As filed with the Securities and Exchange Commission on August 30, 1996
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. 14 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 15 (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 September 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on May (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 27, 1996.
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 Summary"
3. Condensed Financial "Financial Highlights"; "How Does
Information the Fund Measure Performance?"
4. General Description "How Is the Trust Organized?"; "How
Does the Fund Invest Its Assets?";
"What Are the Fund's Potential
Risks?"
5. Management of Trust "Who Manages the Fund?"
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions Might
I Receive from the Fund?"; "How
Taxation Affects You and the Fund"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being Offered Exchange Shares for Shares of Another
Fund?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"; "Who
Manages the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares of
Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"
9. Pending Legal Proceedings Not Applicable
FRANKLIN 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 Summary"
3. Condensed Financial "Financial Highlights"; "How Does the
Information Fund Measure Performance?"
4. General Description "How Is the Trust Organized?"; "How
Does the Fund Invest Its Assets?";
"What Are the Fund's Potential Risks?"
5. Management of Trust "Who Manages the Fund?"
5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions Might I
Receive from the Fund?"; "How
Taxation Affects You and the Fund"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being Offered Exchange Shares for Shares of Another
Fund?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"; "Who
Manages the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares of
Another Fund?"; "How Do I Sell
Shares?" "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"
9. Pending Legal Proceedings Not Applicable
FRANKLIN 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"; "How Does
Information the Fund Measure Performance?"
4. General Description "How Is the Trust Organized?"; "How
Does the Fund Invest Its Assets?";
"What Are the Fund's Potential
Risks?"
5. Management of Trust "Who Manages the Fund?"
5A. Management's Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions Might
I Receive from the Fund?"; "How
Taxation Affects You and the Fund"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"; "Who
Manages the Fund?"; "Useful Terms
and Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares
of Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements";
"Services to Help You Manage Your
Account"
9. Pending Legal Proceedings Not Applicable
FRANKLIN NEW YORK TAX-FREE TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
Franklin New York Tax-Free Money Fund
Franklin New York Insured Tax-Free Income Fund
Franklin New York Intermediate-Term Tax-Free Income Fund
N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and Not Applicable
History
13. Investment Objectives and "How Do the Funds Invest Their
Policies Assets?"; "Description of Municipal
and Other Securities"; "Investment
Restrictions"; "Insurance (Insured
Fund Only)"
14. Management of the Trust "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and "Officers and Trustees"; "Investment
Principal Holders of Advisory and Other Services";
Securities "Miscellaneous Information"
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"; "The Trust's Underwriter"
17. Brokerage Allocation "How Do the Funds Buy Securities
For Their Portfolios?"
18. Capital Stock and Other "How Do I Buy, Sell and Exchange
Services Shares?"; "How Are the Funds' Shares
Valued?"; "Miscellaneous
Information"
19. Purchase, Redemption "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are the Funds' Shares
Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Trust's Underwriter"
22. Calculation of Performance "How Do the Funds' Measure
Data Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS & APPLICATION
Franklin New York Tax-Exempt Money Fund
INVESTMENT STRATEGY
TAX-FREE INCOME
MAY 1, 1996
AS AMENDED SEPTEMBER 1, 1996
Franklin New York Tax-Free Trust
This prospectus describes the Franklin New York Tax-Exempt Money Fund (the
"Fund"). It contains information you should know before investing in the Fund.
Please keep it for future reference.
The Fund's SAI, dated May 1, 1996, as may be amended from time to time, includes
more information about the Fund's procedures and policies. It has been filed
with the SEC and is incorporated by reference into this prospectus. For a free
copy or a larger print version of this prospectus, call 1-800/DIAL BEN or write
the Fund at the address shown.
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, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
Franklin New York
Tax-Exempt Money Fund
Franklin New York
Tax-Exempt
Money Fund
May 1, 1996
as amended September 1, 1996
When reading this prospectus, you will see certain terms in capital letters.
This means the term is explained in our glossary section.
Table of Contents
About the Fund
Expense Summary .................... 2
Financial Highlights ............... 3
How Does the Fund Invest Its Assets? 6
What Are the Fund's Potential Risks? 11
Who Manages the Fund? .............. 12
How Does the Fund Measure Performance? 13
How Is the Trust Organized? ........ 13
How Taxation Affects You and the Fund 14
About Your Account
How Do I Buy Shares? ............... 16
May I Exchange Shares for Shares of Another Fund? 17
How Do I Sell Shares? .............. 19
What Distributions Might I Receive From the Fund? 21
Transaction Procedures and Special Requirements 22
Services to Help You Manage Your Account 26
Glossary
Useful Terms and Definitions ....... 29
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
Franklin New York
Tax-Exempt Money Fund
About the Fund
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
December 31, 1995. Your actual expenses may vary.
A. Shareholder Transaction Expenses+
Exchange Fee (per transaction) ..................... NONE
B. Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees .................................... 0.63%*
Other Expenses ..................................... 0.22%
Total Fund Operating Expenses ...................... 0.85%*
C. Example
Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
$9 $27 $47 $105
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in its Net Asset Value or dividends and are not directly charged
to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*Advisers has agreed in advance to limit its management fees and make certain
payments to reduce the Fund's expenses. With this reduction, management fees and
total Fund operating expenses were 0.37% and 0.60%. Financial Highlights
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited (except for the six month period ended June 30, 1996, which is
unaudited), by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Trust's Annual Report to Shareholders for the fiscal
year ended December 1, 1995. The Annual Report to Shareholders also includes
more information about the Fund's performance. For a free copy, please call Fund
Information. For the Six Months
<TABLE>
<CAPTION>
For the Six Months
Ended
June 30, 1996
(Unaudited) For the Year Ended December 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988** 1987** 1986*
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net Investment Income .014 .031 .021 .017 .021 .036 .050 .056 .044 .041 .014
Net Realized & Unrealized
Gains on Securities -- -- -- -- -- -- -- -- -- -- --
Total From Investment
Operations .014 .031 .021 .017 .021 .036 .050 .056 .044 .041 .014
Distributions From
Net Investment Income (.014) (.031) (.021) (.017) (.021) (.036) (.050) (.056) (.044) (.041) (.014)
Net Asset Value
at end of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total Return+ 1.37% 3.11% 2.11% 1.67% 2.10% 3.63% 5.13% 5.75% 4.51% 4.17% 1.07%
Ratios/Supplemental Data
Net Assets at End of
Period (in 000's) $62,619 $61,079 $64,835 $50,317 $54,122 $70,503 $92,277 $75,556 $53,877 $54,886 $3,825
Ratio of Expenses
to Average Net Assets+++ .60*** .60% .60% .63% .65% .69% .59% .57% .46% .44% --%
Ratio of Net Investment Income
to Average Net Assets 2.72%*** 3.06% 2.12% 1.68% 2.12% 3.52% 5.02% 5.59% 4.46% 4.04% 4.27%***
Portfolio Turnover Rate --% --% --% --% --% --% --% --% --% --% --%
</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 is not annualized.
++For the six months ended June 30, 1996.
+++During the periods indicated, Advisers agreed in advance to limit its
management fees and to make payments of other expenses incurred by the Fund. Had
such action not been taken, the ratio of expenses to average net assets would
have been as follows:
Year Ended Ratio of Expenses to
December 31 Average Net Assets
------------------------------------
1987** .78%
1988** .82
1989 .82
1990 .79
1991 .84
1992 .89
1993 .97
1994 .93
1995 .85
1996++ .84***
How Does the Fund Invest Its Assets?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to obtain 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. The Fund
offers 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 objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's objective
will be achieved. The Fund also attempts to maintain a stable Net Asset Value of
$1.00 per share, although there is no assurance that this will be achieved.
The Fund attempts to invest 100% and, as a matter of fundamental policy, will
invest at least 80% of its net assets in securities that pay interest exempt
from federal income taxes, including the alternative minimum tax. It is
possible, although not anticipated, that up to 20% of the Fund's net assets
could be in federally taxable obligations.
At least 65% of the Fund's total assets will be invested 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 ("New York Municipal Securities"). It is possible,
although not anticipated, that up to 35% of the Fund's total assets may be in
qualifying municipal securities and obligations of a state or local government
other than New York, and these securities may or may not pay income exempt from
New York State and New York City personal income taxes, including any
alternative minimum tax.
Under normal market conditions, the Fund will invest its assets as described
above. For temporary defensive purposes, however, the Fund may invest up to 100%
of its net assets in money market instruments whose interest may be subject to
federal income tax, including the alternative minimum tax. Also for temporary
defensive purposes, the Fund may invest up to 100% of its total assets in money
market instruments the interest on which is exempt from federal income taxes but
not New York State and New York City personal income taxes.
TYPES OF SECURITIES THE FUND MAY INVEST IN
The Fund follows certain procedures required by federal securities laws with
respect to the quality, maturity and diversification of its investments. These
procedures are designed to help maintain a stable $1.00 share price. The Fund
limits its investments to U.S. dollar denominated instruments that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized statistical rating
organizations, or that are unrated but 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.
If a security ceases to be rated in the highest rating category, or Advisers
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, after its purchase by the Fund, the Board will promptly reassess
whether the security presents minimal credit risks. The Board will take such
action as it deems to be in the best interest of the Fund and its shareholders,
unless the security is sold or matures within five business days of Advisers
becoming aware of the new rating category and the Board is notified of Advisers'
actions. In addition to considering ratings assigned by the rating services in
its selection of portfolio securities for the Fund, Advisers will consider,
among other things, information about 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 you is
accordingly likely to be lower.
The term "municipal securities," as used in this prospectus, means obligations
issued by or on behalf of 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 provide funding for privately
operated facilities. The Fund will buy 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. More 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,
tax-exempt industrial development revenue bonds, transportation bonds, or
pollution control revenue bonds. In these 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.
Yields on municipal securities vary, depending on a variety of factors including
the general condition of the financial and municipal securities markets, the
size of a particular offering, the maturity of the obligation, and the credit
rating of the issuer. Generally, municipal securities with longer maturities
produce higher current yields than municipal securities with shorter maturities.
Prices of longer term securities, however, typically fluctuate more than those
of short term securities due to changes in interest rates, tax laws and other
general market conditions. 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 make timely payment of
principal and interest on its obligations.
PRIVATE ACTIVITY BONDS. 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 issued
after August 7, 1986, while still tax-exempt, constitutes a preference item for
taxpayers in determining the federal alternative minimum tax under the Code, and
under the income tax provisions of some states. This interest may subject you
to, or increase your liability under, the federal and state alternative minimum
tax. 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 these
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 private
activity bonds if, in Advisers' opinion, these bonds represent the most
attractive investment opportunity then available to the Fund. As of December 31,
1995, the Fund derived 10.71% of its income from bonds, the interest on which
constitutes a preference item subject to the federal alternative minimum tax for
certain investors.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may buy 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.
Frequently, VRDNs are secured by letters of credit or other credit support
arrangements.
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. The quality of the
underlying creditor must, as determined by Advisers under the supervision of the
Board, also be equivalent to the quality standards set forth in this prospectus.
In addition, Advisers 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may buy and sell
municipal securities on a "when-issued" and "delayed delivery" basis. The price
is subject to market fluctuation, and the value at delivery may be more or less
than the purchase price. Although the Fund will generally buy municipal
securities on a when-issued basis with the intention of acquiring the
securities, it may sell the securities before the settlement date if it is
deemed advisable. When the Fund is the buyer, it will maintain, in a segregated
account with its custodian bank, cash or high-grade marketable securities having
an aggregate value equal to the amount of its purchase commitments until payment
is made. To the extent 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.
CERTIFICATES OF PARTICIPATION. The Fund may 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. A COP is created
when long-term lease revenue obligations are issued by a governmental
corporation to pay for the acquisition of property or facilities that are then
leased to a municipality. The payments made by the municipality under the lease
are used to repay interest and principal on the obligations issued to buy 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 that distinguishes COPs from municipal debt is that the lease which is
the subject of the transaction contains a "nonappropriation" clause. A
nonappropriation clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate the lease
annually without penalty if the municipality's appropriating body does not
allocate the necessary funds. Local administrations, when faced with
increasingly tight budgets, 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. The private sector value of the property may be more or 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 of Moody's Investors Service ("Moody's"),
Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or in unrated COPs believed by Advisers to be of comparable quality.
Criteria considered by the rating agencies and Advisers in assessing this risk
include the issuing municipality's credit rating, 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 reviews the COPs held in the
Fund's portfolio to assure that they constitute liquid investments based on
various factors reviewed by Advisers and monitored by the Board. These factors
include (a) the credit quality of the 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, 1995, 5.73% of the Fund's net assets was invested in
COPs and other municipal leases.
OTHER INVESTMENT POLICIES OF THE FUND
LLIQUID INVESTMENTS. The Fund may not invest more than 10% of its net assets, at
the time of purchase, in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the Fund has valued them.
BORROWING. The Fund may borrow from banks and pledge up to 5% of its total
assets for temporary or emergency purposes. Although the Fund does not currently
intend to do so, consistent with procedures approved by the Board, the Fund may
lend its portfolio securities to qualified securities dealers or other
institutional investors, if the 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.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How Do the Funds Invest Their Assets?" and "Investment Restrictions" in the
SAI.
What Are the Fund's Potential Risks?
CREDIT AND MARKET RISK. Credit risk is a function of the ability of an issuer of
a municipal security to make 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.
NON-DIVERSIFICATION RISK. 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.)
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 that 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. It 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 New York issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations. You 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 filing of this prospectus with the SEC, no issuers of New York
Municipal Securities owned by the Fund were, to the knowledge of Advisers, in
default with respect to the payment of their debt obligations. The occurrence of
any 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.
You 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. Advisers 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."
Who Manages the Fund?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
INVESTMENT MANAGER. Advisers is the investment manager of the Fund and other
funds with aggregate assets of over $81 billion, including $43 billion in the
municipal securities market. It is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources.
SERVICES PROVIDED BY ADVISERS. Advisers manages the Fund's assets and makes its
investment decisions. Advisers also provides certain administrative services and
facilities for the Fund and performs similar services for other funds. Please
see "Investment Advisory and Other Services" and "Miscellaneous Information" in
the SAI for information on securities transactions and a summary of the Fund's
Code of Ethics.
MANAGEMENT FEES. During the fiscal year ended December 31, 1995, management
fees, before any advance waiver, totaled 0.63% of the average daily net assets
of the Fund. Total operating expenses, including fees paid to Advisers before
any advance waiver, totaled 0.85%. Under an agreement by Advisers to limit its
fees, the Fund paid management fees totaling 0.37%. Total expenses of the Fund
were 0.60%. Advisers may end this arrangement at any time upon notice to the
Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How Do the Funds
Purchase Securities For Their Portfolios?" in the SAI for more information.
How Does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are current and effective yield. The Fund may also
advertise its taxable-equivalent yield and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield. The taxable-equivalent yield and effective yield show the before-tax
yield or effective yield that would have to be earned from a taxable investment
to equal the Fund's yield or effective yield, assuming one or more tax rates.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see
"General Information" in the SAI.
How Is the Trust Organized?
The Fund is a no-load, non-diversified series of Franklin New York Tax-Free
Trust (the "Trust"), an open-end management investment company, commonly called
a mutual fund. It was organized as a Massachusetts business trust on July, 1986,
and is registered with the SEC under the 1940 Act. Shares of each series of the
Trust have equal and exclusive rights to dividends and distributions declared by
that series and the net assets of the series in the event of liquidation or
dissolution. Shares of the Fund are considered Class I shares for redemption,
exchange and other purposes. In the future, additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
electing or removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Distributions and Taxation" in the SAI.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, the Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to you. Exempt-interest
dividends are derived from interest income exempt from regular federal income
tax and are not subject to regular federal income tax for you. 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, these
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, they are treated as ordinary income whether you have 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 you until the following
January will be treated for tax purposes as if received by you on December 31 of
the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be 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, 1995, qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions, 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. If you have not held shares of the Fund for a full
calendar year, you 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 your investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in your hands, are includible in the tax base for determining the
extent to which your social security or railroad retirement benefits will be
subject to federal income tax. You are required to disclose the receipt of
tax-exempt interest on your federal income tax returns.
Interest on indebtedness incurred (directly or indirectly) by you to buy or
carry Fund shares will not be deductible for federal income tax purposes.
The description above relates only to federal income tax law and to New York
State and New York City personal income tax treatment to the extent indicated.
You should consult your tax advisor with respect to the applicability of other
state and local income tax laws to distributions and redemption proceeds
received from the Fund. If you are a corporate, individual or trust shareholder,
you should contact your tax advisor to determine the impact of Fund dividend
distributions under the alternative minimum tax that may be applicable to your
particular tax situation.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisor regarding the applicability of U.S.
withholding or other taxes on distributions received by you from the Fund and
the application of foreign tax laws to these distributions.
About Your Account
How Do I Buy Shares?
OPENING YOUR ACCOUNT
You may buy shares of the Fund without a sales charge and write redemption
drafts against your account. Redemption drafts are similar to checks and are
referred to as checks in this prospectus. When you buy shares, it does not
create a checking or other bank account relationship with the Fund or any bank.
MINIMUM
INVESTMENTS*
- ------------------------------------
To Open Your Account..... $100
To Add to Your Account... $ 25
*We may refuse any order to buy shares. Currently, the Fund does not allow
investments by Market Timers.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail For an initial investment:
1. Complete and sign the enclosed shareholder application.
2. Return the application to the Fund with your check,
Federal Reserve draft or negotiable bank draft made
payable to the Fund. Instruments drawn on other
investment companies may not be accepted.
