 1-800/632-
2301. If that line is busy, call 415/312-2000 collect, to
advise that funds will be wired for investment. The Fund
will supply a wire control number for the investment. It is
necessary to obtain a new wire control number every time
money is wired into an account in the Fund. Wire control
numbers are effective for one transaction only and may not
be used more than once. Shareholders should contact
Franklin's Shareholder Services Department at the above
telephone number to obtain a wire control number each time
funds are to be wired for investment to the Fund. Wired
money which is not properly identified with a currently
effective wire control number will be returned to the bank
from which it was wired and will not be credited to the
shareholder's account.
(2) Wire funds to Bank of America, ABA routing number 121000358,
for credit to Franklin New York Tax-Exempt Money Fund, A/C
1493-3-04779. The wire control number and shareholder's name
must be included. Wired funds received by the Bank and
reported by the Bank to the Fund by 3:00 p.m. Pacific time
are normally credited on that day. Later wires are credited
the following business day.
(3) If the purchase is not to an existing account, a completed
Shareholder Application must be sent to Franklin New York
Tax-Exempt Money Fund, at 777 Mariners Island Blvd., P.O.
Box 7777, San Mateo, California 94403-7777, to assure proper
credit for the wire.
Through Securities Dealers
Investors may, if they wish, invest in the Fund by purchasing
shares through a securities dealer as noted above. Securities
dealers which process orders on behalf of their customers may
charge a reasonable fee for their services. Investments made
directly, without the assistance of a securities dealer, are
without charge. In certain states, shares of the Fund may be
purchased only through registered securities dealers.
Automatic Investment Plan
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program.
General
The Fund and Distributors reserve the right to reject any order
for the purchase of shares of the Fund. In addition, the offering
of shares of the Fund may be suspended by the Fund at any time
and resumed at any time thereafter.
The Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned unpaid
to the Fund.
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
How to Redeem Shares of the Fund
All or any part of a shareholder's investment may be converted
into cash, without penalty or charge, by redeeming shares in any
one of the methods discussed below on any day the New York Stock
Exchange (the "Exchange") is open for trading. Regardless of the
method of redemption, payment for the shareholder's redeemed
shares will be sent within seven days after receipt of the
redemption request in proper form, except that the Fund may delay
the mailing of the redemption check, or a portion thereof, until
the clearance of the check used to purchase fund shares, which
may take up to 15 days or more. Although the use of a certified
or cashier's check will generally reduce this delay, shares
purchased with such instruments will also be held pending
clearance. Shares purchased by federal funds wire are available
for immediate redemption. Shareholders are requested to provide a
telephone number(s) where they may be reached during business
hours, or in the evening if preferred. Investor Services' ability
to contact a shareholder promptly when necessary will speed the
processing of the redemption.
Shares may be redeemed in any of the following ways:
1. By Check
The Fund will supply redemption drafts (which are similar to
checks and are referred to as checks throughout this Prospectus)
to shareholders who have requested them on the Shareholder
Application. The election of the check redemption procedure does
not create a checking account or other bank account relationship
between a shareholder and the Fund or any bank. These checks are
drawn through the Fund's custodian, Bank of America NT & SA (the
"Custodian" or "Bank"). Shareholders will generally not be able
to convert a check drawn on the Fund account into a certified or
cashier's check by presentation at the Fund's Custodian. The
shareholder may make checks payable to the order of any person in
any amount not less than $100. There is no charge to the
shareholder for this check redemption procedure.
When such a check is presented for payment, the Fund will redeem
a sufficient number of full and fractional shares in the
shareholder's account to cover the amount of the check. This
enables the shareholder to continue earning daily income
dividends until the check has cleared. Shares will be redeemed at
their net asset value next determined after receipt of a check
which does not exceed the collected balance of the account. Only
shareholders having accounts in which no share certificates have
been issued will be permitted to redeem shares by check.
Because the Fund is not a bank, no assurance can be given that
stop payment orders on checks written by shareholders will be
effective. The Fund, however, will use its best efforts to see
that such orders are carried out.
Shareholders will be subject to the right of the Bank to return
unpaid checks in amounts exceeding the collected balance of their
account at the time the check is presented for payment. Checks
should not be used to close a Fund account because when the check
is written, the shareholder will not know the exact total value
of the account on the day the check clears. The Bank reserves the
right to terminate this service at any time upon notice to
shareholders.
2. By Telephone
A shareholder may redeem shares by telephoning the Fund at 1-
800/632-2301. Payment of redemption requests of $1,000 or less
(once per business day) will be sent by mail to the shareholder's
address as reflected on the Fund's records. For payments over
$1,000, the shareholder must complete the "Wire Redemptions
Privilege" section of the Shareholder Application. Proceeds will
then be wired directly to the commercial bank or brokerage firm
designated by the shareholder. Wires will not be sent for
redemption requests of $1,000 or less. Shareholders may have
redemption proceeds of over $1,000, up to $50,000 per day per
Fund account, sent directly to their address of record by filing
a completed Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement") included with this Prospectus.
Information may be obtained by writing to the Fund or Investor
Services at the address shown on the cover or by calling the
number above. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions given by
telephone are genuine. Shareholders, however, bear the risk of
loss in certain cases as described under "Telephone Transactions
- - Verification Procedures."
Telephone redemption requests received before 3:00 p.m. Pacific
time on any business day will be processed that same day. The
redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only
to the address of record. Wire payments will be transmitted the
next business day following receipt prior to 3:00 p.m. Pacific
time of a request for redemption in proper form. Shareholders may
wish to allow for longer processing time if they want to assure
that redemption proceeds will be available at a specific time for
a specific transaction. Shareholders may be able to have
redemption proceeds wired to an escrow account the same day,
provided that the request is received prior to 9:00 a.m. Pacific
time.
Redemption instructions must include the shareholder's name and
account number and be called to the Fund. No shares for which
share certificates have been issued may be redeemed by telephone
instructions. Redemption requests by telephone will not be
accepted within 30 days following an address change by telephone.
In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts
which wish to execute redemptions in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by
telephoning 1-800/321-8563.
During periods of drastic economic or market changes, it is
possible that the telephone redemption privilege may be difficult
to implement. In this event, shareholders should follow the other
redemption procedures discussed in this section. The telephone
redemption privilege may be modified or discontinued by the Fund
at any time upon 60 days' notice to shareholders.
3. By Mail
A shareholder may redeem all or a portion of the shares owned by
sending a letter to Investor Services, at the address shown on
the back cover of this Prospectus, requesting redemption and
surrendering share certificates if any have been issued.
Important Things to Remember When Redeeming Shares
Written requests for redemption must be signed by all registered
owners.
Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by
the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered,
with the signature(s) guaranteed as referenced below.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption.
To be considered in proper form, signature(s) must be guaranteed
if the redemption request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess
of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c)
the Fund has been notified of an adverse claim, (d) the
instructions received by the Fund are given by an agent, not
the actual registered owner, (e) the Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) is not listed on the account registration.
Custodial - Signature guaranteed letter of instruction from the
custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
Written requests for redemption, all share certificates, and all
certificate assignment forms should be sent to the Fund or
Investor Services at the address shown on the back cover of this
Prospectus.
Payment for written requests for redemption will be sent within
seven days after receipt of the request in proper form.
Redemptions will be made in cash at the net asset value per share
next determined after receipt by the Fund of a redemption request
in proper form, including all share certificates, assignments,
signature guarantees and other documentation as may be required
by Investor Services. The amount received upon redemption may be
more or less than the shareholder's original investment.
Redemptions may be suspended under certain limited circumstances
pursuant to rules adopted by the SEC.
Wiring of redemption proceeds is a special service made available
to shareholders whenever possible. The offer of this service,
however, does not bind the Fund to meet any redemption request by
wire or in less than the seven day period prescribed by law.
Neither the Fund nor its agents shall be liable to any
shareholder or other person for a redemption payment by wire
which for any reason may not be processed as described in this
section.
Contingent Deferred Sales Charge
The Fund does not impose either a front-end sales charge or a
contingent deferred sales charge. If, however, the shares
redeemed were shares acquired by exchange from another of the
Franklin Templeton Funds which would have assessed a contingent
deferred sales charge upon redemption, such charge will be made
by the Fund, as described below. The 12-month contingency period
will be tolled (or stopped) for the period such shares are
exchanged into and held in the Fund.
In certain Franklin Templeton Funds, in order to recover
commissions paid to securities dealers on investments of $1
million or more, a contingent deferred sales charge of 1% applies
to certain redemptions made by those investors within 12 months
of the calendar month after such investments. The charge is 1% of
the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total
cost of such shares, and is retained by Distributors. In
determining if a charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) shares representing amounts
attributable to capital appreciation; (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than 12 months; and followed by any
shares held less than 12 months, on a "first in, first out"
basis.
Requests for redemptions for a specified dollar amount, unless
otherwise specified, will result in additional shares being
redeemed to cover any applicable contingent deferred sales charge
while requests for redemption of a specific number of shares will
result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
Other Programs and Privileges
Available to Fund Shareholders
Certain of the programs and privileges described in this section
may not be available directly from the Fund to shareholders whose
shares are held, of record, by a financial institution or in a
"street name" account, or networked account through National
Securities Clearing Corporation ("NSCC") (see the section
captioned "Account Registrations" in this Prospectus).
Share Certificates
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and any
capital gain distributions, are generally credited to an account
in the name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the shareholder's securities dealer.
Confirmations
A confirmation statement will be sent to each shareholder monthly
to reflect the daily dividends reinvested, as well as after each
transaction which affects the shareholder's account, except a
redemption effected by check. This statement will also show the
total number of Fund shares owned by the shareholder, including
the number of shares in "plan balance" for the account of the
shareholder.
Systematic Withdrawal Plan
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the shareholder's account,
provided that the net asset value of the shares held by the
shareholder is at least $5,000. There are no service charges for
establishing or maintaining a Systematic Withdrawal Plan. The
minimum amount which the shareholder may withdraw is $50 per
transaction, although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. The plan may be established on a monthly, quarterly,
semiannual or annual basis.
Sufficient shares of the Fund will be liquidated (generally on
the first business day of the month in which the distribution is
scheduled) at net asset value to meet the specified withdrawals
with payments generally received by the shareholder three to five
days after the date of liquidation. By completing the "Special
Payment Instructions for Dividends" section of the Shareholder
Application included with this Prospectus, a shareholder may
direct the selected withdrawals to another fund in the Franklin
Group of Funds or the Templeton Group, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record.
Liquidation of shares may deplete the investment, and withdrawal
payments cannot be considered as actual yield or income since
part of such payments may be a return of capital. If the
withdrawal amount exceeds the total plan balance, the account
will be closed and the remaining balance will be sent to the
shareholder.
A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment, by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
Multiple Accounts for Fiduciaries
Special procedures have been designed for banks and other
institutions wishing to open multiple accounts in the Fund.
Further information is included in the Trust's SAI.
Rights of Accumulation
The cost or current value (whichever is higher) of the shares in
the Fund will be included in determining the sales charge
discount to which an investor may be entitled when purchasing
shares in one or more of the funds in the Franklin Group of
Fundsr and the Templeton Group of Funds which are sold with a
sales charge. Included for these aggregation purposes are (a) the
mutual funds in the Franklin Group of Funds, except Franklin
Valuemark Funds and Franklin Government Securities Trust (the
"Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be
subject to reduction) and (c) the U.S. mutual funds in the
Templeton Group of Funds except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Funds"). (Franklin
Funds and Templeton Funds are collectively referred to as the
"Franklin Templeton Funds.")
Purchases of Fund shares will also be included toward the
completion of a Letter of Intent with respect to any of the funds
in the Franklin Templeton Funds which are sold with a sales
charge.
To assist shareholders in obtaining additional information
regarding these programs, a list of telephone numbers is included
under "How to Get Information Regarding an Investment in the
Fund."
Institutional Accounts
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
Exchange Privilege
The Franklin Group of Funds" and the Templeton Group consist of a
number of investment companies with various investment objectives
and policies. The shares of most of these investment companies
are offered to the public with a sales charge. If a shareholder's
investment objective or outlook for the securities markets
changes, Fund shares may be exchanged for shares of any of the
other investment companies in the Franklin Group of Funds or the
Templeton Group which are eligible for sale in the shareholder's
state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. Investors
should review the prospectus of the fund they wish to exchange
from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege,
for example, minimum holding periods or applicable sales charges.
Exchanges may be made in any of the following ways:
Exchanges By Mail
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.
Exchanges By Telephone
Shareholders, or their investment representative of record, if
any, may exchange shares of the Fund by telephone by calling
Investor Services at 1-800/632-2301 or the automated Franklin
TeleFACTS" system (day or night) at 1-800/247-1753. If the
shareholder does not wish this privilege extended to a particular
account, the Fund or Investor Services should be notified.
The telephone exchange privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account in
one of the other available funds in the Franklin Group of Funds
or the Templeton Group. The telephone exchange privilege is
available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund
and Investor Services will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine.
Please refer to "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is
possible that the telephone exchange privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
Exchanges Through Securities Dealers
As is the case with all purchases of the Fund's shares, Investor
Services will accept exchange orders by telephone or by other
means of electronic transmission from securities dealers who
execute a dealer or similar agreement with Distributors. See also
"Exchanges By Telephone" above. Such a dealer-ordered exchange
will be effective only for uncertificated shares on deposit in
the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee
for handling an exchange.
Additional Information Regarding Exchanges
Shares of the Fund acquired other than pursuant to the exchange
privilege or the reinvestment of dividends with respect to such
shares, may be exchanged at the offering price of one of the
other funds in the Franklin Group of Funds or the Templeton
Group. Such offering price includes the applicable sales charge
of the fund into which the shares are being exchanged. Exchanges
will be effected at the respective net asset values or offering
prices of the funds involved at the close of business on the day
on which the request is received in proper form.
There are differences among the many funds in the Franklin Group
of Funds and the Templeton Group. Before making an exchange, a
shareholder should obtain and review a current prospectus of the
fund into which the shareholder wishes to transfer.
The exchange privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
The Fund currently does not accept investments from Timing
Accounts.
Telephone Transactions
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option, (iii) transfer Fund shares in one
account to another identically registered account in the Fund,
and (iv) exchange Fund shares as described in this Prospectus by
telephone. In addition, shareholders who complete and file an
Agreement as described under "How to Redeem Shares of the Fund -
By Telephone" will be able to redeem shares of the Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
sending a confirmation statement on redemptions to the address of
record each time account activity is initiated by telephone. So
long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. The Fund and Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where
the Fund or Investor Services is not reasonably satisfied that
instructions received by telephone are genuine, the requested
transaction will not be executed, and neither the Fund nor
Investor Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
General
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
Valuation of Fund Shares
The net asset value of the shares of the Fund is determined by
the Fund at 3:00 p.m. Pacific time each day that the Exchange is
open for business. The net asset value per share is calculated by
adding the value of all portfolio holdings and other assets,
deducting the Fund's liabilities, and dividing the result by the
number of Fund shares outstanding.
The valuation of the Fund's portfolio securities is based upon
their amortized cost value, which does not take into account
unrealized capital gain or loss. This 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. The Fund's use of amortized cost which
facilitates the maintenance of the Fund's per share net asset
value of $1.00 is permitted by Rule 2a-7. Further information is
included under "Determination of Net Asset Value" in the SAI.
How to Get Information
Regarding an Investment in the Fund
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch-tone phone, shareholders may access an automated
system (day or night) which offers the following features. By
calling the Franklin TeleFACTSr system at 1-800/247-1753,
shareholders may obtain current price, yield or other performance
information specific to a Franklin fund; process an exchange into
an identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
Share prices and account information specific to a Templeton fund
may also be accessed on TeleFACTS by Franklin shareholders.
Information about the Fund may be accessed by entering Fund Code
31 followed by the # sign, when requested to do so by the
automated operator. The system's automated operator will prompt
the caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
Hours of Operation
(Pacific Time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including quotations of its current, effective,
taxable equivalent, and taxable equivalent effective yields.
Current yield, as prescribed by the SEC, is an annualized
percentage rate which reflects the change in value of a
hypothetical account based on the income received from the Fund
during a seven-day period. It is computed 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. A hypothetical charge reflecting
deductions from shareholder accounts for management fees or
shareholder services fees, for example, is subtracted from the
value of the account at the end of the period, and the difference
is divided by the value of the account at the beginning of the
base period to obtain the base period return. The result is then
annualized. Effective yield is computed in the same manner except
that the annualization of the return for the seven-day period
reflects the results of compounding (that is, the effect of
reinvesting dividends paid on both the original share and those
acquired from the reinvestment of such dividends). Tax equivalent
yield demonstrates the yield from a taxable investment necessary
to produce an after-tax yield equivalent to that of a fund which
invests in tax-exempt obligations. It is computed by dividing the
tax-exempt portion of a fund's yield (calculated as indicated) by
one minus a stated income tax rate and adding the product to the
taxable portion (if any) of the fund's yield.
Tax equivalent effective yield demonstrates the effective yield
from a taxable investment necessary to produce an after-tax
effective yield equivalent to that of a fund which invests in tax-
exempt obligations. It is computed in the same manner as is a
fund's tax equivalent yield, except that it is based on the tax
exempt portion of a fund's effective, rather than its current,
yield. The figure is calculated by dividing the tax-exempt
portion of a fund's effective yield by one minus a stated income
tax rate and adding the product to the taxable portion (if any)
of a fund's effective yield.
In each case, performance figures are based upon past performance
and will reflect all recurring charges against Fund income. Such
quotations will reflect the value of any additional shares
purchased with dividends from the original share and any
dividends declared on both the original share and such additional
shares. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's performance may be in
any future period.
General Information
Reports to Shareholders
The Fund's fiscal year ends December 31. Annual Reports
containing audited financial statements of the Trust, including
the auditor's report, and Semi-Annual Reports containing
unaudited financial statements are automatically sent to
shareholders. Copies may be obtained by investors or
shareholders, without charge, upon request to the Trust at the
telephone number or address set forth on the cover page of this
Prospectus.
Additional information on Fund performance is included in the
Trust's Annual Report to Shareholders and the SAI.
Organization
The Trust was organized as a Massachusetts business trust on July
17, 1986. The Agreement and Declaration of Trust permits the
trustees to issue an unlimited number of full and fractional
shares of beneficial interest without par value, which may be
issued in any number of series or classes thereof. Shares issued
will be fully paid and non-assessable and will have no
preemptive, conversion, or sinking rights. Shares of each series
have equal and exclusive rights as to dividends and distributions
declared by such series and the net assets of such series upon
liquidation or dissolution. The Board of Trustees may, from time
to time, issue other series or funds, the assets and liabilities
of which will likewise be separate and distinct from any other
fund.
Voting Rights
Shares of each series have equal rights as to voting and vote
separately as to issues affecting that series or the Trust unless
otherwise permitted by the 1940 Act. Shares of the Fund have
noncumulative voting rights which means that in all elections of
trustees, the holders of more than 50% of the shares voting can
elect 100% of the trustees if they choose to do so and, in such
event, the holders of the remaining shares voting will not be
able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings.
The Trust may, however, hold a special meeting for such purposes
as changing fundamental investment restrictions, approving a new
management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Trustees or by
shareholders holding at least ten percent of the shares entitled
to vote at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the
election or removal of trustees, such as that provided in Section
16(c) of the 1940 Act.
Redemptions by the Fund
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than one-
half of the required minimum investment, but only where the value
of such account has been reduced by the shareholder's prior
voluntary redemption of shares and has been inactive (except for
the reinvestment of distributions) for a period of at least six
months, provided advance notice is given to the shareholder. More
information is included in the SAI.
Other Information
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
Shares of the Fund may or may not constitute a legal investment
for investors whose investment authority is restricted by
applicable law or regulation. SUCH INVESTORS SHOULD CONSULT THEIR
OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE
SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond
offerings into the Fund should consult with expert counsel to
determine the effect, if any, of various payments made by the
Fund or its investment manager on arbitrage rebate calculations.
Account Registrations
An account registration should reflect the investor's intentions
as to ownership.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer or similar
agreements on file with Distributors. Unless such agreement has
been executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer, and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the IRS any taxable dividend, capital
gain distribution, or other reportable payment and withhold 31%
of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required
certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS
or a securities dealer notifies the Fund that the TIN furnished
by the shareholder is incorrect or that the shareholder is
subject to backup withholding for previous under-reporting of
interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then-current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
Risk Factors in New York
Since the Fund primarily invests in New York Municipal
Securities, there are certain specific factors and considerations
concerning the issuers of these securities which may affect the
credit and market risk of the municipal securities to be
purchased by the Fund. The following information is based
primarily upon information derived from public documents relating
to securities offerings of issuers of New York Municipal
Securities, from independent municipal credit reports and
historically reliable sources, but has not been independently
verified by the Fund.
The primary purpose of investing in a portfolio of New York
Municipal Securities is the special tax treatment accorded New
York resident individual investors. Payment of interest and
preservation of principal, however, is dependent upon the
continuing ability of the New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet
their obligations thereunder. Investors should be aware that
certain substantial issuers of New York Municipal Securities
(including issuers whose obligations may be acquired by the Fund)
have experienced financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and
impaired the borrowing abilities of other New York issuers and
have generally contributed to higher interest rates and lower
market prices for their debt obligations. A recurrence of the
financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of
other issuers of New York Municipal Securities.
Although no issuers of New York Municipal Securities were in
default with respect to the payment of their debt obligations, to
the knowledge of the investment manager as of the date of filing
of this Prospectus with the SEC, the occurrence of any such
default could adversely affect the market values and
marketability of all New York Municipal Securities and,
consequently, the net asset value of the Fund's portfolio. Some
of the significant financial considerations relating to the
Fund's investments in New York Municipal Securities are
summarized in the SAI.
Investors should consider the greater risk of the Fund's
concentration in New York Municipal Securities versus the safety
that comes with a less concentrated investment portfolio and
should compare yields available on portfolios of New York issues
with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's
investment manager believes, however, that by maintaining the
Fund's investment portfolio in liquid, short-term, high quality
investments, including variable and floating rate demand
instruments that have high quality credit support from banks,
insurance companies or other financial institutions, the Fund is
largely insulated from the credit risks that may exist on long-
term New York Municipal Securities. The SAI contains a further
description of risks under "Appendix A - Risk Factors Affecting
New York Municipal Securities."
FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND
Franklin New York Tax-Free Trust
PROSPECTUS May 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
The Franklin New York Insured Tax-Free Income Fund (the "Fund")
is one of three non-diversified series of the Franklin New York
Tax-Free Trust (the "Trust"), an open-end management investment
company. The Fund offers individual investors, corporations and
other institutions a convenient way to invest in a professionally
managed portfolio of municipal securities, primarily issued by
the state of New York and its political subdivisions. The Fund's
investment goal is to provide investors with as high a level of
income exempt from federal income taxes and New York State and
New York City personal income taxes as is consistent with prudent
investment management and the preservation of shareholders'
capital.
The Fund invests in New York municipal securities which are
covered by insurance policies providing for the scheduled payment
of principal and interest in the event of non-payment by the
issuer, in securities backed by the full faith and credit of the
U.S. government, in municipal securities secured by such U.S.
government obligations, and in short-term obligations of issuers
with the highest ratings from Moody's Investors Service
("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch
Investors Service, Inc. ("Fitch"). All insured securities not
insured by the issuer will be insured by a qualified municipal
bond insurer. An investment in the Fund is not insured by the
U.S. government or the state of New York.
This Prospectus is intended to set forth in a clear and concise
manner information about the Trust and the Fund that a
prospective investor should know before investing. After reading
the Prospectus, it should be retained for future reference; it
contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to
have.
As of May 1, 1995, the Fund offers two classes to its investors:
Franklin New York Insured Tax-Free Income Fund - Class I ("Class
I") and Franklin New York Insured Tax-Free Income Fund - Class II
("Class II"). Investors can choose between Class I shares, which
generally bear a higher front-end sales charge and lower ongoing
Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and Class II
shares, which generally have a lower front-end sales charge and
higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and time
horizon.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank; further, such shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency. Shares of the
Fund involve investment risks, including the possible loss of
principal.
A Statement of Additional Information ("SAI") concerning the
Trust dated May 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein
described in any state in which the offering is not authorized.
No sales representative, dealer, or other person is authorized to
give any information or make any representations other than those
contained in this Prospectus. Further information may be obtained
from the underwriter.
Contents Page
Expense Table
Financial Highlights
About the Trust
Investment Objective
and Policies of the Fund
Insurance
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
Risk Factors in New York
Expense Table
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. The figures for both classes of shares are based on
aggregate operating expenses of the Class I shares, before fee
waivers and expense reductions, for the fiscal year ended
December 31, 1994.
Class I Class II
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering 4.25% 1.00%^
price)
Deferred Sales Charge NONE^^ 1.00%+
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.55%* 0.55%*
12b-1 Fees 0.07%** 0.65%**
Other Expenses:
Reports to Shareholders 0.04% 0.04%
Shareholder Servicing Costs 0.02% 0.02%
Other 0.05% 0.05%
Total Other Expenses 0.11% 0.11%
Total Fund Operating Expenses 0.73%* 1.31%*
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fees for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately seven years for shareholders who maintain
total shares valued at less than $100,000 in the Franklin
Templeton Funds. Shareholders with larger investments in the
Franklin Templeton Funds will reach the crossover point more
quickly.
^^ Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within 12 months of
the calendar month following such investments. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge."
+Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
*Represents the amount that would have been payable to the
investment manager, absent a fee reduction by the investment
manager. The investment manager, however, agreed in advance to
waive a portion of its management fees and to assume
responsibility for making payments to offset certain operating
expenses otherwise payable by the Fund. With this reduction,
management fees represented 0.41% and total operating expenses
for Class I and Class II represented 0.59% and 1.17%,
respectively, of the average net assets of the Fund. This
arrangement may be terminated by the investment manager at any
time.
**Rule 12b-1 fees for Class I are annualized. Actual Rule 12b-1
fees incurred by Class I for the eight months ended December 31,
1994 were 0.05%. Rule 12b-1 fees for Class II are based on the
maximum amount allowed under Class II's plan of distribution.
Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
See "Plans of Distribution" under "Management of the Fund" in
this Prospectus.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses that an investor in
the classes will bear directly or indirectly. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charge, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period.
One year Three years Five years Ten years
Class I $50 $65 $81 $129
Class II $33 $51 $81 $166
This example is based on the aggregate annual operating expenses,
before fee waivers or expense reductions, shown above and should
not be considered a representation of past or future expenses,
which may be more or less than those shown. The operating
expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In
addition, federal securities regulations require the example to
assume an annual return of 5%, but the Fund's actual return may
be more or less than 5%.
Financial Highlights
Set forth below is a table containing financial highlights for a
share Class I of the Fund outstanding throughout the period May
1, 1991 (effective date of registration) to December 31, 1991 and
for the three fiscal years ended December 31, 1992, 1993 and
1994. The information for the period May 1, 1991 to December 31,
1991 and each of the three fiscal years in the period ended
December 31, 1994 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial
statements in the Trust's Annual Report to Shareholders dated
December 31, 1994. Information regarding Class II shares will be
included in this table after they have been offered to the public
for a reasonable period of time. See the discussion "Reports to
Shareholders" under "General Information."
<TABLE>
<CAPTION>
Per Share Operating Performance++
- --------------------------------------------------------------------------------------------------------------------
Net Asset Net Realized Distributions Net Asset
Year Value Net & Unrealized Total From From Net Value
Ended Beginning Investment Gains on Investment Investment at End Total
December 31 of Year Income Securities Operations Income of Year Return++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991* $10.00 $.247 $.433 $0.680 $(.220) $10.46 6.75%
1992 10.46 .620 .369 .989 (.649) 10.80 9.49
1993 10.80 .600 .880 1.480 (.600) 11.68 13.79
1994 11.68 .590 (1.525) (.935) (.585) 10.16 (8.19)
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- --------------------------------------------------------------------
Net Assets Ratio of Ratio of
Year at End Expenses Net Income Portfolio
Ended of Year to Average to Average Turnover
December 31 (in 000's) Net Assets+ Net Assets Rate
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991* $ 37,904 .12%** 5.69%** 21.12%
1992 149,054 .33 5.80 3.39
1993 263,647 .50 5.28 5.38
1994 225,061 .56 5.48 25.66
</TABLE>
*For the period May 1, 1991 (effective date of registration) to
December 31, 1991.
**Annualized.
+Total return measures the change in value of an investment over
the periods indicated. It does not include the maximum front-end
sales charge and assumes reinvestment of dividends at the
offering price and capital gains, if any, at net asset value.
Effective May 1, 1994, with the implementation of the Rule 12b-1
distribution plan, the sales charge on reinvested dividends was
eliminated.
++During the periods indicated, Franklin Advisers, Inc., the
investment manager, agreed in advance to waive a portion of its
management fees and to assume responsibility for making payments
to offset certain operating expenses otherwise payable by the
Fund. Had such action not been taken, the ratio of operating
expenses to average net assets for the periods ended December 31,
1991, 1992, 1993 and 1994 would have been: .84%, .74%, .65% and
.71%.
About the Trust
The Trust is an open-end management investment company, or mutual
fund, organized as a Massachusetts business trust in July 1986
and registered with the SEC under the Investment Company Act of
1940 (the "1940 Act"). The Trust currently consists of three
series, each of which issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio.
This Prospectus relates only to the Franklin New York Insured Tax-
Free Income Fund. The Fund has two classes of shares of
beneficial interest: Franklin New York Insured Tax-Free Income
Fund - Class I and Franklin New York Insured Tax-Free Income Fund
- - Class II. All Fund shares outstanding before May 1, 1995, have
been redesignated as Class I shares, and will retain their
previous rights and privileges, except for legally required
modifications to shareholder voting procedures, as discussed in
"General Information - Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price. The current public offering price of the Class I shares is
equal to the net asset value (see "Valuation of Fund Shares")
plus a variable sales charge not exceeding 4.25% of the offering
price depending upon the amount invested. The current public
offering price of the Class II shares is equal to the net asset
value plus a sales charge of 1.0% of the amount invested. (See
"How to Buy Shares of the Fund.")
Investment Objective and Policies of the Fund
The Fund seeks to provide investors with as high a level of
income exempt from federal income taxes and from the personal
income taxes of New York State and New York City as is consistent
with prudent investment management and the preservation of
shareholders' capital. There is, of course, no assurance that the
Fund's objective will be achieved. The Fund's investment
objective is a fundamental policy of the Fund and may not be
changed without the approval of a majority of the Fund's
outstanding shares.
Under normal market conditions, the Fund attempts to invest 100%,
and, as a matter of fundamental policy, will invest at least 80%
of its total assets in debt obligations issued by or on behalf of
the state of New York or any state, territory or possession of
the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political
subdivisions, the interest on which is exempt from regular
federal income tax. It is possible, although not anticipated,
that up to 20% of the Fund's net assets could be in municipal
securities subject to the alternative minimum tax and/or in
taxable obligations.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in insured municipal securities. Although
an insurer's quality standards are independently determined and
may vary from time to time, generally such municipal securities
which carry a rating at the date of purchase are in the three
highest ratings of S&P (AAA, AA, and A) or of Moody's (Aaa, Aa,
and A). Pending investment in longer-term municipal securities,
the Fund also may invest up to 35% of its total net assets in
short-term, tax-exempt instruments, without obtaining insurance,
provided such instruments carry a A-1, SP-1 or F-1 short-term
rating by Moody's, S&P or Fitch, respectively, or will have a
long-term rating of Aaa, or equivalent, by Moody's, S&P or Fitch.
For a description of such ratings, see the Appendix B in the SAI.
An insurer may also insure municipal securities which are unrated
or have lower S&P ratings or which meet its own insurance
standards. The Fund may also invest in municipal securities
secured by an escrow or trust account of U.S. government
securities, except for temporary short-term investments carrying
the highest rating by Moody's, S&P or Fitch. (See "Insurance.")
In addition, under normal market conditions, the Fund will invest
at least 65% of its total assets in municipal securities and
obligations issued by or on behalf of the state of New York and
its local governments, municipalities, authorities, agencies and
political subdivisions, and those of certain other governmental
issuers, such as the Commonwealth of Puerto Rico, which pay
income exempt from regular federal, New York State and New York
City personal income taxes ("New York Municipal Securities").
Dividends paid by the Fund which are derived from interest on tax-
exempt obligations that are not New York Municipal Securities
will be exempt from regular federal income tax, but will be
subject to New York State and New York City personal income
taxes. It is possible, although not anticipated, that up to 35%
of the Fund's net assets could be in municipal securities from a
state other than New York.
For temporary defensive purposes only, the Fund may invest (i)
more than 20% of its assets (which could be up to 100%) in fixed-
income obligations the interest on which is subject to regular
federal income tax, and (ii) more than 35% of the value of its
net assets (which could be up to 100%) in instruments the
interest on which is exempt from regular federal income taxes but
not New York State and New York City personal income taxes. Any
such temporary taxable investments will be limited to obligations
issued or guaranteed by the full faith and credit of the U.S.
government or in commercial paper rated A-1 by S&P.
The Fund may borrow from banks for temporary or emergency
purposes and pledge up to 5% of its total assets therefore.
Consistent with procedures approved by the Board of Trustees and
subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other
institutional investors, provided that such loans do not exceed
10% of the value of the Fund's total assets at the time of the
most recent loan. The borrower must deposit with the Fund's
custodian collateral with an initial market value of at least
102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral
and loaned securities marked-to-market daily to maintain
collateral coverage of at least 102%. Such collateral shall
consist of cash. The lending of securities is a common practice
in the securities industry. The Fund engages in security loan
arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term
interest bearing obligations or by receiving a loan premium from
the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral
should the borrower of the security fail financially.
It is the policy of the Fund that restricted securities and other
illiquid securities (securities that cannot be disposed of within
seven days in the normal course of business at approximately the
amount at which the Fund has valued the securities) may not
constitute, at the time of the purchase, more than 10% of the
value of the total net assets of the Fund.
Municipal Securities
The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of the state of New York
or any state, territory or possession of the U.S. and the
District of Columbia, and their political subdivisions, agencies
and instrumentalities, the interest on which is exempt from
federal income tax. An opinion as to the tax-exempt status of a
municipal security is generally rendered to the issuer by the
issuer's bond counsel at the time of issuance of the security.
Municipal Securities are used to raise money for various public
purposes, such as constructing public facilities and making loans
to public institutions. Certain types of municipal bonds are
issued to provide funding for privately operated facilities.
Further information on the maturity and funding classifications
of municipal securities is included in the SAI.
The Fund has no restrictions on the maturity of municipal
securities in which it may invest. Accordingly, the Fund will
seek to invest in municipal securities of such maturities which,
in the judgment of the Fund and its investment manager, will
provide a high level of current income consistent with prudent
investment. The investment manager will also consider current
market conditions and the cost of the insurance obtainable on
such securities.
It is possible, from time to time, that the Fund will invest more
than 25% of its assets in a particular segment of the municipal
securities market, including, but not limited to, hospital
revenue bonds, housing agency bonds, industrial development
bonds, transportation bonds, or pollution control revenue bonds.
In such circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation
affecting the financing of a project; shortages or price
increases of needed materials; or declining markets or need for
the projects) might also affect other bonds in the same segment,
thereby potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of
factors, including the general condition of the financial markets
and of the municipal securities market, the size of a particular
offering, the maturity of the obligation and the credit rating of
the issuer. Generally, municipal securities of longer maturities
produce higher current yields than municipal securities with
shorter maturities, but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general
market factors. Lower-rated municipal securities generally
produce a higher yield than higher-rated municipal securities due
to the perception of a greater degree of risk as to the ability
of the issuer to pay principal and interest obligations. Although
the cost of insurance on the Fund's portfolio will reduce the
Fund's yield, one of the objectives of such insurance is to
obtain a higher yield than would be available if all securities
in the Fund's portfolio were rated "AAA" by S&P without the
benefit of any insurance.
The interest on bonds issued to finance public purpose state and
local government operations is generally tax-exempt for regular
federal income tax purposes. Interest on certain "private
activity bonds" (including those for housing and student loans)
issued after August 7, 1986, while still tax-exempt, constitutes
a preference item for taxpayers in determining the federal
alternative minimum tax under the Internal Revenue Code of 1986,
as amended (the "Code"), and under the income tax provisions of
some states. This interest could subject a shareholder to, or
increase the shareholder's liability under, the federal and state
alternative minimum tax, depending on the shareholder's tax
situation. In addition, all distributions derived from interest
exempt from regular federal income tax may subject corporate
shareholders to, or increase their liability under, the federal
alternative minimum tax, because such distributions are included
in the corporation's "adjusted current earnings." In states with
a corporate franchise tax, distributions of the Fund may also be
fully taxable to corporate shareholders under their state
franchise tax systems. Consistent with the Fund's investment
objective, the Fund may acquire such private activity bonds if,
in the investment manager's opinion, such bonds represent the
most attractive investment opportunity then available to the
Fund. As of December 31, 1994, the Fund derived 10.97% of its
income from bonds, the interest on which constitutes a
preference item subject to the federal alternative minimum tax
for certain investors.
The Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that are
not fixed, but that vary with changes in prevailing market rates
on predesignated dates. The Fund may also invest in variable or
floating rate demand notes ("VRDNs"), which carry a demand
feature that permits the Fund to tender the obligation back to
the issuer or a third party at par value plus accrued interest
prior to maturity, according to the terms of the obligations,
which amount may be more or less than the amount the Fund paid
for such obligation. Frequently, VRDNs are secured by letters of
credit or other credit support arrangements. Because of the
demand feature, the prices of VRDNs may be higher and the yields
lower than they otherwise would be for obligations without a
demand feature. The Fund will limit its purchase of municipal
securities that are floating rate and variable rate obligations
to those meeting the quality standards set forth in this
Prospectus.
The Fund may purchase and sell municipal securities on a "when-
issued" and "delayed delivery" basis. These transactions are
subject to market fluctuation, and the value at delivery may be
more or less than the purchase price. Although the Fund will
generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such
securities before the settlement date if it is deemed advisable.
When the Fund is the buyer in such a transaction, it will
maintain, in a segregated account with its custodian, cash or
high-grade marketable securities having an aggregate value equal
to the amount of such purchase commitments, until payment is
made. To the extent the Fund engages in "when-issued" and
"delayed delivery" transactions, it will do so for the purpose of
acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of
investment leverage.
The Fund may also invest in municipal lease obligations,
primarily through Certificates of Participation ("COPs"). COPs,
which are widely used by state and local governments to finance
the purchase of property, function much like installment purchase
agreements. For example, COPs may be created when long-term lease
revenue bonds are issued by a governmental corporation to pay for
the acquisition of property or facilities which are then leased
to a municipality. The payments made by the municipality under
the lease are used to repay interest and principal on the bonds
issued to purchase the property. Once these lease payments are
completed, the municipality gains ownership of the property for a
nominal sum. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and
COPs may enable a governmental issuer to increase government
liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that
the lease which is the subject of the transaction must contain a
"nonappropriation" or "abatement" clause. A nonappropriation
clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate
the lease without penalty if the municipality's appropriating
body does not allocate the necessary funds. Local
administrations, being faced with increasingly tight budgets,
therefore have more discretion to curtail payments under COPs
than they do to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate
sufficient monies to make lease payments, the lessor or its agent
is typically entitled to repossess the property. In most cases,
however, the private sector value of the property will be less
than the amount the government lessee was paying. While the risk
of nonappropriation is inherent to COP financing, the Fund
believes that this risk is mitigated by its policy of investing
only in insured COPs.
Investment Risk Considerations
While an investment in the Fund is not without risk, certain
policies are followed in managing the Fund which may help to
reduce the investor's risk. There are two categories of risks to
which the Fund is subject: credit risk and market risk. Credit
risk is a function of the ability of an issuer of a municipal
security to maintain timely interest payments and to pay the
principal of a security upon maturity. It is generally reflected
in a security's underlying credit rating and its stated interest
rate (normally the coupon rate). A change in the credit risk
associated with a municipal security may cause a corresponding
change in the security's price. The Fund attempts to minimize
credit risk by maintaining the insurance coverage discussed
below. Market risk is the risk of price fluctuation of a
municipal security caused by changes in general economic and
interest rate conditions generally affecting the market as a
whole. A municipal security's maturity length also affects its
price. As with other debt instruments, the price of the
securities in which the Fund invests are likely to decrease in
times of rising interest rates. Conversely, when rates fall, the
value of the Fund's debt instruments may rise. Price changes of
securities held by the Fund have a direct impact on the net asset
value per share of the Fund. The insurance does not guarantee the
market value of the municipal securities and, except as indicated
in this Prospectus, has no effect on the net asset value,
redemption price, or dividends paid by the Fund.
Since the Fund primarily invests in New York Municipal
Securities, there are certain specific factors and considerations
concerning New York which may affect the credit and market risk
of the municipal securities that the Fund may purchase. See "Risk
Factors in New York" for a discussion of these factors.
As a non-diversified investment company, the Fund is not subject
to any statutory restriction under the 1940 Act with respect to
the concentration of its investments in the assets of one or more
issuers. This concentration may present greater risks than in the
case of a diversified company. (See the SAI for the
diversification requirements the Fund intends to meet in order to
qualify as a regulated investment company under the Code.)
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. For a
list of these restrictions and more information concerning the
policies discussed herein, please see the SAI.
How Shareholders Participate in the Results of the Fund's
Activities
The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the Fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.
In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Fund shares will fluctuate with
movements in the broader bond markets as well. In particular,
changes in interest rates will affect the value of the Fund's
portfolio and thus its share price. Increased interest rates,
which frequently accompany higher inflation and/or a growing
economy, are likely to have a negative effect on the value of
Fund shares. History reflects both increases and decreases in the
prevailing rate of interest and these may reoccur unpredictably
in the future.
Insurance
Except as indicated, each insured municipal security in the
Fund's portfolio will be covered by either a "New Issue Insurance
Policy," a "Portfolio Insurance Policy" issued by a qualified
municipal bond insurer, or a "Secondary Insurance Policy."
Any of the policies discussed herein are intended to insure the
scheduled payment of all principal and interest on each municipal
security (rather than the Fund itself) when due. The insurance of
principal refers to the face or par value of each security and is
not affected by the price paid therefor by the Fund or the market
value thereof. Each municipal security is secured by an insurance
policy from one of several qualified insurance companies which
allows the investment manager to diversify among credit
enhancements.
New Issue Insurance Policy
New Issue Insurance Policies, if any, have been obtained by the
respective issuers of the municipal securities and all premiums
for such securities have been paid in advance by such issuers.
Such policies are non-cancelable and will continue in force so
long as the municipal securities are outstanding and the
respective insurers remain in business. Since New Issue Insurance
Policies remain in effect as long as the securities are
outstanding, the insurance may have an effect on the resale value
of securities in the Fund's portfolio. Therefore, New Issue
Insurance Policies may be considered to represent an element of
market value with regard to municipal securities thus insured,
but the exact effect, if any, of this insurance on such market
value cannot be estimated. The Fund will acquire portfolio
securities subject to New Issue Insurance Policies only where the
claims paying ability of the insurer thereof is rated "AAA" or
equivalent by S&P, Moody's or Fitch.
In determining whether to insure any municipal security, the
insurer has applied its own standards, which are not necessarily
the same as the criteria used in regard to the selection of
securities by the investment manager. No contract to purchase an
insured municipal security is entered into without either
permanent insurance in place or an irrevocable commitment to
insure the municipal security by a qualified insurer.
Portfolio Insurance Policy
The Portfolio Insurance Policy to be obtained by the Fund from a
qualified municipal bond insurer will be effective only so long
as the Fund is in existence, the insurer is still in business and
meeting its obligations, and the municipal securities described
in the policy continue to be held by the Fund. In the event of a
sale of any municipal security by the Fund or payment thereof
prior to maturity, the Portfolio Insurance Policy terminates as
to such municipal security.
The Portfolio Insurance Policy to be obtained by the Fund may
also be canceled for failure to pay the premium. Nonpayment of
premiums on such policy obtained by the Fund will, under certain
circumstances, result in the cancellation of the Portfolio
Insurance Policy and will also permit the insurer to take action
against the Fund to recover premium payments due. Premium rates
for each issue of securities covered by the Portfolio Insurance
Policy may not be changed regardless of the issuer's ability or
willingness to pay. The insurance premiums are payable monthly by
the Fund and are adjusted for purchases and sales of covered
securities during the month. The insurer cannot cancel coverage
already in force with respect to municipal securities owned by
the Fund and covered by the Portfolio Insurance Policy, except
for nonpayment of premiums. In the event that a portfolio holding
which has been covered by a Portfolio Insurance Policy is pre-
refunded and irrevocably secured by a U.S. government security,
the insurance is no longer required. Any security for which
insurance is canceled other than as provided herein will be sold
by the Fund as promptly thereafter as possible.
The premium on the Fund's Portfolio Insurance Policy is an item
of expense and will be reflected in the Fund's average annual
expenses. The average annual premium rate for the Portfolio
Insurance Policy is determined by dividing the amount of the
Fund's annual Portfolio Insurance Policy premium by the face
amount of the insured bonds in its investment portfolio covered
by that policy. Premiums are paid from the Fund's assets and
reduce the current yield on its portfolio by the amount thereof.
When the Fund purchases a Secondary Insurance Policy (see below),
the single premium is added to the cost basis of the municipal
security and is not considered an item of expense of the Fund.
The Fund may also own, without insurance coverage, municipal
securities for which an escrow or trust account has been
established pursuant to the documents creating the municipal
security and containing sufficient U.S. government securities
backed by the government's full faith and credit pledge in order
to ensure the payment of principal and interest on such bonds.
Secondary Insurance Policy
The Fund may at any time purchase from the provider of a
Portfolio Insurance Policy a permanent Secondary Insurance Policy
on any municipal security so insured and held by the Fund. The
coverage and obligation of the Fund to pay monthly premiums under
a Portfolio Insurance Policy would cease with the purchase by the
Fund of a Secondary Insurance Policy on such security.
By purchasing a Secondary Insurance Policy, the Fund would, upon
payment of a single premium, obtain similar insurance against
nonpayment of scheduled principal and interest for the remaining
term of the security. Such insurance coverage will be
noncancellable and will continue in force so long as the
securities so insured are outstanding. One of the purposes of
acquiring such a policy would be to enable the Fund to sell the
portfolio security to a third party as a AAA-rated insured
security at a market price higher than what otherwise might be
obtainable if the security was sold without the insurance
coverage. (Such rating is not automatic, however, and must
specifically be requested from Moody's, S&P or Fitch for each
bond.) Such a policy would likely be purchased if, in the opinion
of the investment manager, the market value or net proceeds of a
sale by the Fund would exceed the current value of the security
(without insurance) plus the cost of the policy. Any difference
between the excess of a security's market value as a AAA-rated
security over its market value without such rating, including the
single premium cost thereof, would inure to the Fund in
determining the net capital gain or loss realized by the Fund
upon the sale of the portfolio security. The Fund may purchase
insurance under a Secondary Insurance Policy in lieu of a
Portfolio Insurance Policy at any time, regardless of the effect
of market value on the underlying municipal security, if the
investment manager believes such insurance would best serve the
Fund's interests in meeting its objective and policies.
Since under the original agreement to provide a temporary
insurance policy the Fund has the right to purchase a permanent
Secondary Insurance Policy even if the security is currently in
default as to any payments by the issuer, the Fund would have the
opportunity to sell such security rather than be obligated to
hold the security in its portfolio in order to continue in force
the applicable Portfolio Insurance Policy, as discussed below.
Because coverage under the Portfolio Insurance Policy terminates
upon sale of a security from the Fund's portfolio, such insurance
does not have an effect on the resale value of the securities.
Therefore, the Fund may retain any municipal securities insured
under a Portfolio Insurance Policy which are in default or in
significant risk of default, and place a value on the insurance
which will be equal to the difference between the market value of
the defaulted security and the market value of similar securities
which are not in default. (See "Valuation of Fund Shares.")
Because of this policy, the Fund's investment manager may be
unable to manage the Fund's portfolio to the extent that it holds
defaulted securities, which may limit its ability in certain
circumstances to purchase other municipal securities. While a
defaulted municipal security is held in the Fund's portfolio, the
Fund continues to pay the insurance premium thereon but also
collects interest payments from the insurer and retains the right
to collect the full amount of principal from the insurer when the
security comes due. This would not be applicable if the Fund
elected to purchase the Secondary Insurance Policy discussed
above in lieu of the Portfolio Insurance Policy.
Municipal Bond Insurer
A "qualified municipal bond insurer" refers to companies whose
charter limits their risk assumption to insurance of financial
obligations only. This precludes assumption of other types of
risk, such as life, medical, fire and casualty, auto and home
insurance. The bond insurance industry is a regulated industry.
All bond insurers must be licensed in each state in order to
write financial guaranties in that jurisdiction. Regulations vary
from state to state; however, most regulators require minimum
standards of solvency and limitations on leverage and investment
of assets. New York State, which is one of the most active
regulators, requires a minimum capital base of $72.5 million for
a new primary bond insurer. Regulators also place restrictions on
the amount an insurer can guarantee in relation to the insurer's
capital base. Neither the Fund nor its investment manager make
any representations as to the ability of any insurance company to
meet its obligation to the Fund if called upon to do so. The SAI
contains more information on municipal bond insurers. Currently,
there are no bonds in the Fund's portfolio on which an insurer is
paying the principal or interest, otherwise payable by the issuer
of the Fund's portfolio obligations.
