As filed with the Securities and Exchange Commission on
April 24, 1995.
File Nos. 33-11444 and 811-4986
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. 15
(X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 Amendment No. 17
(X)
FRANKLIN INVESTORS SECURITIES TRUST
(Exact Name of Registrant as Specified in
Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-
2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA
94404 (Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X ] on May 1, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) after filing 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 issuer 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 December 29, 1994.
FRANKLIN INVESTORS SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in
Prospectus (Franklin Global Government
Income Fund)
<TABLE>
<CAPTION>
N-1A Location in
Item No. Item Registration
Statement
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Fund",
"Investment Objective
and Policies of the
Fund"; "General
Information"
5. Management of the Fund "Management of the
Fund"
5A. Management's Contained in
Registrant's
Discussion of Fund Annual Report to
Performance Shareholders
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "General
Information"
7. Purchase of Securities "How to Buy Shares of
the Fund"; "Taxation of the
Fund and Its
shareholders"; "Purchasing
Shares of the Fund in
Connection with Retirement
Plans Involving Tax-
Deferred Investments";
"Other Programs and
Privileges Available to
Fund Shareholders";
"Valuation of Fund Shares"
8. Redemption or "How to Sell Shares of the
Repurchase Fund";"Exchange
Privilege",
"How to Get Information
Regarding an Investment in
the Fund"
9. Pending Legal Not Applicable
Proceedings
</TABLE>
35 P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR
FRANKLIN GLOBAL GOVERNMENT INCOME
FUND
dated March 1, 1995
INTRODUCTION. As of May 1, 1995, the Franklin Global Government
Income Fund (the "Fund") offers two classes to its investors:
Franklin Global Government Income Fund - Class I ("Class I") and
Franklin Global Government 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.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
MULTICLASS FUND STRUCTURE. The Fund has two classes of shares
available for investment: Class I and Class II. ALL FUND SHARES
OUTSTANDING BEFORE THE IMPLEMENTATION OF THE MULTICLASS
STRUCTURE HAVE BEEN REDESIGNATED AS CLASS I SHARES, AND WILL
RETAIN THEIR PREVIOUS RIGHTS AND PRIVILEGES. VOTING RIGHTS
ATTRIBUTABLE TO EACH CLASS WILL, HOWEVER, BE DIFFERENT. See the
Prospectus for more details about Class I shares. Class II
shares are explained in detail in the following discussion.
Except as described below, shares of both classes represent
identical interests in the Fund's investment portfolio.
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an
investment in the Fund. The figures for both classes of shares
are based on aggregate operating expenses of the Class I shares
for the fiscal year ended October 31, 1994.
<TABLE>
<CAPTION>
CLASS I CLASS II
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge
Imposed on Purchases
(as a percentage of offering 4.25% 1.00%^
price)
Deferred Sales Charge NONE^^ 1.00%+
Exchange Fee (per transaction) $5.00++ $5.00++
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C>
Management Fees 0.56% 0.56%
Rule 12b-1 Fees 0.07%* 0.65%*
Other Expenses:
Custodian Fee 0.15% 0.15%
Reports to Shareholders 0.06% 0.06%
Other 0.09% 0.09%
Total Other Expenses 0.30% 0.30%
Total Fund Operating Expenses 0.93% 1.51%
</TABLE>
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take less than six years for shareholders who maintain total
shares valued at less than $100,000 in the Franklin Templeton
Funds. Shareholders with larger investments in the Franklin
Templeton Funds will reach the break-even point more quickly.
^^Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a
"contingency period" of 12 months of the calendar month
following such investments. See "How to Sell Shares of the Fund
- - Contingent Deferred Sales Charge."
+Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
++$5.00 fee imposed only on Timing Accounts as described under
"Exchange Privilege" in the Prospectus. All other exchanges are
processed without a fee.
*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. The Class I Rule 12b-1 fee rate is based on the initial
rate of Class I Rule 12b-1 fees as discussed in the prospectus
under "Plans of Distribution" under "Management of the Fund."
Actual Rule 12b-1 fees incurred by Class I shares for the six
months ended October 31, 1994 were 0.03%, which represents an
annualized rate of 0.06%. The Class II Rule 12b-1 fee rate is
based on the maximum annual Class II Rule 12b-1 rate, as
discussed below.
Investors should be aware that the above table is not intended
to reflect in precise detail the fees and expenses associated
with an individual's own investment in the Fund. Rather the
table has been provided only to assist investors in gaining a
more complete understanding of fees, charges and expenses that
an investor in the classes will bear directly or indirectly. For
a more detailed discussion of these matters, investors should
refer to the appropriate sections of the Prospectus and this
Supplement.
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.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
CLASS I $52 $71 $92 $152
CLASS II $35 $57 $92 $188
</TABLE>
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES
SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN.
The operating expenses are borne by the Fund and only indirectly
by shareholders as a result of their investment in the Fund.
(See "Management of the Fund" in the Prospectus 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%.
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. Over
time, however, the higher annual Rule 12b-1 fees on Class II
shares will accumulate to outweigh the difference in initial
sales charges. For this reason, Class I shares may be more
attractive to long-term investors even if no sales charge
reductions are available to them. Investors should also consider
that the higher Rule 12b-1 fees for Class II shares will
generally result in lower dividends and consequently lower
yields for Class II shares. See "General Information" in the
Statement of Additional Information ("SAI") for more information
regarding the calculation of dividends and yields.
Investors who qualify to purchase Class I shares at reduced
sales charges definitely should consider purchasing Class I
shares, especially if they intend to hold their shares for
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 seven years should evaluate
whether it is more economical to purchase Class I shares through
a Letter of Intent or under Rights of Accumulation or other
means rather than purchasing Class II shares. INVESTORS
INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER
INVESTORS WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET
VALUE WILL BE PRECLUDED FROM PURCHASING CLASS II SHARES. See
"How to Buy Shares of the Fund" in the Prospectus.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
Each class also has a separate schedule for compensating
securities dealers for selling Fund shares. Investors should
take all of the factors regarding an investment in each class
into account before deciding which class of shares to purchase.
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.
A separate Plan of Distribution has been approved and adopted
for each class ("Class I Plan" and "Class II Plan,"
respectively) pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("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
distribution to securities dealers up to the maximum amount
permitted under each Plan may be used by the class to reimburse
Franklin Templeton Distributors, Inc. ("Distributors") for
routine ongoing promotion and distribution
expenses incurred with respect to such class. See "Plan of
Distribution" in the Prospectus for a description of such
expenses.
CLASS I. 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 .15% of average daily net assets
of such shares. With this structure, Class I shares have higher
front-end sales charges than Class II shares and comparatively
lower Rule 12b-1 fees.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class
I Fund shares. (See "Plan of Distribution" in the Prospectus and
"Distribution Plan" in the Statement of Additional Information
("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or
at net asset value if certain conditions are met. See "How to
Buy Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales
charge will be imposed on Class I shares only if shares valued
at $1 million or more are purchased after February 1, 1995
without a sales charge and are subsequently redeemed within 12
months of the calendar month following their purchase. See
"Contingent Deferred Sales Charge" under "How to Sell Shares of
the Fund" in this Supplement.
CLASS II. The current public offering price of Class II shares
is equal to the net asset value, plus a sales charge of 1% 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 0.65% 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.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases 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. See "How to Buy Shares of the Fund" in the Prospectus
for more information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those 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.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
MANAGEMENT OF THE FUND
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Trustees has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained
the authority to establish additional classes of shares. It is
the Fund's present intention to offer only two classes of
shares, but new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
CLASS II PLAN OF DISTRIBUTION
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 shares' 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 the class' average daily net assets as a servicing
fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of the customers, or similar activities related
to furnishing personal services and/or maintaining shareholder
accounts.
The Class II 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 Class II 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
Class II of the Fund.
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.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and in the SAI for more
information about both Class I and Class II Plans.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gains will be calculated and distributed
in the same manner for Class I and Class II shares. The per
share amount of any income dividends will generally differ only
to the extent that each class is subject to different Rule 12b-1
fees. Because ongoing Rule 12b-1 expenses will be lower for
Class I than Class II, the per share dividends distributed to
Class I shares will generally be higher than those distributed
to Class II shares.
Unless otherwise requested in writing or on the Shareholder
Application, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's
account in the form of additional shares, valued at the closing
net asset value (without a front-end sales charge) on the
dividend reinvestment date. Dividend and capital gain
distributions are only eligible for investment at net asset
value in the same class of shares of the Fund or the same class
of another of the Franklin Templeton Funds. See "Distributions
to Shareholders" in the Prospectus and the SAI for more
information.
HOW TO BUY SHARES OF THE FUND
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE
APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY
ANY PURCHASE OF SHARES. DO NOT USE THE APPLICATION INCLUDED IN
THE PROSPECTUS.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at the public
offering price, which is the net asset value per share plus a
front-end sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is
promptly transmitted to the Fund, or (2) after receipt of an
order by mail from the shareholder directly in proper form
(which generally means a completed Shareholder Application
accompanied by a negotiable check).
CLASS I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount of
the sale. On orders for 100,000 shares or more, the offering
price will be calculated to four decimal places. On orders for
less than 100,000 shares, the offering price will be calculated
to two decimal places using standard rounding criteria. A
description of the method of calculating net asset value per
share is included under the caption "Valuation of Fund Shares"
in the Prospectus.
Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions for Class I
shares:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
SIZE OF AS A PERCENTAGE AS A PERCENTAGE DEALER
TRANSACTION AT OF OFFERING OF NET AMOUNT CONCESSION AS A
OFFERING PRICE PRICE INVESTED PERCENTAGE OF
OFFERING
PRICE*, ***
<S> <C> <C> <C>
Less than 4.25% 4.44% 4.00%
$100,000
$100,000 but 3.50% 3.63% 3.25%
less than
$250,000
$250,000 but 2.75% 2.83% 2.50%
less than
$500,000
$500,000 but 2.15% 2.20% 2.00%
less than
$1,000,000
$1,000,000 or none none (see below)**
more
</TABLE>
*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 or more within the contingency period. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge" in this
Supplement.
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(Registered Trademark) and the Templeton Group of
Funds. Included for these aggregation purposes are (a) the
mutual funds in the Franklin Group of Funds except Franklin
Valuemark Funds and Franklin Government Securities Trust (the
"Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be
subject to reduction) and (c) the U.S. registered mutual funds
in the Templeton Group of Funds except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds").
(Franklin Funds and Templeton Funds are collectively referred to
as the "Franklin Templeton Funds.") Sales charge reductions
based upon aggregate holdings of (a), (b) and (c) above
("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a
discount.
Distributors, or one of its affiliates, may make payments, out
of its own resources, of up to 1% of the amount purchased to
securities dealers who initiate and are responsible for
purchases
made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers), certain non-designated plans,
certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective
retirement plan assets of $10 million or more. See definitions
under "Description of Special Net Asset Value Purchases" and as
set forth in the SAI.
CLASS II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
<TABLE>
<CAPTION> TOTAL SALES CHARGE
AS A DEALER
SIZE OF TRANSACTION AS A PERCENTAGE PERCENTAGE CONCESSION
AS
AT OFFERING PRICE OF NET OFFERING OF NET A PERCENTAGE
PRICE AMOUNT OF OFFERING
INVESTED PRICE*
<S> <C> <C> <C>
Any amount (less
than $1 million) 1.00% 1.01% 1.00%
</TABLE>
* During the first year following a purchase of Class II shares,
Distributors will keep a portion of the Plan fees attributable
to those shares to partially recoup fees Distributors pays to
securities dealers. Distributors, or one of its affiliates, may
make an additional payment to the securities dealer, from its
own resources, of up to 1% of the amount invested.
Class II shares redeemed within eighteen months of their
purchase will be assessed a contingent deferred sales charge of
1.0% on the lesser of the then-current net asset value or the
net asset value of such shares at the time of purchase, unless
such charge is waived as described below.
The following section, which supersedes that included in the
Prospectus, describes the categories of investors who may
purchase Class I shares of the Fund at net asset value and when
Class I and Class II shares may be purchased at net asset value.
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced by through a Letter of Intent or Rights of Accumulation
as described under "Quantity Discounts in Sales Charges," the
value of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
PURCHASES AT NET ASSET VALUE
Class I shares may be purchased without the imposition of either
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 Fund, any of the Franklin Templeton
Funds, or of the Franklin Templeton Group, and by their spouses
and family members, including any subsequent payments by such
parties after cessation of employment; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition
or exchange offer; (3) insurance company separate accounts for
pension plan contracts; (4) accounts managed by the Franklin
Templeton Group; (5) shareholders of Templeton Institutional
Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, in shares of the
Fund; (6) certain unit investment trusts and unit holders of
such
trusts reinvesting their distributions from the trusts in the Fund;
(7) registered securities dealers and their affiliates, for
their investment account only, and (8) registered personnel and
employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures
of the employing securities dealer.
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. Credit will be
given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, but the period for
which such shares may be subject to a contingent deferred sales
charge will begin as of the date the proceeds are reinvested.
Shares of the Fund redeemed in connection with an exchange into
another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this
privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of the 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
gain distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by
investors who have, within the past 60 days, redeemed an
investment in a mutual fund which is not part of the Franklin
Templeton Funds and which charged the investor a contingent
deferred sales charge upon redemption and which has investment
objectives similar to those of the Fund.
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by broker
dealers who have entered into a supplemental agreement with
Distributors, or by registered investment advisors affiliated
with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as
a wrap fee program).
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by anyone
who has taken a distribution from an existing retirement plan
already invested in the Franklin Templeton Funds (including
former participants of the Franklin Templeton Profit Sharing
401(k) plan), to the extent of such distribution. In order to
exercise this privilege a written order for the purchase of
shares of the Fund must be received by Franklin Templeton Trust
Company (the "Trust Company"), the Fund or Investor Services,
within 120 days after the plan distribution.
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 their 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 also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well
as the uniform criteria for qualified groups previously
described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales
related expenses.
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.
Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by trustees
or other fiduciaries purchasing securities for certain
retirement plans of organizations with collective retirement
plan assets of $10 million or more, without regard to where such
assets are currently invested.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. Initial purchases of $1 million or more in a
single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset
value should purchase Class I rather than Class II shares. See
the section "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of
when shares may be purchased at net asset value.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain
in effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders"
in the Prospectus.
