As filed with the Securities and Exchange Commission on March 1, 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. 13 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14 (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)
____ on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
x on May 1, 1996 pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a) (ii)
on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The 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 Table"
3. Condensed Financial "Financial Highlights - How Has the
Information Fund Performed?"; "How Does the Fund
Measure Performance?"
4. General Description "What is the Franklin New York
Tax-Exempt Money Fund?"; "How Does
the Fund Invest Its Assets?";
"General Information"
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 "What Distributions Might I Receive
Securities from the Fund?"; "How Taxation
Affects You and the Fund"; "General
Information"
7. Purchase of Securities "How Do I Buy Shares?"; "How
Being Offered Taxation Affects You and the Fund";
"What Program and Privileges Are
Available to Me as a Shareholder?";
"What If My Investment Outlook
Changes? - Exchange Privilege"; "How
Are Fund Shares Valued?"
8. Redemption or Repurchase "How Do I Sell Shares?"; "How Are
Fund Shares Valued?"; "How Do I Get
More Information About My
Investment?"; "What If My Investment
Outlook Changes? - Exchange
Privilege"; "General Information";
"Telephone Transactions"
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 Table"
3. Condensed Financial "Financial Highlights - How Has the
Information Fund Performed?"; "How Does the Fund
Measure Performance?"
4. General Description "What Is the Franklin New York
Insured Tax-Free Income Fund?"; "How
Does the Fund Invest Its Assets?";
"General Information"
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 "What Distributions Might I Receive
Securities From the Fund?"; "Taxation of the
Fund and Its Shareholders"; "General
Information"
7. Purchase of Securities "How Do I Buy Shares?"; "How
Being Offered Taxation Affects You and the Fund";
"What Programs and Privileges Are
Available to Me as a Shareholder?";
"What If My Investment Outlook
Changes?- Exchange Privilege"; "How
Are Fund Shares Valued?"
8. Redemption or Repurchase "How Do I Sell Shares?"; "How Are
Fund Shares Valued?"; "How Do I Get
More Information About My
Investment?"; "What If My Investment
Outlook Changes? - Exchange
Privilege"; "General Information";
"Telephone Transactions"
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 Has the
Information Fund Performed?"; "How Does the Fund
Measure Performance?"
4. General Description "What Is the Franklin New York
Intermediate-Term Tax-Free Income
Fund?"; "How Does the Fund Invest
Its Assets?"; "General Information"
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 "What Distributions Might I Receive
Securities From the Fund?"; "How Taxation
Affects you and the Fund"; "General
Information"
7. Purchase of Securities "How to Buy Shares of the Fund";
Being Offered "How Taxation Affects You and the
Fund"; "What Programs and Privileges
Are Available to Me as a
Shareholder?"; "What If My
Investment Outlook Changes?-Exchange
Privilege"; "How Are Fund Shares
Valued?"
8. Redemption or Repurchase "How Do I Sell Shares?"; "How Are
Fund Shares Valued?"; "How Do I Get
More Information About My
Investment?"; "What If My Investment
Outlook Changes? - Exchange
Privilege"; "General Information";
"Telephone Transactions"
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
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and Cover Page; see also section "What
History Is the Franklin New York Tax-Exempt
Money Fund?"; "What Is the Franklin
New York Insured Tax-Free Income
Fund?"; "What Is the Franklin New
York Intermediate-Term Tax-Free
Fund?" in the Funds' Prospectuses
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
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"
17. Brokerage Allocation "How Do the Funds Purchase
Securities For Their Portfolios?"
18. Capital Stock and Other "How Do I Buy and Sell Shares?";
Services "How Are Fund Shares Valued?";
"General Information"
19. Purchase, Redemption "Additional Information Regarding
Pricing of Securities Being Fund Shares?"
Offered
20. Tax Status "Additional Information Regarding
Taxation"
21. Underwriters "The Trust's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements "Financial Statements"
FRANKLIN
NEW YORK
TAX-EXEMPT
MONEY FUND
FRANKLIN NEW YORK TAX-FREE TRUST
PROSPECTUS
MAY 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
The Franklin New York Tax-Exempt Money Fund (the "Fund") is one of three
non-diversified series of the Franklin New York Tax-Free Trust (the "Trust"),
an open-end management investment company. The Fund is a no-load,
non-diversified, open-end series of the Trust offering individual investors,
corporations and other institutions a convenient way to invest in a
professionally managed portfolio of high quality, short-term municipal
securities, primarily of the state of New York, its political subdivisions
and New York City. The Fund's investment objective is to provide investors
with as high a level of income exempt from federal income taxes and New York
State and New York City personal income taxes as is consistent with prudent
investment management, while seeking preservation of shareholders' capital
and liquidity in its investments.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
An SAI concerning the Trust, dated May 1, 1996, as may be amended from time
to time, provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. A copy is available without charge from the Fund or the
Fund's principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative,
dealer, or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
CONTENTS PAGE
Expense Table
Financial Highlights - How Has the Fund Performed?
What Is the New York Tax-Free Trust?
How Does the Fund Invest Its Assets?
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding
Taxpayer IRS Certifications
Risk Factors in New York
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund, before fee waivers and expense reductions, for the
fiscal year ended December 31, 1995.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.62%*
Other Expenses:
Shareholder Servicing Costs 0.12 %
Reports to Shareholders 0.07 %
Other Expenses 0.04 %
Total Other Expenses 0.23%
Total Fund Operating Expenses 0.85%*
*Advisers has agreed in advance to waive a portion of its management fee and
to make certain payments to reduce expenses of the Fund. With this reduction,
management fees and total operating expenses represented 0.37% and 0.60%,
respectively, of the average net assets of the Fund.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end
of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
$9 $27 $47 $105
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, BEFORE FEE
WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by you as a result of your investment in the Fund. In addition, federal
securities regulations require the example to assume an annual return of 5%,
but the Fund's actual return may be more or less than 5%.
This example is based on the aggregate annual operating expenses, before fee
waivers or expense reductions, shown above and should not be considered a
representation of past or future expenses, which may be more or less than
those shown. The operating expenses are borne by the Fund and only indirectly
by shareholders as a result of their investment in the Fund. In addition,
federal regulations require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing the financial highlights for a share of
the Fund. The information for each of the five fiscal years in the period
ended December 31, 1995 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements
in the Fund's Trust's Annual Report to Shareholders dated December 31, 1995.
The remaining figures, which are also audited, are not covered by the
auditors' current report. See "Reports to Shareholders" under "General
Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Ratio of Net
Net Asset Net Realized Distributions Net Asset Net Assets Ratio of Investment
Year Value Net & Unrealized Total From From Net Value at End Expenses Income Portfolio
Ended Beginning Investment Gains on Investment Investment at End Total of Year to Average to Average Turnover
December 31 of Year Income Securities Operations Income of Year Return+ (in 000's) Net Assets++Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986* $1.00 $.014 $- $.014 $(.014) $1.00 1.07% $ ,825 -% 4.27%*** - %
1987** 1.00 .041 - .041 (.041) 1.00 4.17 54,886 .44 4.04 -
1988** 1.00 .044 - .044 (.044) 1.00 4.51 53,877 .46 4.46 -
1989 1.00 .056 - .056 (.056) 1.00 5.75 75,556 .57 5.59 -
1990 1.00 .050 - .050 (.050) 1.00 5.13 92,277 .59 5.02 -
1991 1.00 .036 - .036 (.036) 1.00 3.63 70,503 .69 3.52 -
1992 1.00 .021 - .021 (.021) 1.00 2.10 54,122 .65 2.12 -
1993 1.00 .017 - .017 (.017) 1.00 1.67 50,317 .63 1.68 -
1994 1.00 .021 - .021 (.021) 1.00 2.11 64,835 .60 2.12 -
1995 1.00 .031 - .031 (.031) 1.00 3.11 61,079 .60 3.06 -
*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 period
indicated. It is not annualized. It 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 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:
.
Period Ended Ratio of Expenses to
Dec. 31 Average Net Assets
1987 .78%
1988 .82
1989 .82
1990 .79
1991 .84
1992 .89
1993 .97
1994 .93
1995 .85
</TABLE>
WHAT IS THE FRANKLIN NEW YORK TAX-FREE TRUST?
The Trust is an open-end management investment company, or mutual fund,
organized as a Massachusetts business trust in July 1986 and registered with
the SEC under the Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of three series, each of which issues a separate series of
the Trust's shares and maintains a totally separate investment portfolio.
This Prospectus relates only to the Franklin New York Tax-Exempt Money Fund.
The Fund attempts to maintain a stable net asset value of $1.00 per share,
although there is no assurance that this will be achieved. Although a
shareholder may write redemption drafts (similar to checks) against the
account, the purchase of shares of the Fund does not create a checking or
other bank account.
Shares of the Fund may be purchased at net asset value (without a sales
charge) with an initial investment of at least $500 and subsequent
investments of $25 or more. (See "How Do I Buy Shares?")
HOW DOES THE FUND INVEST ITS ASSETS?
The Fund seeks to provide investors with as high a level of income exempt
from federal income taxes and from the personal income taxes of New York
State and New York City as is consistent with prudent investment management,
while seeking the preservation of shareholders' capital and liquidity. This
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. As with any investment, there is no assurance that the
Fund's objective will be achieved.
Under normal market conditions, the Fund attempts to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of its total assets in
debt obligations issued by or on behalf of the state of New York or any
state, territory or possession of the United States, the District of Columbia
and their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which is exempt from regular federal income
taxes and is not subject to the federal alternative minimum tax. It is
possible, although not anticipated, that up to 20% of the Fund's net assets
could be in municipal securities subject to the alternative minimum tax
and/or in taxable obligations.
In addition, under normal market conditions, the Fund will invest at least
65% of its total assets in high quality municipal securities and obligations
issued by or on behalf of the state of New York and its local governments,
municipalities, authorities, agencies and political subdivisions, and those
of certain other governmental issuers, such as the Commonwealth of Puerto
Rico, which pay income exempt from regular federal and New York State and New
York City income taxes ("New York Municipal Securities"). Dividends paid by
the Fund which are derived from interest on tax-exempt obligations that are
not New York Municipal Securities will be exempt from federal income tax, but
will be subject to New York State and New York City personal income taxes. It
is possible, although not anticipated, that up to 35% of the Fund's net
assets could be in municipal securities from a state other than New York.
For temporary defensive purposes only, the Fund may invest (i) more than 20%
of its assets (which could be up to 100%) in money market instruments the
interest on which is subject to regular federal income tax and/or the
alternative minimum tax, and (ii) more than 35% of the value of its net
assets (which could be up to 100%) in money market instruments the interest
on which is exempt from regular federal income taxes but not New York State
and New York City personal income taxes. Periods when a defensive posture is
warranted include those periods when the Fund's monies available for
investment exceed the New York Municipal Securities then available for
purchase and which meet the Fund's objective or, in the investment manager's
opinion, there exist uncertain economic, market, political, or legal
conditions which may jeopardize the value of some or all types of municipal
securities.
In accordance with procedures adopted pursuant to Rule 2a-7 under the 1940
Act, the Fund limits its investments to those U.S. dollar denominated
instruments which the Board of Trustees of the Trust determines present
minimal credit risks and which are, as required by the federal securities
laws, rated in one of the two highest rating categories (within which there
may be sub-categories or gradations indicating relative standing) as
determined by nationally recognized statistical rating organizations, or
which are unrated and of comparable quality, with remaining maturities of 397
calendar days or less ("Eligible Securities"). The Fund maintains a dollar
weighted average maturity of the securities in its portfolio of 90 days or
less. These procedures are not fundamental policies of the Fund. See the SAI
for a description of ratings.
If a security ceases to be rated in the highest rating category, or the
investment manager becomes aware that a security has been rated below the
second highest rating category, not including changes in a security's
relative standing within a category, subsequent to its purchase by the Fund,
the Board of Trustees will promptly reassess whether such security presents
minimal credit risks and shall take such action as it deems to be in the best
interest of the Fund and its shareholders, unless such security is sold or
matures within five business days of the investment manager becoming aware of
the new rating category and the trustees are notified of the investment
manager's actions. In addition to considering ratings assigned by the rating
services in its selection of portfolio securities for the Fund, the
investment manager will consider, among other things, information concerning
the financial history and condition of the issuer, the revenue and expense
prospects and, in the case of revenue bonds, the financial history and
condition of the source of revenue to service the bonds. Because the Fund
limits its investments to high quality securities, the Fund's portfolio will
generally earn lower yields than if the Fund purchased securities with a
lower rating and correspondingly greater risk and the yield to shareholders
in the Fund is accordingly likely to be lower.
The Fund may borrow from banks for temporary or emergency purposes and pledge
up to 5% of its total assets therefor. Although the Fund does not currently
intend to do so, consistent with procedures approved by the Board of Trustees
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Fund's total
assets at the time of the most recent loan. See the SAI for more information.
It is the policy of the Fund that restricted securities and other illiquid
securities (securities that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which the Fund has
valued the securities) may not constitute, at the time of the purchase, more
than 10% of the value of the total net assets of the Fund.
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus, means
obligations issued by or on behalf of the state of New York or any state,
territory or possession of the U.S. and the District of Columbia, and their
political subdivisions, agencies, and instrumentalities, the interest on
which is exempt from federal income tax. An opinion as to the tax-exempt
status of a municipal security is generally rendered to the issuer by the
issuer's bond counsel at the time of issuance of the security.
Municipal securities are used to raise money for various public purposes,
such as constructing public facilities and making loans to public
institutions. Certain types of municipal bonds are issued to obtain funding
for privately operated facilities. The Fund will purchase municipal
securities only to the extent the purchase of such securities would be
consistent with the maturity and other requirements of Rule 2a-7 under the
1940 Act. Further information on the maturity and funding classifications of
municipal securities is included in the SAI.
The Fund may invest up to 25% of its net assets in the debt obligations of a
single municipal issuer. It is possible, from time to time, that the Fund
will invest more than 25% of its assets in a particular segment of the
municipal securities market, including, but not limited to, hospital revenue
bonds, housing agency bonds, industrial development bonds, transportation
bonds, or pollution control revenue bonds. In such circumstances, economic,
business, political or other changes affecting one bond (such as proposed
legislation affecting the financing of a project; shortages or price
increases of needed materials; or declining markets or needs for the
projects) might also affect other bonds in the same segment, thereby
potentially increasing market risk.
The interest on bonds issued to finance public purpose state and local
government operations is generally tax-exempt for regular federal income tax
purposes. Interest on certain "private activity bonds" (including those for
housing and student loans) issued after August 7, 1986, while still
tax-exempt, constitutes a preference item for taxpayers in determining the
federal alternative minimum tax under the Internal Revenue Code of 1986, as
amended (the "Code"), and under the income tax provisions of some states.
This interest could subject a shareholder to, or increase the shareholder's
liability under, the federal alternative minimum tax, depending on the
shareholder's tax situation. In addition, all distributions derived from
interest exempt from regular federal income tax may subject a corporate
shareholder to, or increase its liability under, the federal alternative
minimum tax, because such distributions are included in the corporation's
"adjusted current earnings." In states with a corporate franchise tax,
distributions of the Fund may also be fully taxable to a corporate
shareholder under its state franchise tax system. Consistent with the Fund's
investment objective, the Fund may acquire such private activity bonds if, in
the investment manager's opinion, such bonds represent the most attractive
investment opportunity then available to the Fund. As of December 31, 1995,
the Fund had 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.
The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in prevailing market rates on predesignated dates. The Fund may also
invest in variable or floating rate demand notes ("VRDNs"), which carry a
demand feature that permits the Fund to tender the obligation back to the
issuer or a third party at par value plus accrued interest prior to maturity,
according to the terms of the obligation, which amount may be more or less
than the amount the Fund paid for such obligation. Because of the demand
feature, the prices of VRDNs may be higher and the yields lower than they
otherwise would be for obligations without a demand feature. The Fund may
invest in floating rate and variable rate obligations carrying stated
maturities in excess of one year at the date of purchase by the Fund if such
obligations carry demand features that comply with certain conditions and
rules adopted by the SEC. The Fund will limit its purchase of municipal
securities that are floating rate and variable rate obligations to those
meeting the quality standards set forth in this Prospectus. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements. The quality of the underlying creditor must, as determined by
the investment manager under the supervision of the Board of Trustees, also
be equivalent to the quality standards set forth in this Prospectus. In
addition, the investment manager monitors the earning power, cash flow and
other liquidity ratios of the issuers of such obligations, as well as the
creditworthiness of the institution responsible for paying the principal
amount of the obligation under the demand feature.
The Fund may purchase and sell municipal securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market
fluctuation and the value at delivery may be more or less than the purchase
price. Although the Fund will generally purchase municipal securities on a
when-issued basis with the intention of acquiring such securities, it may
sell such securities before the settlement date if it is deemed advisable.
When the Fund is the buyer in such a transaction, it will maintain, in a
segregated account with its custodian, cash or high-grade marketable
securities having an aggregate value equal to the amount of such purchase
commitments until payment is made. To the extent the Fund engages in
"when-issued" and "delayed delivery" transactions, it will do so for the
purpose of acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage.
The Fund may also invest in municipal lease obligations primarily through
Certificates of Participation ("COPs"). COPs, which are widely used by state
and local governments to finance the purchase of property, function much like
installment purchase agreements. For example, a COP may be created when
long-term lease revenue bonds are issued by a governmental corporation to pay
for the acquisition of property or facilities which are then leased to a
municipality. The payments made by the municipality under the lease are used
to repay interest and principal on the bonds issued to purchase the property.
Once these lease payments are completed, the municipality gains ownership of
the property for a nominal sum. The lessor is, in effect, a lender secured by
the property being leased. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and COPs enable a
governmental issuer to increase government liabilities beyond constitutional
debt limits.
A feature which distinguishes COPs from municipal debt is that the lease
which is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the municipality's
appropriating body does not allocate the necessary funds. Local
administrations, being faced with increasingly tight budgets, therefore have
more discretion to curtail payments under COPs than they do to curtail
payments on traditionally funded debt obligations. If the government lessee
does not appropriate sufficient monies to make lease payments, the lessor or
its agent is typically entitled to repossess the property. In most cases,
however, the private sector value of the property will be less than the
amount the government lessee was paying.
While the risk of nonappropriation is inherent to COP financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPS
in the two highest rating categories as determined by Moody's, S&P or Fitch,
or in unrated COPs believed to be of comparable quality. Criteria considered
by the rating agencies and the investment manager in assessing such risk
include the issuing municipality's credit rating, evaluation of how essential
the leased property is to the municipality and the term of the lease compared
to the useful life of the leased property. The Board of Trustees reviews the
COPs held in the Fund's portfolio to assure that they constitute liquid
investments based on various factors reviewed by the investment manager and
monitored by the Board. Such factors include (a) the credit quality of such
securities and the extent to which they are rated or, if unrated, comply with
existing criteria and procedures followed to ensure that they are of
comparable quality to the ratings required for the Fund's investment,
including an assessment of the likelihood that the leases will not be
canceled; (b) the size of the municipal securities market, both in general
and with respect to COPs; and (c) the extent to which the type of COPs held
by the Fund trade on the same basis and with the same degree of dealer
participation as other municipal bonds of comparable credit rating or
quality. While there is no limit as to the amount of assets which the Fund
may invest in COPs, as of December 31, 1995, 5.73% of the Fund's total net
assets were invested in COPs or other municipal leases.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current yields than municipal
securities with shorter maturities, but are subject to greater price
fluctuation due to changes in interest rates, tax laws and other general
market factors. Lower rated municipal securities generally produce a higher
yield than higher rated municipal securities due to the perception of a
greater degree of risk as to the ability of the issuer to pay principal and
interest obligations.
The Fund is subject to a number of additional investment restrictions, some
of which may be changed only with the approval of shareholders, which limit
its activities to some extent. For a list of these restrictions and more
information concerning the policies discussed herein, please see the SAI.
INVESTMENT RISK CONSIDERATIONS
While an investment in the Fund is not without risk, certain policies are
followed in managing the Fund which may help to reduce the investor's risk.
There are two categories of risks to which the Fund is subject: credit risk
and market risk. Credit risk is a function of the ability of an issuer of a
municipal security to maintain timely interest payments and to pay the
principal of a security upon maturity. It is generally reflected in a
security's underlying credit rating and its stated interest rate (normally
the coupon rate). A change in the credit risk associated with a municipal
security may cause a corresponding change in the security's price. Market
risk is the risk of price fluctuation of a municipal security caused by
changes in general economic and interest rate conditions generally affecting
the market as a whole. A municipal security's maturity length also affects
its price. As with other debt instruments, the price of the securities in
which the Fund invests are likely to decrease in times of rising interest
rates. Conversely, when rates fall, the value of the Fund's investments may
rise. Since the Fund will generally invest primarily in New York Municipal
Securities, there are certain specific factors and considerations concerning
New York which may affect the credit and market risk of the municipal
securities that the Fund may purchase. See "Risk Factors in New York" for a
discussion of these factors.
As a non-diversified series of the Trust, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to the concentration of
its investments in the assets of one or more issuers. This concentration may
present greater risks than in the case of a diversified series of an
investment company. (See the SAI for the diversification requirements the
Fund intends to meet in order to qualify as a regulated investment company
under the Code.)
WHO MANAGES THE FUND
The Board of Trustees has the primary responsibility for the overall
management of the Fund and for electing the officers of the Fund who are
responsible for administering its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company, the
principal shareholders of which are Charles B. Johnson and Rupert H. Johnson,
Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Through its subsidiaries, Resources is engaged in various
aspects of the financial services industry. Advisers acts as investment
manager or administrator to 36 U.S. registered investment companies (118
separate series) with aggregate assets of over $80 billion, approximately $41
billion of which are in the municipal securities market.
Pursuant to the management agreement, the Manager supervises and implements
the Fund's investment activities and provides certain administrative services
and facilities which are necessary to conduct the Fund's business.
During the fiscal year ended December 31, 1995, fees totaling 0.62% of the
average daily net assets of the Fund would have accrued to Advisers. Total
operating expenses, including management fees, would have represented 0.85%
of the average daily net assets of the Fund. Pursuant to an agreement by
Advisers to limit its fees, the Fund paid management fees totaling 0.37% of
the average daily net assets of the Fund and operating expenses totaling
0.60%.
It is not anticipated that the Fund will incur a significant amount of
brokerage expenses because municipal securities are generally traded on a
"net" basis, that is, in principal transactions without the addition or
deduction of brokerage commissions or transfer taxes. In the event that the
Fund does participate in transactions involving brokerage commissions, it is
the Manager's responsibility to select brokers through which such
transactions will be effected. The Manager will try to obtain the best
execution on all such transactions. If it is felt that more than one broker
is able to provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research, statistical
and other data for the Manager and its affiliates, as well as the sale of
shares of the Fund, as factors in selecting a broker. Further information is
included under "How Do the Funds Purchase Securities For Their Portfolios" in
the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services"
or "Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends for each day that its net asset value is
calculated, payable to shareholders of record as of the close of business the
preceding day. The amount of dividends may fluctuate from day to day and
dividends may be omitted on some days, depending on changes in the factors
that comprise the Fund's net investment income. THE FUND DOES NOT PAY
"INTEREST" TO ITS SHAREHOLDERS, NOR IS ANY AMOUNT OF DIVIDENDS OR RETURN
GUARANTEED IN ANY WAY.
Dividends are automatically reinvested daily in the form of additional shares
of the Fund at the net asset value per share at the close of business each
day. The daily dividend includes accrued interest and any original issue and
market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in
portfolio securities (to the extent required to maintain a stable net asset
value per share), less amortization of any premium paid on the purchase of
portfolio securities and the estimated expenses of the Fund.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.
The SAI includes a further discussion of distributions.
DIVIDENDS IN CASH
Shareholders may request to have their dividends paid out monthly in cash by
notifying Investor Services. For such shareholders, the shares reinvested and
credited to their account during the month will be redeemed as of the close
of business on the last business day of the month and the proceeds will be
paid to them in cash. By completing the "Special Payment Instructions for
Dividends" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions to another
fund in the Franklin Group of FundsAE or the Templeton Group, to another
person, or directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the payments may
be made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be sent to the
address of record. Additional information regarding automated fund transfers
may be obtained from Franklin's Shareholder Services Department.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund intends to continue to qualify for treatment as a
regulated investment company under Subchapter M of the Code. By distributing
all of its income and meeting certain other requirements relating to the
sources of its income and diversification of its assets, the Fund will not be
liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders.
Such exempt-interest dividends are derived from interest income exempt from
regular federal income tax and are not subject to regular federal income tax
for Fund shareholders. In addition, to the extent that exempt-interest
dividends are derived from interest on obligations of New York and its
political subdivisions, from interest on direct obligations of the federal
government, or from interest on U.S. territorial obligations (including
Puerto Rico, the U.S. Virgin Islands and Guam), they will also be exempt from
New York State and New York City personal income taxes. For corporate
taxpayers subject to the New York State franchise tax, however, the foregoing
categories of interest income will generally be taxable.
To the extent dividends are derived from taxable income from temporary
investments (including the discount from certain stripped obligations or
their coupons or income from securities loans or other taxable transactions),
from the excess of net short-term capital gain over net long-term capital
loss, or from ordinary income derived from the sale or disposition of bonds
purchased with market discount after April 30, 1993, they are treated as
ordinary income whether the shareholder has elected to receive them in cash
or in additional shares.
Pursuant to the Code, certain distributions which are declared in December
but which, for operational reasons, may not be paid to the shareholder until
the following January will be treated for tax purposes as if received by the
shareholder on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund shares, held for six months or less, will be disallowed to
the extent of exempt interest dividends paid with respect to such shares.
Since the Fund's income is derived from interest and gain on the sale of
portfolio securities rather than dividend income, no portion of the Fund's
distributions will generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by the Fund for the fiscal year
ended December 31, 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 shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the portion of the
dividends on an average basis which constitutes interest income that is a tax
preference item under the alternative minimum tax. Shareholders who have not
held shares of the Fund for a full calendar year may have designated as
tax-exempt or as tax preference income a percentage of income which is not
equal to the actual amount of tax-exempt or tax preference income earned
during the period of their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in the hands of a shareholder, are includible in the tax base for
determining the extent to which a shareholder's social security or railroad
retirement benefits will be subject to federal income tax. Shareholders are
required to disclose the receipt of tax-exempt interest on their federal
income tax returns.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry Fund shares will not be deductible for federal income tax
purposes.
The foregoing description relates solely to federal income tax law and to New
York State and New York City personal income tax treatment to the extent
indicated. Shareholders should consult their tax advisors with respect to the
applicability of other state and local income tax laws to distributions and
redemption proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the impact of
Fund dividend distributions under the alternative minimum tax that may be
applicable to a shareholder's particular tax situation.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the
applicability of U.S. withholding or other taxes on distributions received by
them from the Fund and the application of foreign tax laws to these
distributions.
HOW DO I BUY SHARES OF THE FUND?
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the
Fund's shares, and by the Fund directly. The use of the term "securities
dealer" shall include other financial institutions which, pursuant to an
agreement with Distributors (directly or through affiliates), handle customer
orders and accounts with the Fund. Such reference, however, is for
convenience only and does not indicate a legal conclusion of capacity. All
shares of the Fund are purchased at the net asset value, without a sales
charge, next determined after receipt of a purchase order in proper form. The
minimum initial investment is $500 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased through
plans established at Franklin. The Fund currently does not permit investment
by market timing or allocation services ("Timing Accounts"), which generally
include accounts administered so as to redeem or purchase shares based upon
certain predetermined market indicators.
Purchases in proper form received by the Fund prior to 3:00 p.m. Pacific time
(6:00 p.m. Eastern time) will be credited to the shareholder's account on
that business day. If received after 3:00 p.m., the purchase will be credited
the following business day. Many of the types of instruments in which the
Fund invests must be paid for in federal funds, which are monies held by its
custodian bank on deposit at the Federal Reserve Bank of San Francisco and
elsewhere. Therefore, the monies paid by an investor for shares of the Fund
generally cannot be invested by the Fund until they are converted into and
are available to the Fund in federal funds, which may take up to two days. In
such cases, purchases by investors may not be considered in proper form and
effective until such conversion and availability. In the event the Fund is
able to make investments immediately (within one business day), it may accept
a purchase order with payment other than in federal funds; in such event,
shares of the Fund will be purchased at the net asset value next determined
after receipt of the order and payment.
Shares may be purchased in any of the following ways:
BY MAIL
(1) For an initial investment, include the completed Shareholder Application
contained in this Prospectus. For subsequent investments, the deposit
slips which are included with the shareholder's monthly statement or
checkbook (if one has been requested) may be used, or the shareholder
should reference the account number on the check.
(2) Make the check, Federal Reserve draft or negotiable bank draft payable to
Franklin New York Tax-Exempt Money Fund. Instruments drawn on other
investment companies may not be accepted.
(3) Send the check, Federal Reserve draft or negotiable bank draft to
Franklin New York Tax-Exempt Money Fund, 777 Mariners Island Blvd., P.O.
Box 7777, San Mateo, California 94403-7777.
BY WIRE
(1) Call Franklin's Shareholder Services Department at 1-800/632-2301. If
that line is busy, call 415/312-2000 collect, to advise that funds will
be wired for investment. The Fund will supply a wire control number for
the investment. It is necessary to obtain a new wire control number
every time money is wired into an account in the Fund. Wire control
numbers are effective for one transaction only and may not be used more
than once. Shareholders should contact Franklin's Shareholder Services
Department at the above telephone number to obtain a wire control
number each time funds are to be wired for investment to the Fund.
Wired money which is not properly identified with a currently effective
wire control number will be returned to the bank from which it was
wired and will not be credited to the shareholder's account.
(2) Wire funds to Bank of America, ABA routing number 121000358, for credit
to Franklin New York Tax-Exempt Money Fund, A/C 1493-3-04779. The wire
control number and shareholder's name must be included. Wired funds
received by the Bank and reported by the Bank to the Fund by 3:00 p.m.
Pacific time are normally credited on that day. Later wires are
credited the following business day.
(3) If the purchase is not to an existing account, a completed Shareholder
Application must be sent to Franklin New York Tax-Exempt Money Fund, at
777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777, to assure proper credit for the wire.
THROUGH SECURITIES DEALERS
Investors may, if they wish, invest in the Fund by purchasing shares through
a securities dealer as noted above. Securities dealers which process orders
on behalf of their customers may charge a reasonable fee for their services.
Investments made directly, without the assistance of a securities dealer, are
without charge. In certain states, shares of the Fund may be purchased only
through registered securities dealers.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program.
GENERAL
The Fund and Distributors reserve the right to reject any order for the
purchase of shares of the Fund. In addition, the offering of shares of the
Fund may be suspended by the Fund at any time and resumed at any time
thereafter.
The Fund may impose a $10 charge for each returned item, against any
shareholder account which, in connection with the purchase of Fund shares,
submits a check or a draft which is returned unpaid to the Fund.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers
pursuant to state law.
WHAT PROGRAMS AND PRIVILEGES ARE AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT, OR
NETWORKED ACCOUNT THROUGH NATIONAL SECURITIES CLEARING CORPORATION ("NSCC")
(SEE THE SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and any capital gain distributions,
are generally credited to an account in the name of an investor on the books
of the Fund, without the issuance of a share certificate. Maintaining shares
in uncertificated form (also known as "plan balance") minimizes the risk of
loss or theft of a share certificate. A lost, stolen or destroyed certificate
cannot be replaced without obtaining a sufficient indemnity bond. The cost of
such a bond, which is generally borne by the shareholder, can be 2% or more
of the value of the lost, stolen or destroyed certificate. A certificate will
be issued if requested in writing by the shareholder or by the shareholder's
securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder monthly to reflect
the daily dividends reinvested, as well as after each transaction which
affects the shareholder's account, except a redemption effected by check.
This statement will also show the total number of Fund shares owned by the
shareholder, including the number of shares in "plan balance" for the account
of the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the shareholder's account, provided that the net asset
value of the shares held by the shareholder is at least $5,000. There are no
service charges for establishing or maintaining a Systematic Withdrawal Plan.
The minimum amount which the shareholder may withdraw is $50 per transaction,
although this is merely the minimum amount allowed under the plan and should
not be mistaken for a recommended amount. The plan may be established on a
monthly, quarterly, semiannual or annual basis.
Sufficient shares of the Fund will be liquidated (generally on the first
business day of the month in which the distribution is scheduled) at net
asset value to meet the specified withdrawals with payments generally
received by the shareholder three to five days after the date of liquidation.