Management of the Fund
The Board of Trustees has the primary responsibility for the
overall management of the Trust and for electing the officers of
the Trust who are responsible for administering its day-to-day
operations.
The Board has carefully reviewed the multiclass structure to
ensure that no material conflict exists between the two classes
of shares. Although the Board does not expect to encounter
material conflicts in the future, the Board will continue to
monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin
Templeton Group"). Advisers acts as investment manager or
administrator to 33 U.S. registered investment companies (111
separate series) with aggregate assets of over $74 billion,
approximately $40 billion of which are in the municipal
securities market.
Pursuant to the management agreement, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business.
During the fiscal year ended December 31, 1994, fees totaling
0.55% of the average net assets of the Fund would have accrued to
Advisers. Total operating expenses of Class I shares of the Fund,
including management fees, would have represented 0.71% of the
average net assets of such class. Pursuant to an agreement by
Advisers to limit its fees, the Fund paid management fees
totaling 0.40% of the average net assets of the Fund and
operating expenses totaling 0.56% of the average net assets of
Class I shares of the Fund.
It is not anticipated that the Fund will incur a significant
amount of brokerage expenses because municipal securities are
generally traded on a "net" basis, that is, in principal
transactions without the addition or deduction of brokerage
commissions or transfer taxes. To the extent that the Fund does
participate in transactions involving brokerage commissions, it
is the Manager's responsibility to select brokers through whom
such transactions will be effected. The Manager tries to obtain
the best execution on all such transactions. If it is felt that
more than one broker is able to provide the best execution, the
Manager will consider the furnishing of quotations and of other
market services, research, statistical and other data for the
Manager and its affiliates, as well as the sale of shares of the
Fund, as factors in selecting a broker. Further information is
included under "The Trust's Policies Regarding Brokers Used on
Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent"), in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
Plans of Distribution
A separate plan of distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-
1 fees charged to each class will be based solely on the
distribution and servicing fees attributable to that particular
class. Any portion of fees remaining from either the Class I Plan
or Class II Plan after distribution to securities dealers up to
the maximum amount permitted under such plan may be used by the
class to reimburse Distributors for routine ongoing promotion and
distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of
preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any
distribution or service fees paid to securities dealers or their
firms or others who have executed a servicing agreement with the
Fund, Distributors or its affiliates.
The maximum amount which the Fund may pay to Distributors or
others under the Class I Plan for such distribution expenses is
0.10% per annum of Class I's average daily net assets, payable on
a quarterly basis. All expenses of distribution and marketing in
excess of 0.10% per annum will be borne by Distributors, or
others who have incurred them, without reimbursement from the
Fund.
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution
expenses and related expenses is 0.50% per annum of Class II's
average daily net assets, payable quarterly. All expenses of
distribution, marketing and related services over that amount
will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15% per
annum of Class II's average daily net assets as a servicing fee,
payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of the customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Class II Plan fees
assessed on Class II shares to partially recoup fees Distributors
pays to securities dealers. Distributors, or its affiliates, may
pay, from its own resources, a commission of up to 1% of the
amount invested to securities dealers who initiate and are
responsible for purchases of Class II shares.
Both Plans also cover any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or
Distributors, to the extent such payments are deemed to be for
the financing of any activity primarily intended to result in the
sale of shares issued by the Fund within the context of Rule 12b-
1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund.
For more information, including a discussion of the trustees
policies with regard to the amount of each Plans fees, please see
the SAI.
Distributions to Shareholders
There are two types of distributions which the Fund may make to
its shareholders:
1. Income dividends. The Fund receives income in the form of
interest and other income derived from its investments. This
income, less the expenses incurred in the Fund's operations, is
its net investment income from which income dividends may be
distributed. Thus, the amount of dividends paid per share may
vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains
or losses in connection with sales or other dispositions of its
portfolio securities. Distributions by the Fund derived from net
short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
twice each year. One distribution may be made in December to
reflect any net short-term and net long-term capital gains
realized by the Fund as of October 31 of such year. Any net short-
term and net long-term capital gains realized by the Fund during
the remainder of the fiscal year may be distributed following the
end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund
may make more than one distribution derived from net short-term
and net long-term capital gains in any year or adjust the timing
of its distributions for operational or other reasons.
Distributions to Each Class of Shares
Dividends and capital gains will be calculated and distributed in
the same manner for Class I and Class II shares. The per share
amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
Because ongoing Rule 12b-1 expenses will be lower for Class I
than Class II, the per share dividends distributed to Class I
shares will generally be higher than those distributed to Class
II shares.
Distribution Date
Although subject to change by the Board of Trustees without prior
notice to or approval by shareholders, the Fund's current policy
is to declare income dividends daily and pay them monthly on or
about the last business day of that month. The amount of income
dividend payments by the Fund is dependent upon the amount of net
income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board of
Trustees. The Fund does not pay "interest" or guarantee any fixed
rate of return on an investment in its shares. Payment of
dividends by the Fund is not insured.
Dividend Reinvestment
Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a front-end sales charge) on
the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for investment at net asset value
in the same class of shares of the Fund or the same class of
another of the Franklin Templeton Funds. Shareholders have the
right to change their election with respect to the receipt of
distributions by notifying the Fund, but any such change will be
effective only as to distributions for which the reinvestment
date is seven or more business days after the Fund has been
notified. See the SAI for more information.
Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
Distributions in Cash
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to the same class of another fund in the Franklin Templeton
Funds, to another person, or directly to a checking account. If
the bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made automatically
by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be
sent to the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department. See "Purchases at Net Asset
Value" under "How to Buy Shares of the Fund."
Taxation of the Fund and Its Shareholders
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled, "Additional
Information Regarding Distributions and Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for
federal income tax purposes. The Fund intends to continue to
qualify for treatment as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be
liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has
qualified and continues to qualify to pay exempt-interest
dividends to its shareholders. Such exempt-interest dividends are
derived from interest income exempt from regular federal income
tax and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest
dividends are derived from interest on obligations of New York
and its political subdivisions, from interest on direct
obligations of the federal government, or from interest on U.S.
territorial obligations (including Puerto Rico, the U.S. Virgin
Islands or Guam), they will be exempt from New York State and
City personal income taxes. For corporate taxpayers subject to
the New York State franchise tax, however, the foregoing
categories of interest income will generally be taxable.
To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from securities
loans or other taxable transactions), from ordinary income
derived from the sale or disposition of bonds purchased with
market discount after April 30, 1993, or from the excess of net
short-term capital gain over net long-term capital loss, they are
treated as ordinary income whether the shareholder has elected to
receive them in cash or in additional shares.
From time to time, the Fund may purchase a tax-exempt obligation
with market discount; that is, for a price that is less than the
principal amount of the bond, or for a price that is less than
the principal amount of the bond, or for a price that is less
than the principal amount of the bond where the bond was issued
with original issue discount and such market discount exceeds a
de minimis amount. For such obligations purchased after April 30,
1993, a portion of the gain (not to exceed the accrued portion of
market discount as of the time of sale or disposition) is treated
as ordinary income rather than capital gain. Any distribution by
the Fund of such ordinary income to its shareholders will be
subject to regular income tax in the hands of Fund shareholders.
In any fiscal year, the Fund may elect not to distribute to its
shareholders its taxable ordinary income and to, instead, pay
federal income or excise taxes on this income at the Fund level.
The amount of such distributions, if any, is expected to be
small.
Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time a shareholder has
owned Fund shares and regardless of whether such distributions
are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January
will be treated, for tax purposes, as if received by the
shareholder on December 31 of the calendar year in which they are
declared.
Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or loss. Any loss incurred
on sale or exchange of the Fund's shares, held for six months or
less, will be treated as a long-term capital loss to the extent
of capital gain dividends received with respect to such shares.
Since the Fund's income is derived from interest income and gain
on the sale of portfolio securities rather than dividend income,
no portion of the Fund's distributions will generally be eligible
for the corporate dividends-received deduction. None of the
distributions paid by the Fund for the fiscal year ended December
31, 1994, qualified for this deduction and it is not anticipated
that any of the current year's dividends will so qualify.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and will,
promptly after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions, including the portion of the dividends on an
average basis which constitutes taxable income or interest income
that is a tax preference item under the alternative minimum tax.
Shareholders who have not held shares of the Fund for a full
calendar year may have designated as tax-exempt or as tax
preference income a percentage of income which is not equal to
the actual amount of tax-exempt or tax preference income earned
during the period of their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from
regular federal income tax in the hands of a shareholder, are
includible in the tax base for determining the extent to which a
shareholder's social security or railroad retirement benefits
will be subject to federal income tax. Shareholders are required
to disclose the receipt of tax-exempt interest on their federal
income tax returns.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry Fund shares will not be
deductible for federal income tax purposes.
The foregoing description relates solely to federal income tax
law and to New York State and New York City personal income tax
treatment to the extent indicated. Shareholders should consult
their tax advisors with respect to the applicability of other
state and local income tax laws to distributions and redemption
proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the
impact of Fund dividends and capital gain distributions under the
alternative minimum tax that may be applicable to a shareholder's
particular tax situation.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
How to Buy Shares of the Fund
Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" includes other financial institutions which,
pursuant to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the Fund.
Such reference however is for convenience only and does not
indicate a legal conclusion of capacity. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for
the purchase of shares. The Fund currently does not permit
investment by market timing or allocation services ("Timing
Accounts"), which generally include accounts administered so as
to redeem or purchase shares based upon certain predetermined
market indicators.
Alternative Purchase Arrangements
The difference between Class I and Class II shares lies primarily
in their front-end and contingent deferred sales charges and Rule
12b-1 fees as described below.
Class I. All Fund shares outstanding before the implementation of
the multiclass structure have been redesignated as Class I
shares, and will retain their previous rights and privileges.
Voting rights attributable to each class will, however, be
different. Class I shares are generally subject to a variable
sales charge upon purchase and not subject to any sales charge
upon redemption. Class I shares are subject to Rule 12b-1 fees of
up to an annual maximum of 0.10% of average daily net assets of
such shares. With this structure, Class I shares have higher
front-end sales charges than Class II shares and comparatively
lower Rule 12b-1 fees. Class I shares may be purchased at a
reduced front-end sales charge or at net asset value if certain
conditions are met. In most circumstances, contingent deferred
sales charges will not be assessed against redemptions of Class I
shares. See "Management of the Fund," and "How to Sell Shares of
the Fund" for more information.
Class II. The current public offering price of Class II shares
is equal to the net asset value plus a sales charge of 1.0% of
the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1.0% if shares are redeemed
within 18 months of the calendar month following purchase. In
addition, Class II shares are subject to Rule 12b-1 fees of up to
a maximum of .65% of average daily net assets of such shares.
Class II shares have a lower front-end sales charge than Class I
shares and comparatively higher Rule 12b-1 fees. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund".
Purchases of Class II shares are limited to purchases below $1
million. Any purchase of $1 million or more will automatically be
invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares.
Deciding Which Class To Purchase
Investors should carefully evaluate their anticipated investment
amount and time horizon prior to determining which class of
shares to purchase. Generally, an investor who expects to invest
less than $100,000 in the Franklin Templeton Funds and who
expects to make substantial redemptions within approximately
seven years or less of investment should consider purchasing
Class II shares. Over time, however, the higher annual Rule 12b-1
fees on the Class II shares will accumulate to outweigh the
difference in front-end sales charges. For this reason, Class I
shares may be more attractive to long-term investors even if no
sales charge reductions are available to them. Investors should
also consider that the higher Rule 12b-1 fees for Class II shares
will generally result in lower dividends and consequently lower
yields for Class II shares. See "General Information" in the SAI
for more information regarding the calculation of dividends and
yields.
Investors who qualify to purchase Class I shares at reduced sales
charges definitely should consider purchasing Class I shares,
especially if they intend to hold their shares for more than
seven years. Investors who qualify to purchase Class I shares at
reduced sales charges but who intend to hold their shares less
than seven years should evaluate whether it is more economical to
purchase Class I shares through a Letter of Intent or under
Rights of Accumulation or other means, rather than purchasing
Class II shares. Investors investing $1 million or more in a
single payment and other investors who qualify to purchase Class
I shares at net asset value will be precluded from purchasing
Class II shares.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
Each class also has a separate schedule for compensating
securities dealers for selling Fund shares. Investors should take
all of the factors regarding an investment in each class into
account before deciding which class of shares to purchase.
Purchase Price of Fund Shares
Shares of both classes of the Fund are offered at the public
offering price, which is the net asset value per share plus a
front-end sales charge, next computed (1) after the shareholder's
securities dealer receives the order which is promptly
transmitted to the Fund or (2) after receipt of an order by mail
from the shareholder directly in proper form (which generally
means a completed Shareholder Application accompanied by a
negotiable check).
Class I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places
using standard rounding criteria. A description of the method of
calculating net asset value per share is included under the
caption "Valuation of Fund Shares."
Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions for Class I
shares.
Total Sales Charge
As a Dealer
As a Percentage Concession As
Percentage of Net a Percentage
Size of Transaction at of Offering Amount of Offering
Offering Price Price Invested Price*,***
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than
$250,000 3.50% 3.63% 3.25%
$250,000 but less than
$500,000 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more none none (see below)**
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 0.75% on sales
of $1 million but less than $2 million, plus 0.60% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
an underwriter as that term is defined in the Securities Act of
1933, as amended.
No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of an investment of $1
million or more within the contingency period. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales
charge on the purchase of Class I shares is determined by adding
the amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds" and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the Franklin
Group of Funds except Franklin Valuemark Funds and Franklin
Government Securities Trust (the "Franklin Funds"), (b) other
investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. registered mutual funds in the Templeton Group
of Funds except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and
Templeton Funds are collectively referred to as the "Franklin
Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (a), (b) and (c) above ("Franklin Templeton
Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount.
Distributors, or one of its affiliates, may make payments, out of
its own resources, of up to 1% of the amount purchased to
securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust
departments of banks. See definitions under "Description of
Special Net Asset Value Purchases" and as set forth in the SAI.
Class II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
Class II Shares -- Total Sales Charge
Size of As a As a Dealer
Transaction Percentage of Percentage of Concession As
at Offering Net Offering Net Amount a Percentage
Price Price Invested of Offering
Price*
any amount 1.00% 1.01% 1.00%
(less than $1
million)
*During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Class II Plan fees
assessed on Class II shares to partially recoup fees Distributors
pays to securities dealers. Distributors or one of its affiliates
may make an additional payment to the securities dealer, from its
own resources, of up to 1% of the amount invested.
Class II shares redeemed within 18 months of their purchase will
be assessed a contingent deferred sales charge of 1.0% on the
lesser of the then-current net asset value or the net asset value
of such shares at the time of purchase, unless such charge is
waived as described below.
Other Payments to Securities Dealers. Distributors or one of its
affiliates, out of its own resources, may also provide additional
compensation to securities dealers in connection with sales of
shares in the Franklin Templeton Funds. Compensation may include
financial assistance to securities dealers in connection with
conferences, sales or training programs for their employees,
seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding the Franklin
Templeton Funds and other dealer-sponsored programs or events. In
some instances, this compensation may be made available only to
certain securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Securities dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the Fund or
its shareholders.
Additional terms concerning the offering of the Fund's shares are
included in the SAI.
Certain officers and trustees of the Trust are also affiliated
with Distributors. A detailed description is included in the SAI.
Quantity Discounts in Sales Charges - Class I Shares Only
Class I shares may be purchased under a variety of plans which
provide for a reduced sales charge. To be certain to obtain the
reduction of the sales charge, the investor or the securities
dealer should notify Distributors at the time of each purchase of
shares which qualifies for the reduction. In determining whether
a purchase qualifies for a discount, investments in any Franklin
Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account. The value of Class II shares owned by the investor
may also be included for this purpose.
In addition, an investment in Class I shares may qualify for a
reduction in the sales charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a
reduced sales charge on a purchase of Class I shares by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.
An investor acknowledges and agrees to the following provisions
by completing the Letter of Intent section of the Shareholder
Application: Five percent (5%) of the amount of the total
intended purchase will be reserved in Class I shares, registered
in the investor's name, to assure that the full applicable sales
charge will be paid if the intended purchase is not completed.
The reserved shares will be included in the total shares owned as
reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by
the investor. The reserved shares will not be available for
disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. For more information,
see "Additional Information Regarding Purchases" in the SAI.
Although the sales charge on Class II shares cannot be reduced
through these programs, the value of Class II shares owned by the
investor may be included in determining a reduced sales charge to
be paid on Class I shares pursuant to the Letter of Intent and
Rights of Accumulation programs.
Group Purchases of Class I Shares
An individual who is a member of a qualified group may also
purchase Class I shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by the members of the group, plus the amount of
the current purchase. For example, if members of the group had
previously invested and still held $80,000 of Fund shares and now
were investing $25,000, the sales charge would be 3.50%. As
stated above, no front-end sale charge applies on investments of
$1 million or more by individuals or groups, but a contingent
deferred sales charge of 1% is imposed on certain redemptions
within 12 months of the calendar month of the purchase.
Information concerning the current sales charge applicable to a
group may be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria
which enable Distributors to realize economies of scale in its
costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings
between representatives of the Fund or Distributors and the
members, agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.
Purchases at Net Asset Value
Class I shares may be purchased without the imposition of a front-
end sales charge ("net asset value") or a contingent deferred
sales charge by (1) officers, directors, trustees and full-time
employees of the Trust, any of the Franklin Templeton Funds, or
of the Franklin Templeton Group, and by their spouses and family
members, including any subsequent payments by such parties after
cessation of employment; (2) companies exchanging shares with or
selling assets pursuant to a merger, acquisition or exchange
offer; (3) registered securities dealers and their affiliates,
for their investment account only, and (4) registered personnel
and employees of securities dealers and by their spouses and
family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. Credit will be
given for any contingent deferred sales charge paid on the shares
redeemed and subsequently repurchased, but the period for which
such shares may be subject to a contingent deferred sales charge
will begin as of the date the proceeds are reinvested. Shares of
the Fund redeemed in connection with an exchange into another
fund (see "Exchange Privilege") are not considered "redeemed" for
this privilege. In order to exercise this privilege, a written
order for the purchase of shares of the Fund must be received by
the Fund or the Fund's Shareholder Services Agent within 120 days
after the redemption. The 120 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a
Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value
may also be handled by a securities dealer or other financial
institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment
without a sales charge may affect the amount of gain or loss
recognized and the tax basis of the shares reinvested. If there
has been a loss on the redemption, the loss may be disallowed if
a reinvestment in the same fund is made within a 30-day period.
Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus
and the SAI.
For either Class I or Class II, the same class of shares of the
Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent deferred
sales charge by persons who have received dividends and capital
gains distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by investors
who have, within the past 60 days, redeemed an investment in a
mutual fund which is not part of the Franklin Templeton Funds and
which charged the investor a contingent deferred sales charge
upon redemption and which has investment objectives similar to
those of the Fund.
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by broker-
dealers who have entered into a supplemental agreement with
Distributors, or by registered investment advisors affiliated
with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as
a wrap fee program).
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of its own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount
invested. Contact Franklin's Institutional Sales Department for
additional information.
Description of Special Net Asset Value Purchases
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by trust
companies and bank trust departments for funds over which they
exercise exclusive discretionary investment authority and which
are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with
respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount
invested or to be invested during the subsequent 13-month period
in this Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other
means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of
business on the next business day following such order.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
Purchasing Class I and Class II Shares
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. Initial purchases of $1 million or more in a
single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset
value should purchase Class I rather than Class II shares. See
the section "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of when
shares may be purchased at net asset value.
General
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
Other Programs and Privileges
Available to Fund Shareholders
Certain of the programs and privileges described in this section
may not be available directly from the Fund to shareholders whose
shares are held, of record, by a financial institution or in a
"street name" account or networked account through the National
Securities Clearing Corporation ("NSCC") (see the section
captioned "Account Registrations" in this Prospectus).
Share Certificates
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.
Confirmations
A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends reinvested during that period
and after each other transaction which affects the shareholder's
account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan
balance" for the account of the shareholder.
Automatic Investment Plan
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program. In addition,
shareholders may obtain more information concerning this program
from their securities dealers or from Distributors.
The market value of each class of the Fund's shares is subject to
fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a program
does not assure a profit or protect against a loss.
Systematic Withdrawal Plan
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction, although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. The plan may be established on a monthly, quarterly,
semiannual or annual basis. If the shareholder establishes a
plan, any capital gain distributions and income dividends paid by
the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made
from the liquidation of shares at net asset value on the day of
the transaction (which is generally the first business day of the
month in which the payment is scheduled) with payment generally
received by the shareholder three to five days after the date of
liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected
withdrawals to another fund in the Franklin Templeton Funds, to
another person, or directly to a checking account. If the bank at
which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial processing.
Payments made in the interim will be sent to the address of
record. Liquidation of shares may reduce or possibly exhaust the
shares in the shareholder's account, to the extent withdrawals
exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal
amount exceeds the total plan balance, the account will be closed
and the remaining balance will be sent to the shareholder. As
with other redemptions, a liquidation to make a withdrawal
payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment may be
a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I shares and Class II
shares may be subject to a contingent deferred sales charge if
the shares are redeemed within 12 months (Class I shares) or 18
months (Class II shares) of the calendar month of the original
purchase date. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the
annual withdrawals under the plan during the time such a plan is
in effect.
With respect to Class I shares, the contingent deferred sales
charge is waived for redemptions through a Systematic Withdrawal
Plan set up prior to February 1, 1995. With respect to
Systematic Withdrawal Plans set up on or after February 1, 1995,
however, the applicable contingent deferred sales charge is
waived for Class I and Class II share redemptions of up to 1%
monthly of an account's net asset value (12% annually, 6% semi-
annually, 3% quarterly). For example, if the account maintained
an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge;
and amounts over $1,200 would be assessed a 1% (or applicable)
contingent deferred sales charge.
A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
Institutional Accounts
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives and policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for the same class of shares of other Franklin Templeton Funds
which are eligible for sale in the shareholder's state of
residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may
not offer Class II shares. Class I shares may be exchanged for
Class I shares of any Franklin Templeton Funds. Class II shares
may be exchanged for Class II shares of any Franklin Templeton
Funds. No exchanges between different classes of shares will be
allowed. A contingent deferred sales charge will not be imposed
on exchanges. If, however, the exchanged shares were subject to a
contingent deferred sales charge in the original fund purchased
and shares are subsequently redeemed within 12 months (Class I
shares) or 18 months (Class II shares) of the calendar month of
the original purchase date, a contingent deferred sales charge
will be imposed. Investors should review the prospectus of the
fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges.
Exchanges may be made in any of the following ways:
Exchanges By Mail
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.
Exchanges By Telephone
Shareholders, or their investment representative of record, if
any, may exchange shares of the Fund by telephone by calling
Investor Services at 1-800/632-2301 or the automated Franklin
TeleFACTS" system (day or night) at 1-800/247-1753. If the
shareholder does not wish this privilege extended to a particular
account, the Fund or Investor Services should be notified.
The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account of
the same class of shares in one of the other available Franklin
Templeton Funds. The Telephone Exchange Privilege is available
only for uncertificated shares or those which have previously
been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Please
refer to "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
Exchanges Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's
shares, Investor Services will accept exchange orders from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.
Additional Information Regarding Exchanges
Exchanges of the same class of shares are made on the basis of
the net asset values of the class involved, except as set forth
below. Exchanges of shares of a class which were originally
purchased without a sales charge will be charged a sales charge
in accordance with the terms of the prospectus of the fund and
the class of shares being purchased, unless the original
investment on which no sales charge was paid was transferred in
from a fund on which the investor paid a sales charge. Exchanges
of Class I shares of the Fund which were purchased with a lower
sales charge into a fund which has a higher sales charge will be
charged the difference in sales charge, unless the shares were
held in the Fund for at least six months prior to executing the
exchange.
A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject to a
contingent deferred sales charge in the original fund purchased,
and shares are subsequently redeemed within 12 months (Class I
shares) or 18 months (Class II shares) of the calendar month of
the original purchase date, a contingent deferred sales charge
will be imposed. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
When an investor requests the exchange of the total value of the
Fund 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 in accordance
with the procedures set forth above. Because the exchange is
considered a redemption and purchase of shares, the shareholder
may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply.
Information regarding the possible tax consequences of such an
exchange is included in the tax section in this Prospectus and in
the SAI.
There are differences among the Franklin Templeton Funds. Before
making an exchange, a shareholder should obtain and review a
current prospectus of the fund into which the shareholder wishes
to transfer.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, tax-exempt municipal securities, unless it is felt
that attractive investment opportunities consistent with the
Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term, tax-exempt
municipal securities and invested in portfolio securities in as
orderly a manner as is possible when attractive investment
opportunities arise.
The Exchange Privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
The Fund currently will not accept investments from Timing
Accounts.
Exchanges of Class I Shares
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and Class II shares that are
not, the shares will be transferred proportionately into the new
fund. Shares received from reinvestment of dividends and capital
gains are referred to as "free shares," shares which were
originally subject to a contingent deferred sales charge but to
which the contingent deferred sales charge no longer applies are
called "matured shares," and shares still subject to the
contingent deferred sales charge are referred to as "CDSC liable
shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For
instance, if a shareholder has $1,000 in free shares, $2,000 in
matured shares, and $3,000 in CDSC liable shares, and the
shareholder exchanges $3,000 into a new fund, $500 will be
exchanged from free shares, $1,000 from matured shares, and
$1,500 from CDSC liable shares. Similarly, if CDSC liable shares
have been purchased at different periods, a proportionate amount
will be taken from shares held for each period. If, for example,
a shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II.
Draft writing privileges and direct purchases are allowed on
these other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
Transfers
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, shares will be moved
proportionately from each type of shares in the original account.
Conversion Rights
It is not presently anticipated that Class II shares will be
convertible to Class I shares. A shareholder may, however, sell
his or her Class II shares and use the proceeds to purchase Class
I shares, subject to all applicable sales charges.
How to Sell Shares of the Fund
A shareholder may at any time liquidate shares owned and receive
from the Fund the value of the shares. Shares may be redeemed in
any of the following ways:
Redemptions By Mail
Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Fund the
value of the class of shares redeemed based upon the net asset
value per share next computed after the written request in proper
form is received by Investor Services. Redemption requests
received after the time at which the net asset value is
calculated (at the scheduled closing time of the New York Stock
Exchange ("Exchange"), which is generally 1:00 p.m. Pacific time)
each day that the Exchange is open for business will receive the
price calculated on the following business day. Shareholders are
requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.
To be considered in proper form, signature(s) must be guaranteed
if the redemption request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess
of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c)
the Fund has been notified of an adverse claim, (d) the
instructions received by the Fund are given by an agent, not
the actual registered owner, (e) the Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by
the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered,
with the signature(s) guaranteed as referenced above.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) are not listed on the account registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.
Redemptions By Telephone
Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus, may redeem shares of the Fund by telephone.
Information may also be obtained by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions given by
telephone are genuine. Shareholders, however, bear the risk of
loss in certain cases as described under "Telephone Transactions
- - Verification Procedures."
For shareholder accounts with a completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services may
be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled closing time of
the Exchange (generally 1:00 p.m. Pacific time) on any business
day will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners
on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30
days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set
forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and
qualified retirement plans which qualify to purchase shares at
net asset value pursuant to the terms of this Prospectus) which
wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available
from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
Redeeming Shares Through Securities Dealers
The Fund will accept redemption orders from securities dealers
who have entered into an agreement with Distributors. This is
known as a repurchase. The only difference between a normal
redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net
asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to the Fund,
rather than on the day the Fund receives the shareholder's
written request in proper form. The documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's letter should reference the Fund
and the class, the account number, the fact that the repurchase
was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number,
and the amount of shares or dollars, will help speed processing
of the redemption. The seven-day period within which the proceeds
of the shareholder's redemption will be sent will begin when the
Fund receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as
soon as possible. The shareholder's dealer may charge a fee for
handling the order. The SAI contains more information on the
redemption of shares.
Contingent Deferred Sales Charge
Class I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total
cost of such shares at the time of purchase, and is retained by
Distributors. The contingent deferred sales charge is waived in
certain instances. See "Purchases at Net Asset Value" under "How
to Buy Shares of the Fund."
Class II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
Class I and Class II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
redemptions through a Systematic Withdrawal Plan set up for
shares prior to February 1, 1995 and, for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an
account's net asset value (3% quarterly, 6% semiannually or 12%
annually); and redemptions initiated by the Fund due to a
shareholder's account falling below the minimum specified account
size.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month.
Requests for redemptions for a specified dollar amount, unless
otherwise specified, will result in additional shares being
redeemed to cover any applicable contingent deferred sales charge
while requests for redemption of a specific number of shares will
result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire
are available for immediate redemption. In addition, the right of
redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Fund.
Other
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
Telephone Transactions
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option, (iii) transfer Fund shares in one
account to another identically registered account in the Fund,
and (iv) exchange Fund shares as described in this Prospectus by
telephone. In addition, shareholders who complete and file the
Agreement as described under "How to Sell Shares of the Fund -
Redemptions By Telephone" will be able to redeem shares of the
Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
sending a confirmation statement on redemptions to the address of
record each time account activity is initiated by telephone. So
long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. The Fund and Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where
the Fund or Investor Services is not reasonably satisfied that
instructions received by telephone are genuine, the requested
transaction will not be executed, and neither the Fund nor
Investor Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
General
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
Valuation of Fund Shares
The net asset value per share of each class of the Fund is
determined as of the scheduled closing time of the Exchange
(generally 1:00 p.m. Pacific time) each day that the Exchange is
open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask"
(offering price, which includes the maximum front-end sales
charge of each class of shares of the Fund).
The net asset value per share for each class of the Fund is
determined in the following manner: The aggregate of all
liabilities is deducted from the aggregate gross value of all
assets, and the difference is divided by the number of shares of
the respective class of the Fund outstanding at the time. For the
purpose of determining the aggregate net assets of the Fund, cash
and receivables are valued at their realizable amounts. Interest
is recorded as accrued. Portfolio securities for which market
quotations are readily available are valued within the range of
the most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Portfolio securities
which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most
representative market as determined by the Manager. Municipal
securities generally trade in the over-the-counter market rather
than on a securities exchange. 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. With the
approval of trustees, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions.
Each of the Fund's classes will bear, pro-rata, all of the common
expenses of the Fund. The net asset value of all outstanding
shares of each class of the Fund will be computed on a pro-rata
basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
How to Get Information Regarding an Investment in the Fund
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
By calling the Franklin TeleFACTS system, Class I shareholders
may obtain current price, yield or other performance information
specific to a Franklin fund; process an exchange into an
identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
By calling the Templeton Star Service, shareholders may obtain
current priceand yield information specific to a Templeton fund,
regardless of class, or Franklin class II shares; obtain account
information, requet duplicate confirmation or year-end statements
and money fund checks, if applicable.
Share prices and account information specific to Templeton class
I or class II shares and Franklin class II shares may also be
accessed on TeleFACTS by Franklin class I and class II
shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. Franklin
Class I and Class II share codes for the Fund, which will be
needed to access system information are 181 and 281,
respectivelyn. The system's automated operator will prompt the
caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
Hours of Operation
(Pacific Time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of a class'
performance, including current yield, tax equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations
for each class for other periods or based on investments at
various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital
gain paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price.
Current yield for each class reflects the income per share earned
by the Fund's portfolio investments; it is calculated for each
class by dividing that class' net investment income per share
during a recent 30-day period by the maximum public offering
price on the last day of that period and annualizing the result.
Tax equivalent yield demonstrates the yield from a taxable
investment necessary to produce an after-tax yield equivalent to
that of a fund which invests in tax-exempt obligations. It is
computed by dividing the tax-exempt portion of a fund's yield
(calculated as indicated) by one minus a stated income tax rate
and adding the product to the taxable portion (if any) of the
fund's yield.
Current yield and tax equivalent yield for each class, which are
calculated according to a formula prescribed by the SEC (see the
SAI), are not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends or
distributions paid to shareholders of a class are reflected in
the current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount of
dividends per share paid by a class during the past 12 months by
a current maximum offering price. A taxable equivalent
distribution rate demonstrates the taxable distribution rate
necessary to produce an after tax distribution rate equivalent to
a class' distribution rate (calculated as indicated above). Under
certain circumstances, such as when there has been a change in
the amount of dividend payout or a fundamental change in
investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield
computation because it may include distributions to shareholders
from sources other than dividends and interest, such as short-
term capital gain, and is calculated over a different period of
time.
In each case, performance figures are based upon past
performance, reflect all recurring charges against a class'
income and will assume the payment of the maximum sales charge on
the purchase of shares. When there has been a change in the sales
charge structure, the historical performance figures will be
restated to reflect the new rate. The investment results of each
class, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what a
class' yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future
period.
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
will be available. Except as noted, it is likely, that the
performance data relating to Class II shares will reflect lower
total return and yield figures than those for Class I shares
because Class II Rule 12b-1 fees are higher than Class I Rule 12b-
1 fees. During at least the first year of operation Class II
share performance will be higher than Class I in light of the
higher initial sales charge applicable to Class I shares.
General Information
Reports to Shareholders
The Fund's fiscal year ends December 31. Annual Reports
containing audited financial statements of the Trust, including
the auditor's report, and Semi-Annual Reports containing
unaudited financial statements are automatically sent to
shareholders. Additional copies may be obtained, without charge,
upon request to the Trust at the telephone number or address set
forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the
Fund's Annual Report to Shareholders and the SAI.
Organization
The Trust was organized as a Massachusetts business trust on July
17, 1986. The Agreement and Declaration of Trust permits the
trustees to issue an unlimited number of full and fractional
shares of beneficial interest without par value, which may be
issued in any number of series or classes thereof. Shares issued
will be fully paid and non-assessable and will have no
preemptive, conversion, or sinking rights. Shares of each series
have equal and exclusive rights as to the net assets of such
series upon liquidation or dissolution.
The Board of Trustees may from time to time issue other series of
the Trust, the assets and liabilities of which will likewise be
separate and distinct from any other series. In addition, each
series may offer its shares in one or more classes, depending on
the distribution or other options offered by each such class.
Voting Rights
Voting rights are noncumulative, so that in any election of
trustees the holders of more than 50% of the shares voting can
elect all of the trustees, if they choose to do so, and in such
event, the holders of the remaining shares voting will not be
able to elect any person or persons to the Board of Trustees. The
Trust does not intend to hold annual shareholders' meetings. The
Trust may, however, hold a special shareholders' meeting for such
purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which
are required to be acted on by shareholders under the 1940 Act. A
meeting may also be called by the trustees in their discretion or
by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in
communicating with other shareholders in connection with the
election or removal of trustees, such as that provided in Section
16(c) of the 1940 Act.
Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and
preferences as the other class of the Fund for matters that
affect the Fund as a whole. For matters that only affect a
certain class of the Fund's shares, however, only shareholders of
that class will be entitled to vote. Therefore each class of
shares will vote separately on matters (1) affecting only that
class, (2) expressly required to be voted on separately by state
business trust law, or (3) required to be voted on separately by
the 1940 Act, or the rules adopted thereunder. For instance, if a
change to the Rule 12b-1 plan relating to Class I shares requires
shareholder approval, only shareholders of Class I may vote on
the change to the Rule 12b-1 plan affecting that class.
Similarly, if a change to the Rule 12b-1 plan relating to Class
II shares requires approval, only shareholders of Class II may
vote on changes to such plan. On the other hand, if there is a
proposed change to the investment objective of the Fund, this
affects all shareholders, regardless of which class of shares
they hold and, therefore, each share has the same voting rights.
Redemptions by the Fund
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than $50,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.
Other Information
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
Account Registrations
An account registration should reflect the investor's intentions
as to ownership. Where there are two co-owners on the account,
the account will be registered as "Owner 1" and "Owner 2"; the
"or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of
attorney may be used.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the Internal Revenue Service ("IRS") any
taxable dividend, capital gain distribution, or other reportable
payment (including share redemption proceeds) and withhold 31% of
any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required
certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS
or a securities dealer notifies the Fund that the number
furnished by the shareholder is incorrect or that the shareholder
is subject to backup withholding for previous under-reporting of
interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
Portfolio Operations
The following persons are primarily responsible for the day-to-
day management of the Fund's portfolio: Donald Duerson and Andrew
Jennings, Sr. since inception and Thomas Kenny since 1994.
Donald Duerson
Vice President
Franklin Advisers, Inc.
Mr. Duerson has a Bachelor of Science degree in Business and
Public Administration from the University of Arizona, and has
experience in the portfolio management business dating back to
1956. He is a member of industry-related committees and
associations. He joined Advisers in 1986.
Andrew Jennings, Sr.
Vice President
Franklin Advisers, Inc.
Mr. Jennings attended Villanova University in Philadelphia, and
has been in the securities industry for over 33 years. From 1985
to 1990, Mr. Jennings was First Vice President and Manager of the
Municipal Institutional Bond Department at Dean Witter Reynolds,
Inc. He is a member of several municipal securities industry-
related committees and associations.
Thomas Kenny
Senior Vice President
Franklin Advisers, Inc.
Mr. Kenny is the director of Franklin's municipal bond
department. He joined Franklin in 1986. He received a Bachelor of
Arts degree in Business and Economics from the University of
California at Santa Barbara and Master of Science degree in
Finance from Golden Gate University. He is a member of several
municipal securities industry related committees and
associations.
Risk Factors in New York
Since the Fund primarily invests in New York Municipal
Securities, there are certain specific factors and considerations
concerning New York State and New York City which may affect the
credit and market risk of the municipal securities that the Fund
may purchase. The following information is based primarily upon
information derived from public documents relating to securities
offerings of issuers of New York Municipal Securities, from
independent municipal credit reports and historically reliable
sources, but has not been independently verified by the Fund.
The primary purpose of investing in a portfolio of New York
Municipal Securities is the special tax treatment accorded New
York resident individual investors. Payment of interest and
preservation of principal, however, is dependent upon the
continuing ability of the New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet
their obligations thereunder. Investors should be aware that
certain substantial issuers of New York Municipal Securities
(including issuers whose obligations may be acquired by the Fund)
have experienced financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and
impaired the borrowing abilities of other New York issuers and
have generally contributed to higher interest rates and lower
market prices for their debt obligations. A recurrence of the
financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of
other issuers of New York Municipal Securities.
Although no issuers of New York Municipal Securities were, to the
knowledge of the investment manager, as of the date of filing of
this Prospectus with the SEC, in default with respect to the
payment of their debt obligations, the occurrence of any such
default could adversely affect the market values and
marketability of all New York Municipal Securities and,
consequently, the net asset value of the Fund's portfolio. Some
of the significant financial considerations relating to the
Fund's investments in New York Municipal Securities are
summarized in the SAI.
Investors should consider the greater risk of the Fund's
concentration in New York Municipal Securities versus the safety
that comes with a less concentrated investment portfolio and
should compare yields available on portfolios of New York issues
with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's
investment manager believes, however, that by maintaining the
Fund's investment portfolio in New York Municipal Securities
which are covered by insurance policies providing for the
scheduled payment of principal and interest in the event of non-
payment by the issuer as discussed more fully above, the Fund is
largely insulated from the credit risks that may exist on long-
term New York Municipal Securities. The SAI contains a further
description under "Risk Factors Affecting New York Municipal
Securities."
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
Franklin New York Tax-Free Trust
PROSPECTUS May 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
The Franklin New York Intermediate-Term Tax-Free Income Fund (the
"Fund") is one of three non-diversified series of the Franklin
New York Tax-Free Trust (the "Trust"), an open-end management
investment company. The Fund offers individual investors,
corporations and other institutions a convenient way to invest in
a professionally managed portfolio of municipal securities,
primarily issued by the state of New York and its political
subdivisions. The Fund's investment goal is to provide investors
with as high a level of income exempt from federal income taxes
and New York State and New York City personal income taxes as is
consistent with prudent investment management and the
preservation of shareholders' capital. The Fund intends to invest
primarily in a portfolio of investment grade obligations with a
dollar weighted average portfolio maturity of more than three
years but not more than ten years. There can be no assurance that
the Fund's objective will be achieved.
This Prospectus is intended to set forth in a clear and concise
manner information about the Trust and the Fund that a
prospective investor should know before investing. After reading
the Prospectus, it should be retained for future reference; it
contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to
have.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank; further, such shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency. Shares of the
Fund involve investment risks, including the possible loss of
principal.
A Statement of Additional Information ("SAI") concerning the
Trust, dated May 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
This Prospectus is not an offering of the securities herein
described in any state in which the offering is not authorized.
No sales representative, dealer, or other person is authorized to
give any information or make any representations other than those
contained in this Prospectus. Further information may be obtained
from the underwriter.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents Page
Expense Table
Financial Highlights
About the Trust
Investment Objective and
Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
Risk Factors in New York
Expense Table
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. These figures are based on aggregate operating
expenses of the Fund, before fee waivers and expense reductions,
for the fiscal year ended December 31, 1994.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 2.25%
Deferred Sales Charge NONE*
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees 0.63%**
12b-1 Fees 0.10%***
Other Expenses:
Reports to Shareholders 0.02%
Shareholder Servicing Costs 0.02%
Other 0.08%
Total Other Expenses 0.12%
Total Fund Operating Expenses 0.85%**
*Investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%
is imposed on certain redemptions within 12 months of the
calendar month following such investments. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge."
**Represents the amount that would have been payable to the
investment manager, absent a fee reduction by the investment
manager. The investment manager, however, agreed in advance to
waive its management fees and to assume responsibility for making
payments to offset certain operating expenses otherwise payable
by the Fund. With this reduction, the Fund paid no management
fees and total operating expenses represented .05% of the average
net assets of the Fund. This arrangement may be terminated by the
investment manager at any time.
***During the fiscal year ended December 31, 1994, Distributors
agreed in advance to limit the maximum amount charged under the
Fund's distribution plan to 0.05%. For the fiscal year ending
December 31, 1995, the Fund may incur the maximum 0.10% allowed
under its distribution plan. See "Plan of Distribution."
Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates
the expenses, including the front-end sales charge, that apply to
a $1,000 investment in the Fund over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the
end of each time period.
One year Three years Five years Ten years
$31 $49 $69 $125
This example is based on the aggregate annual operating expenses,
before fee waivers and expense reductions, shown above and should
not be considered a representation of past or future expenses,
which may be more or less than those shown. The operating
expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. (See
"Management of the Fund" for a description of the Fund's
expenses.) In addition, federal regulations require the example
to assume an annual return of 5%, but the Fund's actual return
may be more or less than 5%.
Financial Highlights
Set forth below is a table containing financial highlights for a
share of the Fund outstanding throughout the period September 21,
1992 (effective date of registration) to December 31, 1992 and
for the two fiscal years ended December 31, 1994. The information
for the period ended December 31, 1992 and for the two fiscal
years in the period ended December 31, 1994 has been audited by
Coopers & Lybrand L.L.P., independent auditors, whose audit
report appears in the Trust's Annual Report dated December 31,
1994. See the discussion "Reports to Shareholders" under "General
Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE++
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE NET & UNREALIZED TOTAL FROM FROM NET VALUE
ENDED BEGINNING INVESTMENT GAINS ON INVESTMENT INVESTMENT AT END TOTAL
DECEMBER 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME OF YEAR RETURN++
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992* $10.00 $.090 $.135 $ .225 $(.015) $10.21 2.25%
1993 10.21 .480 .536 1.016 (.546) 10.68 10.18
1994 10.68 .550 (1.104) (.554) (.526) 9.60 (5.42)
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
NET ASSETS RATIO OF RATIO OF
YEAR AT END EXPENSES NET INCOME PORTFOLIO
ENDED OF YEAR TO AVERAGE TO AVERAGE TURNOVER
DECEMBER 31 (IN 000'S) NET ASSETS+ NET ASSETS RATE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1992* $ 3,459 -% 4.41%** 20.80%
1993 31,162 - 4.96 30.95
1994 35,166 0.05 5.57 188.38
</TABLE>
*For the period September 21, 1992 (effective date of
registration) to December 31, 1992.
**Annualized
+Total return measures the change in value of an investment over
the periods indicated. It does not include the maximum front-end
sales charge, and assumes reinvestment of dividends and capital
gains, if any, at net asset value.
++During the periods indicated, the investment manager agreed in
advance to waive its management fees and to assume responsibility
for making payments to offset certain operating expenses
otherwise payable by the Fund. Had such action not been taken,
the ratio of operating expenses to average net assets for the
periods ended December 31, 1992, 1993 and 1994 would have been:
1.76%, .73% and .80%.
About the Trust
The Trust is an open-end management investment company, or mutual
fund, organized as a Massachusetts business trust in July 1986
and registered with the SEC under the Investment Company Act of
1940 (the "1940 Act"). The Trust currently consists of three
series, each of which issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio.
This Prospectus relates only to the Franklin New York
Intermediate-Term Tax-Free Income Fund.
Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price, which is equal to the Fund's net asset value (see
"Valuation of Fund Shares") plus a sales charge not exceeding
2.25% of the offering price. See "How to Buy Shares of the Fund."
Investment Objective and Policies of the Fund
The Fund seeks to provide investors with as high a level of
income exempt from federal income taxes and New York State and
New York City personal income taxes as is consistent with prudent
investment management and the preservation of shareholders'
capital. The objective is a fundamental policy of the Fund and
may not be changed without shareholder approval. The Fund intends
to invest primarily in a portfolio of investment grade
obligations with a dollar weighted average portfolio maturity of
more than three years but not more than ten years. As with any
investment, there is no assurance that the Fund's objective will
be achieved.
Under normal market conditions, the Fund attempts to invest 100%
and, as a matter of fundamental policy, will invest at least 80%
of its total assets in debt obligations issued by or on behalf of
the state of New York or any state, territory or possession of
the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political
subdivisions, the interest on which is exempt from regular
federal income tax. It is possible, although not anticipated,
that up to 20% of the Fund's net assets could be in municipal
securities subject to the alternative minimum tax and/or in
taxable obligations.
The Fund may invest, without percentage limitations, in
securities having, at the time of purchase, one of the four
highest ratings of Moody's Investors Service ("Moody's") (Aaa,
Aa, A, Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A,
BBB), or Fitch Investors Service, Inc. ("Fitch") (AAA, AA, A,
BBB), or in securities which are not rated, provided that, in the
opinion of the Fund's investment manager, such securities are
comparable in quality to those within the four highest ratings.
These are considered to be "investment grade" securities,
although bonds rated in the fourth highest ratings level (Baa by
Moody's) are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to adverse
economic conditions and as having some speculative
characteristics. In the event the rating of an issue held in the
Fund's portfolio is lowered by the rating services, such change
will be considered by the Fund in its evaluation of the overall
investment merits of that security but such change will not
necessarily result in an automatic sale of the security. For a
description of municipal securities ratings, see "Appendix B -
Description of Municipal Securities Ratings" in the SAI.
In addition, under normal market conditions, the Fund will invest
at least 65% of its total assets in municipal securities and
obligations issued by or on behalf of the state of New York and
its local governments, municipalities, authorities, agencies and
political subdivisions, and those of certain other governmental
issuers, such as the Commonwealth of Puerto Rico, which pay
income exempt from regular federal, New York State and New York
City personal income taxes ("New York Municipal Securities").
Dividends paid by the Fund which are derived from interest on tax-
exempt obligations that are not New York Municipal Securities
will be exempt from regular federal income tax, but will be
subject to New York State and New York City personal income
taxes. It is possible, although not anticipated, that up to 35%
of the Fund's net assets could be in municipal securities from a
state other than New York.
For temporary defensive purposes only, the Fund may invest (i)
more than 20% of its assets (which could be up to 100%) in fixed-
income obligations the interest on which is subject to regular
federal income tax, and (ii) more than 35% of the value of its
net assets (which could be up to 100%) in instruments the
interest on which is exempt from regular federal income taxes but
not New York State and New York City personal income taxes. Any
such temporary taxable investments will be limited to obligations
issued or guaranteed by the full faith and credit of the U.S.
government or commercial paper rated A-1 by S&P.
The Fund may borrow from banks for temporary or emergency
purposes and pledge up to 5% of its total assets therefore.
Although the Fund does not currently intend to do so, consistent
with procedures approved by the Board of Trustees and subject to
the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the
value of the Fund's total assets at the time of the most recent
loan.
The Fund may purchase or sell securities without regard to the
length of time the security has been held, and the frequency of
portfolio transactions (the turnover rate) will vary from year to
year, depending on market conditions. The Fund's annual portfolio
turnover rate for the fiscal years ended December 31, 1993 and
1994 was 30.95% and 188.38%. The higher portfolio turnover rate
for the fiscal year ended December 31, 1994 was due to a
repositioning of the Fund for defensive purposes. High portfolio
turnover increases transaction costs which may be paid by the
Fund.
It is the policy of the Fund that restricted securities and other
illiquid securities (securities that cannot be disposed of within
seven days in the normal course of business at approximately the
amount at which the Fund has valued the securities) may not
constitute, at the time of purchase, more than 10% of the value
of the total net assets of the Fund.
Municipal Securities
The term "municipal securities," as used in this Prospectus,
means obligations issued by or on behalf of the state of New York
or any state, territory or possession of the U.S. and the
District of Columbia, and their political subdivisions, agencies
and instrumentalities, the interest on which is exempt from
regular federal income tax. An opinion as to the tax-exempt
status of a municipal security is generally rendered to the
issuer by the issuer's bond counsel at the time of issuance of
the security.
Municipal securities are used to raise money for various public
purposes, such as constructing public facilities and making loans
to public institutions. Certain types of municipal bonds are
issued to obtain funding for privately operated facilities.