SYSTEMATIC WITHDRAWAL PLANS. Subject to the requirements
outlined in the Prospectus, a shareholder may establish a
Systematic Withdrawal Plan for his or her account. 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 the account maintained an annual
balance of $10,000, only $1,200 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge; any
amount over that $1,200 would be assessed a 1% (or applicable)
contingent deferred sales charge.
EXCHANGE PRIVILEGE
Shareholders are entitled to exchange their shares for shares of
the same class 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 twelve months (Class
I shares) or eighteen 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 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
"firstin, first-out" basis. See also "How to Sell Shares of the
Fund Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and 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 a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money
Fund II"), a series of the Franklin Templeton Money Fund Trust.
No drafts (checks) may be written on Money Fund II accounts, nor
may shareholders purchase shares of Money Fund II directly.
Class II shares exchanged for shares of Money Fund II will
continue to age and a contingent deferred sales charge will be
assessed if CDSC liable shares are redeemed. No other money
market funds are available for Class II shareholders for
exchange purposes. Class I shares may be exchanged for shares of
any of the money market funds in the Franklin Templeton Funds
except Money Fund II. Draft writing privileges and direct
purchases are allowed on these other money market funds as
described in their respective prospectuses.
To the extent shares are exchanged proportionately, as opposed
to another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in
some instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
TRANSFERS
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the
date of original purchase. Like exchanges, shares will be moved
proportionately from each type of shares in the original
account.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell
his Class II shares and use the proceeds to purchase Class I
shares, subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
HOW TO SELL SHARES OF THE FUND
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
CONTINGENT DEFERRED SALES CHARGE
CLASS I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the
total cost of such shares at the time of purchase, and is
retained by Distributors. The contingent deferred sales charge
is waived in certain instances. See below and "Purchases at Net
Asset Value" under "How To Buy Shares of the Fund."
CLASS II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of
the exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge
is waived in certain instances. See below.
CLASS I AND CLASS II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent
deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to
capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants in Trust Company qualified
retirement plans due to death, disability or attainment of age
59 1/2; tax-free returns of excess contributions to employee
benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions
through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and
redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size. In addition,
shares of participants in Trust Company retirement plan accounts
will, in the event of death, no longer be subject to the
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.
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.
VALUATION OF FUND SHARES
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of the Fund is
determined as of the scheduled closing time of the New York
Stock Exchange ("Exchange") (generally 1:00 p.m. Pacific time)
each day that the Exchange is open for trading.
Each of the Fund's classes will bear, pro-rata, all of the
common expenses of the Fund. The net asset value of all
outstanding shares of each class of the Fund will be computed on
a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value
of shares of such classes, except that the Class I and Class II
shares will bear the Rule 12b-1 expenses payable under their
respective plans. Due to the specific distribution expenses and
other costs that will be allocable to each class, the dividends
paid to each class of the Fund may vary.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
The following paragraph replaces the second paragraph in this
section of the Prospectus:
From a touch tone phone, shareholders may access the automated
Franklin TeleFACTS system (day or night) at 1-800/247-1753 to
obtain current price, yield or other performance information
specific to a fund in the Franklin Funds, process an exchange as
discussed under the "Exchange Privilege" in the Prospectus, and
request duplicate confirmation or year-end statements, money
fund checks, if applicable, and deposit slips. Current prices
for the Templeton Funds are also available through TeleFACTS.
The system codes for the Fund's two classes of shares, which
will be needed to access system information, are 135 for Class I
and 235 for Class II followed by the # sign. 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.
PERFORMANCE (CLASS II)
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
as described in the "Performance" section of the Prospectus will
be available. Except as noted, it is likely that the performance
data relating to Class II shares will reflect lower total return
and yield figures than those for Class I shares because Class II
Rule 12b-1 fees are higher than Class I Rule 12b-1 fees. During
at least the first year of operation Class II share performance
will be higher than Class I in light of the higher initial sales
charge applicable to Class I shares.
GENERAL INFORMATION
With the exception of Voting Rights, all rights and privileges
detailed under the discussion of "General Information" will
remain in effect as described in the Prospectus for the new
multiclass structure. For a complete discussion of these rights
and privileges, see "General Information" in the Prospectus.
VOTING RIGHTS. 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 the 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 changes to the Rule 12b-1
plan affecting that class. Similarly, if a change to the Rule
12b1 plan relating to Class II shares requires shareholder
approval, only shareholders of Class II may vote on the change
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. For more
information regarding voting rights, see the "Voting Rights"
discussion in the Prospectus under the heading "General
Information."
The current Prospectus is incoporated herein by reference to Form Type
497 filed electronically by Registrant with the U.S. Securities and Exchange
Commission on March 21, 1995, Accession Number 0000809707-95-000003.
Part B: Information Required in
Statement of Additional Information
(Franklin Global Government Income
Fund)
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and "About the Trust"; See also
History the Prospectus "About the
Fund"; "General
Information"
13. Investment Objectives "The Investment Objective
and
and Policies Policies of the Fund"
14. Management of the Trust "Trustees and Officers"
15. Control Persons and "Trustees and Officers"
Principal Holders of
Securities
16. Investment Advisory and "Investment Advisory and
Other Services Other Services"
17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"
18. Capital Stock and See Prospectus "General
Securities Information"
19. Purchase, Redemption "Additional Information
and Pricing of Regarding Fund Shares"
Securities Being
Offered
20. Tax Status "Additional Information
Regarding Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "General Information"
Performance Data
23. Financial Statements "Financial Statements"
35 S
SUPPLEMENT DATED MAY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION
OF FRANKLIN GLOBAL GOVERNMENT INCOME
FUND
dated March 1, 1995
As described in the Prospectus, this Fund now offers two
classes of shares to its investors. This new structure
allows investors to consider, among other features, the
impact of sales charges and distribution fees ("Rule 12b-
1 fees") on their investments in this Fund.
ADD THE FOLLOWING AS THE LAST SENTENCE OF THE PARAGRAPH
DESCRIBING FEES PAID TO THE MANAGER UNDER "INVESTMENT
ADVISORY AND OTHER SERVICES":
Each class will pay its share of the fee as determined by
the proportion of the Fund that it represents.
EACH NEW CLASS OF SHARES HAS A SEPARATE DISTRIBUTION PLAN. FOR
THIS REASON, THE FIRST PARAGRAPH OF THE SECTION "THE FUND'S
UNDERWRITER - DISTRIBUTION PLAN" HAS BEEN REPLACED WITH THE
FOLLOWING PARAGRAPH:
PLANS OF DISTRIBUTION
Each class of the Fund has adopted a Distribution Plan
("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act.
Pursuant to the Class I Plan, the Fund may pay up to a
maximum of 0.15% per annum (0.15 of 1%) of its average
daily net assets for expenses incurred in the promotion
and distribution of its shares.
THE NEXT THREE PARAGRAPHS OF THIS SECTION IN THE STATEMENT OF
ADDITIONAL INFORMATION ONLY CONCERN THE CLASS I PLAN. THE
FOLLOWING PARAGRAPHS HAVE BEEN ADDED TO THIS SECTION AFTER THE
DISCUSSION OF THE CLASS I PLAN TO DESCRIBE CLASS II:
THE CLASS II PLAN
Under the Class II Plan, the Fund is permitted to pay to
Distributors or others annual distribution fees, payable
quarterly, of .50% per annum of Class II's average daily
net assets, in order to compensate Distributors or others
for providing distribution and related services and
bearing certain expenses of the Class. All expenses of
distribution and marketing over that amount will be borne
by Distributors, or others who have incurred them, without
reimbursement by the Fund. In addition to this amount,
under the Class II Plan, the Fund shall pay .15% per
annum, payable quarterly, of the Class' average daily net
assets as a servicing fee. This fee will be used to pay
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests;
receiving and answering correspondence; monitoring
dividend payments from the Fund on behalf of the
customers, and similar activities related to furnishing
personal services and maintaining shareholder accounts.
Distributors may pay the securities dealer, from its own
resources, a commission of up to 1% of the amount
invested.
THE SUBSEQUENT PARAGRAPHS IN THE SECTION "DISTRIBUTION PLAN"
APPLY EQUALLY TO BOTH CLASS I AND CLASS II PLANS, WITH THE
EXCEPTION THAT THE SENTENCE REGARDING UNREIMBURSED EXPENSES
REFERS TO THE CLASS I PLAN ONLY.
THE OFFICERS AND TRUSTEES SECTION IS REVISED TO READ AS
FOLLOWS:
OFFICERS AND TRUSTEES
The Board of Trustees has the responsibility for the
overall management of the Fund, including general
supervision and review of its investment activities. The
trustees, in turn, elect the officers of the Trust, who
are responsible for administering the day-to-day
operations of the Fund. 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 & Age
Positions and Offices with the Fund
Principal Occupations During Past Five Years
Frank H. Abbott, III
1045 Sansome St.
San Francisco, CA 94111
74
Trustee
President and Director, Abbott Corporation (an investment
company); and director, trustee or managing general partner,
as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
Harris J. Ashton
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
62
Trustee
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers);
Director, RBC Holdings, Inc. (a bank holding company) and Bar-
S Foods; and director, trustee or managing general partner,
as the case may be, of 54 of the investment companies in the
Franklin Templeton Group of Funds.
S. Joseph Fortunato
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
62
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Director of General Host Corporation; director, trustee or
managing general partner, as the case may be, of 56 of the
investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano
111 New Montgomery St., #402
San Francisco, CA 94105
80
Trustee
Private Investor; Assistant Secretary/Treasurer and Director,
Berkeley Science Corporation (a venture capital company); and
director, trustee or managing general partner, as the case
may be, of 29 of the investment companies in the Franklin
Group of Funds.
*Edward B. Jamieson
777 Mariners Island Blvd.
San Mateo, CA 94404
46
President and Trustee
Senior Vice President and Portfolio Manager, Franklin
Advisers, Inc.; and officer and/or director or trustee of
five of the investment companies in the Franklin Group of
Funds.
*Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
62
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman
of the Board and Director, Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 55 of the
investment companies in the Franklin Templeton Group of
Funds.
*Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, CA 94404
54
Vice President and Trustee
Executive Vice President and Director, Franklin Resources,
Inc. and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the
case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 42 of the investment companies in the
Franklin Templeton Group of Funds.
Frank W. T. LaHaye
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
66
Trustee
General Partner, Peregrine Associates and Miller & LaHaye,
which are General Partners of Peregrine Ventures and
Peregrine Ventures II (venture capital firms); Chairman of
the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or
trustee, as the case may be, of 25 of the investment
companies in the Franklin Group of Funds.
Gordon S. Macklin
8212 Burning Tree Road
Bethesda, MD 20817
66
Trustee
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Corporation, Martin
Marietta Corporation, MCI Communications Corporation,
MedImmune, Inc. (biotechnology), Infovest Corporation
(information services), and Fusion Systems Corporation
(industrial technology); and director, trustee or managing
general partner, as the case may be, of 51 of the investment
companies in the Franklin Templeton Group of Funds; formerly,
Chairman, Hambrecht and Quist Group; Director, H & Q
Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns
777 Mariners Island Blvd.
San Mateo, CA 94404
50
Vice President
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or
director, as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or
trustee of 41 of the investment companies in the Franklin
Templeton Group of Funds.
Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404
62
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and Officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan
777 Mariners Island Blvd.
San Mateo, CA 94404
34
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer,
Franklin Resources, Inc.; Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice President and Treasurer,
Franklin Advisers, Inc. and Franklin Templeton Distributors,
Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of
Franklin Resources, Inc.; and officer of 60 of the investment
companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek
777 Mariners Island Blvd.
San Mateo, CA 94404
46
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 36 of the investment
companies in the Franklin Group of Funds.
Charles E. Johnson
777 Mariners Island Blvd.
San Mateo CA 94404
38
Vice President
Senior Vice President and Director, Franklin Resources, Inc.;
Senior Vice President, Franklin Templeton Distributors, Inc.;
President and Director, Templeton Worldwide, Inc. and
Franklin Institutional Services Corporation; officer and/or
director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or
trustee, as the case may be, of 24 of the investment
companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam
777 Mariners Island Blvd.
San Mateo, CA 94404
56
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of
the investment companies in the Franklin Group of Funds.
Edward V. McVey
777 Mariners Island Blvd.
San Mateo, CA 94404
57
Vice President
Senior Vice President/National Sales Manager, Franklin
Templeton Distributors, Inc.; and officer of 31 of the
investment companies in the Franklin Group of Funds.
Trustees not affiliated with the investment manager may
be but are not currently paid fees or expenses incurred
in connection with attending meetings. As indicated
above, certain of the trustees and officers hold
positions with other companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Funds. The
following table indicates the total fees received by
such trustees from other Franklin Templeton Funds for
which they serve as directors, trustees or managing
general partners.
<TABLE>
<CAPTION>
NUMBER OF
FRANKLIN
TEMPLETON
BOARDS
AGGREGATE COMPENSATION TOTAL
COMPENSATION ON WHICH FROM FRANKLIN
NAME FROM FUND* EACH SERVES TEMPLETON FUNDS**
<S> <C> <C> <C>
Mr. Abbott $23,125 30 $176,870
Mr. Ashton $22,200 54 $319,925
Mr. Fortunato $22,200 56 $336,065
Mr. $22,200 29 $153,300
Garbellano
Mr. LaHaye $22,200 25 $150,817
Mr. Macklin $22,200 51 $303,685
</TABLE>
* For the fiscal year ended October 31, 1994.
** For the calendar year ended December 31, 1994.
No officer or trustee received any other compensation
directly from the Fund. As of March 31, 1995, the trustees
and officers, as a group, owned of record and beneficially
less than 1% of the total outstanding shares of the Fund.
Certain officers or trustees who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in
the fees paid to its subsidiaries. Charles E. Johnson is
the son and nephew of Charles B. Johnson and Rupert H.
Johnson, Jr., respectively, who are brothers.
From time to time, the number of Fund shares held in the
"street name" accounts of various securities dealers for
the benefit of their clients or in centralized securities
depositories may exceed 5% of the total shares outstanding.
To the best of the Fund's knowledge, no other person holds
beneficially or of record more than 5% of the Fund's
outstanding shares.
THE FOLLOWING PARAGRAPH IS ADDED TO "ADDITIONAL INFORMATION
REGARDING FUND SHARES":
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.