For additional investments:
1. Send a check or use the deposit slips included with your
monthly statement or checkbook (if you have requested
one).
2. If you send a check, please include your account number
on the check.
- --------------------------------------------------------------------------------
By Wire 1. Call Shareholder Services or, if that number is busy,
call 1-415/312-2000 collect, to receive a wire control
number. A new number is needed every time you wire money
into your account. If you do not have a currently
effective wire control number, we will return the money
to the bank and it will not be credited to your account.
2. Wire the funds to Bank of America, ABA routing number
121000358, for credit to Franklin New York Tax-Exempt
Money Fund, A/C 1493-3-04779. Your name and wire control
number must be included.
- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
3. For initial investment, you must also complete and sign
the enclosed shareholder application and return it to
the Fund.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
If the Fund receives your order in proper form before 3:00 p.m. Pacific time, it
will be credited to your account that day. Orders received after 3:00 p.m. will
be credited the following business day.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the Fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the Fund on arbitrage rebate calculations.
GENERAL. The Fund continuously offers its shares through Securities Dealers who
have an agreement with Distributors. Securities laws of states where the Fund
offers its shares may differ from federal law. Banks and financial institutions
that sell shares of the Fund may be required by state law to register as
Securities Dealers.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you're exchanging
- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Phone Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by phone to
apply to your account, please let us know.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class.
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into another identically
registered money fund account requiring only one signature for all
transactions. PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO
BE AVAILABLE ON YOUR ACCOUNT(S). Additional procedures may apply. Please
see "Transaction Procedures and Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Currently, the Fund does not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
How Do I Sell Shares?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Check 1. You may request redemption drafts (checks) free of charge
on the shareholder application or by calling TeleFACTS(R).
(Only available if
there are no 2. You may make checks payable to any person and in any amount
outstanding share of $100 or more. You will continue to earn daily income
certificates for dividends until the check has cleared. Please see "More
your account) Information About Selling Your Shares By Check" below.
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account owners
2. Include any outstanding share certificates for the shares
you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have additional requirements.
- --------------------------------------------------------------------------------
By Wire 1. Complete the "Wire Redemption Privilege" section of the
shareholder application and send it to us.
(Only available 2. Call Shareholder Services
for requests
over $1,000) 3. If we receive your request in proper form before 3:00 p.m.
Pacific time, your wire payment will be sent the next
business day. You may have redemption proceeds wired to an
escrow account the same day, if we receive your request in
proper form before 9:00 a.m. Pacific time.
By Phone Call Shareholder Services
(For requests Telephone requests will be accepted:
over $1,000,
this option is o If the request is $50,000 or less. Institutional accounts
only available may exceed $50,000 by completing a separate agreement. Call
if you have Institutional Services to receive a copy.
completed and
sent to us the o If there are no share certificates issued for the shares you
telephone want to sell or you have already returned them to the Fund
redemption
agreement o Unless the address on your account was changed by phone
included within the last 30 days
with this
prospectus)
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, however, the Fund is not
bound to meet any redemption request in less than the seven day period
prescribed by law. Neither the Fund nor its agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not processed
as described in this section.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
MORE INFORMATION ABOUT SELLING YOUR SHARES BY CHECK
The checks are drawn through Bank of America NT & SA (the "Bank"), the Fund's
custodian. The Bank may terminate this service at any time upon notice to you.
When a check is presented for payment, we will redeem an equivalent number of
shares in your account to cover the amount of the check. Your shares will be
redeemed at the Net Asset Value next determined after we receive a check that
does not exceed the collected balance in your account. If a check is presented
for payment that exceeds the collected balance in your account, the Bank may
return the check unpaid. Since you will not know the exact amount in your
account on the day a check clears, you should not use a check to close your
account.
You will generally not be able to convert a check drawn on your Fund account
into a certified or cashier's check by presenting it at the Bank. Because the
Fund is not a bank, we cannot assure that a stop payment order written by you
will be effective. We will use our best efforts, however, to see that these
orders are carried out.
CONTINGENT DEFERRED SALES CHARGE
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
Distributors keeps the charge to recover payments made to Securities Dealers.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
What Distributions Might I Receive From the Fund?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business the day before.
The daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
The 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.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. The Fund does not pay
"interest" or guarantee any amount of dividends or return on an investment in
its shares.
DIVIDEND OPTIONS
Dividends will automatically be reinvested each day in the form of additional
shares of the Fund at the Net Asset Value per share at the close of business.
If you complete the "Special Payment Instructions for Dividends" section of the
shareholder application included with this prospectus, you may direct your
dividends to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.
You may also choose to receive dividends in cash. If you have the money sent to
another person or to a checking account, you may need a signature guarantee. If
you send the money to a checking account, please see "Electronic Fund Transfers"
under "Services to Help You Manage Your Account."
If you choose one of these options, the dividends reinvested and credited to
your account during the month will be redeemed as of the close of business on
the last business day of the month and paid as directed on the shareholder
application. You may change your dividend option at any time by notifying us by
mail or phone. Please allow at least seven days for us to process the new
option.
Transaction Procedures and Special Requirements
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share at 3:00 p.m. Pacific time. To calculate Net Asset
Value per share, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The Fund's assets are valued as described under "How Are the
Funds' Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
registered owners, with a signature guarantee if necessary. We must also receive
any outstanding share certificates for those shares.
Many of the Fund's investments must be paid for in federal funds, which are
monies held by the Fund's custodian bank on deposit at the Federal Reserve Bank
of San Francisco and elsewhere. The Fund generally cannot invest money received
from you until it is converted into and is available to the Fund in federal
funds. Therefore, your purchase order may not be considered in proper form until
the money received from you is available in federal funds, which may take up to
two days. If the Fund is able to make investments immediately (within one
business day), it may accept your order with payment in other than federal
funds.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal or other
identifying information, and will also record calls. For your protection, we may
delay a transaction or not implement one if we are not reasonably satisfied that
telephone instructions are genuine. If this occurs, we will not be liable for
any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
Corporation Corporate Resolution
- --------------------------------------------------------------------------------
Partnership 1. The pages from the partnership agreement that identify
the general partners, or
2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $500.
Services to Help You Manage Your Account
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
RIGHTS OF ACCUMULATION
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50.
If you would like to establish a systematic withdrawal plan, call Shareholder
Services. You may choose to direct your payments to buy the same class of shares
of another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking account. If you choose to have the money sent
to a checking account, please see "Electronic Fund Transfers" below. There are
no service charges for establishing or maintaining a systematic withdrawal plan.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the first business day of the month in
which a payment is scheduled. You will generally receive your payment by the
fifth business day of the month in which a payment is scheduled. When you sell
your shares under a systematic withdrawal plan, it is a taxable transaction.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
If a withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you.
Redemptions under a systematic withdrawal plan are considered a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than your actual yield or income, part of the payment may be a return of your
investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
systematic withdrawal plan sent directly to a checking account. If the checking
account is with a bank that is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If you choose
this option, please allow at least fifteen days for initial processing. We will
send any payments made during that time to the address of record on your
account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements, money fund checks, and deposit slips.
You will need the Fund's code number to use TeleFACTS. The Fund's code is 131.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. Please
verify the accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household
and send only one copy of a report. Call Fund Information if you would like
an additional free copy of the Fund's financial reports or an interim
quarterly report.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.
Special procedures have been designed for banks and other institutions that
would like to open multiple accounts in the Fund. Please see the SAI for more
information.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
Glossary
Useful Terms and Definitions
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
EXCHANGE - New York Stock Exchange
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or another wholly owned
subsidiary of Resources.
PROSPECTUS & APPLICATION
Franklin New York Insured Tax-Free Income Fund
INVESTMENT STRATEGY
TAX-FREE INCOME
MAY 1, 1996
AS AMENDED SEPTEMBER 1, 1996
Franklin New York Tax-Free Trust
This prospectus describes the Franklin New York Insured Tax-Free Income Fund
(the "Fund"). It contains information you should know before investing in the
Fund. Please keep it for future reference.
The Fund's SAI, dated May 1, 1996, as may be amended from time to time, includes
more information about the Fund's procedures and policies. It has been filed
with the SEC and is incorporated by reference into this prospectus. For a free
copy or a larger print version of this prospectus, call 1-800/DIAL BEN or write
the Fund at the address shown.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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 NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
Franklin New York Insured Tax-Free Income Fund
May 1, 1996
as amended September 1, 1996
When reading this prospectus, you will see certain terms in capital letters.
This means the term is explained in our glossary section.
Table of Contents
About the Fund
Expense Summary ............................ 2
Financial Highlights ....................... 3
How Does the Fund Invest Its Assets? ....... 4
What Are the Fund's Potential Risks? ....... 12
Who Manages the Fund? ...................... 14
How Does the Fund Measure Performance? ..... 16
How Is the Trust Organized? ................ 17
How Taxation Affects You and the Fund ...... 17
About Your Account
How Do I Buy Shares? ....................... 20
May I Exchange Shares for Shares of Another Fund? 25
How Do I Sell Shares? ...................... 28
What Distributions Might I Receive From the Fund? 30
Transaction Procedures and Special Requirements 32
Services to Help You Manage Your Account ... 36
Glossary
Useful Terms and Definitions ............... 39
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
About the Fund
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of each class for the fiscal year
ended December 31, 1995. Your actual expenses may vary.
A. Shareholder Transaction Expenses+
CLASS I CLASS II
Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 4.25% 1.00%++
Deferred Sales Charge+++ None 1.00%
B. Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.56%* 0.56%*
Rule 12b-1 Fees 0.08%** 0.65%**
Other Expenses 0.09% 0.09%
Total Fund Operating Expenses 0.73%* 1.30%*
C. Example
Assume the annual return for each class is 5% and operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class I $50*** $65 $81 $129
Class II $33 $51 $81 $165
For the same Class II investment, you would pay projected expenses of $23 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Deciding Which Class to Buy."
+++A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more if you sell the shares within one year and any Class II purchase
if you sell the shares within 18 months. There is no front-end sales charge if
you invest $1 million or more in Class I shares. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
*Advisers has agreed in advance to limit its management fees and make certain
payments to reduce the Fund's expenses. With this reduction, management fees
were 0.48% and total operating expenses for Class I and Class II were 0.65% and
1.23%.
**These fees may not exceed 0.10% for Class I. The combination of front-end
sales charges and Rule 12b-1 fees could cause long-term shareholders to pay more
than the economic equivalent of the maximum front-end sales charge permitted
under the NASD's rules.
***Assumes a Contingent Deferred Sales Charge will not apply.
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited (except the information for the six months ended June 30, 1996, which is
unaudited) by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering the period May 1, 1991 (effective date of registration) to
December 31, 1991 and each of the most recent four years appears in the
financial statements in the Trust's Annual Report to Shareholders for the fiscal
year ended December 31, 1995. The Annual Report to Shareholders also includes
more information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
CLASS I
For the Six Months
Ended June 30, 1996 For the Year Ended December 31,
------------------------------------------
(unaudited) 1995 1994 1993 1992 1991**
- ---------------------------------------------------------------------------------------------------
Per Share Operating Performance
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $11.41 $10.16 $11.68 $10.80 $10.46 $10.00
---------------------------------------------------------
Net Investment Income .260 .590 .590 .600 .620 .247
Net Realized & Unrealized
Gain (Loss) on Securities (.346) 1.248 (1.525) .880 .369 .433
---------------------------------------------------------
Total From Investment Operations (.086) 1.838 (.935) 1.480 .989 .680
=========================================================
Distributions From Net Investment Income (.264) (.588) (.585) (.600) (.649) (.220)
Net Asset Value at End of Period 11.06 11.41 10.16 11.68 10.80 10.46
---------------------------------------------------------
Total Return+ (0.48)% 18.46% (8.19)% 13.79% 9.49% 6.75%
Ratios/Supplemental Data
Net Assets at End of
Period (in 000's) $253,069 $256,171 $225,061 $263,647 $149,054 $37,904
Ratio of Expenses to
Average Net Assets+++ .71%* .65% .56% .50% .33% .12%*
Ratio of Net Investment Income
to Average Net Assets 5.19%* 5.38% 5.48% 5.28% 5.80% 5.69%*
Portfolio Turnover Rate 8.94% 22.99% 25.66% 5.38% 3.39% 21.12%
CLASS II
For the Six Months For the Period
Ended June 30, Ended December 31,
1996 (unaudited) 1995***
- --------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value at Beginning of Period $11.46 $10.85
----------------------------------
Net Investment Income .235 .357
Net Realized & Unrealized Gain (Loss)
on Securities (.328) .596
----------------------------------
Total From Investment Operations (.093) .953
==================================
Distributions From Net Investment Income (.247) (.343)
Net Asset Value at End of Period 11.12 11.46
----------------------------------
Total Return+ (0.69)% 8.92%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $2,944 $696
Ratio of Expenses to Average
Net Assets+++ 1.25%* 1.23%*,****
Ratio of Net Investment Income
to Average Net Assets 4.52%* 4.74%*,****
Portfolio Turnover Rate 8.94% 22.99%
</TABLE>
*Annualized.
**For the period May 1, 1991 (effective date of registration) to December 31,
1991.
***For the period May 1, 1995 (effective date) to December 31, 1995.
****Ratio has been calculated using daily average net assets during the period.
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the Contingent Deferred Sales Charge, and assumes reinvestment of
dividends and capital gains, if any, at net asset value. Before May 1, 1994,
dividends were reinvested at the maximum Offering Price. Effective May 1, 1994,
with the implementation of the Rule 12b-1 plan for Class I shares, the sales
charge on reinvested dividends was eliminated.
++For the six months ended June 30, 1996.
+++During the periods indicated, Advisers agreed in advance to limit its
management fees and to make payments of other expenses incurred by the Fund. Had
such action not been taken, the ratio of operating expenses to average net
assets would have been as follows:
Year Ended Ratio of Expenses to
December 31 Average Net Assets
- ------------------------------------------------
Class I:
1991** .84%*
1992 .74
1993 .65
1994 .71
1995 .73
1996++ .75*
Class II:
1995*** 1.30*,****
1996++ 1.28*
How Does the Fund Invest Its Assets?
The Fund's Investment Objective
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. Of course, there is no assurance
that the Fund's objective will be achieved.
The Fund will attempt to invest 100%, and, as a matter of fundamental policy,
will invest at least 80%, of its total assets in securities that pay interest
exempt from federal income taxes, including the alternative minimum tax. It is
possible, although not anticipated, that up to 20% of the Fund's total assets
could be in federally taxable obligations.
At least 65% of the Fund's total assets will be invested 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
("New York Municipal Securities"). It is possible, although not anticipated,
that up to 35% of the Fund's total assets may be in municipal securities and
obligations of a state or local government other than New York, and these
securities may or may not pay income exempt from New York State and New York
City personal income taxes, including any alternative minimum tax.
The Fund will also invest at least 65% of its total assets in insured municipal
securities. The Fund may invest up to 35% of its total assets in municipal
securities secured by an escrow or trust account consisting of U.S. government
obligations, without obtaining insurance. At the time insurance is obtained, the
insurer evaluates a security using quality standards that are independently
determined by the insurer. Normally insured municipal securities carry one of
the top three ratings by Standard & Poor's Corporation ("S&P") (AAA, AA and A),
Moody's Investors Service ("Moody's") (Aaa, Aa and A) or Fitch Investors
Service, Inc. ("Fitch") (AAA, AA or A). An insurer may also insure municipal
securities that are unrated or have lower ratings, but that meet its quality
standards based on its own internal research and analysis. (See "Insurance"
below).
Pending investment in longer-term municipal securities, the Fund also may invest
up to 35% of its total assets in short-term, tax-exempt instruments, without
obtaining insurance, if these instruments carry the highest rating by Moody's,
S&P or Fitch. For a description of these ratings, please see "Appendix B -
Description of Municipal Securities Ratings" in the SAI.
Under normal market conditions, the Fund will invest its assets as described
above. For temporary defensive purposes, however, the Fund may invest up to 100%
of its total assets in obligations that pay interest that may be subject to
federal income tax, including the alternative minimum tax. Also for temporary
defensive purposes, the Fund may invest up to 100% of its total assets in (i)
municipal securities and obligations of state and local governments other than
New York, (ii) commercial paper rated at least A-1 by S&P, P-1 by Moody's or F-1
by Fitch or (iii) obligations issued or guaranteed by the full faith and credit
of the U.S. government.
Types of Securities the Fund May Invest In
The term "municipal securities," as used in this prospectus, means obligations
issued by or on behalf of 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 securities are issued to provide funding for
privately operated facilities.
The Fund has no restrictions on the maturities of municipal securities in which
it may invest. Accordingly, the Fund will seek to invest in municipal securities
with maturities that, in Advisers' judgment, will provide a high level of
current income consistent with prudent investing. Advisers will also consider
current market conditions and the cost of obtaining insurance on the securities.
It is possible that, from time to time, 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,
tax-exempt industrial development revenue bonds, transportation bonds, or
pollution control revenue bonds. In these 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.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial and municipal securities
markets, the size of a particular offering, the maturity of the obligation and
the credit rating of the issuer. Generally, municipal securities with longer
maturities produce higher current yields than municipal securities with shorter
maturities. Prices of longer term securities, however, typically fluctuate more
than those of short-term securities due to changes in interest rates, tax laws
and other general market conditions. 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 make
timely payment of principal and interest on its obligations. Although the cost
of insurance to the Fund reduces the Fund's yield, one of the objectives of the
insurance is to obtain a higher yield than would be available if all securities
in the Fund's portfolio were rated triple A or its equivalent without the
benefit of any insurance.