By completing the "Special Payment Instructions for Dividends" section of the
Shareholder Application included with this Prospectus, a shareholder may
direct the selected withdrawals to another fund in the Franklin Group of
Funds or the Templeton Group, to another person, or directly to a checking
account. If the bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Withdrawals which may
be paid in the interim will be sent to the address of record. Liquidation of
shares may deplete the investment, and withdrawal payments cannot be
considered as actual yield or income since part of such payments may be a
return of capital. If the withdrawal amount exceeds the total plan balance,
the account will be closed and the remaining balance will be sent to the
shareholder.
A Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares
are liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment, by giving written notice to
Investor Services at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
MULTIPLE ACCOUNTS FOR FIDUCIARIES
Special procedures have been designed for banks and other institutions
wishing to open multiple accounts in the Fund. Further information is
included in the Trust's SAI.
RIGHTS OF ACCUMULATION
The cost or current value (whichever is higher) of the shares in the Fund
will be included in determining the sales charge discount to which an
investor may be entitled when purchasing shares in one or more of the funds
in the Franklin Group of FundsAE and the Templeton Group of Funds which are
sold with a sales charge. Included for these aggregation purposes are (a) the
mutual funds in the Franklin Group of Funds, except Franklin Valuemark Funds
and Franklin Government Securities Trust (the "Franklin Funds"), (b) other
investment products underwritten by Distributors or its affiliates (although
certain investments may not have the same schedule of sales charges and/or
may not be subject to reduction) and (c) the U.S. mutual funds in the
Templeton Group of Funds except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
(the "Templeton Funds"). (Franklin Funds and Templeton Funds are collectively
referred to as the "Franklin Templeton Funds.")
Purchases of Fund shares will also be included toward the completion of a
Letter of Intent with respect to any of the funds in the Franklin Templeton
Funds which are sold with a sales charge.
To assist shareholders in obtaining additional information regarding these
programs, a list of telephone numbers is included under "How Do I Get More
Information About My Investment?"
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares
of the Fund available to institutional accounts. For further information,
contact Franklin's Institutional Services Department at 1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Group of FundsAE and the Templeton Group consist of a number of
investment companies with various investment objectives and policies. The
shares of most of these investment companies are offered to the public with a
sales charge. If a shareholder's investment objective or outlook for the
securities markets changes, Fund shares may be exchanged for shares of any of
the other investment companies in the Franklin Group of Funds or the
Templeton Group which are eligible for sale in the shareholder's state of
residence and in conformity with such fund's stated eligibility requirements
and investment minimums. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to exchange into for all
specific requirements or limitations on exercising the exchange privilege,
for example, minimum holding periods or applicable sales charges. Exchanges
may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any
outstanding share certificates.
EXCHANGES BY TELEPHONE
Shareholders, or their investment representative of record, if any, may
exchange shares of the Fund by telephone by calling Investor Services at
1-800/632-2301 or the automated Franklin TeleFACTSAE system (day or night) at
1-800/247-1753. If the shareholder does not wish this privilege extended to a
particular account, the Fund or Investor Services should be notified.
The telephone exchange privilege allows a shareholder to effect exchanges
from the Fund into an identically registered account in one of the other
available funds in the Franklin Group of Funds or the Templeton Group. The
telephone exchange privilege is available only for uncertificated shares or
those which have previously been deposited in the shareholder's account. The
Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Please refer to
"Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the
other exchange procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases of the Fund's shares, Investor Services
will accept exchange orders by telephone or by other means of electronic
transmission from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling
an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Shares of the Fund acquired other than pursuant to the exchange privilege or
the reinvestment of dividends with respect to such shares, may be exchanged
at the offering price of one of the other funds in the Franklin Group of
Funds or the Templeton Group. Such offering price includes the applicable
sales charge of the fund into which the shares are being exchanged. Although
there are no exchanges between different classes of shares, shareholders of a
Class II Franklin Templeton Fund may, however, elect to direct their
dividends and capital gain distributions to the Fund at net asset value.
Exchanges will be effected at the respective net asset values or offering
prices of the funds involved at the close of business on the day on which the
request is received in proper form.
There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain
and review a current prospectus of the fund into which the shareholder wishes
to transfer.
The exchange privilege may be modified or discontinued by the Fund at any
time upon 60 days' written notice to shareholders.
The Fund currently does not accept investments from Timing Accounts.
HOW DO I SELL SHARES?
All or any part of a shareholder's investment may be converted into cash,
without penalty or charge, by redeeming shares in any one of the methods
discussed below on any day the New York Stock Exchange (the "Exchange") is
open for trading. Regardless of the method of redemption, payment for the
shareholder's redeemed shares will be sent within seven days after receipt of
the redemption request in proper form, except that the Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally reduce this
delay, shares purchased with such instruments will also be held pending
clearance. Shares purchased by federal funds wire are available for immediate
redemption. Shareholders are requested to provide a telephone number(s) where
they may be reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when necessary
will speed the processing of the redemption.
Shares may be redeemed in any of the following ways:
1. BY CHECK
The Fund will supply redemption drafts (which are similar to checks and are
referred to as checks throughout this Prospectus) to shareholders who have
requested them on the Shareholder Application. The election of the check
redemption procedure does not create a checking account or other bank account
relationship between a shareholder and the Fund or any bank. These checks are
drawn through the Fund's custodian, Bank of America NT & SA (the "Custodian"
or "Bank"). Shareholders will generally not be able to convert a check drawn
on the Fund account into a certified or cashier's check by presentation at
the Fund's Custodian. The shareholder may make checks payable to the order of
any person in any amount not less than $100. There is no charge to the
shareholder for this check redemption procedure.
When such a check is presented for payment, the Fund will redeem a sufficient
number of full and fractional shares in the shareholder's account to cover
the amount of the check. This enables the shareholder to continue earning
daily income dividends until the check has cleared. Shares will be redeemed
at their net asset value next determined after receipt of a check which does
not exceed the collected balance of the account. Only shareholders having
accounts in which no share certificates have been issued will be permitted to
redeem shares by check.
Because the Fund is not a bank, no assurance can be given that stop payment
orders on checks written by shareholders will be effective. The Fund,
however, will use its best efforts to see that such orders are carried out.
Shareholders will be subject to the right of the Bank to return unpaid checks
in amounts exceeding the collected balance of their account at the time the
check is presented for payment. Checks should not be used to close a Fund
account because when the check is written, the shareholder will not know the
exact total value of the account on the day the check clears. The Bank
reserves the right to terminate this service at any time upon notice to
shareholders.
2. BY TELEPHONE
A shareholder may redeem shares by telephoning the Fund at 1-800/632-2301.
Payment of redemption requests of $1,000 or less (once per business day) will
be sent by mail to the shareholder's address as reflected on the Fund's
records. For payments over $1,000, the shareholder must complete the "Wire
Redemptions Privilege" section of the Shareholder Application. Proceeds will
then be wired directly to the commercial bank or brokerage firm designated by
the shareholder. Wires will not be sent for redemption requests of $1,000 or
less. Shareholders may have redemption proceeds of over $1,000, up to $50,000
per day per Fund account, sent directly to their address of record by filing
a completed Franklin Templeton Telephone Redemption Authorization Agreement
(the "Agreement") included with this Prospectus. Information may be obtained
by writing to the Fund or Investor Services at the address shown on the cover
or by calling the number above. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions given by telephone are
genuine. Shareholders, however, bear the risk of loss in certain cases as
described under "Telephone Transactions - Verification Procedures."
Telephone redemption requests received before 3:00 p.m. Pacific time on any
business day will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Wire payments will
be transmitted the next business day following receipt prior to 3:00 p.m.
Pacific time of a request for redemption in proper form. Shareholders may
wish to allow for longer processing time if they want to assure that
redemption proceeds will be available at a specific time for a specific
transaction. Shareholders may be able to have redemption proceeds wired to an
escrow account the same day, provided that the request is received prior to
9:00 a.m. Pacific time.
Redemption instructions must include the shareholder's name and account
number and be called to the Fund. No shares for which share certificates have
been issued may be redeemed by telephone instructions. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts which wish to
execute redemptions in excess of $50,000 must complete an Institutional
Telephone Privileges Agreement which is available from Franklin's
Institutional Services Department by telephoning 1-800/321-8563.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section. The telephone redemption privilege may be modified or discontinued
by the Fund at any time upon 60 days' notice to shareholders.
3. BY MAIL
A shareholder may redeem all or a portion of the shares owned by sending a
letter to Investor Services, at the address shown on the back cover of this
Prospectus, requesting redemption and surrendering share certificates if any
have been issued.
IMPORTANT THINGS TO REMEMBER
WHEN REDEEMING SHARES
Written requests for redemption must be signed by all registered owners.
Where shares to be redeemed are represented by share certificates, the
request for redemption must be accompanied by the share certificate and a
share assignment form signed by the registered shareholders exactly as the
account is registered, with the signature(s) guaranteed as referenced below.
Shareholders are advised, for their own protection, to send the share
certificate and assignment form in separate envelopes if they are being
mailed in for redemption.
To be considered in proper form, signature(s) must be guaranteed if the
redemption request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more
joint owners of an account cannot be confirmed, (b) multiple owners have
a dispute or give inconsistent instructions to the Fund, (c) the Fund
has been notified of an adverse claim, (d) the instructions received by
the Fund are given by an agent, not the actual registered owner, (e) the
Fund determines that joint owners who are married to each other are
separated or may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934.
Generally, eligible guarantor institutions include (1) national or state
banks, savings associations, savings and loan associations, trust companies,
savings banks, industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and clearing
agencies; (3) securities dealers which are members of a national securities
exchange or a clearing agency or which have minimum net capital of $100,000;
or (4) institutions that participate in the Securities Transfer Agent
Medallion Program ("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the request to be
in proper form.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying
the general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s)
and (2) a copy of the pertinent pages of the trust document listing the
trustee(s) or a Certification for Trust if the trustee(s) is not listed on
the account registration.
Custodial - Signature guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
Written requests for redemption, all share certificates, and all certificate
assignment forms should be sent to the Fund or Investor Services at the
address shown on the back cover of this Prospectus.
Payment for written requests for redemption will be sent within seven days
after receipt of the request in proper form. Redemptions will be made in cash
at the net asset value per share next determined after receipt by the Fund of
a redemption request in proper form, including all share certificates,
assignments, signature guarantees and other documentation as may be required
by Investor Services. The amount received upon redemption may be more or less
than the shareholder's original investment. Redemptions may be suspended
under certain limited circumstances pursuant to rules adopted by the SEC.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven day period prescribed by law. Neither the Fund nor its agents shall be
liable to any shareholder or other person for a redemption payment by wire
which for any reason may not be processed as described in this section.
CONTINGENT DEFERRED SALES CHARGE
The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge will
be made by the Fund, as described below. The 12-month contingency period will
be tolled (or stopped) for the period such shares are exchanged into and held
in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to certain redemptions made by those
investors within 12 months of the calendar month after such investments. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total cost of
such shares, and is retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales charge are deemed
to be redeemed first, in the following order: (i) shares representing amounts
attributable to capital appreciation; (ii) shares purchased with reinvested
dividends and capital gain distributions; and (iii) other shares held longer
than 12 months; and followed by any shares held less than 12 months, on a
"first in, first out" basis.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of
a SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling Investor Services
at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change
a dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Agreement as described under "How Do I Sell Shares? - By
Telephone" will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the Fund and Investor
Services follow instructions communicated by telephone which were reasonably
believed to be genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused by an
unauthorized transaction. The Fund and Investor Services may be liable for
any losses due to unauthorized or fraudulent instructions only if such
reasonable procedures are not followed. Shareholders are, of course, under no
obligation to apply for or accept telephone transaction privileges. In any
instance where the Fund or Investor Services is not reasonably satisfied that
instructions received by telephone are genuine, the requested transaction
will not be executed, and neither the Fund nor Investor Services will be
liable for any losses which may occur because of a delay in implementing a
transaction.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of
heavy telephone volume. In such situations, shareholders may wish to contact
their investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses
resulting from the inability of a shareholder to execute a telephone
transaction.
The telephone transaction privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
HOW ARE FUND SHARES VALUED?
The net asset value of the shares of the Fund is determined by the Fund at
3:00 p.m. Pacific time each day that the Exchange is open for business. The
net asset value per share is calculated by adding the value of all portfolio
holdings and other assets, deducting the Fund's liabilities, and dividing the
result by the number of Fund shares outstanding.
The valuation of the Fund's portfolio securities is based upon their
amortized cost value, which does not take into account unrealized capital
gain or loss. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The Fund's use of amortized cost which facilitates the
maintenance of the Fund's per share net asset value of $1.00 is permitted by
Rule 2a-7. Further information is included under "How Are Fund Shares
Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, shareholders may access an automated system (day or
night) which offers the following features. By calling the Franklin
TeleFACTSAE system at 1-800/247-1753, shareholders may obtain current price,
yield or other performance information specific to a Franklin fund; process
an exchange into an identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end statements, money
fund checks, if applicable, and deposit slips. Share prices and account
information specific to a Templeton fund may also be accessed on TeleFACTS by
Franklin shareholders. Information about the Fund may be accessed by entering
Fund Code 31 followed by the # sign, when requested to do so by the automated
operator. The system's automated operator will prompt the caller with easy to
follow step-by-step instructions from the main menu. Other features may be
added in the future.
To assist shareholders and securities dealers wishing to speak directly with
a representative, the following is a list of the various Franklin
departments, telephone numbers and hours of operation to call. The same
numbers may be used when calling from a rotary phone:
Hours of Operation
Pacific time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to shareholders may
contain various measures of the Fund's performance, including quotations of
its current, effective, taxable equivalent, and taxable equivalent effective
yields.
Current yield, as prescribed by the SEC, is an annualized percentage rate
which reflects the change in value of a hypothetical account based on the
income received from the Fund during a seven-day period. It is computed by
determining the net change, excluding capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the
beginning of the period. A hypothetical charge reflecting deductions from
shareholder accounts for management fees or shareholder services fees, for
example, is subtracted from the value of the account at the end of the
period, and the difference is divided by the value of the account at the
beginning of the base period to obtain the base period return. The result is
then annualized. Effective yield is computed in the same manner except that
the annualization of the return for the seven-day period reflects the results
of compounding (that is, the effect of reinvesting dividends paid on both the
original share and those acquired from the reinvestment of such dividends).
Tax equivalent yield demonstrates the yield from a taxable investment
necessary to produce an after-tax yield equivalent to that of a fund which
invests in tax-exempt obligations. It is computed by dividing the tax-exempt
portion of a fund's yield (calculated as indicated) by one minus a stated
income tax rate and adding the product to the taxable portion (if any) of the
fund's yield.
Tax equivalent effective yield demonstrates the effective yield from a
taxable investment necessary to produce an after-tax effective yield
equivalent to that of a fund which invests in tax-exempt obligations. It is
computed in the same manner as is a fund's tax equivalent yield, except that
it is based on the tax exempt portion of a fund's effective, rather than its
current, yield. The figure is calculated by dividing the tax-exempt portion
of a fund's effective yield by one minus a stated income tax rate and adding
the product to the taxable portion (if any) of a fund's effective yield.
In each case, performance figures are based upon past performance and will
reflect all recurring charges against Fund income. Such quotations will
reflect the value of any additional shares purchased with dividends from the
original share and any dividends declared on both the original share and such
additional shares. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures
should not be considered to represent what an investment may earn in the
future or what the Fund's performance may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends December 31. Annual Reports containing audited
financial statements of the Trust, including the auditor's report, and
Semi-Annual Reports containing unaudited financial statements are
automatically sent to shareholders. Copies may be obtained by investors or
shareholders, without charge, upon request to the Trust at the telephone
number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.
ORGANIZATION
The Trust was organized as a Massachusetts business trust on July 17, 1986.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series or classes thereof.
Shares issued will be fully paid and non-assessable and will have no
preemptive, conversion, or sinking rights. Shares of each series have equal
and exclusive rights as to dividends and distributions declared by such
series and the net assets of such series upon liquidation or dissolution. The
Board of Trustees may, from time to time, issue other series or funds, the
assets and liabilities of which will likewise be separate and distinct from
any other fund.
VOTING RIGHTS
Shares of each series have equal rights as to voting and vote separately as
to issues affecting that series or the Trust unless otherwise permitted by
the 1940 Act. Shares of the Fund have noncumulative voting rights which means
that in all elections of trustees, the holders of more than 50% of the shares
voting can elect 100% of the trustees if they choose to do so and, in such
event, the holders of the remaining shares voting will not be able to elect
any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings. The Trust
may, however, hold a special meeting for such purposes as changing
fundamental investment restrictions, approving a new management agreement or
any other matters which are required to be acted on by shareholders under the
1940 Act. A meeting may also be called by a majority of the Board of Trustees
or by shareholders holding at least ten percent of the shares entitled to
vote at the meeting. Shareholders may receive assistance in communicating
with other shareholders in connection with the election or removal of
trustees, such as that provided in Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than one-half of the required
minimum investment, but only where the value of such account has been reduced
by the shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at
least six months, provided advance notice is given to the shareholder. More
information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not earn interest
or any other income during the time such checks remain uncashed and neither
the Fund nor its affiliates will be liable for any loss to the shareholder
caused by the shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation.
SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER
AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR
THEM. Municipal investors considering investment of proceeds of bond
offerings into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its investment
manager on arbitrage rebate calculations.
REGISTERING YOUR ACCOUNT
An account registration should reflect the investor's intentions as to
ownership.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may
require court action to obtain release of the funds until the minor reaches
the legal age of majority. The account should be registered in the name of
one "Adult" as custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used
if the account is being established pursuant to a legal, valid trust
document. Use of such a designation in the absence of a legal trust document
may cause difficulties and require court action for transfer or redemption of
the funds.
Shares, whether in certificate form or not, registered as joint tenants or
"Jt Ten" shall mean "as joint tenants with rights of survivorship" and not
"as tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund
carried in "street" or "nominee" name by the shareholder's securities dealer
to a comparably registered Fund account maintained by another securities
dealer. Both the delivering and receiving securities dealers must have
executed dealer or similar agreements on file with Distributors. Unless such
agreement has been executed and is on file with Distributors, the Fund will
not process the transfer and will so inform the shareholder's delivering
securities dealer. To effect the transfer, a shareholder should instruct the
securities dealer to transfer the account to a receiving securities dealer,
and sign any documents required by the securities dealer(s) to evidence
consent to the transfer. Under current procedures, the account transfer may
be processed by the delivering securities dealer and the Fund after the Fund
receives authorization in proper form from the shareholder's delivering
securities dealer. In the future it may be possible to effect such transfers
electronically through the services of the NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee,
or both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction
and signature any such electronic instructions received by the Fund and the
Shareholder Services Agent and to have authorized them to execute the
instructions without further inquiry. At the present time, such services
which are available, or which are anticipated to be made available in the
near future, include the NSCC's "Networking," "Fund/SERV," and "ACATS"
systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required
to report to the IRS any taxable dividend, capital gain distribution, or
other reportable payment and withhold 31% of any such payments made to
individuals and other non-exempt shareholders who have not provided a correct
taxpayer identification number ("TIN") and made certain required
certifications that appear in the Shareholder Application. A shareholder may
also be subject to backup withholding if the IRS or a securities dealer
notifies the Fund that the TIN furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close
an account by redeeming its shares in full at the then-current net asset
value upon receipt of notice from the IRS that the TIN certified as correct
by the shareholder is in fact incorrect or upon the failure of a shareholder
who has completed an "awaiting TIN" certification to provide the Fund with a
certified TIN within 60 days after opening the account.
RISK FACTORS IN NEW YORK
Since the Fund primarily invests in New York Municipal Securities, there are
certain specific factors and considerations concerning the issuers of these
securities which may affect the credit and market risk of the municipal
securities to be purchased by the Fund. The following information is based
primarily upon information derived from public documents relating to
securities offerings of issuers of New York Municipal Securities, from
independent municipal credit reports and historically reliable sources, but
has not been independently verified by the Fund.
The primary purpose of investing in a portfolio of New York Municipal
Securities is the special tax treatment accorded New York resident individual
investors. Payment of interest and preservation of principal, however, is
dependent upon the continuing ability of the New York issuers and/or obligors
of state, municipal and public authority debt obligations to meet their
obligations thereunder. Investors should be aware that certain substantial
issuers of New York Municipal Securities (including issuers whose obligations
may be acquired by the Fund) have experienced financial difficulties in
recent years. These difficulties have at times jeopardized the credit
standing and impaired the borrowing abilities of other New York issuers and
have generally contributed to higher interest rates and lower market prices
for their debt obligations. A recurrence of the financial difficulties
previously experienced by such issuers could result in defaults or declines
in the market values of their existing obligations and, possibly, in the
obligations of other issuers of New York Municipal Securities.
Although no issuers of New York Municipal Securities were in default with
respect to the payment of their debt obligations, to the knowledge of the
investment manager as of the date of filing of this Prospectus with the SEC,
the occurrence of any such default could adversely affect the market values
and marketability of all New York Municipal Securities and, consequently, the
net asset value of the Fund's portfolio. Some of the significant financial
considerations relating to the Fund's investments in New York Municipal
Securities are summarized in the SAI.
Investors should consider the greater risk of the Fund's concentration in New
York Municipal Securities versus the safety that comes with a less
concentrated investment portfolio and should compare yields available on
portfolios of New York issues with those of more diversified portfolios,
including out-of-state issues, before making an investment decision. The
Fund's investment manager believes, however, that by maintaining the Fund's
investment portfolio in liquid, short-term, high quality investments,
including variable and floating rate demand instruments that have high
quality credit support from banks, insurance companies or other financial
institutions, the Fund is largely insulated from the credit risks that may
exist on long-term New York Municipal Securities. The SAI contains a further
description of risks under "Appendix A - Risk Factors Affecting New York
Municipal Securities."
Franklin New York
Insured Tax-Free
Income Fund
Franklin New York Tax-Free Trust
PROSPECTUS
May 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
The Franklin New York Insured Tax-Free Income Fund (the "Fund") is one of three
non-diversified series of the Franklin New York Tax-Free Trust (the "Trust"), an
open-end management investment company. The Fund offers individual investors,
corporations and other institutions a convenient way to invest in a
professionally managed portfolio of municipal securities, primarily issued by
the state of New York and its political subdivisions. The Fund's investment goal
is to provide investors with as high a level of income exempt from federal
income taxes and New York State and New York City personal income taxes as is
consistent with prudent investment management and the preservation of
shareholders' capital.
The Fund invests in New York municipal securities which are covered by insurance
policies providing for the scheduled payment of principal and interest in the
event of non-payment by the issuer, in securities backed by the full faith and
credit of the U.S. government, in municipal securities secured by such U.S.
government obligations, and in short-term obligations of issuers with the
highest ratings from Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"). All insured
securities not insured by the issuer will be insured by a qualified municipal
bond insurer. An investment in the Fund is not insured by the U.S. government or
the state of New York.
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Fund that a prospective investor should know
before investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
As of May 1, 1996, the Fund offers two classes to its investors: Franklin New
York Insured Tax-Free Income Fund - Class I ("Class I") and Franklin New York
Insured Tax-Free Income Fund - Class II ("Class II"). Investors can choose
between Class I shares, which generally bear a higher front-end sales charge and
lower ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and Class II
shares, which generally have a lower front-end sales charge and higher ongoing
Rule 12b-1 fees. Investors should consider the differences between the two
classes, including the impact of sales charges and distribution fees, in
choosing the more suitable class given their anticipated investment amount and
time horizon. See "How Do I Buy Shares? - Alternative Purchase Arrangements."
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank; further, such shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Fund involve investment risks, including the
possible loss of principal.
A Statement of Additional Information ("SAI") concerning the Trust dated May 1,
1996, as may be amended from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be of interest to
some investors. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or telephone number shown
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
Contents Page
Expense Table
Financial Highlights - How Has the Fund Performed?
What Is the Franklin New York Tax-Free Trust?
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Insurance
How You Participate in the Results of the Fund's Activities
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding Taxpayer IRS Certifications
Risk Factors in New York
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of each class, before fee waivers and expense reductions, for the
fiscal year ended December 31, 1995.
CLASS I CLASS II
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25% 1.00%+
Deferred Sales Charge NONE++ 1.00%+++
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.56%* 0.56%*
12b-1 Fees 0.08%** 0.65%**
Other Expenses:
Shareholder Servicing Costs 0.02% 0.02%
Reports to Shareholders 0.02% 0.02%
Other 0.05% 0.05%
Total Other Expenses 0.09% 0.09%
------- -------
Total Fund Operating Expenses 0.73%* 1.30%*
======== ========
+Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause you to pay more for Class II
shares than for Class I shares. Given the maximum front-end sales charge and the
rate of Rule 12b-1 fees of each class, it is estimated that this will take less
than six years if you maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. If your investments in the Franklin Templeton Funds
are valued at $100,000 or more, you will reach the crossover point more quickly.
++Class I investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally imposed
on certain redemptions within a "contingency period" of 12 months of the
calendar month of such investments. See "How Do I Sell Shares? Contingent
Deferred Sales Charge."
+++Class II shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred sales
charge. See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
*The Manager has agreed in advance to waive a portion of its management fee and
to make certain payments to reduce expenses of the Fund. With this reduction,
management fees represented 0.48% and total operating expenses for Class I and
Class II represented 0.65% and 1.23%, respectively, of the average net assets of
each class.
**The maximum amount of Rule 12b-1 fees allowed pursuant to the Class I
distribution plan is 0.10%. See "Who Manages the Fund? - Plans of Distribution."
Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge and applicable contingent deferred
sales charge, that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period.
One Year Three Years Five Years Ten Years
Class I $50* $65 $81 $129
Class II $33 $51 $81 $165
*Assumes that a contingent deferred sales charge will not apply to Class I
shares.
You would incur the following expenses on the same investment in Class II
shares, assuming no redemption.
One Year Three Years Five Years Ten Years
Class II $23 $51 $81 $165
This example is based on the aggregate annual operating expenses, before fee
waivers and expense reductions, shown above and should not be considered a
representation of past or future expenses, which may be more or less than those
shown. In addition, federal securities regulations require the example to assume
an annual return of 5%, but the Fund's actual return may be more or less than
5%.
FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing the financial highlights for a share of
each class of the Fund. The information for the period May 1, 1991 (effective
date of registration) to December 31, 1991 and each of the four fiscal years in
the period ended December 31, 1995 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Trust's Annual Report to Shareholders dated December 31, 1995. See "Reports
to Shareholders" under "General Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Asset Net Realized Distributions Net Asset Net Assets Ratio of Ratio of
Year Value Net & Unrealized Total From From Net Value at End Expenses Net Income Portfolio
Ended Beginning Investment Gain (Loss) on Investment Investment at End Total of Year to Average to Average Turnover
December 31 of Year Income Securities Operations Income of Year Return+ (in 000's) Net Assets ++Net Assets Rate
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991** $10.00 $.247 $.433 $.680 $(.220) $10.46 6.75)% $37,904 .12%* 5.69%* 21.12%
1992 10.46 .620 .369 .989 (.649) 10.80 9.49 149,054 .33 5.80 3.39
1993 10.80 .600 .880 1.480 (.600) 11.68 13.79 263,647 .50 5.28 5.38
1994 11.68 .590 (1.525) (.935) (.585) 10.16 (8.19) 225,061 .56 5.48 25.66
1995 10.16 .590 1.248 1.838 (.588) 11.41 18.46 256,171 .65 5.38 22.99
Class II Shares:
1995*** 10.85 .357 .596 .953 (.343) 11.46 8.92 696 1.23*^ 4.74^ 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 period
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the deferred contingent deferred sales charge and assumes reinvestment
of dividends and capital gains at net asset value. Effective May 1, 1994, with
the implementation of the Rule 12b-1 distribution plan for Class I shares of the
Insured Fund, the sales charge on reinvested dividends was eliminated.
++During the periods indicated, Advisers agreed in advance to waive a portion of
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:
Period Ended Ratio of Expenses to
DEC. 31______ AVERAGE NET ASSETS__
Class I:
1991** .84%*
1992 .74
1993 .65
1994 .71
1995 .73
Class II:
1995*** 1.30*
WHAT IS THE FRANKLIN NEW YORK TAX-FREE TRUST?
The Trust is an open-end management investment company, or mutual fund,
organized as a Massachusetts business trust in July 1986 and registered with the
SEC under the Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of three series, each of which issues a separate series of
the Trust's shares and maintains a totally separate investment portfolio. This
Prospectus relates only to the Franklin New York Insured Tax-Free Income Fund.
The Fund has two classes of shares of beneficial interest: Franklin New York
Insured Tax-Free Income Fund - Class I and Franklin New York Insured Tax-Free
Income Fund - Class II. All Fund shares outstanding before May 1, 1995, have
been redesignated as Class I shares, and will retain their previous rights and
privileges, except for legally required modifications to shareholder voting
procedures, as discussed in "General Information - Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price. The current public
offering price of the Class I shares is equal to the net asset value (see "How
Are Fund Shares Valued?") plus a variable sales charge not exceeding 4.25% of
the offering price depending upon the amount invested. The current public
offering price of the Class II shares is equal to the net asset value plus a
sales charge of 1.0% of the amount invested. (See "How Do I Buy Shares?.")
HOW DOES THE FUND INVEST ITS ASSETS?
The Fund seeks to provide investors with as high a level of income exempt from
federal income taxes and from the personal income taxes of New York State and
New York City as is consistent with prudent investment management and the
preservation of shareholders' capital. There is, of course, no assurance that
the Fund's objective will be achieved. The Fund's investment objective is a
fundamental policy of the Fund and may not be changed without the approval of a
majority of the Fund's outstanding shares.
Under normal market conditions, the Fund attempts to invest 100%, and as a
matter of fundamental policy will invest at least 80%, of its total assets in
debt obligations issued by or on behalf of the state of New York or any state,
territory or possession of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political subdivisions,
the interest on which is exempt from regular federal income tax. It is possible,
although not anticipated, that up to 20% of the Fund's net assets could be in
municipal securities subject to the alternative minimum tax and/or in taxable
obligations.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in insured municipal securities. Although an insurer's quality
standards are independently determined and may vary from time to time, insured
municipal securities which carry a rating at the date of purchase are generally
in the three highest ratings of S&P (AAA, AA, and A), Moody's (Aaa, Aa, and A)
or Fitch (AAA,AA and A). Pending investment in longer-term municipal securities,
the Fund also may invest up to 35% of its total net assets in short-term,
tax-exempt instruments, without obtaining insurance, provided such instruments
carry an A-1, SP-1 or F-1 short-term rating by Moody's, S&P or Fitch,
respectively, or will have a long-term rating of Aaa, or equivalent, by Moody's,
S&P or Fitch. For a description of such ratings, see "Appendix B - Description
of Municipal Securities Ratings" in the SAI. An insurer may also insure
municipal securities which are unrated or have lower S&P ratings or which meet
its own insurance standards. The Fund may also invest in municipal securities
secured by an escrow or trust account of U.S. government securities, except for
temporary short-term investments carrying the highest rating by Moody's, S&P or
Fitch. (See "Insurance.")
In addition, under normal market conditions, the Fund will invest at least 65%
of its total assets in municipal securities and obligations issued by or on
behalf of the state of New York and its local governments, municipalities,
authorities, agencies and political subdivisions, and those of certain other
governmental issuers, such as the Commonwealth of Puerto Rico, which pay income
exempt from regular federal, New York State and New York City personal income
taxes ("New York Municipal Securities"). Dividends paid by the Fund which are
derived from interest on tax-exempt obligations that are not New York Municipal
Securities will be exempt from regular federal income tax, but will be subject
to New York State and New York City personal income taxes. It is possible,
although not anticipated, that up to 35% of the Fund's net assets could be in
municipal securities from a state other than New York.
For temporary defensive purposes only, the Fund may invest (i) more than 20% of
its assets (which could be up to 100%) in fixed-income obligations the interest
on which is subject to regular federal income tax, and (ii) more than 35% of the
value of its net assets (which could be up to 100%) in instruments the interest
on which is exempt from regular federal income taxes but not New York State and
New York City personal income taxes. Any such temporary taxable investments will
be limited to obligations issued or guaranteed by the full faith and credit of
the U.S. government or in commercial paper rated A-1 by S&P or P-1 by Moody's.
The Fund may borrow from banks for temporary or emergency purposes and pledge up
to 5% of its total assets therefore. Although the Fund does not currently intend
to do so, the Fund may lend its portfolio securities to qualified securities
dealers or other institutional investors, provided that such loans do not exceed
10% of the value of the Fund's total assets at the time of the most recent loan.