THE FOLLOWING REPLACES THE SUBSECTION "LETTER OF INTENT" UNDER
"ADDITIONAL INFORMATION REGARDING FUND SHARES":
LETTER OF INTENT
An investor may qualify for a reduced sales charge on the
purchase of Class I shares, as described in the Prospectus.
At any time within 90 days after the first investment which
the investor wants to qualify for the reduced sales charge,
a signed Shareholder Application, with the Letter of Intent
("Letter") section completed, may be filed with the Fund.
After the Letter is filed, each additional investment made
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 company in
the Franklin Templeton Group will be effective only after
notification to Distributors that the investment qualifies
for a discount. The shareholder's holdings in the Franklin
Templeton Group, including Class II
shares, acquired more than 90 days before the
Letter of Intent is filed will be counted
towards completion of the Letter of Intent but
will not be entitled to a retroactive downward
adjustment of sales charge. Any
redemptions made by the shareholder, other than by a
qualifying employee benefit plan (the "Benefit Plan"),
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. The upward adjustment
does not apply to qualifying employee benefit plans. An
investor who executes a Letter prior to a change in the
sales charge structure for the Fund will be entitled to
complete the Letter at the lower of (i) the new sales
charge structure; or (ii) the sales charge structure in
effect at the time the Letter was filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of the
amount of the total intended purchase will be reserved
in shares of the Fund registered in the investor's name
unless the investor is a Benefit Plan. If the total
purchases, less redemptions, equal the amount specified
under the Letter, the reserved shares will be deposited
to an account in the name of the investor or delivered
to the investor or the investor's order. If the total
purchases, less redemptions, exceed the amount specified
under the Letter and is an amount which would qualify
for a further quantity discount, a retroactive price
adjustment will be made by Distributors and the 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, the investor will
remit to Distributors an amount equal to the difference
in the dollar amount of sales charge actually paid and
the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases
had been made at a single time. Upon such remittance the
reserved shares held for the investor's account will be
deposited to an account in the name of the investor or
delivered to the investor or to the investor's order. If
within 20 days after written request such difference in
sales charge is not paid, the redemption of an
appropriate number of reserved shares to realize such
difference will be made. In the event of a total
redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will
be deducted from the proceeds of the redemption, and the
balance will be forwarded to the investor.
If a Letter of Intent is executed on behalf of a benefit
plan (such plans are described under "Purchases at Net
Asset Value" in the Prospectus), the level and any
reduction in sales charge for these employee benefit
plans will be based on actual plan participation and the
projected investments in the Franklin Templeton Group
under the Letter. Benefit Plans are not subject to the
requirement to reserve 5% of the total intended
purchase, or to any penalty as a result of the early
termination of a plan, nor are
Benefit Plans entitled to receive retroactive adjustments
in price for investments made before executing Letters.
THE "PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS" AND
"CALCULATION OF NET ASSET VALUE" SUBSECTIONS ARE MODIFIED TO
REFLECT THAT THE FUND'S NET ASSET VALUE IS CALCULATED FOR EACH
CLASS SEPARATELY AS OF THE SCHEDULED CLOSING OF THE NEW YORK
STOCK EXCHANGE (GENERALLY 1:00 P.M. PACIFIC TIME).
FRANKLIN
GLOBAL GOVERNMENT
INCOME FUND
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 777 MARCH
1, 1995 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Investors Securities Trust (the "Trust") is an open-end
management investment company consisting of both diversified and non-
diversified series, each of which is a separate entity with its own
investment objective and policies. This Statement of Additional
Information relates only to the Franklin Global Government Income
Fund (the "Fund") formerly known as Franklin Global Opportunity
Income Fund, a non-diversified series.
The Fund seeks a high level of current income, consistent with
preservation of capital; capital appreciation is a secondary
consideration. The Fund seeks to achieve this objective through
investing primarily in debt securities issued by domestic and
foreign governments, and related currency transactions. There can,
of course, be no guarantee that the Fund's objective will be
achieved.
A Prospectus for the Fund, dated March 1, 1995, as may be amended
from time to time, provides the basic information a prospective
investor should know before investing in the Fund. It is
incorporated by reference herein and may be obtained without charge
from the Trust or Franklin Distributors, Inc. ("Distributors") at
the address listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET
FORTH IN THE PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION IS
INTENDED TO PROVIDE A PROSPECTIVE INVESTOR WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND AND
THE TRUST, AND SHOULD BE READ IN CONJUNCTION WITH THE FUND'S CURRENT
PROSPECTUS.
CONTENTS PAGE
About the Trust
The Investment Objective
and Policies of the Fund
Trustees and Officers
Investment Advisory and
Other Services
The Fund's Policies Regarding
Brokers Used on Portfolio Transactions
Additional Information
Regarding Fund Shares
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Financial Statements
ABOUT THE TRUST
The Trust is an open-end management investment company, commonly
called a "mutual fund," organized as a Massachusetts business trust
on December 16, 1986. The Trust issues its shares of beneficial
interest with a par value of $.01 per share in various series, as
may be authorized by the Board of Trustees from time to time, each
of which is a separate and distinct series from the others.
The Fund, a non-diversified series of the Trust is managed by
Franklin Advisers, Inc. ("Advisers" or "Manager"), an investment
adviser registered under the Investment Advisers Act of 1940.
THE INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND
As noted in the Prospectus, the Fund has its own investment
objective and follows policies designed to achieve that objective.
In addition, except as otherwise indicated, the following
restrictions have been adopted as fundamental policies for the Fund,
which means that they may not be changed without shareholder
approval (as described below). The Fund may not:
1. Borrow money or mortgage or pledge any of the assets of the
Fund, except that it may borrow from banks, for temporary or
emergency purposes, up to 30% of its total assets and pledge up to
30% of its total assets in connection therewith. (No new investments
will be made by the Fund while any outstanding borrowings exceed 5%
of its total assets.)
2. Buy any securities on "margin," except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities and except that the Fund may make
margin deposits in connection with Futures Contracts and Options on
Futures Contracts.
3. Lend any funds or other assets, except by the purchase of
publicly distributed bonds, debentures, notes or other debt
securities and except that portfolio securities of the Fund may be
loaned to securities dealers or other institutional investors if at
least 102% cash collateral is pledged and maintained by the
borrower, provided such loans may not be made if, as a result, the
aggregate of such loans exceeds 30% of the value of the Fund's total
assets (taken at market value) at the time of the most recent loan.
Also, entry into repurchase agreements is not considered a loan for
purposes of this restriction.
4. Act as underwriter of securities issued by other persons except
insofar as the Fund may be technically deemed an underwriter under
the federal securities laws in connection with the disposition of
portfolio securities.
5. Invest more than 25% of its assets in the securities of issuers
in any one industry, other than foreign governments (see "Other
Policies" below).
6. Purchase from or sell any portfolio securities to its officers
and trustees, or any firm of which any officer or trustee is a
member, as principal, except that the Fund may deal with such
persons or firms as brokers and pay a customary brokerage
commission; retain securities of any issuer, if to the knowledge of
the Fund, one or more of its officers, trustees or the investment
manager own beneficially more than one-half of 1% of the securities
of such issuer and all such persons together own beneficially more
than 5% of such securities.
7. Purchase any securities issued by a corporation which has not
been in continuous operation for three years, but such period may
include the operation of a predecessor.
8. Acquire, lease or hold real estate (except such as may be
necessary or advisable for the maintenance of its offices).
9. Invest in interests in oil, gas or other mineral exploration or
development programs.
10. Invest in companies for the purpose of exercising control or
management.
11. Purchase securities of other investment
companies.
12. Issue senior securities, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), except that this
restriction shall not be deemed to prohibit the Fund from (a) making
any permitted borrowings, mortgages or pledges, or (b) entering into
options, futures contracts, forward contracts or repurchase
transactions.
13. Make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issuer as, and equal in amount to, the
securities sold short ("short sales against the box"), and unless
not more than 10% of the Fund's net assets (taken at market value)
is held as collateral for such sales at any one time.
(Restriction Nos. 7, 11 and 12 are not fundamental policies of the
Fund and may be changed by the trustees without shareholder
approval.)
In order to change any restrictions which are fundamental policies,
approval must be obtained from the Fund's shareholders, which
requires the affirmative vote of the lesser of (i) 67% or more of
its voting securities that are represented at the meeting or (ii)
more than 50% of the outstanding voting securities. 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 the value of portfolio securities or the amount of
net assets will not be considered a violation of any of the
foregoing restrictions.
OTHER POLICIES
There are no restrictions or limitations on investments in
obligations of the United States ("U.S."), or of corporations
chartered by the U.S. Congress as federal government
instrumentalities. In the case of the Fund, the underlying assets
may be retained in cash, including cash equivalents which are
Treasury bills, commercial paper and short-term bank obligations
such as certificates of deposit, bankers' acceptances and repurchase
agreements. It is intended, however, that only so much of the
underlying assets of the Fund be retained in cash as is deemed
desirable or expedient under then-existing market conditions.
Pursuant to an undertaking given to the Texas State Securities
Board, the Fund may not invest in real estate limited partnerships
or in interests (other than publicly traded equity securities) in
oil, gas, or other mineral leases, exploration or development so
long as the Fund's shares are offered for sale in the state of
Texas.
The Fund may invest in securities that cannot be offered to the
public for sale without first being registered under the Securities
Act of 1933 ("restricted securities"), or in other securities which,
in the opinion of the Board of Trustees, may be otherwise illiquid.
It is the policy of the Fund, however, that illiquid securities may
not constitute, at the time of purchase or at any time, more than
10% of the value of the total net assets of the Fund in which they
are held. Generally, an "illiquid" security is any security that
cannot be disposed of promptly and in the ordinary course of
business at approximately the amount at which the Fund has valued
the security. Notwithstanding this limitation, the Fund's Board of
Trustees has authorized the Fund to invest in restricted securities
where such investment is consistent with the Fund's investment
objective and has authorized such securities to be considered to be
liquid to the extent the Manager determines that there is a liquid
institutional or other market for such securities. For example,
restricted securities which may be freely transferred among
qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended, and for which a liquid
institutional market has developed, will be considered liquid even
though such securities have not been registered pursuant to the
Securities Act of 1933. The Board of Trustees will review any
determination by the Manager to treat a restricted security as a
liquid security on an ongoing basis, including the Manager's
assessment of current trading activity and the availability of
reliable price information. In determining whether a restricted
security is properly considered a liquid security, the Manager and
the Board of Trustees will take into account the following factors:
(i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to purchase or sell the security and the
number of other potential purchasers; (iii) dealer undertakings to
make a market in the security; and (iv) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the
mechanics of transfer). To the extent the Fund invests in restricted
securities that are deemed liquid, the general level of illiquidity
in the Fund may be increased if qualified institutional buyers
become uninterested in purchasing these securities or the market for
these securities contracts.
U.S. Government Securities. As indicated in the Prospectus, the Fund
may invest in U.S. government securities, which include U.S.
Treasury obligations and obligations issued or guaranteed by U.S.
government agencies or instrumentalities. U.S. government securities
do not generally involve the credit risks associated with other
types of interest bearing securities, and, as a result, the yields
available from such securities are generally lower than the yields
available from other types of interest bearing securities. Like all
interest bearing securities, however, the market values of U.S.
government securities change as interest rates fluctuate.
DESCRIPTION OF SECURITIES
AND INVESTMENT PRACTICES
Obligations of Developing Countries: Among the foreign securities in
which the Fund may invest will be the fixed-income obligations of
governments, government agencies and corporations of developing
countries. As of the date of this Statement of Additional
Information, such opportunities are limited as many developing
countries are rescheduling their existing loans and obligations.
However, as restructuring is completed and economic conditions
improve, these obligations may become available at discounts and
offer the Fund the potential for current U.S. dollar income. Such
instruments are not traded on any exchange. However, the Manager
believes there may be a market for such securities either in
multinational companies wishing to purchase such assets at a
discount for further investment, or from the issuing governments
which may decide to redeem their obligations at a discount.
Interest Rate Swaps: The Fund may also participate in interest rate
swaps. An interest rate swap is the transfer between two
counterparties of interest rate obligations, one of which has an
interest rate fixed to maturity while the other has an interest rate
that changes in accordance with changes in a designated benchmark
(i.e., London Interbank Offered Rate (LIBOR), prime, commercial
paper, or other benchmarks). The obligations to make repayment of
principal on the underlying securities are not exchanged. Such
transactions generally require the participation of an intermediary,
frequently a bank. The entity holding the fixed rate obligation will
transfer the obligation to the intermediary, and such entity will
then be obligated to pay to the intermediary a floating rate of
interest, generally including a fractional percentage as a
commission for the intermediary. The intermediary also makes
arrangements with a second entity which has a floating-rate
obligation that substantially mirrors the obligation desired by the
first party. In return for assuming a fixed obligation, the second
entity will pay the intermediary all sums that the intermediary pays
on behalf of the first entity, plus an arrangement fee and other
agreed upon fees.
Interest rate swaps are generally entered into to permit the party
seeking a floating rate obligation the opportunity to acquire such
obligation at a lower rate than is directly available in the credit
market, while permitting the party desiring a fixed rate obligation
the opportunity to acquire such a fixed rate obligation, also
frequently at a price lower than is available in the capital
markets. The success of such a transaction depends in large part on
the availability of fixed rate obligations at a low enough coupon
rate to cover the cost involved.
Other Fixed-Income Securities: As stated in the Prospectus, the Fund
may purchase fixed-income securities of both domestic and foreign
issuers including, among others, preference stock and all types of
long-term or short-term debt obligations, such as equipment trust
certificates, equipment lease certificates, and conditional sales
contracts. Equipment related instruments are used to finance the
acquisition of new equipment. The instrument gives the bond-holder
the first right to the equipment in the event that interest and
principal are not paid when due. Title to the equipment is held in
the name of the trustee, usually a bank, until the instrument is
paid off. Such equipment related instruments usually mature over a
period of 10 to 15 years. In practical effect equipment trust
certificates, equipment lease certificates and conditional sale
contracts are substantially identical; they differ mainly in legal
structure. These fixed-income securities may involve equity
features, such as conversion or exchange rights or warrants for the
acquisition of stock of the same or a different issuer;
participation based on revenues, sales or profits; or the purchase
of common stock in a unit transaction (where an issuer's debt
securities and common stock are offered as a unit).
Options On U.S. and Foreign Securities: In an effort to increase
current income and to reduce the fluctuations in net asset value,
the Fund intends to write covered put and call options and purchase
put and call options on U.S. and foreign securities that are traded
on U.S. and foreign securities exchanges and over-the-counter.