PRIVATE ACTIVITY BONDS. 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 issued
after August 7, 1986, while still tax-exempt, constitutes a preference item for
taxpayers in determining the federal alternative minimum tax under the Code, and
under the income tax provisions of some states. This interest may subject you
to, or increase your liability under, the federal and state alternative minimum
tax. 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 these
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 these
private activity bonds if, in Advisers' opinion, these bonds represent the most
attractive investment opportunity then available to the Fund. As of December 31,
1995, the Fund derived 10.73% of its income from bonds, the interest on which
constitutes a preference item subject to the federal alternative minimum tax for
certain investors.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may buy floating 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. Frequently, VRDNs are
secured by letters of credit or other credit support arrangements. The Fund will
limit its purchase of municipal securities that are floating and variable rate
obligations to those meeting the quality standards set forth in this prospectus.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may buy and sell
municipal securities on a "when-issued" and "delayed delivery" basis. The price
is subject to market fluctuation, and the value at delivery may be more or less
than the purchase price. Although the Fund will generally buy municipal
securities on a when-issued basis with the intention of acquiring the
securities, it may sell the securities before the settlement date if it is
deemed advisable. When the Fund is the buyer, it will maintain, in a segregated
account with its custodian bank, cash or high-grade marketable securities having
an aggregate value equal to the amount of its purchase commitments until payment
is made. To the extent 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.
CALLABLE BONDS. The Fund may buy and hold callable municipal bonds that contain
a provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price. This price typically reflects a
premium over the bonds' original issue price. These bonds generally have call
protection (that is, a period of time when the bonds may not be called) that
usually lasts for 5 to 10 years, after which time these bonds may be called
away. An issuer may generally be expected to call its bonds, or a portion of
them, during periods of 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 these circumstances are reinvested, the result may be a lower
overall yield due to lower current interest rates. If the purchase price of the
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 the bonds were redeemed.
CERTIFICATES OF PARTICIPATION. The Fund may 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. A COP is created
when long-term lease revenue obligations 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 obligations issued to buy 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 that distinguishes COPs from municipal debt is that the lease which is
the subject of the transaction contains a "nonappropriation" clause. A
nonappropriation clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate the lease
annually without penalty if the municipality's appropriating body does not
allocate the necessary funds. Local administrations, when faced with
increasingly tight budgets, 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. The private sector value of the property may be more or 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. While there is no limit as to the amount of assets that the Fund may
invest in COPs, as of December 31, 1995, less than 1% of the Fund's net assets
was invested in COPs and other municipal leases.
Other Investment Policies of the Fund
BORROWING. The Fund may borrow from banks and pledge up to 5% of its total
assets for temporary or emergency purposes. Although the Fund does not currently
intend to do so, consistent with procedures approved by the Board, the Fund may
lend its portfolio securities to qualified securities dealers or other
institutional investors, if the loans do not exceed 10% of the value of the
Fund's total assets at the time of the most recent loan.
ILLIQUID INVESTMENTS. The Fund may not invest more than 10% of its net assets,
at the time of purchase, in illiquid securities. Illiquid securities are
generally securities that cannot be sold within seven days in the normal course
of business at approximately the amount at which the Fund has valued them.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How Do the Funds Invest Their Assets?" and "Investment Restrictions" in the
SAI.
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" or a "Secondary Insurance Policy" issued by a qualified municipal bond
insurer.
These policies are intended to insure that the scheduled amount of principal and
interest on each municipal security is paid when due. The insurance of principal
refers to the face or par value of each security and is not affected by the
price paid by the Fund for the security or its market value. Each insured
municipal security is secured by an insurance policy from any one of several
qualified insurance companies that allows Advisers to diversify among credit
enhancements. The Fund will acquire municipal securities secured by an insurance
policy only where the claims paying ability of the insurer is rated triple A or
the equivalent by S&P, Moody's or Fitch.
NEW ISSUE INSURANCE POLICY. New Issue Insurance Policies, if any, are obtained
by the issuers of the municipal securities and all premiums for these securities
are paid in advance by the issuers. These 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
affect the resale value of securities in the Fund's portfolio. While New Issue
Insurance Policies may be considered to represent an element of the market value
of insured municipal securities, the exact effect, if any, of this insurance
cannot be estimated. As stated earlier, the Fund will acquire securities subject
to New Issue Insurance Policies only where the claims paying ability of the
insurer is rated triple A or the 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
the selection of securities by Advisers. A contract to buy an insured municipal
security is only entered into if there is 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 obtained by the Fund
from a qualified municipal bond insurer is 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 before maturity, the Portfolio Insurance Policy terminates as to that
municipal security.
The Portfolio Insurance Policy obtained by the Fund may be canceled for failure
to pay the premium. Nonpayment of premiums on the policy will also permit the
insurer to take action against the Fund to recover premium payments due. The
insurer, however, 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.
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. In the event that a
portfolio holding that 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 expense item included
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. Because premiums are
paid from the Fund's assets, they reduce the current yield on the portfolio.
When the Fund buys a Secondary Insurance Policy (discussed 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.
SECONDARY INSURANCE POLICY. The Fund may at any time buy 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 ceases
when a Secondary Insurance Policy is purchased on the security.
By buying a Secondary Insurance Policy and paying the premium, the Fund obtains
similar insurance against nonpayment of scheduled principal and interest for the
remaining term of the security. This insurance coverage is noncancellable and
continues in force as long as the securities so insured are outstanding. One of
the purposes of acquiring such a policy is to enable the Fund to sell the
portfolio security to a third party as a triple A rated or equivalent insured
security at a market price higher than what otherwise might be obtainable if the
security was sold without the insurance coverage. (This rating is not automatic,
however, and must specifically be requested from Moody's, S&P or Fitch for each
security.) A Secondary Insurance policy is likely to be purchased if, in the
opinion of Advisers, the market value or net proceeds of a sale by the Fund may
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
triple A rated or equivalent security over its market value without such rating,
including the single premium cost, inures 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 buy 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 Advisers believes such insurance
would best serve the Fund's interests in meeting its objective and policies.
Since under the original agreement to obtain a temporary insurance policy the
Fund has the right to buy a permanent Secondary Insurance Policy even if the
security is currently in default as to any payments by the issuer, the Fund has
the opportunity to sell the security rather than hold it in its portfolio in
order to continue, in force, the applicable Portfolio Insurance Policy, as
discussed below.
Because coverage under the Portfolio Insurance Policy ends upon sale of a
security from the Fund's portfolio, this insurance does not affect 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 securities and
the market value of similar securities which are not in default. (See "How Are
the Funds' Shares Valued?" in the SAI). While a defaulted municipal security is
held in the Fund's portfolio, the Fund continues to pay the insurance premium on
it 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.
MUNICIPAL SECURITIES BACKED BY ESCROW OR TRUST ACCOUNTS. 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. The escrow or trust account must contain sufficient securities backed
by the U.S. government's full faith and credit pledge to secure the payment of
principal and interest on these securities.
MUNICIPAL BOND INSURERS. 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. Most regulators, however, 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 Advisers makes any representations as to the ability
of any insurance company to meet its obligation to the Fund if called upon to do
so.
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. The SAI contains more information on municipal bond
insurers.
What Are the Fund's Potential Risks?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the bond market as a whole.
CREDIT AND MARKET RISK. Credit risk is a function of the ability of an issuer of
a municipal security to make 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 above.
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. 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.
INTEREST RATE RISK. Changes in interest rates will affect the value of the
Fund's portfolio and its share price. Rising interest rates, which often occur
during times of inflation or a growing economy, are likely to have a negative
effect on the value of the Fund's shares. Interest rates have increased and
decreased in the past. These changes are unpredictable and may happen again in
the future.
NON-DIVERSIFICATION RISK. 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. To the extent the Fund is not fully diversified under
the 1940 Act, it may be more susceptible to adverse economic, political or
regulatory developments affecting a single issuer than would be the case if the
Fund were more broadly diversified. (See the SAI for the diversification
requirements the Fund intends to meet in order to qualify as a regulated
investment company under the Code.)
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 that 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. It 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 New York issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations. You 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 these 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 filing of this prospectus with the SEC, no issuers of New York
Municipal Securities owned by the Fund were, to the knowledge of Advisers, in
default with respect to the payment of their debt obligations. The occurrence of
any 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.
You 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. Advisers believes, however, that
by maintaining the Fund's investment portfolio in New York Municipal Securities
that are covered by insurance policies providing for the scheduled payment of
principal and interest in the event of non-payment by the issuer, 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."
Who Manages the Fund?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist between the
two classes of shares. While none is expected, the Board will act appropriately
to resolve any material conflict that may arise.
INVESTMENT MANAGER. Advisers is the investment manager of the Fund and other
funds with aggregate assets of over $81 billion, including $43 billion in the
municipal securities market. It is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources.
The team responsible for the day-to-day management of the Fund's portfolio is:
Donald Duerson and Andrew Jennings, Sr. since inception and Thomas Kenny since
1994.
Donald Duerson
Vice President of Advisers
Mr. Duerson has a Bachelor of Science degree in Business and Public
Administration from the University of Arizona, and has experience in the
securities industry dating back to 1956. He is a member of industry-related
committees and associations. He joined Advisers in 1986.
Andrew Jennings, Sr.
Vice President of Advisers
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 of Advisers
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.
SERVICES PROVIDED BY ADVISERS. Advisers manages the Fund's assets and makes its
investment decisions. Advisers also provides certain administrative services and
facilities for the Fund and performs similar services for other funds. Please
see "Investment Advisory and Other Services" and "Miscellaneous Information" in
the SAI for information on securities transactions and a summary of the Fund's
Code of Ethics.
MANAGEMENT FEES. During the fiscal year ended December 31, 1995, management
fees, before any advance waiver, totaled 0.56% of the average net assets of the
Fund. Total operating expenses for Class I and Class II totaled 0.73% and 1.30%.
Under an agreement by Advisers to limit its fees, the Fund paid management fees
totaling 0.48% and operating expenses totaling 0.65% and 1.23% for Class I and
Class II. Advisers may end this arrangement at any time upon notice to the
Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How Do the Funds
Purchase Securities For Their Portfolios?" in the SAI for more information.
The Rule 12b-1 Plans
Each class has a distribution plan or "Rule 12b-1 Plan" under which it may pay
or reimburse Distributors or others for activities primarily intended to sell
shares of the class. These expenses may include, among others, distribution or
service fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the Class I plan may not exceed 0.10% per year of
Class I's average daily net assets. All distribution expenses over this amount
will be borne by those who have incurred them.
Under the Class II plan, the Fund may pay Distributors up to 0.50% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the Class II
purchase.
The Fund may also pay a servicing fee of up to 0.15% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Trust's Underwriter" in the SAI.
How Does the Fund Measure Performance?
From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Each class may also advertise its taxable-equivalent
yield and distribution rate. Performance figures are usually calculated using
the maximum sales charge, but certain figures may not include the sales charge.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund. The taxable-equivalent yield and distribution rate show the before-tax
yield or distribution rate that would have to be earned from a taxable
investment to equal the yield or distribution rate of the class, assuming one or
more tax rates.
The investment results of each class will vary. Performance figures are always
based on past performance and do not indicate future results. For a more
detailed description of how the Fund calculates its performance figures, please
see the discussion of performance under "General Information" in the SAI.
How Is the Trust Organized?
The Fund is a non-diversified series of Franklin New York Tax-Free Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on July, 1986 and is
registered with the SEC under the 1940 Act. The Fund began offering two classes
of shares on May 1, 1995: Franklin New York Insured Tax-Free Income Fund - Class
I and Franklin New York Insured Tax-Free Income Fund - Class II. All shares
purchased before that time are considered Class I shares. Additional classes of
shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as the other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters (1) affecting only that class, (2) expressly
required to be voted on separately by state business trust law, or (3) required
to be voted on separately by the 1940 Act. Shares of each class of a series have
the same voting and other rights and preferences as the other classes and series
of the Trust for matters that affect the Trust as a whole. In the future,
additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
electing or removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, the Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to you. These
exempt-interest dividends are derived from interest income exempt from regular
federal income tax and are not subject to regular federal income tax for you. 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
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 you have elected to receive them in cash or in additional shares.
From time to time, the Fund may buy 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 you will be subject to regular income tax in your hands. In any fiscal year,
the Fund may elect not to distribute to you 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.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January will be treated, for tax purposes, as if received by
you on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
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, 1995, qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions, including the portion of the dividends on an average basis
that constitutes taxable income or interest income that is a tax preference item
under the alternative minimum tax. If you have not held shares of the Fund for a
full calendar year, you 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 your investment
in the Fund.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in your hands, 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. You are required to disclose the receipt
of tax-exempt interest on your federal income tax returns.
Interest on indebtedness incurred (directly or indirectly) by you to buy 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. You should consult your tax advisor 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 you.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisor regarding the applicability of U.S.
withholding or other taxes on distributions received by you from the Fund and
the application of foreign tax laws to these distributions.
About Your Account
How Do I Buy Shares?
Opening Your Account
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check. Please indicate which class of shares you want to buy. If you do not
specify a class, your purchase will be automatically invested in Class I shares.
MINIMUM
INVESTMENTS*
- ----------------------------------------
To Open Your Account $100
To Add to Your Account $ 25
*We may refuse any order to buy shares. Currently, the Fund does not allow
investments by Market Timers.
Deciding Which Class to Buy
You should consider a number of factors when deciding which class of shares to
buy. If you plan to buy $1 million or more in a single payment or you qualify to
buy Class I shares without a sales charge, you may not buy Class II shares.
Generally, you should consider buying Class I shares if:
o you expect to invest in the Fund over the long term;
o you qualify to buy Class I shares at a reduced sales charge; or
o you plan to buy $1 million or more over time.
You should consider Class II shares if:
o you expect to invest less than $100,000 in the Franklin Templeton Funds;
and
o you plan to sell a substantial number of your shares within approximately
six years or less of your investment.
Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees. These may accumulate over time to outweigh
the lower Class II front-end sales charge and result in lower income dividends
for Class II shareholders. If you qualify to buy Class I shares at a reduced
sales charge based upon the size of your purchase or through our Letter of
Intent or cumulative quantity discount programs, but plan to hold your shares
less than approximately six years, you should evaluate whether it is more
economical for you to buy Class I or Class II shares.
For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of
$1 million or more is therefore automatically invested in Class I shares. You
may accumulate more than $1 million in Class II shares through purchases over
time, but if you plan to do this you should determine whether it would be more
beneficial for you to buy Class I shares through a Letter of Intent.
Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.
Purchase Price of Fund Shares
For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
------------------------
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE*
- --------------------------------------------------------------------------------
CLASS I
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than $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 None
CLASS II
Under $1,000,000** 1.00% 1.01% 1.00%
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. The Fund continuously offers its
shares through Securities Dealers. Securities Dealers may at times receive the
entire sales charge. A Securities Dealer who receives 90% or more of the sales
commission may be deemed an underwriter under the Securities Act of 1933, as
amended.
**A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Deciding Which
Class to Buy."
Sales Charge Reductions and Waivers
- - If you qualify to buy shares under one of the sales charge reduction or
waiver categories described below, please include a written statement with each
purchase order explaining which privilege applies. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your Class I and Class II
shares in the Franklin Templeton Funds, as well as those of your spouse,
children under the age of 21 and grandchildren under the age of 21. If you are
the sole owner of a company, you may also add any company accounts, including
retirement plan accounts.
LETTER OF INTENT - CLASS I ONLY. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.
By completing the Letter of Intent section of the shareholder application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? Letter of Intent" in the SAI or call
Shareholder Services.
GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as a
whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
SALES CHARGE WAIVERS. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1 or 2
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.
The Fund's sales charges will not apply if you are buying Class I shares with
money from the following sources or Class II shares with money from the sources
in waiver categories 1 or 3:
1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.
2. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, Templeton Variable Annuity Fund, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.
3. Redemptions from any Franklin Templeton Fund if you:
o Originally paid a sales charge on the shares,
o Reinvest the money within 365 days of the redemption date, and
o Reinvest the money in the same class of shares.
An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares reinvested were subject
to a Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier redemption,
but a new Contingency Period will begin.
If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within 365
days from the date the CD matures, including any rollover.
4. Redemptions from other mutual funds
If you sold shares of a fund that is not a Franklin Templeton Fund within
the past 60 days, you may invest the proceeds without any sales charge if (a)
the investment objectives were similar to the Fund's, and (b) your shares in
that fund were subject to any front-end or contingent deferred sales charges at
the time of purchase. You must provide a copy of the statement showing your
redemption.
The Fund's sales charges will also not apply to Class I purchases by:
5. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal funds
received by the close of business on the next business day following the order.
6. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the Fund is permissible
and suitable for you and the effect, if any, of payments by the Fund on
arbitrage rebate calculations.
7. Broker-dealers and qualified registered investment advisors who have entered
into a supplemental agreement with Distributors for their clients who are
participating in comprehensive fee programs, sometimes known as wrap fee
programs
8. Registered Securities Dealers and their affiliates, for their investment
accounts only
9. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
10. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
11. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
12. Accounts managed by the Franklin Templeton Group
13. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
Other Payments to Securities Dealers
The payments below apply to Securities Dealers who initiate and are responsible
for Class II purchases and certain Class I purchases made without a sales
charge. A Securities Dealer may only receive one of the following payments for
each qualifying purchase. The payments described below are paid by Distributors
or one of its affiliates, at its own expense, and not by the Fund or its
shareholders.