Further information on the maturity and funding classifications
of municipal securities is included in the SAI.
It is possible, from time to time, that the Fund will invest more
than 25% of its assets in a particular segment of the municipal
securities market, including, but not limited to, hospital
revenue bonds, housing agency bonds, industrial development
bonds, transportation bonds, or pollution control revenue bonds.
In such circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation
affecting the financing of a project; shortages or price
increases of needed materials; or declining markets or need for
the projects) might also affect other bonds in the same segment,
thereby potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of
factors, including the general condition of the financial markets
and of the municipal securities market, the size of a particular
offering, the maturity of the obligation and the credit rating of
the issuer. Generally, municipal securities of longer maturities
produce higher current yields than municipal securities with
shorter maturities, but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general
market factors. Lower-rated municipal securities generally
produce a higher yield than higher-rated municipal securities due
to the perception of a greater degree of risk as to the ability
of the issuer to pay principal and interest obligations.
The interest on bonds issued to finance public purpose state and
local government operations is generally tax-exempt for regular
federal income tax purposes. Interest on certain "private
activity bonds" (including those for housing and student loans)
issued after August 7, 1986, while still tax-exempt, constitutes
a preference item for taxpayers in determining the federal
alternative minimum tax under the Internal Revenue Code of 1986,
as amended (the "Code"), and under the income tax provisions of
some states. This interest could subject a shareholder to, or
increase the shareholder's liability under, the federal and state
alternative minimum tax, depending on the shareholder's tax
situation. In addition, all distributions derived from interest
exempt from regular federal income tax may subject corporate
shareholders to, or increase their liability under, the federal
alternative minimum tax, because such distributions are included
in the corporation's "adjusted current earnings." In states with
a corporate franchise tax, distributions of the Fund may also be
fully taxable to corporate shareholders under their state
franchise tax systems. Consistent with the Fund's investment
objective, the Fund may acquire such private activity bonds if,
in the investment manager's opinion, such bonds represent the
most attractive investment opportunity then available to the
Fund. As of December 31, 1994, the Fund derived 0.01% of its
income from bonds, the interest on which constitutes a preference
item subject to the federal alternative minimum tax for certain
investors.
The Fund may purchase floating rate and variable rate
obligations. These obligations bear interest at rates that are
not fixed, but that vary with changes in prevailing market rates
on predesignated dates. The Fund may also invest in variable or
floating rate demand notes ("VRDNs"), which carry a demand
feature that permits the Fund to tender the obligation back to
the issuer or a third party at par value plus accrued interest
prior to maturity, according to the terms of the obligations,
which amount may be more or less than the amount the Fund paid
for such obligation. Frequently, VRDNs are secured by letters of
credit or other credit support arrangements. Because of the
demand feature, the prices of VRDNs may be higher and the yields
lower than they otherwise would be for obligations without a
demand feature. The Fund will limit its purchase of municipal
securities that are floating rate and variable rate obligations
to those meeting the quality standards set forth in this
Prospectus.
The Fund may purchase and sell municipal securities on a "when-
issued" and "delayed delivery" basis. These transactions are
subject to market fluctuation, and the value at delivery may be
more or less than the purchase price. Although the Fund will
generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such
securities before the settlement date if it is deemed advisable.
When the Fund is the buyer in such a transaction, it will
maintain, in a segregated account with its custodian, cash or
high-grade marketable securities having an aggregate value equal
to the amount of such purchase commitments, until payment is
made. To the extent the Fund engages in "when-issued" and
"delayed delivery" transactions, it will do so for the purpose of
acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of
investment leverage.
The Fund may also invest in municipal lease obligations,
primarily through Certificates of Participation ("COPs"). COPs,
which are widely used by state and local governments to finance
the purchase of property, function much like installment purchase
agreements. For example, COPs may be created when long-term lease
revenue bonds are issued by a governmental corporation to pay for
the acquisition of property or facilities which are then leased
to a municipality. The payments made by the municipality under
the lease are used to repay interest and principal on the bonds
issued to purchase the property. Once these lease payments are
completed, the municipality gains ownership of the property for a
nominal sum. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and
COPs may enable a governmental issuer to increase government
liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that
the lease which is the subject of the transaction must contain a
"nonappropriation" or "abatement" clause. A nonappropriation
clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate
the lease without penalty if the municipality's appropriating
body does not allocate the necessary funds. Local
administrations, being faced with increasingly tight budgets,
therefore have more discretion to curtail payments under COPs
than they do to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate
sufficient monies to make lease payments, the lessor or its agent
is typically entitled to repossess the property. In most cases,
however, the private sector value of the property will be less
than the amount the government lessee was paying.
While the risk of nonappropriation is inherent to COPs financing,
the Fund believes that this risk is mitigated by its policy of
investing only in COPs rated within the four highest rating
categories of Moody's, S&P or Fitch, or in unrated COPs believed
to be of comparable quality. Criteria considered by the rating
agencies and the investment manager in assessing such risk
include the issuing municipality's credit rating, evaluation of
how essential the leased property is to the municipality and the
term of the lease compared to the useful life of the leased
property. The Board of Trustees reviews the COPs held in the
Fund's portfolio to assure that they constitute liquid
investments based on various factors reviewed by the investment
manager and monitored by the Board of Trustees. Such factors
include (a) the credit quality of such securities and the extent
to which they are rated or, if unrated, comply with existing
criteria and procedures followed to ensure that they are of
quality comparable to the rating required for Fund investment,
including an assessment of the likelihood that the leases will
not be canceled; (b) the size of the municipal securities market,
both in general and with respect to COPs; and (c) the extent to
which the type of COPs held by the Fund trade on the same basis
and with the same degree of dealer participation as other
municipal bonds of comparable credit rating or quality. While
there is no limit as to the amount of assets which the Fund may
invest in COPs, as of December 31, 1994, the Fund held 19.53% of
its net assets in COPs and other municipal leases.
The Fund may purchase and hold callable municipal bonds which
contain a provision in the indenture permitting the issuer to
redeem the bonds prior to their maturity dates at a specified
price which typically reflects a premium over the bonds' original
issue price. These bonds generally have call protection (that is,
a period of time during which the bonds may not be called) which
usually lasts for five to ten years, after which time such bonds
may be called away. An issuer may generally be expected to call
its bonds, or a portion of them, during periods of relatively
declining interest rates, when borrowings may be replaced at
lower rates than those obtained in prior years. If the proceeds
of a bond called under such circumstances are reinvested, the
result may be a lower overall yield due to lower current interest
rates. If the purchase price of such bonds included a premium
related to the appreciated value of the bonds, some or all of
that premium may not be recovered by bondholders, such as the
Fund, depending on the price at which such bonds were redeemed.
Notwithstanding the call feature, any such investment would still
be subject to the policy whereby the Fund is required to maintain
a dollar weighted average portfolio maturity between three and
ten years.
Investment Risk Considerations
While an investment in the Fund is not without risk, certain
policies are followed in managing the Fund which may help to
reduce the investor's risk. There are two categories of risks to
which a Fund is subject: credit risk and market risk. Credit risk
is a function of the ability of an issuer of a municipal security
to maintain timely interest payments and to pay the principal of
a security upon maturity. It is generally reflected in a
security's underlying credit rating and its stated interest rate
(normally the coupon rate). A change in the credit risk
associated with a municipal security may cause a corresponding
change in the security's price. Market risk is the risk of price
fluctuation of a municipal security caused by changes in economic
and interest rate conditions generally affecting the market as a
whole. A municipal security's maturity length also affects its
price. As with other debt instruments, the price of the
securities in which the Fund invests are likely to decrease in
times of rising interest rates. Conversely, when rates fall, the
value of the Fund's debt instruments may rise. Price changes of
securities held by the Fund have a direct impact on the net asset
value per share of the Fund. Since the Fund primarily invests in
New York Municipal Securities, there are certain specific factors
and considerations concerning New York which may affect the
credit and market risk of the municipal securities that the Fund
may purchase. See "Risk Factors in New York" for a discussion of
these factors.
As a non-diversified investment company, the Fund is not subject
to any statutory restriction under the 1940 Act with respect to
the concentration of its investments in the assets of one or more
issuers. This concentration may present greater risks than in the
case of a diversified company. (See the SAI for the
diversification requirements the Fund intends to meet in order to
qualify as a regulated investment company under the Code.)
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. For a
list of these restrictions and more information concerning the
policies discussed herein, please see the SAI.
How Shareholders Participate in the Results of the Fund's
Activities
The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the Fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.
In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Fund shares will fluctuate with
movements in the broader bond markets as well. In particular,
changes in interest rates will affect the value of the Fund's
portfolio and thus its share price. Increased interest rates,
which frequently accompany higher inflation and/or a growing
economy, are likely to have a negative effect on the value of
Fund shares. History reflects both increases and decreases in the
prevailing rate of interest and these may reoccur unpredictably
in the future.
Management of the Fund
The Board of Trustees has the primary responsibility for the
overall management of the Trust and for electing the officers of
the Trust who are responsible for administering its day-to-day
operations.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin
Templeton Group"). Advisers acts as investment manager or
administrator to 33 U.S. registered investment companies (111
separate series) with aggregate assets of over $74 billion,
approximately $40 billion of which are in the municipal
securities market.
Pursuant to a management agreement, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business.
During the fiscal year ended December 31, 1994, fees totaling
0.63% of the average net assets of the Fund would have accrued to
Advisers. Total operating expenses, including management fees,
would have represented 0.80% of the average net assets of the
Fund. Pursuant to an agreement by Advisers to limit its fees, the
Fund paid no management fees and paid operating expenses totaling
0.05% of the average net assets of the Fund.
It is not anticipated that the Fund will incur a significant
amount of brokerage expenses because municipal securities are
generally traded on a "net" basis, that is, in principal
transactions without the addition or deduction of brokerage
commissions or transfer taxes. In the event that the Fund does
participate in transactions involving brokerage commissions, it
is the Manager's responsibility to select brokers through whom
such transactions will be effected. The Manager will try to
obtain the best execution on all such transactions. If it is felt
that more than one broker is able to provide the best execution,
the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for
the Manager and its affiliates, as well as the sale of shares of
the Fund, as factors in selecting a broker. Further information
is included under "The Trust's Policies Regarding Brokers Used on
Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent"), in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
Plan of Distribution
The Fund has adopted a distribution plan pursuant to Rule 12b-1
under the 1940 Act (the "Plan"). Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the
Fund's shares. Such expenses may include, but are not limited to,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead
expenses attributable to the distribution of Fund shares, as well
as any distribution or service fees paid to securities dealers or
their firms or others who have executed a servicing agreement
with the Trust on behalf of the Fund, Distributors or its
affiliates. The maximum amount which the Fund may pay to
Distributors or others for such distribution expenses is 0.10%
per annum of the average daily net assets of the Fund, payable on
a quarterly basis. All expenses of distribution and marketing in
excess of 0.10% per annum will be borne by Distributors, or
others who have incurred them, without reimbursement from the
Fund. The Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included
in the maximum operating expenses which may be borne by the Fund.
For more information, please see the SAI.
Distributions to Shareholders
There are two types of distributions which the Fund may make to
its shareholders:
1. Income dividends. The Fund receives income in the form of
interest and other income derived from its investments. This
income, less the expenses incurred in the Fund's operations, is
its net investment income from which income dividends may be
distributed. Thus, the amount of dividends paid per share may
vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains
or losses in connection with sales or other dispositions of its
portfolio securities. Distributions by the Fund derived from net
short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
twice each year. One distribution may be made in December to
reflect any net short-term and net long-term capital gains
realized by the Fund as of October 31 of such year. Any net short-
term and net long-term capital gains realized by the Fund during
the remainder of the fiscal year may be distributed following the
end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund
may make more than one distribution derived from net short-term
and net long-term capital gains in any year or adjust the timing
of its distributions for operational or other reasons.
Distribution Date
Although subject to change by the Board of Trustees without prior
notice to or approval by shareholders, the Fund's current policy
is to declare income dividends daily and pay them monthly on or
about the last business day of that month. The amount of income
dividend payments by the Fund is dependent upon the amount of net
income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board of
Trustees. The Fund does not pay "interest" or guarantee any fixed
rate of return on an investment in its shares.
Dividend Reinvestment
Unless requested otherwise, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without sales charge) on the
dividend reinvestment date. Shareholders have the right to change
their election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as
to distributions for which the reinvestment date is seven or more
business days after the Fund has been notified. See the SAI for
more information.
Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
Distributions in Cash
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to another fund in the Franklin Group of Funds" or the Templeton
Group, to another person, or directly to a checking account. If
the bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made automatically
by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be
sent to the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department. Dividend and capital gain
distributions are eligible for investment in another fund in the
Franklin Group of Funds or the Templeton Group at net asset
value. See "Purchases at Net Asset Value" under "How to Buy
Shares of the Fund."
Taxation of the Fund and Its Shareholders
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled "Additional
Information Regarding Distributions and Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for
federal income tax purposes. The Fund intends to continue to
qualify for treatment as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be
liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has
qualified and continues to qualify to pay exempt-interest
dividends to its shareholders. Such exempt-interest dividends are
derived from interest income exempt from regular federal income
tax, and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest
dividends are derived from interest on obligations of New York
and its political subdivisions, from interest on direct
obligations of the federal government, or from interest on U.S.
territorial obligations (including Puerto Rico, the U.S. Virgin
Islands or Guam), they will be exempt from New York State and New
York City personal income taxes. For corporate taxpayers subject
to the New York State franchise tax, however, the foregoing
categories of interest income will generally be taxable.
To the extent dividends are derived from taxable income from
temporary investments (including the discount from certain
stripped obligations or their coupons or income from securities
loans or other taxable transactions), from the excess of net
short-term capital gain over net long-term capital loss, or from
ordinary income derived from the sale or disposition of bonds
purchased with market discount after April 30, 1993, they are
treated as ordinary income whether the shareholder has elected to
receive them in cash or in additional shares.
From time to time, the Fund may purchase a tax-exempt obligation
with market discount; that is, for a price that is less than the
principal amount of the bond, or for a price that is less than
the principal amount of the bond where the bond was issued with
original issue discount, and such market discount exceeds a de
minimis amount. For such obligations purchased after April 30,
1993, a portion of the gain (not to exceed the accrued portion of
market discount as of the time of sale or disposition) is treated
as ordinary income rather than capital gain. Any distribution by
the Fund of such ordinary income to its shareholders will be
subject to regular income tax in the hands of Fund shareholders.
In any fiscal year, the Fund may elect not to distribute to its
shareholders its taxable ordinary income and, instead, to pay
federal income or excise taxes on this income at the Fund level.
The amount of such distributions, if any, is expected to be
small.
Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January
will be treated, for tax purposes, as if received by the
shareholder on December 31 of the calendar year in which they are
declared.
Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time a shareholder has
owned Fund shares and regardless of whether such distributions
are received in cash or in additional shares.
Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or loss. Any loss incurred
on the sale or exchange of Fund shares, held for six months or
less, will be treated as a long-term capital loss to the extent
of capital gain dividends received with respect to such shares.
Since the Fund's income is derived from interest income and gain
on the sale of portfolio securities rather than dividend income,
no portion of the Fund's distributions will generally be eligible
for the corporate dividends-received deduction. None of the
distributions paid by the Fund for the fiscal year ended December
31, 1994 qualified for this deduction and it is not anticipated
that any of the current year's dividends will so qualify.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and will,
promptly after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions, including the portion of the dividends on an
average basis which constitutes taxable income or interest income
that is a tax preference item under the alternative minimum tax.
Shareholders who have not held shares of the Fund for a full
calendar year may have designated as tax-exempt or as tax
preference income a percentage of income which is not equal to
the actual amount of tax-exempt or tax preference income earned
during the period of their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from
regular federal income tax in the hands of a shareholder, are
includible in the tax base for determining the extent to which a
shareholder's social security or railroad retirement benefits
will be subject to federal income tax. Shareholders are required
to disclose the receipt of tax-exempt interest on their federal
income tax returns.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry Fund shares will not be
deductible for federal income tax purposes.
The foregoing description relates solely to federal income tax
law and to New York State and New York City personal income tax
treatment to the extent indicated. Shareholders should consult
their tax advisors with respect to the applicability of other
state and local income tax laws to distributions and redemption
proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the
impact of Fund dividends and capital gain distributions under the
alternative minimum tax that may be applicable to a shareholder's
particular tax situation.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
How to Buy Shares of the Fund
Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the
Fund. Such reference, however, is for convenience only and does
not indicate a legal conclusion of capacity. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established at Franklin. The Fund and Distributors
reserve the right to refuse any order for the purchase of shares.
The Fund currently does not permit investment by market timing or
allocation services ("Timing Accounts"), which generally include
accounts administered so as to redeem or purchase shares based
upon certain predetermined market indicators.
Purchase Price of Fund Shares
Shares of the Fund are offered at the public offering price,
which is the net asset value per share plus a sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge
is a variable percentage of the offering price depending upon the
amount of the sale. The offering price will be calculated to two
decimal places using standard rounding criteria. A description of
the method of calculating net asset value per share is included
under the caption "Valuation of Fund Shares."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions.
Total Sales Charge
Size of Dealer Concession
Transaction As a Percentage As a Percentage As a Percentage of
at Offering of Offering of Net Amount Offering
Price Price Invested Price*,***
Less than 2.25% 2.30 2.00%
$100,000
$100,000 but 1.75% 1.78 1.50%
less than
250,000
$250,000 but 1.25% 1.26 1.00%
less than
500,000
$500,000 but 1.00% 1.01 0.85%
less than
1,000,000
$1,000,000 none none (see below)**
or more
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 0.75% on sales
of $1 million but less than $2 million, plus 0.60% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
an underwriter as that term is defined in the Securities Act of
1933, as amended.
No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of an investment of $1
million or more within 12 months of the calendar month following
such investment. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
The size of a transaction which determines the applicable sales
charge on the purchase of Fund shares is determined by adding the
amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds" and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the Franklin
Group of Funds except Franklin Valuemark Funds and Franklin
Government Securities Trust (the "Franklin Funds"), (b) other
investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton Capital Accumulator Fund, Inc., Templeton
Variable Annuity Fund, and Templeton Variable Products Series
Fund (the "Templeton Funds"). (Franklin Funds and Templeton
Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of
(a), (b) and (c) above ("Franklin Templeton Investments") may be
effective only after notification to Distributors that the
investment qualifies for a discount.
Distributors, or one of its affiliates, may make payments, out of
its own resources, of up to 1% of the amount purchased to
securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust
departments of banks. See "Description of Special Net Asset Value
Purchases" and the SAI.
Distributors or one of its affiliates, out of its own resources,
may also provide additional compensation to dealers in connection
with sales of shares of the Fund and other funds in the Franklin
Templeton Funds. Compensation may include financial assistance to
securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding the Franklin Templeton Funds and other dealer-
sponsored programs or events. In some instances, this
compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton Funds.
Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to
locations within or outside of the United States for meetings or
seminars of a business nature. Dealers may not use sales of the
Fund's shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. None of the aforementioned additional compensation is paid
for by the Fund or its shareholders.
Certain officers and trustees of the Trust are also affiliated
with Distributors. A detailed description is included in the SAI.
Quantity Discounts in Sales Charges
Shares may be purchased under a variety of plans which provide
for a reduced sales charge. To be certain to obtain the reduction
of the sales charge, the investor or the securities dealer should
notify Distributors at the time of each purchase of shares which
qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any Franklin
Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account.
In addition, an investment in the Fund may qualify for a
reduction in the sales charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a
reduced sales charge on a purchase of shares of the Fund by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest, during
the next 13 months, a specified amount which, if made at one
time, would qualify for a reduced sales charge, grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.
An investor acknowledges and agrees to the following provisions
by completing the Letter of Intent section of the Shareholder
Application: Five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund,
registered in the investor's name, to assure that the full
applicable sales charge will be paid if the intended purchase is
not completed. The reserved shares will be included in the total
shares owned as reflected on periodic statements and income and
capital gain distributions on the reserved shares will be paid as
directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent
has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Trust Shares"
in the SAI.
Group Purchases
An individual who is a member of a qualified group may also
purchase shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by the group, plus the amount of the current
purchase. For example, if members of the group had previously
invested and still held $80,000 of Fund shares and now were
investing $25,000, the sales charge would be 1.75%. Information
concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria
which enable Distributors to realize economies of scale in its
costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings
between representatives of the Fund or Distributors and the
members, agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.
Purchases at Net Asset Value
Shares of the Fund may be purchased without the imposition of
either a front-end sales charge ("net asset value") or contingent
deferred sales charge by (1) officers, directors, trustees and
full-time employees of the Trust, any of the Franklin Templeton
Funds, or of the Franklin Templeton Group, and by their spouses
and family members, including subsequent payments made by such
parties after cessation of employment; (2) companies exchanging
shares or selling assets pursuant to a merger, acquisition or
exchange offer; (3) registered securities dealers and their
affiliates, for their investment account only; and (4) registered
personnel and employees of securities dealers and by their
spouses and family members, in accordance with the internal
policies and procedures of the employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons
who have redeemed, within the previous 120 days, their shares of
the Fund or another of the Franklin Templeton Funds which were
purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of this Prospectus and the SAI.
Dividends and capital gains received in cash by the shareholder
may also be used to purchase shares of the Fund or another of the
Franklin Templeton Funds at net asset value and without the
imposition of a contingent deferred sales charge within 120 days
of the payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See
"Distributions in Cash " under "Distributions to Shareholders."
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
investors who have, within the past 60 days, redeemed an
investment in a mutual fund which is not part of the Franklin
Templeton Funds, which charged the investor a contingent deferred
sales charge upon redemption and which has an investment
objective similar to that of the Fund.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
broker-dealers who have entered into a supplemental agreement
with Distributors, or by registered investment advisers
affiliated with such broker-dealers, on behalf of their clients
who are participating in a comprehensive fee program (sometimes
known as a wrap fee program).
Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of its own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount
invested. Contact Franklin's Institutional Sales Department for
additional information.
Description of Special Net Asset Value Purchases
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trust companies and bank trust departments for funds over which
they exercise exclusive discretionary investment authority and
which are held in a fiduciary, agency, advisory, custodial or
similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be
established by Distributors. Currently, those criteria require
that the amount invested or to be invested during the subsequent
13-month period in the Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly
from the bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.
Refer to the SAI for further information.
General
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
Other Programs and Privileges
Available to Fund Shareholders
Certain of the programs and privileges described in this section
may not be available directly from the Fund to shareholders whose
shares are held, of record, by a financial institution or in a
"street name" account or networked account through the National
Securities Clearing Corporation ("NSCC") (see the section
captioned "Account Registrations" in this Prospectus).
Share Certificates
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.
Confirmations
A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends reinvested during that period
and after each other transaction which affects the shareholder's
account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan
balance" for the account of the shareholder.
Automatic Investment Plan
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program. In addition,
shareholders may obtain more information concerning this program
from their securities dealer or from Distributors.
The market value of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the
investor should keep in mind that such a program does not assure
a profit or protect against a loss.
Systematic Withdrawal Plan
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction, although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. The plan may be established on a monthly, quarterly,
semiannual or annual basis. If the shareholder establishes a
plan, any capital gain distributions and income dividends paid by
the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made
from the liquidation of shares at net asset value on the day of
the transaction (which is generally the first business day of the
month in which the payment is scheduled) with payment generally
received by the shareholder three to five days after the date of
liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected
withdrawals to another of the Franklin Templeton Funds, to
another person, or directly to a checking account. If the bank at
which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial processing.
Withdrawals which may be paid in the interim will be sent to the
address of record. Liquidation of shares may reduce or possibly
exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and
distributions, particularly in the event of a market decline. If
the withdrawal amount exceeds the total plan balance, the account
will be closed and the remaining balance will be sent to the
shareholder. As with other redemptions, a liquidation to make a
withdrawal payment is a sale for federal income tax purposes.
Because the amount withdrawn under the plan may be more than the
shareholder's actual yield or income, part of the payment may be
a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. The shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect. A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment, by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
Institutional Accounts
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives and policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, Fund shares may be exchanged for
shares of other Franklin Templeton Funds which are eligible for
sale in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and investment
minimums. Investors should review the prospectus of the fund they
wish to exchange from and the fund they wish to exchange into for
all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or
applicable sales charges. Exchanges may be made in any of the
following ways:
Exchanges By Mail
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.
Exchanges By Telephone
Shareholders, or their investment representative of record, if
any, may exchange shares of the Fund by telephone by calling
Investor Services at 1-800/632-2301 or the automated Franklin
TeleFACTS" system (day or night) at 1-800/247-1753. If the
shareholder does not wish this privilege extended to a particular
account, the Fund or Investor Services should be notified.
The telephone exchange privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account in
one of the other available Franklin Templeton Funds. The
telephone exchange privilege is available only for uncertificated
shares or those which have previously been deposited in the
shareholder's account. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions communicated
by telephone are genuine. Please refer to "Telephone Transactions
- - Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the telephone exchange privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
Exchanges Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's
shares, Investor Services will accept exchange orders by
telephone or by other means of electronic transmission from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.
Additional Information Regarding Exchanges
A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject to a
contingent deferred sales charge in the original fund purchased,
and shares are subsequently redeemed within the contingency
period, a contingent deferred sales charge will be imposed. The
contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or
Templeton money market fund. See also "How to Sell Shares of the
Fund - Contingent Deferred Sales Charge."
Exchanges are made on the basis of the net asset values of the
funds involved, except as set forth below. Exchanges of shares of
the Fund which were purchased without a sales charge will be
charged a sales charge in accordance with the terms of the
prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on
which the investor paid a sales charge. Exchanges of shares of
the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference,
unless the shares were held in the Fund for at least six months
prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, 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 in accordance with the procedures set forth
above. Because the exchange is considered a redemption and
purchase of shares, the shareholder may realize a gain or loss
for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the
possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.
There are differences among the Franklin Templeton Funds. Before
making an exchange, a shareholder should obtain and review a
current prospectus of the fund into which the shareholder wishes
to transfer.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, tax-exempt municipal securities, unless it is felt
that attractive investment opportunities consistent with the
Fund's investment objective exist immediately. Subsequently, this
money will be withdrawn from such short-term, tax-exempt
municipal securities and invested in portfolio securities in as
orderly a manner as is possible when attractive investment
opportunities arise.
The exchange privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
The Fund currently will not accept investments from Timing
Accounts.
How to Sell Shares of the Fund
A shareholder may at any time liquidate shares owned and receive
from the Fund the value of the shares. Shares may be redeemed in
any of the following ways:
Redemptions By Mail
Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Fund the
value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by
Investor Services. Redemption requests received after the time at
which the net asset value is calculated, after the scheduled
close of the New York Stock Exchange (the "Exchange"), (generally
1:00 p.m. Pacific time) on each day that the Exchange is open for
business will receive the price calculated on the following
business day. Shareholders are requested to provide a telephone
number(s) where they may be reached during business hours, or in
the evening if preferred. Investor Services' ability to contact a
shareholder promptly when necessary will speed the processing of
the redemption.
To be considered in proper form, signatures must be guaranteed if
the redemption request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess
of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c)
the Fund has been notified of an adverse claim, (d) the
instructions received by the Fund are given by an agent, not
the actual registered owner, (e) the Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by
the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered,
with the signatures guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share
certificate and assignment form in separate envelopes if they are
being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officers of the corporation and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustees and (2) a copy of the pertinent pages of the trust
document listing the trustees or a Certification for Trust if the
trustees are not listed on the account registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.
Redemptions By Telephone
Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus, may redeem shares of the Fund by telephone.
Information may be obtained by writing to the Fund or Investor
Services at the address shown on the cover or by calling 1-
800/632-2301. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions given by
telephone are genuine. Shareholders, however, bear the risk of
loss in certain cases as described under "Telephone Transactions
- - Verification Procedures."
For shareholder accounts with a completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services may
be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the
Exchange on any business day will be processed that same day. The
redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only
to the address of record. Redemption requests by telephone will
not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other
redemption procedures set forth in this Prospectus. Institutional
accounts (certain corporations, bank trust departments and
government entities which qualify to purchase shares at net asset
value pursuant to the terms of this Prospectus) which wish to
execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available
from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
Redeeming Shares Through Securities Dealers
The Fund will accept redemption orders by telephone or other
means of electronic transmission from securities dealers who have
entered into a dealer or similar agreement with Distributors.
This is known as a repurchase. The only difference between a
normal redemption and a repurchase is that if the shareholder
redeems shares through a securities dealer, the redemption price
will be the net asset value next calculated after the
shareholder's securities dealer receives the order which is
promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. These
documents, as described in the preceding section, are required
even if the shareholder's securities dealer has placed the
repurchase order. After receipt of a repurchase order from the
securities dealer, the Fund will still require a signed letter of
instruction and all other documents set forth above. A
shareholder's letter should reference the Fund, the account
number, the fact that the repurchase was ordered by a securities
dealer and the securities dealer's name. Details of the dealer-
ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the
redemption. The seven-day period within which the proceeds of the
shareholder's redemption will be sent will begin when the Fund
receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
securities dealer's repurchase order and the date the redemption
is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in a shareholder's best interest to
have the required documentation completed and forwarded to the
Fund as soon as possible. The shareholder's securities dealer may
charge a fee for handling the order. The SAI contains more
information on the redemption of shares.
Contingent Deferred Sales Charge
In order to recover commissions paid to securities dealers on
investments of $1 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within
the contingency period of 12 months of the calendar month
following their purchase. The charge is 1% of the lesser of the
value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales charge
are deemed to be redeemed first, in the following order: (i)
shares representing amounts attributable to capital appreciation
of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and
(iii) other shares held longer than 12 months; and followed by
any shares held less than 12 months, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges;
any account fees; redemptions through a Systematic Withdrawal
Plan set up prior to February 1, 1995 and for Systematic
Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6%
semiannually or 12% annually); and redemptions initiated by the
Fund due to a shareholder's account falling below the minimum
specified account size.
Requests for redemptions for a specified dollar amount, unless
otherwise specified, will result in additional shares being
redeemed to cover any applicable contingent deferred sales charge
while requests for redemption of a specific number of shares will
result in the applicable contingent deferred sales charge being
deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire
are available for immediate redemption. In addition, the right of
redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Fund.
Other
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
Telephone Transactions
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option, (iii) transfer Fund shares in one
account to another identically registered account in the Fund,
and (iv) exchange Fund shares as described in this Prospectus by
telephone. In addition, shareholders who complete and file the
Agreement as described under "How to Sell Shares of the Fund -
Redemptions By Telephone" will be able to redeem shares of the
Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
sending a confirmation statement on redemptions to the address of
record each time account activity is initiated by telephone. So
long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. The Fund and Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where
the Fund or Investor Services is not reasonably satisfied that
instructions received by telephone are genuine, the requested
transaction will not be executed, and neither the Fund nor
Investor Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
General
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
Valuation of Fund Shares
The net asset value per share of the Fund is determined as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific
time) each day that the Exchange is open for trading. Many
newspapers carry daily quotations of the prior trading day's
closing "bid" (net asset value) and "ask" (offering price, which
includes the maximum front-end sales charge of the Fund).
The net asset value per share of the Fund is determined in the
following manner: The aggregate of all liabilities, accrued
expenses and taxes and any necessary reserves, is deducted from
the aggregate gross value of all assets, and the difference is
divided by the number of shares of the Fund outstanding at the
time. For the purpose of determining the aggregate net assets of
the Fund, cash and receivables are valued at their realizable
amounts. Interest is recorded as accrued. Portfolio securities
for which market quotations are readily available are valued
within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market as
determined by the Manager. Municipal securities generally trade
in the over-the-counter market rather than on a securities
exchange. 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. With the
approval of trustees, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions.
How to Get Information Regarding an Investment in the Fund
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch-tone phone, shareholders may access an automated
system (day or night) which offers the following features. By
calling the Franklin TeleFACTSr system at 1-800/247-1753,
shareholders may obtain current price, yield or other performance
information specific to a Franklin fund; process an exchange into
an identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
Share prices and account information specific to a Templeton fund
may also be accessed on TeleFACTS by Franklin shareholders.
Information about the Fund may be accessed by entering Fund Code
53 followed by the # sign, when requested to do so by the
automated operator. The system's automated operator will prompt
the caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
Hours of Operation
(Pacific Time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.,
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including current yield, tax equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate. They may occasionally
cite statistics to reflect the Fund's volatility or risk.
Average annual total return figures, as prescribed by the SEC,
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations
for other periods or based on investments at various sales charge
levels or at net asset value. For such purposes, total return
equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus
(or minus) the change in the value of the original investment,
expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's
portfolio investments. It is calculated by dividing the Fund's
net investment income per share during a recent 30-day period by
the maximum public offering price on the last day of that period
and annualizing the result. Tax equivalent yield demonstrates the
yield from a taxable investment necessary to produce an after-tax
yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
a fund's yield (calculated as indicated) by one minus a stated
income tax rate and adding the product to the taxable portion (if
any) of the fund's yield.
Current yield and tax equivalent yield which are calculated
according to a formula prescribed by the SEC (see the SAI) are
not indicative of the dividends or distributions which were or
will be paid to the Fund's shareholders. Dividends or
distributions paid to shareholders are reflected in the current
distribution rate or taxable equivalent distribution rate, which
may be quoted to shareholders. The current distribution rate is
computed by dividing the total amount of dividends per share paid
by the Fund during the past 12 months by a current maximum
offering price. A taxable equivalent distribution rate
demonstrates the taxable distribution rate necessary to produce
an after tax distribution rate equivalent to the Fund's
distribution rate (calculated as indicated above). Under certain
circumstances, such as when there has been a change in the amount
of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using
the dividends during the past 12 months. The current distribution
rate differs from the current yield computation because it may
include distributions to shareholders from sources other than
dividends and interest, such as short-term capital gain, and is
calculated over a different period of time.
In each case, performance figures are based upon past
performance, reflect all recurring charges against Fund income
and will assume the payment of the maximum sales charge on the
purchase of shares. When there has been a change in the sales
charge structure, the historical performance figures will be
restated to reflect the new rate. The investment results of the
Fund, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the
Fund's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future
period.
General Information
Reports to Shareholders
The Fund's fiscal year ends December 31. Annual reports
containing audited financial statements of the Trust, including
the auditors' report, and semiannual reports containing unaudited
financial statements are automatically sent to shareholders.
Copies may be obtained by investors or shareholders, without
charge, upon request to the Trust at the telephone number or
address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the
Trust's Annual Report to Shareholders and the SAI.
Organization
The Trust was organized as a Massachusetts business trust on July
17, 1986. The Agreement and Declaration of Trust permits the
trustees to issue an unlimited number of full and fractional
shares of beneficial interest without par value, which may be
issued in any number of series or classes thereof. Shares issued
will be fully paid and non-assessable and will have no
preemptive, conversion, or sinking rights. Shares of each series
have equal and exclusive rights as to dividends and distributions
as declared by such series and the net assets of such series upon
liquidation or dissolution. The Board of Trustees may from time
to time issue other series of the Trust, the assets and
liabilities of which will be separate and distinct from any other
series.
Voting Rights
Shares of each series have equal rights as to voting and vote
separately as to issues affecting that series or the Trust unless
otherwise permitted by the 1940 Act. Voting rights are
noncumulative, so that in any election of trustees the holders of
more than 50% of the shares voting can elect 100% of the
trustees, if they choose to do so, and in such event, the holders
of the remaining shares voting will not be able to elect any
person or persons to the Board of Trustees. The Trust does not
intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting for such purposes
as changing fundamental investment restrictions, approving a new
management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may
also be called by the trustees in their discretion or by
shareholders holding at least ten percent of the outstanding
shares of the Fund. Shareholders will receive assistance in
communicating with other shareholders in connection with the
election or removal of trustees, such as that provided in Section
16(c) of the 1940 Act.
Redemptions by the Fund
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than $50,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.
Other Information
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such checks.
"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
Account Registrations
An account registration should reflect the investor's intentions
as to ownership. Where there are two co-owners on the account,
the account will be registered as "Owner 1" and "Owner 2"; the
"or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of
attorney may be used.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the Internal Revenue Service ("IRS") any
taxable dividend, capital gain distribution, or other reportable
payment (including share redemption proceeds) and withhold 31% of
any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required
certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS
or a securities dealer notifies the Fund that the number
furnished by the shareholder is incorrect or that the shareholder
is subject to backup withholding for previous under-reporting of
interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then-current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
Portfolio Operations
The following persons are primarily responsible for the day-to-
day management of the Fund's portfolio: Mr. Kenny since 1994 and
Mr. Pinkham and Ms. Wong since 1992.
Thomas Kenny
Senior Vice President and Portfolio Manager
Franklin Advisers, Inc.
Mr. Kenny joined Franklin in 1986 and is the director of
Franklin's municipal bond department. He received a Bachelor of
Arts degree in Business and Economics from the University of
California at Santa Barbara and a Master of Science degree in
Finance from Golden Gate University. He is a member of several
municipal securities industry-related committees and
associations.
John Pinkham
Vice President and Portfolio Manager
Franklin Advisers, Inc.
Mr. Pinkham has a Bachelor of Science degree in Business from
Columbia University and has been in the municipal securities
industry since 1956. He is a member of the Financial Analysts
Federation. He joined Advisers in 1985.
Stella Wong
Portfolio Manager
Franklin Advisers, Inc.
Ms. Wong holds a Bachelor of Science degree in Business
Administration from San Francisco State University and a Master's
degree in Financial Planning from Golden Gate University. She is
a member of several industry related committees and associations.
She joined Advisers in 1986.
Risk Factors in New York
Since the Fund primarily invests in New York Municipal
Securities, there are certain specific factors and considerations
concerning New York State and New York City which may affect the
credit and market risk of the municipal securities that the Fund
may purchase. The following information is based primarily upon
information derived from public documents relating to securities
offerings of issuers of New York Municipal Securities, from
independent municipal credit reports and historically reliable
sources, but has not been independently verified by the Fund.
The primary purpose of investing in a portfolio of New York
Municipal Securities is the special tax treatment accorded New
York resident individual investors. Payment of interest and
preservation of principal, however, is dependent upon the
continuing ability of the New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet
their obligations thereunder. Investors should be aware that
certain substantial issuers of New York Municipal Securities
(including issuers whose obligations may be acquired by the Fund)
have experienced financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and
impaired the borrowing abilities of other New York issuers and
have generally contributed to higher interest rates and lower
market prices for their debt obligations. A recurrence of the
financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of
other issuers of New York Municipal Securities.
As of the date of the filing of this Prospectus with the SEC, no
issuers of New York Municipal Securities were, to the knowledge
of the investment manager, in default with respect to the payment
of their debt obligations. The occurrence of any such default,
however, could adversely affect the market values and
marketability of all New York Municipal Securities and,
consequently, the net asset value of the Fund's portfolio. Some
of the significant financial considerations relating to the
Fund's investments in New York Municipal Securities are
summarized in the SAI.
Investors should consider the greater risk of the Fund's
concentration in New York Municipal Securities versus the safety
that comes with a less concentrated investment portfolio and
should compare yields available on portfolios of New York issues
with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's
investment manager believes, however, that by maintaining the
Fund's investment portfolio in New York Municipal Securities
which are rated investment grade, the Fund is largely insulated
from the credit risks that may exist on long-term New York
Municipal Securities. The SAI contains a further description
under "Appendix A - Risk Factors Affecting New York Municipal
Securities."
FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin New York Tax-Free Trust (the "Trust") is an open-end
management investment company consisting of three non-diversified
series: Franklin New York Insured Tax-Free Income Fund (the
"Insured Fund"), Franklin New York Tax-Exempt Money Fund (the
"Money Fund"), and Franklin New York Intermediate-Term Tax-Free
Income Fund (the "Intermediate-Term Fund"). The series may
separately or collectively be referred to hereafter as the
"Fund," "Funds" or individually by the policy included as part of
its name.
Each Fund intends to concentrate its investments in New York
municipal securities and seeks to provide investors with as high
a level of income exempt from federal and New York State and New
York City personal income taxes as is consistent with prudent
investment management, while seeking preservation of
shareholders' capital. The Money Fund also seeks liquidity in its
investments.
The Insured Fund invests in New York municipal securities which
are covered by insurance guaranteeing the scheduled payment of
principal and interest, in securities backed by the full faith
and credit of the U.S. government, in municipal securities
secured by such U.S. government obligations and in short-term
obligations of issuers with the highest ratings from Moody's
Investors Service ("Moody's"), Standard & Poor's Corporation
("S&P") or Fitch Investors Service, Inc. ("Fitch"). All insured
securities not insured through the issuer will be insured by a
qualified municipal bond insurer.
The Money Fund is a no-load money market fund offering investors
a convenient way to invest in a professionally managed portfolio
of high quality, short-term New York municipal securities. The
Money Fund attempts to maintain a stable net asset value of $1.00
per share (although no assurances can be given that this will be
achieved) and offers shareholders the convenience of redemption
drafts (similar to checks) as one of the means of redeeming their
shares.
The Intermediate-Term Fund seeks to accomplish its objective by
investing primarily in a portfolio of investment grade
obligations with a dollar-weighted average portfolio maturity of
more than three years but not more than ten years.
Separate prospectuses for the Funds, dated May 1, 1995, as may be
amended from time to time, provide the basic information an
investor should know before investing in any Fund of the Trust
and may be obtained without charge from the Trust or from the
Trust's principal underwriter, Franklin/Templeton Distributors,
Inc. ("Distributors"), at the address shown above.
As explained in the Insured Fund's Prospectus, the Insured Fund
offers two classes of shares to its investors: Franklin New York
Insured Tax-Free Income Fund - Class I ("Class I") and Franklin
New York Insured Tax-Free Income Fund - Class II ("Class II").
The new multiclass structure allows investors to choose, among
other features, the differing upfront sales charges and ongoing
distribution fees ("Rule 12b-1 fees") on their investments in the
Insured Fund.
This Statement of Additional Information ("SAI") is not a
prospectus. It contains information in addition to and in more
detail than set forth in the Prospectuses. This SAI is intended
to provide investors with additional information regarding the
activities and operations of the Trust and each Fund and should
be read in conjunction with the Funds' Prospectuses.
Contents Page
About the Trust
The Funds' Investment
Objectives and Policies
Description of Municipal
and Other Securities
Insurance (Insured Fund only)
Investment Restrictions
Officers and Trustees
Investment Advisory
and Other Services
The Trust's Policies Regarding
Brokers Used on Portfolio Transactions
Additional Information Regarding
Trust Shares
Additional Information Regarding
Distributions and Taxation
The Trust's Underwriter
General Information
Miscellaneous Information
Appendices
Financial Statements
About The Trust
The Trust is an open-end management investment company, commonly
called a "mutual fund," and registered with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act
of 1940 (the "1940 Act"). The Trust was organized as a
Massachusetts business trust in July 1986. The Trust issues its
shares of beneficial interest with no par value in three series,
each of which maintains a totally separate investment portfolio.
The Funds' Investment Objectives and Policies
As noted in the Prospectuses, each Fund seeks to provide
investors with as high a level of income exempt from federal
income taxes and from the personal income taxes of New York State
and New York City as is consistent with prudent investment
management, while seeking the preservation of shareholders'
capital. The Money Fund also seeks liquidity in its investments.
The Intermediate-Term Fund seeks to accomplish its objective by
investing primarily in a portfolio of investment grade
obligations with a dollar-weighted average portfolio maturity of
more than three years but not more than ten years.
As described in each Prospectus, under normal market conditions,
each Fund will attempt to invest 100% and, as a matter of
fundamental policy, will invest at least 80% of the value of its
net assets in securities the interest on which is exempt from
federal income taxes, including the alternative minimum tax, and,
under normal circumstances, will invest at least 65% of its net
assets in securities the interest on which is exempt from the
personal income taxes of New York State and New York City. Thus,
it is possible, although not anticipated, that up to 20% of each
Fund's net assets could be invested in municipal securities
subject to the alternative minimum tax and/or in taxable
obligations and up to 35% of each Fund's net assets could be in
municipal securities from a state other than New York.
Although each Fund seeks to invest all of its assets in a manner
designed to accomplish its objective, there may be times when
market conditions limit the availability of appropriate municipal
securities or, in the investment manager's opinion, there exist
uncertain economic, market, political or legal conditions which
may jeopardize the value of municipal securities. For temporary
defensive purposes only, when the investment manager believes
that market conditions, such as rising interest rates or other
adverse factors, would cause serious erosion of portfolio value,
each Fund may invest more than 20% and up to 100% of the value of
its net assets in fixed-income obligations, the interest on which
is subject to federal income tax, and each Fund may invest more
than 35% and up to 100% of its net assets in instruments the
interest on which is exempt from federal income taxes only. For
the Money Fund, temporary investments not in municipal securities
will be limited to U.S. government securities, commercial paper
rated in the highest grade by either Moody's or S&P (Prime-1 or A-
1, respectively), or in obligations of U.S. banks with assets of
$1 billion or more. See the Appendix at the end of this SAI for
more information concerning ratings.
As required by Rule 2a-7 under the 1940 Act, the Money Fund will
limit its investments to those U.S. dollar denominated
instruments which the Board of Trustees of the Trust determines
present minimal credit risk and which are, as required by the
federal securities laws, rated in one of the two highest rating
categories (within which there may be sub-categories or
gradations indicating relative standing) as determined by
nationally recognized statistical rating agencies, or which are
unrated and of comparable quality, with remaining maturities of
397 calendar days or less. The Money Fund will maintain a dollar
weighted average maturity of the securities in its portfolio of
90 days or less. The maturities of variable or floating rate
demand instruments held by the Money Fund will be deemed to be
the longer of the demand period or the period remaining until the
next interest rate adjustment, although the stated maturities may
be in excess of one year. These procedures are not fundamental
policies of the Money Fund.
Generally, all of the instruments held by the Money Fund are
offered on the basis of a quoted yield to maturity, and the price
of the security is adjusted so that, relative to the stated rate
of interest, it will return the quoted rate to the purchaser. The
maturities of these instruments held by the Money Fund at the
time of issuance will generally range between three months and
one year.
Each Fund is non-diversified and thus not subject to any
statutory restriction under the 1940 Act with respect to the
concentration of its assets in one or relatively few issuers.
This concentration may present greater risks than in the case of
a diversified company. Each Fund, however, intends to qualify as
a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and, therefore,
will be restricted in that, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets must
be represented by cash, government securities, and other
securities limited in respect of any one issuer to not more than
5% of the value of the total assets of the Fund. In addition, at
the close of each quarter of its taxable year, not more than 25%
of each Fund's total assets may be invested in securities of one
issuer, other than government securities. The limitations are not
fundamental policies and may be revised to the extent applicable
federal income tax requirements are revised.
Each Fund may invest 25% or more of its net assets in securities
that are related in such a way that an economic, business or
political development or change affecting one security would also
affect the other securities, including, for example, securities
the interest upon which is paid from revenues of similar type
projects, or securities the issuers of which are located in the
same geographic area.
The investment objective and fundamental policies of each Fund,
as set forth above, may not be changed without the approval of a
majority of the respective Fund's outstanding shares.
Description of Municipal and Other Securities
The Prospectuses describe the general categories and nature of
municipal securities. Discussed below are the major attributes of
the various municipal and other securities in which each Fund may
invest.
Tax Anticipation Notes are used to finance working capital needs
of municipalities and are issued in anticipation of various
seasonal tax revenues which will be used to pay the notes. They
are usually general obligations of the issuer, secured by the
taxing power for the payment of principal and interest.
Revenue Anticipation Notes are issued in expectation of other
kinds of revenue, such as federal revenues available under the
Federal Revenue Sharing Program. They, also, are usually general
obligations of the issuer.
Bond Anticipation Notes are normally issued to provide interim
financing until long-term financing can be arranged. Long-term
bonds then provide the money for the repayment of the notes.
Construction Loan Notes are sold to provide construction
financing for specific projects. After successful completion and
acceptance, many projects receive permanent financing through the
Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage
Association.
Tax-Exempt Commercial Paper typically represents a short-term
obligation (270 days or less) issued by a municipality to meet
working capital needs.
Municipal Bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have
two principal classifications: general obligation bonds and
revenue bonds.
1. General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns and regional districts.
The proceeds of these obligations are used to fund a wide range
of public projects, including construction or improvement of
schools, highways, roads, and water and sewer systems. The basic
security behind general obligation bonds is the issuer's pledge
of its full faith, credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the
payment of debt service may be limited or unlimited as to the
rate or amount of special assessments.
2. Revenue Bonds. A revenue bond is not secured by the full
faith, credit and taxing power of an issuer. Rather, the
principal security for a revenue bond is generally the net
revenue derived from a particular facility, group of facilities,
or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a
wide variety of capital projects, including: electric, gas, water
and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. The
principal security behind these bonds may vary. Housing finance
authorities have a wide range of security, including partially or
fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public
projects. Many bonds provide additional security in the form of a
debt service reserve fund which may be used to make principal and
interest payments on the issuer's obligations. Some authorities
are provided further security in the form of a state's assurance
(although without obligation) to make up deficiencies in the debt
service reserve fund.
Industrial Development Bonds are in most cases revenue bonds and
are issued by or on behalf of public authorities to raise money
to finance various privately operated facilities for business,
manufacturing, housing, sports, and pollution control. These
bonds are also used to finance public facilities such as
airports, mass transit systems, ports and parking. The payment of
the principal and interest on such bonds is solely dependent on
the ability of the facility's user to meet its financial
obligations and the pledge, if any, of the real and personal
property so financed as security for such payments.