It is the policy of the Fund that restricted securities and other illiquid
securities (securities that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which the Fund has
valued the securities) may not constitute, at the time of purchase, more than
10% of the value of the total net assets of the Fund.
Municipal Securities
The term "municipal securities," as used in this Prospectus, means obligations
issued by or on behalf of the state of New York or any state, territory or
possession of the U.S. and the District of Columbia, and their political
subdivisions, agencies and instrumentalities, the interest on which is exempt
from regular federal income tax. An opinion as to the tax-exempt status of a
municipal security is generally rendered to the issuer by the issuer's bond
counsel at the time of issuance of the security.
Municipal securities are used to raise money for various public purposes, such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to provide funding for privately
operated facilities. Further information on the maturity and funding
classifications of municipal securities is included in the SAI.
The Fund has no restrictions on the maturity of municipal securities in which it
may invest. Accordingly, the Fund will seek to invest in municipal securities
with maturities which, in the judgment of the Fund and its investment manager,
will provide a high level of current income consistent with prudent investment.
The investment manager will also consider current market conditions and the cost
of the insurance obtainable on such securities.
It is possible, from time to time, that the Fund will invest more than 25% of
its assets in a particular segment of the municipal securities market,
including, but not limited to, hospital revenue bonds, housing agency bonds,
industrial development revenue bonds, transportation bonds, or pollution control
revenue bonds. In such circumstances, economic, business, political or other
changes affecting one bond (such as proposed legislation affecting the financing
of a project; shortages or price increases of needed materials; or declining
markets or need for the projects) might also affect other bonds in the same
segment, thereby potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal securities
of longer maturities produce higher current yields than municipal securities
with shorter maturities, but are subject to greater price fluctuation due to
changes in interest rates, tax laws and other general market factors.
Lower-rated municipal securities generally produce a higher yield than
higher-rated municipal securities due to the perception of a greater degree of
risk as to the ability of the issuer to pay principal and interest obligations.
Although the cost of insurance on the Fund's portfolio will reduce the Fund's
yield, one of the objectives of such insurance is to obtain a higher yield than
would be available if all securities in the Fund's portfolio were rated "AAA" by
S&P without the benefit of any insurance.
The interest on bonds issued to finance public purpose state and local
government operations is generally tax-exempt for regular federal income tax
purposes. Interest on certain private activity bonds (including those for
housing and student loans) issued after August 7, 1986, while still tax-exempt,
constitutes a preference item for taxpayers in determining the federal
alternative minimum tax under the Internal Revenue Code of 1986, as amended (the
"Code"), and under the income tax provisions of some states. This interest could
subject a shareholder to, or increase the shareholder's liability under, the
federal and state alternative minimum tax, depending on the shareholder's tax
situation. In addition, all distributions derived from interest exempt from
regular federal income tax may subject corporate shareholders to, or increase
their liability under, the federal alternative minimum tax, because such
distributions are included in the corporation's adjusted current earnings. In
states with a corporate franchise tax, distributions of the Fund may also be
fully taxable to corporate shareholders under their state franchise tax systems.
Consistent with the Fund's investment objective, the Fund may acquire such
private activity bonds if, in the investment manager's opinion, such bonds
represent the most attractive investment opportunity then available to the Fund.
As of December 31, 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.
The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in prevailing market rates on predesignated dates. The Fund may also
invest in variable or floating rate demand notes ("VRDNs"), which carry a demand
feature that permits the Fund to tender the obligation back to the issuer or a
third party at par value plus accrued interest prior to maturity, according to
the terms of the obligation, which amount may be more or less than the amount
the Fund paid for such obligation. Frequently, VRDNs are secured by letters of
credit or other credit support arrangements. Because of the demand feature, the
prices of VRDNs may be higher and the yields lower than they otherwise would be
for obligations without a demand feature. The Fund will limit its purchase of
municipal securities that are floating rate and variable rate obligations to
those meeting the quality standards set forth in this Prospectus.
The Fund may purchase and sell municipal securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market fluctuation,
and the value at delivery may be more or less than the purchase price. Although
the Fund will generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. When the Fund is the buyer
in such a transaction, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments, until payment is made. To the
extent the Fund engages in when-issued and delayed delivery transactions, it
will do so for the purpose of acquiring securities for the Fund's portfolio
consistent with its investment objective and policies and not for the purpose of
investment leverage.
The Fund may also invest in municipal lease obligations, primarily through
Certificates of Participation ("COPs"). COPs, which are widely used by state and
local governments to finance the purchase of property, function much like
installment purchase agreements. For example, COPs may be created when long-term
lease revenue bonds are issued by a governmental corporation to pay for the
acquisition of property or facilities which are then leased to a municipality.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. This lease format is generally not subject to constitutional
limitations on the issuance of state debt, and COPs may enable a governmental
issuer to increase government liabilities beyond constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that the lease which
is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the municipality
may terminate the lease without penalty if the municipality's appropriating body
does not allocate the necessary funds. Local administrations, being faced with
increasingly tight budgets, therefore have more discretion to curtail payments
under COPs than they do to curtail payments on traditionally funded debt
obligations. If the government lessee does not appropriate sufficient monies to
make lease payments, the lessor or its agent is typically entitled to repossess
the property. In most cases, however, the private sector value of the property
may be less than the amount the government lessee was paying. While the risk of
nonappropriation is inherent to COP financing, the Fund believes that this risk
is mitigated by its policy of investing only in insured COPs. While there is no
limit as to the amount of assets which the Fund may invest in COPs, as of
December 31, 1995, none of the Fund's total net assets was invested in COPs or
other municipal leases.
INSURANCE
Except as indicated, each insured municipal security in the Fund's portfolio
will be covered by either a "New Issue Insurance Policy," a "Portfolio Insurance
Policy" issued by a qualified municipal bond insurer, or a "Secondary Insurance
Policy."
Any of the policies discussed herein are intended to insure the scheduled
payment of all principal and interest on each municipal security (rather than
the Fund itself) when due. The insurance of principal refers to the face or par
value of each security and is not affected by the price paid therefor by the
Fund or the market value thereof. Each municipal security is secured by an
insurance policy from one of several qualified insurance companies which allows
the investment manager to diversify among credit enhancements. The Fund will
acquire municipal securities secured by an insurance policy only where the
claims paying ability of the insurer thereof is rated "AAA" or the equivalent by
S&P, Moody's or Fitch.
New Issue Insurance Policy
New Issue Insurance Policies, if any, have been obtained by the respective
issuers of the municipal securities and all premiums for such securities have
been paid in advance by such issuers. Such policies are non-cancelable and will
continue in force so long as the municipal securities are outstanding and the
respective insurers remain in business. Since New Issue Insurance Policies
remain in effect as long as the securities are outstanding, the insurance may
have an effect on the resale value of securities in the Fund's portfolio.
Therefore, New Issue Insurance Policies may be considered to represent an
element of market value with regard to municipal securities thus insured, but
the exact effect, if any, of this insurance on such market value cannot be
estimated. As stated earlier, the Fund will acquire portfolio securities subject
to New Issue Insurance Policies only where the claims paying ability of the
insurer thereof is rated "AAA" or 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
regard to the selection of securities by the investment manager. No contract to
purchase an insured municipal security is entered into without either permanent
insurance in place or an irrevocable commitment to insure the municipal security
by a qualified insurer.
Portfolio Insurance Policy
The Portfolio Insurance Policy to be obtained by the Fund from a qualified
municipal bond insurer will be effective only so long as the Fund is in
existence, the insurer is still in business and meeting its obligations, and the
municipal securities described in the policy continue to be held by the Fund. In
the event of a sale of any municipal security by the Fund or payment thereof
prior to maturity, the Portfolio Insurance Policy terminates as to such
municipal security.
The Portfolio Insurance Policy to be obtained by the Fund may also be canceled
for failure to pay the premium. Nonpayment of premiums on such policy obtained
by the Fund will, under certain circumstances, result in the cancellation of the
Portfolio Insurance Policy and will also permit the insurer to take action
against the Fund to recover premium payments due. Premium rates for each issue
of securities covered by the Portfolio Insurance Policy may not be changed
regardless of the issuer's ability or willingness to pay. The insurance premiums
are payable monthly by the Fund and are adjusted for purchases and sales of
covered securities during the month. The insurer cannot cancel coverage already
in force with respect to municipal securities owned by the Fund and covered by
the Portfolio Insurance Policy, except for nonpayment of premiums. In the event
that a portfolio holding which has been covered by a Portfolio Insurance Policy
is pre-refunded and irrevocably secured by a U.S. government security, the
insurance is no longer required. Any security for which insurance is canceled,
other than as provided herein, will be sold by the Fund as promptly thereafter
as possible.
The premium on the Fund's Portfolio Insurance Policy is an item of expense and
will be reflected in the Fund's average annual expenses. The average annual
premium rate for the Portfolio Insurance Policy is determined by dividing the
amount of the Fund's annual Portfolio Insurance Policy premium by the face
amount of the insured bonds in its investment portfolio covered by that policy.
Premiums are paid from the Fund's assets and reduce the current yield on its
portfolio by the amount thereof. When the Fund purchases a Secondary Insurance
Policy (see below), the single premium is added to the cost basis of the
municipal security and is not considered an item of expense of the Fund.
The Fund may also own, without insurance coverage, municipal securities for
which an escrow or trust account has been established pursuant to the documents
creating the municipal security and containing sufficient U.S. government
securities backed by the government's full faith and credit pledge in order to
ensure the payment of principal and interest on such bonds.
Secondary Insurance Policy
The Fund may at any time purchase from the provider of a Portfolio Insurance
Policy a permanent Secondary Insurance Policy on any municipal security so
insured and held by the Fund. The coverage and obligation of the Fund to pay
monthly premiums under a Portfolio Insurance Policy would cease with the
purchase by the Fund of a Secondary Insurance Policy on such security.
By purchasing a Secondary Insurance Policy, the Fund would, upon payment of a
single premium, obtain similar insurance against nonpayment of scheduled
principal and interest for the remaining term of the security. Such insurance
coverage will be noncancellable and will continue in force so long as the
securities so insured are outstanding. One of the purposes of acquiring such a
policy would be to enable the Fund to sell the portfolio security to a third
party as a AAA-rated or equivalent insured security at a market price higher
than what otherwise might be obtainable if the security was sold without the
insurance coverage. (Such rating is not automatic, however, and must
specifically be requested from Moody's, S&P or Fitch for each bond.) Such a
policy would likely be purchased if, in the opinion of the investment manager,
the market value or net proceeds of a sale by the Fund would exceed the current
value of the security (without insurance) plus the cost of the policy. Any
difference between the excess of a security's market value as a AAA-rated or
equivalent security over its market value without such rating, including the
single premium cost thereof, would inure to the Fund in determining the net
capital gain or loss realized by the Fund upon the sale of the portfolio
security. The Fund may purchase insurance under a Secondary Insurance Policy in
lieu of a Portfolio Insurance Policy at any time, regardless of the effect of
market value on the underlying municipal security, if the investment manager
believes such insurance would best serve the Fund's interests in meeting its
objective and policies.
Since under the original agreement to provide a temporary insurance policy the
Fund has the right to purchase a permanent Secondary Insurance Policy even if
the security is currently in default as to any payments by the issuer, the Fund
would have the opportunity to sell such security rather than be obligated to
hold the security in its portfolio in order to continue in force the applicable
Portfolio Insurance Policy, as discussed below.
Because coverage under the Portfolio Insurance Policy terminates upon sale of a
security from the Fund's portfolio, such insurance does not have an effect on
the resale value of the securities. Therefore, the Fund may retain any municipal
securities insured under a Portfolio Insurance Policy which are in default or in
significant risk of default, and place a value on the insurance which will be
equal to the difference between the market value of the defaulted security and
the market value of similar securities which are not in default. (See "How Are
Fund Shares Valued?.") Because of this policy, the Fund's investment manager may
be unable to manage the Fund's portfolio to the extent that it holds defaulted
securities, which may limit its ability in certain circumstances to purchase
other municipal securities. While a defaulted municipal security is held in the
Fund's portfolio, the Fund continues to pay the insurance premium thereon but
also collects interest payments from the insurer and retains the right to
collect the full amount of principal from the insurer when the security comes
due. This would not be applicable if the Fund elected to purchase the Secondary
Insurance Policy discussed above in lieu of the Portfolio Insurance Policy.
Municipal Bond Insurer
A "qualified municipal bond insurer" refers to companies whose charter limits
their risk assumption to insurance of financial obligations only. This precludes
assumption of other types of risk, such as life, medical, fire and casualty,
auto and home insurance. The bond insurance industry is a regulated industry.
All bond insurers must be licensed in each state in order to write financial
guaranties in that jurisdiction. Regulations vary from state to state. 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 its investment manager make any representations as to the ability of
any insurance company to meet its obligation to the Fund if called upon to do
so. The SAI contains more information on municipal bond insurers. Currently,
there are no bonds in the Fund's portfolio on which an insurer is paying the
principal or interest otherwise payable by the issuer of the Fund's portfolio
obligations.
WHAT ARE THE FUND'S POTENTIAL RISKS?
While an investment in the Fund is not without risk, certain policies are
followed in managing the Fund which may help to reduce the investor's risk.
There are two categories of risks to which the Fund is subject: credit risk and
market risk. Credit risk is a function of the ability of an issuer of a
municipal security to maintain timely interest payments and to pay the principal
of a security upon maturity. It is generally reflected in a security's
underlying credit rating and its stated interest rate (normally the coupon
rate). A change in the credit risk associated with a municipal security may
cause a corresponding change in the security's price. The Fund attempts to
minimize credit risk by maintaining the insurance coverage discussed below.
Market risk is the risk of price fluctuation of a municipal security caused by
changes in economic and interest rate conditions generally affecting the market
as a whole. A municipal security's maturity length also affects its price. As
with other debt instruments, the price of the securities in which the Fund
invests are likely to decrease in times of rising interest rates. Conversely,
when rates fall, the value of the Fund's debt instruments may rise. Price
changes of securities held by the Fund have a direct impact on the net asset
value per share of the Fund. The insurance does not guarantee the market value
of the municipal securities and, except as indicated in this Prospectus, has no
effect on the net asset value, redemption price, or dividends paid by the Fund.
Since the Fund primarily invests in New York Municipal Securities, there are
certain specific factors and considerations concerning New York which may affect
the credit and market risk of municipal securities that the Fund may purchase.
See "Risk Factors in New York" for a discussion of these factors.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to the concentration of
its investments in the assets of one or more issuers. This concentration may
present greater risks than in the case of a diversified company. (See the SAI
for the diversification requirements the Fund intends to meet in order to
qualify as a regulated investment company under the Code.)
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.
HOW YOU PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of Fund shares will fluctuate with movements in the broader bond markets as
well. In particular, changes in interest rates will affect the value of the
Fund's portfolio and thus its share price. Increased interest rates, which
frequently accompany higher inflation and/or a growing economy, are likely to
have a negative effect on the value of Fund shares. History reflects both
increases and decreases in the prevailing rate of interest and these may reoccur
unpredictably in the future.
WHO MANAGES THE FUND?
The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.
The trustees have carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
of Trustees does not expect to encounter material conflicts in the future, the
trustees will continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 36 U.S. registered investment
companies (118 separate series) with aggregate assets of over $80 billion,
approximately $41 billion of which are in the municipal securities market.
The following persons are primarily responsible for the day-to-day management
of the Fund's portfolio: Donald Duerson and Andrew Jennings, Sr. since
inception and Thomas Kenny since 1994.
Donald Duerson
Vice President
Franklin Advisers, Inc.
Mr. Duerson has a Bachelor of Science degree in Business and Public
Administration from the University of Arizona, and has experience in the
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
Franklin Advisers, Inc.
Mr. Jennings attended Villanova University in Philadelphia and has been in
the securities industry for over 33 years. From 1985 to 1990, Mr. Jennings
was First Vice President and Manager of the Municipal Institutional Bond
Department at Dean Witter Reynolds, Inc. He is a member of several municipal
securities industry-related committees and associations.
Thomas Kenny
Senior Vice President
Franklin Advisers, Inc.
Mr. Kenny is the director of Franklin's municipal bond department. He joined
Franklin in 1986. He received a Bachelor of Arts degree in Business and
Economics from the University of California at Santa Barbara and Master of
Science degree in Finance from Golden Gate University. He is a member of several
municipal securities industry-related committees and associations.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
During the fiscal year ended December 31, 1995, management fees, before any
advance waiver, totaled 0.56% of the average net assets of the Fund. Total
operating expenses, including management fees before any advance waiver, totaled
0.73% and 1.30% of the average net assets of Class I and Class II, respectively.
Pursuant to an agreement by Advisers to limit its fees, the Fund paid management
fees totaling 0.48% of the average net assets of the Fund and operating expenses
totaling 0.65% and 1.23% for Class I and Class II, respectively. This
arrangement may be terminated by the Manager at any time upon notice to the
Board.
It is not anticipated that the Fund will incur a significant amount of brokerage
expenses because municipal securities are generally traded on a "net" basis,
that is, in principal transactions without the addition or deduction of
brokerage commissions or transfer taxes. In the event that the Fund does
participate in transactions involving brokerage commissions, it is the Manager's
responsibility to select brokers through whom such transactions will be
effected. The Manager will try to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for the Manager and
its affiliates, as well as the sale of shares of the Fund, as factors in
selecting a broker. Further information is included under "How Do the Funds
Purchase Securities For Their Portfolios?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Plans of Distribution
A separate plan of distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan," respectively, or "Plans") pursuant to Rule
12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees attributable to that
particular class. Any portion of fees remaining from either plan after
distribution to securities dealers of up to the maximum amount permitted under
each plan may be used by the class to reimburse Distributors for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any distribution or
service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may pay to Distributors or others under the
Class I Plan for such distribution expenses is 0.10% per annum of Class I's
average daily net assets, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.10% per annum will be borne by
Distributors, or others who have incurred them, without reimbursement from the
Fund.
Under the Class II Plan, the maximum amount which the Fund is permitted to pay
to Distributors or others for distribution and related expenses is 0.50% per
annum of Class II's average daily net assets, payable quarterly. All expenses of
distribution, marketing and related services over that amount will be borne by
Distributors or others who have incurred them, without reimbursement by the
Fund. In addition, the Class II Plan provides for an additional payment by the
Fund of up to 0.15% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with purchase and
redemption requests; receiving and answering correspondence; monitoring dividend
payments from the Fund on behalf of customers, or similar activities related to
furnishing personal services and/or maintaining shareholder accounts.
During the first year after the purchase of Class II shares, Distributors will
keep a portion of the plan fees assessed on Class II shares to partially recoup
fees Distributors pays to securities dealers. Distributors, or its affiliates,
may pay, from its own resources, a commission of up to 1% of the amount invested
to securities dealers who initiate and are responsible for purchases of Class II
shares.
Both Plans also cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund.
For more information, including a discussion of the Board of Trustees' policies
with regard to the amount of each plan's fees, please see the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
There are two types of distributions which the Fund may make to its
shareholders:
1. Income dividends. The Fund receives income in the form of interest and other
income derived from its investments. This income, less the expenses incurred in
the Fund's operations, is its net investment income from which income dividends
may be distributed. Thus, the amount of dividends paid per share may vary with
each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect any
net short-term and net long-term capital gains realized by the Fund as of
October 31 of such year. Any net short-term and net long-term capital gains
realized by the Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund may make more
than one distribution derived from net short-term and net long-term capital
gains in any year or adjust the timing of these distributions for operational or
other reasons.
Distributions To Each Class of Shares
According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
Distribution Date
Although subject to change by the Board of Trustees without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends daily and pay them monthly on or about the last business day of that
month. The amount of income dividend payments by the Fund is dependent upon the
amount of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board of Trustees. The Fund
does not pay "interest" or guarantee any fixed rate of return on an investment
in its shares. Payment of dividends by the Fund is not insured.
Dividend Reinvestment
Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the same
class of shares of the Fund or the same class of another of the Franklin
Templeton Funds. Shareholders in Class II funds may also direct their dividends
and capital gain distributions for investment in a Class I Franklin Templeton
Fund at net asset value. Shareholders have the right to change their election
with respect to the receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which the reinvestment
date is seven or more business days after the Fund has been notified. See
"Purchases at Net Asset Value" under "How Do I Buy Shares?" and the SAI for more
information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
Distributions in Cash
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to the
same class of another fund in the Franklin Templeton Funds, to a Class I
Franklin Templeton Fund, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Dividends which may be paid in the interim
will be sent to the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's Shareholder Services
Department.
HOW TAXATION AFFECT YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled,
"Additional Information Regarding Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders. Such
exempt-interest dividends are derived from interest income exempt from regular
federal income tax and are not subject to regular federal income tax for Fund
shareholders. In addition, to the extent that exempt-interest dividends are
derived from interest on obligations of New York and its political subdivisions,
from interest on direct obligations of the federal government, or from interest
on U.S. territorial obligations (including Puerto Rico, the U.S. Virgin Islands
or Guam), they will be exempt from New York State and New York City personal
income taxes. For corporate taxpayers subject to the New York State franchise
tax, however, the foregoing categories of interest income will generally be
taxable.
To the extent dividends are derived from taxable income from temporary
investments (including the discount from certain stripped obligations or their
coupons or income from securities loans or other taxable transactions), from
ordinary income derived from the sale or disposition of bonds purchased with
market discount after April 30, 1993, or from the excess of net short-term
capital gain over net long-term capital loss, they are treated as ordinary
income whether the shareholder has elected to receive them in cash or in
additional shares.
From time to time, the Fund may purchase a tax-exempt obligation with market
discount; that is, for a price that is less than the principal amount of the
bond, or for a price that is less than the principal amount of the bond where
the bond was issued with original issue discount, and such market discount
exceeds a de minimis amount. For such obligations purchased after April 30,
1993, a portion of the gain (not to exceed the accrued portion of market
discount as of the time of sale or disposition) is treated as ordinary income
rather than capital gain. Any distribution by the Fund of such ordinary income
to its shareholders will be subject to regular income tax in the hands of Fund
shareholders. In any fiscal year, the Fund may elect not to distribute to its
shareholders its taxable ordinary income and, instead, to pay federal income or
excise taxes on this income at the Fund level. The amount of such distributions,
if any, is expected to be small.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time a shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January will be treated, for tax purposes, as if
received by the shareholder on December 31 of the calendar year in which they
are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on 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 shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the portion of the
dividends on an average basis which constitutes taxable income or interest
income that is a tax preference item under the alternative minimum tax.
Shareholders who have not held shares of the Fund for a full calendar year may
have designated as tax-exempt or as tax preference income a percentage of income
which is not equal to the actual amount of tax-exempt or tax preference income
earned during the period of their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in the hands of a shareholder, are includible in the tax base for
determining the extent to which a shareholder's social security or railroad
retirement benefits will be subject to federal income tax. Shareholders are
required to disclose the receipt of tax-exempt interest on their federal income
tax returns.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry Fund shares will not be deductible for federal income tax
purposes.
The foregoing description relates solely to federal income tax law and to New
York State and New York City personal income tax treatment to the extent
indicated. Shareholders should consult their tax advisors with respect to the
applicability of other state and local income tax laws to distributions and
redemption proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the impact of Fund
dividends and capital gain distributions under the alternative minimum tax that
may be applicable to a shareholder's particular tax situation.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
HOW DO I BUY SHARES?
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares. The Fund currently does not permit investment by market timing or
allocation services ("Timing Accounts"), which generally include accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators.
Alternative Purchase Arrangements
The difference between Class I and Class II shares lies primarily in their
front-end and contingent deferred sales charges and Rule 12b-1 fees as described
below.
Class I. All Fund shares outstanding before the implementation of the multiclass
structure have been redesignated as Class I shares, and will retain their
previous rights and privileges. Class I shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.10% of average daily net assets of such shares. With this
multiclass structure, Class I shares have higher front-end sales charges than
Class II shares and comparatively lower Rule 12b-1 fees. Class I shares may be
purchased at a reduced front-end sales charge or at net asset value if certain
conditions are met. In most circumstances, contingent deferred sales charges
will not be assessed against redemptions of Class I shares. See "Who Manages the
Fund?" and "How Do I Sell Shares?" for more information.
Class II. The current public offering price of Class II shares is equal to the
net asset value plus a front-end sales charge of 1.0% of the amount invested.
Class II shares are also subject to a contingent deferred sales charge of 1.0%
if shares are redeemed within 18 months of the calendar month following
purchase. In addition, Class II shares are subject to Rule 12b-1 fees of up to a
maximum of .65% of average daily net assets of such shares. Class II shares have
lower front-end sales charges than Class I shares and comparatively higher Rule
12b-1 fees. See "Contingent Deferred Sales Charge" under "How Do I Sell
Shares?".
Purchases of Class II shares are limited to purchases below $1 million. Any
purchase of $1 million or more will automatically be invested in Class I shares,
since that is more beneficial to investors. Such purchases, however, may be
subject to a contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time. Investors who
intend to make investments exceeding $1 million, however, should consider
purchasing Class I shares through a Letter of Intent instead of purchasing Class
II shares.
Deciding Which Class To Purchase
Investors should carefully evaluate their anticipated investment amount and time
horizon prior to determining which class of shares to purchase. Generally, an
investor who expects to invest less than $100,000 in the Franklin Templeton
Funds and who expects to make substantial redemptions within approximately six
years or less of investment should consider purchasing Class II shares. The
higher annual Rule 12b-1 fees on the Class II shares will, however, result in
slightly higher operating expenses and lower income dividends for Class II
shares, which will accumulate over time to outweigh the difference in front-end
sales charges. For this reason, Class I shares may be more attractive to
long-term investors even if no sales charge reductions are available to them.
Investors who qualify to purchase Class I shares at reduced sales charges
definitely should consider purchasing Class I shares, especially if they intend
to hold their shares approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who intend to hold their
shares less than approximately six years should evaluate whether it is more
economical to purchase Class I shares through a Letter of Intent or under Rights
of Accumulation or other means, rather than purchasing Class II shares.
Investors investing $1 million or more in a single payment and other investors
who qualify to purchase Class I shares at net asset value will be precluded from
purchasing Class II shares.
Each class represents the same interest in the investment portfolio of the Fund
and has the same rights, except that each class has a different sales charge,
bears the separate expenses of its Rule 12b-1 distribution plan, and has
exclusive voting rights with respect to such plan. The two classes also have
separate exchange privileges.
Purchase Price of Fund Shares
Shares of both classes of the Fund are offered at their respective public
offering prices, which are determined by adding the net asset value per share
plus a front-end sales charge, next computed (1) after the shareholder's
securities dealer receives the order which is promptly transmitted to the Fund
or (2) after receipt of an order by mail from the shareholder directly in proper
form (which generally means a completed Shareholder Application accompanied by a
negotiable check).
Class I. The sales charge for Class I shares is a variable percentage of the
offering price depending upon the amount of the sale. The offering price will be
calculated to two decimal places using standard rounding criteria. A description
of the method of calculating net asset value per share is included under the
caption "How Are Fund Shares Valued?."
Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions for Class I shares.
TOTAL SALES CHARGE
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING INVESTED OF OFFERING
PRICE PRICE*,***
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than 3.50% 3.63% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
500,000 but less than 2.15% 2.20% 2.00%
$1,000,000
$1,000,000 or more none none (see below)**
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
all or a portion of investments of $1 million within the contingency period.
See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Class I shares is determined by adding the amount of the
shareholder's current purchase plus the cost or current value (whichever is
higher) of a shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds(R) and the Templeton Group of Funds. Included for
these aggregation purposes are (a) the mutual funds in the Franklin Group of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to reduction), and (c)
the U.S. registered mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a discount.
Other Payments to Securities Dealer - Class I. Distributors, or one of its
affiliates, may make payments, out of its own resources, of up to 1% of the
amount purchased to securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies and trust
departments of banks. See "Description of Special Net Asset Value Purchases" and
the SAI.
Class II. Unlike Class I shares, the front-end sales charge and dealer
concessions for Class II shares do not vary depending on the amount of purchase.
See table below:
TOTAL SALES CHARGE
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING INVESTED OF OFFERING
PRICE PRICE*,***
any amount (less than $1 1.00% 1.01% 1.00%
miillion)
*Distributors, or one of its affiliates, may make additional payments to
securities dealers, from its own resources, of up to 1% of the amount invested.
During the first year following a purchase of Class II shares, Distributors will
keep a portion of the Rule 12b-1 fees assessed to those shares to partially
recoup fees Distributors pays to securities dealers.
Class II shares redeemed within 18 months of their purchase will be assessed a
contingent deferred sales charge of 1.0% on the lesser of the then-current net
asset value or the net asset value of such shares at the time of purchase,
unless such charge is waived as described under "How Do I Sell Shares? -
Contingent Deferred Sales Charge."
Distributors, or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Franklin Templeton Funds and other dealer-sponsored programs or events.
In some instances, this compensation may be made available only to certain
securities dealers whose representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton Funds. Compensation may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
Additional terms concerning the offering of the Fund's shares are included in
the SAI.
Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the SAI.
Quantity Discounts in Sales Charges -
Class I Shares Only
Class I shares may be purchased under a variety of plans which provide for a
reduced sales charge. To be certain to obtain the reduction of the sales charge,
the investor or the securities dealer should notify Distributors at the time of
each purchase of shares which qualifies for the reduction. In determining
whether a purchase qualifies for a discount, an investment in any of the
Franklin Templeton Investments may be combined with those of the investor's
spouse and children under the age of 21. In addition, the aggregate investments
of a trustee or other fiduciary account (for an account under exclusive
investment authority) may be considered in determining whether a reduced sales
charge is available, even though there may be a number of beneficiaries of the
account. The value of Class II shares owned by the investor may also be included
for this purpose.
In addition, an investment in Class I shares may qualify for a reduction in the
sales charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Investments may be combined
with the amount of the current purchase in determining the sales charge to be
paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of Class I shares by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge, grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application: Five percent (5%)
of the amount of the total intended purchase will be reserved in Class I shares,
registered in the investor's name, to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The reserved
shares will be included in the total shares owned as reflected on periodic
statements and income and capital gain distributions on the reserved shares will
be paid as directed by the investor. The reserved shares will not be available
for disposal by the investor until the Letter of Intent has been completed or
the higher sales charge paid. For more information, see "How Do I Buy and Sell
Shares?" in the SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining a reduced sales charge to be paid on Class I shares pursuant to the
Letter of Intent and Rights of Accumulation programs.
Group Purchases of Class I Shares
An individual who is a member of a qualified group may also purchase Class I
shares of the Fund at the reduced sales charge applicable to the group as a
whole. The sales charge is based upon the aggregate dollar value of shares
previously purchased and still owned by the members of the group, plus the
amount of the current purchase. For example, if members of the group had
previously invested and still held $80,000 of Fund shares and now were investing
$25,000, the sales charge would be 3.50%. As stated above, no front-end sales
charge applies on investments of $1 million or more by individuals or groups,
but a contingent deferred sales charge of 1% is imposed on certain redemptions
within 12 months of the calendar month of the purchase. Information concerning
the current sales charge applicable to a group may be obtained by contacting
Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount, and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and seek to arrange for
payroll deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.
Purchases at Net Asset Value
Class I shares may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors and full-time employees of the Trust, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including any subsequent payments made by such
parties after cessation of employment; (2) companies exchanging shares or
selling assets pursuant to a merger, acquisition or exchange offer; (3)
registered securities dealers and their affiliates, for their investment account
only; and (4) registered personnel and employees of securities dealers and by
their spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of shares of the Fund may be
purchased at net asset value by persons who have redeemed, within the previous
365 days, their shares of the Fund or another of the Franklin Templeton Funds
which were purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the time of purchase
of the new shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any contingent deferred
sales charge paid on the shares redeemed and subsequently repurchased, a new
contingency period will begin. Shares of the Fund redeemed in connection with an
exchange into another fund (see "What If My Investment Outlook Changes? -
Exchange Privilege") are not considered "redeemed" for this privilege. In order
to exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the Fund or of
another of the Franklin Templeton Funds may be purchased at net asset value and
without a contingent deferred sales charge by persons who have received
dividends and capital gains distributions in cash from investments in that class
of shares of the Fund within 120 days of the payment date of such distribution.
Class II shareholders may also invest such distributions at net asset value in a
Class I Franklin Templeton Fund. To exercise this privilege, a written request
to reinvest the distribution must accompany the purchase order. Additional
information may be obtained from Shareholder Services at 1-800/632-2301. See
"What Distributions Might I Receive from the Fund?"