As described in the Prospectus, the Fund may enter into closing
transactions to terminate an options position. The Fund will realize
a profit from a closing transaction if the price of the transaction
is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize
a loss from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases in
the market price of a call option written by the Fund will generally
be inversely related to the market price of the underlying security,
any loss resulting from the closing out of a call option is likely
to be offset in whole or in part by appreciation in the value of the
underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and then
write a call option against that security. The exercise price of the
call will depend upon the expected price movement of the underlying
security. The exercise price of a call option may be below ("in-the-
money"), equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the option is
written. Buy-and-write transactions using in-the-money call options
may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option
period. Buy-and-write transactions using at-the-money call options
may be used when it is expected that the price of the underlying
security will remain fixed or advance moderately during the option
period. Buy-and-write transactions using out-of-the-money call
options may be used when it is expected that the premiums received
from writing the call option plus the appreciation in the market
price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium received
by it for writing the option, adjusted upward or downward by the
difference between the Fund's purchase price for the security and
the exercise price. If the options are not exercised and the price
of the underlying security declines, the amount of such decline will
be mitigated by the premium received.
The writing of covered put options is similar in terms of
risk/return characteristics to buy-and-write transactions. If the
market price of the underlying security rises or otherwise is above
the exercise price, the put option will expire worthless and the
Fund's gain will be limited to the premium received. If the market
price of the underlying security declines or otherwise is below the
exercise price, the Fund may elect to close the position or wait for
the option to be exercised and take delivery of the security at the
exercise price. The Fund's return will be the premium received from
the put option minus the amount by which the market price of the
security is below the exercise price. Out-of-the-money, at-the-
money, and in-the-money put options may be used by the Fund in the
same market environments that call options are used in equivalent
buy-and-write transactions.
In addition to the matters discussed in the Prospectus, investors
should be aware that when trading options on foreign exchanges or in
the over-the-counter market many of the protections afforded to
exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire
amount could be lost. Moreover, the Fund as an option writer could
lose amounts substantially in excess of its initial investment, due
to the margin and collateral requirements associated with such
option writing.
Options on securities traded on national securities exchanges are
within the jurisdiction of the Securities and Exchange Commission
("SEC"), as are other securities traded on such exchanges. As a
result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In
particular, all option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options
traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially
permitting the Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse
market movements.
In regard to the Fund's option trading activities, it intends to
comply with the California Corporate Securities Rules as they
pertain to prohibited investments.
The Fund's option trading activities may result in the loss of
principal under certain market conditions. For a more detailed
discussion of the use, risks and costs of securities options
trading, see the Prospectus.
Futures Contracts: The Fund may enter into contracts for the
purchase or sale for future delivery of debt securities or currency
("Futures Contracts"). A "sale" of a Futures Contract means the
acquisition and assumption of a contractual obligation to deliver
the securities or currency called for by the contract at a specified
price on a specified date. A "purchase" of a Futures Contract means
the acquisition of a contractual right and obligation to acquire the
securities or currency called for by the contract at a specified
price on a specified date. U.S. Futures Contracts have been designed
by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be executed
through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Existing contract markets
for Futures Contracts on debt securities include the Chicago Board
of Trade, the New York Cotton Exchange, the MidAmerica Commodity
Exchange (the "MCE") and the International Money Market of the
Chicago Mercantile Exchange (the "IMM"). Futures Contracts trade on
these exchanges, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange. The Fund will enter into Futures
Contracts which are based on foreign currencies or on debt
securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury bonds, Treasury notes,
Government National Mortgage Association modified pass-through
mortgage-backed securities, and three-month U.S. Treasury bills. The
Fund may also enter into Futures Contracts which are based on
corporate securities and non-U.S. government debt securities when
such securities become available. At the time a Futures Contract is
purchased or sold, the Fund must allocate cash or securities as a
deposit payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1% to 5% of a contract's face value.
Thereafter, the Futures Contract is valued daily and the payment of
"variation margin" may be required since each day the Fund would pay
or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities on the settlement date of a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a Futures Contract may not have been
issued when the contract was written.
Although Futures Contracts by their terms call for the actual
delivery or acquisition of securities or currency, in most cases the
contractual obligation is terminated before the settlement date of
the contract without having to make or take delivery of the
securities or currency. The termination of a contractual obligation
is accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical offsetting Futures Contract
calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to
make or take delivery of the underlying security or currency. Since
all transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells Futures Contracts.
The Fund may cover a Futures Contract that it has sold by
establishing and maintaining a segregated account, as indicated
above, consisting of cash, cash equivalents or high quality debt
securities from its portfolio. The Fund may cover its futures
positions if it owns (or has an absolute right to acquire) the
underlying instrument or currency covered by the contract. The Fund
may also cover its futures position by holding a call option on the
same Futures Contract permitting the Fund to purchase the instrument
or currency at a price no higher than the price established in the
Futures Contract which it sold.
The purpose of the purchase or sale of a Futures Contract by the
Fund is to attempt to protect the Fund from fluctuations in interest
or currency exchange rates without actually buying or selling long-
term, fixed-income securities or currency. For example, if the Fund
owns long-term bonds, and interest rates were expected to increase,
the Fund might enter into Futures Contracts for the sale of debt
securities. Such a sale would have much the same effect as selling
an equivalent value of the long-term bonds owned by the Fund. If
interest rates did increase, the value of the debt securities owned
by the Fund would decline, but the value of the Futures Contracts to
the Fund would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results by
selling bonds with long maturities and investing in bonds with short
maturities when interest rates are expected to increase. However,
since the futures market is often more liquid than the cash
(securities) market, the use of Futures Contracts as an investment
technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities. Similarly, if the Fund
expects that a foreign currency in which its securities are
denominated will decline in value against the U.S. dollar, the Fund
may sell Futures Contracts on that currency. If the foreign currency
does decline in value, the decrease in value of the security
denominated in that currency will be offset by an increase in the
value of the Fund's futures position.
Alternatively, when it is expected that interest rates may decline,
Futures Contracts may be purchased in an attempt to hedge against
the anticipated purchase of long-term bonds at higher prices. Since
the fluctuations in the value of Futures Contracts should be similar
to that of long-term bonds, the Fund could take advantage of the
anticipated rise in the value of long-term bonds without actually
buying them until the market had stabilized. At that time, the
Futures Contracts could be liquidated and the Fund could then buy
long-term bonds on the cash (securities) market. Similarly, if the
Fund intends to acquire a security or other asset denominated in a
currency that is expected to appreciate against the U.S. dollar, the
Fund may purchase Futures Contracts on that currency. If the value
of the foreign currency does appreciate, the increase in the value
of the futures position will offset the increased U.S. dollar cost
of acquiring the asset denominated in that currency. To the extent
the Fund enters into Futures Contracts for this purpose, the assets
in the segregated asset account maintained to cover the Fund's
purchase obligations with respect to such Futures Contracts will
consist of cash, cash equivalents or high quality debt securities
from its portfolio in an amount equal to the difference between the
fluctuating market value of such Futures Contracts and the aggregate
value of the initial and variation margin payments made by the Fund
with respect to such Futures Contracts.
The ordinary spreads between prices in the cash (securities) or
foreign currency and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all
participants in the futures markets are subject to initial deposit
and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close Futures Contracts
through offsetting transactions which could distort the normal
relationship between the cash (securities) or foreign currency and
futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced,
thus causing distortions. Due to the possibility of such distortion,
a correct forecast of general interest rate trends by the Manager
may still not result in a successful hedging transaction.
In addition, Futures Contracts entail certain risks. Although the
Fund believes that the use of such contracts will benefit the Fund,
if the Manager's investment judgment about the general direction of
interest or currency exchange rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would adversely
affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of
the increased value of its bonds which it has hedged because it will
have offsetting losses in its futures positions. Similarly, if the
Fund sells a foreign currency Futures Contract and the U.S. dollar
value of the currency unexpectedly increases, the Fund will lose the
beneficial effect of such increase on the value of the security
denominated in that currency. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell bonds from its
portfolio to meet daily variation margin requirements. Such sales of
bonds may be, but not necessarily, at increased prices which reflect
the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
Options on Futures Contracts: The Fund intends to purchase and write
options on Futures Contracts for hedging purposes only. The purchase
of a call option on a Futures Contract is similar in some respects
to the purchase of a call option on an individual security or
currency. Depending on the pricing of the option compared to either
the price of the Futures Contract upon which it is based or the
price of the underlying debt securities or currency, it may or may
not be less risky than direct ownership of the Futures Contract of
the underlying debt securities or currency. As with the purchase of
Futures Contracts, when the Fund is not fully invested it may
purchase a call option on a Futures Contract to hedge against a
market advance due to declining interest rates or appreciation in
the value of a foreign currency against the U.S. dollar.
If the Fund writes a call option on a Futures Contract and the
futures price at expiration of the option is below the exercise
price, the Fund will retain the full amount of the option premium
which may provide a partial hedge against any decline that may have
occurred in the value of the Fund's portfolio holdings. If the
futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option
premium, which may provide a partial hedge against any increase in
the price of securities which the Fund intends to purchase. If a put
or call option the Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of
its futures positions, the Fund's losses from existing options on
futures may to some extent be reduced or increased by changes in the
value of its portfolio securities.
The amount of risk the Fund assumes when it purchases an option on a
Futures Contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk that changes
in the value of the underlying Futures Contract will not be fully
reflected in the value of the option purchased. The Fund will
purchase a put option on a Futures Contract only to hedge the Fund's
portfolio against the risk of rising interest rates or the decline
in the value of securities denominated in a foreign currency.
The Fund's ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in
such instruments. Markets in options and futures are relatively new
and still developing, and it is impossible to predict the amount of
trading interest that may exist in various types of options or
futures. Therefore, no assurance can be given that the Fund will be
able to utilize these instruments effectively for the purposes set
forth above. Furthermore, the Fund's ability to engage in options
and futures transactions may be limited by tax considerations.
Options on Foreign Currencies: The Fund may purchase and write
options on foreign currencies for hedging purposes in a manner
similar to that in which Futures Contracts on foreign currencies, or
Forward Contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if
their value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund will
have the right to sell such currency for a fixed amount in dollars
and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby
increasing the cost of such securities, the Fund may purchase call
options on such currency. The purchase of such options could offset,
at least partially, the effects of the adverse movements in currency
exchange rates. As with other types of options, however, the benefit
the Fund derives from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs.
In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require the Fund to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may also write options on foreign currencies for hedging
purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency-denominated securities due to
adverse fluctuations in currency exchange rates the Fund could,
instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will
most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be
acquired, the Fund could write a put option on the relevant
currency. If currency exchange rates increase as projected, the put
option will expire unexercised and the premium received will offset
such increased cost. As with other types of options, however, the
writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium received, and only if rates
move in the expected direction. If this does not occur, the option
may be exercised and the Fund would be required to purchase or sell
the underlying currency at a loss which may not be fully offset by
the amount of the premium received. As a result of writing options
on foreign currencies, the Fund may also be required to forego all
or a portion of the benefits which might otherwise have been
obtained from favorable changes in currency exchange rates.
All call options written on foreign currencies will be covered. A
call option on foreign currencies written by the Fund is "covered"
if the Fund owns (or has an absolute right to acquire) the
underlying foreign currency covered by the call. A call option is
also covered if the Fund has a call on the same foreign currency in
the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in
cash and U.S. government securities in a segregated account with its
custodian.
Additional Risks of Forward Contracts, Options on Foreign Currencies
and Options on Futures Contracts: Forward Contracts are not traded
on contract markets regulated by the CFTC or by the SEC. The ability
of the Fund to use such instruments could be restricted to the
extent that Congress authorized the CFTC or the SEC to regulate such
transactions. Forward Contracts are traded through financial
institutions acting as market-makers.
The purchase and sale of exchange-traded foreign currency options is
subject to the risks of the availability of a liquid secondary
market, as well as the risks of adverse market movements, margins of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other
political and economic events.
Futures Contracts on currencies, options on Futures Contracts and
options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies. The value
of such positions could also be adversely affected by (i) other
foreign political and economic factors, (ii) lesser availability
than in the United States of data on which to base trading
decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the
U.S., (iv) the imposition of exercise and settlement terms and
procedures, and margin requirements different from those in the
U.S., and (v) lesser trading volume.
Future Developments: The Fund proposes to take advantage of
investment opportunities in the area of options, Futures Contracts
and options on Futures Contracts which are not presently
contemplated for use by the Fund or which are not currently
available but which may be developed in the future, to the extent
such opportunities are both consistent with the Fund's investment
objective and policies and are legally permissible transactions for
the Fund. Such opportunities, if they arise, may involve risks which
are different from those involved in the options and futures
activities described above.
Loan Participations: The Fund may invest in loan participations, all
of which may have speculative characteristics. The Fund may purchase
loan participations at par or which sell at a discount because of
the borrower's credit problems. To the extent the borrower's credit
problems are resolved, the loan participation may appreciate in
value but not beyond par value.
The Manager may acquire loan participations, which sell at a
discount, for the Fund from time to time when it believes the
investments offer the possibility of long-term appreciation in value
in addition to current income. An investment in loan participations
carries a high degree of risk and may have the consequence that
interest payments with respect to such securities may be reduced,
deferred, suspended or eliminated and may have the further
consequence that principal payments may likewise be reduced,
deferred, suspended or cancelled, causing the loss of the entire
amount of the investment. Loans will generally be acquired by the
Fund from a bank, finance company or other similar financial
services entity ("Lender").
Loan participations are interests in floating or variable rate
senior loans ("Loans") to U.S. corporations, partnerships and other
entities ("Borrowers") which operate in a variety of industries and
geographical regions. Loans in which the Fund will purchase
participation interests may pay interest at rates which are
periodically redetermined on the basis of a base lending rate plus a
premium. These base lending rates are generally the Prime Rate
offered by a major U.S. bank, the London Inter-Bank Offered Rate,
the Certificate of Deposit rate or other base lending rates used by
commercial lenders. The Loans typically have the most senior
position in a Borrower's capital structure, although some Loans may
hold an equal ranking with other senior securities of the Borrower.
Although the Loans generally are secured by specific collateral, the
Fund may invest in Loans which are not secured by any collateral.