1. Securities Dealers may receive up to 1% of the purchase price for Class II
purchases. During the first year after the purchase, Distributors may keep a
part of the Rule 12b-1 fees associated with that purchase.
2. Securities Dealers will receive up to 0.75% of the purchase price for Class I
purchases of $1 million or more as follows: 0.75% on sales of $1 million to $2
million, plus 0.60% on sales over $2 million to $3 million, plus 0.50% on sales
over $3 million to $50 million, plus 0.25% on sales of $50 million to $100
million, plus 0.15% on sales over $100 million. These breakpoints are reset
every 12 months for purposes of additional purchases.
3. Securities Dealers may receive up to 0.25% of the purchase price for Class I
purchases made under waiver categories 5 and 6 above.
Securities Dealers may receive additional compensation from Distributors or an
affiliated company in connection with selling shares of the Franklin Templeton
Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales or training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to Securities Dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities Dealers may not use sales of the Fund's shares to qualify for
this compensation if prohibited by the laws of any state or self-regulatory
agency, such as the NASD.
General
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as Securities Dealers pursuant to state law.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Class II shares.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you're exchanging
By Phone Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by phone
to apply to your account, please let us know.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
If you request the exchange of the total value of your account, accrued but
unpaid income dividends and capital gain distributions will be reinvested in the
Fund at the Net Asset Value on the date of the exchange, and then the entire
share balance will be exchanged into the new fund.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
tax-exempt municipal securities, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the short-term tax-exempt
municipal securities and invested in portfolio securities in as orderly a manner
as is possible when attractive investment opportunities arise.
Will Sales Charges Apply to My Exchange?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.
We will not impose a Contingent Deferred Sales Charge when you exchange shares.
Any shares subject to a Contingent Deferred Sales Charge at the time of
exchange, however, will remain so in the new fund. See the discussion on
Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"
CONTINGENT DEFERRED SALES CHARGE - CLASS I. For accounts with Class I shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund in the order they were purchased. If you exchange Class I shares into one
of our money funds, the time your shares are held in that fund will not count
towards the completion of any Contingency Period.
CONTINGENT DEFERRED SALES CHARGE - CLASS II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
CDSC, such as shares from the reinvestment of dividends and capital gains ("free
shares"), $2,000 in shares that are no longer subject to a CDSC because you have
held them for longer than 18 months ("matured shares"), and $3,000 in shares
that are still subject to a CDSC ("CDSC liable shares"). If you exchange $3,000
into a new fund, $500 will be exchanged from free shares, $1,000 from matured
shares, and $1,500 from CDSC liable shares.
Likewise, CDSC liable shares purchased at different times will be exchanged into
a new fund proportionately. For example, assume you purchased $1,000 in shares 3
months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new
fund, $500 will be exchanged from shares purchased at each of these three
different times.
While Class II shares are exchanged proportionately, they are redeemed in the
order purchased. In some cases, this means exchanged shares may be CDSC liable
even though they would not be subject to a Contingent Deferred Sales Charge if
they were sold. We believe the proportional method of exchanging Class II shares
more closely reflects the expectations of Class II shareholders if shares are
sold during the Contingency Period. The tax consequences of a sale or exchange
are determined by the Code and not by the method used by the Fund to transfer
shares.
If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class.
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. PLEASE
NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR
ACCOUNT(S). Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Currently, the Fund does not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
How Do I Sell Shares?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under court
jurisdiction may have additional requirements.
- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Phone Call Shareholder Services
(Only available if Telephone requests will be accepted:
you have completed
and sent to us the o If the request is $50,000 or less. Institutional
telephone redemption accounts may exceed $50,000 by completing a separate
agreement included agreement. Call Institutional Services to receive a
with this prospectus) copy.
o If there are no share certificates issued for the
shares you want to sell or you have already returned
them to the Fund
o Unless the address on your account was changed by
phone within the last 30 days
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
A Contingent Deferred Sales Charge may apply to Class I purchases of $1 million
or more if you sell all or a portion of the shares within one year and any Class
II purchase if you sell the shares within 18 months. The charge is 1% of the
value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. Distributors keeps the charge to recover payments made to
Securities Dealers.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Exchanges
o Account fees
o Sales of shares purchased pursuant to a sales charge waiver
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% a month of an account's Net Asset Value (3%
quarterly, 6% semiannually or 12% annually). For example, if you maintain
an annual balance of $1 million in Class I shares, you can withdraw up to
$120,000 annually through a systematic withdrawal plan free of charge.
Likewise, if you maintain an annual balance of $10,000 in Class II shares,
$1,200 may be withdrawn annually free of charge.
What Distributions Might I Receive From the Fund?
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally 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 capital loss carry forward or post October
loss deferral) 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 that 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 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.
The Fund declares dividends from its net investment income daily and pays them
monthly on or about the 20th day of the month. The daily allocation of net
investment income begins on the day after we receive your money or settlement of
a wire order trade and continues to accrue through the day we receive your
request to sell your shares or the settlement of a wire order trade.
Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of each class.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. The Fund does not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.
Distribution Options
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. If you own Class II shares, you may also reinvest
your distributions in Class I shares of the Fund. This is a convenient way to
accumulate additional shares and maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge). If
you own Class II shares, you may also direct your distributions to buy Class I
shares of another Franklin Templeton Fund. Many shareholders find this a
convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. If you send
the money to a checking account, please see "Electronic Fund Transfers" under
"Services to Help You Manage Your Account."
To select one of these options, please complete sections 6 and 7 of the
shareholder application included with this prospectus or tell your investment
representative which option you prefer. If you do not select an option, we will
automatically reinvest dividend and capital gain distributions in the same class
of the Fund. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days prior to the reinvestment
date for us to process the new option.
Transaction Procedures and Special Requirements
How and When Shares Are Priced
The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share of each class as of the scheduled close of the
Exchange, generally 1:00 p.m. Pacific time. You can find the prior day's closing
Net Asset Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are the Funds' Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy shares at the Offering Price of the class you wish to purchase, unless
you qualify to buy shares at a reduced sales charge or with no sales charge. The
Offering Price of each class is based on the Net Asset Value per share of the
class and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You sell shares at Net Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund.
Proper Form
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
Telephone Transactions
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal or other
identifying information, and will also record calls. For your protection, we may
delay a transaction or not implement one if we are not reasonably satisfied that
telephone instructions are genuine. If this occurs, we will not be liable for
any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Account Registrations and Required Documents
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
Corporation Corporate Resolution
- --------------------------------------------------------------------------------
Partnership 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
Tax Identification Number
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
Services to Help You Manage Your Account
Automatic Investment Plan
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. The
market value of the Fund's shares may fluctuate and a systematic investment plan
such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.
Automatic Payroll Deduction
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
Systematic Withdrawal Plan
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers" below. There are no
service charges for establishing or maintaining a systematic withdrawal plan.
Once your plan is established, any distributions paid by the Fund will be
automatically reinvested in your account. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the first business day of the month in which a payment is scheduled. You will
generally receive your payment by the fifth business day of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
Because of the front-end sales charge, you may not want to set up a systematic
withdrawal plan if you plan to buy shares on a regular basis. Shares sold under
the plan may also be subject to a Contingent Deferred Sales Charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
Electronic Fund Transfers
You may choose to have dividend and capital gain distributions from the Fund or
payments under a systematic withdrawal plan sent directly to a checking account.
If the checking account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. We will send any payments made during that time to the
address of record on your account.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips.
You will need the code number for each class to use TeleFACTS. The code numbers
for Class I and Class II are 181 and 281.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. Please
verify the accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household
and send only one copy of a report. Call Fund Information if you would like
an additional free copy of the Fund's financial reports or an interim
quarterly report.
Institutional Accounts
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.
Availability of These Services
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you.
Please contact your investment representative.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
Glossary
Useful Terms and Definitions
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS I AND CLASS II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.
EXCHANGE - New York Stock Exchange
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.25% for Class I and 1% for Class II.
QUALIFIED RETIREMENT PLAN(S) - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
REIT - Real Estate Investment Trust
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or another wholly owned
subsidiary of Resources.
PROSPECTUS & APPLICATION
FRANKLIN NEW YORK
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
INVESTMENT STRATEGY
TAX-FREE INCOME
MAY 1, 1996
AS AMENDED SEPTEMBER 1, 1996
FRANKLIN NEW YORK TAX-FREE TRUST
This prospectus describes the Franklin New York Intermediate-Term Tax-Free
Income Fund (the "Fund"). It contains information you should know before
investing in the Fund. Please keep it for future reference.
The Fund's SAI, dated May 1, 1996, as may be amended from time to time, includes
more information about the Fund's procedures and policies. It has been filed
with the SEC and is incorporated by reference into this prospectus. For a free
copy or a larger print version of this prospectus, call 1-800/DIAL BEN or write
the Fund at the address shown.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
Franklin New York Intermediate-
Term Tax-Free Income Fund
FRANKLIN
NEW YORK
INTERMEDIATE-
TERM TAX-FREE
INCOME FUND
May 1, 1996
as amended September 1, 1996
When reading this prospectus, you will see terms that are capitalized. This
means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary
Financial Highlights
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Who Manages the Fund?
How Does the Fund Measure Performance?
How Is the Trust Organized?
How Taxation Affects You and the Fund
ABOUT YOUR ACCOUNT
How Do I Buy Shares?
May I Exchange Shares for Shares of Another Fund?
How Do I Sell Shares?
What Distributions Might I Receive From the Fund?
Transaction Procedures and Special Requirements
Services to Help You Manage Your Account
GLOSSARY
Useful Terms and Definitions
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
Franklin New York Intermediate-
Term Tax-Free Income Fund
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
December 31, 1995. Your actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 2.25%
Deferred Sales Charge None++
B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.63%*
Rule 12b-1 Fees 0.09%**
Other Expenses 0.11%
Total Fund Operating Expenses 0.83%*
C.EXAMPLE
Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------
$31*** $48 $68 $123
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service. ++There is no
front-end sales charge if you invest $1 million or more. A Contingent Deferred
Sales Charge of 1% may apply, however, if you sell the shares within one year.
See "How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
*Advisers has agreed in advance to limit its management fees and make certain
payments to reduce the Fund's expenses. With this reduction, management fees and
total Fund operating expenses were 0.13% and 0.33%. **These fees may not exceed
0.10%. The combination of front-end sales charges and Rule 12b-1 fees could
cause long-term shareholders to pay more than the economic equivalent of the
maximum front-end sales charge permitted under the NASD's rules. ***Assumes a
Contingent Deferred Sales Charge will not apply.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited (except for the information for the six months ended June 30, 1996,
which is unaudited) by Coopers & Lybrand L.L.P., the Fund's independent
auditors. Their audit report covering the period ended December 31, 1992 and for
each of the most recent three years appears in the financial statements in the
Trust's Annual Report to Shareholders for the fiscal year ended December 31,
1995. The Annual Report to Shareholders also includes more information about the
Fund's performance. For a free copy, please call Fund Information.
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
June 30, 1996 December 31
(Unaudited) 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value at Beginning of Period $10.40 $9.60 $10.68 $10.21 $10.00
Net Investment Income .280 .550 .550 .480 .090
Net Realized & Unrealized Gain
(Loss) on Securities (.304) .795 (1.104) .536 .135
Total From Investment Operations (.024) 1.345 (.554) 1.016 .225
Distributions From Net Investment Income (.276) (.545) (.526) (.546) (.015)
Net Asset Value at End of Period $10.10 $10.40 $9.60 $10.68 $10.21
Total Return+ (.22)% 14.31% (5.42)% 10.18% 2.25%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $43,306 $43,229 $35,166 $31,162 $3,459
Ratio of Expenses to Average
Net Assets++ .36%** .33% .05% -% -%
Ratio of Net Investment Income to
Average Net Assets 5.46%** 5.51% 5.57% 4.96% 4.41%**
Portfolio Turnover Rate 20.00%** 24.68% 188.38% 30.95% 20.80%
</TABLE>
*For the period September 21, 1992 (effective date of registration) to December
31, 1992.
**Annualized.
***For the six months ended June 30, 1996.
+Total return measures the change in value of an investment over the period
indicated. It does not include the maximum front-end sales charge or the
Deferred Contingent Sales Charge, and assumes reinvestment of dividends and
capital gains, if any, at Net Asset Value.
++During the periods indicated, Advisers agreed in advance to waive a portion of
its management fees and to make payments to reduce expenses of the Fund. Had
such action not been taken, the ratio of expenses to average net assets would
have been as follows:
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
1992* 1.76%**
1993 0.73%
1994 0.80%
1995 0.83%
1996*** 0.80%**
HOW DOES THE FUND INVEST ITS ASSETS?
The Fund's Investment Objective
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 and
the preservation of shareholders' capital. The Fund seeks to achieve 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.
The objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's objective
will be achieved.
Types of Securities the Fund May Invest In
The Fund attempts to invest 100% and, as a matter of fundamental policy, will
invest at least 80% of its total assets in securities that pay interest exempt
from federal income taxes, including the alternative minimum tax. It is
possible, although not anticipated, that up to 20% of the Fund's total assets
could be in federally taxable obligations.
At least 65% of the Fund's total assets will be invested 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
("New York Municipal Securities"). It is possible, although not anticipated,
that up to 35% of the Fund's total assets may be in municipal securities of a
state or local government other than New York and these securities may or may
not pay income exempt from New York State and New York City personal income
taxes, including any alternative minimum tax.
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 unrated securities of comparable quality. 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, the change will be considered by the Fund in its evaluation of the
overall investment merits of that security but will not necessarily result in an
automatic sale of the security. Lists of these ratings are shown in "Appendix B
Description of Municipal Securities Ratings" in the SAI.
Under normal market conditions, the Fund will invest its assets as described
above. For temporary defensive purposes, however, the Fund may invest up to 100%
of its total assets in securities whose interest may be subject to federal
income tax, including the alternative minimum tax. Also for temporary defensive
purposes, the Fund may invest up to 100% of its total assets in (i) municipal
securities and obligations of state and local governments other than New York;
(ii) commercial paper rated at least A-1 by S&P, P-1 by Moody's or F-1 by Fitch;
or (iii) obligations issued or guaranteed by the full faith and credit of the
U.S. government.
MUNICIPAL SECURITIES. The term "municipal securities," as used in this
prospectus, means obligations issued by or on behalf of 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. More 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,
tax-exempt industrial development revenue bonds, transportation bonds, or
pollution control revenue bonds. In these 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 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
with longer maturities produce higher current yields than municipal securities
with shorter maturities. Prices of longer term securities, however, typically
fluctuate more than those of short term securities due to changes in interest
rates, tax laws and other general market conditions. 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.
PRIVATE ACTIVITY BONDS. 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" issued
after August 7, 1986, while still tax-exempt, constitutes a preference item for
taxpayers in determining the federal alternative minimum tax under the Code, and
under the income tax provisions of some states. This interest may subject you
to, or increase your liability under, the federal and state alternative minimum
tax. 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 these
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 these
private activity bonds if, in Advisers' opinion, the bonds represent the most
attractive investment opportunity then available to the Fund. As of December 31,
1995, the Fund derived 4.45% of its income from bonds, the interest on which
constitutes a preference item subject to the federal alternative minimum tax for
certain investors.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may buy floating 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 the obligation. Frequently, VRDNs are
secured by letters of credit or other credit support arrangements. The Fund will
limit its purchase of municipal securities that are floating and variable rate
obligations to those meeting the quality standards set forth in this prospectus.
CERTIFICATES OF PARTICIPATION. 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. A COP is 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 buy 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 that distinguishes COPs from municipal debt is that the lease which is
the subject of the transaction contains a "nonappropriation" clause. A
nonappropriation clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate the lease
annually without penalty if the municipality's appropriating body does not
allocate the necessary funds. Local administrations, when faced with
increasingly tight budgets, 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. The private sector value of the property may be more or 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 Advisers in assessing the 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 reviews the COPs held in the Fund's portfolio to
assure that they constitute liquid investments based on various factors reviewed
by Advisers and monitored by the Board. These factors include (a) the credit
quality of the 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, 1995, the Fund
held 24.07% of its net assets in COPs or other municipal leases.
CALLABLE BONDS. The Fund may buy and hold callable municipal bonds that contain
a provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price. This price typically reflects a
premium over the bonds' original issue price. These bonds generally have call
protection (that is, a period of time when the bonds may not be called) that
usually lasts for 5 to 10 years, after which time these 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 these circumstances are reinvested, the result may be a
lower overall yield due to lower current interest rates. If the purchase price
of the 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 the bonds were redeemed. Notwithstanding
the call feature, the 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.
Other Investment Policies of the Fund
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may buy and sell
municipal securities on a "when-issued" and "delayed delivery" basis. The price
is subject to market fluctuation, and the value at delivery may be more or less
than the purchase price. Although the Fund will generally buy municipal
securities on a when-issued basis with the intention of acquiring the
securities, it may sell the securities before the settlement date if it is
deemed advisable. When the Fund is the buyer in the transaction, it will
maintain, in a segregated account with its custodian bank, cash or high-grade
marketable securities having an aggregate value equal to the amount of its
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.
BORROWING. The Fund may borrow from banks and pledge up to 5% of its total
assets for temporary or emergency purposes. Although the Fund does not currently
intend to do so, the Fund may lend its portfolio securities to qualified
Securities Dealers or other institutional investors, provided that the loans do
not exceed 10% of the value of the Fund's total assets at the time of the most
recent loan.