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by investors who have, within the past 60
days, redeemed an investment in a mutual fund which is not part of the Franklin
Templeton Funds, which was subject to a front-end sales charge or a contingent
deferred sales charge, and which has an investment objective similar to that of
the Fund.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by broker-dealers who have entered into a
supplemental agreement with Distributors, or by registered investment advisors
affiliated with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as a wrap fee
program).
Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a securities dealer who has executed a dealer
agreement with Distributors, Distributors or one of its affiliates may make a
payment, out of its own resources, to such securities dealer in an amount not to
exceed 0.25% of the amount invested. Contact Franklin's Institutional Sales
Department for additional information.
Description of Special Net Asset Value Purchases
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trust companies and bank trust departments
for funds over which they exercise exclusive discretionary investment authority
and which are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with respect to
amount of purchase, which may be established by Distributors. Currently, those
criteria require that the amount invested or to be invested during the
subsequent 13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order.
Refer to the SAI for further information regarding net asset value purchases of
Class I shares.
Purchasing Class I and Class II Shares
When placing purchase orders, investors should clearly indicate which class of
shares they intend to purchase. A purchase order that fails to specify a class
will automatically be invested in Class I shares. Purchases of $1 million or
more in a single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset value should
purchase Class I rather than Class II shares. See the section "Purchases at Net
Asset Value" and "Description of Special Net Asset Value Purchases" above for a
discussion of when shares may be purchased at net asset value.
General
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
WHAT PROGRAMS AND PRIVILEGES ARE AVAILABLE TO ME AS A SHAREHOLDER?
Certain of the programs and privileges described in this section may not be
available directly from the Fund to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account or networked
account through the National Securities Clearing Corporation ("NSCC") (see the
section captioned "Registering Your Account" in this Prospectus).
Share Certificates
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the securities dealer.
Confirmations
A confirmation statement will be sent to each shareholder quarterly to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
plan balance for the account of the shareholder.
Automatic Investment Plan
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information concerning this
program from their securities dealer or from Distributors.
The market value of each class of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the investor should keep
in mind that such a program does not assure a profit or protect against a loss.
Systematic Withdrawal Plan
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal transaction, although
this is merely the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. The plan may be established on a monthly,
quarterly, semiannual or annual basis. If the shareholder establishes a plan,
any capital gain distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at net asset
value. Payments will then be made from the liquidation of shares at net asset
value on the day of the transaction (which is generally the first business day
of the month in which the payment is scheduled) with payment generally received
by the shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a shareholder may direct
the selected withdrawals to another of the Franklin Templeton Funds, to another
person, or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing. Payments
which may be paid in the interim will be sent to the address of record.
Liquidation of shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares earned through
dividends and distributions, particularly in the event of a market decline. If
the withdrawal amount exceeds the total plan balance, the account will be closed
and the remaining balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than the shareholder's actual yield or income, part of the payment may be a
return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of Class I shares and
Class II shares may be subject to a contingent deferred sales charge if the
shares are redeemed within 12 months (Class I shares) or 18 months (Class II
shares) of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect.
With respect to Class I shares, the contingent deferred sales charge is waived
for redemptions through a Systematic Withdrawal Plan set up prior to February 1,
1995. With respect to Systematic Withdrawal Plans set up on or after February 1,
1995, the applicable contingent deferred sales charge is waived for Class I and
Class II share redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% semi annually, 3% quarterly). For example, if a Class I
account maintained an annual balance of $1,000,000, only $120,000 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge; any
amount over that $120,000 would be assessed a 1% (or applicable) contingent
deferred sales charge. Likewise, if a Class II account maintained an annual
balance of $10,000, only $1,200 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge.
A Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment, by giving written notice to
Investor Services at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
Institutional Accounts
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
Franklin's Institutional Services Department at 1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXHCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for the same class of shares of other Franklin Templeton Funds which
are eligible for sale in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and investment minimums. Some
funds, however, may not offer Class II shares. Class I shares may be exchanged
for Class I shares of any Franklin Templeton Funds. Class II shares may be
exchanged for Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent deferred sales
charge will not be imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the original fund purchased and
shares are subsequently redeemed within 12 months (Class I shares) or 18 months
(Class II shares) of the calendar month of the original purchase date, a
contingent deferred sales charge will be imposed. Investors should review the
prospectus of the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or applicable sales
charges.
Exchanges may be made in any of the following ways:
Exchanges By Mail
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
Exchanges By Telephone
Shareholders, or their investment representative of record, if any, may exchange
shares of the Fund by telephone by calling Investor Services at 1-800/632-2301
or the automated Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753.
If the shareholder does not wish this privilege extended to a particular
account, the Fund or Investor Services should be notified.
The telephone exchange privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account of the same class of shares in
one of the other available Franklin Templeton Funds. The telephone exchange
privilege is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund and Investor
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
Exchanges Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges By Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
Additional Information Regarding Exchanges
Exchanges of the same class of shares are made on the basis of the net asset
values of the class involved, except as set forth below. Exchanges of shares of
a class which were originally purchased without a sales charge will be charged a
sales charge in accordance with the terms of the prospectus of the fund and the
class of shares being purchased, unless the original investment on which no
sales charge was paid was transferred in from a fund on which the investor paid
a sales charge. Exchanges of Class I shares of the Fund which were purchased
with a lower sales charge into a fund which has a higher sales charge will be
charged the difference in sales charges, unless the shares were held in the Fund
for at least six months prior to executing the exchange.
When an investor requests the exchange of the total value of the Fund account,
accrued but unpaid income dividends and capital gain distributions will be
reinvested in the Fund at the net asset value on the date of the exchange, and
then the entire share balance will be exchanged into the new fund in accordance
with the procedures set forth above. Because the exchange is considered a
redemption and purchase of shares, the shareholder may realize a gain or loss
for federal income tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax consequences of such an
exchange is included in the tax section in this Prospectus and in the SAI.
There are differences among the many Franklin Templeton Funds. Before making an
exchange, a shareholder should obtain and review a current prospectus of the
fund into which the shareholder wishes to transfer.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, tax-exempt municipal
securities, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term, tax-exempt municipal
securities and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
The Fund currently will not accept investments from Timing Accounts.
Exchanges of Class I Shares
The contingency period of Class I shares will be tolled (or stopped) for the
period such shares are exchanged into and held in a Franklin or Templeton money
market fund. If a Class I account has shares subject to a contingent deferred
sales charge, Class I shares will be exchanged into the new account on a
"first-in, first-out" basis. See also "How Do I Sell Shares? Contingent Deferred
Sales Charge."
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the contingent
deferred sales charge, and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if a
shareholder has $1,000 in free shares, $2,000 in matured shares, and $3,000 in
CDSC liable shares, and the shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free shares, $1,000 from matured shares, and $1,500 from
CDSC liable shares. Similarly, if CDSC liable shares have been purchased at
different periods, a proportionate amount will be taken from shares held for
each period. If, for example, a shareholder holds $1,000 in shares bought 3
months ago, $1,000 bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may shareholders purchase shares of Money Fund II directly. Class
II shares exchanged for shares of Money Fund II will continue to age and a
contingent deferred sales charge will be assessed if CDSC liable shares are
redeemed. No other money market funds are available for Class II shareholders
for exchange purposes. Class I shares may be exchanged for shares of any of the
money market funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these other money market
funds as described in their respective prospectuses.
To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free-shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a CDSC. The proportional method is believed by management to more
closely meet and reflect the expectations of Class II shareholders in the event
shares are redeemed during the contingency period. For federal income tax
purposes, the cost basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen by the Fund.
Transfers
Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events, and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Like exchanges, Class II shares will be
moved proportionately from each type of shares in the original account.
Conversion Rights
It is not presently anticipated that Class II shares will be convertible to
Class I shares. A shareholder may, however, sell his or her Class II shares and
use the proceeds to purchase Class I shares, subject to all applicable sales
charges.
HOW DO I SELL SHARES?
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:
Redemptions By Mail
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the class of shares redeemed based upon the net asset value
per share (less a contingent deferred sales charge, if applicable) next computed
after the written request in proper form is received by Investor Services.
Redemption requests received after the time at which the net asset value is
calculated (at the close of the New York Stock Exchange ("Exchange"), which is
generally 1:00 p.m. Pacific time) each day that the Exchange is open for
business will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.
To be considered in proper form, signatures must be guaranteed if the redemption
request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial - Signature guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
Redemptions By Telephone
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone. Information may also be obtained by
writing to the Fund or Investor Services at the address shown on the cover or by
calling 1-800/632-2301. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions given by telephone are genuine.
Shareholders, however, bear the risk of loss in certain cases as described under
"Telephone Transactions - Verification Procedures."
For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record. Redemption requests by telephone will not be accepted within 30 days
following an address change by telephone. In that case, a shareholder should
follow the other redemption procedures set forth in this Prospectus.
Institutional accounts (certain corporations, bank trust departments and
government entities which qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
Redeeming Shares Through Securities Dealers
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a securities dealer, the redemption price
will be the net asset value next calculated after the shareholder's securities
dealer receives the order which is promptly transmitted to the Fund, rather than
on the day the Fund receives the shareholder's written request in proper form.
The documents, as described in the preceding section, are required even if the
shareholder's securities dealer has placed the repurchase order. After receipt
of a repurchase order from the securities dealer, the Fund will still require a
signed letter of instruction and all other documents set forth above. A
shareholder's letter should reference the Fund and the class, the account
number, the fact that the repurchase was ordered by a securities dealer and the
securities dealer's name. Details of the dealer-ordered trade, such as trade
date, confirmation number, and the amount of shares or dollars, will help speed
processing of the redemption. The seven-day period within which the proceeds of
the shareholder's redemption will be sent will begin when the Fund receives all
documents required to complete ("settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of the securities dealer's repurchase order and the date the redemption
is processed upon receipt of all documents necessary to settle the repurchase.
Thus, it is in a shareholder's best interest to have the required documentation
completed and forwarded to the Fund as soon as possible. The shareholder's
securities dealer may charge a fee for handling the order. The SAI contains more
information on the redemption of shares.
Contingent Deferred Sales Charge
Class I. In order to recover commissions paid to securities dealers on
investments of $1 million or more, a contingent deferred sales charge of 1%
applies to redemptions of those investments within the contingency period of 12
months of the calendar month following their purchase. The charge is 1% of the
lesser of the net asset value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares at
the time of purchase, and is retained by Distributors. The contingent deferred
sales charge is waived in certain instances. See "Purchases at Net Asset Value"
under "How Do I Buy Shares?."
Class II. Class II shares redeemed within the contingency period of 18 months of
the calendar month following their purchase will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances. See below.
Class I and Class II. In determining if a contingent deferred sales charge
applies, shares not subject to a contingent deferred sales charge are deemed to
be redeemed first, in the following order: (i) Shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period (12 months in the case of Class I shares and 18 months in the
case of Class II shares); (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held longer than the
contingency period; and followed by any shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds or
an adjustment to the cost basis of the shares redeemed.
The contingent deferred sales charge on each class of shares is waived, as
applicable, for: exchanges; any account fees; redemptions through a Systematic
Withdrawal Plan set up for shares prior to February 1, 1995, and for Systematic
Withdrawal Plans set up thereafter, redemptions of up to 1% monthly of an
account's net asset value (3% quarterly, 6% semiannually or 12% annually);
redemptions initiated by the Fund due to a shareholder's account falling below
the minimum specified account size; and redemptions following the death of the
shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Requests for redemptions for a specified dollar amount will result in additional
shares being redeemed to cover any applicable contingent deferred sales charge,
while requests for redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from the total dollar
amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
Other
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Agreement as described under "How Do I Sell Shares?
Redemptions By Telephone" will be able to redeem shares of the Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
HOW ARE FUND SHARES VALUED?
The net asset value per share of each class of the Fund is determined as of the
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum sales charge of each class of shares of the Fund).
The net asset value per share for each class of the Fund is determined in the
following manner: The aggregate of all liabilities is deducted from the
aggregate gross value of all assets, and the difference is divided by the number
of shares of the respective class of the Fund outstanding at the time. For the
purpose of determining the aggregate net assets of each class of the Fund, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities for which market quotations are readily available
are valued within the range of the most recent bid and ask prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Municipal securities generally trade in the
over-the-counter market rather than on a securities exchange. Other securities
for which market quotations are readily available are valued at the current
market price, which may be obtained from a pricing service, based on a variety
of factors, including recent trades, institutional size trading in similar types
of securities (considering yield, risk and maturity) and/or developments related
to specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. With the approval of trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.
Each of the Fund's classes will bear, pro rata, all of the common expenses of
the Fund. The net asset value of all outstanding shares of each class of the
Fund will be computed on a pro rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of such classes, except that the Class I and Class II shares will bear the Rule
12b-1 expenses payable under their respective plans. Due to the specific
distribution expenses and other costs that will be allocable to each class, the
dividends paid to each class of the Fund may vary.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features.
By calling the Franklin TeleFACTS(R) system, Class I shareholders may obtain
current price, yield or other performance information specific to a Franklin
fund; process an exchange into an identically registered Franklin account;
obtain account information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
By calling the Templeton Star Service, shareholders may obtain current price and
yield information specific to a Templeton fund, regardless of class, or Franklin
class II shares; obtain account information, request duplicate confirmation or
year-end statements and money fund checks, if applicable.
Share prices and account information specific to Templeton class I or II shares
and Franklin class II shares may also be accessed on TeleFACTS by Franklin class
I and class II shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The Star Service
is accessible by calling 1-800/654-0123. Franklin Class I and Class II share
codes for the Fund, which will be needed to access system information, are 181
and 281, respectively. The system's automated operator will prompt the caller
with easy to follow step-by-step instructions from the main menu. Other features
may be added in the future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
Hours of Operation
(Pacific time)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to shareholders may contain
various measures of a class' performance, including current yield, tax
equivalent yield, various expressions of total return, current distribution rate
and taxable equivalent distribution rate. They may occasionally cite statistics
to reflect the Fund's volatility or risk.
Average annual total return figures, as prescribed by the SEC, represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for each class for other
periods or based on investments at various sales charge levels or at net asset
value. For such purposes, total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price.
Current yield for each class reflects the income per share earned by the Fund's
portfolio investments. It is calculated for each class by dividing that class'
net investment income per share during a recent 30-day period by the maximum
public offering price for that class of shares on the last day of that period
and annualizing the result. Tax equivalent yield demonstrates the yield from a
taxable investment necessary to produce an after-tax yield equivalent to that of
a fund which invests in tax-exempt obligations. It is computed by dividing the
tax-exempt portion of a fund's yield (calculated as indicated) by one minus a
stated income tax rate and adding the product to the taxable portion (if any) of
the fund's yield.
Current yield and tax equivalent yield for each class, which are calculated
according to a formula prescribed by the SEC (see the SAI), are not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of a class are
reflected in the current distribution rate or taxable equivalent distribution
rate, which may be quoted to shareholders. The current distribution rate is
computed by dividing the total amount of dividends per share paid by a class
during the past 12 months by a current maximum offering price for that class of
shares. A taxable equivalent distribution rate demonstrates the taxable
distribution rate necessary to produce an after tax distribution rate equivalent
to a class' distribution rate (calculated as indicated above). Under certain
circumstances, such as when there has been a change in the amount of dividend
payout or a fundamental change in investment policies, it might be appropriate
to annualize the dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as short-term capital gain, and is calculated over a different
period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against a class' income and will assume the payment of the
maximum sales charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical performance figures
will be restated to reflect the new rate. The investment results of each class,
like all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what a class' yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future period.
Because Class II shares were not offered prior to May 1, 1995, no performance
data is available for these shares. After a sufficient period of time has
passed, Class II performance data will be available.
GENERAL INFORMATION
Reports to Shareholders
The Fund's fiscal year ends December 31. Annual Reports containing audited
financial statements of the Trust, including the auditor's report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtained, without charge, upon request to
the Trust at the telephone number or address set forth on the cover page of this
Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI.
Organization
The Trust was organized as a Massachusetts business trust on July 17, 1986. The
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in any number of series or classes thereof. Shares issued
will be fully paid and non-assessable and will have no preemptive, conversion,
or sinking rights. Shares of each series have equal and exclusive rights as to
the net assets of such series upon liquidation or dissolution.
The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series. In addition, each series may offer its shares in one or more
classes, depending on the distribution or other options offered by each such
class.
Voting Rights
Voting rights are noncumulative, so that in any election of trustees the holders
of more than 50% of the shares voting can elect 100% of the trustees, if they
choose to do so and, in such event, the holders of the remaining shares voting
will not be able to elect any person or persons to the Board of Trustees. The
Trust does not intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting for such purposes as changing
fundamental investment restrictions, approving a new management agreement or any
other matters which are required to be acted on by shareholders under the 1940
Act. A meeting may also be called by the trustees in their discretion or by
shareholders holding at least ten percent of the outstanding shares of the
Trust. Shareholders will receive assistance in communicating with other
shareholders in connection with the election or removal of trustees, such as
that provided in Section 16(c) of the 1940 Act.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as the other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only shareholders of that
class will be entitled to vote. Therefore, each class of shares will vote
separately on matters (1) affecting only that class, (2) expressly required to
be voted on separately by state business trust law, or (3) required to be voted
on separately by the 1940 Act, or the rules adopted thereunder. For instance, if
a change to the Rule 12b-1 plan relating to Class I shares requires shareholder
approval, only shareholders of Class I may vote on the change to the Rule 12b-1
plan affecting that class. Similarly, if a change to the Rule 12b-1 plan
relating to Class II shares requires approval, only shareholders of Class II may
vote on changes to such plan. On the other hand, if there is a proposed change
to the investment objective of the Fund, this affects all shareholders,
regardless of which class of shares they hold and, therefore, each share has the
same voting rights.
Redemptions by the Fund
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.
Other Information
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
REGISTERING YOUR ACCOUNT
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealers to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
Important Notice Regarding
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution, or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup withholding
if the IRS or a securities dealer notifies the Fund that the number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
RISK FACTORS IN NEW YORK
Since the Fund primarily invests in New York Municipal Securities, there are
certain specific factors and considerations concerning New York State and New
York City which may affect the credit and market risk of the municipal
securities that the Fund may purchase. The following information is based
primarily upon information derived from public documents relating to securities
offerings of issuers of New York Municipal Securities, from independent
municipal credit reports and historically reliable sources, but has not been
independently verified by the Fund.
The primary purpose of investing in a portfolio of New York Municipal Securities
is the special tax treatment accorded New York resident individual investors.
Payment of interest and preservation of principal, however, is dependent upon
the continuing ability of New York issuers and/or obligors of state, municipal
and public authority debt obligations to meet their obligations thereunder.
Investors should be aware that certain substantial issuers of New York Municipal
Securities (including issuers whose obligations may be acquired by the Fund)
have experienced financial difficulties in recent years. These difficulties have
at times jeopardized the credit standing and impaired the borrowing abilities of
other New York issuers and have generally contributed to higher interest rates
and lower market prices for their debt obligations. A recurrence of the
financial difficulties previously experienced by such issuers could result in
defaults or declines in the market values of their existing obligations and,
possibly, in the obligations of other issuers of New York Municipal Securities.
As of the date of filing of this Prospectus with the SEC, no issuers of New York
Municipal Securities were, to the knowledge of the investment manager, in
default with respect to the payment of their debt obligations. The occurrence of
any such default, however, could adversely affect the market values and
marketability of all New York Municipal Securities and, consequently, the net
asset value of the Fund's portfolio. Some of the significant financial
considerations relating to the Fund's investments in New York Municipal
Securities are summarized in the SAI.
Investors should consider the greater risk of the Fund's concentration in New
York Municipal Securities versus the safety that comes with a less concentrated
investment portfolio and should compare yields available on portfolios of New
York issues with those of more diversified portfolios, including out-of-state
issues, before making an investment decision. The Fund's investment manager
believes, however, that by maintaining the Fund's investment portfolio in New
York Municipal Securities which are covered by insurance policies providing for
the scheduled payment of principal and interest in the event of non-payment by
the issuer as discussed elsewhere in this Prospectus, the Fund is largely
insulated from the credit risks that may exist on long-term New York Municipal
Securities. The SAI contains a further description under "Appendix A - Risk
Factors Affecting New York Municipal Securities."
FRANKLIN NEW YORK
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
FRANKLIN NEW YORK TAX-FREE TRUST
PROSPECTUS MAY 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
The Franklin New York Intermediate-Term Tax-Free Income Fund (the "Fund") is
one of three non-diversified series of the Franklin New York Tax-Free Trust
(the "Trust"), an open-end management investment company. The Fund offers
individual investors, corporations and other institutions a convenient way to
invest in a professionally managed portfolio of municipal securities,
primarily issued by the state of New York and its political subdivisions. The
Fund's investment goal is to provide investors with as high a level of income
exempt from federal income taxes and New York State and New York City
personal income taxes as is consistent with prudent investment management and
the preservation of shareholders' capital. The Fund intends to invest
primarily in a portfolio of investment grade obligations with a dollar
weighted average portfolio maturity of more than three years but not more
than ten years. There can be no assurance that the Fund's objective will be
achieved.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After
reading the Prospectus, you should retain it for future reference; it
contains information about the purchase and sale of shares and other items
which you will find useful.
An SAI concerning the Trust, dated May 1, 1996, as may be amended from time
to time, provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to you. It has been filed with the
SEC and is incorporated herein by reference. A copy is available without
charge from the Fund or from Distributors, at the address or telephone number
shown above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative,
dealer, or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
CONTENTS PAGE
Expense Table
Financial Highlights - How Has the Fund Performed?
What Is the Franklin New York Tax-Free Trust?
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
How You Participate in the Results of the Fund's Activities
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding
Taxpayer IRS Certifications
Useful Terms and Definitions
Risk Factors in New York
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund, before fee waivers and expense reductions, for the
fiscal year ended December 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 2.25%
Deferred Sales Charge NONE*
*Investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees 0.63%**
Rule 12b-1 Fees 0.09%***
Other Expenses:
Reports to Shareholders 0.02%
Shareholder Servicing Costs 0.03%
Other 0.06%
-----
Total Other Expenses 0.11%
Total Fund Operating Expenses 0.83%**
** The Manager has agreed in advance to waive a portion of its management fee
and to make certain payments to reduce expenses of the Fund. With this
reduction, management fees and total operating expenses represented 0.13% and
0.33%, respectively, of the average net assets of the Fund.
*** The maximum amount of Rule 12b-1 fees allowed pursuant to the Fund's
distribution plan is 0.10%. See "Who Manages the Fund? - Plan of
Distribution. Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end sales charges
and Rule 12b-1 fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charges permitted under
those same rules.
You should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an investment in the
Fund. Rather, the table has been provided only to assist you in gaining a
more complete understanding of fees, charges and expenses. For a more
detailed discussion of these matters, you should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge, that apply to a
$1,000 investment in the Fund over various time periods assuming (1) a 5%
annual rate of return and (2) redemption at the end of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
$31* $48 $68 $123
*Assumes that a contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, BEFORE FEE
WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by you as a result of your investment in the Fund. See "Who Manages the
Fund?" for a description of the Fund's expenses. In addition, federal
securities regulations require the example to assume an annual return of 5%,
but the Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing the financial highlights for a share of
the Fund. The information for the period ended December 31, 1992 and for the
three fiscal years ended December 31, 1995 has been audited by Coopers &
Lybrand L.L.P., independent auditors, whose audit report appears in the
financial statements in the Trust's Annual Report to Shareholders for the
year ended December 31, 1995. See the discussion "Reports to Shareholders"
under "General Information." in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Ratio of Net
Net Asset Net Realized DistributionsNet Asset Net Assets Ratio of Investment
Period Value Net & Unrealized Total From From Net Value at End Expenses Income Portfolio
Ended Beginning InvestmentGains (Losses) Investment Investment at End Total of Year to Average to Average Turnover
December 31 of Year Income on Securities Operations Income of Year Return+ (in 000's) Net Assets++Net Assets Rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992* $10.00 $.090 $(1.135 $0.225 $(.015) $10.21 2.25% $03,459 --% 4.41%** 20.80%
1993 10.21 .480 .536 1.016 (.546) 10.68 10.18 31,162 -- 4.96 30.95
1994 10.68 .550 (1.104) (.554) (.526) 9.60 (5.42) 35,166 .05 5.57 188.38
1995 9.60 .550 .795 1.345 (.545) 10.40 14.31 43,229 .33 5.51 24.68
</TABLE>
*For the period September 21, 1992 (effective date of registration) to
December 31, 1992.
**Annualized
+Total return measures the change in value of an investment over the 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, the Manager 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%
WHAT IS THE FRANKLIN NEW YORK TAX-FREE TRUST?
The Trust is an open-end management investment company, or mutual fund,
organized as a Massachusetts business trust in July 1986 and registered with
the SEC under the Investment Company Act of 1940 (the "1940 Act"). The Trust
currently consists of three series, each of which issues a separate series of
the Trust's shares and maintains a totally separate investment portfolio.
This Prospectus relates only to the Franklin New York Intermediate-Term
Tax-Free Income Fund.
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge
not exceeding 2.25% of the offering price. See "How Do I Buy Shares?"
HOW DOES THE FUND INVEST
ITS ASSETS?
The Fund seeks to provide investors with as high a level of income exempt
from federal income taxes and New York State and New York City personal
income taxes as is consistent with prudent investment management and the
preservation of shareholders' capital. The objective is a fundamental policy
of the Fund and may not be changed without shareholder approval. The Fund
intends to invest primarily in a portfolio of investment grade obligations
with a dollar weighted average portfolio maturity of more than three years
but not more than ten years. As with any investment, there is no assurance
that the Fund's objective will be achieved.
Under normal market conditions, the Fund attempts to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of its total assets in
debt obligations issued by or on behalf of the state of New York or any
state, territory or possession of the United States, the District of Columbia
and their respective authorities, agencies, instrumentalities and political
subdivisions, the interest on which is exempt from federal income tax. It is
possible, although not anticipated, that up to 20% of the Fund's net assets
could be in municipal securities subject to the alternative minimum tax
and/or in taxable obligations.
The Fund may invest, without percentage limitations, in securities having, at
the time of purchase, one of the four highest ratings of Moody's Investors
Service ("Moody's") (Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P")
(AAA, AA, A, BBB), or Fitch Investors Service, Inc. ("Fitch") (AAA, AA, A,
BBB), or in securities which are not rated, provided that, in the opinion of
the Fund's investment manager, such securities are comparable in quality to
those within the four highest ratings. These are considered to be "investment
grade" securities, although bonds rated in the fourth highest ratings level
(Baa by Moody's) are regarded as having an adequate capacity to pay principal
and interest but with greater vulnerability to adverse economic conditions
and as having some speculative characteristics. In the event the rating of an
issue held in the Fund's portfolio is lowered by the rating services, such
change will be considered by the Fund in its evaluation of the overall
investment merits of that security but such change will not necessarily
result in an automatic sale of the security. For a description of municipal
securities ratings, see "Appendix B - Description of Municipal Securities
Ratings" in the SAI.
In addition, under normal market conditions, the Fund will invest at least
65% of its total assets in municipal securities and obligations issued by or
on behalf of the state of New York and its local governments, municipalities,
authorities, agencies and political subdivisions, and those of certain other
governmental issuers, such as the Commonwealth of Puerto Rico, which pay
income exempt from regular federal, New York State and New York City personal
income taxes ("New York Municipal Securities"). Dividends paid by the Fund
which are derived from interest on tax-exempt obligations that are not New
York Municipal Securities will be exempt from regular federal income tax, but
will be subject to New York State and New York City personal income taxes. It
is possible, although not anticipated, that up to 35% of the Fund's net
assets could be in municipal securities from a state other than New York.
For temporary defensive purposes only, the Fund may invest (i) more than 20%
of its assets (which could be up to 100%) in fixed-income obligations the
interest on which is subject to regular federal income tax, and (ii) more
than 35% of the value of its net assets (which could be up to 100%) in
instruments the interest on which is exempt from regular federal income taxes
but not New York State and New York City personal income taxes. Any such
temporary taxable investments will be limited to obligations issued or
guaranteed by the full faith and credit of the U.S. government or commercial
paper rated A-1 by S&P.
The Fund may borrow from banks for temporary or emergency purposes and pledge
up to 5% of its total assets therefore. Although the Fund does not currently
intend to do so, consistent with procedures approved by the Board of Trustees
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Fund's total
assets at the time of the most recent loan.
The Fund may purchase or sell securities without regard to the length of time
the security has been held, and the frequency of portfolio transactions (the
turnover rate) will vary from year to year, depending on market conditions.
The Fund's annual portfolio turnover rate for the fiscal years ended December
31, 1994 and 1995 was 188.38% and 24.68%. The higher portfolio turnover rate
for the fiscal year ended December 31, 1994 was due to a repositioning of the
Fund for defensive purposes. High portfolio turnover increases transaction
costs which may be paid by the Fund.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course
of business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the net assets of the Fund.
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus, means
obligations issued by or on behalf of the state of New York or any state,
territory or possession of the U.S. and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, the interest on which
is exempt from federal income tax. An opinion as to the tax-exempt status of
a municipal security is generally rendered to the issuer by the issuer's bond
counsel at the time of issuance of the security.
Municipal securities are used to raise money for various public purposes,
such as constructing public facilities and making loans to public
institutions. Certain types of municipal bonds are issued to obtain funding
for privately operated facilities. Further information on the maturity and
funding classifications of municipal securities is included in the SAI.
It is possible, from time to time, that the Fund will invest more than 25% of
its assets in a particular segment of the municipal securities market,
including, but not limited to, hospital revenue bonds, housing agency bonds,
tax-exempt industrial development revenue bonds, transportation bonds, or
pollution control revenue bonds. In such circumstances, economic, business,
political or other changes affecting one bond (such as proposed legislation
affecting the financing of a project; shortages or price increases of needed
materials; or declining markets or need for the projects) might also affect
other bonds in the same segment, thereby potentially increasing market risk.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Generally, municipal
securities of longer maturities produce higher current yields than municipal
securities with shorter maturities, but are subject to greater price
fluctuation due to changes in interest rates, tax laws and other general
market factors. Lower-rated municipal securities generally produce a higher
yield than higher-rated municipal securities due to the perception of a
greater degree of risk as to the ability of the issuer to pay principal and
interest obligations.
The interest on bonds issued to finance public purpose state and local
government operations is generally tax-exempt for regular federal income tax
purposes. Interest on certain "private activity bonds" (including those for
housing and student loans) issued after August 7, 1986, while still
tax-exempt, constitutes a preference item for taxpayers in determining the
federal alternative minimum tax under the Internal Revenue Code of 1986, as
amended (the "Code"), and under the income tax provisions of some states.
This interest could subject a shareholder to, or increase the shareholder's
liability under, the federal and state alternative minimum tax, depending on
the shareholder's tax situation. In addition, all distributions derived from
interest exempt from regular federal income tax may subject corporate
shareholders to, or increase their liability under, the federal alternative
minimum tax, because such distributions are included in the corporation's
"adjusted current earnings." In states with a corporate franchise tax,
distributions of the Fund may also be fully taxable to corporate shareholders
under their state franchise tax systems. Consistent with the Fund's
investment objective, the Fund may acquire such private activity bonds if, in
the investment manager's opinion, such bonds represent the most attractive
investment opportunity then available to the Fund. As of December 31, 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.
The Fund may purchase floating rate and variable rate obligations. These
obligations bear interest at rates that are not fixed, but that vary with
changes in prevailing market rates on predesignated dates. The Fund may also
invest in variable or floating rate demand notes ("VRDNs"), which carry a
demand feature that permits the Fund to tender the obligation back to the
issuer or a third party at par value plus accrued interest prior to maturity,
according to the terms of the obligations, which amount may be more or less
than the amount the Fund paid for such obligation. Frequently, VRDNs are
secured by letters of credit or other credit support arrangements. Because of
the demand feature, the prices of VRDNs may be higher and the yields lower
than they otherwise would be for obligations without a demand feature. The
Fund will limit its purchase of municipal securities that are floating rate
and variable rate obligations to those meeting the quality standards set
forth in this Prospectus.
The Fund may purchase and sell municipal securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market
fluctuation, and the value at delivery may be more or less than the purchase
price. Although the Fund will generally purchase municipal securities on a
when-issued basis with the intention of acquiring such securities, it may
sell such securities before the settlement date if it is deemed advisable.
When the Fund is the buyer in such a transaction, it will maintain, in a
segregated account with its custodian, cash or high-grade marketable
securities having an aggregate value equal to the amount of such purchase
commitments, until payment is made. To the extent the Fund engages in
"when-issued" and "delayed delivery" transactions, it will do so for the
purpose of acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage.