Uncollateralized Loans pose a greater risk of nonpayment of interest
or loss of principal than do collateralized Loans. The collateral
underlying a collateralized Loan may consist of assets that may not
be readily liquidated, and there is no assurance that the
liquidation of such assets would satisfy fully a Borrower's
obligation under a Loan. The Fund is not subject to any restrictions
with respect to the maturity of the Loans in which it purchases
participation interests.
The Loans generally are not rated by nationally recognized
statistical rating organizations. Ratings of other securities issued
by a Borrower do not necessarily reflect adequately the relative
quality of a Borrower's Loans. Therefore, although the Manager may
consider such ratings in determining whether to invest in a
particular Loan, such ratings will not be the determinative factor
in the Manager's analysis.
The Loans are not readily marketable and may be subject to
restrictions on resale. Participation interests in the Loans
generally are not listed on any national securities exchange or
automated quotation system and no regular market has developed for
such interests. Any secondary purchases and sales of loan
participations generally are conducted in private transactions
between buyers and sellers. Many of the Loans in which the Fund
expects to purchase interests are of a relatively large principal
amount and are held by a relatively large number of owners which in
the Manager's opinion, should enhance the relative liquidity of such
interests.
When acquiring a loan participation, the Fund will have a
contractual relationship only with the Lender (typically an entity
in the banking, finance or financial services industries), not with
the Borrower. The Fund has the right to receive payments of
principal and interest to which it is entitled only from the Lender
selling the loan participation and only upon receipt by such Lender
of such payments from the Borrower. In connection with purchasing
loan participations, the Fund generally will have no right to
enforce compliance by the Borrower with the terms of the Loan
Agreement, nor any rights with respect to any funds acquired by
other Lenders through set-off against the Borrower and the Fund may
not directly benefit from the collateral supporting the Loan in
which it has purchased the loan participation. As a result, the Fund
may assume the credit risk of both the Borrower and the Lender
selling the loan participation. In the event of the insolvency of
the Lender selling a loan participation, the Fund may be treated as
a general creditor of such Lender, and may not benefit from any set-
off between such Lender and the Borrower.
Portfolio Turnover: The portfolio turnover of the Fund for the nine-
month period ended October 31, 1993 and the fiscal year ended
October 31, 1994 were approximately 67.36% and 80.69%, respectively.
TRUSTEES AND OFFICERS
The Board of Trustees has the responsibility for the overall
management of the Fund, 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 1940 Act, are indicated by an asterisk (*).
Frank H. Abbott, III
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company);
Director, Mother Lode Gold Mines Consolidated; and director, trustee
or managing general partner, as the case may be, of most of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton
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; director of
certain of the investment companies in the Templeton Group of Funds;
and director, trustee or managing general partner, as the case may
be, of most of the investment companies in the Franklin Group of
Funds.
S. Joseph Fortunato
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 of certain of the investment
companies in the Templeton Group of Funds; and director, trustee or
managing general partner, as the case may be, of most of the
investment companies in the Franklin Group of Funds.
David W. Garbellano
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 most of the investment companies in the Franklin Group of Funds.
*Edward B. Jamieson
777 Mariners Island Boulevard
San Mateo, CA 94404
President and Trustee
Senior Vice President and Portfolio Manager, Franklin Advisers,
Inc.; and officer and/or director or trustee of some of the
investment companies in the Franklin Group of Funds.
*Charles B. Johnson
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; director of certain of the
investment companies in the Templeton Group of Funds; 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 most of the investment companies in the Franklin Group of Funds.
*Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and
Franklin/Templeton Distributors, Inc.; President and Director,
Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the investment companies in
the Templeton Group of Funds; 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 most of the
investment companies in the Franklin Group of Funds.
Frank W. T. LaHaye
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 most of
the investment companies in the Franklin Group of Funds.
Gordon S. Macklin
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director,
Fundamerican Enterprises Holdings, Inc., Martin Marietta
Corporation, MCI Communications Corporation, Medimmune, Inc.
(biotechnology), and Infovest Corporation (information services);
director of certain of the investment companies in the Templeton
Group of Funds; and director, trustee or managing general partner,
as the case may be, of most of the investment companies in the
Franklin Group of Funds; formerly, Chairman, Hambrecht and Quist
Group; Director, H & Q Healthcare Investors; and President, National
Association of Securities Dealers, Inc.
Harmon E. Burns
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.; director of certain of the investment companies in
the Templeton Group of Funds; officer and/or director, as the case
may be, of other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee of all the investment companies
in the Franklin Group of Funds.
Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Treasurer
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 all the investment companies in the Franklin Group
of Funds.
Edward V. McVey
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin/Templeton
Distributors, Inc.; and officer of many of the investment companies
in the Franklin Group of Funds.
Charles E. Johnson
777 Mariners Island Blvd.
San Mateo CA 94404
Vice President
Senior Vice President and Director, Franklin Resources, Inc.; Senior
Vice President, Franklin/Templeton Distributors, Inc.; President and
Director, Templeton Worldwide, Inc. and Franklin Institutional
Services Corporation; director of certain of the investment
companies in the Templeton Group of Funds; officer and/or director,
as the case may be, of some of the subsidiaries of Franklin
Resources, Inc. and officer and/or director or trustee, as the case
may be, of some of the investment companies in the Franklin Group of
Funds.
Deborah R. Gatzek
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin/Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc.; and officer of all the investment companies in the
Franklin Group of Funds.
As indicated above, certain trustees and officers hold positions
with other companies in the Franklin Group of Funds(Registered
Trademark). Trustees not affiliated with the investment manager are
currently paid fees of $925 per month plus $925 per meeting attended
and are reimbursed for expenses incurred in connection with
attending such meetings. Payment for fees and reimbursement of
expenses are paid pro rata by each series of the Trust based on net
assets. For the fiscal year ended October 31, 1994, the Fund's pro
rata payment totaled $16,695. No officer or trustee received any
other compensation directly from the Trust. As of December 6, 1994,
the trustees and officers did not own of record or beneficially any
outstanding shares of the Fund. Certain officers or trustees who are
shareholders of Franklin Resources, Inc. may be deemed to receive
indirect remuneration by virtue of their participation, if any, in
the fees paid to its subsidiaries. Charles B. Johnson (the father of
Charles E. Johnson), Rupert H. Johnson, Jr. and Andrew R. Johnson
are brothers.
From time to time, the number of Fund shares held in the "street
name" accounts of various securities dealers for the benefit of
their clients or in centralized securities depositories may exceed
5% of the total shares outstanding. To the best knowledge of the
Fund, no other person holds beneficially or of record more than 5%
of the Fund's outstanding common stock.
The Board of Trustees, with all disinterested trustees as well as
the interested trustees voting in favor, have adopted written
procedures designed to deal with potential conflicts of interest
which may arise from the fact of having the same persons serving on
each trust's Board of Trustees. The Board of Trustees has determined
that there are no conflicts of interest presented by this
arrangement at the present time. See "Summary of Procedures to
Monitor Conflicts of Interest."
INVESTMENT ADVISORY AND OTHER SERVICES
Advisers, an investment adviser registered under the Investment
Advisers Act of 1940, is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company
whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries which are
involved in investment management and shareholder services. The
Manager and other subsidiary companies of Resources currently manage
over $117 billion in assets for over 3.3 million shareholders. The
preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and Advisers.
Pursuant to the management agreement, the Manager provides
investment research and portfolio management services, including the
selection of securities for the Fund to purchase, hold or sell and
the selection of brokers through whom the Fund's portfolio
transactions are executed. The Manager's activities are subject to
the review and supervision of the Trust's Board of Trustees to whom
the Manager renders periodic reports of the Fund's investment
activities. The Manager, at its own expense, furnishes the Fund with
office space and office furnishings, facilities and equipment
required for managing the business affairs of the Fund; 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
Fund. The Fund bears all of its expenses not assumed by the Manager.
See the Statement of Operations in the financial statements at the
end of this Statement of Additional Information for additional
details of these expenses.
Pursuant to the management agreement, the 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 net
assets of the Fund; 1/24 of 1% (approximately 1/2 of 1% per year) of
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 net assets
of the Fund 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 the Fund as prescribed
by any state in which the 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
the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise
exceed in any fiscal year 2 1/2% of the first $30 million of average
net assets of the Fund, 2% of the next $70 million of average net
assets of the Fund and 1 1/2% of average net assets of the Fund in
excess of $100 million. Expense reductions have not been necessary
based on state requirements. Management fees for the fiscal year
ended January 31, 1993 would have been $763,966; however, Advisers
waived a portion of its management fees so that the amount paid by
the Fund for the that fiscal year was $747,403. For the nine-month
period ended October 31, 1993 and the fiscal year ended October 31,
1994, the Fund paid Advisers fees totaling $746,129 and $1,226,772,
respectively.
The management agreement is in effect until April 30, 1995.
Thereafter, it may continue in effect for successive annual periods
providing such continuance is specifically approved at least
annually by a vote of the Trust's Board of Trustees or by a vote of
the holders of a majority of the 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 agreement 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 agreement may be terminated, as to the Fund, without
penalty at any time by the Trust or by the Manager on 30 days'
written notice and will automatically terminate in the event of its
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 Fund and acts
as the Fund's transfer agent and dividend-paying agent. Investor
Services is compensated on the basis of a fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian of the securities and
other assets of the Fund. 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 Fund's independent auditors. For the nine-
month period ended October 31, 1993, their auditing services
consisted of rendering an opinion on the financial statements of the
Fund included in the Fund's Annual Report to Shareholders and this
Statement of Additional Information.
SUBADVISORY AGREEMENT
Pursuant to a subadvisory agreement with Advisers, which was
approved by the Fund's shareholders on April 27, 1994 and will
remain in effect for two years, Templeton Global Bond Managers, a
division of Templeton Investment Counsel, Inc. ("TICI"), acts as
subadviser to the Fund. TICI, a Florida corporation with offices
at Broward Financial Centre, Suite 2100, Fort Lauderdale, Florida
33394-3091, is registered under the Investment Advisers Act of 1940
and is an affiliate of Templeton, Galbraith & Hansberger, Ltd.
("TGH"), an investment advisory firm which manages the Templeton
Family of Funds. TGH and Advisers are both subsidiaries of
Resources, whose affiliates manage approximately $117 billion as
noted above.
Under the subadvisory agreement, the subadviser provides, subject to
the Manager's discretion, a portion of the investment advisory
services for which the Manager is responsible pursuant to the
management agreement. Such responsibilities may include managing a
portion of the Fund's investments and supplying research services.
Research services provided by the subadviser may include
information, analytical reports, computer screening studies,
statistical data and factual resumes pertaining to securities
throughout the world. Such supplemental research when utilized, is
subject to analysis by the Manager before being incorporated into
the investment advisory process. The subadvisory agreement provides
that the subadviser also may select brokers and dealers for
execution of the Fund's portfolio transactions consistent with the
Fund's brokerage policies.
Under the subadvisory agreement, TICI receives from the Manager a
fee equal to an annual rate of 0.35% of 1% of the average daily net
assets up to and including $100 million of net assets of each Fund;
0.25 of 1% of average daily net assets over $100 million up to and
including $250 million; and 0.20 of 1% of average daily net assets
over $250 million.
THE FUND'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
Under the current management agreement with Advisers, the selection
of brokers and dealers to execute transactions in the Fund's
portfolio is made by the Manager in accordance with criteria set
forth in the management agreement and any directions which the Board
of Trustees may give.
When placing a portfolio transaction, the Manager attempts to obtain
the best net price and execution of the transaction. On portfolio
transactions which are done on a securities exchange, the amount of
commission paid by the Fund is negotiated between the Manager and
the broker executing the transaction. The Manager seeks to obtain
the lowest commission rate available from brokers which are felt to
be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage
commissions paid in connection with portfolio transactions are based
to a large degree on the professional opinions of the persons
responsible for the placement and review of such transactions. These
opinions are formed on the basis of, among other things, the
experience of these individuals in the securities industry and
information available to them concerning the level of commissions
being paid by other institutional investors of comparable size. The
Manager will ordinarily place orders for the purchase and sale of
over-the-counter securities on a principal rather than agency basis
with a principal market maker unless, in the opinion of the Manager,
a better price and execution can otherwise be obtained. 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 price. As a
general rule, the Fund does not purchase bonds in underwritings
where it is not given any choice, or only limited choice, in the
designation of dealers to receive the commission. The Fund will seek
to obtain prompt execution of orders at the most favorable net
price.
The amount of commission is not the only relevant factor to be
considered in the selection of a broker to execute a trade. If it is
felt to be in the Fund's best interests, the Manager may place
portfolio transactions with brokers who provide the types of
services described below, even if it means the Fund will have to pay
a higher commission than would be the case if no weight were given
to the broker's furnishing of these services. This will be done only
if, in the opinion of the Manager, the amount of any additional
commission is reasonable in relation to the value of the services.
Higher commissions will be paid only when the brokerage and research
services received are bona fide and produce a direct benefit to the
Fund or assist the Manager in carrying out its responsibilities to
the Fund, or when it is otherwise in the best interest of the Fund
to do so, whether or not such data may also be useful to the Manager
in advising other clients.
When it is felt that several brokers are equally able to provide the
best net price and execution, the Manager may decide to execute
transactions through brokers who provide quotations and other
services to the Fund, specifically including the quotations
necessary to determine the value of the Fund's net assets, in such
amount of total brokerage as may reasonably be required in light of
such services, and through brokers who supply research, statistical
and other data to the Fund and Manager in such amount of total
brokerage as may reasonably be required.
It is not possible to place a dollar value on the special executions
or on the research services received by Advisers from dealers
effecting transactions in portfolio securities. The allocation of
transactions in order to obtain additional research services permits
Advisers to supplement its own research and analysis activities and
to receive the views and information of individuals and research
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 Fund's officers are satisfied that the
best execution is obtained, the sale of Fund shares may also be
considered as a factor in the selection of securities dealers to
execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of
Securities Dealers, it is sometimes entitled to obtain certain fees
when the Fund tenders portfolio securities pursuant to a tender-
offer solicitation. As a means of recapturing brokerage for the
benefit of the Fund, any portfolio securities tendered by the Fund
will be tendered through Distributors if it is legally permissible
to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses
incurred in connection therewith.
If purchases or sales of securities of the Fund and one or more
other investment companies or clients supervised by the Manager are
considered at or about the same time, transactions in 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 the 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 the Fund.
During the nine-month period ended October 31, 1993 and the fiscal
year ended October 31, 1994, the Fund paid no brokerage commissions.