When-Issued Purchases. Municipal bonds are frequently offered on
a "when-issued" basis. When so offered, the price, which is
generally expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date. During the
period between purchase and settlement, no payment is made by a
Fund to the issuer and no interest accrues to a Fund. To the
extent that assets of a Fund are held in cash pending the
settlement of a purchase of securities, the Fund would earn no
income; however, it is each Fund's intention to be fully invested
to the extent practicable and subject to the policies stated
above. While when-issued securities may be sold prior to the
settlement date, each Fund intends to purchase such securities
with the purpose of actually acquiring them, unless a sale
appears desirable for investment reasons. At the time a Fund
makes the commitment to purchase a municipal bond on a when-
issued basis, it will record the transaction and reflect the
value of the security in determining its net asset value. Each
Fund believes that its net asset value or income will not be
adversely affected by its purchase of municipal bonds on a when-
issued basis. Each Fund will establish a segregated account in
which it will maintain cash and marketable securities equal in
value to commitments for when-issued securities.
Callable Bonds. There are municipal bonds which are issued with
provisions which prevent them from being called, typically for
periods of 5 to 10 years. During times of generally declining
interest rates, if the call-protection on callable bonds expires,
there is an increased likelihood that a number of such bonds may,
in fact, be called away by the issuers. Based on a number of
factors, including certain portfolio management strategies used
by the Funds' investment manager, each Fund believes it has
reduced the risk of adverse impact on net asset value based on
calls of callable bonds. The investment manager may dispose of
such bonds in the years prior to their call dates, if the
investment manager believes such bonds are at their maximum
premium potential. In pricing such bonds in each Fund's
portfolio, each callable bond is marked-to-market daily based on
the bond's call date. Thus, the call of some or all of a Fund's
callable bonds may have an impact on such Fund's net asset value.
In light of each Fund's pricing policies and because each Fund
follows certain amortization procedures required by the Internal
Revenue Service ("IRS"), a Fund is not expected to suffer any
material adverse impact related to the value at which a Fund has
carried the bonds in connection with calls of bonds purchased at
a premium. Notwithstanding such policies, however, the
reinvestment of the proceeds of any called bond may be in bonds
which pay a higher or lower rate of return than the called bonds;
and, as with any investment strategy, there is no guarantee that
a call may not have a more substantial impact than anticipated or
that each Fund's objective will be achieved.
Escrow-Secured Bonds or Defeased Bonds are created when an issuer
refunds in advance of maturity (or pre-refunds) an outstanding
bond issue which is not immediately callable, and it becomes
necessary or desirable to set aside funds for redemption of the
bonds at a future date. In an advance refunding, the issuer will
use the proceeds of a new bond issue to purchase high grade,
interest bearing debt securities which are then deposited in an
irrevocable escrow account held by a trustee bank to secure all
future payments of principal and interest of the advance refunded
bond. Escrow-secured bonds will often receive a triple-A rating
from S&P and Moody's.
Stripped Municipal Securities. Municipal Securities may also be
sold in "stripped" form. Stripped municipal securities represent
separate ownership of interest and principal payments on
municipal obligations.
Variable or Floating Rate Demand Notes ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest rate
and a right of demand, which may be unconditional, to receive
payment of the unpaid principal balance plus accrued interest
upon a short notice period (generally up to 30 days) prior to
specified dates, either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to
such instrument. The interest rates are adjustable at intervals
ranging from daily up to monthly, and are calculated to maintain
the market value of the VRDN at approximately its par value upon
the adjustment date.
The Money Fund will purchase variable or floating rate demand
instruments in accordance with procedures prescribed by its Board
of Trustees to minimize credit risks. Any VRDN purchased by the
Money Fund must be of high quality, as determined by the Board of
Trustees, with respect to both its long-term and short-term
aspects, except that where credit support for the instrument is
provided even in the event of default on the underlying security,
the Fund may rely only on the high quality character of the short-
term aspect of the demand instrument, i.e., the demand feature. A
VRDN which is unrated must have high quality characteristics,
similar to those rated, in accordance with policies and
guidelines determined by the Board of Trustees. If the quality of
any VRDN falls below the high quality level required by the Board
of Trustees and the rules adopted by the SEC, the Money Fund must
dispose of the instrument within a reasonable period of time by
exercising the demand feature or by selling the VRDN in the
secondary market, whichever is believed by the investment manager
to be in the best interests of the Money Fund and its
shareholders.
Certificates of Participation. Each Fund may also invest in
municipal lease obligations primarily through Certificates of
Participation ("COPs"). COPs are distinguishable from municipal
debt in that the lease which is the subject of the transaction
typically contains a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that, while the municipality
will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the
municipality's appropriating body does not allocate the necessary
funds.
While the risk of nonappropriation is inherent to COP financing,
each Fund believes that this risk is mitigated by its policy of
investing only in COPs rated within the four highest rating
categories, in the case of the Intermediate-Term Fund, or, in the
case of the Money Fund, the two highest rating categories, of
Moody's, S&P or Fitch, or in unrated COPs believed to be of
comparable quality and, with respect to the Insured Fund, only in
insured COPs. Criteria considered by the rating agencies and the
investment manager in assessing such risk include the issuing
municipality's credit rating, the essentiality of the leased
property to the municipality and the term of the lease compared
to the useful life of the leased property. The Board of Trustees
has determined that COPs held in each Fund's portfolio constitute
liquid investments based on various factors reviewed by the
investment manager and monitored by the Board. Such factors
include (a) the credit quality of such securities and the extent
to which they are rated; (b) the size of the municipal securities
market for a Fund, both in general and with respect to COPs; and
(c) the extent to which the type of COPs held by a Fund trade on
the same basis and with the same degree of dealer participation
as other municipal bonds of comparable credit rating or quality.
There is no limit as to the amount of assets which a Fund may
invest in COPs.
U.S. Government Obligations which may be owned by a Fund are
issued by the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds, or are issued by agencies and
instrumentalities of the U.S. government and backed by the full
faith and credit of the U.S. government.
Commercial Paper refers to promissory notes issued by
corporations in order to finance their short-term credit needs.
Certificates of Deposit are certificates issued against funds
deposited in a commercial bank, are for a definite period of
time, earn a specified rate of return, and are normally
negotiable.
Bankers' Acceptances are short-term credit instruments used to
finance the import, export, transfer, or storage of goods. They
are termed "accepted" when a bank guarantees their payment at
maturity.
Repurchase Agreements. The Money Fund may engage in repurchase
transactions, in which the Fund purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-upon
price and date. The transaction requires the collateralization of
the seller's obligation by the transfer of securities with an
initial market value, including accrued interest, equal to at
least 102% of the dollar amount invested by the Fund in each
agreement, with the value of the underlying security marked to
market daily to maintain coverage of at least 100%. A default by
the seller might cause the Money Fund to experience a loss or
delay in the liquidation of the collateral securing the
repurchase agreement. The Money Fund might also incur disposition
costs in liquidating the collateral. The Money Fund, however,
intends to enter into repurchase agreements only with government
securities dealers recognized by the Federal Reserve Board or
with member banks of the Federal Reserve System. Under the 1940
Act, a repurchase agreement is deemed to be the loan of money by
the Fund to the seller, collateralized by the underlying
security. The U.S. government security subject to resale (the
collateral) will be held pursuant to a written agreement and the
Fund's custodian will take title to, or actual delivery of, the
security. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the
Money Fund invest in repurchase agreements with a term of more
than one year. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one
year from the effective date of the repurchase agreement. The
Money Fund may not enter into a repurchase agreement with more
than seven days to maturity if, as a result, more than 10% of the
market value of the Fund's total assets would be invested in such
repurchase agreements.
Lending Portfolio Securities. Consistent with procedures approved
by the Board of Trustees and subject to the following conditions,
each Fund may lend its portfolio securities to qualified
securities dealers or other institutional investors, provided
that such loans do not exceed 10% of the value of the Fund's
total assets at the time of the most recent loan. The borrower
must deposit with the Funds' custodian collateral with an initial
market value of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the value
of the collateral and loaned securities marked-to-market daily to
maintain collateral coverage of at least 102%. Such collateral
shall consist of cash. The lending of securities is a common
practice in the securities industry. Each Fund may engage in
security loan arrangements with the primary objective of
increasing such Fund's income either through investing the cash
collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities
loan agreement, a Fund continues to be entitled to all dividends
or interest on any loaned securities. As with any extension of
credit, there are risks of delay in recovery and loss of rights
in the collateral should the borrower of the security fail
financially. While such securities are on loan, the borrower will
pay a Fund any income accruing thereon, and such Fund may invest
the cash collateral in portfolio securities, thereby earning
additional income. Each Fund will not lend its portfolio
securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for
sale. Loans are typically subject to termination by a Fund in the
normal settlement time or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated.
Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the lending
Fund and its shareholders. A Fund may pay reasonable finders',
borrowers', administrative and custodial fees in connection with
a loan of its securities.
Income derived by a Fund from securities lending transactions,
repurchase transactions, and investments in commercial paper,
bankers' acceptances and certificates of deposit will be taxable
for federal and New York City and New York State personal income
tax purposes when distributed to shareholders. Income derived by
a Fund from interest on direct obligations of the U.S. government
will be taxable for federal income tax purposes when distributed
to shareholders. If a Fund, however, meets the requirements of
New York State law and properly designates such distributions,
they will be excludable from income for New York State personal
income tax purposes.
Interest on obligations which are classified as "private activity
bonds" is not excluded from gross income for federal income tax
purposes under Section 103(b)(1) of the Code, unless such bonds
are registered (Section 149 of the Code) and certain other
requirements are satisfied. If such bonds do not satisfy these
requirements, such bonds are not included in the Funds'
definition of "municipal securities," and the Funds will
therefore not invest in them. Section 141(e) of the Code,
however, describes certain private activity bonds the interest on
which is excluded from federal gross income (certain small issues
and obligations to finance certain exempt facilities which may be
leased to or used by persons other than the issuer), except when
the bonds are held by "substantial users" or persons related to
substantial users as defined below. The Fund may invest
periodically in private activity bonds described in Section 141
of the Code. Since the Fund's holding of such bonds may be
attributed to such substantial users, the Fund may not be an
appropriate investment for persons or entities which are
substantial users of facilities financed by private activity
bonds or for investors who are "related persons." Generally, an
individual will not be a related person under the Code unless
such investor or investor's immediate family (spouse, brothers,
sisters and lineal descendants) own, directly or indirectly, in
the aggregate more than 50% in value of the equity of a
corporation or partnership which is a substantial user of a
facility financed with the proceeds of private activity bonds. A
"substantial user" of such facilities is defined generally by
Section 1.103-11(b) of the Treasury regulations as a "non-exempt
person who regularly uses a part of a facility" financed with the
proceeds of a private activity bond.
Interest on private activity bonds, as well as interest on
municipal bonds which are not private activity bonds, may become
includable in gross income, retroactively to the date of issue,
if the bonds become "arbitrage bonds" as defined in Section 148
of the Code or, in the case of private activity bonds, certain
requirements of the Code are not satisfied subsequent to the date
of issue.
Opinions relating to the validity of municipal securities and to
the exclusion from gross income for federal income tax purposes
of the interest thereon are rendered by bond counsel at the time
of issuance. The Funds do not review the proceedings relating to
the issuance of municipal securities, the basis for such
opinions, or actions of any of the parties thereto with respect
to compliance with requirements of the Code subsequent to the
date of issue to preserve the exclusion from gross income.
There may, of course, be other types of municipal securities that
become available which are similar to the foregoing described
municipal securities, in which each Fund may also invest, to the
extent such investments would be consistent with the foregoing
objectives and policies.
Timing of Securities Transactions
The Intermediate-Term Fund and the Insured Fund may purchase or
sell securities without regard to the length of time the security
has been held, and the frequency of portfolio transactions (the
turnover rate) will vary from year to year, depending on market
conditions. While short-term trading increases portfolio
turnover, the execution costs for municipal bonds are
substantially less than for equivalent dollar values of equity
securities. Portfolio turnover rates for the Intermediate-Term
Fund and the Insured Fund are in the Financial Highlights table
in their respective prospectuses. Because the Money Fund
purchases securities with maturities of less than 397 days,
securities which are excluded in making such a calculation, it
does not have nor is it expected to have any reportable turnover.
Insurance (Insured Fund Only)
Except for certain temporary short-term investments or U.S.
government guaranteed securities, the investment in municipal
securities by the Insured Fund is covered by insurance
guaranteeing the scheduled payment of principal and interest
thereon. Depending on market conditions, and under current
portfolio insurance restrictions, it is expected that New York
municipal securities will comprise a major portion of the
portfolio of the Insured Fund.
As described in its Prospectus, the Insured Fund will receive
payments of insurance for any installment of interest and
principal due for payment but which shall be unpaid by reason of
nonpayment by the issuer. The term "due for payment", in
reference to the principal of a security, means its stated
maturity date or the date on which it shall have been called for
mandatory sinking fund redemption and does not refer to any
earlier date on which payment is due by reason of a call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity; when referring to
interest on a security, the term means the stated date for
payment of interest. When, however, the interest on the security
shall have been determined, as provided in the underlying
documentation relating to such security, to be subject to federal
income taxation, due for payment, when referring to the principal
of such security, also means the date on which it has been called
for mandatory redemption as a result of such determination of
taxability; when referring to interest on such security, the term
means the accrued interest at the rate provided in such
documentation to the date on which it has been called for such
mandatory redemption, together with any applicable redemption
premium. The insurance feature insures the scheduled payment of
interest and principal and does not guarantee the market value of
the insured municipal securities nor the value of the shares of
the Insured Fund.
As stated in the Insured Fund's Prospectus, each insured
municipal security in the Insured Fund's portfolio will be
covered by either a "New Issue Insurance Policy" obtained by the
issuer of the security at the time of its original issuance or a
"Secondary Insurance Policy" or a "Portfolio Insurance Policy"
issued by a qualified municipal bond insurer.
Under the provisions of the Portfolio Insurance Policy, the
insurer unconditionally and irrevocably agrees to pay to the
appointed trustee or its successor and its agent (the "Trustee")
that portion of the principal of and interest on the securities
which shall become due for payment but shall be unpaid by reason
of nonpayment by the issuer. The insurer will make such payments
to the Trustee on the date such principal or interest becomes due
for payment or on the business day next following the day on
which the insurer shall have received notice of nonpayment,
whichever is later. The Trustee will disburse to the Insured Fund
the face amount of principal and interest which is then due for
payment but is unpaid by reason of nonpayment by the issuer but
only upon receipt by the Trustee of (i) evidence of the Insured
Fund's right to receive payment of the principal or interest due
for payment and (ii) evidence, including any appropriate
instruments of assignment, that all of the rights to payment of
such principal or interest due for payment shall thereupon vest
in the insurer. Upon such disbursement, the insurer shall become
the owner of the security, appurtenant coupon or right to payment
of principal or interest on such security and shall be fully
subrogated to all of the Insured Fund's rights thereunder,
including the right to payment thereof.
Bond insurers are often referred to as "monolines" in that they
only write financial guarantees, as opposed to "multiline"
insurers who write several different types of insurance policies,
such as life, auto and home insurance, and are exposed to many
types of risk. Additionally, bond insurers are not exposed to
"run risk" (which occurs when too many policyholders rush to cash
in their policies), because they only guarantee payment when due.
Also, in order to maintain triple-A status by the recognized
national securities rating agencies (which is required by the
Insured Fund), the bond insurers invest their assets mainly in
high quality municipal and corporate bonds rated double-A or
better and U.S. government obligations.
Neither the Insured Fund nor its investment manager make any
representations as to the ability of any insurance company to
meet its obligation to the Insured Fund if called upon to do so.
Investment Restrictions
The Trust has adopted the following restrictions as additional
fundamental policies of each Fund, which means that such
restrictions may not be changed without the approval of a
majority of the outstanding voting securities of that Fund. Under
the 1940 Act, a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Trust or of such Fund, or (2) 67% or
more of the shares of the Trust or of such Fund present at a
shareholders meeting if more than 50% of the outstanding shares
of the Trust or of such Fund are represented at the meeting in
person or by proxy. A Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except
that borrowings (and a pledge of assets thereof) for temporary or
emergency purposes may be made from banks in any amount up to 5%
of the total asset value. Secured temporary borrowings may take
the form of a reverse repurchase agreement, pursuant to which
each Fund would sell portfolio securities for cash and
simultaneously agree to repurchase them at a specified date for
the same amount of cash plus an interest component.
2. 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.
3. Make loans, except through the purchase of debt securities
which are customarily purchased by institutional investors,
including the municipal securities described above, or to the
extent the entry into a repurchase agreement may be deemed a
loan. Although such loans are not presently intended, this
prohibition will not preclude a Fund from loaning portfolio
securities to broker-dealers or other institutional investors if
at least 102% cash collateral is pledged and maintained by the
borrower; provided such portfolio security loans may not be made
if, as a result, the aggregate of such loans exceeds 10% of the
value of a Fund's total assets at the time of the most recent
loan.
4. Act as underwriter of securities issued by other persons
except insofar as a Fund may be technically deemed an underwriter
under the federal securities laws in connection with the
disposition of portfolio securities.
5. Purchase the securities of any issuer which would result in
owning more than 10% of the voting securities of such issuer.
6. Purchase 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 investment adviser own beneficially more than one-
half of 1% of the securities of such issuer and all such officers
and trustees together own beneficially more than 5% of such
securities.
7. Acquire, lease or hold real estate, except such as may be
necessary or advisable for the maintenance of its offices, and
provided that this limitation shall not prohibit the purchase of
municipal and other debt securities secured by real estate or
interests therein.
8. Invest in commodities and commodity contracts, puts, calls,
straddles, spreads, or any combination thereof, or interests in
oil, gas, or other mineral exploration or development programs,
except that each Fund may purchase, hold, and dispose of puts on
municipal securities in accordance with its investment policies.
9. Invest in companies for the purpose of exercising control or
management.
10. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization, except that the Intermediate-Term Fund may invest
in shares of one or more money market funds managed by Franklin
Advisers, Inc., to the extent permitted by exemptions granted
under the 1940 Act, and except to the extent the Insured Fund
invests its uninvested daily cash balances in shares of Franklin
New York Tax-Exempt Money Fund and other tax-exempt money market
funds in the Franklin Group of Funds provided i) its purchases
and redemptions of such money market fund shares may not be
subject to any purchase or redemption fees, ii) its investments
may not be subject to duplication of management fees, nor to any
charge related to the expense of distributing the Fund's shares
(as determined under Rule 12b-1, as amended under the federal
securities laws) and iii) provided aggregate investments by the
Insured Fund in any such money market fund do not exceed (A) the
greater of (i) 5% of the Fund's total net assets or (ii) $2.5
million, or (B) more than 3% of the outstanding shares of any
such money market fund.
11. Invest more than 10% of its assets in securities, in the case
of the Money Fund, with legal or contractual restrictions on
resale.
12. Invest more than 25% of its assets in securities of any
industry. For purposes of this limitation, tax-exempt securities
issued by governments or political subdivisions of governments
are not considered to be part of any industry.
In addition to these fundamental policies, it is the policy of
the Money Fund not to purchase securities of any issuer having a
record, together with predecessors, of less than three years'
continuous operation if, immediately after such purchase, more
than 10% of the Money Fund's assets taken at market value would
be invested in such securities; except that the Money Fund may
invest up to 20% of its assets in the securities of municipal
issuers which have been in continuous operation for less than
three years. It is not the policy of the Intermediate-Term Fund
to invest in real estate limited partnerships or in interests
(other than publicly traded securities) in oil, gas, or other
mineral leases, exploration or development.
Officers and Trustees
The Board of Trustees has the responsibility for the overall
management of the Trust, including general supervision and review
of its investment activities. The trustees, in turn, elect the
officers of the Trust who are responsible for administering day-
to-day operations of the Trust. The affiliations of the officers
and trustees and their principal occupations for the past five
years are listed below. Trustees who are deemed to be "interested
persons" of the Trust, as defined in the 1940 Act, are indicated
by an asterisk (*).
Name, Address Positions and Offices Principal Occupations
and Age with the Trust During Past Five Years
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment
company); and director, trustee or managing general partner, as
the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
Harris J. Ashton (62)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers); Director,
RBC Holdings, Inc. (a bank holding company) and Bar-S Foods; and
director, trustee or managing general partner, as the case may
be, of 54 of the investment companies in the Franklin Templeton
Group of Funds.
S. Joseph Fortunato (62)
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
of General Host Corporation; director, trustee or managing
general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director,
Berkeley Science Corporation (a venture capital company); and
director, trustee or managing general partner, as the case may
be, of 29 of the investment companies in the Franklin Group of
Funds.
*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the
Board and Director, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and General Host Corporation; and officer
and/or director, trustee or managing general partner, as the case
may be, of most other subsidiaries of Franklin Resources, Inc.
and of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
Executive Vice President and Director, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 42 of the
investment companies in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which
are General Partners of Peregrine Ventures and Peregrine Ventures
II (venture capital firms); Chairman of the Board and Director,
Quarterdeck Office Systems, Inc.; Director, FischerImaging
Corporation; and director or trustee, as the case may be, of 25
of the investment companies in the Franklin Group of Funds.
*William J. Lippman (70)
One Parker Plaza
Fort Lee, NJ 07024
Trustee
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., Franklin Templeton Distributors, Inc. and
Franklin Management, Inc.; officer and/or director or trustee of
six of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (66)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Corporation, Martin Marietta
Corporation, MCI Communications Corporation, MedImmune, Inc.
(biotechnology), Infovest Corporation (information services), and
Fusion Systems Corporation (industrial technology); and director,
trustee or managing general partner, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of
Funds; formerly, Chairman, Hambrecht and Quist Group; Director, H
& Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee of 41 of the investment companies in the
Franklin Templeton Group of Funds.
Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan (34)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer,
Franklin Resources, Inc.; Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice President and Treasurer, Franklin
Advisers, Inc. and Franklin Templeton Distributors, Inc.; Senior
Vice President, Franklin/Templeton Investor Services, Inc.;
officer of most other subsidiaries of Franklin Resources, Inc.;
and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 36 of the investment companies in
the Franklin Group of Funds.
Thomas J. Kenny (32)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Franklin Advisers, Inc. and officer of
eight of the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of the
investment companies in the Franklin Group of Funds.
Edward V. McVey (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 31 of the investment companies
in the Franklin Group of Funds.
Richard C. Stoker (57)
11615 Spring Ridge Rd.
Potomac, Maryland 20854
Vice President
Senior Vice President, Franklin Templeton Distributors, Inc.;
Vice President, Franklin Management, Inc.; and officer of four of
the funds in the Franklin Group of Funds.
Trustees not affiliated with the investment manager
("nonaffiliated trustees") are currently paid fees of $50 per
month plus $50 per meeting attended. During the fiscal year ended
December 31, 1994, fees totaling $7,250 were paid to
nonaffiliated trustees of the Trust. As indicated above, certain
of the trustees and officers hold positions with other companies
in the Franklin Group of Fundsr and the Templeton Funds
("Franklin Templeton Funds"). The following table shows the fees
paid by the Trust to its nonaffiliated trustees and the total
fees paid to such trustees by the Trust and other Franklin
Templeton Funds for which they serve as directors, trustees or
managing general partners.
Total
Compensation from
Aggregate Number of Franklin
Compensation Franklin Templeton
Name from Trust * Templeton Funds Funds,
Boards on Which including
Each Serves the Trust*
Frank H. Abbott, III $1,250 30 $176,870
Harris J. Ashton $1,200 54 $319,925
S. Joseph Fortunato $1,200 56 $336,065
David Garbellano $1,200 29 $153,300
Frank W.T. LaHaye $1,200 25 $150,817
Gordon Macklin $1,200 51 $303,685
*For the year ended December 31, 1994.
Nonaffiliated trustees are also reimbursed for expenses incurred
in connection with attending Board meetings, paid pro rata by
each Franklin Templeton Fund for which they serve as directors,
trustees or managing general partners. No officer or trustee
received any other compensation directly from the Trust. As of
March 3a, 1995, the trustees and officers, as a group, owned of
record and beneficially approximately 8,333 shares or less than
1% of the total outstanding shares of the Money Fund. The
trustees and officers did not own of record or beneficially any
outstanding shares of the Insured Fund or Intermediate-Term Fund.
In addition, many of the Trust's trustees own shares in various
of the other funds in the Franklin Group of Funds and the
Templeton Group of Funds. Certain officers or trustees who are
shareholders of Franklin Resources, Inc. may be deemed to receive
indirect remuneration by virtue of their participation, if any,
in the fees paid to its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers.
From time to time, the number shares of each Fund held in the
"street name" accounts of various securities dealers for the
benefit of their clients or in centralized securities
depositories may exceed 5% of the total shares outstanding. To
the best knowledge of the Trust, no other person holds
beneficially or of record more than 5% of a Fund's outstanding
shares.
Investment Advisory and Other Services
The investment manager of the Trust is Franklin Advisers, Inc.
("Advisers" or "Manager"). Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company whose shares are listed on the New York Stock
Exchange (the "Exchange"). Resources owns several other
subsidiaries which are involved in investment management and
shareholder services. The Manager and other subsidiary companies
of Resources currently manage over $116 billion in assets for
more than 3.8 million shareholders. The preceding table indicates
those officers and trustees who are also affiliated persons of
Distributors and Advisers.
Pursuant to separate management agreements, the Manager provides
investment research and portfolio management services, including
the selection of securities for each Fund to purchase, hold or
sell and the selection of brokers through whom each Fund's
portfolio transactions are executed. The Manager's extensive
research activities include, as appropriate, traveling to meet
with issuers and to review project sites. The Manager's
activities are subject to the review and supervision of the
Trust's Board of Trustees to whom the Manager renders periodic
reports of each Fund's investment activities. The Manager, at its
own expense, furnishes the Trust with office space and office
furnishings, facilities and equipment required for managing the
business affairs of the Trust; maintains all internal
bookkeeping, clerical, secretarial and administrative personnel
and services; and provides certain telephone and other mechanical
services. The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of the
Trust. The Trust bears all of its expenses not assumed by the
Manager.
See the Statement of Operations in the financial statements
included in the Trust's Annual Report to Shareholders dated
December 31, 1994, for additional details of these expenses.
Pursuant to the management agreements with the Intermediate-Term
and Insured Funds, each Fund is obligated to pay the Manager a
fee computed at the close of business on the last business day of
each month equal to a monthly rate of 5/96 of 1% (approximately
5/8 of 1% per year) for the first $100 million of average monthly
net assets of the Fund; 1/24 of 1% (approximately 1/2 of 1% per
year) of average monthly net assets of the Fund in excess of $100
million up to $250 million; and 9/240 of 1% (approximately 45/100
of 1% per year) of average monthly net assets of the Fund in
excess of $250 million. Each class of the Insured Fund will pay
its share of the fee as determined by the proportion of the
Insured Fund that it represents. Pursuant to its management
agreement with the Manager, the Money Fund pays a daily fee
(payable at the request of the Manager) computed at the rate of
1/584 of 1% (approximately 5/8 of 1% per year) of the average
daily net assets of the Fund for the first $100 million; plus
1/730 of 1% (approximately 1/2 of 1% per year) of average daily
net assets over $100 million up to $250 million; and 1/811 of 1%
(approximately 45/100 of 1% per year) of average daily net assets
in excess of $250 million.
The Manager has limited its management fees and has assumed
responsibility for making payments, if necessary, to offset
certain operating expenses otherwise payable by each Fund. This
action by the Manager to limit its management fees and to assume
responsibility for payment of the expenses related to the
operations of each Fund may be terminated by the Manager at any
time. The management agreement specifies that the management fee
will be reduced to the extent necessary to comply with the most
stringent limits on the expenses which may be borne by a Fund as
prescribed by any state in which a Fund's shares are offered for
sale. The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate
operating expenses of a Fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses such as
litigation costs) would otherwise exceed in any fiscal year 2.5%
of the first $30 million of average net assets of a Fund, 2% of
the next $70 million of average net assets of a Fund and 1.5% of
average net assets of a Fund in excess of $100 million. Expense
reductions have not been necessary based on state requirements.
The tables below sets forth the management fees each Fund was
contractually obligated to pay the Manager and the management
fees actually paid by each Fund, for the fiscal years ended
December 31, 1992, 1993, and 1994.
Fiscal Year Ended December 31, 1994:
Contractual Management
Management Fees Paid
Agreement By the Fund
Money Fund $ 369,023 $171,416
Insured Fund $1,349,257 $992,613
Intermediate-Term $ 234,273 $ -0-
Fund
Fiscal Year Ended December 31, 1993:
Contractual Management
Management Fees Paid
Agreement By the Fund
Money Fund $ 319,118 $142,460
Insured Fund $1,185,510 $868,888
Intermediate-Term $ 106,935 -0-
Fund
Fiscal Year Ended December 31, 1992:
Contractual Management
Management Fees Paid
Agreement By the Fund
Money Fund $392,002 $245,983
Insured Fund $605,593 $215,749
Intermediate-Term $ 5,283 -0-
Fund*
*For the period from September 21, 1992 (commencement of
operations) to December 31, 1992.
The management agreement for the Money Fund is in effect until
February 29, 1996 and the management agreements for the
Intermediate-Term and Insured Funds are in effect until March 31,
1996. Thereafter, they may continue in effect for successive
annual periods, provided such continuance is specifically
approved at least annually by a vote of the Trust's Board of
Trustees or by a vote of the holders of a majority of a Fund's
outstanding voting securities, and in either event by a majority
vote of the Trust's trustees who are not parties to the
management agreements or interested persons of any such party
(other than as trustees of the Trust), cast in person at a
meeting called for that purpose. The management agreements as to
the Insured Fund and the Intermediate-Term Fund may be terminated
without penalty at any time by such Funds or by the Manager on 30
days' written notice and, as to the Money Fund, on 60 days'
written notice, and will automatically terminate in the event of
their assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services"
or "Shareholder Services Agent"), a wholly-owned subsidiary of
Resources, is the shareholder servicing agent for the Trust and
acts as the Trust's transfer agent and dividend-paying agent.
Investor Services is compensated on the basis of a fixed fee per
account.
Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian of the securities
and other assets of the Trust. Citibank Delaware, One Penn's Way,
New Castle, Delaware 19720, acts as custodian in connection with
transfer services through bank automated clearing houses. The
custodians do not participate in decisions relating to the
purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Trust's independent auditors. During
the fiscal year ended December 31, 1994, their auditing services
consisted of rendering an opinion on the financial statements of
the Trust included in the Trust's Annual Report to Shareholders
dated December 31, 1994.
The Trust's Policies Regarding Brokers
Used on Portfolio Transactions
Since most purchases made by the Funds are principal transactions
at net prices, the Funds incur little or no brokerage costs. Each
Fund deals directly with the selling or purchasing 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 utilizing the services of a
broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between
the bid and ask price. As a general rule, the Funds do not
purchase bonds in underwritings where they are not given any
choice, or only limited choice, in the designation of dealers to
receive the commission. Each 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 rendered by such
dealers in the execution of orders. It is not possible to place a
dollar value on the special executions or on the research
services received by Advisers from dealers effecting transactions
in portfolio securities. The allocations of transactions in order
to obtain additional research services permits Advisers to
supplement its own research and analysis activities and to
receive the views and information of individuals and research
staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this
research and data in their investment advisory capacities with
other clients. Provided that the Trust's officers are satisfied
that the best execution is obtained, the sale of a Fund's shares
may also be considered as a factor in the selection of broker-
dealers to execute a Fund's portfolio transactions.
If purchases or sales of securities of a Fund and one or more
other investment companies or clients supervised by the Manager
are considered at or about the same time, transactions in such
securities will be allocated among the several investment
companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds
and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly have
a detrimental effect on the price or volume of the security so
far as a Fund is concerned. In other cases, it is possible that
the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to a
Fund.
During the fiscal years ended December 31, 1992, 1993 and 1994,
the Funds paid no brokerage commissions. As of December 31, 1994,
the Funds did not own securities of their regular broker-dealers.
Additional Information Regarding Trust Shares
All checks, drafts, wires and other payment mediums used for
purchasing or redeeming shares of the Trust must be denominated
in U.S. dollars. The Trust reserves the right, in its sole
discretion, to either (a) reject any order for the purchase or
sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to a shareholder's account
for the transaction as of a date and with a foreign currency
exchange factor determined by the drawee bank.
In connection with exchanges, (see the Prospectuses "Exchange
Privilege"), it should be noted that since the proceeds from the
sale of shares of an investment company generally are not
available until the fifth business day following the redemption,
the fund into which a Fund's shareholders are seeking to exchange
reserve the right to delay issuing shares pursuant to an exchange
until said fifth business day. The redemption of shares of a Fund
to complete an exchange for shares of any of the investment
companies will be effected at the close of business on the day
the request for exchange is received in proper form at the net
asset value then effective.
A Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
a Fund's shares, submits a check or a draft which is returned
unpaid to such Fund.
Shares are eligible to receive dividends beginning on the first
business day following settlement of the purchase transaction,
through the date on which the Fund writes a check or sends a wire
on redemption transactions.
Dividend checks which are returned to a Fund marked "unable to
forward" by the postal service will be deemed to be a request by
the shareholder to change the dividend option and the proceeds
will be reinvested in additional shares at the respective Fund's
net asset value until new instructions are received.
The Trust may deduct from a shareholder's account the costs of
its efforts to locate a shareholder if mail is returned as
undeliverable or the Trust is otherwise unable to locate the
shareholder or verify the current mailing address. These costs
may include a percentage of the account when a search company
charges a percentage fee in exchange for its location services.
Under agreements with certain banks in Taiwan, Republic of China,
the Insured Fund's and the Intermediate-Term Fund's shares are
available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who
participate in the discretionary trusts. Pursuant to agreements,
a portion of such service fees may be paid to Distributors, or an
affiliate of Distributors, to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
Shares of the Intermediate-Term Fund and Class I shares of the
Insured Fund may be offered to investors in Taiwan through
securities firms known locally as Securities Investment
Consulting Enterprises. In conformity with local business
practices in Taiwan, shares of either Fund will be offered with
the following schedule of sales charges:
Size of Purchase - in U.S. dollars Sales Charge
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%
Purchases and Redemptions through Securities Dealers
Orders for the purchase of shares of the Insured Fund and the
Intermediate-Term Fund received in proper form prior to the
scheduled closing time of the Exchange (generally 1:00 p.m.
Pacific time or 4:00 p.m. Eastern time) any business day that the
Exchange is open for trading and promptly transmitted to the
respective Fund will be based upon the public offering price
determined that day. Purchase orders received by securities
dealers or other financial institutions after the closing of the
Exchange will be effected at the respective Fund's public
offering price on the day it is next calculated. The use of the
term "securities dealer" herein shall include other financial
institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and
accounts with the Funds. Such reference, however, is for
convenience only and does not indicate a legal conclusion of
capacity.
Orders for the redemption of shares are effected at net asset
value subject to the same conditions concerning time of receipt
in proper form. It is the securities dealer's responsibility to
transmit the order in a timely fashion and any loss to the
customer resulting from failure to do so must be settled between
the customer and the securities dealer.
Effectiveness of Purchase Orders (Money Fund)
The purchase price for shares of the Money Fund is the net asset
value of such shares next determined after receipt and acceptance
of a purchase order in proper form. Many of the types of
instruments in which the Money Fund invests must be paid for in
federal funds, which are monies held by the custodian on deposit
at the Federal Reserve Bank of San Francisco and elsewhere.
Therefore, the monies paid by an investor for shares of the Money
Fund generally cannot be invested by the Money Fund until they
are converted into and are available to the Money Fund in federal
funds, which may take up to two days. In such cases, purchases by
investors may not be considered in proper form and effective
until such conversion and availability. In the event the Money
Fund is able to make investments immediately (within one business
day), however, it may accept a purchase order with payment other
than in federal funds; in such event, shares of the Money Fund
will be purchased at the net asset value next determined after
receipt of the order and payment. Once shares of the Money Fund
are purchased, they begin earning income immediately, and income
dividends will start being credited to the investor's account on
the day following the effective date of purchase and continue
through the day all shares in the account are redeemed.
Payments transmitted by wire and received by the custodian and
reported by the custodian to the Money Fund prior to 3:00 p.m.
Pacific time (6:00 p.m. Eastern time) on any business day are
normally effective on the same day as received. Wire payments
received or reported by the custodian to the Money Fund after
that time will normally 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.
Special Net Asset Value Purchases (Intermediate-Term Fund and
Class I Shares of the Insured Fund)
As discussed in the Prospectuses for the Intermediate-Term Fund
and the Insured Fund under "How to Buy Shares of the Fund -
Description of Special Net Asset Value Purchases," certain
categories of investors may purchase shares of the Intermediate-
Term Fund and Class I shares of the Insured Fund without a front-
end sales charge ("net asset value") or a contingent deferred
sales charge. Distributors or one of its affiliates may make
payments, out of its own resources, to securities dealers who
initiate and are responsible for such purchases, as indicated
below. Distributors may make these payments in the form of
contingent advance payments, which may be recovered from the
securities dealer, or set off against other payments due to the
securities dealer, in the event of investor redemptions made
within 12 months of the calendar month following purchase. Other
conditions may apply. All terms and conditions may be imposed by
an agreement between Distributors, or its affiliates, and the
securities dealer. For purchases made at net asset value by
certain trust companies and trust departments of banks,
Distributors or one of its affiliates, out of its own resources,
may pay up to 1% of the amount invested.
Letter of Intent (Intermediate-Term Fund and Class I Shares of
the Insured Fund)
An investor may qualify for a reduced sales charge on the
purchase of shares of the Intermediate-Term Fund and Class I
shares of the Insured Fund, as described in their Prospectuses.
At any time within 90 days after the first investment which the
investor wants to qualify for a reduced sales charge, a signed
Shareholder Application, with the Letter of Intent section
completed, may be filed with the respective Fund. After the
Letter of Intent is filed, each additional investment will be
entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent. Sales charge
reductions based upon purchases in more than one of the Franklin
Templeton Funds will be effective only after notification to
Distributors that the investment qualifies for a discount. The
shareholder's holdings in the Franklin Templeton Funds, including
Class II shares, acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the Letter
of Intent but will not be entitled to a retroactive downward
adjustment in the sales charge. Any redemptions made by the
shareholder during the 13-month period will be subtracted from
the amount of the purchases for purposes of determining whether
the terms of the Letter of Intent have been completed. If the
Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge, depending
upon the amount actually purchased (less redemptions) during the
period. An investor who executes a Letter of Intent prior to a
change in the sales charge structure for the Insured Fund or the
Intermediate-Term Fund will be entitled to complete the Letter of
Intent at the lower of the new sales charge structure or the
sales charge structure in effect at the time the Letter of Intent
was filed with the respective Fund.
As mentioned in the Prospectuses of the Insured Fund and the
Intermediate-Term Fund, five percent (5%) of the amount of the
total intended purchase will be reserved in shares of the
respective Fund registered in the investor's name. If the total
purchases, less redemptions, equal the amount specified under the
Letter of Intent, the reserved shares will be deposited to an
account in the name of the investor or delivered to the investor
or the investor's order. If the total purchases, less
redemptions, exceed the amount specified under the Letter of
Intent and is an amount which would qualify for a further
quantity discount, a retroactive price adjustment will be made by
Distributors and the securities dealer through whom purchases
were made pursuant to the Letter of Intent (to reflect such
further quantity discount) on purchases made within 90 days
before and on those made after filing the Letter of Intent. The
resulting difference in offering price will be applied to the
purchase of additional shares at the offering price applicable to
a single purchase or the dollar amount of the total purchases. If
the total purchases, less redemptions, are less than the amount
specified under the Letter of Intent, the investor will remit to
Distributors an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales
charge which would have applied to the aggregate purchases if the
total of such purchases had been made at a single time. The
shareholder will receive a written notification from Distributors
requesting the remittance. Upon such remittance, the reserved
shares held for the investor's account will be deposited to an
account in the name of the investor or delivered to the investor
or to the investor's order. If within 20 days after written
request such difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to realize
such difference will be made. In the event of a total redemption
of the account prior to fulfillment of the Letter of Intent, the
additional sales charge due will be deducted from the proceeds of
the redemption, and the balance will be forwarded to the
investor.
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 applicable Fund's net assets
at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. In the case of requests
for redemption in excess of such amounts, the Board of Trustees
reserves the right to make payments in whole or in part in
securities or other assets of the Fund from which the shareholder
is redeeming, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing
shareholders of such Fund. In such circumstances, the securities
distributed would be valued at the price used to compute the
Fund's net assets. Should a Fund do so, a shareholder may incur
brokerage fees in converting the securities to cash. The Funds do
not intend to redeem illiquid securities in kind; however, should
it happen, shareholders may not be able to timely recover their
investment and may also incur brokerage costs in selling such
securities.
Redemptions by the Funds
Due to the relatively high cost of handling small investments,
each Fund reserves the right to redeem, involuntarily, at net
asset value, the shares of any shareholder whose account has a
value of less than one-half of the initial minimum investment
required for that shareholder, but only where the value of such
account has been reduced by the shareholder's prior voluntary
redemption of shares. Until further notice, it is the present
policy of each Fund not to exercise this right with respect to
any shareholder whose account has a value of $50 or more with
respect to the Intermediate-Term Fund and the Insured Fund and
$250 or more with respect to the Money Fund. In any event, before
a Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the
shares in the account is less than the minimum amount and allow
the shareholder 30 days to make an additional investment in an
amount which will increase the value of the account to at least
$100 in the case of the Intermediate-Term Fund and the Insured
Fund and $500 in the case if the Money Fund.
Calculation of Net Asset Value
As noted in the Prospectuses, each Fund and each class of the
Insured Fund generally calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time
for the Intermediate-Term Fund and each class of the Insured Fund
and 3:00 p.m. Pacific time for the Money Fund). As of the date of
this SAI, the Trust is informed that the Exchange observes the
following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each Fund's portfolio securities are valued as stated in their
Prospectuses. Generally, trading in corporate bonds, U.S.
government securities and money market instruments is
substantially completed each day at various times prior to the
close of the Exchange. The values of such securities used in
computing the net asset value of each Fund's shares are
determined as of such times. Occasionally, events affecting the
values of such securities may occur between the times at which
they are determined and 1:00 p.m. Pacific time which will not be
reflected in the computation of a Fund's net asset value. If
events materially affecting the value of such securities occur
during such period, then these securities will be valued at their
fair value as determined in good faith by the Board of Trustees.
The valuation of the Money Fund's portfolio securities (including
any securities held in a separate account maintained for when-
issued securities) is based upon their amortized cost, which does
not take into account unrealized capital gains or losses. This
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 Money Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on
shares of the Money Fund computed as described above may tend to
be higher than a like computation made by a fund with identical
investments 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 Money Fund
resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Money Fund would be able to
obtain a somewhat higher yield than would result from investment
in a fund utilizing solely market values, and existing investors
in the Money Fund would receive less investment income. The
converse would apply in a period of rising interest rates.
The Money Fund's use of amortized cost, which facilitates the
maintenance of the Money Fund's per share net asset value of
$1.00, is permitted by a rule adopted by the SEC. Pursuant to
this rule, the Money Fund must adhere to certain conditions. The
Money Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, only purchase instruments having
remaining maturities of 397 calendar days or less, and invest
only in those United States dollar-denominated instruments that
the Board of Trustees determines present minimal credit risks and
which are, as required by the federal securities laws, rated in
one of the two highest rating categories as determined by
nationally recognized statistical rating agencies, instruments
deemed comparable in quality to such rated instruments, or
instruments the issuers of which, with respect to an outstanding
issue of short-term debt that is comparable in priority and
protection, have received a rating within the two highest
categories of a nationally recognized statistical rating agency.
As discussed in the Money Fund's Prospectus, securities subject
to floating or variable interest rates with demand features in
compliance with applicable rules of the SEC may have stated
maturities in excess of one year. The trustees have agreed to
establish procedures designed to stabilize, to the extent
reasonably possible, the Money Fund's price per share, as
computed for the purpose of sales and redemptions, at $1.00. Such
procedures will include review of the Money Fund's portfolio
holdings by the trustees, at such intervals as they may deem
appropriate, to determine whether the Money Fund's net asset
value calculated by using available market quotations deviates
from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the trustees. If such deviation
exceeds 1/2 of 1%, the trustees will promptly consider what
action, if any, will be initiated. In the event the trustees
determine that a deviation exists which may result in material
dilution or other unfair results to investors or existing
shareholders, they will take such corrective action as they
regard as necessary and appropriate, which may include the sale
of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity,
withholding dividends, redemptions of shares in kind, or
establishing a net asset value per share by using available
market quotations.
Reports to Shareholders
The Trust sends annual and semi-annual reports to its
shareholders regarding each Fund's performance and portfolio
holdings. Shareholders who would like to receive an interim
quarterly report may phone Fund Information at 1-800 DIAL BEN.
Special Services
Investor Services may charge separate fees to shareholders of the
Money Fund, to be negotiated directly with such shareholders, for
providing special services in connection with their accounts,
such as processing a large number of checks each month. Such fees
for special services to such shareholders will not increase the
expenses borne by the Money Fund.
As noted in the Money Fund's Prospectus, special procedures have
been designed for banks and other institutions wishing to open
multiple accounts in the Money Fund. The institution may open a
single master account by filing one application form with the
Money 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 they may be added
at a later date by written advice or by filing forms supplied by
the Trust. These sub-accounts may be established by the
institution with registration either by name or number. The
investment minimums applicable to the Money Fund are applicable
to each sub-account. The Trust 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.
Further, the Trust will provide to each institution, on a
quarterly basis, or more frequently as requested, a statement
which will set forth each sub-account's share balance, income
earned for the period, income earned for the year to date, and
the total current market value of the account.
The Trust and Institutional Services Division of Distributors
provides specialized services, including recordkeeping, for
institutional investors of each Fund. The cost of these services
is not borne by the Funds.
Investor Services may pay certain financial institutions which
maintain omnibus accounts with the Trust on behalf of numerous
beneficial owners for recordkeeping operations performed with
respect to such beneficial owners. For each beneficial owner in
the omnibus account, the Funds may reimburse Investor Services an
amount not to exceed the per account fee which the Trust normally
pays Investor Services. Such financial institutions may also
charge a fee for their services directly to their clients.
Additional Information Regarding Distributions and Taxation
Distributions
In order to maintain a $1.00 net asset value per share, the Money
Fund may make distributions and distribution adjustments from
realized gains and losses on the sale of portfolio securities or
from unrealized appreciation or depreciation in the value of
portfolio securities. This may result in under or over
distributions of investment company taxable income.
Shareholders of the Money Fund who so request may have their
dividends paid out monthly in cash. The shares reinvested and
credited to their account during the month will be redeemed as of
the close of business on the last bank business day of the month
and the proceeds will be paid to them in cash. If a shareholder
withdrew the entire amount in an account at any time during the
month, all dividends accrued with respect to the account during
the month to the time of withdrawal would be paid in the same
manner and at the same time as the proceeds of withdrawal. Each
Money Fund shareholder will receive a monthly summary of the
account, including information as to dividends reinvested or
paid.
The Board of Trustees reserves the right to revise the above
dividend policy or postpone the payment of dividends, if
warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
Additional Information Regarding Taxation
As stated in the Prospectuses, each Fund has elected to be
treated as a regulated investment company under Subchapter M of
the Code. The trustees reserve the right not to maintain the
qualification of a Fund as a regulated investment company if they
determine such course of action to be beneficial to shareholders.
In such case, such Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, to the
alternative minimum tax on its tax-exempt income, and
distributions (including tax-exempt interest dividends) to
shareholders will be taxable to the extent of the Fund's
available earnings and profits.
The Code requires all funds to distribute at least 98% of their
taxable ordinary income earned during the calendar year and at
least 98% of their capital gain net income earned during the
twelve-month period ending October 31 of each year (in addition
to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in
order to avoid the imposition of a federal excise tax. Under
these rules, certain distributions which are declared in October,
November or December but which, for operational reasons, may not
be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Funds and received by
the shareholder on December 31 of the calendar year in which they
are declared. Each Fund intends as a matter of policy to declare
and pay such dividends, if any, in December to avoid the
imposition of this tax, but does not guarantee that its
distributions will be sufficient to avoid any or all federal
excise taxes.
The Money Fund may derive capital gains or losses in connection
with sales or other dispositions of its portfolio securities.
Because the Money Fund's portfolio under normal circumstances is
composed of short-term securities, however, the Fund does not
expect to realize any long-term capital gains or losses.
Distributions by each Fund derived from net short-term and net
long-term capital gains (after taking into account any net
capital loss carryovers) may generally be made twice each year.
One distribution may be made in December to reflect the net short-
term and net long-term capital gains realized by a Fund as of
October 31 of such year. Any net short-term and net long-term
capital gains realized by a Fund during the remainder of the
fiscal year may be distributed following the end of the fiscal
year. These distributions, when made, will generally be fully
taxable to a Fund's shareholders. Each Fund may make only one
distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of its
distributions for operational or other reasons.
Redemptions and exchanges of Fund shares are taxable transactions
for federal and state income tax purposes. For most shareholders
subject to taxation, gain or loss will be recognized in an amount
equal to the difference between the shareholder's basis in the
shares and the amount realized from the transaction, subject to
the rules described below. If such shares are a capital asset in
the hands of the shareholder, gain or loss will be capital gain
or loss and will be long-term for federal income tax purposes if
the shares have been held for more than one year.