The Fund may also invest in municipal lease obligations, primarily through
Certificates of Participation ("COPs"). COPs, which are widely used by state
and local governments to finance the purchase of property, function much like
installment purchase agreements. For example, COPs may be created when
long-term lease revenue bonds are issued by a governmental corporation to pay
for the acquisition of property or facilities which are then leased to a
municipality. The payments made by the municipality under the lease are used
to repay interest and principal on the bonds issued to purchase the property.
Once these lease payments are completed, the municipality gains ownership of
the property for a nominal sum. This lease format is generally not subject to
constitutional limitations on the issuance of state debt, and COPs may enable
a governmental issuer to increase government liabilities beyond
constitutional debt limits.
A feature which distinguishes COPs from municipal debt is that the lease
which is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that, while the
municipality will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the municipality's
appropriating body does not allocate the necessary funds. Local
administrations, being faced with increasingly tight budgets, therefore have
more discretion to curtail payments under COPs than they do to curtail
payments on traditionally funded debt obligations. If the government lessee
does not appropriate sufficient monies to make lease payments, the lessor or
its agent is typically entitled to repossess the property. In most cases,
however, the private sector value of the property will be less than the
amount the government lessee was paying.
While the risk of nonappropriation is inherent to COPs financing, the Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories of Moody's, S&P or Fitch, or
in unrated COPs believed to be of comparable quality. Criteria considered by
the rating agencies and the investment manager in assessing such risk include
the issuing municipality's credit rating, evaluation of how essential the
leased property is to the municipality and the term of the lease compared to
the useful life of the leased property. The Board of Trustees reviews the
COPs held in the Fund's portfolio to assure that they constitute liquid
investments based on various factors reviewed by the investment manager and
monitored by the Board of Trustees. Such factors include (a) the credit
quality of such securities and the extent to which they are rated or, if
unrated, comply with existing criteria and procedures followed to ensure that
they are of quality comparable to the rating required for Fund investment,
including an assessment of the likelihood that the leases will not be
canceled; (b) the size of the municipal securities market, both in general
and with respect to COPs; and (c) the extent to which the type of COPs held
by the Fund trade on the same basis and with the same degree of dealer
participation as other municipal bonds of comparable credit rating or
quality. While there is no limit as to the amount of assets which the Fund
may invest in COPs, as of December 31, 1995, the Fund held 24.07% of its net
assets in COPs and other municipal leases.
The Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specified price which typically reflects a premium
over the bonds' original issue price. These bonds generally have call
protection (that is, a period of time during which the bonds may not be
called) which usually lasts for five to ten years, after which time such
bonds may be called away. An issuer may generally be expected to call its
bonds, or a portion of them, during periods of relatively declining interest
rates, when borrowings may be replaced at lower rates than those obtained in
prior years. If the proceeds of a bond called under such circumstances are
reinvested, the result may be a lower overall yield due to lower current
interest rates. If the purchase price of such bonds included a premium
related to the appreciated value of the bonds, some or all of that premium
may not be recovered by bondholders, such as the Fund, depending on the price
at which such bonds were redeemed. Notwithstanding the call feature, any such
investment would still be subject to the policy whereby the Fund is required
to maintain a dollar weighted average portfolio maturity between three and
ten years.
Other. The Fund is subject to a number of additional investment restrictions,
some of which may be changed only with the approval of shareholders, which
limit its activities to some extent. For a list of these restrictions and
more information about the policies discussed herein, please see "How Does
the Fund Invest Its Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
While an investment in the Fund is not without risk, certain policies are
followed in managing the Fund which may help to reduce such risk. There are
two categories of risks that the Fund is subject to: credit risk and market
risk. Credit risk is a function of the ability of an issuer of a municipal
security to maintain timely interest payments and to pay the principal of a
security upon maturity. It is generally reflected in a security's underlying
credit rating and its stated interest rate (normally the coupon rate). A
change in the credit risk associated with a municipal security may cause a
corresponding change in the security's price. Market risk is the risk of
price fluctuation of a municipal security caused by changes in general
economic and interest rate conditions generally affecting the market as a
whole. A municipal security's maturity length also affects its price. As with
other debt instruments, the price of the securities in which the Fund invests
are likely to decrease in times of rising interest rates. Conversely, when
rates fall, the value of the Fund's investments may rise. Price changes of
securities held by the Fund have a direct impact on the net asset value per
share of the Fund. Since the Fund primarily invests in New York Municipal
Securities, there are certain specific factors and considerations concerning
New York which may affect the credit and market risk of the municipal
securities that the Fund may purchase. See "Risk Factors in New York" for a
discussion of these factors.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to the concentration of
its investments in the assets of one or more issuers. This concentration may
present greater risks than in the case of a diversified company. (See the SAI
for the diversification requirements the Fund intends to meet in order to
qualify as a regulated investment company under the Code.)
The Fund is subject to a number of additional investment restrictions, some
of which may be changed only with the approval of shareholders, which limit
its activities to some extent. For a list of these restrictions and more
information concerning the policies discussed herein, please see the SAI.
HOW YOU PARTICIPATE
IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the
securities owned by the Fund increase in value, the value of the shares of
the Fund you own will increase. If the securities owned by the Fund decrease
in value, the value of the your shares will also decline. In this way, you
participate in any change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities,
as described in the preceding sections, you may anticipate that the value of
Fund shares will fluctuate with movements in the broader bond markets as
well. In particular, changes in interest rates will affect the value of the
Fund's portfolio and thus its share price. Increased rates of interest, which
frequently accompany higher inflation and/or a growing economy are likely to
have a negative effect on the value of Fund shares. History reflects both
increases and decreases in the prevailing rate of interest and these may
reoccur unpredictably in the future.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the
Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who
own approximately 20% and 16%, respectively, of Resources' outstanding
shares. Resources is engaged in various aspects of the financial services
industry through its subsidiaries. Advisers acts as investment manager or
administrator to 36 U.S. registered investment companies (118 separate
series) with aggregate assets of over $80 billion, $41 billion of which is in
the municipal securities market.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those
taken by the Manager on behalf of other funds. Neither the Manager (including
its affiliates) nor its officers, directors or employees nor the officers and
directors [trustees] of the Fund are prohibited from investing in securities
held by the Fund or other funds which are managed or administered by the
Manager to the extent such transactions comply with the Fund's Code of
Ethics. Please see "Investment Advisory and Other Services" and "General
Information" in the SAI for further information on securities transactions
and a summary of the Fund's Code of Ethics.
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
and Portfolio Manager
Franklin Advisers, Inc.
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 and
Portfolio Manager
Franklin Advisers, Inc.
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
Franklin Advisers, Inc.
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.
During the fiscal year ended December 31, 1995, management fees, before any
advance waiver, totaled 0.63% of the average net assets of the Fund. Total
operating expenses, including management fees, before any advance waiver,
totaled 0.83% of the average net assets of the Fund. Pursuant to an agreement
by Advisers to limit its fees, the Fund paid management fees totaling 0.13%
of the average net assets of the Fund and operating expenses totaling 0.33%.
This arrangement may be terminated by the Manager at any time upon notice to
the Board.
It is not anticipated that the Fund will incur a significant amount of
brokerage expenses because municipal securities are generally traded in
principal transactions that involve the receipt by the broker of a spread
between the bid and ask prices for the securities and not the receipt of
commissions. In the event that the Fund does participate in transactions
involving brokerage commissions, it is the Manager's responsibility to select
brokers through whom such transactions will be effected. The Manager will try
to obtain the best execution on all such transactions. If it is felt that
more than one broker is able to provide the best execution, the Manager will
consider the furnishing of quotations and of other market services, research,
statistical and other data for the Manager and its affiliates, as well as the
sale of shares of the Fund, as factors in selecting a broker. Further
information is included under "How Does the Fund Purchase Securities For Its
Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
PLAN OF DISTRIBUTION
A distribution plan has been approved and adopted for the Fund (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of the Fund's shares. Such expenses
may include, but are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund shares, as well as
any distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Trust on behalf of
the Fund, Distributors or its affiliates.
The maximum amount which the Fund may reimburse to Distributors or others for
such distribution expenses is 0.10% per annum of its average daily net
assets, payable on a quarterly basis. All expenses of distribution in excess
of 0.10% per annum will be borne by Distributors, or others who have incurred
them, without reimbursement from the Fund.
The Plan also covers any payments to or by the Fund, Advisers, Distributors,
or other parties on behalf of the Fund, Advisers or Distributors, to the
extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are included in the
maximum operating expenses which may be borne by the Fund. For more
information, including a discussion of the Board's policies with regard to
the amount of Plan fees, please see "The Fund's Underwriter" in the SAI.
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 net capital loss carryovers) may
generally be made twice each year. One distribution may be made in December
to reflect any net short-term and net long-term capital gains realized by the
Fund as of October 31 of such year. Any net short-term and net long-term
capital gains realized by the Fund during the remainder of the fiscal year
may be distributed following the end of the fiscal year. These distributions,
when made, will generally be fully taxable to the Fund's shareholders. The
Fund may make one distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of its distributions for
operational or other reasons.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these
ways:
1.....Purchase additional shares of the Fund - You may purchase 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.....Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase 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 choose to receive dividends, or
both dividend and capital gain distributions in cash. You may have the money
sent directly to you, to another person, or to a checking account. If you
choose to send the money to a checking account, please see "Electronic Fund
Transfers" under "What Programs and Privileges Are Available to Me as a
Shareholder?"
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 NO OPTION IS SELECTED, DIVIDEND
AND CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND.
You may change the distribution option selected at any time by notifying the
Fund by mail or by telephone. Please allow at least seven days prior to the
record date for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax
matters relating to the Fund and its shareholders, see "Additional
Information Regarding Taxation" in the SAI.
Each series of the Trust intend to continue to qualify as a separate entity
for federal income tax purposes. The Fund intends to continue to qualify for
treatment as a regulated investment company under Subchapter M of the Code.
By distributing all of its income and meeting certain other requirements
relating to the sources of its income and diversification of its assets, the
Fund will not be liable for federal income or excise taxes.
By meeting certain requirements of the Code, the Fund has qualified and
continues to qualify to pay exempt-interest dividends to its shareholders.
Such exempt-interest dividends are derived from interest income exempt from
regular federal income tax, and are not subject to regular federal income tax
for Fund shareholders. In addition, to the extent that exempt-interest
dividends are derived from interest on obligations of New York and its
political subdivisions, from interest on direct obligations of the federal
government, or from interest on U.S. territorial obligations (including
Puerto Rico, the U.S. Virgin Islands or Guam), they will be exempt from New
York State and New York City personal income taxes. For corporate taxpayers
subject to the New York State franchise tax, however, the foregoing
categories of interest income will generally be taxable.
To the extent dividends are derived from taxable income from temporary
investments (including the discount from certain stripped obligations or
their coupons or income from securities loans or other taxable transactions),
from the excess of net short-term capital gain over net long-term capital
loss, or from ordinary income derived from the sale or disposition of bonds
purchased with market discount after April 30, 1993, they are treated as
ordinary income whether the shareholder has elected to receive them in cash
or in additional shares.
From time to time, the Fund may purchase a tax-exempt obligation with market
discount; that is, for a price that is less than the principal amount of the
bond, or for a price that is less than the principal amount of the bond where
the bond was issued with original issue discount, and such market discount
exceeds a de minimis amount. For such obligations purchased after April 30,
1993, a portion of the gain (not to exceed the accrued portion of market
discount as of the time of sale or disposition) is treated as ordinary income
rather than capital gain. Any distribution by the Fund of such ordinary
income to its shareholders will be subject to regular income tax in the hands
of Fund shareholders. In any fiscal year, the Fund may elect not to
distribute to its shareholders its taxable ordinary income and, instead, to
pay federal income or excise taxes on this income at the Fund level. The
amount of such distributions, if any, is expected to be small.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to
the shareholder until the following January will be treated, for tax
purposes, as if received by the shareholder on December 31 of the calendar
year in which they are declared.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of
the length of time a shareholder has owned Fund shares and regardless of
whether such distributions are received in cash or in additional shares.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
Since the Fund's income is derived from interest income and gain on the sale
of portfolio securities rather than dividend income, no portion of the Fund's
distributions will generally be eligible for the corporate dividends-received
deduction. None of the distributions paid by the Fund for the fiscal year
ended December 31, 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 shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions, including the portion of the
dividends on an average basis which constitutes taxable income or interest
income that is a tax preference item under the alternative minimum tax.
Shareholders who have not held shares of the Fund for a full calendar year
may have designated as tax-exempt or as tax preference income a percentage of
income which is not equal to the actual amount of tax-exempt or tax
preference income earned during the period of their investment in the Fund.
Exempt-interest dividends of the Fund, although exempt from regular federal
income tax in the hands of a shareholder, are includible in the tax base for
determining the extent to which a shareholder's social security or railroad
retirement benefits will be subject to federal income tax. Shareholders are
required to disclose the receipt of tax-exempt interest on their federal
income tax returns.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry Fund shares will not be deductible for federal income tax
purposes.
The foregoing description relates solely to federal income tax law and to New
York State and New York City personal income tax treatment to the extent
indicated. Shareholders should consult their tax advisors with respect to the
applicability of other state and local income tax laws to distributions and
redemption proceeds received from the Fund. Corporate, individual and trust
shareholders should contact their tax advisors to determine the impact of
Fund dividends and capital gain distributions under the alternative minimum
tax that may be applicable to a shareholder's particular tax situation.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the
applicability of U.S. withholding or other taxes on distributions received by
them from the Fund and the application of foreign tax laws to these
distributions.
HOW DO I BUY SHARES?
You may buy shares to open a Fund account with as little as $100 and make
additional payments at any time with as little as $25. 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.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price, unless you qualify to
purchase shares at a discount or without a sales charge as discussed below.
The offering price will be calculated to two decimal places using standard
rounding criteria.
Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions.
TOTAL SALES CHARGE
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- --------------------------------------------------------------------------------
Less than $100,000 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 (see below)***
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times
reallow the entire sales charge to the securities dealer. 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 be imposed on certain
redemptions of all or a part of an investment of $1 million or more. See "How
Do I Sell Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
Rights of Accumulation. To determine if you may pay a reduced sales charge,
you may add 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, to the amount of your current purchase. To receive the reduction, you or
your investment representative must notify Distributors that your investment
qualifies for a discount.
Letter of Intent. You may purchase 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. You or your investment representative must inform us that the
Letter is in effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION,
YOU ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
You authorize Distributors to reserve five percent (5%) of the amount of
the total intended purchase in Fund shares registered in your name.
You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem
any or all of these reserved shares to pay any unpaid sales charge if you
do not fulfill the terms of the Letter.
We will include the reserved shares in the total shares you own as
reflected on your periodic statements.
You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
Although you may exchange your shares, you may not liquidate reserved
shares until you complete the Letter or pay the higher sales charge.
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 our
Shareholder Services Department.
Group Purchases. If you are a member of a qualified group, you may purchase
Fund shares at the reduced sales charge applicable 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. For example,
if group members previously invested and still hold $80,000 of Fund shares
and invest $25,000, the sales charge will be 1.75%.
We define a qualified group as one which (i) has been in existence for more
than six months, (ii) has a purpose other than acquiring Fund shares at a
discount and (iii) satisfies uniform criteria which enable Distributors to
realize economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be
available to arrange for meetings between our representatives and group
members. It must also agree to include sales and other materials related to
the Franklin Templeton Funds in publications and mailings to its members at
reduced or no cost to Distributors, and arrange for payroll deduction or
other bulk transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue
further investments. Due to the varying procedures used by employers to
handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time the money reaches the Fund. We invest your
purchase at the applicable offering price per share determined on the day
that the Fund receives both the check and the payroll deduction data in
required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or
a real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its
payment date. You may reinvest Class II distributions in either Class I or
Class II shares, but Class I distributions may only be invested in Class I
shares under this privilege. For more information, see "Distribution Options"
under "What Distributions Might I Receive from the Fund?" or call Shareholder
Services at 1-800/632-2301; or
(ii) a redemption from a mutual fund with investment objectives similar to
those of the Fund, if (a) your investment in that fund was subject to either
a front-end or contingent deferred sales charge at the time of purchase, (b)
the fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the
reinvestment of the money within 365 days of the redemption date. You may
reinvest up to the total amount of the redemption proceeds under this
privilege. IF A DIFFERENT CLASS OF SHARES IS PURCHASED, THE FULL FRONT-END
SALES CHARGE MUST BE PAID AT THE TIME OF PURCHASE OF THE NEW SHARES. While
you will receive credit for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares that were no
longer subject to a contingent deferred sales charge will be reinvested at
net asset value and will not be subject to a new contingent deferred sales
charge. Shares exchanged into other Franklin Templeton Funds are not
considered "redeemed" for this privilege (see "What If My Investment Outlook
Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into
the Franklin Templeton Funds as described above, you will have 365 days from
the date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your
money in the Fund at net asset value for you, that person or institution may
charge you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales
charge may affect the amount of gain or loss you recognize and the tax basis
of the shares reinvested. If you have a loss on the redemption, the loss may
be disallowed if you reinvest in the same fund within a 30-day period. If you
would like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund
at net asset value regardless of the source of the investment proceeds. If
you or your account is included in one of the categories below, none of the
shares of the Fund you purchase will be subject to front-end or contingent
deferred sales charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their
investment accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of
the employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is a legally
permissible investment and which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of any registered management investment company ("an eligible
governmental authority"). IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR
OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE
FUND CONSTITUTE LEGAL INVESTMENTS. Municipal investors considering investment
of proceeds of bond offerings into the Fund should consult with expert
counsel to determine the effect, if any, of various payments made by the Fund
or the Manager on arbitrage rebate calculations. If you are a securities
dealer who has executed a dealer agreement with Distributors and, through
your services, an eligible governmental authority invests in the Fund at net
asset value, Distributors or one of its affiliates may make a payment, out of
its own resources, to you in an amount not to exceed 0.25% of the amount
invested. Please contact the Franklin Templeton Institutional Services
Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family
members. Although you may pay sales charges on investments in accounts opened
after your association with us has ended, you may continue to invest in
accounts opened while you were with us without paying sales charges; or
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1
million in Franklin Templeton Funds over a 13 month period. We will accept
orders for such 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 such order;
IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS
WRITTEN STATEMENT IS NOT INCLUDED WITH YOUR ORDER.
If you would like more information, please see "How Do I Buy and Sell
Shares?" in the SAI.
GENERAL
The Fund continuously offers its shares through securities dealers who have
an agreement with Distributors. The Fund and Distributors may refuse any
order for the purchase of shares. Currently, the Fund does not allow
investments by Market Timers.
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.
WHAT PROGRAMS AND PRIVILEGES ARE
AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT
THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE
"REGISTERING YOUR ACCOUNT" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares from an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. A lost, stolen or destroyed certificate
cannot be replaced without obtaining a sufficient indemnity bond. The cost of
such a bond, which is generally borne by you, can be 2% or more of the value
of the lost, stolen or destroyed certificate. A certificate will be issued if
requested by you or your securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you quarterly to reflect the
dividends reinvested during the period and after each other transaction which
affects your account. This statement will also show the total number of
shares you own, including the number of shares in "plan balance" for your
account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan, offers a convenient way to invest in the Fund.
Under the Plan, you can arrange to 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 at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, 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
terminate the program at any time by notifying Investor Services by mail or
by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from
your account on a monthly, quarterly, semiannual or annual basis. To
establish a Systematic Withdrawal Plan, the value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. Please keep in mind that $50 is merely the minimum amount and is
not a recommended amount.
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 receive your payments in any of the following
ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in
cash. You may 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 payments within three
to five days after the shares are redeemed.
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.
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.
While a Systematic Withdrawal Plan is in effect, shares must be held either
in plan balance or, where share certificates are outstanding, deposited with
the Fund.] You should ordinarily not make additional investments in the Fund
of less than $5,000 or three times the amount of annual withdrawals under the
plan because of the sales charge on additional purchases. Shares redeemed
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?"
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 maintained at 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. Any payments made during that time will be sent to the
address of record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of buying, selling or exchanging shares of
the Fund available to institutional accounts. For further information,
contact the Franklin Templeton Institutional Services Department at
1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for
the same class of shares of another Franklin Templeton Fund eligible for sale
in your state of residence and in conformity with that fund's stated
eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may
choose to sell your shares of the Fund and buy Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's
Class II front-end and contingent deferred sales charges. Although there are
no exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales
charge in the original fund purchased and shares are subsequently redeemed
within the contingency period, a contingent deferred sales charge will be
imposed.
Before making an exchange, you should review the prospectus of the fund you
wish to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for
example, limitations on a fund's sale of its shares, minimum holding periods
for exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any
outstanding share certificates.
BY TELEPHONE
You, or Your investment representative of record, if any, may exchange shares
of the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of
the other available Franklin Templeton Funds. The telephone exchange
privilege is available only for uncertificated shares or those which have
previously been deposited in your account. The Fund and Investor Services
will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. Please see "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares,
Investor Services will accept exchange orders from securities dealers who
execute a dealer or similar agreement with Distributors. See also "By
Telephone" above. Such a dealer-ordered exchange will be effective only for
uncertificated shares on deposit in your account or for which certificates
have previously been deposited. A securities dealer may charge a fee for
handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were
purchased without a sales charge will be charged a sales charge in accordance
with the terms of the prospectus of the fund being purchased, unless the
original investment in the Franklin Templeton Funds was made pursuant to the
privilege permitting purchases at net asset value, as discussed under "How Do
I Buy Shares?" Exchanges of shares of the Fund which were purchased with a
lower sales charge into a fund which has a higher sales charge will be
charged the difference, unless the shares were held in the Fund for at least
six months prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be
exchanged into the new account on a "first-in, first-out" basis. See "How Do
I Sell Shares? - Contingent Deferred Sales Charge" for a discussion of
investments subject to a contingent deferred sales charge.
If you request the exchange of the total value of the Fund account, accrued
but unpaid income dividends and capital gain distributions will be reinvested
in the Fund at the net asset value on the date of the exchange, and then the
entire share balance will be exchanged into the new fund in accordance with
the procedures set forth above. Because the exchange is considered a
redemption and purchase of shares, you may realize a gain or loss for federal
income tax purposes. Backup withholding and information reporting may also
apply. Information regarding the possible tax consequences of such an
exchange is included in the tax section in this Prospectus and under
"Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the general
policy of the Fund to initially invest this money in short-term, tax-exempt
municipal securities, unless it is felt that attractive investment
opportunities consistent with the Fund's investment objectives exist
immediately. Subsequently, this money will be withdrawn from such short-term,
tax-exempt municipal securities and invested in portfolio securities in as
orderly a manner as is possible when attractive investment opportunities
arise.
The exchange privilege may be modified or discontinued by the Fund at any
time upon 60 days' written notice to shareholders.
MARKET TIMERS
The Fund currently will not accept investments from Market Timers.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time and receive from the Fund the
value of the shares. You may sell shares in any of the following ways:
BY MAIL
Send a written request signed by all registered owners to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the
written request in proper form is received by Investor Services. Redemption
requests received after the time at which the net asset value is calculated
will receive the price calculated on the following business day. The net
asset value per share is determined as of the scheduled close of the
Exchange, (generally 1:00 p.m. Pacific time) each day that the Exchange is
open for trading. You are requested to provide a telephone number(s) where
you may be reached during business hours, or in the evening if preferred.
Investor Services' ability to contact you promptly when necessary will speed
the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more
joint owners of an account cannot be confirmed, (b) multiple owners have
a dispute or give inconsistent instructions to the Fund, (c) the Fund
has been notified of an adverse claim, (d) the instructions received by
the Fund are given by an agent, not the actual registered owner, (e) the
Fund determines that joint owners who are married to each other are
separated or may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934.
Generally, eligible guarantor institutions include (1) national or state
banks, savings associations, savings and loan associations, trust companies,
savings banks, industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and clearing
agencies; (3) securities dealers that are members of a national securities
exchange or a clearing agency or that have minimum net capital of $100,000;
or (4) institutions that participate in the Securities Transfer Agent
Medallion Program ("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the request to be
in proper form.
When shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are
advised, for your protection, to send the share certificate and assignment
form in separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the
authorized officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying
the general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and
(2) a copy of the pertinent pages of the trust document listing the trustees
or a Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to you within seven days after
receipt of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts". You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions given by telephone are genuine. You,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions - Verification Procedures."
If your account has a completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled close of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent
only to the address of record. \
Redemption requests by telephone will not be accepted within 30 days
following an address change by telephone. In that case, a you should follow
the other redemption procedures set forth in this Prospectus. Institutional
accounts (certain corporations, bank trust departments and government
entities that qualify to purchase shares at net asset value pursuant to the
terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which
is available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have
entered into an agreement with Distributors. This is known as a repurchase.
The only difference between a normal redemption and a repurchase is that if
you redeem shares through a dealer, the redemption price will be the net
asset value next calculated after your dealer receives the order which is
promptly transmitted to the Fund, rather than on the day the Fund receives
your written request in proper form. The documents described under "By Mail"
above, as well as a signed letter of instruction are required regardless of
whether you redeem shares directly or submit such shares to a securities
dealer for repurchase. Your letter should reference the Fund, the account
number, the fact that the repurchase was ordered by a dealer and the dealer's
name. Details of the dealer-ordered trade, such as trade date, confirmation
number, and the amount of shares or dollars, will help speed processing of
the redemption. The seven-day period within which the proceeds of your
redemption will be sent will begin when the Fund receives all documents
required to complete ("settle") the repurchase in proper form. The redemption
proceeds will not earn dividends or interest during the time between receipt
of the dealer's repurchase order and the date the redemption is processed
upon receipt of all documents necessary to settle the repurchase. Thus, it is
in your best interest to have the required documentation completed and
forwarded to the Fund as soon as possible. Your dealer may charge a fee for
handling the order. See "How Do I Buy and Sell Shares?" in the SAI for more
information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers all or a portion
of investments of $1 million or more redeemed within the contingency period
of 12 months of the calendar month of such investment will be assessed a
contingent deferred sales charge, unless one of the exceptions described
below applies. The charge is 1% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions)
or the net asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is waived in
certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) a calculated number of shares representing
amounts attributable to capital appreciation on shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held longer than the
contingency period. Shares subject to a contingent deferred sales charge will
then be redeemed on a "first-in, first-out" basis. For tax purposes, a
contingent deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the shares redeemed.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be
exchanged into the new account on a "first-in, first-out" basis. See "How Do
I Sell Shares? - Contingent Deferred Sales Charge" for a discussion of
investments subject to a contingent deferred sales charge.
redemptions initiated by the Fund due to an account falling below the minimum
specified account size; redemptions following the death of the shareholder or
beneficial owner; and redemptions through a Systematic Withdrawal Plan set up
for shares prior to February 1, 1995, and for Systematic Withdrawal Plans set
up thereafter, redemptions of up to 1% monthly of an account's net asset
value (3% quarterly, 6% semiannually or 12% annually). For example, if an
account maintained an annual balance of $1,000,000, only $120,000 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge.
Any amount over that $120,000 would be assessed a 1% contingent deferred
sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Unless otherwise specified, requests for redemptions of a SPECIFIED DOLLAR
amount will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take
up to 15 days or more. Although the use of a certified or cashier's check
will generally reduce this delay, shares purchased with these checks will
also be held pending clearance. Shares purchased by federal funds wire are
available for immediate redemption.
The right of redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is restricted or an
emergency exists, or if the SEC permits it, by order, for the protection of
shareholders. Of course, the amount received may be more or less than the
amount you invested, depending on fluctuations in the market value of
securities owned by the Fund.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take
up to 15 days or more. Although the use of a certified or cashier's check
will generally reduce this delay, shares purchased with these checks will
also be held pending clearance. Shares purchased by federal funds wire are
available for immediate redemption.
The right of redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is restricted or an
emergency exists, or if the SEC permits it, by order, for the protection of
shareholders. Of course, the amount received may be more or less than the
amount you invested, depending on fluctuations in the market value of
securities owned by the Fund.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any
other income during the time such checks remain uncashed and neither the Fund
nor its affiliates will be liable for any loss caused by your failure to cash
such checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealer may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, if you complete and
file an Agreement as described under "How Do I Sell Shares? - By Telephone"
you will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the Fund and Investor
Services follow instructions communicated by telephone which were reasonably
believed to be genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to you caused by an unauthorized
transaction. The Fund and Investor Services may be liable for any losses due
to unauthorized or fraudulent instructions in the event such reasonable
procedures are not followed. You are, of course, under no obligation to apply
for or accept telephone transaction privileges. In any instance where the
Fund or Investor Services is not reasonably satisfied that instructions
received by telephone are genuine, the requested transaction will not be
executed, and neither the Fund nor Investor Services will be liable for any
losses which may occur because of a delay in implementing a transaction.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact their your
investment representative for assistance or send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses
resulting from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering
price).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of
all assets, and then dividing the difference by the number of shares
outstanding. Assets in the Fund's portfolio are valued as described under
"How Are Fund Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may account information, current
price and, if available, yield or other performance information specific to
the Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin
account and request duplicate confirmation or year-end statements and deposit
slips. The Fund Code, which will be needed to access system information, is
53. The system's automated operator will prompt you with easy to follow
step-by-step instructions from the main menu. Other features may be added in
the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
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.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain
several measures of the Fund's performance, including current yield, various
expressions of total return, current distribution rate, tax equivalent yield,
taxable equivalent and current distribution rate. They may also occasionally
cite statistics to reflect the Fund's volatility or risk.
Average annual total return figures, as prescribed by the SEC, represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion
thereof, to the extent applicable, through the end of the most recent
calendar quarter, assuming reinvestment of all distributions. The Fund may
also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid
to shareholders, assuming reinvestment of all distributions, plus (or minus)
the change in the value of the original investment, expressed as a percentage
of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income
per share during a recent 30-day period by the maximum public offering price
on the last day of that period and annualizing the result. Tax equivalent
yield demonstrates the yield from a taxable investment necessary to produce
an after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of a fund's
yield (calculated as indicated) by one minus a stated income tax rate and
adding the product to the taxable portion (if any) of the fund's yield.
Current yield and tax equivalent yield for the Fund which are calculated
according to a formula prescribed by the SEC (see "General Information" in
the SAI) are not indicative of the dividends or distributions which were or
will be paid to the Fund's shareholders. Dividends or distributions paid to
shareholders of the Fund are reflected in the current distribution rate or
taxable equivalent distribution rate, which may be quoted to you. The current
distribution rate is computed by dividing the total amount of dividends per
share paid by the Fund during the past 12 months by a current maximum
offering price. A taxable equivalent distribution rate demonstrates the
taxable distribution rate necessary to produce an after tax distribution rate
equivalent to that of a fund which invests in tax-exempt obligations. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period such policies
were in effect, rather than using the dividends during the past 12 months.
The current distribution rate differs from the current yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as short-term capital gain, and is calculated
over a different period of time.
In each case, performance figures are based upon past performance, reflect
all recurring charges against Fund income and will assume the payment of the
maximum sales charge on the purchase of shares. When there has been a change
in the sales charge structure, the historical performance figures will be
restated to reflect the new rate. The investment results of the Fund, like
all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in
the future or what the Fund's performance may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends December 31. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual reports containing unaudited financial statements are
automatically sent to shareholders. To reduce the volume of mail sent to each
household, as well as to reduce Fund expenses, Investor Services will attempt
to identify related shareholders within a household and send only one copy of
the report. Additional copies may be obtained, without charge, upon request
to the Trust at the telephone number or address set forth on the cover page
of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series and classes. Shares
issued will be fully paid and non-assessable and will have no preemptive,
conversion, or sinking rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by such series and the
net assets of such series upon liquidation or dissolution. Additional series
or classes may be added in the future by the Board.
Shares of each series have equal rights as to voting and vote separately as
to issues affecting that series or the Trust unless otherwise permitted by
the 1940 Act. Voting rights are noncumulative, so that in any election of
trustees the holders of more than 50% of the shares voting can elect all of
the trustees, if they choose to do so, and in such event the holders of the
remaining shares voting will not be able to elect any person or persons to
the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust may,
however, hold a special shareholders' meeting of a series for such purposes
as changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. A meeting may also be called by the trustees
in their discretion or by shareholders holding at least ten percent of the
outstanding shares of the Fund. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or
removal of trustees, such as that provided in Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if
your account has a value of less than $50, but only where the value of your
account has been reduced by the prior voluntary redemption of shares and has
been inactive (except for the reinvestment of distributions) for a period of
at least six months, provided you are given advance notice. For more
information, see "How Do I Buy and Sell Shares?" in the SAI.