For fiscal year ended January 31, 1993, the Fund paid $867 in
brokerage commissions. As of October 31, 1994, the Fund did not own
the securities of any of its regular broker-dealers.
ADDITIONAL INFORMATION REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for purchasing
or redeeming shares of the Fund must be denominated in U.S. dollars.
The Fund reserves the right, in its sole discretion, to either (a)
reject any order for the purchase or sale of shares denominated in any
other currency, or (b) honor the transaction or make adjustments to a
shareholder's account for the transaction as of a date and with a
foreign currency exchange factor determined by the drawee bank.
In connection with exchanges (see Prospectus "Exchange Privilege"), it
should be noted that since the proceeds from the sale of shares of an
investment company generally are not available until the fifth business
day following the redemption, the funds into which the Fund
shareholders are seeking to exchange reserve the right to delay issuing
shares pursuant to an exchange until said fifth business day. The
redemption of shares of the Fund to complete an exchange for shares of
any of the investment companies will be effected at the close of
business on the day the request for exchange is received in proper form
at the net asset value then effective.
following paragraph is for daily accrual funds only
Dividend checks which are returned to the Fund marked "unable to
forward" by the postal service will be deemed to be a request by the
shareholder to change the dividend option and the proceeds will be
reinvested in additional shares at net asset value until new
instructions are received.
The Fund may deduct from a shareholder's account the costs of its
efforts to locate a shareholder if mail is returned as undeliverable or
the Fund is otherwise unable to locate the shareholder or verify the
current mailing address. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for
their location services.
Under agreements with certain banks in Taiwan, Republic of China, the
Fund's shares are available to such banks' discretionary trust funds at
net asset value. The banks may charge service fees to their customers
who participate in the discretionary trusts. Pursuant to agreements, a
portion of such service fees may be paid to Distributors, or an
affiliate of Distributors, to help defray expenses of maintaining a
service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
Shares of the 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 the Fund will be offered with the following schedule of sales
charges:
<TABLE>
<CAPTION>
SIZE OF PURCHASE -
IN U.S. DOLLARS SALES CHARGE
<C> <C>
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%
</TABLE>
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form
prior to 1:00 p.m. Pacific time any business day that the Exchange is
open for trading and promptly transmitted to the Fund will be based
upon the public offering price determined that day. Purchase orders
received by securities dealers or other financial institutions after
1:00 p.m. Pacific time will be effected at the Fund's public offering
price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which,
pursuant to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a
legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset
value subject to the same conditions concerning time of receipt in
proper form. It is the securities dealer's responsibility to transmit
the order in a timely fashion and any loss to the customer resulting
from failure to do so must be settled between the customer and the
securities dealer.
PURCHASES AT NET ASSET VALUE
As discussed in the Prospectus, certain categories of investors may
purchase shares of the Fund at net asset value (without a sales charge)
or at a reduced sales charge. The reason for this is that there is
minimal or no sales effort required with respect to these investors. If
certain investments at net asset value are made through a dealer who
has executed a dealer or similar agreement with Distributors,
Distributors or its affiliates may make a payment, out of their own
resources, to such dealer in an amount not to exceed 0.25% of the
amount invested (1% for certain 401(k) or similar category of investor
as stated in the Prospectus), paid pro rata on a quarterly basis on
average quarterly balances for a period of one year.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests
for redemption by any shareholder of record, limited in amount,
however, during any 90- day period to the lesser of $250,000 or 1% of
the value of the Fund's net assets at the beginning of such period.
Such commitment is irrevocable without the prior approval of the
Securities and Exchange Commission. In the case of requests for
redemption in excess of such amounts, the directors reserve the right
to make payments in whole or in part in securities or other assets of
the Fund from which the shareholder is redeeming, in case of an
emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In such
circumstances, the securities distributed would be valued at the price
used to compute the Fund's net assets. Should the Fund do so, a
shareholder may incur brokerage fees in converting the securities to
cash. The Fund does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to timely
recover their investment and may also incur brokerage costs in selling
such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund
reserves the right to redeem, involuntarily, at net asset value, the
shares of any shareholder whose account has a value of less than one-
half of the initial minimum investment required for that shareholder,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares. Until further
notice, it is the present policy of the Fund not to exercise this right
with respect to any shareholder whose account has a value of $50 or
more. In any event, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the
value of the shares in the account is less than the minimum amount and
allow the shareholder 30 days to make an additional investment in an
amount which will increase the value of the account to at least $100.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, the Fund generally calculates net asset
value as of 1:00 p.m. Pacific time each day that the Exchange is open
for trading. As of the date of this SAI, the Fund 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.
The Fund's portfolio securities are valued as stated in the Prospectus.
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 the Fund's shares are
determined as of such times. Occasionally, events affecting the values
of such securities may occur between the times at which they are
determined and 1:00 p.m. Pacific time which will not be reflected in
the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in
good faith by the Board of Trustees.
Delete dividend reinvestment para. for daily dividend funds. Per Carol
Talbott the reinvestment date is the same date as the payable date for
a daily accrual fund.
REINVESTMENT DATE
The dividend reinvestment date is the date on which additional shares
are purchased for the investor who has elected to have dividends
reinvested. This date will vary from month to month, based on
operational considerations, and is not necessarily the same date as the
record date or the payable date for cash dividends.
SPECIAL SERVICES
The 1It is the Trust division of Distributors.Trust and Institutional
Services Division of Distributors provides specialized services,
including recordkeeping, for institutional investors of the Fund. The
cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions which
maintain omnibus accounts with the Fund on behalf of numerous
beneficial owners for recordkeeping operations performed with
respect to such beneficial owners. For each beneficial owner in the
omnibus account, the Fund may reimburse Investor Services an amount
not to exceed the per account fee which the Fund normally pays
Investor Services. Such financial institutions may also charge a fee
for their services directly to their clients.
ADDITIONAL INFORMATION REGARDING TAXATION
The following information is a supplement to and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Taxation of the Fund and Its Shareholders."
As stated in the Prospectus, the 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 the Fund as a
regulated investment company if they determine such course of action
to be beneficial to the shareholders. In such case, the Fund will be
subject to federal and possibly state corporate taxes on its taxable
income and gains, and distributions to shareholders will be ordinary
dividend income to the extent of the Fund's available earnings and
profits.
Subject to the limitations discussed below, the portion of the
income distributions paid by the Fund may be treated by corporate
shareholders as qualifying dividends for purposes of the dividends-
received deduction under federal income tax law. If the aggregate
qualifying dividends received by the Fund (generally, dividends from
U.S. domestic corporations, the stock in which is not debt-financed
by the Fund and is held for at least a minimum holding period) is
less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be
designated as eligible for such deduction will not exceed the
aggregate qualifying dividends received by the Fund for the taxable
year. The amount or percentage of income qualifying for the
deduction will be declared by the Fund annually in a notice to
shareholders mailed shortly after the end of the Fund's fiscal year.
Corporate shareholders should note that dividends paid by a Fund
from sources other than the qualifying dividends it receives will
not qualify for the dividends-received deduction. For example, any
interest income and short-term capital gain (in excess of any net
long-term capital loss or capital loss carryover) included in
investment company taxable income and distributed by a Fund as a
dividend will not qualify for the dividends received deduction.
Corporate shareholders should also note that availability of the
corporate dividends-received deduction is subject to certain
restrictions. For example, the deduction is eliminated unless the
Fund shares have been held (or deemed held) for at least 46 days in
a substantially unhedged manner. The dividends-received deduction
may also be reduced to the extent interest paid or accrued by a
corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is
treated as a deduction, is includable in the tax base on which the
alternative minimum tax is computed and may also result in a
reduction in the shareholder's tax basis in its Fund shares, under
certain circumstances, if the shares have been held for less than
two years. Corporate shareholders whose investment in the Fund is
"debt financed" for these tax purposes should consult with their tax
advisors concerning the availability of the dividends-received
deduction.
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. The 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. Under 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 paid by the Fund and received by
the shareholder on December 31 of the calendar year in which they
are declared.
All or a portion of a loss realized upon a redemption of shares will
be disallowed to the extent other shares of the Fund 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.
Gain realized by the Fund from transactions entered into after April
30, 1993 that are deemed to constitute "conversion transactions"
under the Code and which would otherwise produce capital gain may be
recharacterized as ordinary income to the extent that such gain does
not exceed an amount defined by the Code as the "applicable imputed
income amount". A conversion transaction is any transaction in which
substantially all of the Fund's expected return is attributable to
the time value of the Fund's net investment in such transaction and
any one of the following criteria are met: 1) there is an
acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in
the future; 2) the transaction is an applicable straddle; 3) the
transaction was marketed or sold to the Fund on the basis that it
would have the economic characteristics of a loan but would be taxed
as capital gain; or 4) the transaction is specified in Treasury
regulations to be promulgated in the future. The applicable imputed
income amount, which represents the deemed return on the conversion
transaction based upon the time value of money, is computed using a
yield equal to 120 percent the applicable federal rate, reduced by
any prior recharacterizations under this provision or Section 263(g)
of the Code concerning capitalized carrying costs.
The Fund's investment in options, futures contracts and forward
contracts, including transactions involving actual or deemed short
sales or foreign exchange gains or losses are subject to many
complex and special tax rules. For example, over-the-counter options
on debt securities and equity options, including options on stock
and on narrow-based stock indexes, will be subject to tax under
Section 1234 of the Code, generally producing a long-term or short-
term capital gain or loss upon exercise, lapse, or closing out of
the option or sale of the underlying stock or security. By contrast,
the Fund treatment of certain other options, futures and forward
contracts entered into by the Fund is generally governed by Section
1256 of the Code. These "Section 1256" positions generally include
listed options on debt securities, options on broad-based stock
indexes, options on securities indexes, options on futures
contracts, regulated futures contracts and certain foreign currency
contacts and options thereon.
Absent a tax election to the contrary, each such Section 1256
position held by the Fund will be marked-to-market (i.e., treated as
if it were sold for fair market value) on the last business day of
the Fund's fiscal year, and all gain or loss associated with fiscal
year transactions and mark-to-market positions at fiscal year end
(except certain foreign currency gain or loss covered by Section 988
of the Code) will generally be treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss. The effect of
Section 1256 mark-to-market rules may be to accelerate income or to
convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term
capital losses within the Fund. The acceleration of income on
Section 1256 positions may require the Fund to accrue taxable income
without the corresponding receipt of cash. In order to generate cash
to satisfy the distribution requirements of the Code, the Fund may
be required to dispose of portfolio securities that it otherwise
would have continued to hold or to use cash flows from other sources
such as the sale of Fund shares. In these ways, any or all of these
rules may affect both the amount, character and time of income
distributed to shareholders by the Fund.
When the Fund holds an option or contract which substantially
diminishes the Fund's risk of loss with respect to another position
of the Fund (as might occur in some hedging transactions), this
combination of positions could be treated as a "straddle" for tax
purposes, resulting in possible deferral of losses, adjustments in
the holding periods of Fund securities and conversion of short term
capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one
Section 1256 position and at least one non-Section 1256 position)
which may reduce or eliminate the operation of these straddle rules.
As a regulated investment company, the Fund is also subject to the
requirement that less than 30% of its annual gross income be derived
from the sale or other disposition of securities and certain other
investments held for less than three months ("short-short income").
This requirement may limit the Fund's ability to engage in options,
straddles, hedging transactions and forward or futures contracts
because these transactions are often consummated in less than three
months, may require the sale of portfolio securities held less than
three months and may, as in the case of short sales of portfolio
securities reduce the holding periods of certain securities within
the Fund, resulting in additional short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts
and may make certain other tax elections in order to mitigate the
effect of the above rules and to prevent disqualification of the
Fund as a regulated investment company under Subchapter M of the
Code.
Foreign exchange gains and losses realized by the Fund in connection
with certain transactions involving foreign currencies, foreign
currency payables or receivables, foreign currency-denominated debt
securities, foreign currency forward contracts, and options or
futures contracts on foreign currencies are subject to special tax
rules which may cause such gains and losses to be treated as
ordinary income and losses rather than capital gains and losses and
may affect the amount and timing of the Fund's income or loss from
such transactions and in turn its distributions to shareholders.
The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. Because the Fund will likely
invest 50% or less of its total assets in securities of foreign
corporations, the Fund will not be entitled under the Code to pass
through to its shareholders their pro rata share of the foreign
taxes paid by the Fund. These taxes will be taken as a deduction by
the Fund.
In order for the Fund to qualify as a regulated investment company,
at least 90% of the Fund's annual gross income must consist of
dividends, interest and certain other types of qualifying income,
and also conform to the aforementioned 30% gross income test.
Foreign exchange gains are presently treated as qualifying income
for purposes of this 90% limitation. However, future Treasury
regulations are expected to provide that such gains may not qualify
for purposes of the 90% limitation if such gains are not directly
related to the Fund's principal business of investing in stock or
securities, or options or futures with respect to such stock or
securities.
Currency speculation or the use of currency forward contracts or
other currency instruments for non-hedging purposes may generate
gains deemed to be not directly related to the Fund's principal
business of investing in stock or securities and related options or
futures. Under current law, non-directly-related gains arising from
foreign currency positions or instruments held for less than three
months are treated as derived from the disposition of securities
held less than three months in determining the Fund's compliance
with the 30% limitation. The Fund will limit its activities
involving foreign exchange gains to the extent necessary to comply
with these requirements.
The federal income tax treatment of interest rate and currency swaps
is unclear in certain respects and may in some circumstances result
in the realization of income not qualifying under the 90% test
described above or be deemed to be derived from the disposition of
securities held less than three months in determining the Fund's
compliance with the 30% limitation. The Fund will limit its interest
rate and currency swaps to the extent necessary to comply with these
requirements.
If the Fund owns shares in a foreign corporation that constitutes a
"passive foreign investment company" (a "PFIC") for federal income
tax purposes and the Series does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of the
Code, the Fund may be subject to U.S. federal income on a portion of
any "excess distribution" it receives from the PFIC or any gain it
derives from the disposition of such shares, even if such income is
distributed as a taxable dividend by the Fund to its U.S.
shareholders. The Fund may also be subject to additional interest
charges in respect of deferred taxes arising from such distributions
or gains. Any federal income tax paid by the Fund as a result of its
ownership on shares of a PFIC will not give rise to a deduction or
credit to the Fund or to any shareholder. A PFIC means any foreign
corporation if, for the taxable year involved, either (i) it derives
at least 75 percent of its income from "passive income" (including,
but not limited to, interest, dividends, royalties, rents and
annuities), or (ii) on average, at least 50 percent of the value (or
adjusted basis, if elected) of the assets held by the corporation
produce "passive income".