ILLIQUID INVESTMENTS. The Fund may not invest more than 10% of its net assets,
at the time of purchase, in illiquid securities. Illiquid securities are
generally securities that cannot be sold within seven days in the normal course
of business at approximately the amount at which the Fund has valued them.
PORTFOLIO TURNOVER. The Fund's portfolio turnover rate for the fiscal years
ended December 31, 1994 and 1995 was 188.38% and 24.68%, respectively. 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 may increase the Fund's transaction costs.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How Do the Funds Invest Their Assets?" and "Investment Restrictions" in the
SAI.
What Are the Fund's Potential Risks?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the bond market as a whole.
CREDIT AND MARKET RISK. Credit risk is a function of the ability of an issuer of
a municipal security to make 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. INTEREST RATE RISK.
Changes in interest rates will affect the value of the Fund's portfolio and its
share price. Rising interest rates, which often occur during times of inflation
or a growing economy, are likely to have a negative effect on the value of the
Fund's shares. Interest rates have increased and decreased in the past. These
changes are unpredictable and may happen again in the future.
NON-DIVERSIFICATION RISK. 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. Please see the SAI for the diversification requirements the Fund
intends to meet in order to qualify as a regulated investment company under the
Code.
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 buy. The following information is based
primarily on 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. The information 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. You
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 owned by the Fund were, to the knowledge of Advisers,
in default with respect to the payment of their debt obligations. The occurrence
of a 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.
You 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. Advisers 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 of risks under "Appendix A - Risk Factors
Affecting New York Municipal Securities."
Who Manages the Fund?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
INVESTMENT MANAGER. Advisers is the investment manager of the Fund and other
funds with aggregate assets of over $81 billion, including $43 billion in the
municipal securities market. It is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: Mr. Kenny since 1994 and Mr. Pinkham and Ms. Wong since
1992.
Thomas Kenny
Senior Vice President of Advisers
Mr. Kenny is the Director of Franklin's Municipal Bond Department. He holds a
Master of Science degree in finance from Golden Gate University and a Bachelor
of Arts degree in business and economics from the University of California at
Santa Barbara. Mr. Kenny joined Franklin in 1986. He is a member of several
municipal securities industry-related committees and associations.
John B. Pinkham
Vice President of Advisers
Mr. Pinkham has a Bachelor of Science degree in business from Columbia
University. He has been in the securities industry since 1956 and with Advisers
since 1985. He is a member of the Financial Analysts Federation.
Stella Wong
Portfolio Manager of Advisers
Ms. Wong holds a Master's degree in Financial Planning from Golden Gate
University and a Bachelor of Science degree in business administration from San
Francisco State University. She joined Advisers in 1986. She is a member of
several securities industry-related committees and associations.
SERVICES PROVIDED BY ADVISERS. Advisers manages the Fund's assets and makes its
investment decisions. Advisers also provides certain administrative services and
facilities for the Fund and performs similar services for other funds. Please
see "Investment Advisory and Other Services" and "General Information" in the
SAI for information on securities transactions and a summary of the Fund's Code
of Ethics.
MANAGEMENT FEES. During the fiscal year ended December 31, 1995, management fees
and total operating expenses, before any advance waiver, totaled 0.63% and 0.83%
of the average net assets of the Fund. Under an agreement by Advisers to limit
its fees, the Fund paid management fees and total operating expenses totaling
0.13% and 0.33%. Advisers may end this arrangement at any time upon notice to
the Board.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How Do the Funds
Purchase Securities For Their Portfolios?" in the SAI for more information.
The Fund's Rule 12b-1 Plan
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for activities primarily intended to sell
shares of the Fund. These expenses may include, among others, distribution or
service fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.10% per year of the Fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. For more information, please see "The
Trust's Underwriter" in the SAI.
How Does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are total return, current yield and current distribution
rate. The Fund may also advertise its taxable-equivalent yield and distribution
rate. Performance figures are usually calculated using the maximum sales charge,
but certain figures may not include the sales charge.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield shows the
income per share earned by the Fund. The current distribution rate shows the
dividends or distributions paid to shareholders by the Fund. This rate is
usually computed by annualizing the dividends paid per share during a certain
period and dividing that amount by the current Offering Price. Unlike current
yield, the current distribution rate may include income distributions from
sources other than dividends and interest received by the Fund. The
taxable-equivalent yield and distribution rate show the before-tax yield or
distribution rate that would have to be earned from a taxable investment to
equal the Fund's yield or distribution rate, assuming one or more tax rates.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see
"General Information" in the SAI.
How Is the Trust Organized?
The Fund is a non-diversified series of Franklin New York Tax-Free Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust in July 1986, and is
registered with the SEC under the 1940 Act. Shares of each series of the Trust
have equal and exclusive rights to dividends and distributions declared by that
series and the net assets of the series in the event of liquidation or
dissolution. Shares of the Fund are considered Class I shares for redemption,
exchange and other purposes. In the future, additional series and classes of
shares may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
electing or removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
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 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 you.
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 you have elected to receive them in cash or in additional shares.
From time to time, the Fund may buy 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 you will be subject to regular income tax in your hands. In any fiscal year,
the Fund may elect not to distribute to you 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 you
until the following January will be treated, for tax purposes, as if received by
you 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 you have 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 you may
realize a gain or loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
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, 1995 qualified for this deduction and it is not anticipated that
any of the current year's dividends will so qualify.
The Fund will inform you of the source of its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions, 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. If you have not held shares of the Fund
for a full calendar year, you 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 your
investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in your hands, 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. You are required to disclose the receipt
of tax-exempt interest on your federal income tax returns.
Interest on indebtedness incurred (directly or indirectly) by you to buy 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. You should consult your tax advisor with respect to the applicability
of other state and local income tax laws to distributions and redemption
proceeds received from the Fund. Whether you are a corporate, individual or
trust shareholder, you should contact your tax advisor to determine the impact
of Fund dividends and capital gain distributions under the alternative minimum
tax that may be applicable to your particular tax situation.
If you are not considered a U.S. person for purposes of federal income taxation,
you should consult with your financial or tax advisor regarding the
applicability of U.S. withholding or other taxes on distributions received by
you from the Fund and the application of foreign tax laws to these
distributions.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
Opening Your Account
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check.
MINIMUM
INVESTMENTS*
To Open Your Account $100
To Add to Your Account $ 25
*We may refuse any order to buy shares.
Currently, the Fund does not allow investments by Market Timers.
Sales Charge Reductions and Waivers
- - If you qualify to buy shares under one of the sales charge reduction or
waiver categories described below, please include a written statement with each
purchase order explaining which privilege applies. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.
QUANTITY DISCOUNTS. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE*
Under $100,00 2.25% 2.30% 2.00%
$100,000 but less than $250,000 1.75% 1.78% 1.50%
$250,000 but less than $500,000 1.25% 1.26% 1.00%
$500,000 but less than $1,000,000 1.00% 1.01% 0.85%
$1,000,000 or more** None None None
*The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities Dealers may receive the entire sales
charge. A Securities Dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated. **If you invest $1 million or more, a Contingent
Deferred Sales Charge may be imposed on an early redemption. Please see "How Do
I Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other
Payments to Securities Dealers" below for a discussion of payments Distributors
may make out of its own resources to Securities Dealers for certain purchases.
CUMULATIVE QUANTITY DISCOUNTS. To determine if you may pay a reduced sales
charge, the amount of your current purchase is added to the cost or current
value, whichever is higher, of your Class I and Class II shares in other
Franklin Templeton Funds, as well as those of your spouse, children under the
age of 21 and grandchildren under the age of 21. If you are the sole owner of a
company, you may also add any company accounts, including retirement plan
accounts.
LETTER OF INTENT. You may buy shares at a reduced sales charge by completing the
Letter of Intent section of the shareholder application. A Letter of Intent is a
commitment by you to invest a specified dollar amount during a 13 month period.
The amount you agree to invest determines the sales charge you pay.
By completing the Letter of Intent section of the shareholder application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase in
Fund shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call
Shareholder Services.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Fund
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
SALES CHARGE WAIVERS. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1 or 2
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.
The Fund's sales charges will not apply if you are buying shares with money from
the following sources:
1. Dividend and capital gain distributions from any Franklin Templeton Fund or a
REIT sponsored or advised by Franklin Properties, Inc.
2. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, Templeton Variable Annuity Fund, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.
3. Redemptions from any Franklin Templeton Fund if you:
o Originally paid a sales charge on the shares,
o Reinvest the money within 365 days of the redemption date, and
o Reinvest the money in the same class of shares.
An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares reinvested were subject
to a Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier redemption,
but a new Contingency Period will begin.
If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within 365
days from the date the CD matures, including any rollover.
4. Redemptions from other mutual funds
If you sold shares of a fund that is not a Franklin Templeton Fund within the
past 60 days, you may invest the proceeds without any sales charge if (a) the
investment objectives were similar to the Fund's, and (b) your shares in that
fund were subject to any front-end or contingent deferred sales charges at the
time of purchase.
You must provide a copy of the statement showing your redemption.
The Fund's sales charges will also not apply to purchases by:
5. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal funds
received by the close of business on the next business day following the order.
6. An Eligible Governmental Authority. Please consult your legal and investment
advisors to determine if an investment in the Fund is permissible and suitable
for you and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
7. Broker-dealers and qualified registered investment advisors who have entered
into a supplemental agreement with Distributors for their clients who are
participating in comprehensive fee programs, sometimes known as wrap fee
programs
8. Registered Securities Dealers and their affiliates, for their investment
accounts only
9. Current employees of Securities Dealers and their affiliates and their family
members, as allowed by the internal policies of their employer
10. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
11. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
12. Accounts managed by the Franklin Templeton Group
13. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
Other Payments to Securities Dealers
The payments below apply to Securities Dealers who initiate and are responsible
for certain purchases made without a sales charge. A Securities Dealer may only
receive one of the following payments for each qualifying purchase. The payments
described below are paid by Distributors or one of its affiliates, at its own
expense, and not by the Fund or its shareholders.
1. Securities Dealers will receive up to 0.75% of the purchase price for
purchases of $1 million or more: 0.75% on sales of $1 million to $2 million,
plus 0.60% on sales of $2 million to $3 million, plus 0.50% on sales of $3
million to $50 million, plus 0.25% on sales of $50 million to $100 million, plus
0.15% on sales over $100 million. These breakpoints are reset every 12 months
for purposes of additional purchases.
2. Securities Dealers may receive up to 0.25% of the purchase price for
purchases made under waiver categories 5 and 6 above.
Please see "How Do I Buy and Sell Shares? - Other Payments to Securities
Dealers" in the SAI for more information.
Securities Dealers may receive additional compensation from Distributors or an
affiliated company in connection with selling shares of the Franklin Templeton
Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales or training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to Securities Dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities Dealers may not use sales of the Fund's shares to qualify for
this compensation if prohibited by the laws of any state or self-regulatory
agency, such as the NASD.
General
Securities laws of states in which the Fund's shares are offered for sale may
differ from federal law. Banks and financial institutions that sell shares of
the Fund may be required to register as dealers pursuant to state law.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
METHOD STEPS TO FOLLOW
- -------------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you're exchanging
- -------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
If you do not want the ability to exchange by phone,
please let us know.
- -------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- -------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
If you request the exchange of the total value of your account, accrued but
unpaid income dividends and capital gain distributions will be reinvested in the
Fund at the Net Asset Value on the date of the exchange, and then the entire
share balance will be exchanged into the new fund in accordance with the
procedures set forth above. If a substantial portion of the Fund's shareholders
should, within a short period, sell their shares of the Fund under the exchange
privilege, the Fund might have to sell portfolio securities it might otherwise
hold and incur the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in periodic large
inflows of money. If this occurs, it is the Fund's general policy to initially
invest this money in short-term, tax-exempt municipal securities, unless it is
believed that attractive investment opportunities consistent with the Fund's
investment objective exist immediately. This money will then be withdrawn from
the short-term, tax-exempt municipal securities and invested in portfolio
securities in as orderly a manner as is possible when attractive investment
opportunities arise.
Will Sales Charges Apply to My Exchange?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.
CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred Sales
Charge when you exchange shares. Any shares subject to a Contingent Deferred
Sales Charge at the time of exchange, however, will remain so in the new fund.
For accounts with shares subject to a Contingent Deferred Sales Charge, shares
are exchanged into the new fund in the order they were purchased. If you
exchange shares into one of our money funds, the time your shares are held in
that fund will not count towards the completion of any Contingency Period. For
more information about the Contingent Deferred Sales Charge, please see that
section under "How Do I Sell Shares?"
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class.
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. PLEASE
NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR
ACCOUNT(S). Additional procedures may apply. Please see "Transaction Procedures
and Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Currently, the Fund does not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- -------------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents.
Accounts under court jurisdiction may have
additional requirements.
- -------------------------------------------------------------------------------
BY PHONE Call Shareholder Services
(Only available if you
have completed and
sent to us the
telephone redemption
agreement included
with this prospectus)
Telephone requests will be accepted:
o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a separate
agreement. Call Institutional Services to receive a
copy.
o If there are no share certificates issued for the
shares you want to sell or you have already returned
them to the Fund
o Unless the address on your account was changed by phone
within the last 30 days
- -------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- -------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
If you did not pay a front-end sales charge because you invested $1 million or
more, a Contingent Deferred Sales Charge may apply if you sell all or a part of
your investment within the Contingency Period. The charge is 1% of the value of
the shares sold or the Net Asset Value at the time of purchase, whichever is
less. Distributors keeps the charge to recover payments made to Securities
Dealers.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Exchanges
o Account fees
o Sales of shares purchased pursuant to a sales charge waiver
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up after February 1,
1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual
balance of $1 million, you can withdraw up to $120,000 annually through a
systematic withdrawal plan free of charge.
What Distributions Might I Receive From the Fund?
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally 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 capital loss carry forward or post October
loss deferral) 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 that 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 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.
The Fund declares dividends from its net investment income daily and pays them
monthly on or about the 20th day of the month. The daily allocation of net
investment income begins on the day after we receive your money or settlement of
a wire order trade and continues to accrue through the day we receive your
request to sell your shares or the settlement of a wire order trade.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. The Fund does not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.
Distribution Options
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge) by
reinvesting capital gain distributions, or both dividend and capital gain
distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. If you send
the money to a checking account, please see "Electronic Fund Transfers" under
"Services to Help You Manage Your Account." To select one of these options,
please complete sections 6 and 7 of the shareholder application included with
this prospectus or tell your investment representative which option you prefer.
If you do not select an option, we will automatically reinvest dividend and
capital gain distributions in the Fund. You may change your distribution option
at any time by notifying us by mail or phone. Please allow at least seven days
prior to the reinvestment date for us to process the new option.
Transaction Procedures and Special Requirements
How and When Shares Are Priced
The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share as of the scheduled close of the Exchange, generally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value and
Offering Price of the Fund in many newspapers.
To calculate Net Asset Value per share, the Fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. The Fund's assets are valued as
described under "How Are the Funds' Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy shares at the Offering Price, unless you qualify to buy shares at a
reduced sales charge or with no sales charge. The Offering Price is based on the
Net Asset Value per share and includes the maximum sales charge. We calculate it
to two decimal places using standard rounding criteria. You sell shares at Net
Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund.
Proper Form
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
Telephone Transactions
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal or other
identifying information, and will also record calls. For your protection, we may
delay a transaction or not implement one if we are not reasonably satisfied that
telephone instructions are genuine. If this occurs, we will not be liable for
any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Account Registrations and Required Documents
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
CORPORATION Corporate Resolution
- -------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that identify the
general partners, or
2. A certification for a partnership agreement
- -------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- -------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
Tax Identification Number
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
Services to Help You Manage Your Account
Automatic Investment Plan
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. The
market value of the Fund's shares may fluctuate and a systematic investment plan
such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.
Automatic Payroll Deduction
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
Systematic Withdrawal Plan
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers" below. There are no
service charges for establishing or maintaining a systematic withdrawal plan.
Once your plan is established, any distributions paid by the Fund will be
automatically reinvested in your account. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the first business day of the month in which a payment is scheduled. You will
generally receive your payment by the fifth business day of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
Because of the Fund's front-end sales charge, you may not want to set up a
systematic withdrawal plan if you plan to buy shares on a regular basis. Shares
sold under the plan may also be subject to a Contingent Deferred Sales Charge.
Please see "Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically terminate a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
Electronic Fund Transfers
You may choose to have dividend and capital gain distributions from the Fund or
payments under a systematic withdrawal plan sent directly to a checking account.
If the checking account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. We will send any payments made during that time to the
address of record on your account.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips.
You will need the Fund's code number to use TeleFACTS. The Fund's code is 153.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
Institutional Accounts
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.
Availability of These Services
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
Glossary
Useful Terms and Definitions
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Because the Fund's sales charge structure and Rule 12b-1 plan are similar
to those of Class I shares, shares of the Fund are considered Class I shares for
redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - The 12 month period during which a Contingent Deferred
Sales Charge may apply. Regardless of when during the month you purchased
shares, they will age one month on the last day of that month and each following
month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.
EXCHANGE - New York Stock Exchange
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the
Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share and includes the 2.25% sales charge.
REIT - Real Estate Investment Trust
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or another wholly owned
subsidiary of Resources.