REGISTRERING YOUR ACCOUNT
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used
except for money market fund accounts. If co-owners wish to have the ability
to redeem or convert on the signature of only one owner, a limited power of
attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may
require court action to obtain release of the funds until the minor reaches
the legal age of majority. The account should be registered in the name of
one "Adult" as custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used
if the account is being established pursuant to a legal, valid trust
document. Use of such a designation in the absence of a legal trust document
may cause difficulties and require court action for transfer or redemption of
the funds.
Shares, whether in certificate form or not, registered as joint tenants or
"Jt Ten" shall mean "as joint tenants with rights of survivorship" and not
"as tenants in common."
Except as indicated, you may transfer an account in the Fund carried in
"street" or "nominee" name by your securities dealer to a comparably
registered Fund account maintained by another securities dealer. Both the
delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform your delivering securities dealer. To effect the
transfer, you should instruct the securities dealer to transfer the account
to a receiving securities dealer and sign any documents required by the
securities dealers to evidence consent to the transfer. Under current
procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in
proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed
in publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you
will be deemed to have authorized the use of electronic instructions on the
account, including, without limitation, those initiated through the services
of the NSCC, to have adopted as instruction and signature any such electronic
instructions received by the Fund and the Investor Services, and to have
authorized them to execute the instructions without further inquiry. At the
present time, such services which are available include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required
to report to the IRS any taxable dividend, capital gain distribution, or
other reportable payment (including share redemption proceeds) and withhold
31% of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer identification number
("TIN") and made certain required certifications that appear in the
Shareholder Application. You may also be subject to backup withholding if the
IRS or a securities dealer notifies the Fund that the number furnished by you
is incorrect or that you are subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close
an account by redeeming its shares in full at the then-current net asset
value upon receipt of notice from the IRS that the TIN certified as correct
by you is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a
certified TIN within 60 days after opening the account.
RISK FACTORS IN NEW YORK
Since the Fund primarily invests in New York Municipal Securities, there are
certain specific factors and considerations concerning New York State and New
York City which may affect the credit and market risk of the municipal
securities that the Fund may purchase. The following information is based
primarily upon information derived from public documents relating to
securities offerings of issuers of New York Municipal Securities, from
independent municipal credit reports and historically reliable sources, but
has not been independently verified by the Fund.
The primary purpose of investing in a portfolio of New York Municipal
Securities is the special tax treatment accorded New York resident individual
investors. Payment of interest and preservation of principal, however, is
dependent upon the continuing ability of the New York issuers and/or obligors
of state, municipal and public authority debt obligations to meet their
obligations thereunder. Investors should be aware that certain substantial
issuers of New York Municipal Securities (including issuers whose obligations
may be acquired by the Fund) have experienced financial difficulties in
recent years. These difficulties have at times jeopardized the credit
standing and impaired the borrowing abilities of other New York issuers and
have generally contributed to higher interest rates and lower market prices
for their debt obligations. A recurrence of the financial difficulties
previously experienced by such issuers could result in defaults or declines
in the market values of their existing obligations and, possibly, in the
obligations of other issuers of New York Municipal Securities.
As of the date of the filing of this Prospectus with the SEC, no issuers of
New York Municipal Securities were, to the knowledge of the investment
manager, in default with respect to the payment of their debt obligations.
The occurrence of any such default, however, could adversely affect the
market values and marketability of all New York Municipal Securities and,
consequently, the net asset value of the Fund's portfolio. Some of the
significant financial considerations relating to the Fund's investments in
New York Municipal Securities are summarized in the SAI.
Investors should consider the greater risk of the Fund's concentration in New
York Municipal Securities versus the safety that comes with a less
concentrated investment portfolio and should compare yields available on
portfolios of New York issues with those of more diversified portfolios,
including out-of-state issues, before making an investment decision. The
Fund's investment manager believes, however, that by maintaining the Fund's
investment portfolio in New York Municipal Securities which are rated
investment grade, the Fund is largely insulated from the credit risks that
may exist on long-term New York Municipal Securities. The SAI contains a
further description under "Appendix A - Risk Factors Affecting New York
Municipal Securities."
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 - "Classes" of shares represent proportionate interests
in the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in
the Franklin Templeton Funds currently offer their shares in two classes,
designated "Class I" and "Class II." Because the Fund's sales charge
structure and plan of distribution are similar to those of Class I shares,
shares of the Fund may be considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
Exchange - New York Stock Exchange.
Franklin Funds - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - the Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent.
Manager - Franklin Advisers, Inc., the Fund's investment manager.
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.
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. When you buy, sell or exchange shares, we
will use the NAV per share next calculated after we receive your request in
proper form.
Offering price - The public offering price is equal to the net asset value
per share plus the 2.25 % sales charge.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
Securities Dealer - financial institutions which, either directly or through
affiliates, have 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.
FRANKLIN
NEW YORK
TAX-FREE TRUST
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777
1-800/DIAL BEN
CONTENTS PAGE
How Do the Funds Invest Their Assets?
Description of Municipal
and Other Securities
Insurance (Insured Fund Only)
Investment Restrictions
Officers and Trustees
Investment Advisory
and Other Services
How Do the Funds Purchase Securities
For Their Portfolios?
How Do I Buy and Sell Shares?
How Are the Funds' Shares Valued?
Additional Information Regarding
Taxation
The Trust's Underwriter
General Information
Financial Statements
Appendices
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, open-end series' of the Franklin New York Tax-Free Trust (the
"Trust"), a 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 objectives are to
concentrate its investments in New York municipal securities and seeks to
provide investors with as high a level of income exempt from federal and New
York State and New York City personal income taxes as is consistent with prudent
investment management, while seeking preservation of shareholders' capital. The
Money Fund also seeks liquidity in its investments.
The Insured Fund seeks to achieve its objectives by investing in New York
municipal securities which are covered by insurance guaranteeing the scheduled
payment of principal and interest, in securities backed by the full faith and
credit of the U.S. government, in municipal securities secured by such U.S.
government obligations and in short-term obligations of issuers with the highest
ratings from Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"). All insured
securities not insured through the issuer will be insured by a qualified
municipal bond insurer.
The Money Fund is a no-load money market fund offering investors a convenient
way to invest in a professionally managed portfolio of high quality, short-term
New York municipal securities. The Money Fund attempts to maintain a stable net
asset value of $1.00 per share and offers shareholders the convenience of
redemption drafts (similar to checks) as one of the means of redeeming their
shares.
The Intermediate-Term Fund seeks to 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.
Separate prospectuses for the Funds, dated May 1, 1996, as may be amended from
time to time, provide the basic information an investor should know before
investing in any Fund of the Trust and may be obtained without charge from the
Trust or from the Trust's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address shown above.
The Insured Fund's offers two classes of shares to its investors ("Multiclass"):
Franklin New York Insured Tax-Free Income Fund - Class I ("Class I") and
Franklin New York Insured Tax-Free Income Fund - Class II ("Class II"). The
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.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUSES. THIS SAI IS INTENDED TO PROVIDE INVESTORS WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE TRUST AND EACH FUND
AND SHOULD BE READ IN CONJUNCTION WITH THE FUNDS' PROSPECTUSES.
HOW DO THE FUNDS INVEST THEIR ASSETS?
As noted in the Prospectuses, each Fund seeks to provide you 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 capital. The Money Fund
also seeks liquidity in its investments. The Intermediate-Term Fund seeks to
accomplish its objective by investing primarily in a portfolio of investment
grade obligations with a dollar-weighted average portfolio maturity of more than
three years but not more than ten years.
As described in each Prospectus, under normal market conditions, each Fund will
attempt to invest 100% and, as a matter of fundamental policy, will invest at
least 80% of the value of its net assets in securities the interest on which is
exempt from federal income taxes, including the alternative minimum tax, and,
under normal circumstances, will invest at least 65% of its net assets in
securities the interest on which is exempt from the personal income taxes of New
York State and New York City. Thus, it is possible, although not anticipated,
that up to 20% of each Fund's net assets could be invested in municipal
securities subject to the alternative minimum tax and/or in taxable obligations
and up to 35% of each Fund's net assets could be in municipal securities from a
state other than New York.
Although each Fund seeks to invest all of its assets in a manner designed to
accomplish its objective, there may be times when market conditions limit the
availability of appropriate municipal securities or, in the investment manager's
opinion, there exist uncertain economic, market, political or legal conditions
which may jeopardize the value of municipal securities. For temporary defensive
purposes only, when the investment manager believes that market conditions, such
as rising interest rates or other adverse factors, would cause serious erosion
of portfolio value, each Fund may invest more than 20%, and up to 100%, of the
value of its net assets in fixed-income obligations, the interest on which is
subject to federal income tax, and each Fund may invest more than 35%, and up to
100%, of its net assets in instruments the interest on which is exempt from
federal income taxes only. For the Money Fund, temporary investments not in
municipal securities will be limited to U.S. government securities, commercial
paper rated in the highest grade by either Moody's or S&P (Prime-1 or A-1,
respectively), or in obligations of U.S. banks with assets of $1 billion or
more. See "Appendix B - Description of Municipal Securities Ratings" at the end
of this SAI for more information concerning ratings.
As required by Rule 2a-7 under the 1940 Act, the Money Fund will limit its
investments to those U.S. dollar denominated instruments which the Board of
Trustees of the Trust (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 which may be used to make
principal and interest payments on the issuer's obligations. Some authorities
are provided further security in the form of a state's assurance (although
without obligation) to make up deficiencies in the debt service reserve fund.
INDUSTRIAL DEVELOPMENT BONDS which pay tax-exempt interest are in most cases
revenue bonds and are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business,
manufacturing, housing, sports, and pollution control. These bonds are also used
to finance public facilities such as airports, mass transit systems, ports and
parking. The payment of the principal and interest on such bonds is solely
dependent on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of the real and personal property so
financed as security for such payments.
WHEN-ISSUED PURCHASES. Municipal bonds are frequently offered on a "when-issued"
basis. When so offered, the price, which is generally expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date. During the
period between purchase and settlement, no payment is made by a Fund to the
issuer and no interest accrues to a Fund. To the extent that assets of a Fund
are held in cash pending the settlement of a purchase of securities, the Fund
would earn no income; however, it is each Fund's intention to be fully invested
to the extent practicable and subject to the policies stated above. While
when-issued securities may be sold prior to the settlement date, each Fund
intends to purchase such securities with the purpose of actually acquiring them,
unless a sale appears desirable for investment reasons. At the time a Fund makes
the commitment to purchase a municipal bond on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. Each Fund believes that its net asset value or income will not
be adversely affected by its purchase of municipal bonds on a when-issued basis.
Each Fund will establish a segregated account in which it will maintain cash and
marketable securities equal in value to commitments for when-issued securities.
CALLABLE BONDS. There are municipal bonds which are issued with provisions which
prevent them from being called, typically for periods of 5 to 10 years. During
times of generally declining interest rates, if the call-protection on callable
bonds expires, there is an increased likelihood that a number of such bonds may,
in fact, be called away by the issuers. Based on a number of factors, including
certain portfolio management strategies used by the Funds' investment manager,
each Fund believes it has reduced the risk of adverse impact on net asset value
based on calls of callable bonds. The investment manager may dispose of such
bonds in the years prior to their call dates, if the investment manager believes
such bonds are at their maximum premium potential. In pricing such bonds in each
Fund's portfolio, each callable bond is marked-to-market daily based on the
bond's call date. Thus, the call of some or all of a Fund's callable bonds may
have an impact on such Fund's net asset value. In light of each Fund's pricing
policies and because each Fund follows certain amortization procedures required
by the Internal Revenue Service ("IRS"), a Fund is not expected to suffer any
material adverse impact related to the value at which a Fund has carried the
bonds in connection with calls of bonds purchased at a premium. Notwithstanding
such policies, however, the reinvestment of the proceeds of any called bond may
be in bonds which pay a higher or lower rate of return than the called bonds;
and, as with any investment strategy, there is no guarantee that a call may not
have a more substantial impact than anticipated or that each Fund's objective
will be achieved.
ESCROW-SECURED BONDS OR DEFEASED BONDS are created when an issuer refunds in
advance of maturity (or pre-refunds) an outstanding bond issue which is not
immediately callable, and it becomes necessary or desirable to set aside funds
for redemption of the bonds at a future date. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade,
interest bearing debt securities which are then deposited in an irrevocable
escrow account held by a trustee bank to secure all future payments of principal
and interest of the advance refunded bond. Escrow-secured bonds will often
receive a triple-A rating from S&P, 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 which such Funds may purchase 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") are tax-exempt obligations
which contain a floating or variable interest rate and a right of demand, which
may be unconditional, to receive payment of the unpaid principal balance plus
accrued interest upon a short notice period (generally up to 30 days) prior to
specified dates, either from the issuer or by drawing on a bank letter of
credit, a guarantee or insurance issued with respect to such instrument. The
interest rates are adjustable at intervals ranging from daily up to monthly, and
are calculated to maintain the market value of the VRDN at approximately its par
value upon the adjustment date.
The Money Fund will purchase variable or floating rate demand instruments in
accordance with procedures prescribed by its Board. 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 which 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 ("COPs"). COPs are
distinguishable from municipal debt in that the lease which is the subject of
the transaction typically contains a "nonappropriation" or "abatement" clause. A
nonappropriation clause provides that, while the municipality will use its best
efforts to make lease payments, the municipality may terminate the lease without
penalty if the municipality's appropriating body does not allocate the necessary
funds.
While the risk of nonappropriation is inherent to COP financing, each Fund
believes that this risk is mitigated by its policy of investing only in COPs
rated within the four highest rating categories, in the case of the
Intermediate-Term Fund, or, in the case of the Money Fund, the two highest
rating categories, of Moody's, S&P or Fitch, or in unrated COPs believed to be
of comparable quality and, with respect to the Insured Fund, only in insured
COPs. For the Intermediate-Term Fund and the Money Fund, criteria considered by
the rating agencies and the investment manager in assessing such risk include
the issuing municipality's credit rating, the essentiality of the leased
property to the municipality and the term of the lease compared to the useful
life of the leased property. The Board has determined that COPs held in each
Fund's portfolio constitute liquid investments based on various factors reviewed
by the investment manager and monitored by the Board. Such factors include (a)
the credit quality of such securities and the extent to which they are rated;
(b) the size of the municipal securities market for a Fund, both in general and
with respect to COPs; and (c) the extent to which the type of COPs held by a
Fund trade on the same basis and with the same degree of dealer participation as
other municipal bonds of comparable credit rating or quality. There is no limit
as to the amount of assets which a Fund may invest in COPs.
U.S. GOVERNMENT OBLIGATIONS which may be owned by a Fund are issued by the U.S.
Treasury and include bills, certificates of indebtedness, notes and bonds, or
are issued by agencies and instrumentalities of the U.S. government and backed
by the full faith and credit of the U.S. government.
COMMERCIAL PAPER refers to promissory notes issued by corporations in order to
finance their short-term credit needs.
CERTIFICATES OF DEPOSIT are certificates issued against funds deposited in a
commercial bank, are for a definite period of time, earn a specified rate of
return, and are normally negotiable.
BANKERS' ACCEPTANCES are short-term credit instruments used to finance the
import, export, transfer, or storage of goods. They are termed "accepted" when a
bank guarantees their payment at maturity.
REPURCHASE AGREEMENTS. The Money Fund may engage in repurchase transactions, in
which the Fund purchases a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Money Fund to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement.
The Money Fund might also incur disposition costs in liquidating the collateral.
The Money Fund, however, intends to enter into repurchase agreements only with
government securities dealers recognized by the Federal Reserve Board or with
member banks of the Federal Reserve System. Under the 1940 Act, a repurchase
agreement is deemed to be the loan of money by the Fund to the seller,
collateralized by the underlying security. The U.S. government security subject
to resale (the collateral) will be held pursuant to a written agreement and the
Fund's custodian will take title to, or actual delivery of, the security. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Money Fund invest in repurchase agreements
with a term of more than one year. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreement. The Money Fund may not
enter into a repurchase agreement with more than seven days to maturity if, as a
result, more than 10% of the market value of the Fund's total assets would be
invested in such repurchase agreements.
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 100%. 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 shareholders. Income
derived by a Fund from interest on direct obligations of the U.S. government
will be taxable for federal income tax purposes when distributed to
shareholders. If a Fund, however, meets the requirements of New York State law
and properly designates such distributions, they will be excludable from income
for New York State personal income tax purposes.
There may, of course, be other types of municipal securities that become
available which are similar to the foregoing described municipal securities, in
which each Fund may also invest, to the extent such investments would be
consistent with the foregoing objectives and policies.
TIMING OF SECURITIES TRANSACTIONS
The Intermediate-Term Fund and the Insured Fund may purchase or sell securities
without regard to the length of time the security has been held, and the
frequency of portfolio transactions (the turnover rate) will vary from year to
year, depending on market conditions. While short-term trading increases
portfolio turnover, the execution costs for municipal bonds are substantially
less than for equivalent dollar values of equity securities. Portfolio turnover
rates for the Intermediate-Term Fund and the Insured Fund are in the Financial
Highlights table in their respective prospectuses. Because the Money Fund
purchases securities with maturities of less than 397 days, securities which are
excluded in making such a calculation, it does not have, nor is it expected to
have, any reportable turnover.
INSURANCE (INSURED FUND ONLY)
Except for certain temporary short-term investments or U.S. government
guaranteed securities, the investment in municipal securities by the Insured
Fund is covered by insurance guaranteeing the scheduled payment of principal and
interest thereon. Depending on market conditions, and under current portfolio
insurance restrictions, it is expected that New York municipal securities will
comprise a major portion of the portfolio of the Insured Fund.
As described in its Prospectus, the Insured Fund will receive payments of
insurance for any installment of interest and principal due for payment but
which shall be unpaid by reason of nonpayment by the issuer. The term "due for
payment", in reference to the principal of a security, means its stated maturity
date or the date on which it shall have been called for mandatory sinking fund
redemption and does not refer to any earlier date on which payment is due by
reason of a call for redemption (other than by mandatory sinking fund
redemption), acceleration or other advancement of maturity; when referring to
interest on a security, the term means the stated date for payment of interest.
When, however, the interest on the security shall have been determined, as
provided in the underlying documentation relating to such security, to be
subject to federal income taxation, due for payment, when referring to the
principal of such security, also means the date on which it has been called for
mandatory redemption as a result of such determination of taxability; when
referring to interest on such security, the term means the accrued interest at
the rate provided in such documentation to the date on which it has been called
for such mandatory redemption, together with any applicable redemption premium.
The insurance feature insures the scheduled payment of interest and principal
and does not guarantee the market value of the insured municipal securities nor
the value of the shares of the Insured Fund.
As stated in the Insured Fund's Prospectus, each insured municipal security in
the Insured Fund's portfolio will be covered by either a "New Issue Insurance
Policy" obtained by the issuer of the security at the time of its original
issuance or a "Secondary Insurance Policy" or a "Portfolio Insurance Policy"
issued by a qualified municipal bond insurer.
Under the provisions of the Portfolio Insurance Policy, the insurer
unconditionally and irrevocably agrees to pay to the appointed trustee or its
successor and its agent (the "Trustee") that portion of the principal of and
interest on the securities which shall become due for payment but shall be
unpaid by reason of nonpayment by the issuer. The insurer will make such
payments to the Trustee on the date such principal or interest becomes due for
payment or on the business day next following the day on which the insurer shall
have received notice of nonpayment, whichever is later. The Trustee will
disburse to the Insured Fund the face amount of principal and interest which is
then due for payment but is unpaid by reason of nonpayment by the issuer, but
only upon receipt by the Trustee of (i) evidence of the Insured Fund's right to
receive payment of the principal or interest due for payment and (ii) evidence,
including any appropriate instruments of assignment, that all of the rights to
payment of such principal or interest due for payment shall thereupon vest in
the insurer. Upon such disbursement, the insurer shall become the owner of the
security, appurtenant coupon or right to payment of principal or interest on
such security and shall be fully subrogated to all of the Insured Fund's rights
thereunder, including the right to payment thereof.
Bond insurers are often referred to as "monolines" in that they only write
financial guarantees, as opposed to "multiline" insurers who write several
different types of insurance policies, such as life, auto and home insurance,
and are exposed to many types of risk. Additionally, bond insurers are not
exposed to "run risk" (which occurs when too many policyholders rush to cash in
their policies), because they only guarantee payment when due. Also, in order to
maintain triple-A status by recognized national securities rating agencies
(which is required by the Insured Fund), the bond insurers invest their assets
mainly in high quality municipal and corporate bonds rated double-A or better
and U.S. government obligations.
Neither the Insured Fund nor its investment manager make any representations as
to the ability of any insurance company to meet its obligation to the Insured
Fund if called upon to do so.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions, which means that they may not
be changed without the approval of a majority of the outstanding voting
securities of such Fund. Under the 1940 Act, a "vote of a majority of the
outstanding voting securities" of the Trust or of a particular Fund means the
affirmative vote of the lesser of (i) more than 50% of the outstanding shares of
the Trust or of a particular Fund or (ii) 67% or more of the shares of the Trust
or of a particular Fund present at a shareholder meeting if more than 50% of the
outstanding shares of the Trust or of such Fund are represented at the meeting
in person or by proxy. A Fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets thereof) for temporary or emergency purposes may be made
from banks in any amount up to 5% of the total asset value. Secured temporary
borrowings may take the form of a reverse repurchase agreement, pursuant to
which each Fund would sell portfolio securities for cash and simultaneously
agree to repurchase them at a specified date for the same amount of cash plus an
interest component.
2. Buy any securities on margin or sell any securities short, except that it may
use such short-term credits as are necessary for the clearance of transactions.
3. Make loans, except through the purchase of debt securities which are
customarily purchased by institutional investors, including the municipal
securities described above, or to the extent the entry into a repurchase
agreement may be deemed a loan. Although such loans are not presently intended,
this prohibition will not preclude a Fund from loaning portfolio securities to
broker-dealers or other institutional investors if at least 102% cash collateral
is pledged and maintained by the borrower; provided such portfolio security
loans may not be made if, as a result, the aggregate of such loans exceeds 10%
of the value of a Fund's total assets at the time of the most recent loan.
4. Act as underwriter of securities issued by other persons except insofar as a
Fund may be technically deemed an underwriter under the federal securities laws
in connection with the disposition of portfolio securities.
5. Purchase the securities of any issuer which would result in owning more than
10% of the voting securities of such issuer.
6. Purchase securities from or sell to the Trust's officers and trustees, or any
firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than
one-half of 1% of the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such securities.
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices, and provided that this limitation
shall not prohibit the purchase of municipal and other debt securities secured
by real estate or interests therein.
8. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads, or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that each Fund may purchase, hold,
and dispose of puts on municipal securities in accordance with its investment
policies.
9. Invest in companies for the purpose of exercising control or management.
10. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition, or reorganization, except that the
Intermediate-Term Fund may invest in shares of one or more money market funds
managed by Franklin Advisers, Inc., to the extent permitted by exemptions
granted under the 1940 Act, and except to the extent the Insured Fund invests
its uninvested daily cash balances in shares of Franklin New York Tax-Exempt
Money Fund and other tax-exempt money market funds in the Franklin Group of
Funds provided i) its purchases and redemptions of such money market fund shares
may not be subject to any purchase or redemption fees, ii) its investments may
not be subject to duplication of management fees, nor to any charge related to
the expense of distributing the Fund's shares (as determined under Rule 12b-1,
as amended under the federal securities laws) and iii) provided aggregate
investments by the Insured Fund in any such money market fund do not exceed (A)
the greater of (i) 5% of the Fund's total net assets or (ii) $2.5 million, or
(B) more than 3% of the outstanding shares of any such money market fund.
11. Invest more than 10% of its assets in securities, in the case of the Money
Fund, with legal or contractual restrictions on resale.
12. Invest more than 25% of its assets in securities of any industry. For
purposes of this limitation, tax-exempt securities issued by governments or
political subdivisions of governments are not considered to be part of any
industry.
In addition to these fundamental policies, it is the policy of the Money Fund
not to purchase securities of any issuer having a record, together with
predecessors, of less than three years' continuous operation if, immediately
after such purchase, more than 10% of the Money Fund's assets taken at market
value would be invested in such securities; except that the Money Fund may
invest up to 20% of its assets in the securities of municipal issuers which have
been in continuous operation for less than three years. It is not the policy of
the Intermediate-Term Fund to invest in real estate limited partnerships or in
interests (other than publicly traded securities) in oil, gas, or other mineral
leases, exploration or development.
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 (*).
Name, Address and Age Positions and Offices Principal Occupations
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 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 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)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (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(R) 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 Fund Trust and by
other funds in the Franklin Templeton Group of Funds.
TOTAL NUMBER OF
COMPENSATION FRANKLIN
FROM FRANKLIN TEMPLETON
TEMPLETON FUNDS BOARDS
AGGREGATE FUNDS, ON
COMPENSATION INCLUDING WHICH EACH
NAME FROM TRUST* THE TRUST 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.
Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending Board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director, trustee or managing general
partner. No officer or 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 trustees and officers, 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
Intermediate-Term Fund. Many of the Trust's trustees 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 furnishing, 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 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 it represents. Pursuant to its management
agreement with the Manager, the Money Fund pays a daily fee (payable at the
request of the Manager) computed at the rate of 1/584 of 1% (approximately 5/8
of 1% per year) of the average daily net assets of the Fund for the first $100
million; plus 1/730 of 1% (approximately 1/2 of 1% per year) of average daily
net assets over $100 million up to $250 million; and 1/811 of 1% (approximately
45/100 of 1% per year) of average daily net assets in excess of $250 million.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by a Fund as prescribed by any state in which a Fund's shares
are offered for sale. The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate operating expenses of a
Fund (excluding interest, taxes, brokerage commissions and extraordinary
expenses such as litigation costs) would otherwise exceed in any fiscal year
2.5% of the first $30 million of average net assets of a Fund, 2% of the next
$70 million of average net assets of a Fund, and 1.5% of average net assets of a
Fund in excess of $100 million. Expense reductions have not been necessary based
on state requirements.
The 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:
MANAGEMENT FEES MANAGEMENT
FEES PAID
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 29, 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 such Funds or by the Manager on 30
days' written notice and, as to the Money Fund, on 60 days' written notice, and
will automatically terminate in the event of their assignment, as defined in the
1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Trust and acts as the Trust's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
Bank of 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
dated 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 allocations 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 fiscal years ended December 31, 1993, 1994 and 1995, 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 fund 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 draft
that is returned unpaid to the Fund, the Fund may impose a $10 charge against
your account for each returned item.
Dividend returned to a Fund marked "unable to forward" by the postal service
will be deemed to be a request to change the 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, shares of either Fund will be offered with the following
schedule of sales charges:
SALES
SIZE OF PURCHASE - IN U.S. DOLLARSCHARGE
- ----------------------------------------
Up to $100,000................. 3%
$100,000 to $1,000,000......... 2%
Over $1,000,000................ 1%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Insured Fund and the Intermediate-Term
Fund received in proper form prior to the scheduled closing time of the Exchange
(generally 1:00 p.m. Pacific time) 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)
The purchase price for shares of the Money Fund is the net asset value of such
shares next determined after receipt and acceptance of a purchase order in
proper form. Many of the types of instruments in which the Money Fund invests
must be paid for in federal funds, which are monies held by the custodian on
deposit at the Federal Reserve Bank of San Francisco and elsewhere. Therefore,
the monies paid by an investor for shares of the Money Fund generally cannot be
invested by the Money Fund until they are converted into and are available to
the Money Fund in federal funds, which may take up to two days. In such cases,
purchases by investors may not be considered in proper form and effective until
such conversion and availability. In the event the Money Fund is able to make
investments immediately (within one business day), however, it may accept a
purchase order with payment other than in federal funds; in such event, shares
of the Money Fund will be purchased at the net asset value next determined after
receipt of the order and payment. Once shares of the Money Fund are purchased,
they begin earning income immediately, and income dividends will start being
credited to the investor's account on the day following the effective date of
purchase and continue through the day all shares in the account are redeemed.
Payments transmitted by wire and received by the custodian and reported by the
custodian to the Money Fund prior to 3:00 p.m. Pacific time 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 Prospectus 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.
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 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 with the respective Fund.
As mentioned in the Prospectuses of the Insured Fund and the Intermediate-Term
Fund, five percent (5%) of the amount of the total intended purchase will be
reserved in 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 SEC. In the case of requests for
redemption in excess of such amounts, the trustees reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In 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 minimum
investment, but only where the value of your account has been reduced by 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 semi-annual 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
Investor Services may charge separate fees to shareholders of the Money Fund, to
be negotiated directly with such shareholders, for providing special services in
connection with their accounts, such as processing a large number of checks each
month. Such fees for special services to such shareholders will not increase the
expenses borne by the Money Fund.
As noted in the Money Fund's Prospectus, special procedures have been designed
for banks and other institutions wishing to open multiple accounts in the Money
Fund. The institution may open a single master account by filing one application
form with the Money Fund, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened at the time the master
account is filed by listing them or they may be added at a later date by written
advice or by filing forms supplied by the Trust. These sub-accounts may be
established by the institution with registration either by name or number. The
investment minimums applicable to the Money Fund are applicable to each
sub-account. The Trust will provide each institution with a written confirmation
for each transaction in a sub-account and arrangements may be made at no
additional charge for the transmittal of duplicate confirmations to the
beneficial owner of the sub-account.
Further, the Trust will provide to each institution, on a quarterly basis, or
more frequently as requested, a statement which will set forth each
sub-account's share balance, income earned for the period, income earned for the
year to date, and the total current market value of the account.
The 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.
HOW ARE THE FUNDS' SHARES VALUED?
As noted in the Prospectuses, each Fund and each class of the Insured Fund
generally calculates net asset value as of the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time for the Intermediate-Term Fund and each class
of the Insured Fund and 3:00 p.m. Pacific time for the Money Fund). As of the
date of this SAI, the Trust is informed that the Exchange observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the close of the Exchange. The values of such securities used in computing the
net asset value of each Fund's shares are determined as of such times.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the scheduled closed of the exchange
of each Fund or Class which will not be reflected in the computation of a Fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by the Board.
The valuation of the Money Fund's portfolio securities (including any securities
held in a separate account maintained for when-issued securities) is based upon
their amortized cost, which does not take into account unrealized capital gains
or losses. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in calculation, it may
result in periods during which value, as determined by amortized cost, is higher
or lower than the price the Money Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on shares of the
Money Fund computed as described above may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Money Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Fund would be able to obtain a somewhat higher yield than
would result from investment in a fund utilizing solely market values, and
existing investors in the Money Fund would receive less investment income. The
converse would apply in a period of rising interest rates.
The Money Fund's use of amortized cost, which facilitates the maintenance of the
Money Fund's per share net asset value of $1.00, is permitted by a rule adopted
by the SEC. Pursuant to this rule, the Money Fund must adhere to certain
conditions. The Money Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, only purchase instruments having remaining
maturities of 397 calendar days or less, and invest only in those 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 agency. As discussed in the Money
Fund's Prospectus, securities subject to floating or variable interest rates
with demand features in compliance with applicable rules of the SEC may have
stated maturities in excess of one year. The trustees have agreed to establish
procedures designed to stabilize, to the extent reasonably possible, the Money
Fund's price per share, as computed for the purpose of sales and redemptions, at
$1.00. Such procedures will include review of the Money Fund's portfolio
holdings by the trustees, at such intervals as they may deem appropriate, to
determine whether the Money Fund's net asset value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the trustees. If such deviation
exceeds 1/2 of 1%, the trustees will promptly consider what action, if any, will
be initiated. In the event the trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or existing
shareholders, they will take such corrective action as they regard as necessary
and appropriate, which may include the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redemptions of shares in kind, or establishing
a net asset value per share by using available market quotations.
DISTRIBUTIONS
In order to maintain a $1.00 net asset value per share, the Money Fund may make
distributions and distribution adjustments from realized gains and losses on the
sale of portfolio securities or from unrealized appreciation or depreciation in
the value of portfolio securities. This may result in under or over
distributions of investment company taxable income.
Shareholders of the Money Fund who so request may have their dividends paid out
monthly in cash. The shares reinvested and credited to their account during the
month will be redeemed as of the close of business on the last bank business day
of the month and the proceeds will be paid to them in cash. If a shareholder
withdrew the entire amount in an account at any time during the month, all
dividends accrued with respect to the account during the month to the time of
withdrawal would be paid in the same manner and at the same time as the proceeds
of withdrawal. Each Money Fund shareholder will receive a monthly summary of the
account, including information as to dividends reinvested or paid.