On April 1, 1992, proposed U.S. Treasury regulations were issued
regarding a special mark-to-market election for regulated investment
companies. Under these regulations, the annual mark-to-market gain,
if any, on shares held by the Fund in a PFIC would be treated as an
excess distribution received by the Fund in the current year,
eliminating the deferral and the related interest charge. Such
excess distribution amounts are treated as ordinary income, which
the Fund will be required to distribute to shareholders even though
the Fund has nor received any cash to satisfy this distribution
requirement. These regulations would be effective for taxable years
ending after the promulgation of the proposed regulations as final
regulations.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30,
1995, Distributors acts as principal underwriter in a continuous
public offering for shares of the Fund.
Distributors pays the expenses of distribution of Fund shares,
including advertising expenses and the costs of printing sales material
and prospectuses used to offer shares to the public. The Fund pays the
expenses of preparing and printing amendments to its registration
statements and prospectuses (other than those necessitated by the
activities of Distributors) and of sending prospectuses to existing
shareholders.
The underwriting agreement will continue in effect for successive
annual periods provided that its continuance is specifically approved
at least annually by a vote of the Fund's Board of Directors or by a
vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Fund's
directors who are not parties to the underwriting agreement or
interested persons of any such party (other than as directors of the
Fund), cast in person at a meeting called for that purpose. The
underwriting agreement terminates automatically in the event of its
assignment and may be terminated by either party on 90 days' written
notice.
Until April 30, 1994, income dividends were reinvested at the offering
price (which includes the sales charge) and Distributors allowed 50% of
the entire commission to the securities dealer of record, if any, on an
account. Starting with any income dividends paid after April 30, 1994,
such reinvestment will be at net asset value.
In connection with the offering of the Fund's shares, aggregate
underwriting commissions for the fiscal periods ended January 31,
1993, October 31, 1993 and October 31, 1994 were $2,396,458,
$1,099,431 and $1,226,772, respectively. After allowances to
dealers, Distributors retained $76,998, $76,161 and $63,571 for the
respective periods. Distributors received no other compensation from
the Fund for acting as underwriter.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b- 1
under the 1940 Act (the "Plan") whereby the Fund may pay up to a
maximum of 0.15% per annum of its average daily net assets for
expenses incurred in the promotion and distribution of its shares.
following or similar language is to match plans which were adopted
by shareholders in 1994. Check proxy for actual plan approved by
shareholders. new funds will not require it.
Pursuant to the 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 Fund's
shares, including, but not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of
Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are
entitled under the Plan, the Plan also provides that to the extent the
Fund, the Manager or Distributors or other parties on behalf of the
Fund, the Manager or Distributors, make payments that are deemed to be
payments for the financing of any activity primarily intended to result
in the sale of shares of the Fund within the context of Rule 12b-1
under the 1940 Act, then such payments shall be deemed to have been
made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments made under the Plan, plus any other payments deemed to be made
pursuant to the Plan, exceed the amount permitted to be paid 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 Plan relating to required reports,
term, and approval are consistent with Rule 12b-1. 2The Plan does not
permit unreimbursed expenses incurred in a particular year to be
carried over to or reimbursed in subsequent years.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions,
certain banks will not be entitled to participate in the Plan as a
result of applicable federal law prohibiting certain banks from
engaging in the distribution of mutual fund shares. Such banking
institutions, however, are permitted to receive fees under the Plan
for administrative servicing or for agency transactions. If a bank were
prohibited from providing such services, its customers who are
shareholders would be permitted to remain shareholders of the Fund, and
alternate means for continuing the servicing of such shareholders would
be sought. In such an event, changes in the services provided might
occur and such shareholders might no longer be able to avail themselves
of any automatic investment or other services then being provided by
the bank. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these changes. Securities
laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law expressed herein, and
banks and financial institutions selling shares of the Fund may be
required to register as dealers pursuant to state law.
The Plan has been approved by Resources, the initial shareholder of the
Trust, and by the trustees of the Trust, including those trustees who
are not interested persons, as defined in the 1940 Act. The Plan is
effective through April 30, 1995 and renewable annually by a vote of
the Trust's Board of Trustees, including a majority vote of the
trustees who are non- interested persons of the Trust and who have no
direct or indirect financial interest in the operation of the Plan,
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 Plan 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 3.or the Underwriting Agreement with Distributors], or by vote
of a majority of the Fund's outstanding shares. Distributors or any
dealer or other firm may also terminate their respective distribution
or service agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without
approval by a majority of the Fund's outstanding shares, and all
material amendments to the Plan or any related agreements shall be
approved by a vote of the non- interested trustees, cast in person at a
meeting called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Trustees
at least quarterly on the amounts and purpose of any payment made under
the Plan and any related agreements, as well as to furnish the Board of
Trustees with such other information as may reasonably be requested in
order to enable the Board of Trustees to make an informed determination
of whether the Plan should be continued.
For the fiscal year ended October 31, 1994, the Fund paid $60,673
under the Plan, consisting of $13,348 paid for advertising and
$47,324 paid to brokers or dealers.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time quote
various performance figures to illustrate the Fund's past
performance. It may occasionally cite statistics to reflect its
volatility or risk.
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 the Fund be
accompanied by certain standardized performance information computed
as required by the SEC. Current yield and average annual compounded
total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC.
An explanation of those and other methods used by the 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 sales charge is deducted from the
initial $1,000 purchase order, capital gains are reinvested at net
asset value and all income dividends are reinvested at the maximum
public offering price (offering price includes sales charge) on the
reinvestment dates during the period. The quotation assumes the
account was completely redeemed at the end of each one- , five- and
ten-year period (or fractional portion thereof) and the deduction of
all applicable charges and fees. If a change is made on the sales
charge structure, historical performance information will be
restated to reflect the maximum sales charge in effect currently.
In considering the quotations set forth below investors should
remember that the maximum sales charge reflected in each quotation
is a one time fee (charged on all direct purchases and reinvested
dividends) which will have its greatest impact during the early
stages of an investor's investment in the Fund. The actual
performance of an investment will be affected less by this charge
the longer an investor retains the investment in the Fund. The
average annual compounded rate of return for the one year and five-
year period ended October 31, 1994 was -9.59% and 5.88%, and for the
period from inception (March 15, 1988) to October 31, 1994 was
6.10%.
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 the Prospectus, the Fund may quote total rates of
return in addition to its average annual total return. Such
quotations are computed in the same manner as the Fund's average
annual compounded rate, except that such quotations will be based on
the Fund's actual return for a specified period rather than to its
average return over one, five and ten year periods (to the extent
applicable). The aggregate total returns for the Fund for the one-
year and five-year periods ending October 31, 1994 were -9.59% and
33.09%, respectively, and the aggregate total return for the period
covering its inception (March 15, 1988) to October 31, 1994 was
48.14%.
YIELD
Current yield reflects the income per share earned by the Fund's
portfolio investments.
Current yield is determined by dividing the net investment income
per share 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 during the base period. The yield for the Fund for
the 30-day period ended on October 31, 1994 was 8.66%.
These figures were obtained using the following SEC formula:
Yield = 2 [( a-b + 1 ) - 1]
----
cd
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reduction)
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
CURRENT DISTRIBUTION RATE
Yield which is calculated according to a formula prescribed by the
SEC is not indicative of the amounts which were or will be paid to
the Fund's shareholders. Amounts paid to shareholders are reflected
in the quoted "current distribution rate." 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 the current maximum
offering price. 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 premium income from
option writing and short-term capital gains, and is calculated over
a different period of time. The current distribution rate for the
Fund for the fiscal year ended October 31, 1994, based on the Fund's
maximum offering price, was 8.55%.
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 the Standard & Poor's
500 Stock Index. 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 premise is that greater
volatility connotes greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted to
purchase shares of the Fund at net asset value, sales literature
pertaining to the Fund may quote a current distribution rate, yield,
total return, average annual total return and other measures of
performance as described elsewhere in this Statement of Additional
Information with the substitution of net asset value for the public
offering price.
Sales literature referring to the use of the Fund as a potential
investment for Individual Retirement Accounts (IRAs), Business
Retirement Plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it
is presumed no federal income tax applies. 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.
The Fund may include in its advertising or sales material
information relating to investment objectives and performance
results of funds belonging to the Templeton Group of Funds. Franklin
Resources, Inc. is the parent company of the advisers and
underwriters of both the Franklin Group of Funds and Templeton Group
of Funds.
COMPARISONS
To help investors better evaluate how an investment in the Fund
might satisfy their investment objective, advertisements and other
materials regarding the Fund may discuss various measures of Fund
performance as reported by various publications. Materials may also
compare performance (as calculated above) to performance as reported
by other investments, indices and averages. The following
publications, indices and averages are examples of materials that
may be used:
a) Dow Jones Composite Average or its component averages- unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones
Utilities Average), and 20 transportation company stocks.
Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices- an
unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks, and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
c) Lipper Mutual Fund Performance Analysis and Lipper Fixed Income
Fund Performance Analysis - measure total return and average current
yield for the mutual fund industry. Rank individual mutual fund
performance over specified time periods, assuming reinvestment of
all distributions, exclusive of any applicable sales charges.
d) 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.
e) Mutual Fund Source Book, published by Morningstar, Inc.-
analyzes price, yield, risk, and total return for equity and fixed
income funds.
f) Financial publications: The Wall Street Journal and Business
Week, Changing Times, Financial World, Forbes, Fortune and Money
magazines- provide performance statistics over specified time
periods.
g) Consumer Price Index (or Cost of Living Index), published by the
U.S. Bureau of Labor Statistics- a statistical measure of change,
over time, in the price of goods and services in major expenditure
groups.
h) Stocks, Bonds, Bills and Inflation, published by Ibbotson
Associates- historical measure of yield, price, and total return for
common and small company stock, long-term government bonds, Treasury
bills, non U.S. and inflation.
i) Salomon Brothers Broad Bond Index or its component indices- The
Broad Index measures yield, price, and total return for Treasury,
Agency, Corporate, and Mortgage bonds.
j) Savings and Loan Historical Interest Rates- as published in the
U.S. Savings & Loan League Fact Book.
k) Lehman Brothers Aggregate Bond Index or its component indices-
The Aggregate Bond Index or its component indices- The Aggregate
Bond Index measures yield, price and total return for Treasury,
Agency, Corporate, Mortgage, and Yankee bonds.
l) 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.
m) Yields and total return of other taxable investments including
certificates of deposit (CDs), money market deposit accounts
(MMDAs), checking accounts, savings accounts, money market mutual
funds, and repurchase agreements.
n) Yields of other countries' government and corporate bonds as
compared to U.S. Government and corporate bonds to illustrate the
potentially higher returns available outside the United States.
o) Salomon Brothers World Government Bond Index covers the
available market for domestic Government bonds worldwide. It
includes all fixed-rate bonds with a remaining maturity of one year
or longer with amounts outstanding of at least the equivalent of $25
million dollars. The index provides an accurate, replicable fixed
income benchmark for market performance. Returns are in local
currency.
From time to time, advertisements or information for the Fund may
include a discussion of certain attributes or benefits to be derived
by an investment in the Fund. Such advertisements or information may
also compare the Fund's performance to the return on certificates of
deposit or other investments. Investors should be aware, however,
that an investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a
certificate of deposit issued by a bank. For example, as the general
level of interest rates rise, the value of the Fund's fixed-income
investments, as well as the value of its shares which are based upon
the value of such portfolio investments, can be expected to
decrease. Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of deposit
are frequently insured by an agency of the U.S. government. An
investment in the Fund is not insured by any federal, state or
private entity.
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 Fund's portfolio, that
the 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 Fund to calculate its figures. In addition there
can be no assurance that the Fund will continue this performance as
compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a
home, college cost 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 Fund
cannot guarantee that such goals will be met.
The Fund is a member of the Franklin Templeton Group, 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 45 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 $117 billion in assets under management
worldwide for more than 3.7 million mutual fund shareholders, in
addition to foundations and endowments, employee benefit plans, and
individuals. The Fund may identify itself by its NASDAQ symbol or
CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin
number one of 36 mutual fund groups in service quality for five of
the past seven years. One other fund group was also ranked number
one for 1993.
MISCELLANEOUS
The shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations
of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses out of Trust assets
for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust provides that the Trust shall, upon
request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. All such rights are limited to the assets of the
series of which a shareholder holds shares. The Declaration of Trust
further provides that the Trust may maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and other
liabilities. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance exists and the Trust itself is
unable to meet its obligations.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or
authority to control a shareholder's account, the Fund has the right
(but has no obligation) to: (a) freeze the account and require the
written agreement of all persons deemed by the Fund to have a
potential property interest in the account, prior to executing
instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the Internal Revenue
Service in response to a Notice of Levy.