All or a portion of a loss realized upon a redemption of shares
will be disallowed to the extent other shares of the Funds are
purchased (through reinvestment of dividends or otherwise) within
30 days before or after such redemption. Any loss disallowed
under these rules will be added to the tax basis of the shares
purchased.
All or a portion of the sales charge incurred in purchasing
shares of a Fund will not be included in the federal tax basis of
such shares sold or exchanged within 90 days of their purchase
(for purposes of determining gain or loss upon the sale of such
shares) if the sales proceeds are reinvested in the Fund or in
another fund in the Franklin/Templeton Group and a sales charge
that would otherwise apply to the reinvestment is reduced or
eliminated. Any portion of such sales charge excluded from the
tax basis of the shares sold will be added to the tax basis of
the shares acquired in the reinvestment. Shareholders should
consult with their tax advisors concerning the tax rules
applicable to the redemption or exchange of fund shares.
Any loss realized upon the redemption of shares within six months
from the date of their purchase will be treated as a long-term
capital loss to the extent of amounts treated as distributions of
net long-term capital gain during such six-month period and will
be disallowed to the extent of exempt-interest dividends paid
with respect to such shares.
Persons who are defined in the Code as "substantial users" (or
related persons) of facilities financed by private activity bonds
should consult with their tax advisors before purchasing shares
of a Fund.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Funds and the
application of foreign tax laws to these distributions.
The Trust's Underwriter
Distributors acts as principal underwriter in a continuous public
offering for shares of the Funds, including both classes of
shares of the Insured Fund, pursuant to separate agreements with
the Funds. The underwriting agreements are in effect until
February 29, 1996 (Money Fund) and March 31, 1996 (Intermediate-
Term Fund and Insured Fund) and will continue in effect for
successive annual periods, provided that their continuance is
specifically approved at least annually by a vote of the Trust's
Board of Trustees, or by a vote of the holders of a majority of
the Trust's outstanding voting securities, and in either event by
a majority vote of the Trust's trustees who are not parties to
the underwriting agreements or interested persons of any such
party (other than as trustees of the Trust), cast in person at a
meeting called for that purpose. The underwriting agreements
terminate automatically in the event of their assignment and may
be terminated by either party on 90 days' written notice.
Distributors pays the expenses of distribution of the Funds'
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.
Until April 30, 1994, income dividends for the Class I shares of
the Insured Fund were reinvested at the offering price (which
includes the sales charge) and Distributors allowed 50% of the
entire commission to the securities dealer of record, if any, on
an account. Starting with any income dividends paid by the
Insured Fund after April 30, 1994, such reinvestments will be at
net asset value.
In connection with the offering of the Intermediate-Term Fund's
shares and the Class I shares of the Insured Fund, aggregate
underwriting commissions received by Distributors and the amounts
retained by Distributors after allowances to dealers for the
fiscal years ended December 31, 1992, 1993 and 1994, were as
follows:
Fiscal Year ended December 31, 1994
Total
Commissions Amount
Fund Received Retained
Insured Fund $1,248,174 $56,758
Intermediate-Term Fund $ 206,123 $25,515
Fiscal Year ended December 31, 1993
Total
Commissions Amount
Fund Received Retained
Insured Fund $3,782,172 $81,946
Intermediate-Term Fund $ 406,861 $41,280
Fiscal year ended December 31, 1992
Total
Commissions Amount
Fund Received Retained
Insured Fund $3,871,611 $37,129
Intermediate-Term Fund* $ 14,791 $ 2,020
*For the period from September 21, 1992 (commencement of
operations) to December 31, 1992.
Distributors may be entitled to reimbursement under the
distribution plans of the Intermediate-Term Fund and the Class I
shares of the Insured Fund, as discussed below. Except as noted,
Distributors received no other compensation from the Trust for
acting as underwriter.
Distribution Plans (Intermediate-Term Fund and Insured Fund)
Each class of the Insured Fund has adopted a distribution plan
("Class I Plan" and "Class II Plan", respectively) pursuant to
Rule 12b-1 under the 1940 Act. The Intermediate-Term Fund has
also adopted a distribution plan pursuant to Rule 12b-1 (the
"Intermediate-Term Plan"). The distribution plans for each Fund
and class may be collectively referred to as the "Plans".
Pursuant to the Class I Plan and the Intermediate-Term Plan, each
Fund may pay up to a maximum of 0.10% per annum (0.10 of 1%) of
its average daily net assets for expenses incurred in the
promotion and distribution of its shares.
Class I Plan and Intermediate-Term Plan. In implementing the
Class I Plan and the Intermediate-Term Plan, the Board of
Trustees has determined that the annual fees payable thereunder
will be equal to the sum of: (i) the amount obtained by
multiplying 0.10% by the average daily net assets represented by
shares of the Intermediate-Term Fund or Class I shares of the
Insured Fund that were acquired by investors on or after May 1,
1994 ("New Assets"), and (ii) the amount obtained by multiplying
0.05% by the average daily net assets represented by shares of
such Funds and class that were acquired before May 1, 1994 ("Old
Assets"). Such fees will be paid to the current securities dealer
of record on the shareholder's account. In addition, until such
time as the maximum payment of 0.10% is reached on a yearly
basis, up to an additional 0.02% will be paid to Distributors
under the Plans. The payments to be made to Distributors will be
used by Distributors to defray other marketing expenses that have
been incurred in accordance with the Plans, such as advertising.
The fee relating to the Class I Plan and the Intermediate-Term
Plan is an expense of Class I as a whole and is a Fund expense of
the Intermediate-Term Fund, so that all shareholders, regardless
of when they purchased their shares, will bear Rule 12b-1
expenses at the same rate. That rate initially will be at least
0.07% (0.05% plus 0.02%) of such average daily net assets and, as
Class I shares and Intermediate-Term Fund shares are sold on or
after May 1, 1994, will increase over time. Thus, as the
proportion of Intermediate-Term Fund shares and Class I shares of
the Insured Fund purchased on or after May 1, 1994 increases in
relation to outstanding shares of such Fund or class, the
expenses attributable to payments under the Plans will also
increase (but will not exceed 0.10% of average daily net assets).
While this is the currently anticipated calculation for fees
payable under the Class I Plan and the Intermediate-Term Plan,
such Plans permit the Trust's trustees to allow the Intermediate-
Term Fund and the Insured Fund to pay a full 0.10% on all assets
at any time. The approval of the Trust's Board of Trustees would
be required to change the calculation of the payments to be made
under the Intermediate-Term Plan and the Class I Plan.
Pursuant to the Intermediate-Term Plan and the Class I Plan,
Distributors or others will be entitled to be reimbursed each
quarter (up to the maximum as stated above) for actual expenses
incurred in the distribution and promotion of the Intermediate-
Term Fund's shares and the Class I shares of the Insured Fund,
including, but not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses
attributable to the distribution of such Fund's or class' shares,
as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing
agreement with the Intermediate-Term Fund or the Insured Fund,
Distributors, or its affiliates.
For the fiscal year ended December 31, 1994, the total amounts
paid by the Intermediate-Term Fund and Class I of the Insured
Fund pursuant to the Plans were $18,688 and $117,222,
respectively, which were used for the following purposes.
Intermediate- Insured
Term Fund Fund -
Class I
Advertising -0- $23,444
Printing and mailing of
prospectuses to other than current
shareholders -0- $ 5,861
Payments to underwriters -0- $ 3,517
Payments to brokers or dealers $18,688 $84,400
The Class I Plan and the Intermediate-Term Plan do not permit
unreimbursed expenses incurred in a particular year to be carried
over to or reimbursed in subsequent years.
The Class II Plan. Under the Class II Plan, the Insured Fund is
permitted to pay to Distributors or others annual distribution
fees, payable quarterly, of .50% of Class II's daily net assets,
in order to compensate Distributors or others for providing
distribution and related services and bearing certain expenses of
the Class. All expenses of distribution and marketing over that
amount will be borne by Distributors, or others who have incurred
them, without reimbursement by the Insured Fund. In addition to
this amount, under the Class II Plan, the Insured Fund shall pay
0.15% per annum, payable quarterly, of the Class' average daily
net assets as a servicing fee. This fee will be used to pay
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Insured Fund on behalf of the customers, and similar activities
related to furnishing personal services and maintaining
shareholder accounts. Distributors may pay the securities
dealer, from its own resources, a commission of up to 1% of the
amount invested.
In General. In addition to the payments to which Distributors or
others are entitled under the Plans, the Plans also provide that
to the extent the Intermediate-Term Fund or the Insured Fund, the
Manager or Distributors or other parties on behalf of such Funds,
the Manager or Distributors, make payments that are deemed to be
payments for the financing of any activity primarily intended to
result in the sale of shares of such Funds, including shares of
each class of the Insured Fund, within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to have
been made pursuant to the Plans.
In no event shall the aggregate asset-based sales charges which
include payments made under the Plans, plus any other payments
deemed to be made pursuant to the Plans, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article
III, Section 26(d)4. The terms and provisions of the Plans
relating to required reports, term, and approval are consistent
with Rule 12b-1.
To the extent fees are for distribution or marketing functions,
as distinguished from administrative servicing or agency
transactions, certain banks will not be entitled to participate
in the Plans to the extent that applicable federal law prohibits
certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to
receive fees under the Plans for administrative servicing or for
agency transactions. If a bank were prohibited from providing
such services, its customers who are shareholders would be
permitted to remain shareholders of the Intermediate-Term Fund
and the Insured Fund and alternate means for continuing the
servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such
shareholders might no longer be able to avail themselves of any
automatic investment or other services then being provided by the
bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
changes. Securities laws of states in which such Funds' shares
are offered for sale may differ from the interpretations of
federal law expressed herein, and banks and financial
institutions selling shares of such Funds may be required to
register as dealers pursuant to state law.
The Plans have been approved by the shareholders of each Fund,
and by the trustees of the Trust, including those trustees who
are not interested persons, as defined in the 1940 Act. The Class
II Plan became effective on May 1, 1995. The Plans are effective
through March 31, 1996 and renewable annually by a vote of the
Trust's Board of Trustees, including a majority vote of the
trustees who are non-interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the
Plans, cast in person at a meeting called for that purpose. It is
also required that the selection and nomination of such trustees
be done by the non-interested trustees. The Plans and any related
agreement may be terminated at any time, without any penalty, by
vote of a majority of the non-interested trustees on not more
than 60 days' written notice, by Distributors on not more than 60
days' written notice, by any act that constitutes an assignment
of the management agreement with the Manager or, with respect to
the Intermediate-Term Fund, the underwriting agreement with
Distributors, or by vote of a majority of the respective 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 Plans and any related agreements may not be amended to
increase materially the amount to be spent for distribution
expenses without approval by a majority of the respective Fund's
and class' outstanding shares, and all material amendments to the
Plans or any related agreements shall be approved by a vote of
the non-interested trustees, cast in person at a meeting called
for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of
Trustees at least quarterly on the amounts and purpose of any
payment made under the Plans and any related agreements, as well
as to furnish the Board of Trustees with such other information
as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plans
should be continued.
General Information
Performance
As noted in the Prospectuses, each Fund and each class of the
Insured Fund may from time to time quote various performance
figures to illustrate its past performance. The Funds, including
each class of the Insured Fund, may occasionally cite statistics
to reflect their volatility or risk.
INTERMEDIATE-TERM AND INSURED FUNDS
Performance quotations by investment companies are subject to
rules adopted by the SEC. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a Fund or
class be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and
average annual compounded total return quotations used by a Fund
or class are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and
other methods used by the Intermediate-Term Fund and the classes
of the Insured Fund to compute or express performance follows.
Total Return
The average annual total return is determined by finding the
average annual compounded rates of return over one-, five- and
ten-year periods, or fractional portion thereof, that would
equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum front-end
sales charge is deducted from the initial $1,000 purchase order
and income dividends and capital gains are reinvested at net
asset value. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year period and
the deduction of all applicable charges and fees. If a change is
made in the sales charge structure, historical performance
information will be restated to reflect the maximum front-end
sales charge currently in effect.
In considering the quotations of total return by the Funds and
classes, investors should remember that the maximum front-end
sales charge reflected in each quotation is a one-time fee
(charged on all direct purchases) which will have its greatest
impact during the early stages of an investor's investment in a
Fund. The actual performance of an investment will be affected
less by this charge the longer an investor retains the investment
in a Fund. The average annual compounded rates of return for the
Intermediate-Term Fund and Class I of the Insured Fund for the
indicated periods ended on December 31, 1994, were as follows:
Fund Name One Year From Inception
Insured Fund - Class I -12.04% 4.49%
Intermediate-Term Fund - 7.46% 1.80%
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or ten-year periods at
the end of the one-, five-, or ten-year periods (or fractional
portion thereof).
As discussed in their Prospectuses, the Intermediate-Term Fund
and each class of the Insured Fund may quote total rates of
return in addition to their average annual total return. Such
quotations are computed in the same manner as the Funds' or a
class' average annual compounded rate, except that such
quotations will be based on each Fund's or class' actual return
for a specified period rather than on its average return over one-
, five- and ten-year periods. The total rates of return for the
Intermediate-Term Fund and Class I of the Insured Fund for the
indicated periods ended on December 31, 1994 were as follows:
Fund Name One Year From Inception
Insured Fund - Class I -12.04% 17.50%
Intermediate-Term Fund - 7.46% 4.15%
Yield
Current yield reflects the income per share earned by a Fund's
portfolio investments.
Current yield for the Intermediate-Term Fund and each class of
the Insured Fund is determined by dividing the net investment
income per share earned such Fund or class during a 30-day base
period by the maximum offering price per share on the last day of
the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders of a Fund or
class during the base period. The yield for the Intermediate-Term
Fund and Class I of the Insured Fund for the 30-day period ended
on December 31, 1994 was 6.11% and 5.80%, respectively.
These figures were obtained using the following SEC formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Tax Equivalent Yield
The Intermediate-Term Fund and each class of the Insured Fund may
also quote a tax equivalent yield which demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to that
of a fund which invests in tax-exempt obligations. Such yield is
computed by dividing that portion of the yield of a Fund or class
(computed as indicated above) which is tax-exempt by one minus
the highest applicable combined federal, New York State and New
York City income tax rate (and adding the product to that portion
of the yield of a Fund or class that is not tax-exempt, if any).
The tax equivalent yield for Class I of the Insured Fund and the
Intermediate-Term Fund for the 30-day period ended on December
31, 1994 was 10.92% and 11.50%, respectively.
As of the date of this SAI, the federal income tax rate and the
combined New York state and local income tax rate upon which each
Fund's tax equivalent yield quotations are based were 39.6% and
12.00%, respectively. From time to time, as any changes to such
rates become effective, tax equivalent yield quotations
advertised by a Fund or class will be updated to reflect such
changes. The Funds expect updates may be necessary as tax rates
are changed by federal, state and local governments. The
advantage of tax-free investments, such as the Funds, will be
enhanced by any tax rate increases. Therefore, the details of
specific tax increases may be used in sales material for the
Funds.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative
of the amounts which were or will be paid to a Fund's or a class'
shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate or taxable equivalent
distribution rate. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a Fund
or class during the past 12 months by a current maximum offering
price. A taxable equivalent distribution rate demonstrates the
taxable distribution rate equivalent to a Fund's or a class'
current distribution rate (calculated as indicated above). The
advertised taxable equivalent distribution rate will reflect the
most current federal and New York State and New York City tax
rates available to a Fund. Under certain circumstances, such as
when there has been a change in the amount of dividend payout or
a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such
policies were in effect, rather than using the dividends during
the past 12 months. The current distribution rate differs from
the current yield computation because it may include
distributions to shareholders from sources other than dividends
and interest, such as short-term capital gains, and is calculated
over a different period of time.
Volatility
Occasionally, statistics may be used to specify Fund volatility
or risk. Measures of volatility or risk are generally used to
compare a Fund's net asset value or performance relative to a
market index. One measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of
net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
Other Performance Quotations
With respect to those categories of investors who are permitted
to purchase shares of the Intermediate-Term Fund or Class I
shares of the Insured Fund at net asset value, sales literature
pertaining to a Fund or class may quote a "Current Distribution
Rate for Net Asset Value Investments." This rate is computed by
adding the income dividends paid by a Fund or class during the
last 12 months and dividing that sum by a current net asset
value. Figures for yield, total return and other measures of
performance for net asset value investments may also be quoted.
These will be derived as described elsewhere in this SAI with the
substitution of net asset value for public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
A Fund may include in its advertising or sales material
information relating to investment objectives and performance
results of funds and classes belonging to the Templeton Group of
Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.
Comparisons
To help investors better evaluate how an investment in the
Insured Fund and the Intermediate-Term Fund might satisfy their
investment objective, advertisements and other materials
regarding such Funds may discuss various measures of Fund and
class performance as reported by various financial publications.
Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and
averages. Such comparisons may include, but are not limited to,
the following examples:
a) Merrill Lynch New York Municipal Bond Index - based upon
yields from revenue and general obligation bonds weighted in
accordance with their respective importance to the New York
municipal market.
b) Lehman Brothers Municipal Bond Index (LMBI) or its component
indices - LMBI measures yield, price and total return for the
municipal bond market.
c) Bond Buyer's 20-Bond Index - an index of municipal bond yields
based upon yields of 20 general obligation bonds maturing in 20
years.
d) Bond Buyer's 40-Bond Index - an index of municipal bond yields
based upon yields of 40 revenue bonds maturing in 30 years.
e) Salomon Brothers Broad Bond Index or its component indices -
the Broad Index measures yield, price, and total return for
Treasury, Agency, Corporate, and Mortgage bonds.
f) Lehman Brothers Aggregate Bond Index or its component indices
- - the Aggregate Bond Index measures yield, price and total return
for Treasury, Agency, Corporate, Mortgage, and Yankee bonds.
g) 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 sales charges.
h) Historical data supplied by the research departments of First
Boston Corporation, the J. P. Morgan companies, Salomon Brothers,
Merrill Lynch, Pierce, Fenner & Smith, Lehman Brothers and
Bloomberg, L.P.
i) Financial publications: The Wall Street Journal, Business
Week, Financial World, Forbes, Fortune, and Money magazines -
provide performance statistics over specified time periods.
From time to time, advertisements or information for a Fund may
include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or
information may include symbols, headlines, or other material
which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare a Fund's or a
class' performance to the return on certificates of deposit or
other investments. Investors 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 certificate of deposit issued by a bank. For example, as the
general level of interest rates rise, the value of a Fund's fixed-
income investments, as well as the value of its shares which are
based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease,
the value of a Fund's shares can be expected to increase.
Certificates of deposit are frequently insured by an agency of
the U.S. government. An investment in each Fund is not insured by
any federal, state or private entity.
In assessing such comparisons of performance, an investor should
keep in mind that the composition of the investments in the
reported indices and averages is not identical to a Fund's
portfolio, that the indices and averages are generally unmanaged,
and that the items included in the calculations of such averages
may not be identical to the formula used by a Fund to calculate
its figures. In addition, there can be no assurance that a Fund
will continue this performance as compared to such other
averages.
MONEY FUND
Current Yield
Current yield reflects the interest income per share earned by
the Money Fund's portfolio investments.
Current yield is computed 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, and then annualizing the result
by multiplying the base period return by (365/7).
The yield for the Money Fund for the seven-day period ended on
December 31, 1994 was 4.01%.
Effective Yield
Effective yield is computed in the same manner, except that the
annualization of the return for the seven-day period reflects the
results of compounding by adding one to the base period return,
raising the sum to a power equal to 365 divided by seven, and
subtracting one from the result.
Effective yield for the Money Fund for the seven-day period ended
on December 31, 1994 was 4.09%.
This figure was obtained using the SEC formula:
Effective Yield = [(Base Period Return + 1)365/7]-1
Tax Equivalent Yield
The Money Fund may also quote a tax equivalent yield and a tax
equivalent effective yield, which demonstrate the taxable yield
necessary to produce an after-tax yield equivalent to that of a
fund which invests in tax-exempt obligations. Such yields are
computed by dividing that portion of the yield of the Money Fund
(computed as indicated above) which is tax-exempt by one minus
the highest combined federal and state income tax rate and adding
the product to that portion of the yield of the Money Fund that
is not tax-exempt. The tax equivalent yield based on the current
yield of the Money Fund for the seven-day period ended on
December 31, 1994 was 7.55%. The tax equivalent effective yield
based on the effective yield of the Money Fund for the seven-day
period ended on December 31, 1994 was 7.70%. The advertised tax-
equivalent yield will reflect the most current federal and New
York City and New York State tax rates available to the Money
Fund.
The tax rate discussion under "Tax Equivalent Yield" with respect
to the Insured Fund and the Intermediate-Term Fund applies as
well to advertisements of tax equivalent yield by the Money Fund.
Comparisons
To help investors better evaluate how an investment in the Money
Fund might satisfy their investment objective, advertisements and
other materials regarding the Money Fund may discuss various
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. Such comparisons may include,
but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report" - Industry averages for
seven-day annualized and compounded yields of taxable, tax-free
and government money funds.
b) Bank Rate Monitor - A weekly publication which 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
which reviews yield spread changes in the major sectors of the
money, government agency, futures, options, mortgage, corporate,
Yankee, Eurodollar, municipal, and preferred stock markets. It
also summarizes changes in banking statistics and reserve
aggregates.
e) Inflation as measured by the Consumer Price Index, published
by the U.S. Bureau of Labor Statistics.
f) Standard & Poor's Bond Indices - measures yield and price of
corporate, municipal, and government bonds.
g) Financial Publications: The Wall Street Journal, Business
Week, Changing Times, Financial World, Forbes, and Money
magazine.
h) 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.
i) Lehman Brothers Aggregate Bond Index or its component indices
- - the Aggregate Bond Index measures yield, price, and total
return for Treasury, Agency, Corporate, and Mortgage bonds.
j) Lehman Brothers Municipal Bond Index or its component indices
- - measures yield, price and total return for municipal bonds.
In assessing such comparisons of performance, an investor should
keep in mind that the composition of the investments in the
reported indices and averages is not identical to the Money
Fund's portfolio, that the indices and averages are generally
unmanaged, and that the items included in the calculations of
such averages may not be identical to the formula used by the
Money Fund to calculate its figures. In addition, there can be no
assurance that the Money Fund will continue this performance as
compared to such other averages.
Other Features and Benefits
ALL FUNDS
Founded in 1947, Franklin is a leader in the tax-free mutual fund
industry, currently offering 42 tax-free funds, including 33
funds free from both federal and state personal income taxes, and
managing more than $40 billion in municipal bond assets for over
half a million investors.
Under current tax laws, municipal securities remain one of the
few investments offering the potential for tax-free income. In
1995, taxes could cost as much as $47 on every $100 earned from a
fully taxable investment (based on the maximum combined 39.6%
federal tax rate and the highest state tax rate of 12% for 1995.)
Franklin tax-free funds, however, offer tax relief through a
professionally managed portfolio of tax-free securities selected
based on their yield, quality and maturity. An investment in a
Franklin tax-free fund can provide an investor with the potential
to earn income free of federal taxes and, depending on the fund,
state and local taxes as well, while supporting state and local
public projects. Franklin tax-free funds may also provide tax-
free compounding, when dividends are reinvested. An investment in
Franklin's tax-free funds can grow more rapidly than similar
taxable investments.
Municipal securities are generally considered to be creditworthy,
second in quality only to securities issued or guaranteed by the
United States government and its agencies. The market price of
such securities, however, may fluctuate. This fluctuation will
have a direct impact on the net asset value of an investment in a
Fund.
Currently, there are more mutual funds than there are stocks
listed on the Exchange. While many of them have similar
investment objectives, no two are exactly alike. As noted in the
Prospectuses, shares of a Fund are generally sold through
securities dealers or other financial institutions. Investment
representatives of such securities dealers or financial
institutions are experienced professionals who can offer advice
on the type of investment suitable to an investor's unique goals
and needs, as well as the types of risks associated with such
investment.
Each Fund may help investors achieve various investment goals
such as accumulating money for retirement, saving for a down
payment on a home, college costs and/or other long-term goals.
The Franklin College Costs Planner may assist an investor in
determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund
a child's college education. (Projected college cost estimates
are based upon current costs published by the College Board.) The
Franklin Retirement Planning Guide leads an investor through the
steps to start a retirement savings program. Of course, an
investment in the Trust cannot guarantee that such goals will be
met.
Miscellaneous Information
Each Fund is a member of the Franklin Templeton Group, one of the
largest mutual fund organizations in the United States and may be
considered in a program for diversification of assets. Founded in
1947, Franklin, one of the oldest mutual fund organizations, has
managed mutual funds for over 47 years and now services more than
2.4 million shareholder accounts. In 1992, Franklin, a leader in
managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide,
Inc., a pioneer in international investing. Together, the
Franklin Templeton Group has over $116 billion in assets under
management for more than 3.8 million shareholder accounts and
offers 111 U.S.-based mutual funds. The Fund may identify itself
by its NASDAQ or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin
number one in service quality for five of the past seven years.
According to Research and Ratings Review, Volume II, dated
February 28, 1994, Franklin's municipal research team ranked
number 2 out of 1,000 investment advisory firms surveyed by TMS
Holdings, Inc. As of November 14, 1994, this ranking was
unchanged.
According to Strategic Insight, dated November 30, 1994, the
Franklin Florida Tax-Free Income Fund is the largest municipal
bond fund.
From time to time, advertisements or sales material issued by a
Fund may discuss or be based upon information in a recent issue
of the Special Report on Tax Freedom Day published by the Tax
Foundation, a Washington, D.C. based nonprofit, research and
public education organization. The report illustrates, among
other things, the amount of time, on an annual basis, the average
taxpayer works to satisfy his or her tax obligations to the
federal, state and local taxing authorities.
Access persons of the Franklin Templeton Group, as defined in SEC
Rule 17(j) under the 1940 Act, who are employees of Resources or
its subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) the trade must receive advance clearance from a
compliance officer and must be completed within 24 hours after
this clearance; (2) copies of all brokerage confirmations must be
sent to the compliance officer and within 10 days after the end
of each calendar quarter, a report of all securities transactions
must be provided to the compliance officer; (3) in addition to
items (1) and (2), access persons involved in preparing and
making investment decisions must file annual reports of their
securities holdings each January and also inform the compliance
officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction
or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other
client.
The portfolio insurance of the Insured Fund may affect the value
of the Insured Fund's shares under certain circumstances. As
discussed in the Insured Fund's Prospectus, unless a Secondary
Market Insurance Policy is purchased with respect to the
portfolio security, the Insured Fund intends to hold any
defaulted securities or securities for which there is a
significant risk of default in its portfolio until the default
has been cured or the principal and interest are paid by the
issuer or the insurer. In such circumstances, the Board of
Trustees has instructed the Manager to consider in its evaluation
of these securities the value of the insurance for the interest
and principal payments, as well as the market value of the
portfolio securities, the market value of securities of similar
issuers whose securities carry similar interest rates, and the
discounted present value of the interest and principal payments
to be received from the insurance company. Absent any unusual or
unforeseen circumstances as a result of the Portfolio Insurance
Policy, the Manager would likely recommend that the Insured Fund
value the defaulted securities, or securities for which there is
a significant risk of default, at the same price as securities of
a similar nature which are not in default. A defaulted security
covered by a Secondary Market Policy would be valued at market.
The shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable as partners for
its obligations. The Trust's Declaration of Trust, however,
contains an express disclaimer of shareholder liability for acts
or obligations of the Trust. The Declaration of Trust also
provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for
obligations of the Trust. The Declaration of Trust provides that
the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the
Trust and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund of which a shareholder holds
shares. The Declaration of Trust further provides that the Trust
may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents
to cover possible tort and other liabilities. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate
insurance exists and the Trust itself is unable to meet its
obligations.
Ownership and Authority Disputes
In the event of disputes involving multiple claims of ownership
or authority to control a shareholder's account, a Fund has the
right (but has no obligation) to: (a) freeze the account and
require the written agreement of all persons deemed by the Fund
to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead
disputed funds or accounts with a court of competent
jurisdiction; or (c) surrender ownership of all or a portion of
the account to the Internal Revenue Service in response to a
Notice of Levy.
Appendices
APPENDIX A - RISK FACTORS AFFECTING NEW YORK MUNICIPAL SECURITIES
The following information as to certain New York State ("State")
and New York City ("City") risk factors is given to investors in
view of the policy of each Fund of concentrating its investments
in New York issuers. The information provided constitutes only a
brief discussion, does not purport to be a complete description
and is based on information from sources believed by the Trust to
be reliable, including official statements relating to securities
offerings of the state of New York and municipal issuers, and
periodic publications by national ratings organizations. Such
information, however, has not been independently verified by the
Trust.
New York State. Constitutional challenges to State laws have
limited the amount of taxes which political subdivisions can
impose on real property. In 1979, the State's highest court
declared unconstitutional a State law allowing localities and
school districts to impose a special increase in real estate
property taxes in order to raise funds for pensions and other
uses. Additional court actions have been brought against the
State, certain agencies and municipalities relating to financing,
the amount of real estate tax, and the use of tax revenues which
could affect the ability of the State or its political
subdivisions to pay their obligations, require extraordinary
appropriations or expenditure reductions, or both, and which
could have a material adverse effect upon the financial condition
of the State and various of its agencies and subdivisions.
A substantial principal amount of bonds issued by various State
agencies and authorities are either guaranteed by the State or
supported by the State through lease-purchase arrangements, or
other contractual or moral obligation provisions. Moral
obligation commitments by the State impose no immediate financial
obligations on the State and require appropriations by the
legislature before any payments can be made. Failure of the State
to appropriate necessary amounts or to take other action to
permit the authorities and agencies to meet their obligations
could result in defaults on such obligations. If a default were
to occur, it would likely have a significant adverse impact on
the market price of obligations of the State and its authorities
and agencies. In recent years, the State has had to appropriate
large amounts of funds to enable State agencies to meet their
financial obligations and, in some cases, prevent default.
Additional assistance is expected to be required in current and
future fiscal years since certain localities and authorities
continue to experience financial difficulties.
To the extent State agencies and local governments require State
assistance to meet their financial obligations, the ability of
the state of New York to meet its own obligations as they become
due or to obtain additional financing could be adversely
effected. This financial situation could result not only in
defaults of State and agency obligations but also impairment of
the marketability of securities issued by the State, its agencies
and local governments.
Beginning in 1989, as a result of the recession which affected
the entire nation, the state of New York experienced the largest
and longest contraction in its labor force since the 1930s, with
a loss of more than 500,000 jobs between mid-1989 and mid-1993.
The State's economy has begun to recover, although at a slower
pace than that of the nation as a whole. The State's employment
is not projected to reach prerecession levels until the end of
1998, with average growth of 1.4% per year. Much of the State's
projected increase in employment levels is expected to come from
growth in the State's service and trade sectors, which currently
account for approximately 31.1% and 20.0%, respectively, of the
State's total employment. The State's manufacturing sector, which
currently represents close to 13% of the State's total
employment, is expected to continue to decline at an annual rate
of 1.6%.
New York is the second most populated state in the nation. The
State's per capita income exceeds the national average by 18.3%,
although real income growth is projected to lag behind the nation
by 0.5%. Debt levels are considered high both on a per capita
basis and as a percentage of income and continue to rise. Debt
service currently represents 5.6% of general fund tax receipts.
Servicing this debt will continue to impose a burden on the
State.
The State's fiscal 1995 midyear financial report showed signs of
continued improvement in the State's financial performance. The
State's fiscal 1995 financial plan is estimated to result in a
general fund operating surplus of $87 million, before a budgeted
transfer of $265 million to the State's contingency reserve
account. Unlike prior years, the projected surplus is due mainly
to spending cuts rather than tax increases. The majority of the
State's estimated $281 million reduction in spending is due to
savings in social services and assistance programs.
Current projections for fiscal year 1996 show a $5 billion budget
deficit. Much of this deficit is expected to be reduced by
continued cuts in spending for social service programs.
New York City. In 1975, New York City suffered several financial
crises which impaired and continue to impair the borrowing
ability of both the City and the State. In that year, the City
lost access to public credit markets. The City was not able to
sell short-term or long-term notes to the public until 1979 and
1981, respectively. To help New York City out of its financial
difficulties, the State Legislature created the Municipal
Assistance Corporation ("MAC") in 1975. MAC has the authority to
issue bonds and notes and pay or lend the proceeds to the City.
MAC also has the authority to exchange its obligations for City
obligations. MAC bonds are payable out of certain State sales and
use taxes imposed by the City, State stock transfer taxes and per
capita State aid to the City. The State is not, however,
obligated to continue these taxes, to continue appropriating
revenues from these taxes, nor to continue the appropriation of
per capita State aid to pay MAC obligations. MAC does not have
taxing powers, and its bonds are not obligations enforceable
against either the City or the State.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control
Board (the "FCB"), and since 1978 its financial statements have
been audited by independent accounting firms. To be eligible for
guarantees and assistance, the City was annually required to
submit to the FCB a financial plan for the next four fiscal
years, covering the City and certain agencies, showing balanced
budgets determined in accordance with generally accepted
accounting principles. Although the FCB's powers of prior
approval were suspended effective June 30, 1986, because the City
had satisfied certain statutory conditions, the City continues to
submit four-year plans to the FCB for its review. In the event of
a year-end operating deficit greater than $100 million, the FCB
has the authority to assume a significant degree of control over
the City's finances, which includes the ability to approve or
disapprove contracts and the City's four-year financial plan.
On January 17, 1995, S&P placed the City's general obligation
bonds on CreditWatch with negative implications, as a result of
the City's plan to shift $120 million of current debt costs to
future years through the refunding of such debt. This action
results from an estimated $650 million budget gap for the current
fiscal year. The ratings of the City's short-term notes and
insured issues are not affected.
Projections for the City's fiscal year 1996 estimate a budget
deficit of $2 billion, most of which is due to shortfalls in
projected tax revenues and state aid. Efforts to close this gap
will focus on reductions and spending cuts in the areas of
welfare and healthcare entitlements, and cuts in City services
and personnel.
Both the State and City face potential economic problems which
could seriously affect their ability to meet their financial
obligations. The economic problems of New York City adversely
affect the State in numerous ways. In addition, for decades the
State economy has grown more slowly than that of the nation as a
whole, resulting in a decline in the position of New York as one
of the country's wealthiest states. The causes of this decline
are varied and complex and some causes reflect international and
national trends beyond the State's and City's control. Some
analysts feel that this long-term decline is the result of State
and local taxation, which is among the highest in the nation, and
which may cause corporations to locate outside the State. The
current high level of taxes limits the ability of the State and
City to impose higher taxes in the event of future difficulties.
APPENDIX B - DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
Municipal Bonds
Moody's
Aaa - Municipal bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Municipal bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Municipal bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa - Municipal bonds which are rated Baa are considered medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba: Municipal bonds which are rated Ba are judged to have
predominantly speculative elements and their future cannot be
considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Municipal bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Municipal bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Municipal bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Municipal bonds which are rated C are the lowest-rated class
of bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Con. (-): Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis
condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B in its municipal
bond ratings. The modifier 1 indicates that the security ranks in
the higher end of its generic rating category. The 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 - Municipal bonds rated AAA are the highest grade
obligations. They possess the ultimate degree of protection as to
principal and interest. In the market they move with interest
rates, and hence provide maximum safety on all counts.
AA - Municipal bonds rated AA also qualify as high-grade
obligations, and in the majority of instances differ from AAA
issue only in small degree. Here, too, prices move with the long-
term money market.
A - Municipal bonds rated A are regarded as upper medium grade.
They have considerable investment strength but are not entirely
free from adverse effects of changes in economic and trade
conditions. Interest and principal are regarded as safe. They
predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Municipal bonds rated BB, B, CCC and CC are
regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: This rating is reserved for income bonds on which no interest
is being paid.
D: Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Note: The S&P ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major
rating categories.
Fitch
AAA bonds: Considered to be of investment grade and of the
highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal which is unlikely to
be affected by reasonably foreseeable events.
AA bonds: Considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong although not quite as strong as bonds
rated AAA and not significantly vulnerable to foreseeable future
developments.
A bonds: Considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB bonds: Considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely
to have an adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.
Municipal Notes
Moody's
Moody's ratings for state, municipal and other short-term
obligations are designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-
term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-
term borrowing, while various factors of the first importance in
long-term borrowing risk are of lesser importance in the short
run. Symbols used will be as follows:
MIG-1 - Notes are of the best quality and enjoy strong protection
from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing,
or both.
MIG-2 - Notes are of high quality, with margins of protection
ample, although not so large as in the preceding group.
MIG-3 - Notes are of favorable quality, with all security
elements accounted for, but lacking the undeniable strength of
the preceding grades. Market access for refinancing, in
particular, is likely to be less well established.
MIG-4 - Notes are of adequate quality, carrying specific risk but
having protection and not distinctly or predominantly
speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes
and bonds. After June 29, 1984, for new municipal note issues due
in three years or less, the ratings below usually will be
assigned. Notes maturing beyond three years will most likely
receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or
strong capacity to pay principal and interest. Issues determined
to possess overwhelming safety characteristics will be given a
"plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory
capacity to pay principal and interest.
Commercial Paper
Moody's
Moody's Commercial Paper ratings, which are also applicable to
municipal paper investments permitted to be made by the Trust,
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. However, the relative degree of safety is not as
overwhelming as for issues designated A-1.
A-3: Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.
Fitch's Short-term and Commercial Paper Ratings
Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to
three years, including commercial paper, certificates of deposit,
medium-term notes, and municipal and investment notes. The short-
term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the
strongest degree of assurance for timely payment.
F-1: Very strong credit quality. Reflects an assurance of timely
payment only slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
F-3: Fair credit quality. Have characteristics suggesting that
the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be
rated below investment grade.
F-S: Weak credit quality. Have characteristics suggesting a
minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic
conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.
Financial Statements
The financial statements contained in the Trust's Annual Report
to Shareholders dated December 31, 1994, are incorporated herein
by reference.
FRANKLIN NEW YORK TAX-FREE TRUST
File Nos. 33-7785
811-4787
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated December 31,
1994 as filed on February 24, 1995
(i) Report of Independent Auditors - February 1, 1995
(ii) Statement of Investments in Securities and Net Assets
- December 31, 1994
(iii) Statements of Assets and Liabilities - December 31,
1994
(iv) Statements of Operations - for the year ended December
31, 1994
(v) Statements of Changes in Net Assets - for the years
ended December 31, 1994 and 1993.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are attached herewith, except Exhibits
6(iii), 8(ii), and 8(iii) which are incorporated by reference as
noted:
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated July 17, 1986
(ii) Amendment to the Agreement and Declaration of Trust
dated January 22, 1991.
(iii)Certificate of Amendment of Agreement and Declaration
of Trust dated March 21, 1995
(2) copies of the existing By-Laws or instruments corresponding
thereto;
(i) By-Laws
(3) copies of any voting trust agreement with respect to more
than five percent of any class of equity securities of the
Registrant;
N/A
(4) specimens or copies of each security issued by the
Registrant, including copies of all constituent instruments,
defining the rights of the holders of such securities, and
copies of each security being registered;
N/A
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between Registrant and Franklin
Advisers, Inc. dated October 10, 1986
(ii) Management Agreement between Registrant on behalf of
the New York Insured Tax-Free Income Fund and Franklin
Advisers, Inc. dated April 23, 1991
(iii)Management Agreement between Registrant on behalf of
the Franklin New York Intermediate-Term Tax-Free Income
Fund and Franklin Advisers, Inc. dated September 21,
1992
(6) copies of each underwriting or distribution contract between
the Registrant and a principal underwriter, and specimens or
copies of all agreements between principal underwriters and
dealers;
(i) Form of Amended and Restated Distribution Agreement
between Registrant on behalf of all Series Except
Franklin New York Tax-Exempt Money Fund and
Franklin/Templeton Distributors, Inc.
(ii) Form of Amended and Restated Distribution Agreement
between Registrant on behalf of the Franklin New York
Tax-Exempt Money Fund and Franklin/Templeton
Distributors, Inc.
(iii)Form of Dealer Agreement between Franklin/Templeton
Distributors, Inc. and dealers:
Registrant: Franklin Federal Tax-Free Income Fund
Filing: Post-Effective Amendment No. 17 to
Registration on Form N-1A
File No. 2-75925
Filing Date: March 28, 1995
(7) copies of all bonus, profit sharing, pension or other
similar contracts or arrangements wholly or partly for the
benefit of directors or officers of the Registrant in their
capacity as such; any such plan that is not set forth in a
formal document, furnish a reasonably detailed description
thereof;
N/A
(8) copies of all custodian agreements and depository contracts
under Section 17(f) of the 1940 Act, with respect to
securities and similar investments of the Registrant,
including the schedule of remuneration;
(i) Custodian Agreement dated April 23, 1991 between
Registrant and Bank of America NT & SA
(ii) Amendment to Custodian Agreement between Registrant and
Bank of America NT & SA dated December 1, 1994:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to Registration
on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iii)Copy of Custodian Agreements between Registrant and
Citibank Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposits and
Disbursements of Funds:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to Registration
on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(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;
(i) Agreement between Registrant and Financial Guaranty
Insurance Company dated July 8, 1991
(ii) Amendment to Agreement between Registrant and Financial
Guaranty Insurance Company dated November 24, 1992
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will,
when sold, be legally issued, fully paid and nonassessable;
N/A
(11) copies of any other opinions, appraisals or rulings and
consents to the use thereof relied on in the preparation of
this registration statement and required by Section 7 of the
1933 Act;
(i) Consent of Independent Auditors dated April 14, 1995
(12) all financial statements omitted from Item 23;
N/A
(13) copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Registrant, the underwriter, adviser, promoter or
initial stockholders and written assurances from promoters
or initial stockholders that their purchases were made for
investment purposes without any present intention of
redeeming or reselling;
(i) Letter of Understanding dated April 12, 1995
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers
its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;
N/A
(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 New York Insured Tax-
Free Income Fund and Franklin/Templeton Distributors,
Inc. dated May 1, 1994.
(ii) Amended and Restated Distribution Plan pursuant to Rule
12b-1 between Registrant on behalf of Franklin New York
Intermediate-Term Tax-Free Income Fund and
Franklin/Templeton Distributors Inc. dated July 1,
1993.
(iii)Form of Distribution Plan pursuant to Rule 12b-1
between Franklin/Templeton Distributors, Inc. and
Registrant on behalf of Franklin New York Insured Tax-
Free Income Fund - Class II
(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item
22 (which need not be audited).
(i) Schedule for computation of performance quotation
(17) Power of Attorney
(i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
(27) Financial Data Schedule
(i) Financial Data Schedule for Franklin New York Tax-
Exempt Money Fund
(ii) Financial Data Schedule for Franklin New York Insured
Tax-Free Income Fund
(iii)Financial Data Schedule for Franklin New York
Intermediate-Term Tax-Free Income Fund
Item 25 Persons Controlled by or under Common Control with
Registrant
None
Item 26 Number of Holders of Securities
As of February 28, 1995 the number of record holders of each
class of securities of the Registrant was as follows:
Number of
Title of Class Record Holders
Shares of Beneficial 5,104
Interest of Franklin New York Insured
Tax-Free Income Fund
Shares of Beneficial 4,140
Interest of Franklin New York Tax-
Exempt Money Fund
Shares of Beneficial 922
Interest of Franklin New York
Intermediate-Term Tax-Free Income Fund
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 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 or
appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 28 Business and Other Connections of Investment Adviser
The officers and directors of the Registrant's investment
adviser also serve as officers, directors, and/or trustees for
(1) the adviser's corporate parent, Franklin Resources, Inc.,
and/or (2) other investment companies in the Franklin Group of
Funds. In addition, Mr. Charles B. Johnson is a director of
General Host Corporation. For additional information please see
Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc. ("Distributors") also
acts as principal underwriter of shares of AGE High Income Fund,
Inc., Franklin Balance Sheet Fund, Franklin Custodian Funds,
Inc., Franklin Equity Fund, Franklin Federal Money Fund, Franklin
Gold Fund, Franklin Municipal Securities Trust, Franklin
California Tax-Free Income Fund, Inc., Franklin New York Tax-Free
Income Fund, Inc., Franklin California Tax-Free Trust, Franklin
Investors Securities Trust, Franklin International Trust,
Franklin Premier Return Fund, Franklin Tax-Free Trust, Franklin
Strategic Mortgage Portfolio, Franklin Strategic Series, Franklin
Tax-Advantaged International Bond Fund, Franklin Tax-Advantaged
U.S. Government Securities Fund, Franklin Tax-Advantaged High
Yield Securities Fund, Franklin Managed Trust, Franklin Federal
Tax-Free Income Fund, Institutional Fiduciary Trust, Franklin
Money Fund, Franklin Tax Exempt Money Fund, Franklin Real Estate
Securities Trust, Franklin/Templeton Global Trust, Templeton
Variable Products Series Fund, Templeton Real Estate Securities
Fund, Templeton Growth Fund, Inc., Templeton Funds, Inc.,
Templeton Smaller Companies Growth Fund, Inc., Templeton Income
Trust, Templeton Global Opportunities Trust, Templeton
Institutional Funds, Inc., Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Developing
Markets Trust, Templeton Global Investment Trust, Templeton
Variable Annuity Fund, and Franklin/Templeton Japan 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.
The principal business address of the persons listed is 777
Mariners Island Blvd., San Mateo, California.
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 Trust or its shareholder services agent,
Franklin/Templeton Investor Services, Inc., both of whose
address is 777 Mariners Island Blvd., San Mateo, CA. 94404.
Item 31 Management Services
There are no management-related service contracts not discussed
in Part A or Part B.
Item 32 Undertakings
a) The Registrant hereby undertakes to promptly call a meeting
of shareholders for the purpose of voting upon the question
of removal of any trustee or 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.
b) The Registrant hereby undertakes to comply with the
information requirement in Item 5A of the Form N-1A by
including the required information in the Trust's annual
report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that
it meets all of the requirements for effectiveness of this Post-
Effective Amendment to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City
of San Mateo and the State of California, on the 24th day of
April, 1995.
FRANKLIN NEW YORK TAX-FREE TRUST
(Registrant)
By: /s Rupert H. Johnson Jr.*
Rupert H. Johnson Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
Rupert H. Johnson, Jr.* Principal Executive Officer and
Rupert H. Johnson, Jr. Trustee
Dated: April 25, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: April 25, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: April 25, 1995
Frank H. Abbott, II* Trustee
Frank H. Abbott, II Dated: April 25, 1995
Harris J. Ashton* Trustee
Harris J. Ashton Dated: April 25, 1995
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: April 25, 1995
David W. Garbellano* Trustee
David W. Garbellano Dated: April 25, 1995
Charles B. Johnson* Trustee
Charles B. Johnson Dated: April 25, 1995
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: April 25, 1995
William J. Lippman* Trustee
William J. Lippman Dated: April 25, 1995
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: April 25, 1995
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to a Power of Attorney filed herewith)
FRANKLIN NEW YORK TAX-FREE TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING
SYSTEM
EX-99.B1(i) Agreement and Declaration Attached
of Trust dated July 17,
1986
EX-99.B1(ii) Amendment to the Agreement Attached
and Declaration of Trust
dated January 22 , 1991
EX-99.B1(iii) Certificate of Amendment of Attached
Agreement and Declaration
of Trust dated March 21,
1995
EX-99.B2(i) By Laws Attached
EX-99.B5(i) Management Agreement Attached
between Registrant and
Franklin Advisers, Inc.
dated October 10, 1986
EX-99.B5(ii) Management Agreement Attached
between Registrant on
behalf of the New York
Insured Tax-Free Income
Fund and Franklin Advisers,
Inc. dated April 23, 1991
EX-99.B5(iii) Management Agreement Attached
between Registrant on
behalf of the Franklin New
York Intermediate-Term Tax-
Fee Income Fund and
Franklin Advisers, Inc.
dated September 21, 1992
EX-99.B6(i) Form of Amended and Attached
Restated Distribution
Agreement between
Registrant on behalf of all
Series except Franklin New
York Tax-Exempt Money Fund
and Franklin/Templeton
Distributors, Inc.
EX-99.B6(ii) Forms of Amended and Attached
Restated Distribution
Agreement between
Registrant on behalf of the
Franklin New York Tax-
Exempt Money Fund and
Franklin/Templeton
Distributors, Inc.