The Board reserves the right to revise the above dividend policy or postpone the
payment of dividends, if warranted in its judgment, due to unusual circumstances
such as a large expense, loss or unexpected fluctuation in net assets.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectuses, each Fund has elected to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (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 its tax-exempt income, and
distributions (including tax-exempt interest dividends) to shareholders will be
taxable to the extent of the Fund's available earnings and profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Funds and received by the shareholder
on December 31 of the calendar year in which they are declared. Each Fund
intends as a matter of policy to declare and pay such dividends, if any, in
December to avoid the imposition of this tax, but does not guarantee that its
distributions will be sufficient to avoid any or all federal excise taxes.
The Money Fund may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. Because the Money Fund's
portfolio under normal circumstances is composed of short-term securities,
however, the Fund does not expect to realize any long-term capital gains or
losses. Distributions by each Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital loss carryovers) may
generally be made twice each year. One distribution may be made in December to
reflect the net short-term and net long-term capital gains realized by a Fund as
of October 31 of such year. Any net short-term and net long-term capital gains
realized by a Fund during the remainder of the fiscal year may be distributed
following the end of the fiscal year. These distributions, when made, will
generally be fully taxable to a Fund's shareholders. Each Fund may make only one
distribution derived from net short-term and net long-term capital gains in any
year or adjust the timing of its distributions for operational or other reasons.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders subject to taxation, gain
or loss will be recognized in an amount equal to the difference between the
shareholder's basis in the shares and the amount realized from the transaction,
subject to the rules described below. If such shares are a capital asset in the
hands of the shareholder, gain or loss will be capital gain or loss and will be
long-term for federal income tax purposes if the shares have been held for more
than one year.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Funds are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
All or a portion of the sales charge incurred in purchasing shares of a Fund
will not be included in the federal tax basis of such shares sold or exchanged
within 90 days of their purchase (for purposes of determining gain or loss upon
the sale of such shares) if the sales proceeds are reinvested in the Fund or in
another fund in the Franklin Templeton Group and a sales charge that would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of
such sales charge excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment. Shareholders should
consult with their tax advisors concerning the tax rules applicable to the
redemption or exchange of fund shares.
Any loss realized upon the redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
amounts treated as distributions of net long-term capital gain during such
six-month period and will be disallowed to the extent of exempt-interest
dividends paid with respect to such shares.
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 shareholders with the percentage of any dividends
paid which may qualify for such tax-free treatment at the end of each calendar
year. Shareholders should then consult with their own tax advisors with respect
to the application of their 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.
Persons who are defined in the Code as "substantial users" (or related persons)
of facilities financed by private activity bonds should consult with their tax
advisors before purchasing shares of a Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Funds and the application of foreign tax laws to these distributions.
THE TRUST'S UNDERWRITER
Pursuant to an underwriting agreement in effect until February 29, 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, pursuant to
separate agreements with the Funds. 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 the Trust's outstanding voting securities, and in
either event by a majority vote of the Trust's trustees who are not parties to
the underwriting agreements or interested persons of any such party (other than
as trustees of the Trust), cast in person at a meeting called for that purpose.
The underwriting agreements terminate automatically in the event of their
assignment and may be terminated by either party on 90 days' written notice.
Distributors pays the expenses of distribution of the Funds' shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
In connection with the offering of the Intermediate-Term Fund's shares and the
Class I shares of the Insured Fund, aggregate underwriting commissions received
by Distributors and the amounts retained by Distributors after allowances to
dealers, 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
Distributors may be entitled to reimbursement under the distribution plans of
the Intermediate-Term Fund and the Class I shares of the Insured Fund, as
discussed below. Dealers received $10 in connection with redemptions or
repurchases of shares for the Insured Fund for the year ended December 31, 1995.
Except as noted, Distributors received no other compensation from the Trust for
acting as underwriter.
DISTRIBUTION PLANS
(INTERMEDIATE-TERM FUND AND INSURED FUND)
Each class of the Insured Fund has adopted a distribution plan 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".
Pursuant to the Class I Plan for the Insured Fund, the Fund may pay up to a
maximum of 0.10% per annum (0.10 of 1%) of its average daily net assets for
expenses incurred in the promotion and distribution of its shares.
Class I Plan for the Insured Fund. In implementing the Class I Plan, 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 shares of 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 shares of such Funds and class that were acquired
before May 1, 1994 ("Old Assets"). Such fees will be paid to the current
securities dealer of record on the 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 Class I Plan for the Insured Fund. 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 Class I Plan
for the Insured Fund, such as advertising.
The fee relating to the Class I Plan and the Intermediate-Term Plan is an
expense of Class I as a whole and is a Fund expense of the Intermediate-Term
Fund, so that all shareholders, regardless of when they purchased their shares,
will bear Rule 12b-1 expenses at the same rate. That rate initially will be at
least 0.07% (0.05% plus 0.02%) of such Fund's or class' average daily net assets
and, as Class I shares and Intermediate-Term Fund shares are sold on or after
May 1, 1994, will increase over time. Thus, as the proportion of
Intermediate-Term Fund shares and Class I shares of the Insured Fund purchased
on or after May 1, 1994 increases in relation to outstanding shares of such Fund
or class, the expenses attributable to payments under the Class I Plan or the
Intermediate-Term 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 and the Intermediate-Term Plan, such Plans permit
the Trust's trustees to allow the Intermediate-Term Fund and the Insured Fund to
pay a full 0.10% on all assets at any time. The approval of the Board would be
required to change the calculation of the payments to be made under the
Intermediate-Term Plan and the Class I Plan.
Pursuant to the Intermediate-Term Plan and the Class I Plan, Distributors or
others will be entitled to be reimbursed each quarter (up to the maximum as
stated above) for actual expenses incurred in the distribution and promotion of
the Intermediate-Term Fund's shares and the Class I shares of the Insured Fund,
including, but not limited to, the printing of prospectuses and reports used for
sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of such Fund's or class' shares, as well as any distribution or
service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Intermediate-Term Fund or the Insured
Fund, Distributors, or its affiliates.
For the fiscal year ended December 31, 1995, total amounts paid for advertising,
printing, and payments to underwriter and broker-dealers by the
Intermediate-Term Fund and Class I and Class II of the Insured Fund pursuant to
their respective Plans were $35,980, $184,647 and $1,362.
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.
Class I and Class II Plans. In addition to the payments to 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.
In no event shall the aggregate asset-based sales charges, which include
payments made under the Plans, plus any other payments deemed to be made
pursuant to the Plans, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
Article III, Section 26(d)4. The terms and provisions of the Plans relating to
required reports, term, and approval are consistent with Rule 12b-1.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plans 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 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. Securities laws of states in
which such Funds' shares are offered for sale may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions selling shares of such Funds may be required to register as dealers
pursuant to state law.
The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Class II Plan became effective on May 1, 1995. The Plans are effective
through March 31, 1996 and renewable annually by a vote of the 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 any penalty, by vote of a majority of the non-interested trustees on not
more than 60 days' written notice, by Distributors on not more than 60 days'
written notice, by any act that constitutes an assignment of the management
agreement with the Manager or, with respect to the Intermediate-Term Fund, the
underwriting agreement with Distributors, or by vote of a majority of the
respective Fund's outstanding shares. Distributors or any dealer or other firm
may also terminate their respective distribution or service agreement at any
time upon written notice.
The Plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the respective Fund's and class' outstanding shares, and all material
amendments to the Plans or any related agreements shall be approved by a vote of
the non-interested trustees, cast in person at a meeting called for the purpose
of voting on any such amendment.
Distributors is required to report in writing to the Board 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 Plans for the
Insured Fund Class I and Class II and the Intermediate-Term Plan, respectively,
of which the Fund paid Distributors $184,647, $1,362 and $35,980 under the
Insured Fund Class I and Class II Plans and the Intermediate-Term Plan,
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 their 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.
In considering the quotations of total return by each Fund and class, you should
remember that the maximum front-end sales charge reflected in each quotation is
a one-time fee (charged on all direct purchases) which will have its greatest
impact during the early stages of your investment in a Fund. This charge will
affect actual performance less the longer you retain the investment in a Fund.
The average annual compounded rates of return for the Intermediate-Term Fund and
Class I of the Insured Fund for the indicated periods ended on December 31,
1995, were as follows:
<TABLE>
<CAPTION>
FROM
FUND NAME ONE YEAR THREE YEARS INCEPTION
<S> <C> <C> <C>
Insured Fund - Class I 13.43% 5.92% 7.33%
Intermediate-Term Fund 11.75% 5.25% 5.48%
</TABLE>
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 the same manner as the
average annual total return. These quotations are computed in the same manner as
a Fund's average annual compounded rate, except that such quotations will be
based on each Fund's actual return for a specified period rather than on its
average return over one-, five- and ten-year periods. The total rates of return
for the Intermediate-Term Fund and Class I of the Insured Fund for the indicated
periods ended on December 31, 1995, were as follows:
<TABLE>
<CAPTION>
FROM
FUND NAME ONE YEAR THREE YEARS INCEPTION
<S> <C> <C> <C>
Insured Fund - Class I 13.43% 18.84% 39.20%
Intermediate-Term Fund 11.75% 16.58% 19.08%
</TABLE>
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 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 of
the Insured Fund for the 30-day period ended on December 31, 1995, was 4.75% and
4.54%, 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 which demonstrates the taxable yield necessary to produce
an after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. The 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 of
the Insured Fund and the Intermediate-Term Fund for the 30-day period ended on
December 31, 1995, was 8.50% and 8.90%, 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 dividends and
interest, such as short-term capital gains, and is calculated over a different
period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare 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 Class I shares of the Insured Fund at net asset value, sales literature
pertaining to Class I may quote a current distribution rate, yield, total
return, average annual return and other measures of performance as described
elsewhere in this SAI with the substitution of net asset value for public
offering price.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
A Fund may include in its advertising or sales material information relating to
investment objectives and performance results of funds and classes belonging to
the Templeton Group of Funds. Resources is the parent company of the advisers
and underwriter of both the Franklin Group of Funds and Templeton Group of
Funds.
COMPARISONS
To help 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 (LMBI) or its component indices - LMBI
measures yield, price and total return for the municipal bond market.
c) Bond Buyer's 20-Bond Index - an index of municipal bond yields based upon
yields of 20 general obligation bonds maturing in 20 years.
d) Bond Buyer's 40-Bond Index - an index of municipal bond yields based upon
yields of 40 revenue bonds maturing in 30 years.
e) Salomon Brothers Broad Bond Index or its component indices - 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,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg, L.P.
i) Financial publications: The Wall Street Journal, Business Week, Financial
World, Forbes, Fortune, and Money magazines - provide performance statistics
over specified time periods.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare performance of a Fund or a class
to the return on certificates of deposit or other investments. Investors should
be aware, however, that an investment in a Fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a
certificate of deposit issued by a bank. For example, as the general level of
interest rates rise, the value of a Fund's fixed-income investments, as well as
the value of its shares which are based upon the value of such portfolio
investments, can be expected to decrease. Conversely, when interest rates
decrease, the value of a Fund's shares can be expected to increase. Certificates
of deposit are frequently insured by an agency of the U.S. government. An
investment in each Fund is not insured by any federal, state or private entity.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to a Fund's portfolio, that the indices and averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by a Fund to calculate its figures. In
addition, there can be no assurance that a Fund will continue this performance
as compared to such other averages.
MONEY FUND
CURRENT YIELD
The Current yield reflects the 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:
365
Effective Yield = [(Base Period Return + 1) /7] - 1
TAX EQUIVALENT YIELD
The Money Fund may also quote a tax equivalent yield and a tax equivalent
effective yield, which demonstrate the taxable yield necessary to produce an
after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. Such yields are computed by dividing that portion of the yield of
the Money Fund (computed as indicated above) which is tax-exempt by one minus
the highest combined federal and state income tax rate and adding the product to
that portion of the yield of the Money Fund that is not tax-exempt. The tax
equivalent yield based on the current yield of the Money Fund for the seven-day
period ended on December 31, 1995, was 7.10%. 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 might satisfy
their investment objective, advertisements and other materials regarding the
Money Fund may discuss various measures of Fund performance as reported by
various financial publications. Materials may also compare performance (as
calculated above) to performance as reported by other investments, indices, and
averages. Such comparisons may include, but are not limited to, the following
examples:
a) IBC/Donoghue's Money Fund Report(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. It also summarizes changes in banking statistics and
reserve aggregates.
e) Inflation as measured by the Consumer Price Index, published by the U.S.
Bureau of Labor Statistics.
f) Standard & Poor's Bond Indices - measures yield and price of corporate,
municipal, and government bonds.
g) Financial Publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, and Money magazine.
h) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
i) Lehman Brothers Aggregate Bond Index or its component indices - the Aggregate
Bond Index measures yield, price, and total return for Treasury, Agency,
Corporate, and Mortgage bonds.
j) Lehman Brothers Municipal Bond Index or its component indices - measures
yield, price and total return for municipal bonds.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Money Fund's portfolio, that the indices and averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Money Fund to calculate
its figures. In addition, there can be no assurance that the Money Fund will
continue this performance as compared to such other averages.
OTHER FEATURES AND BENEFITS
ALL FUNDS
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 an investor
with the potential to earn income free of federal taxes and, depending on the
fund, state and local taxes as well, while supporting state and local public
projects. Franklin tax-free funds may also provide tax-free compounding, when
dividends are reinvested. An investment in Franklin's tax-free funds can grow
more rapidly than similar taxable investments.
Municipal securities are generally considered to be creditworthy, second in
quality only to securities issued or guaranteed by the United States government
and its agencies. The market price of such securities, however, may fluctuate.
This fluctuation will have a direct impact on the net asset value of an
investment in a Fund.
Currently, there are more mutual funds than there are stocks listed on the
Exchange. While many of them have similar investment objectives, no two are
exactly alike. As noted in the Prospectuses, shares of a Fund are generally sold
through securities dealers or other financial institutions. Investment
representatives of such securities dealers or financial institutions are
experienced professionals who can offer advice on the type of investment
suitable to an investor's unique goals and needs, as well as the types of risks
associated with such investment.
Each Fund may help 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 an investor
in determining how much money must be invested on a monthly basis in order to
have a projected amount available in the future to fund a child's college
education. (Projected college cost estimates are based upon current costs
published by the College Board.) The Franklin Retirement Planning Guide leads an
investor through the steps to start a retirement savings program. Of course, an
investment in the Trust cannot guarantee that such goals will be met.
MISCELLANEOUS INFORMATION
Each Fund is a member of the Franklin Templeton Group 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 $135
billion in assets under management for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offers 114 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
$41 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 amount of time, on an annual basis, the average taxpayer works to
satisfy his or her tax obligations to the federal, state and local taxing
authorities.
As of February 12, 1996, the principal shareholder of the
Franklin New York Insured Tax-Free Income Fund-Class II, beneficial or of
record, was as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
Brewster J. Chase
252 Etna Rd.
Ithaca, NY 14850-9122 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.
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.
As a shareholder of a Massachusetts business trust, you could under certain
circumstances, be held personally liable a partner 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 no likely give riser
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 financial statements contained in the Trust's Annual Report to
Shareholders for the year ended December 31, 1995, 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 investors in view of the policy of each
Fund of concentrating its investments in New York issuers. The information
provided constitutes only a brief discussion, does not purport to be a complete
description and is based on information from sources believed by the Trust to be
reliable, including official statements relating to securities offerings of the
state of New York and municipal issuers, and periodic publications by national
ratings organizations. Such information, however, has not been independently
verified by the Trust.
New York State. Constitutional challenges to State laws have limited the amount
of taxes which political subdivisions can impose on real property. In 1979, the
State's highest court declared unconstitutional a State law allowing localities
and school districts to impose a special increase in real estate property taxes
in order to raise funds for pensions and other uses. Additional court actions
have been brought against the State, certain agencies and municipalities
relating to financing, the amount of real estate tax, and the use of tax
revenues which could affect the ability of the State or its political
subdivisions to pay their obligations, require extraordinary appropriations or
expenditure reductions, or both, and which could have a material adverse effect
upon the financial condition of the State and various of its agencies and
subdivisions.
A substantial principal amount of bonds issued by various State agencies and
authorities are either guaranteed by the State or supported by the State through
lease-purchase arrangements, or other contractual or moral obligation
provisions. Moral obligation commitments by the State impose no immediate
financial obligations on the State and require appropriations by the legislature
before any payments can be made. Failure of the State to appropriate necessary
amounts or to take other action to permit the authorities and agencies to meet
their obligations could result in defaults on such obligations. If a default
were to occur, it would likely have a significant adverse impact on the market
price of obligations of the State and its authorities and agencies. In recent
years, the State has had to appropriate large amounts of funds to enable State
agencies to meet their financial obligations and, in some cases, prevent
default. Additional assistance is expected to be required in current and future
fiscal years since certain localities and authorities continue to experience
financial difficulties.
To the extent State agencies and local governments require State assistance to
meet their financial obligations, the ability of the state of New York to meet
its own obligations as they become due or to obtain additional financing could
be adversely effected. This financial situation could result not only in
defaults of State and agency obligations but also impairment of the
marketability of securities issued by the State, its agencies and local
governments.
Beginning in 1989, as a result of the recession which affected
the entire nation, the state of New York experienced the largest and longest
contraction in its labor force since the 1930s, with a loss of more than 500,000
jobs between mid-1989 and mid-1993. The State's economy has begun to recover,
although at a slower pace than that of the nation as a whole. The State's
employment is not projected to reach prerecession levels until the end of 1998,
with average growth of 1.4% per year. Much of the State's projected increase in
employment levels is expected to come from growth in the State's service and
trade sectors, which currently account for approximately 31.5% 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 1.6%.
New York is the second most populated state in the nation. The State's per
capita income exceeds the national average by 19.2%, although real income growth
is projected to lag behind the nation by 0.9%. Debt levels are considered high
both on a per capita basis and as a percentage of income and continue to rise.
Debt service currently represents 5.9% of general fund tax receipts. 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 small general fund
operating deficit as a result of a reduction in spendings 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 $1.4 billion budget deficit. The
deficit is a consequence of an adopted budget with higher than proposed
spending, an increased use of non-recurring resources, and personal income tax
cuts.
New York City. In 1975, New York City suffered several financial crises which
impaired and continue to impair the borrowing ability of both the City and the
State. In that year, the City lost access to public credit markets. The City was
not able to sell short-term or long-term notes to the public until 1979 and
1981, respectively. To help New York City out of its financial difficulties, the
State Legislature created the Municipal Assistance Corporation ("MAC") in 1975.
MAC has the authority to issue bonds and notes and pay or lend the proceeds to
the City. MAC also has the authority to exchange its obligations for City
obligations. MAC bonds are payable out of certain State sales and use taxes
imposed by the City, State stock transfer taxes and per capita State aid to the
City. The State is not, however, obligated to continue these taxes, to continue
appropriating revenues from these taxes, nor to continue the appropriation of
per capita State aid to pay MAC obligations. MAC does not have taxing powers,
and its bonds are not obligations enforceable against either the City or the
State.
Since 1975, the City's financial condition has been subject to oversight and
review by the New York State Financial Control Board (the "FCB"), and since 1978
its financial statements have been audited by independent accounting firms. To
be eligible for guarantees and assistance, the City was annually required to
submit to the FCB a financial plan for the next four fiscal years, covering the
City and certain agencies, showing balanced budgets determined in accordance
with generally accepted accounting principles. Although the FCB's powers of
prior approval were suspended effective June 30, 1986, because the City had
satisfied certain statutory conditions, the City continues to submit four-year
plans to the FCB for its review. In the event of a year-end operating deficit
greater than $100 million, the FCB has the authority to assume a significant
degree of control over the City's finances, which includes the ability to
approve or disapprove contracts and the City's four-year financial plan.
On January 17, 1995, S&P placed the City's general obligation bonds on
CreditWatch with negative implications, as a result of the City's plan to shift
$120 million of current debt costs to future years through the refunding of such
debt. This action resulted from an estimated $650 million budget gap for the
fiscal year. The ratings of the City's short-term notes and insured issues are
not affected.
Projections for the City's fiscal year 1997 estimate a budget deficit of $2
billion, most of which is due to shortfalls in projected tax revenues and state
aid. Efforts to close this gap will focus on reductions and spending cuts in the
areas of welfare and healthcare entitlements, and cuts in City services and
personnel.
Both the State and City face potential economic problems which could seriously
affect their ability to meet their financial obligations. The economic problems
of New York City adversely affect the State in numerous ways. In addition, for
decades the State economy has grown more slowly than that of the nation as a
whole, resulting in a decline in the position of New York as one of the
country's wealthiest states. The causes of this decline are varied and complex
and some causes reflect international and national trends beyond the State's and
City's control. Some analysts feel that this long-term decline is the result of
State and local taxation, which is among the highest in the nation, and which
may cause corporations to locate outside the State. The current high level of
taxes limits the ability of the State and City to impose higher taxes in the
event of future difficulties.
APPENDIX B - DESCRIPTION OF MUNICIPAL
SECURITIES RATINGS
MUNICIPAL BONDS
MOODY'S
AAA - Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA - Municipal bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Municipal bonds which are rated Baa are considered medium grade
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
BA: Municipal bonds which are rated Ba are judged to have predominantly
speculative elements and their future cannot be considered well assured. Often
the protection of interest and principal payments is very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Municipal bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA: Municipal bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
CA: Municipal bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Municipal bonds which are rated C are the lowest-rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
CON. (-): Municipal bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis condition.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its municipal bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - Municipal bonds rated AAA are the highest grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market
they move with interest rates, and hence provide maximum safety on all counts.
AA - Municipal bonds rated AA also qualify as high-grade obligations, and in
the majority of instances differ from AAA 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: Municipal bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
C: This rating is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
NOTE: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
FITCH
AAA BONDS: 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 BONDS: 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 BONDS: 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 BONDS: 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 therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
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 SHORT-TERM AND COMMERCIAL PAPER RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having
the strongest degree of assurance for timely payment.
F-1: Very strong credit quality. 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.
FRANKLIN NEW YORK TAX-FREE TRUST
File Nos. 33-7785
811-4787
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements incorporated herein by reference to the Registrant's
Annual Report to Shareholders dated December 31, 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 6(i),
6(ii), 8(iii), 8(iv), 8(v), 11(i), 15(iii), 27(i), 27(ii), 27(iii) and 27(iv)
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
(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
(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
(iii)Form of Dealer Agreement between Franklin/Templeton Distributors, Inc.
and dealers:
Registrant: Franklin Federal Tax-Free Income Fund
Filing: Post-Effective Amendment No. 17 to
Registration on Form N-1A
File No. 2-75925
Filing Date: March 28, 1995
(7) copies of all bonus, profit sharing, pension or other similar contracts or
arrangements wholly or partly for the benefit of directors or officers of
the Registrant in their capacity as such; any such plan that is not set
forth in a formal document, furnish a reasonably detailed description
thereof;
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. 54 to Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iii)Master Custody Agreement between Registrant and Bank of New York dated
February 16, 1996
(iv) Terminal Link Agreement between Registrant and Bank of New York dated
February 16, 1996
(v) Amendment to Custodian Agreement dated April 12, 1995 between
Registrant and Bank of America NT & SA
(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 February 27, 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;
Not Applicable
(14) copies of the model plan used in the establishment of any retirement plan
in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan. Such
form(s) should disclose the costs and fees charged in connection therewith;
Not Applicable
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1 under
the 1940 Act, which describes all material aspects of the financing of
distribution of Registrant's shares, and any agreements with any person
relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between Registrant on behalf
of Franklin 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
Filing: Post-effective Amendment No. 13 to Registration Statement on
Form N-1A
File No. 33-7785
Filing Date: April 25, 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
(27) Financial Data Schedule
(i) Financial Data Schedule for Franklin New York Tax-Exempt Money Fund
(ii) Financial Data Schedule for Franklin New York Insured Tax-Free Income
Fund - Class I
(iii)Financial Data Schedule for Franklin New York Insured Tax-Free Income
Fund - Class II
(iv) Financial Data Schedule for Franklin New York Intermediate-Term
Tax-Free Income Fund
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of December 31, 1995 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 5,103 31
Shares of Beneficial
Interest of Franklin New York Tax-Exempt Money
Fund 4,056 N/A
Shares of Beneficial
Interest of Franklin New York
Intermediate-Term Tax-Free Income Fund 982 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
The officers and directors of the Registrant's investment adviser also serve as
officers, directors, and/or trustees for (1) the adviser's corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the Franklin
Group of Funds. In addition, Mr. Charles B. Johnson is a director of General
Host Corporation. For additional information please see Part B 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
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
International Trust, Franklin Investors Securities Trust, Franklin Managed
Trust, Franklin Money Fund, Franklin Municipal Securities Trust, Franklin New
York Tax-Free Income Fund, Inc., Franklin Premier Return Fund, Franklin Real
Estate Securities Trust, Franklin Strategic Mortgage Portfolio, Franklin
Strategic Series, Franklin Tax-Exempt Money Fund, Franklin Tax-Advantaged High
Yield Securities Fund, Franklin Tax-Advantaged International Bond Fund, Franklin
Tax-Advantaged U.S. Government Securities Fund, Franklin Tax-Free Trust,
Franklin Value Investors Trust, Institutional Fiduciary Trust, Templeton
American Trust, Inc., Franklin Templeton Global Trust, Franklin Templeton Japan
Fund, Franklin Templeton Money Fund Trust, 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 Real Estate Securities Fund, Templeton 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 per cent of the Registrant's outstanding shares and to assist
its shareholders in the communicating with other shareholders in accordance
with the requirements of Section 16(c) of the Investment Company Act of
1940.
b) The Registrant hereby undertakes to comply with the information requirement
in Item 5A of the Form N-1A by including the required information in the
Trust's annual report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Mateo and the State of California, on the 1st
day of March, 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: March 1, 1996
Frank H. Abbott, II* Trustee
Frank H. Abbott, II Dated: March 1, 1996
Harris J. Ashton* Trustee
Harris J. Ashton Dated: March 1, 1996
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: March 1, 1996
David W. Garbellano* Trustee
David W. Garbellano Dated: March 1, 1996
Charles B. Johnson* Trustee
Charles B. Johnson Dated: March 1, 1996
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: March 1, 1996
William J. Lippman* Trustee
William J. Lippman Dated: March 1, 1996
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: March 1, 1996
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: March 1, 1996
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: March 1, 1996
*By 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 *
and Franklin Advisers, Inc. dated October
10, 1986
EX-99.B5(ii) Management Agreement between Registrant *
on behalf of the New York Insured
Tax-Free Income Fund and Franklin
Advisers, Inc. dated April 23, 1991
EX-99.B5(iii) Management Agreement 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.B6(i) Amended and Restated Distribution Attached
Agreement between Registrant on behalf of
all Series except Franklin New York
Tax-Exempt Money Fund dated May 16, 1995
EX-99.B6(ii) Amended and Restated Distribution Attached
Agreement between Registrant on behalf of
the Franklin New York Tax-Exempt Money
Fund dated March 29, 1995
EX-99.B6(iii) Form of Dealer Agreement between Franklin *
Templeton Distributors, Inc. and dealers
EX-99.B8(i) Custodian Agreement dated April 23, 1991 *
between Registrant and Bank of America NT
& SA
EX-99.B8(ii) Amendment to Custodian Agreement between *
Registrant and Bank of America NT & SA
dated December 1. 1994
EX-99.B8(iii) Master Custory Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(iv) Terminal Link Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(v) Amendment to Custodian Agreement Attached
between Registrant and Bank of
America NT & SA dated April 12,
1995
EX-99.B11(i) Consent of Independent Auditors dated Attached
February 27, 1996
EX-99.B15(i) Distribution Plan dated May 1, 1994 *
EX-99.B15(ii) Distribution Plan dated July 1, 1993 *
EX-99.B15(iii) Distribution Plan dated March 30, 1995 Attached
EX-99.B17(i) Power of Attorney dated February 16, 1995 *
EX-99.B17(ii) Certificate of Secretary dated February *
16, 1995
EX-27.B(i) Financial Data Schedule for Franklin New Attached
York Tax-Exempt Money Fund
EX-27.B(ii) Financial Data Schedule for Franklin New Attached
York Insured Tax-Free Income Fund - Class
I
EX-27.B(iii) Financial Data Schedule for Franklin New Attached
York Insured Tax-Free Income Fund - Class
II
EX-27.B(iv) Financial Data Schedule for Franklin New Attached
York Intermediate-Term Tax-Free Income
Fund
* Incorporated by Reference
FRANKLIN NEW YORK TAX-FREE TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
For All Series Except New York Tax-Exempt Money Fund Series
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are
registered under the Securities Act of 1933 (the "1933 Act"). We desire to
issue one or more series or classes of our authorized but unissued shares of
capital stock or beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws. The Fund's
Shares may be made available in one or more separate series, each of which
may have one or more classes except that this Agreement shall not apply to
the Fund's New York Tax-Exempt Money Fund Series, and the terms "Fund" and
"Shares" shall exclude any and all classes of shares of the New York
Tax-Exempt Money Fund Series for purposes of this Agreement.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company
is a member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of our Board of
Directors or Trustees ("Board") passed at a meeting at which a majority of
Board members, including a majority who are not otherwise interested persons
of the Fund and who are not interested persons of our investment adviser, its
related organizations or with you or your related organizations, were present
and voted in favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement
and in consideration of the agreements on your part herein expressed and upon
the terms and conditions set forth herein, we hereby appoint you as the
exclusive sales agent for our Shares and agree that we will deliver such
Shares as you may sell. You agree to use your best efforts to promote the
sale of Shares, but are not obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally
authorized transactions in its Shares which do not involve the sale of Shares
to the general public. Such other transactions may include, without
limitation, transactions between the Fund or any series or class and its
shareholders only, transactions involving the reorganization of the Fund or
any series, and transactions involving the merger or combination of the Fund
or any series with another corporation or trust.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind us by your actions, conduct or
contracts except that you are authorized to promote the sale of Shares. You
may appoint sub-agents or distribute through dealers or otherwise as you may
determine from time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale or
repurchase on our behalf or otherwise act as our agent for any purpose.
3. Offering Price. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you
with the net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective prospectus.
All Shares will be sold in the manner set forth in our then effective
prospectus and statement of additional information, and in compliance with
applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and
class of each Fund's Shares in the amount of any initial, deferred or
contingent deferred sales charge as set forth in our then effective
prospectus. You may allow any sub-agents or dealers such commissions or
discounts from and not exceeding the total sales commission as you shall deem
advisable, so long as any such commissions or discounts are set forth in our
current prospectus to the extent required by the applicable Federal and State
securities laws. You may also make payments to sub-agents or dealers from
your own resources, subject to the following conditions: (a) any such
payments shall not create any obligation for or recourse against the Fund or
any series or class, and (b) the terms and conditions of any such payments
are consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement of
additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted
as to any series and class of any Fund's Shares pursuant to Rule 12b-1 under
the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered for sale
only in those jurisdictions where they have been properly registered or are
exempt from registration, and only to those groups of people which the Board
may from time to time determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall be
directed to the Fund's shareholder services agent, for acceptance on behalf
of the Fund. At or prior to the time of delivery of any of our Shares you
will pay or cause to be paid to the custodian of the Fund's assets, for our
account, an amount in cash equal to the net asset value of such Shares.
Sales of Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and shareholder
services agent shall be identified in its prospectus.
7. Purchases for Your Own Account. You shall not purchase our
Shares for your own account for purposes of resale to the public, but you may
purchase Shares for your own investment account upon your written assurance
that the purchase is for investment purposes and that the Shares will not be
resold except through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares at net
asset value to certain of your and our affiliated persons pursuant to the
applicable provisions of the federal securities statutes and rules or
regulations thereunder (the "Rules and Regulations"), including Rule 22d-1
under the 1940 Act, as amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our company to be included in any
Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940 Act,
including the prospectus and statement of additional
information included therein;
(b) Of the preparation, including legal fees, and printing of
all Amendments or supplements filed with the Securities and
Exchange Commission, including the copies of the
prospectuses included in the Amendments and the first 10
copies of the definitive prospectuses or supplements
thereto, other than those necessitated by your (including
your "Parent's") activities or Rules and Regulations
related to your activities where such Amendments or
supplements result in expenses which we would not otherwise
have incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our existing
shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering our
Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer our
Shares;
(b) Of the preparation, excluding legal fees, and printing of
all Amendments and supplements to our prospectuses and
statements of additional information if the Amendment or
supplement arises from your (including your "Parent's")
activities or Rules and Regulations related to your
activities and those expenses would not otherwise have been
incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we
have prepared for distribution to our existing
shareholders; and
(d) Incurred by you in advertising, promoting and selling our
Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to each series and class of Shares, in such form and
signed by such of our officers as you may reasonably request, and we warrant
that the statements therein contained, when so signed, will be true and
correct. We will also furnish you with such information and will take such
action as you may reasonably request in order to qualify our Shares for sale
to the public under the Blue Sky Laws of jurisdictions in which you may wish
to offer them. We will furnish you with annual audited financial statements
of our books and accounts certified by independent public accountants, with
semi-annual financial statements prepared by us, with registration statements
and, from time to time, with such additional information regarding our
financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently effective
prospectus, you will not issue any sales material or statements except
literature or advertising which conforms to the requirements of Federal and
State securities laws and regulations and which have been filed, where
necessary, with the appropriate regulatory authorities. You will furnish us
with copies of all such materials prior to their use and no such material
shall be published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares are
tendered to us for redemption or repurchase by us within seven business days
after your acceptance of the original purchase order for such Shares, you
will immediately refund to us the full sales commission (net of allowances to
dealers or brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or brokers of the
balance of sales commissions reallowed by you. We shall notify you of such
tender for redemption within 10 days of the day on which notice of such
tender for redemption is received by us.