NYTFT STKST 9/96o
SUPPLEMENT DATED
SEPTEMBER 1, 1996
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN NEW YORK TAX-FREE TRUST
DATED MAY 1, 1996
1. The section "Officers and Trustees" is revised to add the following:
As of August 5, 1996, the officers and trustees did not own of record or
beneficially any shares of any of the Funds.
2. The subsection "General Information - Intermediate-Term and Insured Funds" is
revised to update performance figures as follows:
TOTAL RETURN
The average annual compounded rates of return for the Intermediate-Term Fund and
Class I and Class II shares of the Insured Fund for the indicated periods ended
on June 30, 1996, were as follows:
One Three Five From
Fund Name Year Years Years Inception
Insured Fund - Class I 1.63% 3.31% 6.78% 6.50%
Insured Fund - Class II 3.77% n/a n/a 5.11%
Intermediate-Term Fund 3.56% 3.46% n/a 4.68%
The total rates of return for the Intermediate-Term Fund and Class I and Class
II shares of the Insured Fund for the indicated periods ended on June 30, 1996,
were as follows:
One Three Five From
Fund Name Year Years Years Inception
Insured Fund - Class I 1.63% 10.27% 38.53% 38.80%
Insured Fund - Class II 3.77% n/a n/a 6.00%
Intermediate-Term Fund 3.56% 10.73% n/a 18.82%
CURRENT YIELD
The yield for the Intermediate-Term Fund and Class I and Class II shares of the
Insured Fund for the 30-day period ended on June 30, 1996, was 5.29%, 4.84% and
4.45%, respectively.
TAX EQUIVALENT YIELD
The tax equivalent yield for the Intermediate-Term Fund and Class I and Class II
shares of the Insured Fund for the 30-day period ended on June 30, 1996, was
9.91%, 9.06% and 8.33%, respectively.
3. The subsection "General Information - Money Fund" is revised to update
performance figures as follows:
CURRENT YIELD
The yield for the Money Fund for the seven-day period ended on June 30, 1996,
was 2.71%.
EFFECTIVE YIELD
The effective yield for the Money Fund for the seven-day period ended on June
30, 1996, was 2.75%.
TAX EQUIVALENT YIELD
The tax equivalent yield based on the current yield of the Money Fund for the
seven-day period ended on June 30, 1996, was 5.07%. The tax equivalent effective
yield based on the effective yield of the Money Fund for the seven-day period
ended on June 30, 1996, was 5.15%.
4. The section "Financial Statements" is revised to add the following:
The unaudited financial statements contained in the Trust's Semi-Annual Report
to Shareholders, for the six months ended June 30, 1996, are incorporated herein
by reference.
FRANKLIN NEW YORK TAX-FREE TRUST
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
MAY 1, 1996
Contents Page
How Do the Funds Invest Their Assets?............ 2
Description of Municipal and Other Securities... 3
Insurance (Insured Fund Only).................... 6
Investment Restrictions.......................... 7
Officers and Trustees............................ 9
Investment Advisory and Other Services.......... 12
How Do the Funds Purchase
Securities For Their Portfolios? .............. 14
How Do I Buy and Sell Shares?.................... 14
How Are the Funds' Shares Valued?................ 17
Additional Information Regarding Taxation....... 18
The Trust's Underwriter.......................... 20
General Information.............................. 22
Financial Statements............................. 28
Appendices....................................... 28
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") are
non-diversified series of the Franklin New York Tax-Free Trust (the "Trust"), an
open-end management investment company. 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. The Funds' investment objective is 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 seeks to achieve its objective by investing in New York
municipal securities covered by insurance guaranteeing the scheduled payment of
principal and interest, in securities backed by the full faith and credit of the
United States ("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 Investor Service ("Moody's"), Standard & Poor's Corporation
("S&P") or Fitch Investors Service ("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 and offers you the convenience of redemption
drafts (similar to checks) as one of the means of selling your shares.
The Intermediate-Term Fund seeks to achieve 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.
The Insured Fund offers two classes of shares: 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"). This multiclass structure allows
you to consider, among other features, the impact of sales charges and
distribution fees ("Rule 12b-1 fees") on your investment in the Insured Fund.
Separate prospectuses for the Funds, dated May 1, 1996, as may be amended from
time to time (the "Prospectus(es)"), provide the basic information you should
know before investing in a Fund and may be obtained without charge from the
Trust or the Trust's principal underwriter, Franklin/Templeton Distributors,
Inc. ("Distributors"), at the address or telephone number shown above.
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 you with additional information
regarding the activities and operations of the Trust and each Fund and should be
read in conjunction with the Funds' Prospectuses.
How Do the Funds Invest Their Assets?
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 its net assets in securities that pay interest exempt from federal
income tax, including the alternative minimum tax. Under normal circumstances,
each Fund will invest at least 65% of its total assets in securities that pay
interest 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 securities subject to federal tax,
including the alternative minimum tax and up to 35% of each Fund's total assets
could be in municipal securities from a state or municipality 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%, in
securities, the interest on which is subject to federal income tax, and each
Fund may invest more than 35%, and up to 100%, of its total 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, S&P or Fitch (Prime-1, A-1 or F-1 respectively), or in
obligations of U.S. banks with assets of $1 billion or more. See "Appendix B -
Description of Municipal Securities Ratings" at the end of this SAI for more
information about 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 (the "Board") 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 fund. 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. These 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 that 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. These 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 buy 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 buy 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 issued with provisions that 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 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 that 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 or Defeased Bonds are created when an issuer refunds in advance
of maturity (or pre-refunds) an outstanding bond issue that 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 that 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, Moody's or Fitch.
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.
Zero Coupon Securities. The Insured Fund's and the Intermediate-Term Fund's
investment in zero coupon and delayed interest bonds may cause such Funds to
recognize income and make distributions to shareholders prior to the receipt of
cash payments. Zero coupon securities make no periodic interest payments but
instead are sold at a deep discount from their face value. The buyer recognizes
a rate of return determined by the gradual appreciation of the security, which
is redeemed at face value on a specified maturity date.
Because zero coupon securities bear no interest, and compound semiannually at
the rate fixed at the time of issuance, the value of such securities is
generally more volatile than other fixed-income securities. Since zero coupon
bondholders do not receive interest payments, zeros fall more dramatically than
bonds paying interest on a current basis when interest rates rise. When interest
rates fall, zero coupon securities rise more rapidly in value, because the bonds
reflect a fixed rate of return.
In order to generate cash to satisfy distribution requirements, the Insured Fund
and the Intermediate-Term Fund may be required to dispose of portfolio
securities that they otherwise would have continued to hold or to use cash flows
from other sources such as the sale of Fund shares.
Convertible and Step Coupon Bonds. The Insured Fund and the Intermediate-Term
Fund may invest a portion of their assets in convertible and step coupon bonds.
The convertible bonds that such Funds may buy are zero coupon securities until a
predetermined date, at which time they convert to a specified coupon security.
The coupon on step coupon bonds changes periodically during the life of the
security based upon predetermined dates chosen at the time of issuance and/or
the occurrence in the future of a specified event, such as a change in rating by
a nationally recognized statistical rating organization.
Variable or Floating Rate Demand Notes ("VRDNs"). These are tax-exempt
obligations that 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 buy variable or floating rate demand instruments in
accordance with procedures prescribed by the Board. These procedures have been
adopted to minimize credit risks. Any VRDN purchased by the Money Fund must be
of high quality, as determined by the Board, 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 Money 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 that is unrated must have
high quality characteristics, similar to those that are rated, in accordance
with policies and guidelines determined by the Board. If the quality of any VRDN
falls below the high quality level required by the Board 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. Please see the
prospectuses for a discussion of these obligations.
U.S. Government Obligations that 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 buys a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the 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 that 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.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
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 bank collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 102%. This
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.
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 you. 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 you. 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.
There may, of course, be other types of municipal securities that become
available that 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 buy 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 buys
securities with maturities of less than 397 days, securities that 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 that 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.
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 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.
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 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
Each Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of that Fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a "vote of a majority of the outstanding
voting securities" of a Fund means the affirmative vote of the lesser of (i)
more than 50% of the outstanding shares of the Fund or (ii) 67% or more of the
shares of the Fund present at a shareholder meeting if more than 50% of the
outstanding shares of the Trust or 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 advisor 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 buy 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 that have been in
continuous operation for less than three years. Pursuant to an undertaking given
to the Ohio State Securities Board, the Money Fund and the Intermediate-Term
Fund will limit investments in securities of issuers, together with
predecessors, of less than three years' continuous operation to 15% of a Fund's
total assets. 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.
If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in value of portfolio securities or the amount of net assets will not be
considered a violation of any of the foregoing restrictions.
Officers and Trustees
The Board 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 (*).
Positions and Offices Principal Occupation
Name, Age and Address with the Trust During Past Five Years
Frank H. Abbott, III (75)
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 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (63)
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 56 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 0796945
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 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
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 30 of the investment companies in the
Franklin Group of Funds.
*Charles B. Johnson (63)
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 57 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55)
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 43 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
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 26 of the investment companies in the Franklin Group of Funds.
*William J. Lippman (71)
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 (67)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin 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 53 of the investment companies in the Franklin Templeton Group of Funds;
and formerly held the following positions: Chairman, Hambrecht and Quist Group;
Director, H & Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (51)
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 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35)
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 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.
Thomas J. Kenny (33)
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 (57) Treasurer
777 Mariners Island Blvd. and Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
Richard C. Stoker (58)
11615 Spring Ridge Rd.
Potomac, Maryland 20854
Vice President
Senior Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Management, Inc.; and officer of five of the funds in the Franklin
Group of Funds.
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Trustees not
affiliated with the investment manager ("nonaffiliated trustees") are currently
paid fees of $50 per month plus $50 per meeting attended. As indicated above,
certain of the Trust's nonaffiliated trustees also serve as directors, trustees
or managing general partners of other investment companies in the Franklin Group
of Funds" and the Templeton Group of Funds (the "Franklin Templeton Group of
Funds") from which they may receive fees for their services. The following table
indicates the total fees paid to nonaffiliated trustees by the Trust and by
other funds in the Franklin Templeton Group of Funds.
Total Number of Boards
Compensation in the Franklin Aggregate from Franklin
Templeton Group Compensation Templeton of Funds on
Name from Trust* Group of Funds* Which Each Serves**
Frank H. Abbott, III $1,200 $162,420 31
Harris J. Ashton.... $1,200 $327,925 56
S. Joseph Fortunato. $1,200 $344,745 58
David Garbellano.... $1,200 $146,100 30
Frank W.T. LaHaye... $1,200 $143,200 26
Gordon Macklin...... $1,200 $321,525 53
*For the year ended December 31, 1995. **The number of boards is based on the
number of registered investment companies in the Franklin Templeton Group of
Funds and does not include the total number of series or funds within each
investment company for which the trustees are responsible. The Franklin
Templeton Group of Funds currently includes 61 registered investment companies,
consisting of approximately 162 U.S. based funds or series.
Generally nonaffiliated trustees are reimbursed for expenses incurred in
connection with attending board meetings, and paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director, trustee or
managing general partner. No officer or trustee received any other compensation
directly from the Trust. Certain officers or trustees who are shareholders of
Franklin Resources, Inc. ("Resources") may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
As of February 12, 1996, the officers and trustees, as a group, owned of record
and beneficially approximately 8,545.544 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 the
Intermediate-Term Fund. Many of the Trust's trustees also own shares in various
of the other funds in the Franklin Templeton Group of Funds. Charles B. Johnson
and Rupert H. Johnson, Jr. are brothers.
Investment Advisory and Other Services
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly owned
holding company whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.
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 Board to whom the Manager renders periodic reports
of each Fund's investment activities. Under the terms of the management
agreements, the Manager provides 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. Please see the Statement of
Operations in the financial statements included in the Trust's Annual Report to
Shareholders for the fiscal year ended December 31, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which may differ from action taken by the
Manager on behalf of the Funds. Similarly, with respect to the Funds, the
Manager is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund. Furthermore, the Manager is not
obligated to refrain from investing in securities held by the Funds or other
funds which it manages or administers. Of course, any transactions for the
accounts of the Manager and other access persons will be made in compliance with
the Funds' Code of Ethics.
Pursuant to 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 management fee, as determined by the
proportion of the Insured Fund that each class 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 management agreements specify 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, 2.0% 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 Manager has agreed in advance to waive a portion of its management fees and
make certain payments to reduce expenses. The tables below set forth the
management fees before any advance waiver and management fees paid by each Fund
for the fiscal years ended December 31, 1993, 1994 and 1995.
Fiscal Year Ended December 31, 1995:
Contractual Management
Management Fees Paid
Fees By the Fund
Money Fund $ 385,243 $ 227,525
Insured Fund Class I...... $1,345,380 $1,183,588
Insured Fund Class II $ 1,707 $ 1,502
Intermediate-Term Fund $ 247,415 $ 51,949
Fiscal Year Ended December 31, 1994:
Contractual Management
Management Fees Paid
Fees By the Fund
Money Fund................ $ 369,023 $ 171,416
Insured Fund.............. $1,349,257 $ 992,613
Intermediate-Term Fund........$ 234,273 -0-
Fiscal Year Ended December 31, 1993:
Contractual Management
Management Fees Paid
Fees By the Fund
Money Fund $ 319,118 $ 142,460
Insured Fund.............. $1,185,510 $ 868,888
Intermediate-Term Fund $ 106,935 -0-
The management agreement for the Money Fund is in effect until February 28, 1997
and the management agreements for the Intermediate-Term and Insured Funds are in
effect until March 31, 1997. Thereafter, they may continue in effect for
successive annual periods, provided such continuance is specifically approved at
least annually by a vote of the Board or by a vote of the holders of a majority
of the respective 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 the Board 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"), 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 New York, Mutual Funds Division, 90 Washington Street, New York, New
York 10286, acts as custodian of the securities and other assets of the Fund.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle, Delaware
19720, acts as custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
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,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report to Shareholders
for the fiscal year ended December 31, 1995.
How Do the Funds Purchase Securities For Their Portfolios?
Since most purchases 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 will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. As a general rule, the
Funds do not purchase bonds in underwritings where they are given no 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 the Manager from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits the Manager 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 past three fiscal years ended December 31, the Funds paid no
brokerage commissions.
As of December 31, 1995, the Funds did not own securities of their regular
broker-dealers.
How Do I Buy and Sell 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 your account for the transaction as of
a date and with a foreign currency exchange factor determined by the drawee
bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you 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 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. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.
If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to a Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions 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 your account the costs of its efforts to locate you if
mail is returned as undeliverable or the Trust is otherwise unable to locate you
or verify your 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 one of
its affiliates to help defray expenses of maintaining a service office in
Taiwan, including expenses related to local literature fulfillment and
communication facilities.
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, Class I shares of either Fund may be offered with the
following schedule of sales charges:
Sales
Size of Purchase - in U.S. dollars Charge
Under $30,000................................ 3%
$30,000 but less than $100,000............... 2%
$100,000 but less than $400,000.............. 1%
$400,000 or more............................. 0%
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 close of the Exchange
(generally 1:00 p.m. Pacific 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 scheduled close 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, either directly or through
affiliates, have an agreement with Distributors to 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 you resulting from the failure to do so must be settled between you
and the securities dealer.
Effectiveness of Purchase Orders (Money Fund)
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 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.
Other Payments to Securities Dealers
As discussed in the Prospectuses for the Intermediate-Term Fund and the Insured
Fund under "How Do I Buy Shares? - General," either Distributors or one of its
affiliates may make payments, out of its own resources, to securities dealers
who initiate and are responsible for purchases of Class I shares made at net
asset value by certain trust companies and trust departments of banks, as
described 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 shares are
redeemed within 12 months of the calendar month of purchase. Other conditions
may apply. All terms and conditions may be imposed by an agreement between
Distributors, or one of its affiliates, and the securities dealer.
With respect to purchases of Class I shares made at net asset value by certain
trust companies and trust departments of banks, either 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)
You 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
you want to qualify for a reduced sales charge, you may file with the respective
Fund a signed Shareholder Application with the Letter of Intent (the "Letter")
section completed. After the Letter is filed, each additional investment will be
entitled to the sales charge applicable to the level of investment indicated on
the Letter. Sales charge reductions based 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. Your holdings in the
Franklin Templeton Funds, including Class II shares, acquired more than 90 days
before the Letter is filed, will be counted towards completion of the Letter but
will not be entitled to a retroactive downward adjustment in the sales charge.
Any redemptions you make during the 13-month period will be subtracted from the
amount of the purchases for purposes of determining whether the terms of the
Letter have been completed. If the Letter is not completed within the 13-month
period, there will be an upward adjustment of the sales charge, depending upon
the amount actually purchased (less redemptions) during the period. If you
execute a Letter prior to a change in the sales charge structure for the Insured
Fund or the Intermediate-Term Fund, you will be entitled to complete the Letter
at the lower of the new sales charge structure or the sales charge structure in
effect at the time the Letter was filed.
As mentioned in the 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 Class I shares of the respective Fund registered in your name. If
the total purchases, less redemptions, equal the amount specified under the
Letter, the reserved shares will be deposited to an account in your name or
delivered to you or as you direct. If the total purchases, less redemptions,
exceed the amount specified under the Letter 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 (to reflect such further quantity discount) on purchases
made within 90 days before and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter, you will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge that would have applied to
the aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance, the reserved shares held for your account will be
deposited to an account in your name or delivered to you or as you direct. If
within 20 days after written request the difference in sales charge is not paid,
the redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account prior
to fulfillment of the Letter, the additional sales charge due will be deducted
from the proceeds of the redemption, and the balance will be forwarded to you.