EX-99.B6(iii) Form of Dealer Agreement *
between Franklin/Templeton
Distributors, Inc. and
dealers
Attached
EX-99.B8(i) Custodian Agreement dated
April 23, 1991 between
Registrant and Bank of
America NT & SA
EX-99.B8(ii) Amendment to Custodian *
Agreement between
Registrant and Bank of
America NT & SA dated
December 1, 1994
EX-99.B8(iii) Copy of Custodian *
Agreements between
Registrant and Citibank
Delaware
EX-99.B9(i) Agreement between Attached
Registrant and Financial
Guaranty Insurance Company
dated July 8, 1991
EX-99.B9(ii) Amendment to Agreement Attached
between Registrant and
Financial Guaranty
Insurance Company dated
November 24, 1992
EX-99.B11(i) Consent of Independent Attached
Auditors dated April 14,
1995
EX-99.B13(i) Letter of Understaning Attached
dated April 12, 1995
EX-99.B15(i) Distribution Plan pursuant Attached
to Rule 12b-1 between
Registrant on behalf of
Franklin New York Insured
Tax-Free Income Fund and
Franklin/Templeton
Distributors, Inc. dated
May 1, 1994
EX-99.B15(ii) Amended and Restated Attached
Distribution Plan pursuant
to Rule 12b-1 between
Registrant on behalf of
Franklin New York
Intermediate-Term Tax-Free
Income Fund and
Franklin/Templeton
Distributors, Inc. dated
July 1, 1993
EX-99.B15(iii) Form of Distribution Plan Attached
pursuant to Rule 12b-1
between Franklin/Templeton
Distributors, Inc. and
Registrant on behalf of
Franklin New York Insured
Tax-Free Income Fund -
Class II
EX-99.B16(i) Schedule for computation Attached
of performance quotation
EX-99.B17(i) Power of Attorney dated Attached
February 16, 1995
EX-99.B17(ii) Certificate of Secretary Attached
dated February 16, 1995
EX-99.B27(i) Financial Data Schedule Attached
for Franklin New York Tax-
Exempt Money Fund
EX-99.B27(ii) Financial Data Schedule Attached
for Franklin New York
Insured Tax-Free Income
Fund
EX-99.B27(iii) Financial Data Scheudle Attached
for Franklin New York
Intermediate-Term Tax-Free
Income Fund
* Incorporated by reference
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
a Massachusetts Business Trust
Dated: July 17, 1986
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
AGREEMENT AND DECLARATION OF TRUST
ARTICLE I Name and Definitions
1. Name
2. Definitions
(a) Trust
(b) Trustees
(c) Shares
(d) Shareholder
(e) 1940 Act
(f) Commission and Principal Underwriter
(g) Declaration of Trust
(h) By-Laws
(i) Series Company
(j) Series
ARTICLE II Purpose of Trust
ARTICLE III Shares
1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of Personal Liability
5. Power of Trustees to Change Provisions Relating to
Shares
6. Establishment and Designation of Series
(a) Assets Belonging to Series
(b) Liabilities Belonging to Series
(c) Dividends, Distributions, Redemptions, and
Repurchases
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders
8. Initial Designation of Series
ARTICLE IV The Trustees
1. Election and Tenure
2. Effect of Death, Resignation, etc. of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts
ARTICLE V Shareholders' Voting Powers and Meetings
1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions
ARTICLE VI Net Asset Value, Distributions, and Redemptions
1. Determination of Net Asset Value, Net Income and
Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust
ARTICLE VII Compensation and Limitation of Liability of Trustees
1. Compensation
2. Limitation of Liability
3. Indemnification
ARTICLE VIII Miscellaneous
1. Trustees, Shareholders, etc. Not Personally Liable;
Notice
2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety
3. Liability of Third Persons Dealing with Trustees
4. Termination of Trust or Series
5. Merger and Consolidation
6. Filing of Copies, References, Headings
7. Applicable Law
8. Amendments
9. Trust Only
10. Use of the Name "Franklin"
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered
into this day of July, 1986 by the Trustees named hereunder.
WHEREAS the Trustees desire and have agreed to manage all
property coming into their hands as trustees of a Massachusetts
business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that this
Agreement and Declaration of Trust be filed with the Secretary of
The Commonwealth of Massachusetts and do hereby declare that they
will hold all cash, securities and other assets, which they may
from time to time acquire in any manner as Trustees hereunder, IN
TRUST, and manage and dispose of the same upon the following
terms and conditions for the pro rata benefit of the holders of
Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the FRANKLIN
NEW YORK TAX-EXEMPT MONEY FUND and the Trustees shall conduct the
business of the Trust under that name or any other name as they
may from time to time determine.
Section 2. Definitions. Wherever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) "Trustees" refers to the persons named at the end of
this Declaration of Trust and constituting the Board of Trustees
of the Trust, so long as they continue in office in accordance
with the terms hereof, and all other persons who may from time to
time be duly elected or appointed to serve on the Board of
Trustees in accordance with Article IV hereof;
(c) "Shares" means the equal proportionate units of
interest into which the beneficial interest in the Trust or in
the Trust property belonging to any Series of the Trust (as the
context may require) shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended
from time to time;
(f) The terms "Commission" and "Principal Underwriter"
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time;
(i) "Series Company" refers to the form of registered open-
end investment company described in Section 18(f)(2) of the 1940
Act or in any successor statutory provision; and
(j) "Series" refers to each Series of Shares established
and designated under or in accordance with the provisions of
Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed
investment company registered under the 1940 Act and investing
one or more portfolios primarily in securities and debt
instruments.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into an
unlimited number of Shares, without par value. Subject to the
provisions of Section 6 of this Article III, each Share shall
have voting rights as provided in Article V hereof, and holders
of the Shares of any Series shall be entitled to receive
dividends, when and as declared with respect thereto in the
manner provided in Article VI, Section 1 hereof. No Shares shall
have any priority or preference over any other Share of the same
Series with respect to dividends or distributions upon
termination of the Trust or of such Series made pursuant to
Article VIII, Section 4 hereof. All dividends and distributions
shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such
Shareholder on the record date for any dividend or on the date of
termination, as the case may be. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares
of that Series without thereby changing the proportionate
beneficial interest of the Shares of that Series in the assets
belonging to that Series or in any way affecting the rights of
Shares of any other Series.
Section 2. Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series. No certificates
certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the
transfer of Shares of each Series and similar matters. The
record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and as to the number of
Shares of each Series held from time to time by each.
Section 3. Investments in the Trust. The Trustees may
accept investments in the Trust from such persons, at such times,
on such terms, and for such consideration as they from time to
time authorize.
Section 4. Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving
only the rights provided in this instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but entitles such representative only
to the rights of said deceased Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustee, nor
any officer, employee or agent of the Trust shall have any power
to bind personally any Shareholders, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 5. Power of Board of Trustees to Change Provisions
Relating to Shares. Notwithstanding any other provision of this
Declaration of Trust and without limiting the power of the Board
of Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Board of Trustees shall have the power to
amend this Declaration of Trust, at any time and from time to
time, in such manner as the Board of Trustees may determine in
their sole discretion, without the need for Shareholder action,
so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration
of Trust, provided that before adopting any such amendment
without Shareholder approval the Board of Trustees shall
determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law.
Without limiting the generality of the foregoing, the Board
of Trustees may, for the above-stated purposes, amend the
Declaration of Trust to:
(a) create one or more Series of Shares (in addition to any
Series already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment
therein as the Trustees shall determine and reclassify any or all
outstanding Shares as shares of a particular Series in accordance
with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III;
(c) combine one or more Series of Shares into a single
Series on such terms and conditions as the Trustees shall
determine;
(d) change or eliminate any elgibility requirements for
investment in Shares of any Series, including without limitation,
to provide for the issue of Shares of any Series in connection
with any merger or consolidation of the Trust with another trust
or company or any acquisition by the Trust of part or all of the
assets of another trust or investment company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among the
various Series of Shares;
(g) allocate any specific assets or liabilities of the
Trust or any specific items of income or expense of the Trust to
one or more Series of Shares;
(h) specifically allocate assets to any or all Series of
Shares or create one or more additional Series of Shares which
are preferred over all other Series of Shares in respect of
assets specifically allocated thereto or any dividends paid by
the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or
other rights with respect to such Series.
Section 6. Establishment and Designation of Series. Except
as set forth in Section 8 of this Article III, the establishment
and designation of any other Series of Shares shall be effective
upon the resolution by a majority of the then Trustees, setting
forth such establishment and designation and the relative rights
and preferences of such Series, or as otherwise provided in such
resolution. Such establishment and designation shall be set
forth in an amendment to this Declaration of Trust as provided in
Section 8 of Article VIII.
Shares of each Series established pursuant to this Section
6, unless otherwise provided in the resolution establishing such
Series, shall have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received
by the Trust for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and
proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from
whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that Series. In the event
that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable, and any General Asset so allocated to a particular
Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of
all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging
to each particular Series shall be charged with the liabilities
of the Trust in respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged
by the Trustees to and among any one or more of the Series in
such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein
referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the holders
of all Series for all purposes. Under no circumstances shall the
assets allocated or belonging to any particular Series be charged
with liabilities attributable to any other Series. All persons
who have extended credit which has been allocated to a particular
Series, or who have a claim or contract which has been allocated
to any particular Series, shall look only to the assets of that
particular Series for payment of such credit, claim, or contract.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of
Trust, including, without limitation, Article VI, no dividend or
distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series) with respect
to, nor any redemption or repurchase of, the Shares of any Series
shall be effected by the Trust other than from the assets
belonging to such Series, nor, except as specifically provided in
Section 7 of this Article III, shall any Shareholder of any
particular Series otherwise have any right or claim against the
assets belonging to any other Series except to the extent that
such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items
as capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a
matter shall vote separately by Series. That is, the
Shareholders of each Series shall have the right to approve or
disapprove matters affecting the Trust and each respective Series
as if the Series were separate companies. There are, however,
two exceptions to voting by separate Series. First, if the 1940
Act requires all Shares of the Trust to be voted in the aggregate
without differentiation between the separate Series, then all the
Trust's Shares shall be entitled to vote on a one-vote-per-Share
basis. Second, if any matter affects only the interests of some
but not all Series, then only the Shareholders of such affected
Series shall be entitled to vote on the matters.
(e) Equality. All the Shares of each particular Series
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to
that Series), and each Share of any particular Series shall be
equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall
carry proportionately all the rights and obligations of a whole
share of that Series, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.
(h) Combination of Series. The Trustees shall have the
authority, without the approval of the Shareholders of any Series
unless otherwise required by applicable law, to combine the
assets and liabilities belonging to any two or more Series into
assets and liabilities belonging to a single Series.
(i) Elimination of Series. At any time that there are no
Shares outstanding of any particular Series previously
established and designated, the Trustees may amend this
Declaration of Trust to abolish that Series and to rescind the
establishment and designation thereof, such amendment to be
effected in the manner provided in Section 5 of this Article III.
Section 7. Indemnification of Shareholders. In case any
Shareholder or former Shareholder shall be held to be personally
liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or
for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal
representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out
of the assets of the Trust to be held harmless from and
indemnified against all loss and expense arising from such
liability.
Section 8. Initial Designation of Series. Subject to the
relative rights and preferences and other terms of this Agreement
and Declaration of Trust, the Trustees authorize the
establishment of one (1) initial Series to be designated as
"Franklin New York Tax-Exempt Money Fund".
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of
Trustees constituting the Board of Trustees shall be nine (9),
unless such number shall be changed from time to time by a
written instrument signed by a majority of the Board of Trustees,
provided, however, that the number of Trustees shall in no event
be less than one nor more than 15. The Board of Trustees, by
action of a majority of the then Trustees at a duly constituted
meeting, may fill vacancies in the Board of Trustees or remove
Trustees with or without cause. Each Trustee shall serve during
the continued lifetime of the Trust until he dies, resigns, is
declared bankrupt or incompetent by a court of appropriate
jurisdiction, or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his
successor. Any Trustee may resign at any time by written
instrument signed by him and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some
other time. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee
removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on
account of such removal. The Shareholders may fix the number of
Trustees and elect Trustees at any meeting of Shareholders called
by the Trustees for that purpose.
Section 2. Effect of Death, Resignation, etc. of a Trustee.
The death, declination, resignation, retirement, removal, or
incapacity of one or more Trustees, or all of them, shall not
operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until
such vacancy is filled as provided in Article IV, Section 1, the
Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by this Declaration of Trust. A
written instrument certifying the existence of such vacancy
signed by a majority of the Board of Trustees shall be conclusive
evidence of such vacancy. In the event of death, declination,
resignation, retirement, removal, or incapacity of all the then
Trustees within a short period of time and without the
opportunity for at least one Trustee being able to appoint
additional Trustees to fill vacancies, the Trust's investment
adviser or investment advisers jointly, if there is more than
one, are empowered to appoint new Trustees subject to the
provisions of Section 16(a) of the 1940 Act.
Section 3. Powers. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing,
the Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the regulation and management
of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and
may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own
number and establish and terminate one or more committees
consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the
Trustees determine; employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ sub-
custodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities or with
a Federal Reserve Bank, retain a transfer agent or a shareholder
servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or
more Principal Underwriters or otherwise; redeem, repurchase and
transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and
in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian,
transfer or shareholder servicing agent, or Principal
Underwriter. Any determination as to what is in the interests of
the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the
Trustees.
Without limiting the foregoing, the Board of Trustees shall have
power and authority:
(a) To invest and reinvest cash, to hold cash uninvested,
and to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, own, hold, pledge, sell, assign, transfer,
exchange, distribute, write options on, lend or otherwise deal in
or dispose of contracts for the future acquisition or delivery of
fixed income or other securities, and securities of every nature
and kind, including, without limitation, all types of bonds,
debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit
or indebtedness, commercial paper, repurchase agreements,
bankers' acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all persons,
including, without limitation, states, territories, and
possessions of the United States and the District of Columbia and
any political subdivision, agency, or instrumentality thereof,
any foreign government or any political subdivision of the U.S.
Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the
United States or of any state, territory, or possession thereof,
or by any corporation or organization organized under any foreign
law, or in "when issued" contracts for any such securities, to
change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership
or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations, or
corporations to exercise any of said rights, powers, and
privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any
property rights relating to any or all of the assets of the
Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee, depositary or trustee, and to delegate to
them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion
of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of the
Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust or payment of
distributions and principal on its portfolio investments, and
insurance policies insuring the Shareholders, Trustees, Officers,
employees, agents, investment advisers, principal underwriters,
or independent contractors of the Trust, individually against all
claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any
such person as Trustee, officer, employee, agent, investment
adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the
power to indemnify such person against liability; and
(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trustees shall not in any way
be bound or limited by any present or future law or custom in
regard to investment by fiduciaries. The Trustees shall not be
required to obtain any court order to deal with any assets of the
Trust or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees
are authorized to pay or cause to be paid out of the principal or
income of the Trust, or partly out of the principal and partly
out of the income, as they deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and
such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal
underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees
may deem necessary or proper to incur.
Section 5. Payment of Expenses by Shareholders. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series, to pay directly, in advance or arrears, for
charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by
the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all
of the assets of the Trust shall at all times be considered as
vested in the Trustees.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be
set forth in the By-Laws, the Trustees may, at any time and from
time to time, contract for exclusive or nonexclusive advisory
and/or management services for the Trust or for any Series with
Franklin Advisers, Inc. or any other corporation, trust,
association or other organization (the "Manager"); and any such
contract may contain such other terms as the Trustees may
determine, including without limitation, authority for the
Manager to determine from time to time without prior consultation
with the Trustees what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments.
(b) The Trustees may also, at any time and from time to
time, contract with Franklin Distributors, Inc., or any other
corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or Principal Underwriter
for the Shares of one or more of the Series. Every such contract
shall comply with such requirements and restrictions as may be
set forth in the By-Laws; and any such contract may contain such
other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from
time to time, to contract with any corporations, trusts,
associations or other organizations, including affiliates of the
Manager or Principal Underwriter, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract
shall comply with such requirements and restrictions as may be
set forth in the By-Laws or stipulated by resolution of the
Trustees.
(d) The Trustees are further empowered, at any time and
from time to time, to contract with any entity to provide such
other services to the Trust or one or more of the Series, as the
Trustees determine to be in the best interests of the Trust and
applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter,
distributor, or affiliate or agent of or for any
corporation, trust, association, or other organization, or
for any parent or affiliate of any organization with which
an advisory or management contract, or principal
underwriter's or distributors, contract, or transfer,
shareholder servicing or other type of service contract may
have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract
or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other type of service
contract may have been or may hereafter be made also has an
advisory or management contract, or transfer, shareholder
servicing or other service contract with one or more other
corporations, trust, associations, or other organizations,
or has other business or interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V
Shareholder's Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of
Article III, Section 6(d), the Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Article
IV, Section 1, (ii) to the same extent as the stockholders of a
California business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the
Trust or the Shareholders, (iii) with respect to the termination
of the Trust or any Series to the extent and as provided in
Article VIII, Section 4, and (iv) with respect to such additional
matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall
rest on the challenger. At any time when no Shares of a Series
are outstanding, the Trustees may exercise all rights of
Shareholders of that Series with respect to matters affecting
that Series, take any action required by law, this Declaration of
Trust or the By-Laws, to be taken by the Shareholder.
Section 2. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees
by mailing such notice at least seven (7) days before such
meeting, postage prepaid, stating the time and place of the
meeting, to each Shareholder at the Shareholder's address as it
appears on the records of the Trust. Whenever notice of a
meeting is required to be given to a Shareholder under this
Declaration of Trust or the By-Laws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his attorney thereunto authorized and filed
with the records of the meeting, shall be deemed equivalent to
such notice.
Section 3. Quorum and Required Vote. Except when a larger
quorum is required by applicable law, by the By-Laws or by this
Declaration of Trust, forty percent (40%) of the Shares entitled
to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series is to vote as a single class separate
from any other Shares which are to vote on the same matters as a
separate class or classes, forty percent (40%) of the Shares of
each such Series entitled to vote shall constitute a quorum at a
Shareholder's meeting of that Series. Any meeting of
Shareholders may be adjourned from time to time by a majority of
the votes properly cast upon the question of adjourning a meeting
to another date and time, whether or not a quorum is present, and
the meeting may be held as adjourned within a reasonable time
after the date set for the original meeting without further
notice. Subject to the provisions of Article III, Section 6(d),
when a quorum is present at any meeting, a majority of the Shares
voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision
of this Declaration of Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter
(or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust or by the By-Laws)
and holding a majority (or such larger proportion as aforesaid)
of the Shares of any Series entitled to vote separately on the
matter consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining
the Shareholders of any Series who are entitled to vote or act at
any meeting or any adjournment thereof, the Trustees may from
time to time fix a time, which shall be not more than ninety (90)
days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series
having the right to notice of and to vote at such meeting and any
adjournment thereof, and in such case only Shareholders of record
on such record date shall have such right, notwithstanding any
transfer of shares on the books of the Trust after the record
date. For the purpose of determining the Shareholders of any
Series who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such
dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to
receive such dividend or distribution. Without fixing a record
date the Trustees may for voting and/or distribution purposes
close the register or transfer books for one or more Series for
all or any part of the period between a record date and a meeting
of Shareholders or the payment of a distribution. Nothing in
this Section shall be construed as precluding the Trustees from
setting different record dates for different Series.
Section 6. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net Income,
and Distributions. Subject to Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall
set forth in the By-Laws or in a duly adopted vote of the
Trustees such bases and time for determining the per Share or net
asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases. The Trust shall
purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, as determined in
accordance with the By-Laws and applicable law, next determined.
Payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request
is made in proper form. The obligation set forth in this Section
2 is subject to the provision that in the event that any time the
New York Stock Exchange is closed for other than weekends or
holidays, or if permitted by the Rules of the Commission during
periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for the Trust to dispose
of the investments of the applicable Series or to determine
fairly the value of the net assets belonging to such Series or
during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or
postponed by the Trustees.
The redemption price may in any case or cases be paid wholly
or partly in kind if the Trustees determine that such payment is
advisable in the interest of the remaining Shareholders of the
Series for which the Shares are being redeemed. Subject to the
foregoing, the fair value, selection and quantity of securities
or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the
Trustees. In no case shall the Trust be liable for any delay of
any corporation or other person in transferring securities
selected for delivery as all or part of any payment in kind.
Section 3. Redemptions at the option of the Trust. The
Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such
time such Shareholder owns Shares of any Series having an
aggregate net asset value of less than an amount determined from
time to time by the Trustees, but not to exceed $1,000; or (ii)
to the extent that such Shareholder owns Shares equal to or in
excess of a percentage, determined from time to time by the
Trustees, of the outstanding Shares of the Trust or of any
Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may
fix the amount of such compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not
be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, manager, investment
adviser, Principal Underwriter or selling dealer of the Trust,
nor shall any Trustee be responsible for the act or omission of
any other Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
Section 3. Indemnification. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for and to provide by resolution or
in the By-Laws for indemnification out of Trust assets for
liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with
any claim, action, suit or proceeding in which he becomes
involved by virtue of his capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations
concerning indemnification, may be set forth in detail in the By-
Laws or in a resolution of the Board of Trustees.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally
Liable; Notice. All persons extending credit to, contracting
with or having any claim against the Trust or any Series shall
look only to the assets of the Trust, or, to the extent that the
liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets
belonging to the relevant Series, for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor.
Nothing in this Declaration of Trust shall protect any Trustee
against any liability to which such Trustee would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued on behalf of the Trust by the Board of
Trustees, by any officers or officer or otherwise may include a
notice that this Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts and may recite
that the note, bond, contract, instrument, certificate, or
undertaking was executed or made by or on behalf of the Trust or
by them as Trustee or Trustees or as officers or officer or
otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders
individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series for the
benefit of which the Trustees have caused the note, bond,
contract, instrument, certificate or undertaking to be made or
issued, and may contain such further recital as he or they may
deem appropriate, but the omission of any such recital shall not
operate to bind any Trustee or Trustees or officer or officers or
Shareholders or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No
Bond or Surety. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable solely for his own wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with
Trustees. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
Section 4. Termination of Trust or Series. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of at least two-thirds (66-2/3%) of the Shares of each
Series entitled to vote, voting separately by Series, or by the
Trustees by written notice to the Shareholders. Any Series may
be terminated at any time by vote of at least two-thirds (66-
2/3%) of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case
may be), after paying or otherwise providing for all charges,
taxes, expenses and liabilities belonging, severally, to each
Series (or the applicable Series, as the case may be), whether
due or accrued or anticipated as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets
belonging, severally, to each Series (or the applicable Series,
as the case may be), to distributable form in cash or shares or
other securities, or any combination thereof, and distribute the
proceeds belonging to each Series (or the applicable Series, as
the case may be), to the Shareholders of that Series, as a
Series, ratably according to the number of Shares of that Series
held by the several Shareholders on the date of termination.
Section 5. Merger and Consolidation. The Trustees may
cause the Trust or one or more of its Series to be merged into or
consolidated with another Trust or company or the Shares
exchanged under or pursuant to any state or Federal statute, if
any, or otherwise to the extent permitted by law. Such merger or
consolidation or Share exchange must be authorized by vote of a
majority of the outstanding Shares of the Trust, as a whole, or
any affected Series, as may be applicable; provided that in all
respects not governed by statute or applicable law, the Trustees
shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or
consolidation.
Section 6. Filing of Copies, References, Headings. The
original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of
each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any
such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as
if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any
such amendments. In this instrument and in any such amendment,
references to this instrument, and all expressions like "herein",
"hereof" and "hereunder", shall be deemed to refer to this
instrument as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of
which shall be deemed an original.
Section 7. Applicable Law. This Agreement and Declaration
of Trust is created under and is to be governed by and construed
and administered according to the laws of The Commonwealth of
Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be
amended at any time by an instrument in writing signed by a
majority of the then Trustees.
Section 9. Trust Only. It is the intention of the Trustees
to create only the relationship of Trustee and beneficiary
between the Trustees and each Shareholder from time to time. It
is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other
than a trust. Nothing in this Agreement and Declaration of Trust
shall be construed to make the Shareholders, either by themselves
or with the Trustees, partners or members of a joint stock
association.
Section 10. Use of the Name "Franklin". Franklin Advisers,
Inc. has consented to the use by the Trust of the identifying
word "Franklin" as part of the name of the Trust and the names of
any Series created or to be created hereunder. Such consent is
conditioned upon the employment of Franklin Advisers, Inc., or an
affiliate of said Company, as Manager of the Trust and said
Series. The name or identifying word "Franklin" or any variation
thereof may be used from time to time in other connections and
for other purposes by Franklin Advisers, Inc. or affiliated
entities. Franklin Advisers, Inc. has the right to require the
Trust to cease using "Franklin" in the name of the Trust and in
the names of its Series if the Trust and said Series cease to
employ, for any reason, Franklin Advisers, Inc., or an affiliate
of said Company, as Manager of the Trust or such Series. Future
names adopted by the Trust for itself and its Series shall be the
property of Franklin Advisers, Inc. and its affiliates, and the
use of such names shall be subject to the same conditions set
forth in this Section insofar as such name or identifying words
require the consent of Franklin Advisers, Inc.
IN WITNESS WHEREOF, a majority of the Trustees named below
do hereby set their hands this 17th day of July, 1986.
/s/ Charles B. Johnson /s/ Frank H. Abbott, III
Charles B. Johnson Frank H. Abbott, III
/s/ Henry L. Jamieson /s/ Harris J. Ashton
Henry L. Jamieson Harris J. Ashton
/s/ Zadoc W. Brown /s/ David W. Garbellano
Zadoc W. Brown David W. Garbellano
/s/ Samuel G. Hanson /s/ Frank W. T. LaHaye
Samuel G. Hanson Frank W. T. LaHaye
Jeremiah J. Bresnahan, Jr.
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
The undersigned certify that:
1. They constitute a majority of the Board of Trustees.
2. They hereby adopt the following amendments to this
Agreement and Declaration of Trust of this Trust:
A. Article I, Section 1 is amended to read as follows:
Section 1. Name. This Trust, formerly known as the
Franklin New York Tax-Exempt Money Fund, shall
henceforth be known as the FRANKLIN NEW YORK TAX-FREE
TRUST and the Trustees shall conduct the business of the
Trust under that name or any other name as they may from
time to time determine.
B. The first paragraph of Article III, Section 6 is
amended to delete the second sentence thereof and to
read as follows:
Section 6. Establishment and Designation of Series.
Except as set forth in Section 8 of this Article III,
the establishment and designation of any other Series of
Shares or change in the existing Series shall be
effective upon the resolution by a majority of the then
Trustees, setting forth such amendment, establishment
and designation and the relative rights and preferences
of such Series, or as otherwise provided in such
resolution.
3. It is the determination of the Trustees that approval of
the shareholders of the Trust is not required by the
Investment Company Act of 1940, as amended, or other
applicable law. These amendments are made pursuant to Article
III, Section 5 and Article VIII, Section 8 of the Agreement
and Declaration of Trust which empowers the Trustees to
change provisions relating to shares of the Trust.
IN WITNESS WHEREOF, the Trustees named below do hereby set
their hands as of the 22nd day of January, 1991.
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
FRANK H. ABBOTT, III HARRIS J. ASHTON
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. JOSEPH FORTUNATO DAVID W. GARBELLANO
/s/ Henry L. Jamieson /s/ Charles B. Johnson
HENRY L. JAMIESON CHARLES B. JOHNSON
/s/ Rupert H. Johnson, Jr. /s/ Edmund H. Kerr
RUPERT H. JOHNSON, JR. EDMUND H. KERR
/s/ Frank W.T. LaHaye
FRANK W.T. LAHAYE
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN NEW YORK TAX-FREE TRUST
The undersigned certify that:
THEY CONSTITUTE A MAJORITY OF THE TRUSTEES OF
FRANKLIN NEW YORK TAX-FREE TRUST, A MASSACHUSETTS BUSINESS TRUST
(THE "TRUST").
THEY HEREBY ADOPT THE FOLLOWING AMENDMENT TO THE
AGREEMENT AND DECLARATION OF TRUST OF THE TRUST, WHICH DELETES IN
ITS ENTIRETY THE SECTION OF THE AGREEMENT AND DECLARATION OF
TRUST ENTITLED "SECTION 1. DIVISION OF BENEFICIAL INTEREST." OF
ARTICLE III AND REPLACES SUCH SECTION OF ARTICLE III WITH THE
FOLLOWING:
"Section 1. Division of Beneficial Interest.
The beneficial interest in the Trust shall at all times
be divided into an unlimited number of Shares, without
par value. The Trustees may authorize the division of
the Shares into separate Series and the division of
Series into separate classes or sub-series of Shares
(subject to any applicable rule, regulation or order of
the Commission or other applicable law or regulation).
The different Series and classes shall be established
and designated and shall have such preference,
conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and
other characteristics as the Trustees may determine.
Notwithstanding any other provision of this Agreement
and Declaration of Trust, if any matter submitted to
shareholders for a vote affects only the interests of
one class of a Series then only such affected class
shall be entitled to vote on the matter. Each Share of
a Series shall have equal rights with each other Share
of that Series with respect to the assets of the Trust
pertaining to that Series. Notwithstanding any other
provision of this Agreement and Declaration of Trust,
the dividends payable to the holders of any Series (or
class) (subject to any applicable rule, regulation or
order of the Commission or any other applicable law or
regulation) shall be determined by the Trustees and
need not be individually declared, but may be declared
and paid in accordance with a formula adopted by the
Trustees. Except as otherwise provided herein, all
references in this Agreement and Declaration of Trust
to Shares or Series of Shares shall apply without
discrimination to the Shares of each Series.
Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities
issued by the Trust or any Series or class. The
Trustees may from time to time divide or combine the
Shares of any particular Series or class into a greater
or lesser number of Shares of that Series or class
without thereby changing the proportionate beneficial
interest of the Shares of that Series or class in the
assets belonging to that Series or class or in any way
affecting the rights of Shares of any other Series or
class."
IT IS THE DETERMINATION OF THE TRUSTEES THAT
APPROVAL OF THE SHAREHOLDERS OF THE TRUST IS NOT REQUIRED BY THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, OR OTHER APPLICABLE
LAW. THIS AMENDMENT IS MADE PURSUANT TO ARTICLE III, SECTION 5
OF THIS AGREEMENT AND DECLARATION OF TRUST WHICH EMPOWERS THE
TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES OF THE TRUST.
We declare under penalty of perjury that the matters
set forth in this certificate are true and correct of our own
knowledge.
Dated March 21, 1995
/s/ Frank H. Abbott, III /s/ David W. Garbellano
Frank H. Abbott, III David W. Garbellano
/s/ Harris J. Ashton /s/ Charles B. Johnson
Harris J. Ashton Charles B. Johnson
/s/ S. Joseph Fortunato /s/ Rupert H. Johnson, Jr.
S. Joseph Fortunato Rupert H. Johnson, Jr.
/s/ Frank W.T. LaHaye /s/ Gordon S. Macklin
Frank W.T. LaHaye Gordon S. Macklin
/s/ William J. Lippman
William J. Lippman
BY-LAWS
OF
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
A Massachusetts Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall
fix and, from time to time, may change the location of the
principal executive office of the Trust at any place within or
outside The Commonwealth of Massachusetts.
Section 2. OTHER OFFICES. The Board of Trustees may at any
time establish branch or subordinate offices at any place or
places where the Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place within or outside The Commonwealth of
Massachusetts designated by the Board of Trustees. In the
absence of any such designation, shareholders' meetings shall be
held at the principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders
may be called at any time by the Board of Trustees or by the
chairman of the Board or by the president.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of
meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than seven
(7) nor more than seventy-five (75) days before the date of the
meeting. The notice shall specify (i) the place, date and hour
of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to
be elected also shall include the name of any nominee or nominees
whom at the time of the notice are intended to be presented for
election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a trustee has
a direct or indirect financial interest, (ii) an amendment of the
Declaration of Trust, (iii) a reorganization of the Trust, or
(iv) a voluntary dissolution of the Trust, the notice shall also
state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the
Trust for the purpose of notice. If no such address appears on
the Trust's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the Trust is returned
to the Trust by the United States Postal Service marked to
indicate that the Postal Service is unable to deliver the notice
to the shareholder at that address, all future notices or reports
shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the Trust
for a period of one year from the date of the giving of the
notice.
An affidavit of the mailing or other means of giving any
notice of any shareholder's meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the Trust
giving the notice and shall be filed and maintained in the minute
book of the Trust.
Section 5. ADJOURNED METTING; NOTICE. Any shareholder's
meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares
represented at that meeting, either in person or by proxy.
When any meeting of shareholders is adjourned to another
time or place, notice need not be given of the adjourned meeting
at which the adjournment is taken, unless a new record date of
the adjourned meeting is fixed or unless the adjournment is for
more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new
record date. Notice of any such adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 3 and 4 of
this Article II. At any adjourned meeting, the Trust may transact
any business which might have been transacted at the original
meeting.
Section 6. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of the Declaration of Trust, as in effect at
such time. The shareholders' vote may be by voice vote or by
ballot, provided, however, that any election for trustees must be
by ballot if demanded by any shareholder before the voting has
begun. On any matter other than elections of trustees, any
shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against
the proposal, but if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is
with respect to the total shares that the shareholder is entitled
to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
however called and noticed and wherever held, shall be as valid
as though had at a meeting duly held after regular call and
notice if a quorum be present either in person or by proxy and if
either before or after the meeting, each person entitled to vote
who was not present in person or by proxy signs a written waiver
of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any
meeting of shareholders.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects
at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened
and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at
the beginning of the meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action which may be taken at any meeting of
shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action so taken
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall
be maintained in the Trust's records. Any shareholder giving a
written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the
shareholder or their respective proxy holders may revoke the
consent by a writing received by the Secretary of the Trust
before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the action approved by
the shareholders without a meeting. This notice shall be given in
the manner specified in Section 4 of this Article II. In the case
of approval of (i) contracts or transactions in which a trustee
has a direct or indirect financial interest, (ii) indemnification
of agents of the Trust, and (iii) a reorganization of the Trust,
the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND
GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to action without a meeting, the Board of Trustees may
fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any
such meeting as provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on
which notice is given or if notice is waived, at the close of
business on the business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled to
give consent to action in writing without a meeting, (i) when no
prior action by the Board of Trustees has been taken, shall be
the day on which the first written consent is given, or (ii) when
prior action of the Board of Trustees has been taken, shall be at
the close of business on the day on which the Board of Trustees
adopt the resolution relating to that action or the seventy-fifth
day before the date of such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for
trustees or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to
the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice
of the death or incapacity of the maker of that proxy is received
by the Trust before the vote pursuant to that proxy is counted;
provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be
governed by the provisions of the General Corporation Law of the
State of California.
Section 11. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Trustees may appoint any persons other
than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders
or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may and on the request of any shareholder
or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and effect
of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of
the Declaration of Trust and these By-Laws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Trust shall be managed
and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact
number of trustees within the limits specified in the Agreement
and Declaration of Trust shall be nine (9), until changed by a
duly adopted amendment to the Declaration of Trust and these By-
Laws.
Section 3. VACANCIES. Vacancies in the Board of Trustees
may be filled by a majority of the remaining trustees, though
less than a quorum, or by a sole remaining trustee, unless the
Board of Trustees calls a meeting of shareholders for the
purposes of electing trustees. In the event that at any time
less than a majority of the trustees holding office at that time
were so elected by the holders of the outstanding voting
securities of the Trust, the Board of Trustees shall forthwith
cause to be held as promptly as possible, and in any event within
sixty (60) days, a meeting of such holders for the purpose of
electing trustees to fill any existing vacancies in the Board of
Trustees, unless such period is extended by order of the United
States Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the
Trust is a participant in or otherwise has in effect a Plan under
which the Trust may be deemed to bear expenses of distributing
its shares as that practice is described in Rule 12b-1 under the
Investment Company Act of 1940, then the selection and nomination
of the trustees who are not interested persons of the Trust (as
that term is defined in the Investment Company Act of 1940) shall
be, and is, committed to the discretion of such disinterested
trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
All meetings of the Board of Trustees may be held at any place
within or outside The Commonwealth of Massachusetts that has been
designated from time to time by resolution of the Board. In the
absence of such a designation, regular meetings shall be held at
the principal executive office of the Trust. Any meeting,
regular or special, may be held by conference telephone or
similar communication equipment, so long as all trustees
participating in the meeting can hear one another and all such
trustees shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board
of Trustees shall be held without call at such time as shall from
time to time be fixed by the Board of Trustees. Such regular
meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board
of Trustees for any purpose or purposes may be called at any time
by the chairman of the board or the president or any vice
president or the secretary or any two (2) trustees.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each trustee or sent by
first-class mail or telegram, charges prepaid, addressed to each
trustee at that trustee's address as it is shown on the records
of the Trust. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or to the telegraph company,
it shall be given at least forty-eight (48) hours before the time
of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the trustee or to a
person at the office of the trustee who the person giving the
notice has reason to believe will promptly communicate it to the
trustee. The notice need not specify the purpose of the meeting
or the place if the meeting is to be held at the principal
executive office of the Trust.
Section 7. QUORUM. A majority of the authorized number of
trustees shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of
the trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Declaration of Trust. A meeting
at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of trustees if any action
taken is approved by a least a majority of the required quorum
for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need
not be given to any trustee who either before or after the
meeting signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents, and approvals shall be filed with the records
of the Trust or made a part of the minutes of the meeting.
Notice of a meeting shall also be deemed given to any trustee who
attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given unless
the meeting is adjourned for more than forty-eight (48) hours, in
which case notice of the time and place shall be given before the
time of the adjourned meeting in the manner specified in Section
7 of this Article III to the trustees who were present at the
time of the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required
or permitted to be taken by the Board of Trustees may be taken
without a meeting if a majority of the members of the Board of
Trustees shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same
force and effect as a majority vote of the Board of Trustees.
Such written consent or consents shall be filed with the minutes
of the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Trustees. This
Section 12 shall not be construed to preclude any trustee from
serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those
services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any
Trustee may, by power of attorney, delegate his power for a
period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall fewer than
two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration of Trust except as otherwise
expressly provided herein or by resolution of the Board of
Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees
may by resolution adopted by a majority of the authorized number
of trustees designate one or more committees, each consisting of
two (2) or more trustees, to serve at the pleasure of the Board.
The Board may designate one or more trustees as alternate members
of any committee who may replace any absent member at any meeting
of the committee. Any committee to the extent provided in the
resolution of the Board, shall have the authority of the Board,
except with respect to:
(a) the approval of any action which under applicable law
also requires shareholders' approval or approval of the
outstanding shares, or requires approval by a majority of the
entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in
any committee;
(c) the fixing of compensation of the trustees for serving
on the Board of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or
of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board
of Trustees which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the Trust, except
at a rate or in a periodic amount or within a designated range
determined by the Board of Trustees; or
(g) the appointment of any other committees of the Board of
Trustees or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these By-Laws,
with such changes in the context thereof as are necessary to
substitute the committee and its members for the Board of
Trustees and its members, except that the time of regular
meetings of committees may be determined either by resolution of
the Board of Trustees or by resolution of the committee. Special
meetings of committees may also be called by resolution of the
Board of Trustees, and notice of special meetings of committees
shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a
president, a secretary, and a treasurer. The Trust may also
have, at the discretion of the Board of Trustees, a chairman of
the board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held
by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
Trust, except such officers as may appointed in accordance with
the provisions of Section 3 or Section 5 of this Article V, shall
be chosen by the Board of Trustees, and each shall serve at the
pleasure of the Board of Trustees, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may
appoint and may empower the president to appoint such other
officers as the business of the Trust may require, each of whom
shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to
the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Trustees at any regular or special meeting
of the Board of Trustees or except in the case of an officer upon
whom such power of removal may be conferred by the Board of
Trustees.
Any officer may resign at any time by giving written notice
to the Trust. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that
notice; and unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights,
if any, of the Trust under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
because of death, resignation, removal, disqualification or other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the
board, if such an officer is elected, shall if present preside at
meetings of the Board of Trustees and exercise and perform such
other powers and duties as may be from time to time assigned to
him by the Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers,
if any, as may be given by the Board of Trustees to the chairman
of the board, if there be such an officer, the president shall be
the chief executive officer of the Trust and shall, subject to
the control of the Board of Trustees, have general supervision,
direction and control of the business and the officers of the
Trust. He shall preside at all meetings of the shareholders and
in the absence of the chairman of the board or if there be none,
at all meetings of the Board of Trustees. He shall have the
general powers and duties of management usually vested in the
office of president of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees
or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability
of the president, the vice presidents, if any, in order of their
rank as fixed by the Board of Trustees or if not ranked, a vice
president designated by the Board of Trustees, shall perform all
the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the
president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Trustees or by these By-
Laws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office of the Trust or such
other place as the Board of Trustees may direct a book of minutes
of all meetings and actions of trustees, committees of trustees
and shareholders with the time and place of holding, whether
regular or special, and if special, how authorized, the notice
given, the names of those present at trustees' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office of the Trust or at the office of the
Trust's transfer agent or registrar, as determined by resolution
of the Board of Trustees, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Board of Trustees
required by these By-Laws or by applicable law to be given and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief
financial officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and
records of accounts of the properties and business transactions
of the Trust, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all
reasonable times be open to inspection by any trustee.
The treasurer shall deposit all monies and other valuables
in the name and to the credit of the Trust with such depositaries
as may be designated by the Board of Trustees. He shall disburse
the funds of the Trust as may be ordered by the Board of
Trustees, shall render to the president and trustees, whenever
they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and
shall have other powers and perform such other duties as may be
prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purpose of this Article, "agent" means any person who is or was a
trustee, officer, employee or other agent of this Trust or is or
was serving at the request of this Trust as a trustee, director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise or was a trustee, director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor of
another enterprise at the request of such predecessor entity;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to
indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the
right of this Trust) by reason of the fact that such person is or
was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good
faith and in a manner that person reasonably believed to be in
the best interests of this Trust and in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of
that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best
interests of this Trust or that the person had reasonable cause
to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or
in the right of this Trust to procure a judgment in its favor by
reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that
person believed to be in the best interests of this Trust and
with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar
circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding
any provision to the contrary contained herein, there shall be no
right to indemnification for any liability arising by reason of
willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the agent's
office with this Trust.
No indemnification shall be made under Sections 2 or 3 of
this Article:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and only
to the extent that the court in which that action was brought
shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason
of the disabling conduct set forth in the preceding paragraph and
is fairly and reasonably entitled to indemnity for the expenses
which the court shall determine; or
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or
of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval,
unless the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this Trust has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party trustees, also determines that based
upon a review of the facts, the agent was not liable by reason of
the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this Trust only if authorized in the specific
case on a determination that indemnification of the agent is
proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because
of the disabling conduct set forth in Section 4 of this Article,
by:
(a) A majority vote of a quorum consisting of trustees who
are not parties to the proceeding and are not interested persons
of the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Trust before the
final disposition of the proceeding on receipt of an undertaking
by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article,
provided the agent provides a security for his undertaking, or a
majority of a quorum of the disinterested, non-party trustees, or
an independent legal counsel in a written opinion, determine that
based on a review of readily available facts, there is reason to
believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in
this Article shall affect any right to indemnification to which
persons other than trustees and officers of this Trust or any
subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Sections
5 or 6 in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Declaration of Trust, a resolution of the shareholders, or an
agreement in effect at the time of accrual of the alleged cause
of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid which prohibits or otherwise
limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase
such insurance, this Trust shall purchase and maintain insurance
on behalf of any agent of this Trust against any liability
asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent
against that liability under the provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan
in that person's capacity as such, even though that person may
also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right
to indemnification to which such a trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law
other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER.
This Trust shall keep at its principal executive office or at the
office of its transfer agent or registrar, if either be appointed
and as determined by resolution of the Board of Trustees, a
record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each
shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
Trust shall keep at its principal executive office the original
or a copy of these By-Laws as amended to date, which shall be
open to inspection by the shareholders at all reasonable times
during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Trustees and any committee or
committees of the Board of Trustees shall be kept at such place
or places designated by the Board of Trustees or in the absence
of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form
or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and
make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall
have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical
properties of the Trust. This inspection by a trustee may be made
in person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial
statements and any income statement of the Trust for each
quarterly period of each fiscal year and accompanying balance
sheet of the Trust as of the end of each such period that has
been prepared by the Trust shall be kept on file in the principal
executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to
any shareholder demanding an examination of any such statement or
a copy shall be mailed to any such shareholder.
The quarterly income statements and balance sheets referred
to in this section shall be accompanied by the report, if any, of
any independent accountants engaged by the Trust or the
certificate of an authorized officer of the Trust that the
financial statements were prepared without audit from the books
and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts, or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of or payable
to the Trust shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Trustees, except as otherwise provided in these By-Laws,
may authorize any officer or officers, agent or agents, to enter
into any contract or execute any instrument in the name of and on
behalf of the Trust and this authority may be general or confined
to specific instances; and unless so authorized or ratified by
the Board of Trustees or within the agency power of an officer,
no officer, agent, or employee shall have any power or authority
to bind the Trust by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of beneficial interest in any series of
the Trust may be issued to a shareholder upon his request when
such shares are fully paid. All certificates shall be signed
inthe name of the Trust by the chairman of the board or the
president or vice president and by the treasurer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the series of shares owned by the
shareholders. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued,
it may be issued by the Trust with the same effect as if that
person were an officer, transfer agent or registrar at the date
of issue. Notwithstanding the foregoing, the Trust may adopt and
use a system of issuance, recordation and transfer of its shares
by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this
Section 4, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the Trust and cancelled at the same time. The Board of Trustees
may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the
Board of Trustees may require, including a provision for
indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD
BY TRUST. The chairman of the board, the president or any vice
president or any other person authorized by resolution of the
Board of Trustees or by any of the foregoing designated officers,
is authorized to vote or represent on behalf of the Trust any and
all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust.
The authority granted may be exercised in person or by a proxy
duly executed by such designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall
be fixed and refixed or changed from time to time by resolution
of the Trustees. The fiscal year of the Trust shall be the
taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be
amended or repealed by the affirmative vote or written consent of
a majority of the outstanding shares entitled to vote, except as
otherwise provided by applicable law or by the Declaration of
Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of
shareholders as provided in Section 1 of this Article to adopt,
amend or repeal By-Laws, and except as otherwise provided by
applicable law or by the Declaration of Trust, these By-Laws may
be adopted, amended, or repealed by the Board of Trustees.
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN NEW YORK TAX-EXEMPT
MONEY FUND, a Massachusetts Business Trust, hereinafter called the
"Fund" and FRANKLIN ADVISERS, INC., a California Corporation,
hereinafter called the "Manager."
WHEREAS, the Fund has been organized and intends to operate as an
investment company registered under the Investment Company Act of
1940 (the "Act") for the purpose of investing and reinvesting its
assets in securities, as set forth in its Agreement and Declaration
of Trust, its By-Laws and its Registration Statements under the Act
and the Securities Act of 1933, all as heretofore amended and
supplemented; and the Fund desires to avail itself of the services,
information, advice, assistance and facilities of an investment
manager and to have an investment manager perform for it various
management, statistical, research, investment advisory and other
services; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisors Act of 1940, is engaged in the business of
rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Fund hereby employs the Manager
to manage the investment and reinvestment of the Fund's assets and to
administer its affairs, subject to the direction of the Board of
Trustees and the officers of the Fund, for the period and on the
terms hereinafter set forth. The Manager hereby accepts such
employment and agrees during such period to render the services and
to assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein be deemed
to be an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter set forth
and to assume the following obligations:
A. Administrative Services. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the offices
of the Manager or in such other place as may be agreed upon from
time to time, (ii) office furnishings, facilities and equipment
as may be reasonably required for managing the affairs and
conducting the business of the Fund, including conducting
correspondence and other communications with the shareholders of
the Fund, maintaining all internal bookkeeping, accounting and
auditing services and records in connection with the Fund's
investment and business activities. The Manager shall employ or
provide and compensate the executive, secretarial and clerical
personnel necessary to provide such services. The Manager shall
also compensate all officers and employees of the Fund who are
officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and portfolio
subject to and in accordance with the investment objectives and
policies of the Fund and any directions which the Fund's Board
of Trustees may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations with
respect to the investment of the Fund's assets and the purchase
and sale of portfolio securities, and shall take such steps as
may be necessary to implement the same. Such determinations and
services shall also include determining the manner in which any
voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall
be exercised. The Manager shall render regular reports to the
Fund, at regular meetings of its Board of Trustees and at such
other times as may be reasonably requested by the Fund's Board
of Trustees, of (i) the decisions which it has made with respect
to the investment of the Fund's assets and the purchase and sale
of portfolio securities, (ii) the reasons for such decisions and
(iii) the extent to which those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Fund's Board of Trustees may issue from
time to time, shall place, in the name of the Fund, orders for
the execution of the Fund's portfolio transactions. When
placing such orders the Manager shall seek to obtain the best
net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Manager to place any order solely
on the basis of obtaining the lowest commission rate if the
other standards set forth in this section have been satisfied.
The parties recognize that there are likely to be many cases in
which different brokers are equally able to provide such best
price and execution and that, in selecting among such brokers
with respect to particular trades, it is desirable to choose
those brokers who furnish research, statistical, quotations and
other information to the Fund and the Manager in accord with the
standards set forth below. Moreover, to the extent that it
continues to be lawful to do so and so long as the Board of
Trustees determines that the Fund will benefit, directly or
indirectly, by doing so, the Manager may place orders with a
broker who charges a commission for that transaction which is in
excess of the amount of commission that another broker would
have charged for effecting that transaction, provided that the
excess commission is reasonable in relation to the value of
"brokerage and research services" (as defined in Section
28(e)(3) of the Securities Exchange Act of 1934) provided by
that broker. Accordingly, the Fund and the Manager agree that
the Manager shall select brokers for the execution of the Fund's
portfolio transactions from among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be
required in light of such services;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to portfolio securities, actual or
potential, of the Fund, or which place the Manager in a
better position to make decisions in connection with the
management of the Fund's assets and portfolio, whether or
not such data may also be useful to the Manager and its
affiliates in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
(c) When the Manager has determined that the Fund should tender
securities pursuant to a "tender offer solicitation," the
Manager shall designate Franklin Distributors, Inc.
("Distributors") as the "tendering dealer" so long as it is
legally permissible for the Manager to do so, and act in such
capacity under the Federal securities laws and rules thereunder
and the rules of any securities exchange or association of which
Distributors may be a member. Distributors shall not be
obligated to make any additional commitments of capital, expense
or personnel beyond that already committed (other than normal
periodic fees or payments necessary to maintain its corporate
existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement.