13. Other Activities. Your services pursuant to this Agreement shall
not be deemed to be exclusive, and you may render similar services and act as
an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2)
years. The Agreement is renewable annually thereafter, with respect to the
Fund or, if the Fund has more than one series, with respect to each series,
for successive periods not to exceed one year (i) by a vote of (a) a majority
of the outstanding voting securities of the Fund or, if the Fund has more
than one series, of each series, or (b) by a vote of the Board, and (ii) by a
vote of a majority of the members of the Board who are not parties to the
Agreement or interested persons of any parties to the Agreement (other than
as members of the Board), cast in person at a meeting called for the purpose
of voting on the Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the
Board or by vote of a majority of the outstanding voting securities of the
Fund or any series on 90 days' written notice to you; or (ii) by you on 90
days' written notice to the Fund; and shall immediately terminate with
respect to the Fund and each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice
to you.
16. Miscellaneous. This Agreement shall be subject to the laws of
the State of California and shall be interpreted and construed to further
promote the operation of the Fund as an open-end investment company. This
Agreement shall supersede all Distribution Agreements and Amendments
previously in effect between the parties. As used herein, the terms "Net
Asset Value," "Offering Price," "Investment Company," "Open-End Investment
Company," "Assignment," "Principal Underwriter," "Interested Person,"
"Parent," "Affiliated Person," and "Majority of the Outstanding Voting
Securities" shall have the meanings set forth in the 1933 Act or the 1940 Act
and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or
to our securities holders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
your duties hereunder, or by reason of your reckless disregard of your
obligations and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance
by signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN NEW YORK TAX-FREE TRUST
By:/s/ Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By:/s/ Gregory E. Johnson
DATED: May 16, 1995
FRANKLIN NEW YORK TAX-FREE TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
For New York Tax-Exempt Money Fund Series Only
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are
registered under the Securities Act of 1933 (the "1933 Act"). We desire to
issue one or more series or classes of our authorized but unissued shares of
capital stock or beneficial interest of our New York Tax-Exempt Money Fund
Series (the "Shares") to authorized persons in accordance with applicable
Federal and State securities laws. The Shares may be made available in one
or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company
is a member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of our Board of
Directors or Trustees ("Board") passed at a meeting at which a majority of
Board members, including a majority who are not otherwise interested persons
of the Fund and who are not interested persons of our investment adviser, its
related organizations or with you or your related organizations, were present
and voted in favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement
and in consideration of the agreements on your part herein expressed and upon
the terms and conditions set forth herein, we hereby appoint you as the
exclusive sales agent for the Shares and agree that we will deliver such
Shares as you may sell. You agree to use your best efforts to promote the
sale of Shares, but are not obligated to sell any specific number of Shares.
However, the Fund retains the right to make direct sales of the Shares
without sales charges consistent with the terms of the then current
prospectus and applicable law, and to engage in other legally authorized
transactions in the Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any class of Shares and its shareholders
only, transactions involving the reorganization of the Fund or the New York
Tax-Exempt Money Fund Series, and transactions involving the merger or
combination of the Fund or the Series with another corporation or trust.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind us by your actions, conduct or
contracts except that you are authorized to promote the sale of Shares. You
may appoint sub-agents or distribute through dealers or otherwise as you may
determine from time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale or
repurchase on our behalf or otherwise act as our agent for any purpose.
3. Offering Price. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you
with the net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective prospectus.
All Shares will be sold in the manner set forth in our then effective
prospectus and statement of additional information, and in compliance with
applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each class of Shares
in the amount of any initial, deferred or contingent deferred sales charge as
set forth in our then effective prospectus. You may allow any sub-agents or
dealers such commissions or discounts from and not exceeding the total sales
commission as you shall deem advisable, so long as any such commissions or
discounts are set forth in our current prospectus to the extent required by
the applicable Federal and State securities laws. You may also make payments
to sub-agents or dealers from your own resources, subject to the following
conditions: (a) any such payments shall not create any obligation for or
recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our
prospectus or statement of additional information to the extent such laws may
require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted
as to any class of Shares pursuant to Rule 12b-1 under the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered for sale
only in those jurisdictions where they have been properly registered or are
exempt from registration, and only to those groups of people which the Board
may from time to time determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall be
directed to the Fund's shareholder services agent, for acceptance on behalf
of the Fund. At or prior to the time of delivery of any of our Shares you
will pay or cause to be paid to the custodian of the Fund's assets, for our
account, an amount in cash equal to the net asset value of such Shares.
Sales of Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and shareholder
services agent shall be identified in its prospectus.
7. Purchases for Your Own Account. You shall not purchase the
Shares for your own account for purposes of resale to the public, but you may
purchase Shares for your own investment account upon your written assurance
that the purchase is for investment purposes and that the Shares will not be
resold except through redemption by us.
8. Sale of Shares to Affiliates. You may sell the Shares at net
asset value to certain of your and our affiliated persons pursuant to the
applicable provisions of the federal securities statutes and rules or
regulations thereunder (the "Rules and Regulations"), including Rule 22d-1
under the 1940 Act, as amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our company to be included in any
Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940 Act,
including the prospectus and statement of additional
information included therein;
(b) Of the preparation, including legal fees, and printing of
all Amendments or supplements filed with the Securities and
Exchange Commission, including the copies of the
prospectuses included in the Amendments and the first 10
copies of the definitive prospectuses or supplements
thereto, other than those necessitated by your (including
your "Parent's") activities or Rules and Regulations
related to your activities where such Amendments or
supplements result in expenses which we would not otherwise
have incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our existing
shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering the
Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer the
Shares;
(b) Of the preparation, excluding legal fees, and printing of
all Amendments and supplements to our prospectuses and
statements of additional information if the Amendment or
supplement arises from your (including your "Parent's")
activities or Rules and Regulations related to your
activities and those expenses would not otherwise have been
incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we
have prepared for distribution to our existing
shareholders; and
(d) Incurred by you in advertising, promoting and selling the
Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to each class of Shares, in such form and signed by
such of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We
will also furnish you with such information and will take such action as you
may reasonably request in order to qualify our Shares for sale to the public
under the Blue Sky Laws of jurisdictions in which you may wish to offer
them. We will furnish you with annual audited financial statements of our
books and accounts certified by independent public accountants, with
semi-annual financial statements prepared by us, with registration statements
and, from time to time, with such additional information regarding our
financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently effective
prospectus, you will not issue any sales material or statements except
literature or advertising which conforms to the requirements of Federal and
State securities laws and regulations and which have been filed, where
necessary, with the appropriate regulatory authorities. You will furnish us
with copies of all such materials prior to their use and no such material
shall be published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares are
tendered to us for redemption or repurchase by us within seven business days
after your acceptance of the original purchase order for such Shares, you
will immediately refund to us the full sales commission (net of allowances to
dealers or brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or brokers of the
balance of sales commissions reallowed by you. We shall notify you of such
tender for redemption within 10 days of the day on which notice of such
tender for redemption is received by us.
13. Other Activities. Your services pursuant to this Agreement shall
not be deemed to be exclusive, and you may render similar services and act as
an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2)
years. The Agreement is renewable annually thereafter, with respect to New
York Tax-Exempt Money Fund Series, for successive periods not to exceed one
year (i) by a vote of (a) a majority of the outstanding voting securities of
such series, or (b) by a vote of the Board, and (ii) by a vote of a majority
of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of
the Board), cast in person at a meeting called for the purpose of voting on
the Agreement.
This Agreement may at any time be terminated by the Fund or by
the New York Tax-Exempt Money Fund Series without the payment of any penalty,
(i) either by vote of the Board or by vote of a majority of the outstanding
voting securities of the Fund or such series on 90 days' written notice to
you; or (ii) by you on 90 days' written notice to the Fund; and shall
immediately terminate with respect to the Fund and such series in the event
of its assignment.
15. Suspension of Sales. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice
to you.
16. Miscellaneous. This Agreement shall be subject to the laws of
the State of California and shall be interpreted and construed to further
promote the operation of the Fund as an open-end investment company. This
Agreement shall supersede all Distribution Agreements and Amendments
previously in effect between the parties. As used herein, the terms "Net
Asset Value," "Offering Price," "Investment Company," "Open-End Investment
Company," "Assignment," "Principal Underwriter," "Interested Person,"
"Parent," "Affiliated Person," and "Majority of the Outstanding Voting
Securities" shall have the meanings set forth in the 1933 Act or the 1940 Act
and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or
to our securities holders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
your duties hereunder, or by reason of your reckless disregard of your
obligations and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance
by signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN NEW YORK TAX-FREE TRUST
By: /s/ Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By: /s/ Gregory E. Johnson
DATED: March 29, 1995
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for
each of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby
appoints and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust
Company as a Subcustodian to hold assets of the Funds in accordance with the
provisions of this Agreement. In addition, upon receipt of Proper Instructions
and a certified copy of a resolution of the Board or of the Executive Committee,
and certified by the Secretary or an Assistant Secretary, of an Investment
Company, the Custodian may from time to time appoint one or more other
Subcustodians or Foreign Custodians to hold assets of the affected Funds in
accordance with the provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS HELD
BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in
Subsection 3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall
release and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a
Subcustodian or a Foreign Custodian in connection with any repurchase agreement
related to such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities
System, in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities
are called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in
accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities
made by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
by the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent
for delivery to the Transfer Agent or to the holders of Shares in connection
with distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of
Proper Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts.
The Custodian shall collect income payable with respect to Securities owned by
each Fund, settle Securities trades for the account of each Fund and credit and
debit each Fund's account with the Custodian in connection therewith as stated
in this Subsection 3.5. This Subsection shall not apply to repurchase
agreements, which are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions
the Custodian shall pay out monies of a Fund in the following cases or as
otherwise directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or
options on futures contracts for the account of the Fund but only, except as
otherwise provided herein, (i) against the delivery of such securities, or
evidence of title to futures contracts or options on futures contracts, to the
Custodian or a Subcustodian registered pursuant to Subsection 3.3 hereof or in
proper form for transfer; (ii) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Subsection 3.8
hereof; or (iii) in the case of repurchase agreements entered into between the
Fund and the Custodian, another bank or a broker-dealer (A) against delivery of
the Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund
as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by
the Fund, including but not limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management, accounting, transfer
agent and legal fees and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred expenses;
and
(e) for the payment of any dividends or distributions
declared by the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in
the Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased
for the account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Securities System
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account of the Fund upon (A)
receipt of advice from the Securities System that payment for such securities
has been transferred to the Securities System Account, and (B) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities System of
transfers of Domestic Securities for the account of the Fund shall be maintained
for the Fund by the Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation of the transfer to or
from the account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with
any report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding domestic
securities deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities
held hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of
a Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from
a Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information
in its possession (to the extent permissible under applicable law) to the entity
or entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and
accepts the limitations of liability as set forth in each Investment Company's
Agreement and Declaration of Trust, Articles of Incorporation, or Agreement of
Limited Partnership. The Custodian agrees that each Fund's obligation hereunder
shall be limited to the assets of the Fund, and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the Fund nor
from any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its
execution and shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be terminated by each Investment
Company, on behalf of a Fund, or by the Custodian by 90 days notice in Writing
to the other provided that any termination by an Investment Company shall be
authorized by a resolution of the Board, a certified copy of which shall
accompany such notice of termination, and provided further, that such resolution
shall specify the names of the persons to whom the Custodian shall deliver the
assets of the affected Funds held by the Custodian. If notice of termination is
given by the Custodian, the affected Investment Companies shall, within 90 days
following the giving of such notice, deliver to the Custodian a certified copy
of a resolution of the Boards specifying the names of the persons to whom the
Custodian shall deliver assets of the affected Funds held by the Custodian. In
either case the Custodian will deliver such assets to the persons so specified,
after deducting therefrom any amounts which the Custodian determines to be owed
to it hereunder (including all costs and expenses of delivery or transfer of
Fund assets to the persons so specified). If within 90 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the affected Investment Companies certified copies of resolutions of the Boards
specifying the names of the persons to whom the Custodian shall deliver the
assets of the Funds held by the Custodian, the Custodian, at its election, may
deliver such assets to a bank or trust company doing business in the State of
California to be held and disposed of pursuant to the provisions of this
Agreement or may continue to hold such assets until a certified copy of one or
more resolutions as aforesaid is delivered to the Custodian. The obligations of
the parties hereto regarding the use of reasonable care, indemnities and payment
of fees and expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the
other party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of an agreement or instrument
executed on behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement
is intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context
hereof, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: _____________________________
Its: _____________________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________________
Harmon E. Burns
Their: Vice President
By: ______________________________
Deborah R. Gatzek
Their: Vice President & Secretary
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Delaware Business Trust U.S. Government Adjustable Rate Mortgage
Portfolios Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income
Trust Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Delaware Business Trust Templeton Pacific Growth Fund
Trust Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged California Limited
International Bond Fund Partnership
Franklin Tax-Advantaged U.S. California Limited
Government Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Delaware Business Trust Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage Delaware Business Trust
Portfolio
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals
Fund Real Estate
Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global
Income Securities
Fund Investment
Grade Intermediate
Bond Fund Income
Securities Fund
U.S. Government
Securities Fund
Zero Coupon Fund -
2000 Zero Coupon
Fund - 2005 Zero
Coupon Fund - 2010
Adjustable U.S.
Government Fund
Rising Dividends
Fund Templeton
Pacific Growth Fund
Templeton
International
Equity Fund
Templeton
Developing Markets
Equity Fund
Templeton Global
Growth Fund
Templeton Global
Asset Allocation
Fund Small Cap Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money
Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S.
Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market
Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated
as of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission
of instructions from each Fund to the Custodian, as and to the extent permitted
by the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners,
as applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing
to act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: ______________________
Title: ______________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________
Harmon E. Burns
Title: Vice President
By: ______________________
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Advantaged International Bond California Limited
Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income
Securities Fund Investment
Grade Intermediate Bond
Fund Income Securities
Fund U.S. Government
Securities Fund Zero
Coupon Fund -2000 Zero
Coupon Fund -2005 Zero Coupon
Fund -2010 Adjustable U.S. Government
Fund Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity
Fund Templeton Developing
Markets Equity Fund Templeton
Global Growth Fund Global
Asset Allocation Fund Small
Cap Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
</TABLE>
(Franklin logo)
FRANKLIN
RESOURCES, INC.
777 Mariners Island Blvd.
San Mateo, CA 94404
415/312-5818
FAX 415/312-3528
Martin L. Flanagan CPA, CFA
Senior Vice President
Chief Financial Officer
April 12, 1995
Mr. Stephen H. Kilbuck
Vice President Corporate Banking
Bank of America, NT & SA
555 California Street, 41st Floor
San Francisco, CA 94104
Dear Steve:
Various Franklin Funds/Portfolios (the "Funds") and Bank of America,
National Trust and Savings Association ("Bank") are parties to custody
agreements (the "Agreements") as well as separate cash management and deposit
services arrangements.
By this Letter Agreement, each of the Funds and Bank desire to establish
the cash compensation to be paid by each Fund for services rendered to it by
Bank.
Effective April 1, 1995, commencing with the first statement prepared
thereafter each Fund will pay to Bank a monthly fee in cash equal to an annual
rate of 87.5/100 ths. (.875) basis points of the net asset value of each such
Funds domestic portfolios held in custody by Bank and nine and three-tenths
(9.3) basis points of the net asset value of each such Funds international
portfolios held in custody by Bank or held by foreign sub-custodians calculated
as of the last business day of the month. For purposes of calculating the
monthly fee, 000007291 will be used as the monthly factor for the domestic
portfolio and .0000775 will be used as the monthly factor for the international
portfolio. The obligation of each Fund is separate from the obligation of any
other Fund.
The purpose of this Letter of Agreement is to provide for a fair level of
compensation to Bank for its service. The fee is based on the assumption that
each Fund will continue to use services of a type and volume comparable to the
services currently used. The parties agree that any party may initiate
discussions concerning revisions to the terms of this Letter Agreement at any
time it believes the level of compensation to be inappropriate. The parties
further agree that any party may, upon at least sixty (60) days' written notice,
terminate this Letter Agreement with respect to that party. Upon its
termination, if the parties have not agreed to a substitute fee arrangement, any
party may also terminate all or some of the service provided by Bank upon
additional sixty (60) days' written notice.
On an ongoing basis, Bank will continue to prepare the monthly corporate
account analysis statements on behalf of each Fund, which estimates all revenues
and expenses for the parties' relationship. From time to time, Bank and any
Fund(s) may renegotiate the estimated "prices" used in the account analysis
process. The account analysis statement will provide a basis for any
negotiations between the parties on the appropriateness of the fee agreement as
embodied in this Letter Agreement. However, no payment of any kind shall be due
on account of any shortfall on the account analysis statement.
Sincerely,
Authorized Officer for Each Trust/Franklin
Fund Portfolio (List Attached)
By /s/ Martin L. Flanagan
Martin L. Flanagan
Executive Financial Officer
ACCEPTED AND AGREED TO BY:
BANK OF AMERICA, NT & SA
By /s/ Stephen H. Kilbuck
Title: Vice President
FRANKLIN GROUP OF FUNDS
FUND # FUND INIT NAME OF FUND
022 FUT FRANKLIN UNIVERSAL TRUST - (closed-end)
033 FPMT FRANKLIN PRINCIPAL MATURITY TRUST - (closed-end)
024 FMIT FRANKLIN MULTI-INCOME TRUST - (closed-end)
101 FGF FRANKLIN GOLD FUND
102 FPRF FRANKLIN PREMIER RETURN FUND
(Franklin Option Fund until April 30, 1991)
103 FEF FRANKLIN EQUITY FUND
105 AGE AGE HIGH INCOME FUND, INC.
FCF FRANKLIN CUSTODIAN FUNDS, INC.
106 GROWTH SERIES
107 UTILITIES SERIES
108 DYNATECH SERIES
109 INCOME SERIES
110 U.S. GOVERNMENT SECURITIES SERIES
111* FMF FRANKLIN MONEY FUND (MMP feeder as of 8/1/94)
112 FCTFIF FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
113* FFMF FRANKLIN FEDERAL MONEY FUND (USGSMMP feeder as of 8/1/94)
114 FTEMF FRANKLIN TAX-EXEMPT MONEY FUND
115 FNYTFIF FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
116 FFTFIF FRANKLIN FEDERAL TAX-FREE INCOME FUND
FTFT FRANKLIN TAX-FREE TRUST
118 FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
119 FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
120 FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
121 FRANKLIN INSURED TAX-FREE INCOME FUND
122 FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
123 FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
126 FRANKLIN ARIZONA TAX-FREE INCOME FUND
127 FRANKLIN COLORADO TAX-FREE INCOME FUND
128 FRANKLIN GEORGIA TAX-FREE INCOME FUND
129 FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
130 FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
160 FRANKLIN MISSOURI TAX-FREE INCOME FUND
161 FRANKLIN OREGON TAX-FREE INCOME FUND
162 FRANKLIN TEXAS TAX-FREE INCOME FUND
163 FRANKLIN VIRGINIA TAX-FREE INCOME FUND
164 FRANKLIN ALABAMA TAX-FREE INCOME FUND
165 FRANKLIN FLORIDA TAX-FREE INCOME FUND
166 FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
167 FRANKLIN INDIANA TAX-FREE INCOME FUND
168 FRANKLIN LOUISIANA TAX-FREE INCOME FUND
169 FRANKLIN MARYLAND TAX-FREE INCOME FUND
170 FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
171 FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
172 FRANKLIN KENTUCKY TAX-FREE INCOME FUND
174 FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
177 FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
178 FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
FCTFT FRANKLIN CALIFORNIA TAX-FREE TRUST
124 FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
125 FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
152 FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME
FUND
FNYTFT FRANKLIN NEW YORK TAX-FREE TRUST
(Franklin New York-Tax Exempt Money Fund until 1/91)
131 FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
153 FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
181 FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND
FIST FRANKLIN INVESTORS SECURITIES TRUST
135 FRANKLIN GLOBAL GOVERNMENT INCOME FUND
(formerly Franklin Global Opportunity Income Fund)
136 FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
137 FRANKLIN CONVERTIBLE SECURITIES FUND
138* FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
(formerly Franklin Adjustable Rate Mortgage Fund)
(USGARMP feeder)
139 FRANKLIN EQUITY INCOME FUND
(Franklin Special Equity Income Fund until 8/17/93)
151* FRANKLIN ADJUSTABLE RATE SECURITIES FUND
(ARSP retail feeder)
IFT INSTITUTIONAL FIDUCIARY TRUST
140* MONEY MARKET PORTFOLIO (MMP feeder)
141* FRANKLIN LATE DAY MONEY MARKET PORTFOLIO
(Franklin Government Investors Money Market
Portfolio until 6/15/93)
142* FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET
PORTFOLIO (USGSMMP feeder)
143* FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
144* FRANKLIN INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT
SECURITIES FUND (USGARMP feeder)
145* FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
(ARSP feeder)
146* FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
147* AEA CASH MANAGEMENT FUND (MMP feeder)
(formerly Franklin Star MOney Market Portfolio)
149* FRANKLIN CASH RESERVES FUND (MMP feeder)
150 FBSIF FRANKLIN BALANCE SHEET INVESTMENT FUND
154 FTAIBF FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
155 FTAUSGSF FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
156 FTAHYSF FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
FMT FRANKLIN MANAGED TRUST
117 FRANKLIN CORPORATE QUALIFIED DIVIDEND FUND
(Franklin Corporate Cash Portfolio until 5/31/91)
158 FRANKLIN RISING DIVIDENDS FUND
159 FRANKLIN INVESTMENT GRADE INCOME FUND
- ---- FRANKLIN INSTITUTIONAL RISING DIVIDENDS FUND (PT feeder)
(not yet filed)
157 FSMP FRANKLIN STRATEGIC MORTGAGE PORTFOLIO (effective 2/1/93)
FMST FRANKLIN MUNICIPAL SECURITIES TRUST
173 FRANKLIN HAWAII MUNICIPAL BOND FUND
175 FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
176 FRANKLIN WASHINGTON MUNICIPAL BOND FUND
220 FRANKLIN TENNESSEE MUNICIPAL BOND FUND
221 FRANKLIN ARKANSAS MUNICIPAL BOND FUND
FSS FRANKLIN STRATEGIC SERIES (changed from Cal 250)
194 FRANKLIN STRATEGIC INCOME FUND
195 FRANKLIN MIDCAP GROWTH FUND (filed - not yet being sold)
196 FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
(formerly FISCO MidCap Growth Fund)
197 FRANKLIN GLOBAL UTILITIES FUND
198 FRANKLIN SMALL CAP GROWTH FUND
199 FRANKLIN GLOBAL HEALTH CARE FUND
ARSP ADJUSTABLE RATE SECURITIES PORTFOLIOS (THE PARENT)
182 U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
(master fund)
183 ADJUSTABLE RATE SECURITIES PORTFOLIO (filed under 1940
Act Only) (master fund)
MMP THE MONEY MARKET PORTFOLIOS (master fund parent)
(filed under 1940 Act only)
184* THE MONEY MARKET PORTFOLIO (master fund)
186* THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
(master fund)
187 MGP MIDCAP GROWTH PORTFOLIO (master fund) (1940 Act filing only
- not yet being sold)
PT THE PORTFOLIOS TRUST (master fund parent) (1940 Act filing
only - not yet being sold)
188 THE RISING DIVIDENDS PORTFOLIO (master fund)
FIT FRANKLIN INTERNATIONAL TRUST
190 FRANKLIN PACIFIC GROWTH FUND
191 FRANKLIN INTERNATIONAL EQUITY FUND
FREST FRANKLIN REAL ESTATE SECURITIES TRUST
192 FRANKLIN REAL ESTATE SECURITIES FUND
FTGT FRANKLIN TEMPLETON GLOBAL TRUST (formerly Huntington Funds)
210* FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
211* FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
212* FRANKLIN TEMPLETON HARD CURRENCY FUND
213* FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
FVF FRANKLIN VALUEMARK FUNDS (ALLIANZ)
821 MONEY MARKET FUND
822 EQUITY GROWTH FUND
823 PRECIOUS METALS FUND
824 REAL ESTATE SECURITIES FUND
825 UTILITY EQUITY FUND
826 HIGH INCOME FUND
827 GLOBAL INCOME FUND
828 INVESTMENT GRADE INTERMEDIATE BOND FUND
829 INCOME SECURITIES FUND
830 U.S. GOVERNMENT SECURITIES FUND
831 ZERO COUPON FUND - 1995
832 ZERO COUPON FUND - 2000
833 ZERO COUPON FUND - 2005
834 ZERO COUPON FUND - 2010
835 ADJUSTABLE U.S. GOVERNMENT FUND
836 RISING DIVIDENDS FUND
837 TEMPLETON PACIFIC GROWTH FUND (Pacific Growth Fund
until 10/15/93)
838 TEMPLETON INTERNATIONAL EQUITY FUND (International
Equity Fund until 10/15/93)
839 TEMPLETON DEVELOPING MARKETS EQUITY FUND
840 TEMPLETON GLOBAL GROWTH FUND
841 TEMPLETON WORLDWIDE ASSET ALLOCATION FUND
(not yet effective)
891 FGST FRANKLIN GOVERNMENT SECURITIES TRUST (AETNA)
193 FRANKLIN STABLE VALUE FUND
511 FRANKLIN TEMPLETON MONEY FUND II (expected effective
date: 05/01/95)
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Franklin New York Tax-Free Trust
We consent to the incorporation by reference in Post-Effective Amendment No.
13 to the Registration Statement of Franklin New York Tax-Free Trust on Form
N-1A (File No. 33-7785 & 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.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
February 27, 1996
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 E. Johnson
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FRANKLIN NEW YORK TAX-FREE TRUST DECEMBER 31, 1995 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 60,674,615
<INVESTMENTS-AT-VALUE> 60,674,615
<RECEIVABLES> 725,616
<ASSETS-OTHER> 30,413
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61,430,644
<PAYABLE-FOR-SECURITIES> 302,505
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,461
<TOTAL-LIABILITIES> 351,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,078,678
<SHARES-COMMON-STOCK> 61,078,678
<SHARES-COMMON-PRIOR> 64,834,948
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 61,078,678
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,253,478
<OTHER-INCOME> 0
<EXPENSES-NET> (368,891)
<NET-INVESTMENT-INCOME> 1,884,587
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,884,587
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,884,587)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 51,047,828
<NUMBER-OF-SHARES-REDEEMED> (56,688,583)
<SHARES-REINVESTED> 1,884,485
<NET-CHANGE-IN-ASSETS> (3,756,270)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 385,243
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 526,609
<AVERAGE-NET-ASSETS> 61,638,898
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .031
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> (.031)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .600
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN NEW YORK TAX-FREE TRUST DECEMBER 31, 1995 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND - CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 238,052,122
<INVESTMENTS-AT-VALUE> 254,100,128
<RECEIVABLES> 4,795,994
<ASSETS-OTHER> 507,578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 259,403,700
<PAYABLE-FOR-SECURITIES> 2,038,469
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 498,243
<TOTAL-LIABILITIES> 2,536,712
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 244,410,819
<SHARES-COMMON-STOCK> 22,454,811
<SHARES-COMMON-PRIOR> 22,156,230
<ACCUMULATED-NII-CURRENT> 233,712
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,825,549)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,048,006
<NET-ASSETS> 256,866,988
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,648,072
<OTHER-INCOME> 0
<EXPENSES-NET> (1,581,842)
<NET-INVESTMENT-INCOME> 13,066,230
<REALIZED-GAINS-CURRENT> (1,681,960)
<APPREC-INCREASE-CURRENT> 29,401,034
<NET-CHANGE-FROM-OPS> 40,785,304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,009,932)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,666,848
<NUMBER-OF-SHARES-REDEEMED> (3,028,976)
<SHARES-REINVESTED> 660,709
<NET-CHANGE-IN-ASSETS> 31,806,044
<ACCUMULATED-NII-PRIOR> 186,418
<ACCUMULATED-GAINS-PRIOR> (2,143,589)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,347,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,743,839
<AVERAGE-NET-ASSETS> 242,960,674
<PER-SHARE-NAV-BEGIN> 10.160
<PER-SHARE-NII> .590
<PER-SHARE-GAIN-APPREC> 1.248
<PER-SHARE-DIVIDEND> (.588)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 11.410
<EXPENSE-RATIO> .650
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN NEW YORK TAX-FREE TRUST DECEMBER 31, 1995 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND - CLASS II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 238,052,122
<INVESTMENTS-AT-VALUE> 254,100,128
<RECEIVABLES> 4,795,994
<ASSETS-OTHER> 507,578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 259,403,700
<PAYABLE-FOR-SECURITIES> 2,038,469
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 498,243
<TOTAL-LIABILITIES> 2,536,712
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 244,410,819
<SHARES-COMMON-STOCK> 60,671
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 233,712
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,825,549)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,048,006
<NET-ASSETS> 256,866,988
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,648,072
<OTHER-INCOME> 0
<EXPENSES-NET> (1,581,842)
<NET-INVESTMENT-INCOME> 13,066,230
<REALIZED-GAINS-CURRENT> (1,681,960)
<APPREC-INCREASE-CURRENT> 29,401,034
<NET-CHANGE-FROM-OPS> 40,785,304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,004)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 60,638
<NUMBER-OF-SHARES-REDEEMED> (361)
<SHARES-REINVESTED> 394
<NET-CHANGE-IN-ASSETS> 31,806,044
<ACCUMULATED-NII-PRIOR> 186,418
<ACCUMULATED-GAINS-PRIOR> (2,143,589)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,347,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,743,839
<AVERAGE-NET-ASSETS> 242,960,674
<PER-SHARE-NAV-BEGIN> 10.850
<PER-SHARE-NII> .357
<PER-SHARE-GAIN-APPREC> .596
<PER-SHARE-DIVIDEND> (.343)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 11.460
<EXPENSE-RATIO> 1.230
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN NEW YORK TAX-FREE TRUST DECEMBER 31, 1995 ANNUAL REPORT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 39,823,095
<INVESTMENTS-AT-VALUE> 42,223,393
<RECEIVABLES> 909,712
<ASSETS-OTHER> 167,379
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,300,484
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,412
<TOTAL-LIABILITIES> 71,412
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,451,759
<SHARES-COMMON-STOCK> 4,155,718
<SHARES-COMMON-PRIOR> 3,661,319
<ACCUMULATED-NII-CURRENT> 174,656
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,797,641)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,400,298
<NET-ASSETS> 43,229,072
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,291,285
<OTHER-INCOME> 0
<EXPENSES-NET> (128,654)
<NET-INVESTMENT-INCOME> 2,162,631
<REALIZED-GAINS-CURRENT> 13,479
<APPREC-INCREASE-CURRENT> 2,971,907
<NET-CHANGE-FROM-OPS> 5,148,017
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,115,155)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,174,610
<NUMBER-OF-SHARES-REDEEMED> (806,339)
<SHARES-REINVESTED> 126,128
<NET-CHANGE-IN-ASSETS> 8,063,151
<ACCUMULATED-NII-PRIOR> 127,180
<ACCUMULATED-GAINS-PRIOR> (2,811,120)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 247,415
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 321,562
<AVERAGE-NET-ASSETS> 39,243,895
<PER-SHARE-NAV-BEGIN> 9.600
<PER-SHARE-NII> .550
<PER-SHARE-GAIN-APPREC> .795
<PER-SHARE-DIVIDEND> (.545)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 10.400
<EXPENSE-RATIO> .330
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