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 the 90-day period. This commitment is
irrevocable without the prior approval of the Securities and Exchange Commission
("SEC") . In the case of redemption requests in excess of these amounts, the
trustees reserve the right to make payments in whole or in part in securities or
other assets of the Fund, in case of an emergency, or if the payment of such a
redemption in cash would be detrimental to the existing shareholders of the
Fund. In such circumstances, the securities distributed would be valued at the
price used to compute the Fund's net assets and you may incur brokerage fees in
converting the securities to cash. The Funds do not intend to redeem illiquid
securities in kind. Should it happen, however, you may not be able to recover
your investment in a timely manner.
Redemptions by the Funds
Due to the relatively high cost of handling small investments, each Fund
reserves the right to involuntarily redeem your shares at net asset value if
your account has a value of less than one-half of your initial required minimum
investment, but only where the value of your 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 if your 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 your shares and sends you the proceeds, it will notify you that the
value of the shares in your account is less than the minimum amount and allow
you 30 days to make an additional investment in an amount which will increase
the value of your account to at least $100 in the case of the Intermediate-Term
Fund and the Insured Fund and $500 in the case of the Money Fund.
Reports to Shareholders
The Trust sends annual and semiannual reports regarding each Fund's performance
and portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
Special Services
The Franklin Templeton Institutional Services Department 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 that maintain omnibus
accounts with the Trust on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such 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. These financial institutions may also charge a fee for
their services directly to their clients.
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. Fees for special services 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. An 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 instructions may be provided to the Fund at
a later date. These sub-accounts may be established by the institution with
registration either by name or number. The investment minimums applicable to the
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 if requested, a statement setting forth each sub-account's share
balance, income earned for the period, income earned for the year to date, and
total current market value.
How Are the Funds' Shares Valued?
As noted in the Prospectuses, each Fund and each class of the Insured Fund
calculates the 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) each day that
the Exchange is open for trading. 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.
For the purpose of determining the aggregate net assets of a Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Over-the-counter
portfolio securities are valued within the range of the most recent quoted bid
and ask prices. 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.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of each Fund's shares is determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the net asset value
of each class or Fund. If events materially affecting the values of these
securities occur during such period, then the securities will be valued at their
fair value as determined in good faith by the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of trustees, the
Insured and the Intermediate Fund may utilize a pricing service, bank or
securities dealer to perform any of the above described functions.
The valuation of the portfolio securities of the Money Fund (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
opposite 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 U.S.
dollar-denominated instruments that the Board 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 agencies. 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 Board has 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 holdings by the Board, at such intervals as it 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 that 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.
Additional Information Regarding Distributions and Taxation
Distributions
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities of the Money Fund or from unrealized
appreciation or depreciation in the value of such portfolio securities are
required to maintain a $1.00 net asset value and may result in under or over
distributions of investment company taxable income.
If you, as a shareholder of the Money Fund, withdrew the entire amount in your
account at any time during the month, all dividends accrued with respect to your
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. You will receive a
monthly summary of your account, including information as to dividends
reinvested or paid.
The Board reserves the right to revise the Money Fund's 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.
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, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, to the alternative
minimum tax on a portion of its tax-exempt income, and distributions (including
its 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 you by December 31 of each year in order to avoid the
imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to you until the following January, will be treated for
tax purposes as if paid by the Funds and received by you 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 you. 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 your
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 your hands, 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 buying 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 of Funds 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. You should
consult with your tax advisor 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.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by a fund from direct obligations of the U.S.
government, subject in some states to minimum investment requirements that must
be met by the fund. Investments in GNMA/FNMA securities and repurchase
agreements collateralized by U.S. government securities do not generally qualify
for tax-free treatment. While it is not the primary investment objective of any
of the Funds to invest in such obligations, each Fund is authorized to so invest
for temporary or defensive purposes. To the extent that such investments are
made, each Fund will provide you with the percentage of any dividends paid which
may qualify for such tax-free treatment at the end of each calendar year. You
should consult with your own tax advisor with respect to the application of your
state and local laws to these distributions and on the application of other
state and local laws on distributions and redemption proceeds received from a
Fund.
If you are defined in the Code as a "substantial user" (or related person) of
facilities financed by private activity bonds, you should consult with your tax
advisor before buying shares of a Fund.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisor regarding the applicability of U.S.
withholding or other taxes on distributions received by you from the Funds and
the application of foreign tax laws to these distributions.
The Trust's Underwriter
Pursuant to an underwriting agreement in effect until February 28, 1997 (Money
Fund) and March 31, 1997 (Intermediate-Term Fund and Insured Fund), Distributors
acts as principal underwriter in a continuous public offering for shares of the
Funds, including both classes of shares of the Insured Fund. The underwriting
agreements will continue in effect for successive annual periods provided that
their continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of each Fund's outstanding
voting securities, and in either event by a majority vote of the 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 distributing 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.
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 were as follows:
Fiscal year ended December 31, 1995
Total
Commissions Amount
Fund Received Retained
Insured Fund.................. $871,088 $55,389
Intermediate-Term Fund........ $137,315 $18,658
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
Dealers received $10 in connection with redemptions or repurchases of shares for
the Insured Fund for the year ended December 31, 1995. Distributors may be
entitled to reimbursement under the distribution plans of the Intermediate-Term
Fund and each class of the Insured Fund, as discussed below. Except as noted,
Distributors received no other compensation for acting as underwriter of the
Funds' shares.
Distribution Plans (Intermediate-Term Fund and Insured Fund)
Each class of the Insured Fund has adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Class I Plan" and "Class II Plan," respectively).
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".
Under the Class I Plan for the Insured Fund and the Intermediate-Term Plan, each
Fund may pay up to a maximum of 0.10% per annum of its average daily net assets,
payable quarterly, for expenses incurred in the promotion and distribution of
its shares.
In implementing the Class I Plan for the Insured Fund, the Board 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 Class I shares of the Insured Fund that were acquired by investors on or
after May 1, 1994, the effective date of the plan ("New Assets"), and (ii) the
amount obtained by multiplying 0.05% by the average daily net assets represented
by Class I shares of such Funds that were acquired before May 1, 1994 ("Old
Assets"). Such fees will be paid to the current securities dealer of record on
the account. In addition, until such time as the maximum payment of 0.10% is
reached on a yearly basis, up to an additional 0.02% will be paid to
Distributors under the Plan. 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 Plan, such as advertising.
The fee is a Class I expense, so that all Class I shareholders of the Insured
Fund, regardless of when they purchased their shares, will bear Rule 12b-1
expenses at the same rate. The initial rate will be at least 0.07% (0.05% plus
0.02%) of such Fund's or class' average daily net assets and, as Class I shares
of the Insured Fund shares are sold on or after May 1, 1994, will increase over
time. Thus, Class I shares of the Insured Fund purchased on or after May 1, 1994
increases in relation to outstanding Class I shares, the expenses attributable
to payments under the Class I Plan 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, the Plan permits the
Trust's trustees to allow the Insured Fund to pay a full 0.10% on all assets at
any time. The approval of the Board would be required to change the calculation
of the payments to be made under the Class I Plan.
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 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.
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 pays Distributors
up to 0.50% per annum of the average daily net assets of Class II, payable
quarterly, for distribution and related expenses. These fees may be used to
compensate Distributors or others for providing distribution and related
services and bearing certain Class II expenses. All expenses of distribution and
marketing over this amount will be borne by Distributors or others who have
incurred them without reimbursement by the Insured Fund. Under the Class II
Plan, the Insured Fund also pays an additional 0.15% per annum of the average
daily net assets of Class II, payable quarterly, 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 customers; and
similar activities related to furnishing personal services and maintaining
shareholder accounts. At the time of investment, Distributors may pay the
securities dealer a commission of up to 1% of the amount invested out of its own
resources.
In General. In addition to the payments that Distributors or others are entitled
to under the Plans, each Plan also provides 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 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. The terms and
provisions of the Plans relating to required reports, term, and approval are
consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges which include payments
made under the 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.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services you would be
permitted to remain a shareholder of the Intermediate-Term Fund and the Insured
Fund and alternate means for continuing the servicing would be sought. In such
an event, changes in the services provided might occur and you might no longer
be able to avail yourself of any automatic investment or other services then
being provided by the bank. It is not expected that you would suffer any adverse
financial consequences as a result of any of these changes.
The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Plans are effective through March 31, 1997 and renewable annually by a vote
of the Board, 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 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 and class'
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 at least quarterly on
the amounts and purpose of any payment made under the Plans and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plans should be continued.
For the fiscal year ended December 31, 1995, Distributors had eligible
expenditures of $254,812, $6,878 and $35,980 for advertising, printing, and
payments to underwriters and broker-dealers pursuant to the Class I and Class II
Plans and the Intermediate-Term Plan, respectively. As a result, the respective
Funds paid Distributors $184,647, $1,362 and $35,980 under the Class I, Class II
and the Intermediate-Term Plans, respectively.
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 past
performance and may occasionally cite statistics to reflect 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.
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,
1995, were as follows:
One Three From
Fund Name Year Years Inception
Insured Fund -
Class I................ 13.43% 5.92% 5.48%
Intermediate-Term
Fund................... 11.75% 5.25% 7.33%
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-, five-,
or ten-year periods (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 the average
annual total return. These quotations are computed in the same manner as a
Fund's average annual compounded rates, except they will be based on each Fund's
or class' actual return for a specified period rather than on the average return
over one-, five- and ten-year periods. The total rates of return for the
Intermediate-Term Fund and Class I and Class II of the Insured Fund for the
indicated periods ended on December 31, 1995, were as follows:
One Three From
Fund Name Year Years Inception
Insured Fund -
Class I................ 13.43% 18.84% 39.20%
Insured Fund -
Class II............... -- -- 6.84%
Intermediate-Term
Fund................... 11.75% 16.58% 19.08%
Current Yield
The current yield for the Intermediate-Term Fund and each class of the Insured
Fund reflects the income per share earned by the Fund's portfolio investments
and is determined by dividing the net investment income per share of each Fund
or class earned 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 and
Class II of the Insured Fund for the 30-day period ended on December 31, 1995,
was 4.75%, 4.54% and 4.12%, respectively.
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the 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 that demonstrates the taxable yield necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. Tax equivalent yield is computed by dividing the portion of a
Fund's or class' yield (computed as indicated above) that 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 the portion of a Fund's or class'
yield that is not tax-exempt, if any). The tax equivalent yield for Class I and
Class II shares of the Insured Fund and the Intermediate-Term Fund for the
30-day period ended on December 31, 1995, was 8.55%, 8.95% and 7.72%,
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 39.60% and 11.59%, respectively. From time to time, as
any changes to the 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 shareholders of a Fund or a class. 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 the current
distribution rate of a Fund or a class (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 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 Fund net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market, as represented by an
index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
Other Performance Quotations
For investors who are permitted to purchase shares of the Intermediate-Term Fund
or the Insured Fund at net asset value, sales literature pertaining such Fund or
class may quote a current distribution rate, yield, total return, average annual
total return and other measures of performance as described elsewhere in this
SAI with the substitution of net asset value for the public offering price.
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 belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
Comparisons
To help you better evaluate how an investment in the Insured Fund and the
Intermediate-Term Fund may satisfy your investment objective, advertisements and
other materials regarding such Funds may discuss certain measures of performance
of each Fund or class 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 or its component indices - 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 - measures yield,
price, and total return for Treasury, agency, corporate and mortgage bonds.
f) Lehman Brothers Aggregate Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate, mortgage and
Yankee bonds.
g) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
h) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg, L.P.
i) Financial publications: The Wall Street Journal, Business Week, Changing
Times, 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 the performance of a Fund or a
class to the return on certificates of deposit or other investments. You should
be aware, however, that an investment in a Fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a
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.
MONEY FUND
Current Yield
Current yield reflects the interest income per share earned by the Fund's
portfolio investments and 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,
1995, was 3.79%.
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, 1995, was 3.86%.
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 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. These yields are computed by dividing the portion of the Money
Fund's yield (computed as indicated above) that is tax-exempt by one minus the
highest applicable combined federal and state income tax rate (and adding the
product to the portion of the Money Fund's yield that is not tax-exempt, if
any). The tax equivalent yield based on the current yield of the Money Fund for
the seven-day period ended on December 31, 1995, was 7.14%. The tax equivalent
effective yield based on the effective yield of the Money Fund for the seven-day
period ended on December 31, 1995, was 7.23%. 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 you better evaluate how an investment in the Money Fund may satisfy your
investment objective, advertisements and other materials regarding the Money
Fund may discuss certain measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
Such comparisons may include, but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report(R) - Industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
b) Bank Rate Monitor - A weekly publication 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 and 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.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of the Fund's fixed-income investments, as well as the value of
its shares which are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
General
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Money Fund's portfolio, the indices and averages are generally
unmanaged, and 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 its
performance as compared to such other averages.
Other Features and Benefits
ALL FUNDS
Under current tax laws, municipal securities remain one of the few investments
offering the potential for tax-free income. In 1996, 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 1996.)
Franklin tax-free funds, however, offer tax relief through a professionally
managed portfolio of tax-free securities selected based on their yield, quality
and maturity. An investment in a Franklin tax-free fund can provide you with the
potential to earn income free of federal taxes and, depending on the fund, state
and local taxes as well, while supporting state and local public projects.
Franklin tax-free funds 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 U.S. 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 your unique goals and needs, as well as the types of risks
associated with such investment.
Each Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and/or
other long-term goals. The Franklin College Costs Planner may assist you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in a Fund
cannot guarantee that such goals will be met.
Miscellaneous Information
Each Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $140
billion in assets under management for more than 4 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offer to the public 115 U.S.-based mutual funds. The
Fund may identify itself by its NASDAQ symbol or CUSIP number.
Franklin is a leader in the tax-free mutual fund industry and manages more than
$42 billion in municipal bond assets for over half a million investors.
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 August 31, 1995, this
ranking was unchanged.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
From time to time 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 annual amount of time the average taxpayer works to satisfy his or
her tax obligations to the federal, state and local taxing authorities.
As of February 12, 1996, the principal shareholder of the Insured Fund-Class II,
beneficial or of record, was as follows:
Share
Name and Address Amount Percentage
Brewster J. Chase
252 Etna Rd.
Ithaca, NY 14850-91226..... 6,476.684 5.9%
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
Employees of Resources or its subsidiaries who are access persons under the 1940
Act are permitted to engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed within 24
hours after clearance; (ii) copies of all brokerage confirmations must be sent
to a compliance officer and, within 10 days after the end of each calendar
quarter, a report of all securities transactions must be provided to the
compliance officer; and (iii) access persons involved in preparing and making
investment decisions must, in addition to (i) and (ii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.
As a shareholder of a Massachusetts business trust, you could under certain
circumstances, be held personally liable as partners for its obligations. The
Trust's Agreement and 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 if you are 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 you for any act or
obligation of the Trust and satisfy any judgment thereon. All such rights are
limited to the assets of a Fund. 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. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of a Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely 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 your 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 IRS in response to a Notice of Levy.
Financial Statements
The audited financial statements contained in the Trust's Annual Report to
Shareholders for the fiscal year ended December 31, 1995, including the
auditors' report, are incorporated herein by reference.
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 you 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. This information, however, has not been independently
verified by the Trust.
New York State. Constitutional challenges to State laws have limited the amount
of taxes that 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 that 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 affected. 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 that 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 1.1% per year compared to the nation's 1.6%. 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 in 1994 accounted for approximately
31.5% and 20.2%, respectively, of the State's total employment. The State's
manufacturing sector, which currently represents approximately 12% of the
State's total employment, is expected to continue to decline at an annual rate
of 1.2%.
New York is the third most populated state in the nation. The State's per capita
income exceeded the national average by 19.2% in 1994, although real income
growth is projected to lag behind the nation by 0.9%. Debt levels are considered
high and continue to rise on both a per capita basis and as a percentage of
income. For example, debt per capita was $1,536 in 1995 compared with $549 in
1986. Debt service represented 5.9% of general fund tax receipts in fiscal 1995.
Servicing this debt will continue to impose a burden on the State.
The State's fiscal year 1995 financial report showed signs of continued
improvement in the State's financial performance with a decline in the general
fund operating deficit as a result of a reduction in spending by almost $850
million. The State's fiscal 1996 financial plan was balanced and included the
first phase of a income tax reduction plan.
Current projections for fiscal year 1997 show a budget deficit of as much as
$3.9 billion. It is anticipated, however, that the fiscal and debt reforms
during the past two years will continue in the immediate future.
New York City. In 1975, New York City suffered several financial crises that
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 a financial plan to the FCB 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 resulted from an estimated $650 million budget gap for the
fiscal year and the role of certain fundamental economic forces. The ratings of
the City's short-term notes and insured issues were not affected.
While it appears that the financial services sector will drive growth in tax
revenues, the City's high energy costs and overall tax burden relative to
surrounding areas have contributed to corporate and residential relocations over
the last decade. Employment growth is expected to average only 1% between 1996
and 1999, but personal income is still expected to reflect the national trend of
4.25% average annual growth, due in part to the higher incomes paid in the
financial services industry.