This Agreement shall not obligate the Manager or Distributors
(i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that
liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees
which may be considered to be due from others to it as a result
of such a tender, unless the Fund shall enter into an agreement
with the Manager and/or Distributors to reimburse them for all
expenses connected with attempting to collect such fees
including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the
time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the Fund, not
more frequently than quarterly, of how much total brokerage
business has been placed by the Manager with brokers falling
into each of the categories referred to above and the manner in
which the allocation has been accomplished.
(e) The Manager agrees that no investment decision will be made
or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such
allocation of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and execution for
the Fund.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials. The
Manager, its officers and employees will make available and
provide accounting and statistical information required by the
Fund in the preparation of registration statements, reports and
other documents required by Federal and state securities laws
and with such information as the Fund may reasonably request for
use in the preparation of such documents or of other materials
necessary or helpful for the offering of the Fund's shares.
D. Other Obligations and Services. The Manager shall make available
its officers and employees to the Board of Trustees and officers
of the Fund for consultation and discussions regarding the
administrative management of the Fund and its investment
activities.
3. Expenses of the Fund. It is understood that the Fund will pay
all its expenses other than those expressly assumed by the Manager
herein, which expenses payable by the Fund shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services,
including the expense of issue, repurchase or redemption of its
shares;
D. Expenses of obtaining quotations for calculating the value of
the Fund's net assets;
E. Salaries and other compensation of any of its executive officers
who are not officers, directors, stockholders or employees of
the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of Board of Trustees and shareholders
of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's
legal existence;
J. Legal fees, including the legal fees related to the registration
and continued qualification of the Fund's shares for sale;
K. Costs of printing share certificates representing shares of
beneficial interest of the Fund;
L. Trustees' fees and expenses to trustees who are not directors,
officers, employees or stockholders of the Manager or any of its
affiliates;
M. Costs and expense of registering and maintaining the
registration of the Fund and its shares under Federal and
applicable state laws; including the printing and mailing of
prospectuses to its shareholders;
N. Trade association dues; and
O. Its pro rata portion of fidelity bond insurance premiums.
4. Compensation of the Manager. The Fund shall pay a daily
management fee in cash to the Manager based upon a percentage of the
value of the Fund's net assets, calculated as set forth below, as
compensation for the services rendered and obligations assumed by the
Manager, payable at the request of the Manager.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be determined in the same manner as the
Fund uses to compute the value of its net assets in connection
with the determination of the net asset value of Fund shares,
all as set forth more fully in the Fund's current prospectus.
The rate of the daily management fee payable by the Fund shall
be as follows:
1/584 of 1% of the value of net assets up to and including
$100,000,000; and
1/730 of 1% of the value of net assets over
$100,000,000 up to and including $250,000,000; and
1/811 of 1% of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received
cash payments of tender offer solicitation fees less certain
costs and expenses incurred in connection therewith as set forth
in paragraph 2. B.(c) of this Agreement; and to the extent
necessary to comply with the limitations on expenses which may
be borne by the Fund as set forth in the laws, regulations and
administrative interpretations of those states in which the
Fund's shares are registered. The Manager may, from time to
time, voluntarily reduce or waive any management fee due to it
hereunder.
5. Activities of the Manager. The services of the Manager to the
Fund hereunder are not to be deemed exclusive, and the Manager and
any of its affiliates shall be free to render similar services to
others. Subject to and in accordance with the Agreement and
Declaration of Trust and By-Laws of the Fund and Section
10(a) of the Act, it is understood that trustees, officers, agents
and shareholders of the Fund are or may be interested in the Manager
or its affiliates as directors, officers, agents or stockholders;
that directors, officers, agents or stockholders of the Manager or
its affiliates are or may be interested in the Fund as trustees,
officers, agents, shareholders or otherwise; that the Manager or its
affiliates may be interested in the Fund as shareholders or
otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, By-Laws and the
Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not be
subject to liability to the Fund or to any shareholder of the
Fund for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by
the Fund.
B. Notwithstanding the foregoing, the Manager agrees to reimburse
the Fund for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Fund in the
preparation, printing and distribution of proxy statements,
amendments to its Registration Statement, holdings of meetings
of its shareholders or trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or determinations by
the Securities and Exchange Commission) which the Fund incurs as
the result of action or inaction of the Manager or any of its
affiliates or any of their officers, directors, employees or
shareholders where the action or inaction necessitating such
expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the shares or control of
the Manager or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares or
control) which shall have been undertaken without the prior,
express approval of the Fund's Board of Trustees; or, (ii) is
within the control of the Manager or any of its affiliates or
any of their officers, directors, employees or shareholders. The
Manager shall not be obligated pursuant to the provisions of
this Subparagraph 6(B), to reimburse the Fund for any
expenditures related to the institution of an administrative
proceeding or civil litigation by the Fund or a Fund shareholder
seeking to recover all or a portion of the proceeds derived by
any shareholder of the Manager or any of its affiliates from the
sale of his shares of the Manager, or similar matters. So long
as this Agreement is in effect the Manager shall pay to the Fund
the amount due for expenses subject to this Subparagraph 6(B)
within 30 days after a bill or statement has been received by
the Fund therefor. This provision shall not be deemed to be a
waiver of any claim the Fund may have or may assert against the
Manager or others for costs, expenses or damages heretofore
incurred by the Fund or for costs, expenses or damages the Fund
may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any
trustee or officer of the Fund, or director or officer of the
Manager, from liability in violation of Sections 17(h) and (i)
of the Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written below
and shall continue in effect for one year. The Agreement is
renewable annually thereafter for successive periods not to
exceed one year (i) by a vote of a majority of the outstanding
voting securities of the Fund or by a vote of the Board of
Trustees of the Fund, and (ii) by a vote of a majority of the
trustees of the Fund who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than
as Trustees of the Fund), cast in person at a meeting called for
the purpose of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment of any
penalty either by vote of the Board of Trustees of the Fund or
by vote of a majority of the outstanding voting securities of
the Fund, on 60 days' written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 60 days" written
notice to the Fund.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such terms
in the Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party
at any office of such party.
8. Distribution Plan.
A. The provisions set forth in this paragraph 8 (hereinafter
referred to as the "Plan") have been adopted pursuant to Rule
12b-1 under the Act by the Fund, having been approved by a
majority of the Fund's Board of Trustees, including a majority
of the Trustees who are not interested persons of the Fund and
who have no direct or indirect financial interest in the
operation of the Plan (the "non-interested trustees"), cast in
person at a meeting called for the purpose of voting on such
Plan. The Board of Trustees concluded that the rate of
compensation to be paid to the Manager was fair and not
excessive, and that due solely to the uncertainty that may exist
from time to time with respect to whether payments made by the
Fund to the Manager or to other firms may be deemed to
constitute distribution expenses, it was determined that
adoption of the Plan would be prudent and in the best interests
of the Fund and its shareholders. The Trustees' approval
included a determination that in the exercise of their
reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan has also been
approved by a vote of at least a majority of the Fund's
outstanding voting securities.
B. No additional payments are to be made by the Fund as a result of
the Plan other than the payments the Fund is otherwise obligated
to make (i) to the Manager pursuant to paragraph 4 of this
Agreement, (ii) to its Shareholder Services Agent pursuant to
their Agreement as in effect at any time, and (iii) in payment
of any of the expenses referred to in paragraph 3 of this
Agreement. However, to the extent any payments by the Fund, to
or by the Manager, or to the Fund's Shareholder Services Agent,
are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to be made pursuant to the Plan as set
forth herein. Such activities, the payment of which are intended
to be within the scope of the Plan, shall include, but not
necessarily be limited to, the following:
(a) the costs of the preparation, printing and mailing of
all required reports and notices to shareholders;
(b) the costs of the preparation, printing and mailing of
all prospectuses;
(c) the costs of preparation, printing and mailing of any
proxy statements and proxies;
(d) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, proxies and
proxy statements;
(e) all fees and expenses relating to the qualification of
the Fund and/or its shares under the securities or "Blue
Sky" laws of any jurisdiction;
(f) all fees under the Securities Act of 1933 and the Act,
including fees in connection with any application for
exemption relating to or directed toward the sale of the
Fund's shares;
(g) all fees and assessments of the Investment Company
Institute or any successor organization, irrespective of
whether some of its activities are designed to provide
sales assistance;
(h) all costs of the preparation and mailing of
confirmations of shares sold or redeemed or share
certificates, and reports of share balances;
(i) all costs of responding to telephone or mail inquiries
of investors or prospective investors; and
(j) payments to dealers, financial institutions, advisers,
or other firms, any one of whom may receive monies in
respect of the Fund's shares owned by shareholders for whom
such firm is the dealer of record or holder of record, or
with whom such firm has a servicing relationship.
Servicing may include, among other things: (i) answering
client inquiries regarding the Fund; (ii) assisting clients
in changing dividend options, account designations and
addresses; (iii) performing sub-accounting; (iv)
establishing and maintaining shareholder accounts and
records; (v) processing purchase and redemption
transactions; (vi) automatic investment in Fund shares of
client cash account balances; (vii) providing periodic
statements showing a client's account balance and
integrating such statements with those of other
transactions and balances in the client's other accounts
serviced by such firm; (viii) arranging for bank wires; and
(ix) such other services as the Fund may request, to the
extent such are permitted by applicable statute, rule or
regulation.
C. The terms and provisions of the Plan are as follows:
(a) The Manager shall report to the Board of Trustees of
the Fund at least quarterly on payments for any of the
activities in subparagraph B of this paragraph 8, and shall
furnish the Board of Trustees of the Fund with such other
information as the Board may reasonably request in
connection with such payments in order to enable the Board
to make an informed determination of whether the Plan
should be continued.
(b) The Plan shall continue in effect for a period of more
than one year from the date written below only so long as
such continuance is specifically approved at least annually
by the Fund's Board of Trustees, including the non-
interested trustees, cast in person at a meeting called for
the purpose of voting on the Plan.
(c) The Plan may be terminated at any time by vote of a
majority of the non-interested trustees or by vote of a
majority of the Fund's outstanding voting securities on not
more than sixty (60) days' written notice to any other
party to the Plan, and shall terminate automatically in the
event of any act that constitutes an assignment of this
Management Agreement.
(d) The Plan may not be amended to increase materially the
amount deemed to be spent for distribution without approval
by the Fund's shareholders, and all material amendments to
the Plan shall be approved by the non-interested trustees
cast in person at a meeting called for the purpose of
voting on such amendment.
(e) So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested trustees shall be
committed to the discretion of such non-interested
trustees.
9. Severability. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California.
11. Limitation of Liability. The Manager acknowledges that it has
received notice of and accepts the limitations of the Fund's
liability as set forth in Article VIII of its Agreement and
Declaration of Trust. The Manager agrees that the Fund's
obligations hereunder shall be limited to the assets of the
Fund, and that the Manager shall not seek satisfaction of any
such obligation from any shareholders of the Fund nor from any
trustee, officer, employee or agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the 10th day of October, 1986.
FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
/s/ Charles B. Johnson
By: Charles B. Johnson
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made as of the 23rd day of April
1991, by and between the FRANKLIN NEW YORK TAX FREE TRUST on
behalf of the NEW YORK INSURED TAX-FREE INCOME FUND (hereinafter
called the "Fund") a series of the Franklin New York Tax Free
Trust, a Massachusetts Business Trust hereinafter called the
"Trust" and FRANKLIN ADVISERS, INC., a California Corporation
hereinafter called the "Manager".
WHEREAS, the Trust has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of
Trust, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933,
all as heretofore amended and supplemented; and the Trust desires
to avail itself of the services, information, advice, assistance
and facilities of an investment manager and to have an investment
manager perform for its various management, statistical,
research, investment advisory and other services; and,
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisor's Act of 1940, is engaged in the
business of rendering management, investment advisory,
counselling and supervisory services to investment companies and
other investment counselling clients, and desires to provide
these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Trust hereby employs the
Manager to manage the investment and reinvestment of the Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Trust, for the
period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to
render the services and to assume the obligations herein set
forth for the compensation herein provided. The Manager shall
for all purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized (whether
herein or otherwise), have no authority to act for or represent
the Trust in any way or otherwise be deemed an agent of the
Trust.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter set
forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment, and
Personnel. The Manager shall furnish to the Fund adequate
i) office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time
to time, ii) office furnishings, facilities and equipment as may
be reasonably required for managing the affairs and conducting
the business of the Fund, including complying with the securities
reporting requirements of the United States and the various
states in which the Fund does business, conducting correspondence
and other communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and auditing
services and records in connection with the Fund's investment and
business activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive, secretarial
and clerical personnel necessary to provide such services. The
Manager shall also compensate all officers and employees of the
Trust who are officers or employees of the Manager.
B. Investment Management Services
a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the investment
objectives and policies of the Fund and any directions which the
Trust's Board of Trustees may issue from time to time. In
pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of the Fund's
assets and the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement the same.
Such determinations and services shall also include determining
the manner in which voting rights, rights to consent to legal
action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. The Manager shall render regular
reports to the Trust, at regular meetings of the Board of
Trustees and at such other times as may be reasonably requested
by the Trust's Board of Trustees, of i) the decisions which it
has made with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, ii) the reasons
for such decisions and iii) the extent to which those decisions
have been implemented.
b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from
time to time, shall place, in the name of the Fund, orders for
the execution of the Fund's portfolio transactions. When placing
such orders the Manager shall seek to obtain the best net price
and execution for the Fund, but this requirement shall not be
deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other
standards set forth in this section have been satisfied. The
parties recognize that there are likely to be many cases in which
different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect
to particular trades, it is desirable to choose those brokers who
furnish research, statistical quotations and other information to
the Fund and the Manager in accord with the standards set forth
below. Moreover, to the extent that it continues to be lawful to
do so and so long as the Board determines that the Fund will
benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges commission for that
transaction which is in excess of the amount of commission that
another broker would have charged for effecting that transaction,
provided that the excess commission is reasonable in relation to
the value of "brokerage and research services" (as defined in
Section 28(e)(3) of the Securities Exchange Act of 1934) provided
by that broker. Accordingly, the Fund and the Manager agree that
the Manager shall select brokers for the execution of the Fund's
portfolio transactions from among:
i) Those brokers and dealers who provide
quotations and other services to the Fund, specifically including
the quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required in
light of such services;
ii) Those brokers and dealers who supply
research, statistical and other data to the Manager or its
affiliates which relate directly to portfolio securities, actual
or potential, of the Fund or which place the Manager in a better
position to make decisions in connection with the management of
the Fund's assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required.
Provided that the Trust's officers are satisfied that
the best execution is obtained, the sale of Fund shares may also
be considered as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation," the
Manager shall be designated as the "tendering dealer" so long as
it is legally permitted to act in such capacity under the Federal
securities laws and rules thereunder and the rules of any
securities exchange or association of which it may be a member.
The Manager shall not be obligated to make any additional
commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary
to maintain its legal existence and membership in the National
Association of Securities Dealers, Inc.) as of the date of this
Agreement and this Agreement shall not obligate the Manager i) to
act pursuant to the foregoing requirement under any circumstances
in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a
tender, unless the Fund shall enter into an agreement with the
Manager to reimburse them for all expenses connected with
attempting to collect such fees including legal fees and expenses
and that portion of the compensation due to their employees which
is attributable to the time involved in attempting to collect
such fees.
The Manager shall render regular reports to the Trust,
not less frequently than quarterly, of how much total brokerage
business has been placed by the Manager with brokers falling into
each of the foregoing categories and the manner in which the
allocation has been accomplished.
The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for
allocation in accordance with the foregoing, and that the right
to make such allocation of brokerage shall not interfere with the
Manager's paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will make
available and provide accounting and statistical information
required by the Underwriter in the preparation of registration
statements, reports and other documents required by Federal and
state securities laws and with such information as the
Underwriter may reasonably request for use in the preparation of
such documents or of other materials distribution of the Fund's
shares.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of Trustees and
officers of the Trust for consultation and discussions regarding
the administrative management of the Fund and its investment
activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all its expenses other than those expressly assumed by the
Manager herein, which expenses payable by the Fund shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-keeping
services;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, trustees, stockholders or
employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the
filing of reports with regulatory bodies and the maintenance of
the Fund's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares for
sale;
K. Costs of printing stock certificates representing shares
of the Fund;
L. Trustees' fees and expenses to trustees who are not
trustees, officers, employees or stockholders of the Manager or
any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance
premium.
4. Compensation of the Manager. Each Series of the Trust shall
pay monthly management fee in cash to the Manager based upon
percentage of the value of such Series' net assets, calculated as
set forth below, on the first business day of each month in each
year as compensation for the services rendered and obligations
assumed by the Manager during the preceding month. The initial
management fee under this Agreement shall be payable on the first
business day of the first month following the effective date of
this Agreement, and shall be reduced by the amount of any advance
payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be the net assets computed as of the
close of business on the last business day of the month preceding
the month in which the payment is being made, determined in the
same manner as such Series uses to compute the value of its net
assets in connection with the determination of the net asset
value of the shares, all as set forth more fully in the Fund's
current prospectus. The rate of the monthly management fee shall
be as follows:
5/96 of 1% (approximately 5/8 of 1% per year) of
the value of net assets up to and including
$100,000,000; and
1/24 of 1% (approximately 1/2 of 1% per year) of
the value of net assets over $100,000,00 and not
over $250,000,000; and
9/240 of 1% (approximately 45/100 of 1% per year)
of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced
or eliminated to the extent that Franklin Distributors, Inc. has
actually received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection therewith;
and to the extent necessary to comply with the limitations on
expenses which may be borne by the Fund as set forth in the laws,
regulations and administrative interpretations of those states in
which the Fund's shares are registered.
C. If this Agreement is terminated prior to the end of any
month, the management fee shall be prorated for the portion of
any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of
calendar days in the month during which the Agreement is in
effect bears to the number of calendar days in the month, and
shall be payable within 10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render similar
services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and the By-Laws of the Trust
and to Section 10(a) of the Federal Investment Company Act of
1940, it is understood that trustees, officers, agents and
shareholders of the Fund are or may be interested in the Manager
or its affiliates as directors, officers, agents or stockholders,
and that directors, officers, agents or stockholders of the
Manager or its affiliates are or may be interested in the Trust
as trustees, officers, agents, shareholders or otherwise, that
the Manager or its affiliates may be interested in the Trust as
shareholders or otherwise; and that the effect of any such
interests shall be governed by said Agreement and Declaration of
Trust, the By-Laws and the Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not be
subject to liability to the Fund or to any shareholder of the
Fund for any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the
Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and counsel
and trustees' fees reasonably incurred by the Fund in the
preparation, printing and distribution of proxy statements,
amendments to its Registration Statement, holdings of meetings of
its shareholders or trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or determinations by
the Securities and Exchange Commission) which the Fund incurs as
the result of action or inaction of the Manager or any of its
affiliates or any of their officers, trustees, employees or
shareholders where the action or inaction necessitating such
expenditures i) is directly or indirectly related to any
transactions or proposed transaction in the shares or control of
the Manager or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares or
control) which shall have been undertaken without the prior,
express approval of the Trust's Board of Trustees; or, ii) is
within the control of the Manager or any of its affiliates or any
of their officers, trustees, employees or shareholders. The
Manager shall not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any expenditures
related to the institution of an administrative proceeding or
civil litigation by the Fund or a Fund shareholder seeking to
recover all or a portion of the proceeds derived by any
shareholder of the Manager or any of its affiliates from the sale
of his shares of the Manager, or similar matters. So long as
this Agreement is in effect the Manager shall pay to the Fund the
amount due for expenses subject to this Subsection 6(B) Agreement
within 30 days after a bill or statement has been received by the
Fund therefore. This provision shall not be deemed to be a waiver
of any claim the Fund may have or may assert against the Manager
or others for costs, expenses or damages heretofore incurred by
the Fund or for costs, expenses or damages the Fund may hereafter
incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Trust, or the Manager,
from liability in violation of Sections 17(h) and (i) of the
Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for one year. The
Agreement is renewable annually thereafter for successive periods
not to exceed one year i) by a vote of a majority of the
outstanding voting securities of the Fund or by a vote of the
Board of Trustees of the Trust, and ii) by a vote of majority of
the trustees of the Trust who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as
Trustees of the Trust) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
i) may at any time be terminated without the payment
of any penalty either by vote of the Board of
Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Fund, on
30 days' written notice to the Manager;
ii) shall immediately terminate in the event of its
assignment; and
iii) may be terminated by the Manager on 30 days'
written notice to the Fund.
C. As used in this Section the terms "assignment",
"interested person" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth for any such
terms in the Investment Company Act of 1940, as amended.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective the 23rd day of April, 1991.
FRANKLIN ADVISERS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
FRANKLIN NEW YORK TAX FREE TRUST on behalf of
FRANKLIN NEW YORK INSURED TAX FREE INCOME FUND
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
FRANKLIN NEW YORK TAX-FREE TRUST
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made as of the 21st day of
September, 1992, by and between the FRANKLIN NEW YORK TAX-FREE
TRUST on behalf of the NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME
FUND, hereinafter called the "Fund", a series of the Franklin New
York Tax-Free Trust, a Massachusetts Business Trust hereinafter
called the "Trust" and FRANKLIN ADVISERS, INC., a California
Corporation hereinafter called the "Manager".
WHEREAS, the Trust has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of
Trust, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933,
all as heretofore amended and supplemented; and the Trust desires
to avail itself of the services, information, advice, assistance
and facilities of an investment manager and to have an investment
manager perform for its various management, statistical,
research, investment advisory and other services for FRANKLIN NEW
YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND and to any separate
Series of the Trust hereinafter organized.
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisor's Act of 1940, is engaged in the
business of rendering management, investment advisory,
counselling and supervisory services to investment companies and
other investment counselling clients, and desires to provide
these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Trust hereby employs the
Manager to manage the investment and reinvestment of the Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Trust, for the
period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to
render the services and to assume the obligations herein set
forth for the compensation herein provided. The Manager shall
for all purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized (whether
herein or otherwise), have no authority to act for or represent
the Trust in any way or otherwise be deemed an agent of the
Trust.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter set
forth and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment, and
Personnel. The Manager shall furnish to the Fund adequate, i)
office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time to
time, ii) office furnishings, facilities and equipment as may be
reasonably required for managing the affairs and conducting the
business of the Fund, including complying with the securities
reporting requirements of the United States and the various
states in which the Fund does business, conducting correspondence
and other communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and auditing
services and records in connection with the Fund's investment and
business activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive, secretarial
and clerical personnel necessary to provide such services. The
Manager shall also compensate all officers and employees of the
Trust who are officers or employees of the Manager.
B. Investment Management Services
a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the investment
objectives and policies of the Fund and any directions which the
Trust's Board of Trustees may issue from time to time. In
pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of the Fund's
assets and the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement the same.
Such determinations and services shall also include determining
the manner in which voting rights, rights to consent to legal
action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. The Manager shall render regular
reports to the Trust, at regular meetings of the Board of
Trustees and at such other times as may be reasonably requested
by the Trust's Board of Trustees, of i) the decisions which it
has made with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, ii) the reasons
for such decisions, and iii) the extent to which those decisions
have been implemented.
b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from
time to time, shall place, in the name of the Fund, orders for
the execution of the Fund's portfolio transactions. When placing
such orders the Manager shall seek to obtain the best net price
and execution for the Fund, but this requirement shall not be
deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other
standards set forth in this section have been satisfied. The
parties recognize that there are likely to be many cases in which
different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect
to particular trades, it is desirable to choose those brokers who
furnish research, statistical quotations and other information to
the Fund and the Manager in accord with the standards set forth
below. Moreover, to the extent that it continues to be lawful to
do so and so long as the Board determines that the Fund will
benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges commission for that
transaction which is in excess of the amount of commission that
another broker would have charged for effecting that transaction,
provided that the excess commission is reasonable in relation to
the value of "brokerage and research services" (as defined in
Section 28(e)(3) of the Securities Exchange Act of 1934) provided
by that broker. Accordingly, the Fund and the Manager agree that
the Manager shall select brokers for the execution of the Fund's
portfolio transactions from among:
i) Those brokers and dealers who provide
quotations and other services to the Fund, specifically including
the quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required in
light of such services;
ii) Those brokers and dealers who supply
research, statistical and other data to the Manager or its
affiliates which relate directly to portfolio securities, actual
or potential, of the Fund or which place the Manager in a better
position to make decisions in connection with the management of
the Fund's assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required.
Provided that the Trust's officers are satisfied that
the best execution is obtained, the sale of Fund shares may also
be considered as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," the Manager shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such
capacity under the Federal securities laws and rules thereunder
and the rules of any securities exchange or association of which
it may be a member. The Manager shall not be obligated to make
any additional commitments of capital, expense or personnel
beyond that already committed (other than normal periodic fees or
payments necessary to maintain its legal existence and membership
in the National Association of Securities Dealers, Inc.) as of
the date of this Agreement and this Agreement shall not obligate
the Manager i) to act pursuant to the foregoing requirement under
any circumstances in which they might reasonably believe that
liability might be imposed upon them as a result of so acting, or
ii) to institute legal or other proceedings to collect fees which
may be considered to be due from others to it as a result of such
a tender, unless the Fund shall enter into an agreement with the
Manager to reimburse them for all expenses connected with
attempting to collect such fees including legal fees and expenses
and that portion of the compensation due to their employees which
is attributable to the time involved in attempting to collect
such fees.
(d) The Manager shall render regular reports to the
Trust, not less frequently than quarterly, of how much total
brokerage business has been placed by the Manager with brokers
falling into each of the foregoing categories and the manner in
which the allocation has been accomplished.
(e) The Manager agrees that no investment decision
will be made or influenced by a desire to provide brokerage for
allocation in accordance with the foregoing, and that the right
to make such allocation of brokerage shall not interfere with the
Manager's paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and other
Materials. The Manager, its officers and employees, will make
available and provide accounting and statistical information
required by the Underwriter in the preparation of registration
statements, reports and other documents required by Federal and
State securities laws and with such information as the
Underwriter may reasonably request for use in the preparation of
such documents or of other materials necessary for the
distribution of the Fund's shares.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of Trustees and
officers of the Trust for consultation and discussions regarding
the administrative management of the Fund and its investment
activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all its expenses other than those expressly assumed by the
Manager herein, which expenses payable by the Fund shall include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-keeping
services;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, trustees, stockholders or
employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the
filing of reports with regulatory bodies and the maintenance of
the Fund's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares for
sale;
K. Costs of printing stock certificates representing shares
of the Fund;
L. Trustees' fees and expenses to trustees who are not
trustees, officers, employees or stockholders of the Manager or
any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance
premium.
4. Compensation of the Manager. Each Series of the Trust shall
pay a monthly management fee in cash to the Manager based upon a
percentage of the value of such Series' net assets, calculated as
set forth below, on the first business day of each month in each
year as compensation for the services rendered and obligations
assumed by the Manager during the preceding month. The initial
management fee under this Agreement shall be payable on the first
business day of the first month following the effective date of
this Agreement, and shall be reduced by the amount of any advance
payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be the net assets computed as of the
close of business on the last business day of the month preceding
the month in which the payment is being made, determined in the
same manner as such Series uses to compute the value of its net
assets in connection with the determination of the net asset
value of the shares, all as set forth more fully in the Fund's
current prospectus. The rate of the monthly management fee shall
be as follows:
5/96 of 1% (approximately 5/8 of 1% per year) of
the value of net assets up to and including
$100,000,000; and
1/24 of 1% (approximately 1/2 of 1% per year) of
the value of net assets over $100,000,00 and not
over $250,000,000; and
9/240 of 1% (approximately 45/100 of 1% per year)
of the value of net assets in excess of
$250,000,000.
B. The Management fee payable by the Fund shall be reduced
or eliminated to the extent that Franklin Distributors, Inc. has
actually received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection therewith;
and to the extent necessary to comply with the limitations on
expenses which may be borne by the Fund as set forth in the laws,
regulations and administrative interpretations of those states in
which the Fund's shares are registered.
C. If this Agreement is terminated prior to the end of any
month, the management fee shall be prorated for the portion of
any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of
calendar days in the month during which the Agreement is in
effect bears to the number of calendar days in the month, and
shall be payable within 10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render similar
services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and the By-Laws of the Trust
and to Section 10(a) of the Federal Investment Company Act of
1940, it is understood that trustees, officers, agents and
shareholders of the Fund are or may be interested in the Manager
or its affiliates as directors, officers, agents or stockholders,
and that directors, officers, agents or stockholders of the
Manager or its affiliates are or may be interested in the Trust
as trustees, officers, agents, shareholders or otherwise, that
the Manager or its affiliates may be interested in the Trust as
shareholders or otherwise; and that the effect of any such
interests shall be governed by said Agreement and Declaration of
Trust, the By-Laws and the Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not be
subject to liability to the Fund or to any shareholder of the
Fund for any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the
Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and counsel
and trustees' fees reasonably incurred by the Fund in the
preparation, printing and distribution of proxy statements,
amendments to its Registration Statement, holdings of meetings of
its shareholders or trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or determinations by
the Securities and Exchange Commission) which the Fund incurs as
the result of action or inaction of the Manager or any of its
affiliates or any of their officers, trustees, employees or
shareholders where the action or inaction necessitating such
expenditures i) is directly or indirectly related to any
transactions or proposed transaction in the shares or control of
the Manager or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares or
control) which shall have been undertaken without the prior,
express approval of the Trust's Board of Trustees; or, ii) is
within the control of the Manager or any of its affiliates or any
of their officers, trustees, employees or shareholders. The
Manager shall not be obligated pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any expenditures
related to the institution of an administrative proceeding or
civil litigation by the Fund or a Fund shareholder seeking to
recover all or a portion of the proceeds derived by any
shareholder of the Manager or any of its affiliates from the sale
of his shares of the Manager, or similar matters. So long as
this Agreement is in effect the Manager shall pay to the Fund the
amount due for expenses subject to this Subsection 6(B) Agreement
within 30 days after a bill or statement has been received by the
Fund therefore. This provision shall not be deemed to be a
waiver of any claim the Fund may have or may assert against the
Manager or others for costs, expenses or damages heretofore
incurred by the Fund or for costs, expenses or damages the Fund
may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any director or officer of the Trust, or the Manager,
from liability in violation of Sections 17(h) and (i) of the
Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for one year. The
Agreement is renewable annually thereafter for successive periods
not to exceed one year i) by a vote of a majority of the
outstanding voting securities of the Fund or by a vote of the
Board of Trustees of the Trust, and ii) by a vote of majority of
the trustees of the Trust who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as
Trustees of the Trust) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
i) may at any time be terminated without the payment
of any penalty either by vote of the Board of
Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Fund, on
30 days' written notice to the Manager;
ii) shall immediately terminate in the event of its
assignment; and
iii) may be terminated by the Manager on 30 days'
written notice to the Fund.
C. As used in this Section the terms "assignment",
"interested person" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth for any such
terms in the Investment Company Act of 1940, as amended.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed effective the 21st day of September,
1992.
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
FRANKLIN NEW YORK TAX FREE TRUST on behalf of
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
/s/ Charles B. Johnson
By: Charles B. Johnson
FRANKLIN NEW YORK TAX-FREE TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
For All Series Except New York Tax-Exempt Money Fund Series
Gentlemen:
We (the "Fund") are a corporation or business trust operating as
an open-end management investment company or "mutual fund", which
is registered under the Investment Company Act of 1940 (the "1940
Act") and whose shares are registered under the Securities Act of
1933 (the "1933 Act"). We desire to issue one or more series or
classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws.
The Fund's Shares may be made available in one or more separate
series, each of which may have one or more classes except that
this Agreement shall not apply to the Fund's New York Tax-Exempt
Money Fund Series, and the terms "Fund" and "Shares" shall
exclude any and all classes of shares of the New York Tax-Exempt
Money Fund Series for purposes of this Agreement.
You have informed us that your company is registered as a broker-
dealer under the provisions of the Securities Exchange Act of
1934 and that your company is a member of the National
Association of Securities Dealers, Inc. You have indicated your
desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of
our Board of Directors or Trustees ("Board") passed at a meeting
at which a majority of Board members, including a majority who
are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related
organizations or with you or your related organizations, were
present and voted in favor of the said resolution approving this
Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part
herein expressed and upon the terms and conditions set forth
herein, we hereby appoint you as the exclusive sales agent for
our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of
Shares, but are not obligated to sell any specific number of
Shares.
However, the Fund and each series retain the right to make
direct sales of its Shares without sales charges consistent with
the terms of the then current prospectus and applicable law, and
to engage in other legally authorized transactions in its Shares
which do not involve the sale of Shares to the general public.
Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its
shareholders only, transactions involving the reorganization of
the Fund or any series, and transactions involving the merger or
combination of the Fund or any series with another corporation or
trust.
2. Independent Contractor. You will undertake and
discharge your obligations hereunder as an independent contractor
and shall have no authority or power to obligate or bind us by
your actions, conduct or contracts except that you are authorized
to promote the sale of Shares. You may appoint sub-agents or
distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale
or repurchase on our behalf or otherwise act as our agent for any
purpose.
3. Offering Price. Shares shall be offered for sale at a
price equivalent to the net asset value per share of that series
and class plus any applicable percentage of the public offering
price as sales commission or as otherwise set forth in our then
current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the
net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective
prospectus. All Shares will be sold in the manner set forth in
our then effective prospectus and statement of additional
information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge
a sales commission on the sale or redemption, as appropriate, of
each series and class of each Fund's Shares in the amount of any
initial, deferred or contingent deferred sales charge as set
forth in our then effective prospectus. You may allow any sub-
agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable,
so long as any such commissions or discounts are set forth in our
current prospectus to the extent required by the applicable
Federal and State securities laws. You may also make payments to
sub-agents or dealers from your own resources, subject to the
following conditions: (a) any such payments shall not create any
obligation for or recourse against the Fund or any series or
class, and (b) the terms and conditions of any such payments are
consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement
of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution
Plan adopted as to any series and class of any Fund's Shares
pursuant to Rule 12b-1 under the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered
for sale only in those jurisdictions where they have been
properly registered or are exempt from registration, and only to
those groups of people which the Board may from time to time
determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall
be directed to the Fund's shareholder services agent, for
acceptance on behalf of the Fund. At or prior to the time of
delivery of any of our Shares you will pay or cause to be paid to
the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of
Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and
shareholder services agent shall be identified in its prospectus.
7. Purchases for Your Own Account. You shall not purchase
our Shares for your own account for purposes of resale to the
public, but you may purchase Shares for your own investment
account upon your written assurance that the purchase is for
investment purposes and that the Shares will not be resold except
through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares
at net asset value to certain of your and our affiliated persons
pursuant to the applicable provisions of the federal securities
statutes and rules or regulations thereunder (the "Rules and
Regulations"), including Rule 22d-1 under the 1940 Act, as
amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and
certified financial statements of our company to
be included in any Post-Effective Amendments
("Amendments") to our Registration Statement under
the 1933 Act or 1940 Act, including the prospectus
and statement of additional information included
therein;
(b) Of the preparation, including legal
fees, and printing of all Amendments or
supplements filed with the Securities and Exchange
Commission, including the copies of the
prospectuses included in the Amendments and the
first 10 copies of the definitive prospectuses or
supplements thereto, other than those necessitated
by your (including your "Parent's") activities or
Rules and Regulations related to your activities
where such Amendments or supplements result in
expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and
distribution of any reports or communications
which we send to our existing shareholders; and
(d) Of filing and other fees to Federal and
State securities regulatory authorities necessary
to continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the
prospectuses and any supplements thereto and
statements of additional information which are
necessary to continue to offer our Shares;
(b) Of the preparation, excluding legal
fees, and printing of all Amendments and
supplements to our prospectuses and statements of
additional information if the Amendment or
supplement arises from your (including your
"Parent's") activities or Rules and Regulations
related to your activities and those expenses
would not otherwise have been incurred by us;
(c) Of printing additional copies, for use
by you as sales literature, of reports or other
communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising,
promoting and selling our Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to each series and class of Shares, in
such form and signed by such of our officers as you may
reasonably request, and we warrant that the statements therein
contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action
as you may reasonably request in order to qualify our Shares for
sale to the public under the Blue Sky Laws of jurisdictions in
which you may wish to offer them. We will furnish you with
annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual
financial statements prepared by us, with registration statements
and, from time to time, with such additional information
regarding our financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently
effective prospectus, you will not issue any sales material or
statements except literature or advertising which conforms to the
requirements of Federal and State securities laws and regulations
and which have been filed, where necessary, with the appropriate
regulatory authorities. You will furnish us with copies of all
such materials prior to their use and no such material shall be
published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State
laws and regulations where our Shares are offered for sale and
conduct your affairs with us and with dealers, brokers or
investors in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares
are tendered to us for redemption or repurchase by us within
seven business days after your acceptance of the original
purchase order for such Shares, you will immediately refund to us
the full sales commission (net of allowances to dealers or
brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or
brokers of the balance of sales commissions reallowed by you. We
shall notify you of such tender for redemption within 10 days of
the day on which notice of such tender for redemption is received
by us.
13. Other Activities. Your services pursuant to this
Agreement shall not be deemed to be exclusive, and you may render
similar services and act as an underwriter, distributor or dealer
for other investment companies in the offering of their shares.
14. Term of Agreement. This Agreement shall become
effective on the date of its execution, and shall remain in
effect for a period of two (2) years. The Agreement is renewable
annually thereafter, with respect to the Fund or, if the Fund has
more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of
the outstanding voting securities of the Fund or, if the Fund has
more than one series, of each series, or (b) by a vote of the
Board, and (ii) by a vote of a majority of the members of the
Board who are not parties to the Agreement or interested persons
of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of
voting on the Agreement.
This Agreement may at any time be terminated by the
Fund or by any series without the payment of any penalty, (i)
either by vote of the Board or by vote of a majority of the
outstanding voting securities of the Fund or any series on 90
days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect
to the Fund and each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times
to suspend or limit the public offering of Shares upon two days'
written notice to you.
16. Miscellaneous. This Agreement shall be subject to the
laws of the State of California and shall be interpreted and
construed to further promote the operation of the Fund as an open-
end investment company. This Agreement shall supersede all
Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset
Value," "Offering Price," "Investment Company," "Open-End
Investment Company," "Assignment," "Principal Underwriter,"
"Interested Person," "Parent," "Affiliated Person," and "Majority
of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and
Regulations thereunder.
Nothing herein shall be deemed to protect you against any
liability to us or to our securities holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder,
or by reason of your reckless disregard of your obligations and
duties hereunder.
If the foregoing meets with your approval, please acknowledge
your acceptance by signing each of the enclosed copies, whereupon
this will become a binding agreement as of the date set forth
below.
Very truly yours,
FRANKLIN NEW YORK TAX-FREE TRUST
By:_______________________________
Accepted:
Franklin/Templeton Distributors, Inc.
By:__________________________________
DATED: _______________
FRANKLIN NEW YORK TAX-FREE TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
For New York Tax-Exempt Money Fund Series Only
Gentlemen:
We (the "Fund") are a corporation or business trust operating as
an open-end management investment company or "mutual fund", which
is registered under the Investment Company Act of 1940 (the "1940
Act") and whose shares are registered under the Securities Act of
1933 (the "1933 Act"). We desire to issue one or more series or
classes of our authorized but unissued shares of capital stock or
beneficial interest of our New York Tax-Exempt Money Fund Series
(the "Shares") to authorized persons in accordance with
applicable Federal and State securities laws. The Shares may be
made available in one or more classes.
You have informed us that your company is registered as a broker-
dealer under the provisions of the Securities Exchange Act of
1934 and that your company is a member of the National
Association of Securities Dealers, Inc. You have indicated your
desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of
our Board of Directors or Trustees ("Board") passed at a meeting
at which a majority of Board members, including a majority who
are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related
organizations or with you or your related organizations, were
present and voted in favor of the said resolution approving this
Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part
herein expressed and upon the terms and conditions set forth
herein, we hereby appoint you as the exclusive sales agent for
the Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of
Shares, but are not obligated to sell any specific number of
Shares.
However, the Fund retains the right to make direct sales of
the Shares without sales charges consistent with the terms of the
then current prospectus and applicable law, and to engage in
other legally authorized transactions in the Shares which do not
involve the sale of Shares to the general public. Such other
transactions may include, without limitation, transactions
between the Fund or any class of Shares and its shareholders
only, transactions involving the reorganization of the Fund or
the New York Tax-Exempt Money Fund Series, and transactions
involving the merger or combination of the Fund or the Series
with another corporation or trust.
2. Independent Contractor. You will undertake and
discharge your obligations hereunder as an independent contractor
and shall have no authority or power to obligate or bind us by
your actions, conduct or contracts except that you are authorized
to promote the sale of Shares. You may appoint sub-agents or
distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale
or repurchase on our behalf or otherwise act as our agent for any
purpose.
3. Offering Price. Shares shall be offered for sale at a
price equivalent to the net asset value per share of that series
and class plus any applicable percentage of the public offering
price as sales commission or as otherwise set forth in our then
current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the
net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective
prospectus. All Shares will be sold in the manner set forth in
our then effective prospectus and statement of additional
information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge
a sales commission on the sale or redemption, as appropriate, of
each class of Shares in the amount of any initial, deferred or
contingent deferred sales charge as set forth in our then
effective prospectus. You may allow any sub-agents or dealers
such commissions or discounts from and not exceeding the total
sales commission as you shall deem advisable, so long as any such
commissions or discounts are set forth in our current prospectus
to the extent required by the applicable Federal and State
securities laws. You may also make payments to sub-agents or
dealers from your own resources, subject to the following
conditions: (a) any such payments shall not create any
obligation for or recourse against the Fund or any series or
class, and (b) the terms and conditions of any such payments are
consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement
of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution
Plan adopted as to any class of Shares pursuant to Rule 12b-1
under the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered
for sale only in those jurisdictions where they have been
properly registered or are exempt from registration, and only to
those groups of people which the Board may from time to time
determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall
be directed to the Fund's shareholder services agent, for
acceptance on behalf of the Fund. At or prior to the time of
delivery of any of our Shares you will pay or cause to be paid to
the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of
Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and
shareholder services agent shall be identified in its prospectus.
7. Purchases for Your Own Account. You shall not purchase
the Shares for your own account for purposes of resale to the
public, but you may purchase Shares for your own investment
account upon your written assurance that the purchase is for
investment purposes and that the Shares will not be resold except
through redemption by us.
8. Sale of Shares to Affiliates. You may sell the Shares
at net asset value to certain of your and our affiliated persons
pursuant to the applicable provisions of the federal securities
statutes and rules or regulations thereunder (the "Rules and
Regulations"), including Rule 22d-1 under the 1940 Act, as
amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and
certified financial statements of our company to
be included in any Post-Effective Amendments
("Amendments") to our Registration Statement under
the 1933 Act or 1940 Act, including the prospectus
and statement of additional information included
therein;
(b) Of the preparation, including legal
fees, and printing of all Amendments or
supplements filed with the Securities and Exchange
Commission, including the copies of the
prospectuses included in the Amendments and the
first 10 copies of the definitive prospectuses or
supplements thereto, other than those necessitated
by your (including your "Parent's") activities or
Rules and Regulations related to your activities
where such Amendments or supplements result in
expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and
distribution of any reports or communications
which we send to our existing shareholders; and
(d) Of filing and other fees to Federal and
State securities regulatory authorities necessary
to continue offering the Shares.
You will pay the expenses:
(a) Of printing the copies of the
prospectuses and any supplements thereto and
statements of additional information which are
necessary to continue to offer the Shares;
(b) Of the preparation, excluding legal
fees, and printing of all Amendments and
supplements to our prospectuses and statements of
additional information if the Amendment or
supplement arises from your (including your
"Parent's") activities or Rules and Regulations
related to your activities and those expenses
would not otherwise have been incurred by us;
(c) Of printing additional copies, for use
by you as sales literature, of reports or other
communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising,
promoting and selling the Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to each class of Shares, in such form
and signed by such of our officers as you may reasonably request,
and we warrant that the statements therein contained, when so
signed, will be true and correct. We will also furnish you with
such information and will take such action as you may reasonably
request in order to qualify our Shares for sale to the public
under the Blue Sky Laws of jurisdictions in which you may wish to
offer them. We will furnish you with annual audited financial
statements of our books and accounts certified by independent
public accountants, with semi-annual financial statements
prepared by us, with registration statements and, from time to
time, with such additional information regarding our financial
condition as you may reasonably request.
11. Conduct of Business. Other than our currently
effective prospectus, you will not issue any sales material or
statements except literature or advertising which conforms to the
requirements of Federal and State securities laws and regulations
and which have been filed, where necessary, with the appropriate
regulatory authorities. You will furnish us with copies of all
such materials prior to their use and no such material shall be
published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State
laws and regulations where our Shares are offered for sale and
conduct your affairs with us and with dealers, brokers or
investors in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares
are tendered to us for redemption or repurchase by us within
seven business days after your acceptance of the original
purchase order for such Shares, you will immediately refund to us
the full sales commission (net of allowances to dealers or
brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or
brokers of the balance of sales commissions reallowed by you. We
shall notify you of such tender for redemption within 10 days of
the day on which notice of such tender for redemption is received
by us.
13. Other Activities. Your services pursuant to this
Agreement shall not be deemed to be exclusive, and you may render
similar services and act as an underwriter, distributor or dealer
for other investment companies in the offering of their shares.
14. Term of Agreement. This Agreement shall become
effective on the date of its execution, and shall remain in
effect for a period of two (2) years. The Agreement is renewable
annually thereafter, with respect to New York Tax-Exempt Money
Fund Series, for successive periods not to exceed one year (i) by
a vote of (a) a majority of the outstanding voting securities of
such series, or (b) by a vote of the Board, and (ii) by a vote of
a majority of the members of the Board who are not parties to the
Agreement or interested persons of any parties to the Agreement
(other than as members of the Board), cast in person at a meeting
called for the purpose of voting on the Agreement.
This Agreement may at any time be terminated by the
Fund or by the New York Tax-Exempt Money Fund Series without the
payment of any penalty, (i) either by vote of the Board or by
vote of a majority of the outstanding voting securities of the
Fund or such series on 90 days' written notice to you; or (ii) by
you on 90 days' written notice to the Fund; and shall immediately
terminate with respect to the Fund and such series in the event
of its assignment.
15. Suspension of Sales. We reserve the right at all times
to suspend or limit the public offering of Shares upon two days'
written notice to you.
16. Miscellaneous. This Agreement shall be subject to the
laws of the State of California and shall be interpreted and
construed to further promote the operation of the Fund as an open-
end investment company. This Agreement shall supersede all
Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset
Value," "Offering Price," "Investment Company," "Open-End
Investment Company," "Assignment," "Principal Underwriter,"
"Interested Person," "Parent," "Affiliated Person," and "Majority
of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and
Regulations thereunder.
Nothing herein shall be deemed to protect you against any
liability to us or to our securities holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder,
or by reason of your reckless disregard of your obligations and
duties hereunder.
If the foregoing meets with your approval, please acknowledge
your acceptance by signing each of the enclosed copies, whereupon
this will become a binding agreement as of the date set forth
below.
Very truly yours,
FRANKLIN NEW YORK TAX-FREE TRUST
By:_______________________________
Accepted:
Franklin/Templeton Distributors, Inc.
By:__________________________________
DATED: _______________
AGREEMENT
AGREEMENT, made as of April 23, 1991, between Franklin New
York Tax-Free Trust, a Massachusetts business trust (hereinafter
called the "Trust"), and Bank of America NT & SA, a national
banking association (hereinafter called the "Custodian").
WITNESSETH:
WHEREAS, the Trust is registered as an investment company
under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, open-end management company which will
make shares available for each of the separate Funds (referred to
herein as a "Fund" or collectively as the "Funds") formed as a
series of the Trust, and desires that its securities and cash
shall be held and administered by the Custodian pursuant to the
terms of this Agreement; and
WHEREAS, the Custodian has an aggregate capital, surplus,
and undivided profits in excess of Two Million Dollars
($2,000,000) and has its functions and physical facilities
supervised by federal authority and is ready and willing to serve
pursuant to and subject to the terms of this Agreement:
NOW, THEREFORE, in consideration of the mutual agreements
herein made, the Trust and Custodian agree as follows:
Sec. 1. Definitions:
The word "securities" as used herein includes stocks,
shares, bonds, debentures, notes, mortgages and other obligations
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets.
The term "proper instructions" shall mean a request or
direction by telephone or any other communication device from an
authorized Trust designee to be followed by a certification in
writing signed in the name of the Trust by any two of the
following persons: the Chairman of the Board of Trustees, the
President, a Vice-President, the Secretary and Treasurer of the
Trust, or any other persons duly authorized to sign by the Board
of Trustees of the Trust and for whom authorization has been
communicated in writing to the Custodian. The term "proper
officers" shall mean the officers authorized above to give proper
instructions.
Sec. 2. Names, Titles and Signatures of Authorized Signers:
An officer of the Trust will certify to Custodian the names
and signatures of those persons authorized to sign in accordance
with Sec. 1 hereof, and on a timely basis, of any changes which
thereafter may occur.
Sec. 3. Receipt and Disbursement of Money:
Custodian shall open and maintain a separate account or
accounts in the name of the Funds, subject only to draft or order
by Custodian acting pursuant to the terms of this Agreement,
("Direct Demand Deposit Account"). Custodian shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the accounts of the Funds. This shall
include, without limitation, the proceeds from the sale of shares
of the capital stock of the Funds which shall be received along
with proper instructions from the Trust. All such payments
received by Custodian shall be converted to Federal Funds no
later than the day after receipt and deposited to such Direct
Demand Deposit Account.
Custodian shall make payments of cash to, or for the account
of, the Funds from such cash or Direct Demand Deposit Account
only (a) for the purchase of securities for the portfolio of the
Funds upon the delivery of such securities to Custodian
registered in the name of the Custodian or of the nominee or
nominees thereof, in the proper form for transfer, (b) for the
redemption of shares of the capital stock of the Funds, (c) for
the payment of interest, dividends, taxes, management or
supervisory fees or any operating expenses (including, without
limitations thereto, insurance premiums, fees for legal,
accounting and auditing services), (d) for payments in connection
with the conversion, exchange or surrender of securities owned or
subscribed to by the Funds held by or to be delivered to
Custodian; or (e) for other proper Trust purposes. Before making
any such payment, Custodian shall receive and may rely upon,
proper instructions requesting such payment and setting forth the
purposes of such payment.
Custodian is hereby authorized to endorse and collect for
the account of the Funds all checks, drafts or other orders for
the payment of money received by Custodian for the account of the
Funds
Sec. 4. Holding of Securities:
Custodian shall hold all securities received by it for the
account of the Funds, pursuant to the provisions hereof, in
accordance with the provisions of Section 17(f) of the Investment
Company Act of 1940 and the regulations thereunder. All such
securities are to be held or disposed of by the Custodian for,
and subject at all times to the proper instructions of, the
Trust, pursuant to the terms of this Agreement. The Custodian
shall have no power of authority to assign, hypothecate, pledge
or otherwise dispose of any such securities and investments,
except pursuant to the proper instructions of the Trust and only
for the account of the Funds as set forth in Sec. 5 of this
Agreement.
Sec. 5. Transfer, Exchange or Delivery, of Securities:
Custodian shall have sole power to release or to deliver any
securities of the Funds held by it pursuant to this Agreement.
Custodian agrees to transfer, exchange, or deliver securities
held by it hereunder only (a) for the sales of such securities
for the account of the Funds upon receipt by Custodian of payment
therefor, (b) when such securities are called, redeemed or
retired or otherwise become payable, (c) for examination by any
broker selling any such securities in accordance with "street
delivery" custom, (d) in exchange for or upon conversion into
other securities alone or other securities and cash whether
pursuant to any plan or merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (e) on conversion
of such securities pursuant to their terms into other securities,
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of
exchanging interim receipts or temporary securities for
definitive securities, (h) for the purpose of redeeming in kind
shares of beneficial interest of the Funds upon delivery thereof
to Custodian, or (i) for other proper Trust purposes. Any
securities or cash receivable in exchange for such deliveries
made by Custodian, shall be deliverable to Custodian. Before
making any such transfer, exchange or delivery, the Custodian
shall receive, and may rely upon, proper instructions authorizing
such transfer, exchange or delivery and setting forth the purpose
thereof.
Sec. 6. Other Actions of Custodians:
(a) The Custodian shall collect, receive and deposit income
dividends, interest and other payments or distribution of cash or
property of whatever kind with respect to the securities held
hereunder; receive and collect securities received as a
distribution upon portfolio securities as a result of a stock
dividend, share split-up, reorganization, recapitalization,
consolidation, merger, readjustment, distribution of rights and
other items of like nature, or otherwise, and execute ownership
and other certificates and affidavits for all federal and state
tax purposes in connection with the collection of coupons upon
corporate securities, setting forth in any such certificate or
affidavit the name of the Fund as owner of such securities; and
do all other things necessary or proper in connection with the
collection, receipt and deposit of such income and securities,
including without limiting the generality of the foregoing,
presenting for payment all coupons and other income items
requiring presentation and presenting for payment all securities
which may be called, redeemed, retired or otherwise become
payable. Amounts to be collected hereunder shall be credited to
the account of the Fund according to the following formula:
(1) Periodic interest payments and final payments on
maturities of Federal instruments such as U.S. Treasury bills,
bonds and notes; interest payments and final payments on
maturities of other money market instruments including tax-exempt
money market instruments payable in federal or depository funds;
and payments on final maturities of GNMA instruments, shall be
credited to the account of the Fund on payable or maturity date.
(2) Dividends on equity securities and interest
payments, and payments on final maturities of municipal bonds
(except called bonds) shall be credited to the account of the
Fund on payable or maturity date plus one.
(3) Payments for the redemption of called bonds,
including called municipal bonds shall be credited to the account
of the Fund on the payable date except that called municipal
bonds paid in other than Federal or depository funds shall be
credited on payable date plus one.
(4) Periodic payments of interest and/or of partial
principal on GNMA instruments (other than payments on final
maturity) shall be credited to the account of the Fund on payable
date plus two.
(5) Proceeds of insurance in lieu of any payments on
municipal securities in default shall be credited to the account
of the Fund on date of receipt.
(6) Should the Custodian fail to credit the account of
the Fund on the date specified in paragraphs (1) - (5) above, the
Fund may at its option, require compensation from the Custodian
of foregone interest (at the rate of prime plus one) and for
damages, if any.
(b) Payments to be received or to be paid in connection with
purchase and sale transactions shall be debited or credited to
the account of the Fund on the contract settlement date with the
exception of "when-issued" municipal bonds. Payments to be made
for purchase by the Fund of when-issued municipal bonds shall be
debited to the account of the Fund on actual settlement date.
(1) In the event a payment is wrongfully debited to
the account of the Fund due to an error by the Custodian, the
Custodian will promptly credit such amount to the Fund, plus
interest (prime plus one) and damages, if any.
(2) In the event a payment is credited to the account
of the Fund and the Custodian is unable to deliver securities
being sold due to an error on the part of the Fund, such payment
shall be debited to the account of the Fund, and an appropriate
charge for costs of the transaction may be sent by the Custodian
to the Trust.
Sec. 7. Reports by Custodian:
Custodian shall each business day furnish the Trust with a
statement summarizing all transactions and entries for the
account of the Fund for the preceding day. At the end of every
month Custodian shall furnish the Trust with a list of the
portfolio securities showing the quantity of each issue owned,
the cost of each issue and the market value of each issue at the
end of each month. Such monthly report shall also contain
separate listings of (a) unsettled trades and (b) when-issued
securities. Custodian shall furnish such other reports as may be
mutually agreed upon from time-to-time.
Sec. 8. Compensation:
Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to
time be agreed upon in writing between the two parties.
Sec. 9. Liabilities and Indemnifications:
(a) Custodian shall not be liable for any action taken in
good faith upon any proper instructions herein described or
certified copy of any resolution of, the Board of Trustees of the
Trust, and may rely on the genuineness of any such document which
it may in good faith believe to have been validly executed.
(b) The Trust agrees to indemnify and hold harmless the
Custodian and its nominee from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
incurred or assigned against it or its nominee in connection with
the performance of this Agreement, except such as may arise from
negligent action, negligent failure to act or willful misconduct
of Custodian or its nominee.
Sec. 10. Records:
The Custodian hereby acknowledges that all of the records it
shall prepare and maintain pursuant to this Agreement shall be
the property of the Trust and, if and to the extent applicable,
of the principal underwriter of the shares of the Funds, and that
upon proper instructions of the Trust or such principal
underwriter, if any, or both, it shall:
(a) Deliver said records to the Trust, principal underwriter
or a successor custodian, as appropriate;
(b) Provide the auditors of the Trust or principal
underwriter or any securities regulatory agency with a copy of
such records without charge; and provide the Trust and successor
custodian with a reasonable number of reports and copies of such
records at a mutually agreed upon charge appropriate to the
circumstances.
(c) Permit any securities regulatory agency to inspect or
copy during normal business hours of the Custodian any such
records.
Sec. 11. Appointment of Agents:
(a) The Custodian shall have the authority, in its
discretion, to appoint an agent or agents to do and perform any
acts or things for and on behalf of the Custodian, pursuant at
all times to its instructions, as the Custodian is permitted to
do under this Agreement.
(b) Any agent or agents appointed to have physical custody
of securities held under this Agreement or any part thereof must
be:
(1) a bank or banks, as that term is defined in Section
2(a)(5) of the 1940 Act, having an aggregate, surplus and
individual profits of not less than $2,000,000 (or such greater
sum as may then be required by applicable laws), or
(2) a securities depository, (the "Depository") as that
term is defined in Rule 17f-4 under the 1940 Act, upon proper
instructions from the Trust and subject to any applicable
regulations, or
(3) the book-entry system of the U.S. Treasury
Department and Federal Reserve Board, (the "System") upon proper
instructions and subject to any applicable regulations.
(c) With respect to portfolio securities deposited or held
in the System or the Depository, Custodian shall:
1) hold such securities in a nonproprietary account
which shall not include securities owned by Custodian;
2) on each day on which there is a transfer to or from
the Funds in such portfolio securities, send a written
confirmation to the Trust;
3) upon receipt by Custodian, send promptly to Trust
(i) a copy of any reports Custodian receives from the System or
the Depository concerning internal accounting controls, and (ii)
a copy of such reports on Custodian's systems of internal
accounting controls as Trust may reasonably request.
(d) The delegation of any responsibilities or activities by
the Custodian to any agent or agents shall not relieve the
Custodian from any liability which would exist if there were no
such delegation.
Sec. 12. Assignment and Termination:
(a) This Agreement may not be assigned by the Trust or the
Custodian without written consent of the other party.
(b) Either the Custodian or the Trust may terminate this
Agreement without payment of any penalty, at any time upon one
hundred twenty (120) days written notice thereof delivered by the
one to the other, and upon the expiration of said one hundred
twenty (120) days, this Agreement shall terminate; provided,
however, that this Agreement shall continue thereafter for such
period as may be necessary for the complete divestiture of all
assets held hereinunder, as next herein provided. In the event
of such termination, the Custodian will immediately upon the
receipt or transmittal of such notice, as the case may be,
commence and prosecute diligently to completion the transfer of
all cash and the delivery of all portfolio securities, duly
endorsed, to the successor of the Custodian when appointed by the
Trust. The Trust shall select such successor custodian within
sixty (60) days after the giving of such notice of termination,
and the obligation of the Custodian named herein to deliver and
transfer over said assets directly to such successor custodian
shall commence as soon as such successor is appointed and shall
continue until completed, as aforesaid. At any time after
termination hereof the Trust may have access to the records of
the administration of this custodianship whenever the same may be
necessary.
(c) If, after termination of the services of the Custodian,
no successor custodian has been appointed within the period above
provided, the Custodian may deliver the cash and securities owned
by the Trust to a bank or trust company of its own selection
having an aggregate capital, surplus and undivided profits of not
less than Two Million Dollars ($2,000,000) (or such greater sum
as may then be required by the laws and regulations governing the
conduct by the Trust of its business as an investment company)
and having its functions and physical facilities supervised by
federal or state authority, to be held as the property of the
Trust under the terms similar to those on which they were held by
the retiring Custodian, whereupon such bank or trust company so
selected by the Custodian shall become the successor custodian
with the same effect as though selected by the Board of Trustees
of the Trust.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement.
Franklin New York Tax Free Trust
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
Bank of America, NT & SA
/s/ Johnson Housen
By: Johnson Housen
/s/ illegible
By:
MUTUAL FUND AGREEMENT
This Agreement is made this 8th day of July, 1991 by and between
FRANKLIN NEW YORK TAX-FREE TRUST, a Massachusetts business trust,
with principal offices at 777 Mariners Island Boulevard., San
Mateo, California 94404 ("Franklin") and FINANCIAL GUARANTY
INSURANCE COMPANY, a New York stock insurance company, with
principal offices at 175 Water Street, New York, New York 10038
("Financial Guaranty"), with reference to the following facts:
A. Franklin is a non-diversified, open-end investment company
(mutual fund), organized as a Massachusetts business trust.
Franklin currently consists of two separate funds
(collectively, the "Funds"): Franklin New York Insured Tax-
Free Income Fund (the "Fund") and Franklin New York Tax-
Exempt Money Fund. Each of the Funds issues a separate
series of Franklin's shares and will maintain a totally
separate investment portfolio. The Fund is currently the
only Fund intended to be insured under this Agreement. Other
insured funds may be organized by Franklin from time to time
and may be covered by this Agreement as herein provided (the
"Insured Funds"). The Money Fund will not be an insured
fund.
B. The Insured Fund will invest primarily in securities of the
State of New York and its political subdivisions, agencies,
and instrumentalities, the interest on which is exempt from
federal and New York personal income taxes (referred to
herein as "municipal securities" or "bonds"). Franklin
desires to have certain of the Insured Fund's investments in
municipal securities be covered by portfolio insurance
guaranteeing their scheduled payment of interest and of
principal while held by the Insured Fund.
C. Financial Guaranty is in the business of providing insurance
and financial guaranties for a variety of investment
instruments. Financial Guaranty desires to provide Franklin
the portfolio insurance described in the preceding paragraph
(B).
In consideration of the mutual covenants and conditions set forth
below, Franklin and Financial Guaranty agree as follows:
1. Agreement to Insure.
1.l Financial Guaranty agrees to insure the municipal
securities purchased in accordance with the terms of
this Agreement from time to time by Franklin for the
Insured Fund, which municipal securities Financial
Guaranty has approved in advance of such purchase as
eligible for insurance.
1.2 Notwithstanding Section 1.1, Franklin may, but shall
not be required to purchase insurance from Financial
Guaranty for municipal securities covered by insurance
obtained by the issuer or by any seller, including a
dealer, and applicable to the securities purchased by
Franklin, regardless of the insurance company providing
such insurance.
1.3 Franklin may, but shall not be required to purchase
insurance from Financial Guaranty on any municipal
securities where the payment of interest and principal
is guaranteed by the United States of America or an
agency or instrumentality of the United States of
America or where an escrow or trust account has been
established which contains sufficient direct, non-
callable obligations of the United States of America or
securities backed by the full faith and credit of the
United States of America in order to ensure the timely
payment of principal and interest on such municipal
securities, or on any short-term instruments, such as
Project Notes or tax exempt commercial paper, which
have the highest rating issued by Standard & Poor's.
2. Issuance of Master Policies.
2.1 Financial Guaranty agrees to issue a master insurance
policy (the "Master Policy") for the Insured Fund, and
future Insured Funds which may be organized by
Franklin, on the date Franklin informs Financial
Guaranty it desires to have Financial Guaranty issue a
Master Policy for a given Insured Fund. (The form of
the Master Policy is attached hereto as Exhibit 1.) A
schedule will be issued by Financial Guaranty and
attached to and made a part of each Master Policy which
lists all bonds insured in the given Insured Fund
("Schedule A"). Each Schedule A will list the following
information for each insured bond in a given Fund: item
number, par or face value, full name of issuer, full
name of bond, interest rate, date of bond, stated
maturity date of bond, CUSIP number, secondary market
premium rate, annual premium rate, annual premium
amount, date bond first insured under policy, and date
bond sold (including, for all purposes of this
Agreement, municipal securities not delivered or paid
prior to maturity). As bonds are added to and/or sold
from an insured fund's portfolio, Financial Guaranty
agrees to issue updated addendums to Schedule A
reflecting such deletions and/or additions. Financial
Guaranty agrees to deliver to Franklin updated Schedule
A's on a monthly basis for each Insured Fund. In
addition, Financial Guaranty agrees to provide to
Franklin for each Insured Fund on a monthly basis a
summary which contains the same information specified
above for inclusion in Schedule A but on a cumulative
basis for all insured bonds which have been sold by an
Insured Fund.
2.2 Financial Guaranty's obligation to insure any
particular bond which it has agreed to insure is
subject only to Franklin's becoming the bondholder
(within the meaning of the Master Policies) (i) on or
before the 100th day following the date on which the
Fund purchases such bond (the "Purchase Date") or (ii)
on or before the 150th day following the Purchase Date
in the case of "when, as and if issued" bonds which the
issuer thereof has failed timely to deliver in
definitive form to the original purchasers thereof. So
long as Franklin becomes the bondholder on or before
the 100th or 150th day following the Purchase Date, as
the case may be, such municipal security shall be
insured as of the Purchase Date.
3. Exclusivity of Insurance.
3.1 With respect to any annual insurance purchased on
municipal securities by Franklin, Franklin agrees to
acquire such insurance only from Financial Guaranty,
subject to Franklin's rights under Section 8.3 herein.
4. Premium Payment.
4.1 Financial Guaranty agrees to provide Franklin on the
fifth business day of each month with a premium payment
statement for each Insured Fund containing an
accounting of the premium due for that month, including
adjustments for (i) any premium refund due Franklin
because of the sale of bond(s) by an Insured Fund
during the previous month (including bonds for which
Secondary Market Insurance has been purchased), (ii)
any additional premium due Financial Guaranty because
of a purchase of bond(s) by an Insured Fund during the
previous month, and (iii) single premium due for
Secondary Market Insurance acquired during the prior
month.
4.2 Franklin agrees to pay Financial Guaranty on behalf of
each Insured Fund within five business days of
Franklin's receipt and acceptance of the complete
premium statement provided for in Section 4.1 one-
twelfth (1/12) of the aggregate of the annual premiums
for the bonds listed on the Schedule A to the Master
Policy for each Insured Fund as of the last business
day of the prior month.
4.3 If Financial Guaranty does not receive the premium
payment within five business days of Franklin's receipt
of the premium statement, then Financial Guaranty
agrees to notify Franklin by the end of the sixth
business day following the Franklin's receipt of the
premium statement that it has not received said premium
payment. All premium payments due Financial Guaranty
which are received by Financial Guaranty on or before
the close of business on the fifth business day
following Franklin's receipt of the premium statement
shall not be considered late. However, if a premium
payment is received after the fifth business day
following Franklin's receipt of the premium statement,
Franklin agrees to pay Financial Guaranty in addition
to the premium due, interest at a rate equal to that
rate of interest publicly announced as its base rate
from time to time by Citibank, N.A. in New York, plus
one percent per annum for each 24-hour period or
portion thereof payment of the premium is delayed after
the fifth business day following the Franklin's receipt
of the premium statement.
4.4 Financial Guaranty agrees that once an Insured Fund
purchases a bond and begins paying a premium for that
bond based upon a stated annual premium-rate, neither
the annual premium rate nor the secondary market
premium rate for that bond can be changed by Financial
Guaranty so long as the bond is owned by Franklin and
insured by Financial Guaranty under the Master Policies
of the Insured Funds or the Secondary Market Policy
referred to in Section 9 herein.
4.5 With or prior to each premium payment, Franklin shall,
to the extent Franklin has notice thereof, notify
Financial Guaranty as to any bond which has been paid
prior to maturity, defeased (whether legally or
economically) sold by an Insured Fund or never
purchased by such Fund during the preceding thirty
days. Such notification must specify the amount of
bonds affected and identify such bonds by their item
number in Schedule A to the applicable Master Policy.
Such notification shall be deemed sufficient for
purposes of entitling Franklin to receive premium
refunds pursuant to the Master Policies. No such notice
need be given as to bonds with respect to which
Financial Guaranty has previously been notified to the
same effect.
5. Definitions.
Financial Guaranty and Franklin agree that the following
definitions shall apply to the interpretation of the Master
Policies and the interpretation of this Agreement.
5.1 "Approved List" is the then current list of municipal
securities or bonds, including premium rate and
allocation information, which Financial Guaranty will
insure under the terms of the Master Policies if
Franklin purchases such municipal securities or bonds.
5.2 "Bonds" or "municipal securities" are all of the
municipal securities or bonds purchased by Franklin
which are insured under one of the Master Policies
issued to the Insured Funds.
5.3 "Interest Coupons" are the coupons, if any, attached to
each of the bonds.
5.4 "Policy Period" is the period of time commencing with
the policy effective date of a given Master Policy and
continuing until the date of cancellation of said
Master Policy under Section 8.1, 8.2, or 8.3 herein.
5.5 "Policy Effective Date" is the first day on which
Franklin has coverage under a given Master Policy
issued to an Insured Fund. Each Master Policy takes
effect at 12:01 Pacific Standard Time on the Policy
Effective Date.
5.6 "Purchase Date" is the date on which an Insured Fund
purchases a municipal security and is the first day on
which such municipal security is insured under a given
Master Policy.
5.7 In addition to the definitions contained in the Master
Policies and any endorsements thereto, "Due for
Payment," when referring to the principal of a bond,
does not refer to any extension or delay in payment by
reason of court order, legislation, or governmental
action of any nature.
6. BOND PURCHASE ALLOCATION
6.l Financial Guaranty agrees to provide Franklin by a
method capable of producing a written record with an
allocation of bonds which Franklin may purchase and
have insured by Financial Guaranty during any calendar
quarter. Once Financial Guaranty makes the allocation,
it agrees not to reduce an allocation for any bond
during the course of that quarter for which the
allocation is made. Furthermore, if Franklin exhausts
its allocation for a given bond during a quarter and if
it desires to purchase additional amounts of said bond
during the quarter, Financial Guaranty agrees to use
its best efforts to increase Franklin's allocation of
said bonds so as to allow Franklin to make additional
purchases. However, Financial Guaranty reserves the
right to remove from the allocation lists of all its
Clients, any bond the credit of which has, in the
judgment of Financial Guaranty, materially deteriorated
after it made the quarterly allocations.
7. Financial Guaranty Broadcast Network.
7.1 Financial Guaranty agrees to provide Franklin with
access to its broadcast network system which will
communicate to Franklin the Approved List of bond
issues eligible for insurance. Financial Guaranty
further agrees to incur all costs in providing Franklin
with access to and use of the broadcast network, except
for the receiving terminal at Franklin. If the
broadcast network is not in place and operational at
the time the Master Policies are issued, Financial
Guaranty agrees to pay any and all costs associated in
communicating in another mode its Approved List of bond
issues on a regular, timely basis to Franklin up to the
time the broadcast network is, in fact, in place and
operational.
8. Cancellation of the Master policy.
8.1 The Master Policy is non-cancellable by Financial
Guaranty except for non-payment of premium. If
Financial Guaranty has not received a premium payment
for any bond by the 15th business day following the
date on which it was due, it agrees to notify Franklin
again of Franklin's nonpayment. If Financial Guaranty
has not received any such overdue premium payment on or
before the next succeeding premium due date, then the
Master Policy(ies) of the Insured Fund(s) with respect
only to the bond or bonds for which the premium payment
has not been received shall be cancelled. The effective
date of such cancellation shall be as of the date on
which the premium payment was originally due and all
such bonds previously insured thereunder shall cease to
be insured as of that date.
8.2 Franklin reserves the right to cancel the Master Policy
upon sixty (60) days' prior written notice to Financial
Guaranty.
8.3 Franklin reserves the right upon thirty (30) days'
prior written notice to Financial Guaranty to
discontinue insuring bonds under any or all of the
Master Policies which Franklin purchases after the
effective date of the notice of discontinuance. If
Franklin discontinues insuring any bonds with Financial
Guaranty, it shall have the right to continues to pay
premiums to Financial Guaranty and thereby keep any
and/or all of the Master Policies in force for bonds
which are not subject to the notice of discontinuance.
In this situation, a Master Policy will terminate (i)
on the date on which the last principal payment of the
last bonds, together with accrued interest, are
received by Franklin or (ii) on the date the last bond
insured under a Master Policy is sold by Franklin,
whichever occurs later. During the period of time in
which the Fund keeps the Master Policies in force, it
shall also retain the right to purchase a Secondary
Market Policy for any bonds theretofore insured under
the Master Policy.
9. Secondary Market Insurance Conversion
9.1 Financial Guaranty hereby grants Franklin the right to
purchase, on a bond-by-bond basis for each and every
bond owned by Franklin which is insured under the
Master Policies, Financial Guaranty's Municipal Bond
Secondary Market Insurance Policy ("Secondary Market
Policy") in substantially the form attached to this
Agreement as Exhibit 2. The premium with respect to any
Secondary Market Policy for any bond is payable with
the premium payment due in the next succeeding month
following the month in which the bond was sold.
9.2 Franklin's right to purchase the Secondary Market.
Policy shall apply to each and every bond held by
Franklin under one or more of the Master Policies,
regardless of whether Franklin intends to hold or sell
such bond and regardless of the then existing credit
status or rating of the issuer of said bond.
9.3 Contemporaneously with the issuance of a Secondary
Market Policy for any bond, the coverage of such bond
under one or more Master Policies shall cease and such
bond shall be treated as sold for purposes of the
accounting therefor in Section 4.1 herein and no
further premium shall be due under the Master Policy or
Policies.
10. Approval of Bond Purchase Request.
10.1 Financial Guaranty agrees to use its best efforts to
promptly research, investigate, and approve or
disapprove any request of Franklin to purchase a bond
which is not on Financial Guaranty's then current
Approved List.
11. Time for Payment by Fiscal Agent.
ll.1 Financial Guaranty will cause its Fiscal Agent to pay
Franklin any principal and/or interest due Franklin
because of nonpayment by an issuer within 30 calendar
days after Financial Guaranty has paid the Fiscal Agent
under the provisions of paragraph 2 of each Master
Policy, so long as the evidence requirements under such
paragraph are met. Within 15 days of Financial
Guaranty's payment to the Fiscal Agent, Financial
Guaranty is to ascertain if there are any problems
between Franklin and the Fiscal Agent with respect to
the necessary evidence Franklin is to provide the
Fiscal Agent. If there are any problems, Financial
Guaranty agrees to work with Franklin and the Fiscal
Agent to resolve such problems so that the Fiscal Agent
can make payment within the 30-calendar-day-period.
12. Confidentiality: Financial Guaranty Staff.
12.1 Financial Guaranty hereby agrees that (except for
disclosures required by law) its staff while employed
by Financial Guaranty will not reveal to any other
Financial Guaranty clients, directly or indirectly, the
amount and/or types of municipal bonds purchased by
Franklin. In addition, Financial Guaranty agrees that
(except for disclosures required by law) its staff will
not reveal to other Financial Guaranty clients any
information received from Franklin's staff, as a result
of the relationship between Financial Guaranty and
Franklin created under this Agreement, regarding
Franklin's business, trading strategy and/or business
practices, and/or any other information which might
lessen Franklin's competitive place in the mutual fund
market.
12.2 So that it can fulfill its obligations under Section
12.1, Financial Guaranty further agrees to institute an
internal confidentiality program. Financial Guaranty
also agrees that a part of its internal confidentiality
program will inform its staff members of their
obligation to keep confidential all information they
obtain about Franklin after they leave the employ of
Financial Guaranty.
13. Confidentiality: Franklin Staff.
13.1 Franklin hereby agrees that (except for disclosures
required by law) its staff, while employed by Franklin,
will not reveal to any individuals and/or entities
outside Franklin, directly or indirectly, any
information concerning the names of the bonds and the
issuers on Financial Guaranty's Approved List or
concerning its Broadcast System, which information the
staff obtains as a result of the relationship between
Financial Guaranty and Franklin created under this
Agreement.
13.2 So that it can fulfill its obligations under Section
13.1, Franklin further agrees to institute an internal
confidentiality program. Franklin also agrees that a
part of its internal confidentiality program will
inform its staff members of their obligation to keep
confidential the information they obtain about
Financial Guaranty's Approved List after they leave the
employ of Franklin.
14. Information Notification.
14.1 Financial Guaranty agrees promptly to provide Franklin
in writing, from time to time or upon the reasonable
written request of Franklin, with (a) any information
concerning any change which would make the statements
in the Registration Statement of Franklin on Form N-1A
("Registration Statement") under the caption
"Insurance" relating to Financial Guaranty and the
Master Policies fail to present accurately and fairly
the summary information set forth therein or omit any
material fact with respect to the description of
Financial Guaranty relevant to the material terms of
the Master Policies and/or Financial Guaranty's ability
to meet its obligations under the Master Policies and
(b) any information concerning any material adverse
change in Financial Guaranty's financial condition
since the date of the financial information relating to
Financial Guaranty which was included in the
Registration Statement. The purpose for providing this
information to Franklin is to keep the information in
the Registration Statement current for so long as the
Prospectus and Statement of Additional Information in
such Registration Statement, as amended or
supplemented, is required to be delivered in connection
with the offer, sale, or resale of shares of the Funds.
15. General Provisions.
15.1 Headings. Headings and subheadings are provided in
this Agreement for convenience only and are not to be
taken to modify in any way the provisions with which
they are associated or any other provisions.
15.2 Severability of Provisions. If any provision of this
Agreement is held to be unenforceable or in conflict
with the law of any state or of the United States, the
remainder of this Agreement is to be considered valid
and enforceable according to its terms, and the
Agreement is to be construed as if such unenforceable
provision(s) had never been contained in it.
15.3 Waiver. A waiver of any breach of any provision of
this Agreement is not to be construed as a continuing
waiver of other breaches of the same or other
provisions of this Agreement. Furthermore, performance
of any obligation required of a party under this
Agreement may be waived only by written waiver signed
by the other party. Such a waiver is to be effective
only with respect to the specific obligations described
in the waiver.
15.4 Limitation of Franklin's Liability. Financial Guaranty
acknowledges that it has received notice of and accepts
the limitations of Franklin's liability set forth in
Article VIII of its Agreement and Declaration of Trust.
Financial Guaranty agrees that Franklin's obligations
hereunder shall be limited to Franklin and to its
assets and that Financial Guaranty its affiliates,
successors or assigns shall not seek satisfaction of
any such obligation from the shareholders of Franklin
nor from any Trustee, officer, employee, or agent of
Franklin.
15.5 Remedy. Unless specifically provided in this Agreement,
no remedy available to either party under this
Agreement is intended to be exclusive of any other
remedy. Furthermore, each and every remedy is to be
cumulative and is to be in addition to every other
remedy provided under this Agreement or available at
law or in equity.
15.6 Amendments. All amendments or modification's of this
Agreement are to be binding upon the parties so long as
such amendments are in writing and executed by both
parties.
15.7 Successor and Assigns. This Agreement is to be binding
upon and shall inure to the benefit of each of the
parties, and, except as otherwise provided in this
Agreement, to their respective legal successors and
assigns.
15.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this
Agreement, the prevailing party is to be entitled to
reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which
such party is entitled.
15.9 General Assurances. The parties agree to execute,
acknowledge, and deliver all such further instruments
and do all such other acts as may be appropriate in
order to carry out the intent and purposes of this
Agreement.
15.10 Notices. Any notice, request, or communication required
under this Agreement is to be in writing and is for all
purposes deemed to be fully given if sent by telegram,
if delivered personally, or if mailed, postage prepaid,
return receipt requested by certified or registered
mail, to the respective parties at the addresses set
forth at the beginning of this Agreement. Either party
may change its address for the purposes of this
Agreement by giving the other party written notice of
its new address. A communication, if received after the
date on which it is due, will nevertheless be
considered timely if it was mailed at least seven (7)
days prior to the date on which it was due.
15.11 Counterparts. This Agreement may be executed in one or
more counterparts, each of which is to be deemed an
original, but all such counterparts together constitute
one and the same instrument.
15.12 Force Majeure. Neither party will be liable in damages
or will be considered in breach for any delay or
default in performing under this Agreement if such
delay or default is caused by conditions beyond its
control, including but not limited to acts of God,
government restriction, wars or insurrections, strikes,
fires, floods, severe weather, work stoppages,
lockouts, lack of materials, default of a common
carrier, or similar occurrences.
15.13 Governing Law. This Agreement is to be interpreted and
construed, and the legal relations created by it are to
be determined, in accordance with the laws of the State
of New York.
15.14 Entire Agreement. This Agreement and the Exhibits
thereto constitute the sole and only Agreement of the
parties with respect to the subject matter hereof. They
supersede any and all prior or contemporaneous oral or
written agreements, proposals, understandings,
promises, negotiations, representations, or
communications between the parties relating to this
Agreement and all past course of dealing or industry
custom, all of which are merged herein. If any
provision in Financial Guaranty Operations Manual is in
conflict with this Agreement, this Agreement will
control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized officers as of the date first
above written.
FRANKLIN NEW YORK TAX-FREE TRUST
/s/ Harmon E. Burns
By: Harmon E. Burns
Title: Vice President
FINANCIAL GUARANTY INSURANCE COMPANY
/s/ Richard Price
By: Richard Price
Title: Managing Director
AMENDMENT TO MUTUAL FUND AGREEMENT
Financial Guaranty Insurance Company ("Financial Guaranty") and
Franklin Advisers, Inc. have previously entered into mutual fund
agreement(s) (the "Agreement") in respect of municipal securities
held in mutual funds which Financial Guaranty has contracted to
provide insurance for. Such Agreement may contain provisions
obligating Franklin Advisers, Inc. to exclusively purchase annual
portfolio insurance from Financial Guaranty and not any other
provider of similar insurance. As of the date hereof, the parties
hereto hereby agree that such exclusivity provisions shall no
longer be in effect. This agreement shall be deemed to amend any
previous outstanding Agreement in respect of such provisions.
In witness hereof the parties have hereunto set their hands this
24th day of November, 1992.
FINANCIAL GUARANTY INSURANCE COMPANY
/s/ Richard A. Price
Richard A. Price
Managing Director
FRANKLIN TAX FREE TRUST
FRANKLIN NEW YORK TAX FREE TRUST
FRANKLIN CALIFORNIA TAX FREE TRUST
FRANKLIN ADVISERS, INC.
/s/ Andrew R. Johnson
By: Andrew R. Johnson
Title: Vice President
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Franklin New York Tax-Free Trust:
We consent to the incorporation by reference in Post-
Effective Amendment No. 12 to the Registration Statement of
Franklin New York Tax-Free Trust on Form N-1A (File No. 33-
7785) of our report dated February 1, 1995 on our audit of
the financial statements and financial highlights of the
Trust, which report is included in the Annual Report to
Shareholders for the year ended December 31, 1994 which is
incorporated by reference in the Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
April 14, 1995
To: All Franklin Templeton Funds Listed on Schedule A
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to invest $100.00 in the Class II shares (the "Shares") of
each of the Funds listed on the attached Schedule A (the "Funds"), on the
business day immediately preceding the effective date for each Fund's Class
II shares, at a purchase price per share equivalent to the net asset value
per share of each Fund's Class I shares on the date of purchase. We will
purchase the Shares in a private offering prior to the effectiveness of the
post-effective amendment to the Form N-1A registration statement under which
each Fund's Class II shares are initially offered, as filed by the Fund under
the Securities Act of 1933. The Shares are being purchased to serve as the
seed money for each Fund's Class II shares prior to the commencement of the
public offering of Class II shares.
In connection with such purchase, we understand that we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired.
We consent to the filing of this Investment Letter as an exhibit to the
form N-1A registration statement of each Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
Date: April 12, 1995
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
</TABLE>
FRANKLIN NEW YORK TAX-FREE TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act") by Franklin New York Tax-Free Trust (the "Trust") for
the use of Franklin New York Insured Tax-Free Income Fund (the
"Fund"), which Plan shall take effect on the 1st day of May, 1994
(the "Effective Date of the Plan"). The Plan has been approved by
a majority of the Board of Trustees of the Trust (the "Board of
Trustees"), including a majority of the trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested trustees"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the terms of the Underwriting
Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board
of Trustees concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, Distributors, or others or by Advisers or
Distributors to others may be deemed to constitute distribution
expenses of the Fund. Accordingly, the Board of Trustees
determined that the Plan should provide for such payments and
that adoption of the Plan would be prudent and in the best
interest of the Fund and its shareholders. Such approval included
a determination that in the exercise of their reasonable business
judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Trust on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the trustees, including the non-
interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.10% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which
include payments specified in paragraphs 1 and 2, plus any other
payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested trustees cast in person at a meeting called
for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust and Distributors as evidenced
by their execution hereof.
FRANKLIN NEW YORK TAX-FREE TRUST
on behalf of Franklin New York Insured Tax-Free Income Fund
/s/ Deborah R. Gatzek
By: Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
FRANKLIN NEW YORK TAX-FREE TRUST
Preamble to Amended and Restated Distribution Plan
The following Amended and Restated Distribution Plan (the "Plan")
has been adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") by Franklin New York Tax-Free
Trust (the "Trust") for the use of a series entitled Franklin New
York Intermediate-Term Tax-Free Income Fund (the "Fund"). The
Plan has been approved by a majority vote of the Board of
Trustees of the Trust (the "Board of Trustees"), including a
majority of the trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in
the operation of the Plan (the "non-interested trustees"), cast
in person at a meeting called for the purpose of voting on such
Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust, on behalf of the Fund, and Franklin
Advisers, Inc. (the "Manager") and the terms of the Underwriting
Agreement between the Trust and Franklin/Templeton Distributors,
Inc. ("Distributors"). The Board of Trustees concluded that the
compensation of the Manager, under the Management Agreement was
fair and not excessive; however, the Board of Trustees also
recognized that uncertainty may exist from time to time with
respect to whether payments to be made by the Fund to the Manager
or to Distributors or others or by the Manager or Distributors to
others may be deemed to constitute distribution expenses.
Accordingly, the Board of Trustees determined that the Plan
should provide for such payments and that adoption of the Plan
would be prudent and in the best interests of the Fund and its
shareholders. Such approval included a determination that, in
the exercise of their reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that
the Plan will benefit the Fund and its shareholders.
AMENDED AND RESTATED DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including, but not
limited to, the printing of prospectuses and reports used for
sales purposes, expenses of preparation and distribution of sales
literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of
Distributors' overhead expenses attributable to the distribution
of Fund shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed
a servicing agreement with the Fund, Distributors or its
affiliates, which form of agreement has been approved from time
to time by the trustees, including the non-interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
1/10 of 1% per annum of the average daily net assets of the Fund.
Said reimbursement shall be made quarterly by the Fund to
Distributors or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, the Manager, Distributors or other parties on behalf of
the Fund, the Manager or Distributors make payments that are
deemed to be payments for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund
within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges, which
include payments specified in paragraphs 1 and 2, plus any other
payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreement entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund, or
by vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust, on
behalf of the Fund, and the Manager or the Underwriting Agreement
between the Trust and Distributors.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested trustees, cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
10. This Plan shall take effect on the 1st day of July, 1993.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust, on behalf of the Fund, and
Distributors as evidenced by their execution hereof.
FRANKLIN NEW YORK TAX-FREE TRUST on behalf of
Franklin New York Intermediate-Term Tax-Free Income Fund
By: /s/ Charles B. Johnson
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Rupert H. Johnson, Jr.
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN NEW YORK TAX-FREE TRUST
II. Fund and Class: FRANKLIN NEW YORK INSURED TAX-FREE
INCOME FUND - CLASS II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.50%
B. Service Fee: 0.15%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by the Investment Company named above
("Investment Company") for the class II shares (the "Class") of
each Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors or Trustees of the Investment Company (the
"Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and
nature of payments and terms of the Management Agreement between
the Investment Company and Franklin Advisers, Inc. and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting
Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee
not to exceed the above-stated maximum distribution fee per annum
of the Class' average daily net assets represented by shares of
the Class, as may be determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or
others, or (ii) directly to others, an amount not to exceed the
above-stated maximum service fee per annum of the Class' average
daily net assets represented by shares of the Class, as may be
determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved
from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to assist in the distribution
and promotion of shares of the Class. Payments made to
Distributors under the Plan may be used for, among other things,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead
expenses attributable to the distribution of Class shares, as
well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements
with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by
the Trustees, including the non-interested trustees. In
addition, such fees may be used to pay for advancing the
commission costs to dealers or others with respect to the sale of
Class shares.
(b) The monies to be paid pursuant to paragraph 1(b)
above shall be used to pay dealers or others for, among other
things, furnishing personal services and maintaining shareholder
accounts, which services include, among other things, assisting
in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf
of customers; forwarding certain shareholder communications from
the Fund to customers; receiving and answering correspondence;
and aiding in maintaining the investment of their respective
customers in the Class. Any amounts paid under this paragraph
2(b) shall be paid pursuant to a servicing or other agreement,
which form of agreement has been approved from time to time by
the Board.
3. In addition to the payments which the Fund is authorized
to make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of Class shares issued
by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review,
on a quarterly basis, a written report of the monies reimbursed
to it and to others under the Plan, and shall furnish the Board
with such other information as the Board may reasonably request
in connection with the payments made under the Plan in order to
enable the Board to make an informed determination of whether the
Plan should be continued.
5. The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically
approved at least annually by the Board, including the non-
interested Board members, cast in person at a meeting called for
the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to
this Plan, may be terminated at any time, without penalty, by
vote of a majority of the outstanding voting securities of the
Fund or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to
this Plan, may not be amended to increase materially the amount
to be spent for distribution pursuant to Paragraph 1 hereof
without approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested Board members cast in person at a meeting called for
the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be
committed to the discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Investment Company and Distributors
as evidenced by their execution hereof.
Date: __________________, 1995
Investment Company
By:________________________________
Franklin/Templeton Distributors, Inc.
By:_____________________________________
SEC STANDARD TOTAL RETURN
AS OF: 3/31/95
MAX OFFER NAV
ONE YEAR 1.82% 6.40%
P= 1000.00 1000.00
T= 0.0182 0.0640
n= 1 1
ERV= 1018.20 1064.00
FIVE YEAR 6.72% 7.66%
P= 1000.00 1000.00
T= 0.0672 0.0766
n= 5 5
ERV= 1384.30 1446.34
TEN YEAR 8.33% 8.79%
P= 1000.00 1000.00
T= 0.0833 0.0879
n= 10 10
ERV= 2225.81 2322.15
FROM INCEPTION 02/01/77 5.75% 6.00%
P= 1000.00 1000.00
T= 0.0575 0.0600
n= 18.1726 18.1726
ERV= 2762.09 2883.19
AGGREGATE TOTAL RETURN
1 YEAR 1.82% 6.40%
5 YEAR 38.40% 44.63%
10 YEAR 122.48 132.23
FROM INCEPTION 176.01% 188.16%
30-DAY SEC YIELD 5.43%
30-DAY SEC YIELD W/O WAIVER NA
TAXABLE EQUIVALENT SEC 10.10%
YIELD
FISCAL YEAR-END 5.98%
DISTRIBUTION RATE (ON MAX
OFFERING)
FISCAL YEAR-END 6.24%
DISTRIBUTION RATE (ON NAV)
SEC - YIELD CALCULATION
a = interest/dividends earned 66,055,858
b = expenses accrued 5,442,410
c = avg # of shares o/s 1,878,917,345
d = maximum offering price 7,411
a - b 6
SEC Yield= 2[(------------------------- + 1) -1]
cd
66,055.858 - 5,442,410 6
= 2[(----------------------------------- + 1) -1]
1,878,917,345 * 7.411
60,613,448 6
= 2[(------------------------- + 1) -1]
13,924,656,444
6
= 2[( 1.00435295823956 ) -1]
= 2( 1.02640362813221 - 1)
= 0.0528072563
= 5.28%
TAXABLE EQUIVALENT YIELD CALCULATION
TAXABLE EQUIVALENT YIELD = tax-exempt current yield
------------------------
1 - f + s x (1 - f)) ]
WHERE:
f = federal income tax rate
s = state and local income tax rate
yield = 5.28%
f = 39.60%
s = 11.00%
TAXABLE EQUIVALENT YIELD = 5.28%
------------------------
1 - [.395+(.1 X (1-.396))]
= 5.28%
-------------------
1 - ( 0.396 + 0.66 )
5.28%
= -------------------
0.538
= 9.81%
POWER OF ATTORNEY
The undersigned officers and trustees of Franklin New York Tax-
Free Trust (the "Registrant") hereby appoint MARK H. PLAFKER
HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE AND LARRY
L. GREENE (with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to Post-
Effective Amendments to the Registrant's registration statement
on Form N-1A under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933 covering the sale
of shares by the Registrant under prospectuses becoming effective
after this date, including any amendment or amendments increasing
or decreasing the amount of securities for which registration is
being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory
authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and
purposes as he could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this
Power of Attorney as of this 16th day of February, 1995.
/s/ Rupert H. Johnson, Jr. /s/ Frank W. T. LaHaye
Rupert H. Johnson, Jr., Frank W. T. LaHaye,
Principal Executive Officer Trustee
and Trustee
/s/ Frank H. Abbott, III /s/ William J. Lippman
Frank H. Abbott, III, William J. Lippman,
Trustee Trustee
/s/ Harris J. Ashton /s/ Gordon S. Macklin
Harris J. Ashton, Gordon S. Macklin,
Trustee Trustee
/s/ S. Joseph Fortunato /s/ Martin L. Flanagan
S. Joseph Fortunato, Martin L. Flanagan,
Trustee Principal Financial Officer
/s/ David W. Garbellano /s/ Diomedes Loo-Tam
David W. Garbellano, Diomedes Loo-Tam,
Trustee Principal Accounting Officer
/s/ Charles B. Johnson
Charles B. Johnson,
Trustee
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of
Franklin New York Tax-Free Trust (the "Trust").
As Secretary of the Trust, I further certify that the
following resolution was adopted by a majority of the Trustees of
the Trust present at a meeting held at 777 Mariners Island
Boulevard, San Mateo, California, on February 16, 1995.
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
Board, appointing Harmon E. Burns, Deborah R. Gatzek,
Karen L. Skidmore, Larry L. Greene and Mark H. Plafker
as attorneys-in-fact for the purpose of filing
documents with the Securities and Exchange Commission,
be executed by each Trustee and designated officer.
I declare under penalty of perjury that the matters set
forth in this certificate are true and correct of my own
knowledge.
/s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
Dated February 16, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FRANKLIN NEW YORK TAX-FREE TRUST DECEMBER 31, 1994 ANNUAL RE-
PORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> FRANKLIN NY TAX-EXEMPT MONEY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 64,504,904
<INVESTMENTS-AT-VALUE> 64,504,904
<RECEIVABLES> 695,221
<ASSETS-OTHER> 96,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,296,936
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 461,988
<TOTAL-LIABILITIES> 461,988
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,834,948
<SHARES-COMMON-STOCK> 64,834,948
<SHARES-COMMON-PRIOR> 50,316,975
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 64,834,948
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,603,841
<OTHER-INCOME> 0
<EXPENSES-NET> (353,445)
<NET-INVESTMENT-INCOME> 1,250,396
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,250,396)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,849,418
<NUMBER-OF-SHARES-REDEEMED> 67,582,732
<SHARES-REINVESTED> 1,251,287
<NET-CHANGE-IN-ASSETS> 14,517,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (171,416)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (353,445)
<AVERAGE-NET-ASSETS> 59,018,300
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .021
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .021
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .600
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FRANKLIN NEW YORK TAX - FREE TRUST DECEMBER 31, 1994 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> NEW YORK INSURED TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 234,129,592
<INVESTMENTS-AT-VALUE> 220,776,564
<RECEIVABLES> 4,459,244
<ASSETS-OTHER> 955,808
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 266,191,616
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,130,672
<TOTAL-LIABILITIES> 1,130,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 240,371,143
<SHARES-COMMON-STOCK> 22,156,230
<SHARES-COMMON-PRIOR> 22,571,777
<ACCUMULATED-NII-CURRENT> 186,418
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,143,589)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13,353,028)
<NET-ASSETS> 225,060,944
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,893,456
<OTHER-INCOME> 0
<EXPENSES-NET> (1,392,642)
<NET-INVESTMENT-INCOME> 13,500,814
<REALIZED-GAINS-CURRENT> (2,000,409)
<APPREC-INCREASE-CURRENT> (33,236,184)
<NET-CHANGE-FROM-OPS> (21,735,779)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,359,615)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,012,829
<NUMBER-OF-SHARES-REDEEMED> 5,075,969
<SHARES-REINVESTED> 647,592
<NET-CHANGE-IN-ASSETS> (38,585,780)
<ACCUMULATED-NII-PRIOR> 45,219
<ACCUMULATED-GAINS-PRIOR> (143,180)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (992,613)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,392,642)
<AVERAGE-NET-ASSETS> 246,532,437
<PER-SHARE-NAV-BEGIN> 11.68
<PER-SHARE-NII> .590
<PER-SHARE-GAIN-APPREC> (1.525)
<PER-SHARE-DIVIDEND> (.585)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.16
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FRANKLIN NEW YORK TAX-FREE TRUST DECEMBER 31, 1994 ANNUAL RE-
PORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> FRANKLIN NY INTERM-TERM TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 35,238,373
<INVESTMENTS-AT-VALUE> 34,666,764
<RECEIVABLES> 812,440
<ASSETS-OTHER> 45,152
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,524,356
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 358,435
<TOTAL-LIABILITIES> 358,435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,421,470
<SHARES-COMMON-STOCK> 3,661,319
<SHARES-COMMON-PRIOR> 2,917,088
<ACCUMULATED-NII-CURRENT> 127,180
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,811,120)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (571,609)
<NET-ASSETS> 35,165,921
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,077,690
<OTHER-INCOME> 0
<EXPENSES-NET> (18,688)
<NET-INVESTMENT-INCOME> 2,059,002
<REALIZED-GAINS-CURRENT> (2,703,012)
<APPREC-INCREASE-CURRENT> (1,406,329)
<NET-CHANGE-FROM-OPS> (2,050,339)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,950,786)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,060,058
<NUMBER-OF-SHARES-REDEEMED> 1,432,244
<SHARES-REINVESTED> 116,416
<NET-CHANGE-IN-ASSETS> 4,004,224
<ACCUMULATED-NII-PRIOR> 18,964
<ACCUMULATED-GAINS-PRIOR> (108,108)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (18,688)
<AVERAGE-NET-ASSETS> 36,997,552
<PER-SHARE-NAV-BEGIN> 10.680
<PER-SHARE-NII> .550
<PER-SHARE-GAIN-APPREC> (1.104)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.526)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.600
<EXPENSE-RATIO> .050
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