The failure to achieve budgetary relief from higher levels of government,
expenditure reduction plans that were less successful than anticipated, normal
forecasting errors in estimating tax revenues and other considerations have
resulted in a projected $759 million gap for the remainder of the 1996 fiscal
year. Projections for the City's fiscal year 1997 estimate a budget deficit of
$2 billion. 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 that 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
Description of Municipal Bond Ratings
Moody's
Aaa: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa: Municipal bonds rated Baa are considered as 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 rated Ba are judged to have predominantly speculative
elements; 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 rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Municipal bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Municipal bonds rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked shortcomings.
C: Municipal bonds rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Con.(-): Municipal bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon the
completion of construction or the elimination of the basis of the condition.
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 the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in 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: 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: Municipal bonds rated AAA are 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: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA, and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefor impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Description of Municipal Note Ratings
Moody's
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Description of Commercial Paper Ratings
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
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
NYT SAI 05/96
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
Semi-Annual Report to Shareholders dated June 30, 1996 as filed with the SEC
electronically on Form Type N-30D on August 29, 1996
(1) Unaudited financial statements dated November 30, 1994
(i) Statement of Investments in Securities and Net Assets - June 30, 1996
(ii) Statement of Assets and Liabilities - June 30, 1996
(iii)Statements of Changes in Net Assets - for the six months ended June
30, 1996 and for the year ended December 31, 1996
(iv) Notes to Financial Statements
b) Financial Statements incorporated herein by reference to the Registrant's
Annual Report to Shareholders dated December 31, 1995 as filed with the SEC
electronically on form type N-30D on February 28, 1996.
(i) Report of Independent Auditors
(ii) Statements of Investments in Securities and Net Assets - December
31, 1995
(iii) Statements of Assets and Liabilities - December 31, 1995
(iv) Statements of Operations - for the year ended December 31, 1995
(v) Statements of Changes in Net Assets - for the years ended December
31, 1995 and 1994.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are incorporated by reference, except for exhibit 5(iv),
5(v), 5(vi), 11(i), 13(i), 15(iii) and 18(i) which are filed herewith.
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated July 17, 1986
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(ii) Amendment to the Agreement and Declaration of Trust dated January 22,
1991.
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(iii)Certificate of Amendment of Agreement and Declaration of Trust dated
March 21, 1995
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant, including
copies of all constituent instruments, defining the rights of the holders
of such securities, and copies of each security being registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the management of
the assets of the Registrant;
(i) Management Agreement between Registrant on behalf of the Franklin New
York Tax-Exempt Money Fund and Franklin Advisers, Inc. dated October
10, 1986
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(ii) Management Agreement between Registrant on behalf of the Franklin New
York Insured Tax-Free Income Fund and Franklin Advisers, Inc. dated
April 23, 1991
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(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
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(iv) Amendment dated August 1, 1995 to the Management Agreement between
Franklin New York Tax-Free Trust on behalf of Franklin New York
Tax-Exempt Money Fund and Franklin Advisers, Inc., dated October 10,
1986
(v) Amendment dated August 1, 1995 to the Management Agreement between
Franklin New York Tax-Free Trust on behalf of Franklin New York
Insured Tax-Free Income Fund and Franklin Advisers, Inc., dated
April 23, 1991
(vi) Amendment dated August 1, 1996 to the Management Agreement between
Franklin New York Tax-Free Trust on behalf of 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) 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. dated May 16, 1995
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: March 1, 1996
(ii) Amended and Restated Distribution Agreement between Registrant on
behalf of the Franklin New York Tax-Exempt Money Fund and
Franklin/Templeton Distributors, Inc. dated March 29, 1995
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: March 1, 1996
(iii)Forms of Dealer Agreements between Franklin/Templeton Distributors,
Inc., and Securities Dealers:
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to
Registration on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(7) copies of all bonus, profit sharing, pension or other similar contracts or
arrangements wholly or partly for the benefit of directors or officers of
the Registrant in their capacity as such; any such plan that is not set
forth in a formal document, furnish a reasonably detailed description
thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts under Section
17(f) of the 1940 Act, with respect to securities and similar investments
of the Registrant, including the schedule of remuneration;
(i) Custodian Agreement dated April 23, 1991 between Registrant and Bank
of America NT & SA
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(ii) Copy of Custodian Agreements between Registrant and Citibank Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposits and Disbursements of Funds:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 55 to Registration Statement on
Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(iii)Master Custody Agreement between Registrant and Bank of New York dated
February 16, 1996
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: March 1, 1996
(iv) Terminal Link Agreement between Registrant and Bank of New York dated
February 16, 1996
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: March 1, 1996
(9) copies of all other material contracts not made in the ordinary course of
business which are to be performed in whole or in part at or after the
date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will, when sold, be legally
issued, fully paid and nonassessable;
Not Applicable
(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 August 26, 1996
(12) all financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;
(i) Letter of Understanding dated April 12, 1995
(14) copies of the model plan used in the establishment of any retirement plan
in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
Not Applicable
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1 under
the 1940 Act, which describes all material aspects of the financing of
distribution of Registrant's shares, and any agreements with any person
relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between Registrant on behalf
of Franklin New York Insured Tax-Free Income Fund and
Franklin/Templeton Distributors, Inc. dated May 1, 1994.
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(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.
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(iii)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 dated March 30, 1995
(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
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(17) Power of Attorney
(i) Power of Attorney dated February 16, 1995
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(ii) Certificate of Secretary dated February 16, 1995
Filing: Post-Effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 1995
(18) Copies of any plan entered into by registrant pursuant to Rule 18f-3
under the 1940 Act
(i) Multiple Class Plan dated October 19, 1995
(27) Financial Data Schedule
Not Applicable
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of June 30, 1996 the number of record holders of each class of securities of
the Registrant was as follows:
Number of
TITLE OF CLASS RECORD HOLDERS
Class I Class II
Shares of Beneficial
Interest of Franklin New York Insured
Tax-Free Income Fund 5,005 xxx
Shares of Beneficial
Interest of Franklin New York Tax-Exempt Money
Fund 4,031 N/A
Shares of Beneficial
Interest of Franklin New York
Intermediate-Term Tax-Free Income Fund 1,018 N/A
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
a) Franklin Advisers, Inc.
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Templeton Group of
Funds(R). In addition, Mr. Charles B. Johnson is a director of General Host
Corporation. For additional information please see Part B and Schedules A and D
of Form ADV of the Funds' Investment Manager (SEC File 801-26292), incorporated
herein by reference, which sets forth the officers and directors of the
Investment Manager and information as to any business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
AGE High Income Fund, Inc.
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc.
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Real Estate Securities Trust
Franklin Tax-Advantaged High Yield Securities
Fund Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Global Real Estate Securities Fund
Templeton Global Smaller Companies Growth Fund, Inc.
Templeton Variable Products Series Fund
b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this N-1A and
Schedule A of Form BD filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File No. 8-5889).
c) Not Applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 are kept by the 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 percent 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 28th day of August, 1996.
FRANKLIN NEW YORK TAX-FREE TRUST
(Registrant)
By: RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
RUPERT H. JOHNSON, JR.* Principal Executive Officer and Trustee
Rupert H. Johnson, Jr. Dated: August 28, 1996
FRANK H. ABBOTT, II* Trustee
Frank H. Abbott, II Dated: August 28, 1996
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: August 28, 1996
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: August 28, 1996
DAVID W. GARBELLANO* Trustee
David W. Garbellano Dated: August 28, 1996
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: August 28, 1996
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: August 28, 1996
WILLIAM J. LIPPMAN* Trustee
William J. Lippman Dated: August 28, 1996
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: August 28, 1996
MARTIN L. FLANAGAN* Principal Financial Officer Dated:
Martin L. Flanagan August 28, 1996
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: August 28, 1996
*By /S/ LARRY L. GREENE
Larry L. Greene, Attorney-in-Fact
(Pursuant to a Power of Attorney previously filed)
FRANKLIN NEW YORK TAX-FREE TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust dated *
July 17, 1986
EX-99.B1(ii) Amendment to the Agreement and Declaration *
of Trust dated January 22, 1991
EX-99.B1(iii) Certificate of Amendment of Agreement and *
Declaration of Trust dated March 21, 1995
EX-99.B2(i) By-Laws *
EX-99.B5(i) Management Agreement between Registrant on *
behalf of the Franklin New York Tax-Exempt
Money Fund and Franklin Advisers, Inc.,
dated October 10, 1986
EX-99.B5(ii) Management Agreement between Registrant on *
behalf of the Franklin New York Insured
Tax-Free Income Fund and Franklin Advisers,
Inc., dated April 23, 1991
EX-99.B5(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
EX-99.B5(iv) Amendment dated August 1, 1995 to the Attached
Management Agreement between Franklin New
York Tax-Free Trust on behalf of Franklin
New York Tax-Exempt Money Fund and Franklin
Advisers, Inc., dated October 10, 1986
EX-99.B5(v) Amendment dated August 1, 1995 to the Attached
Management Agreement between Franklin New York
Tax-Free Trust on behalf of Franklin New York
Insured Tax-Free Income Fund and Franklin
Advisers, Inc., dated April 23, 1991
EX-99.B5(vi) Amendment dated August 1, 1995 to the Attached
Management Agreement between Franklin New
York Tax-Free Trust on behalf of Franklin
New York Intermediate-Term Tax-Free Income
Fund and Franklin Advisers, Inc., dated
September 21, 1992
EX-99.B6(i) 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., dated May 16, 1995
EX-99.B6(ii) Amended and Restated Distribution Agreement *
between Registrant on behalf of the Franklin
New York Tax-Exempt Money Fund and
Franklin/Templeton Distributors, Inc., dated
March 29, 1995
EX-99.B6(iii) Forms of Dealer Agreements between *
Franklin/Templeton Distributors, Inc., and
Securities Dealers
EX-99.B8(i) Custodian Agreement dated April 23, 1991 *
between Registrant and Bank of America NT&SA
EX-99.B8(ii) Copy of Custodian Agreements between *
Registrant and Citibank Delaware
EX-99.B8(iii) Master Custody Agreement between Registrant *
and Bank of New York dated February 16, 1996
EX-99.B8(iv) Terminal Link Agreement between Registrant *
and Bank of New York dated February 16, 1996
EX-99.B11(i) Consent of Independent Auditors dated August Attached
26, 1996
EX-99.B13(i) Letter of Understanding dated April 12, 1995 Attached
EX-99.B15(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
EX-99.B15(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
EX-99.B15(iii) Distribution Plan pursuant to Rule 12b-1 Attached
between Franklin/Templeton Distributors,
Inc., and Registrant on behalf of Franklin
New York Insured Tax-Free Income Fund -
Class II dated March 30, 1995
EX-99.B16(i) Schedule for computation of Performance *
Quotation
EX-99.B17(i) Power of Attorney dated February 16, 1995 *
EX-99.B17(ii) Certificate of Secretary dated February 16, *
1995
EX-99.B18(i) Multiple Class Plan dated October 19, 1995 Attached
* Incorporated by Reference
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management Agreement
dated October 10, 1986 as amended effective November 20, 1990, by and between
FRANKLIN NEW YORK TAX-FREE TRUST (formerly known as FRANKLIN NEW YORK TAX-EXEMPT
MONEY FUND), a Massachusetts business trust ("Trust") on behalf of FRANKLIN NEW
YORK TAX-EXEMPT MONEY FUND, (the "Fund"), a series of the Trust, and FRANKLIN
ADVISERS, INC., a California corporation, (the "Manager"). The undersigned
parties, intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 B. is amended to read:
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 cost 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 waive all or a portion of its fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of its services. The
Manager shall be contractually bound hereunder by the terms of any publicly
announced waiver of its fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were full set forth herein.
(2) All other provisions of the Management Agreement remain in full force
and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
FRANKLIN NEW YORK TAX-FREE TRUST, on behalf of Franklin New York Tax-Exempt
Money Fund
By /s/Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
By /s/Harmon E. Burns
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management Agreement
dated April 23, 1991, by and between FRANKLIN NEW YORK TAX-FREE TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN NEW YORK
INSURED TAX-FREE INCOME FUND (the "Fund"), a series of the Trust, and FRANKLIN
ADVISERS, INC., a California corporation, (the "Manager"). The undersigned
parties, intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 B. is amended to read:
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 cost 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. The Manager may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bound hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of the Fund's
expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Management Agreement dated April 23, 1991,
remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
FRANKLIN NEW YORK TAX-FREE TRUST
On behalf of Franklin New York
Insured Tax-Free Income Fund
By /s/Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
By /s/Harmon E. Burns
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management Agreement
dated September 21, 1992, by and between FRANKLIN NEW YORK TAX-FREE TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN NEW YORK
INTERMEDIATE-TERM TAX-FREE INCOME FUND , a series of the Trust, and any separate
series of the Trust which hereafter adopts the Management Agreement (the
"Funds"), and FRANKLIN ADVISERS, INC., a California corporation, (the
"Manager"). The undersigned parties, intending to be legally bound, hereby agree
as follows:
(1) Paragraph 4 B. is amended to read:
B. The management fee payable by a Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain cost 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. The Manager may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bound hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of a Fund's
expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Management Agreement dated September 21,
1992, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
FRANKLIN NEW YORK TAX-FREE TRUST
By /s/Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
By /s/Harmon E. Burns
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 14
to the Registration Statement of Franklin New York Tax-Free Trust on Form N-1A
File Nos. 33-7785 and 811-4787 of our report dated January 31, 1996 on our audit
of the financial statements and financial highlights of Franklin New York
Tax-Free Trust, which report is included in the Annual Report to Shareholders
for the year ended December 31, 1995, which is incorporated by reference in the
Registration Statement.
COOPERS & LYBRAND L.L.P.
/s/Coopers Y Lybrand L.L.P.
San Francisco, California
August 26, 1996
To: All Franklin Templeton Funds Listed on Schedule A
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to invest $100.00 in the Class II shares (the "Shares") of
each of the Funds listed on the attached Schedule A (the "Funds"), on the
business day immediately preceding the effective date for each Fund's Class
II shares, at a purchase price per share equivalent to the net asset value
per share of each Fund's Class I shares on the date of purchase. We will
purchase the Shares in a private offering prior to the effectiveness of the
post-effective amendment to the Form N-1A registration statement under which
each Fund's Class II shares are initially offered, as filed by the Fund under
the Securities Act of 1933. The Shares are being purchased to serve as the
seed money for each Fund's Class II shares prior to the commencement of the
public offering of Class II shares.
In connection with such purchase, we understand that we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired.
We consent to the filing of this Investment Letter as an exhibit to the
form N-1A registration statement of each Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
Date: April 12, 1995
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
</TABLE>
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: March 30, 1995
Investment Company
By: /s/Deborah R. Gatzek
Franklin/Templeton Distributors, Inc.
By: /s/Gregory Johnson
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of
each of the Boards of Directors or Trustees ("Boards") of the Franklin Funds and
Fund series listed on the attached Schedule A (the "Funds"). The Boards have
determined that the Plan is in the best interests of each class and each Fund as
a whole. The Plan sets forth the provisions relating to the establishment of
multiple classes of shares for each Fund.
1. Each Fund shall offer two classes of shares, to be known as Class I and
Class II.
2. Class I shares shall carry a front-end sales charge ranging from 0% -
4.50%, and Class II shares shall carry a front-end sales charge 1.00%, all as
set forth in each Fund's Prospectus.
3. Class I shares shall not be subject to a contingent deferred sales
charge ("CDSC") except in the following limited circumstances. On investments of
$1 million or more, a contingent deferred sales charge of 1.00% of the lesser of
the then-current net asset value or the original net asset value at the time of
purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in each Fund's prospectus.
4. Class II shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% of the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in each Fund's prospectus.
5. The Rule 12b-1 Plan associated with Class I shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or other for
expenses incurred in the promotion and distribution of the shares of Class I.
Such expenses include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution -related
expenses including a prorated portion of the Distributor's overhead expenses
attributable to the distribution of Class I 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 for Class I shares or with the
Distributor or its affiliates.
The Rule 12b-1 Plan associated with Class II shares has two components.
The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who will provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after sale of shares, and, in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class II shares, in a manner similar to that described above for Class I shares.
The Plans shall operate in accordance with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article III, section
26(d).
6. The only difference in expenses as between Class I and Class II
shares shall relate to differences in the Rule 12b-1 plan expenses of each
class, as described in each class' Rule 12b-1 Plan.
7. There shall be no conversion features associated with the Class I
and Class II shares.
8. Shares of either Class may be exchanged for shares of another
investment company within the Franklin Templeton Group of Funds according to the
terms and conditions stated in each fund's prospectus, as it may be amended from
time to time, to the extent permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder.
9. Each Class will vote separately with respect to the Rule 12b-1
Plan related to that Class.
10. On an ongoing basis, each Fund's Board pursuant to the fiduciary
responsibilities under the 1940 Act and otherwise, will monitor each Fund for
the existence of any material conflicts between the interests of the two classes
of shares. Each Board, including a majority of the independent Board members,
shall take such action as is reasonably necessary to eliminate any such conflict
that may develop. Franklin Advisers, Inc. and Franklin/Templeton Distributors,
Inc. shall be responsible for alerting the Board to any material conflicts that
arise.
11. All material amendments to this Plan must be approved by a
majority of the Board members of each Fund, including a majority of the Board
members who are not interested persons of each Fund.
I, Deborah R. Gatzek, Secretary of the Franklin Funds, do hereby
certify that this Multiple Class Plan has been adopted by a majority of each of
the Boards of Directors or Trustees of the Franklin Funds and Fund series listed
on the attached Schedule A on April 18, 1995.
Date: October 19, 1995 By: /s/Deborah R. Gatzek
Deborah R. Gatzek
Secretary