FRANKLIN INVESTORS SECURITIES TRUST
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
of Franklin Investors Securities Trust:
We have audited the accompanying statements of assets and liabilities of the
various funds comprising Franklin Investors Securities Trust, including each
Fund's statement of investments in securities and net assets, as of October 31,
1994, and the related statements of operations for the year then ended, the
statements of changes in net assets for the periods indicated thereon, and the
financial highlights included under the caption "Financial Highlights" for the
periods indicated thereon. These financial statements and financial highlights
are the responsibility of the Trusts' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
various funds comprising Franklin Investors Securities Trust as of October 31,
1994, the results of their operations for the year then ended, the changes in
their net assets for the periods indicated thereon, and the financial
highlights for the periods indicated thereon in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 7, 1994
1
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS .2%
FINANCIAL SERVICES .2%
US 16,200 bGrupo Financiero Bancomer, ADS .................... $ 370,591
-----------
HOME BUILDING
US 2,252 aNVR, Inc. ......................................... 12,949
-----------
TOTAL COMMON STOCKS (COST $489,481)........ 383,540
-----------
WARRANTS
HOME BUILDING
US 1,193 aNVR, Inc. ......................................... 1,118
-----------
RESTAURANTS/FOOD SERVICES
US 115 aFoodmaker, Inc. ................................... 1,534
-----------
TOTAL WARRANTS (COST $5,230)............... 2,652
-----------
PREFERRED STOCKS 2.3%
FINANCIAL SERVICES
US 386,780 Nortel Communications, Inc., pfd., Series A........ 3,461,681
US 30,000 Nortel Communications, Inc., pfd., Series B, ADR... 810,000
-----------
TOTAL PREFERRED STOCKS (COST $4,200,838)... 4,271,681
-----------
FACE
AMOUNT
--------
BONDS, NOTES, BILLS & DEBENTURES 76.9%
ARGENTINA 5.3%
US 2,500,000 bHidro Electrica Alicuras, 8.375%, 03/15/99........ 2,231,250
US 16,500,000 Republic of Argentina, 4.25%, 03/31/23............ 7,734,375
-----------
9,965,625
-----------
AUSTRALIA 13.0%
AU 18,500,000 Government of Australia, 13.00%, 07/15/00......... 15,388,320
AU 696,000 Fanmac Ltd., 13.95%, 05/15/06..................... 554,812
AU 8,360,000 Queensland Treasury Corp., 8.875%, 11/08/96....... 6,189,512
AU 3,000,000 Queensland Treasury Corp., 8.00%, 05/14/03........ 1,895,234
AU 450,000 dSnowy Mountain Hydro, (original accretion rate
14.00%), 0.00%, 02/01/97........................ 277,929
-----------
24,305,807
-----------
CANADA 17.3%
CA 16,000,000 cCanadian Strip, 0.00%, 12/01/08................... 3,180,682
CA 15,000,000 Government of Canada, 9.50%, 10/01/98............. 11,485,638
CA 5,000,000 Government of Canada, 9.50%, 06/01/10............. 3,778,049
CA 3,000,000 Ontario-Hydro, Eurobonds, 9.00%, 06/24/02......... 2,189,198
CA 3,500,000 Ontario-Hydro, Eurobonds, 8.90%, 08/18/22......... 2,367,750
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS, NOTES, BILLS & DEBENTURES (CONT.)
CANADA (CONT.)
CA 12,000,000 Province of British Columbia, 8.00%, 09/08/23...... $ 7,488,077
CA 3,000,000 Rogers Cablesystems, Inc., 9.65%, 01/15/14......... 1,863,147
-----------
32,352,541
-----------
DENMARK 4.6%
DK 23,000,000 Government of Denmark, 9.00%, 11/15/95............. 3,976,298
DK 27,256,000 Nykredit, 11.00%, 10/01/10......................... 4,716,717
-----------
8,693,015
-----------
FRANCE .4%
FR 3,550,197 CB-2 Cetelem Asset Backed Securities, 9.50%,
11/20/96......................................... 692,387
-----------
GREAT BRITAIN 6.5%
GB 3,670,000 United Kingdom Treasury, 7.00%, 08/06/97........... 5,858,809
GB 3,500,000 United Kingdom Treasury, 12.00%, 11/20/98.......... 6,360,072
-----------
12,218,881
-----------
INDIA .5%
US 900,000 Essar Gujarat, Ltd., FRN, 8.025%, 07/15/99......... 901,125
-----------
ITALY 8.6%
IT 13,000,000,000 Certificati di Credito del Tesoro (CCTS), 8.138%,
01/01/00......................................... 8,431,747
EC 1,500,000 Government of Italy, 9.25%, 03/07/11............... 1,818,532
GB 1,200,000 Government of Italy, 10.50%, 04/28/14.............. 2,048,142
DD 5,580,000 Republic of Italy, FRN, 5.00%, 07/26/99............ 3,694,775
-----------
15,993,196
-----------
MEXICO 1.1%
US 600,000 United Mexican States, FRN, 5.813%, 12/31/19....... 513,789
US 2,400,000 United Mexican States, Series B, 6.25%, 12/31/19... 1,524,757
-----------
2,038,546
-----------
NEW ZEALAND 6.8%
NZ 4,400,000 Government of New Zealand, 8.00%, 11/15/95......... 2,690,237
NZ 15,500,000 Government of New Zealand, 10.00%, 03/15/02........ 9,999,585
-----------
12,689,822
-----------
PORTUGAL .8%
DD 2,330,000 Portugal (Rep), FRN, 5.069%, 07/15/99.............. 1,545,898
-----------
SOUTH AFRICA 4.9%
ZA 52,975,000 ESCOM, E168, utility deb., 11.00%, 06/01/08........ 9,215,761
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS, NOTES, BILLS & DEBENTURES (CONT.)
SPAIN 2.7%
SP 240,000,000 Government of Spain, 13.45%, 04/15/96.............. $ 2,007,318
SP 365,000,000 Government of Spain, 11.60%, 01/15/97.............. 2,977,121
------------
4,984,439
------------
SWEDEN 3.0%
SE 58,000,000 Government of Sweden, 6.00%, 02/09/05.............. 5,690,779
------------
UNITED STATES 1.4%
US 2,150,000 IBM Credit Corp., 10.75%, 12/04/95................. 612,750
US 2,000,000 Tele-Communications, Inc., cvt. sub. deb., 9.80%,
02/01/12.......................................... 2,025,961
------------
2,638,711
------------
TOTAL BONDS, NOTES, BILLS & DEBENTURES (COST
$157,049,188)................................. 143,926,533
------------
TOTAL COMMON STOCKS, WARRANTS, PREFERRED STOCKS,
AND BONDS, NOTES, BILLS & DEBENTURES
(COST $161,744,737) .......................... 148,584,406
------------
SHORT TERM SECURITIES
BONDS 16.8 %
AU 8,360,000 Australian Treasury Bills, 5.55%, 11/02/94 ........ 6,207,004
SP 600,000,000 Government of Spain, 11.40%, 07/15/95.............. 4,874,716
GR 1,495,400,000 Greek Treasury Bills, 18.15%, 02/14/95............. 6,140,233
IT 1,710,000,000 Deutschebank Finance, NV, 12.375%, 11/07/94........ 1,114,323
MX 3,500,000 Mexican Federal Treasury Certificates (CETES),
13.37%, 11/10/94.................................. 1,020,732
MX 19,442,000 Mexican Federal Treasury Certificates (CETES), 14.33%,
04/27/95.......................................... 5,278,247
NZ 5,530,000 New Zealand Treasury Bills, 11/24/94 .............. 3,389,734
SE 10,000,000 Staten Bostadsfinansier, 13.00%, 09/20/95 ......... 1,420,889
TH 50,000,000 Thailand Military Bank Notes, 6.875%, 06/01/95..... 1,977,088
------------
TOTAL SHORT TERM SECURITIES (COST $31,703,036).. 31,422,966
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $193,447,773)............................ 180,007,372
------------
g,hRECEIVABLES FROM REPURCHASE AGREEMENTS 3.3%
US 6,365,229 Joint Repurchase Agreement, 4.824%, 11/01/94
(Maturity Value: $6,221,865) (COST $6,221,031)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%,
11/15/94 - 07/31/99............................... 6,221,031
------------
TOTAL INVESTMENTS (COST $199,668,804) 99.5%. 186,228,403
OTHER ASSETS AND LIABILITIES, NET .5%...... 975,440
------------
NET ASSETS 100.0% ......................... $187,203,843
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
FRANKLIN GLOBAL GOVERNMENT INCOME FUND (NOTE 1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
At October 31, 1994, the net unrealized depreciation
based on the cost of investments for income tax purposes
of $199,702,051 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost.............................................. $ 3,090,732
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value ........................................... (16,564,380)
------------
Net unrealized depreciation ........................... $(13,473,648)
============
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
EC - European Community
FR - France
GB - Great Britain
GR - Greece
IT - Italy
MX - Mexico
NZ - New Zealand
SE - Sweden
SP - Spain
TH - Thailand
US - United States
ZA - South Africa
</TABLE>
*Securities traded in currency of country indicated.
aNon-income producing.
bSee Note 8 regarding Rule 144A securities.
cZero coupon bonds. Accretion rate may vary.
dZero coupon bonds. The current effective yield may vary. The original
accretion date by security will remain constant.
gFace amount for repurchase agreements is for the underlying collateral.
hSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
FACE FRANKLIN SHORT-INTERMEDIATE VALUE
AMOUNT U.S. GOVERNMENT SECURITIES FUND (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES 99.8%
$25,000,000 U.S. Treasury Notes, 7.50%, 11/15/01 ....................... $ 24,820,300
12,000,000 U.S. Treasury Notes, 6.375%, 01/15/99 ...................... 11,572,500
4,000,000 U.S. Treasury Notes, 5.125%, 11/30/98 ...................... 3,688,748
6,700,000 U.S. Treasury Notes, 4.75%, 08/31/98 ....................... 6,132,590
2,000,000 U.S. Treasury Notes, 5.125%, 06/30/98 ...................... 1,863,124
10,000,000 U.S. Treasury Notes, 5.125%, 03/31/98 ...................... 9,368,750
6,000,000 U.S. Treasury Notes, 5.50%, 09/30/97 ....................... 5,756,250
6,500,000 U.S. Treasury Notes, 6.75%, 02/28/97 ....................... 6,475,625
80,000,000 cU.S. Treasury Strips, 0.00%, 02/15/97....................... 68,483,840
5,000,000 U.S. Treasury Notes, 6.25%, 01/31/97 ....................... 4,932,810
4,000,000 U.S. Treasury Notes, 6.125%, 12/31/96 ...................... 3,946,248
22,300,000 U.S. Treasury Notes, 6.25%, 08/31/96 ....................... 22,125,770
56,695,000 U.S. Treasury Notes, 5.125%, 03/31/96 ...................... 55,682,428
------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $231,271,813). 224,848,983
------------
g,hRECEIVABLES FROM REPURCHASE AGREEMENTS
12,679 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value
$12,055)
(COST $12,053)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 -
07/31/99................................................... 12,053
------------
TOTAL INVESTMENTS (COST $231,283,866) 99.8%.......... 224,861,036
OTHER ASSETS AND LIABILITIES, NET .2%................ 490,695
------------
NET ASSETS 100.0% ................................... $225,351,731
============
At October 31, 1994, the net unrealized depreciation based
on the cost of investment for income tax purposes of
$231,283,866 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost ..... $ --
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ..... (6,422,830)
------------
Net unrealized depreciation .............................. $ (6,422,830)
============
</TABLE>
cZero coupon bonds. Accretion rate may vary.
gFace amount for repurchase agreements is for the underlying collateral.
hSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS
HOME BUILDERS
3,872 aNVR L.P., warrants (COST $16,456) ................................ $ 3,630
----------
CONVERTIBLE PREFERRED STOCKS 37.2%
AUTOMOTIVE .6%
4,400 Ford Motor Co., $4.20 cum. cvt. pfd., Series A ................... 425,700
----------
BANKING 3.2%
15,070 Bank of America Corp., $3.25 cvt. pfd., Series G ................. 798,710
14,000 Chemical Banking Corp., $5.00 cvt. pfd. .......................... 1,015,000
2,300 Citicorp, $5.375 cvt. pfd. ....................................... 301,588
----------
2,115,298
----------
BROADCAST/MEDIA .8%
11,800 Evergreen Media Corp., $3.00 cvt. pfd., Series A ................. 531,000
----------
BUILDING MATERIALS .4%
6,600 Southdown, Inc., $2.875 cvt. pfd., Series D ...................... 245,850
----------
CONGLOMERATES 1.1%
50,000 bWestinghouse Electric Co., $1.30 cvt. pfd., Series C ............. 762,500
----------
CONSTRUCTION 1.0%
15,700 bMcDermott International, Inc., $2.875 cum. cvt. pfd., Series C ... 679,025
----------
ENERGY 2.9%
22,500 Occidental Petroleum Corp., $3.00 cvt. pfd. ...................... 1,130,625
14,500 bOccidental Petroleum Corp., $3.875 cvt. pfd. ..................... 772,125
----------
1,902,750
----------
ENTERTAINMENT .7%
20,000 AMC Entertainment, Inc., $1.75 cvt. pfd. ......................... 472,500
----------
FINANCIAL SERVICES 2.4%
20,000 Integon Corp., $3.875 cvt. pfd. .................................. 995,000
11,300 Travelers Corp., 2.75% cvt. pfd., Series B ....................... 624,325
----------
1,619,325
----------
GOLD 1.8%
19,000 AMAX Gold, Inc., $3.75 cvt. pfd., Series B ....................... 1,007,000
2,600 Battle Mountain Gold Co., $3.25 cvt. pfd. ........................ 164,125
----------
1,171,125
----------
METAL & RESOURCES 3.9%
19,200 Armco, Inc., $3.625 cvt. pfd., Series A .......................... 1,036,800
6,000 bBethlehem Steel Corp., $3.50 cvt. pfd. ........................... 329,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONT.)
METAL & RESOURCES (CONT.)
10,000 Cyprus/AMAX Minerals Co., $4.00 cvt. pfd., Series A ............. $ 621,250
12,000 WHX Corp., 6.50% cvt. pfd., Series A ............................ 649,500
----------
2,636,800
----------
OIL & GAS 7.2%
18,700 bDiamond Shamrock, $2.50 cvt. pfd. ............................... 1,117,325
48,500 Gerrity Oil & Gas, $1.50 cvt. pfd. .............................. 679,000
27,600 Noble Drilling Corp., $2.25 cvt. exch. pfd. ..................... 1,090,200
18,000 bParker & Parsley Petroleum Co., 6.25% cvt. pfd. ................. 929,250
43,475 Snyder Oil Corp., $1.50 cvt. pfd. ............................... 1,005,359
-----------
4,821,134
-----------
LONG DISTANCE/TELECOMMUNICATIONS .5%
10,000 LCI International, Inc., 5.00% cvt. pfd. ........................ 332,500
-----------
REAL ESTATE .5%
6,250 Catellus Development Corp., $3.75 cvt. pfd., Series A............ 322,656
-----------
REAL ESTATE INVESTMENT TRUSTS 3.1%
50,100 Merry Land & Investment Co., $1.75 cvt. pfd., Series A........... 1,202,400
40,000 Property Trust of America, 1.75% cvt. pfd., Series A............. 865,000
-----------
2,067,400
-----------
RESTAURANT .9%
31,100 Flagstar Cos., Inc., $2.25 cvt. pfd., Series A .................. 618,113
-----------
SAVINGS & LOANS 2.2%
9,700 Great Western Financial Corp., $4.375 cvt. pfd. ................. 527,437
15,900 Roosevelt Financial Group, $3.25 cvt. pfd. ...................... 938,100
-----------
1,465,537
-----------
SEMICONDUCTORS 1.7%
16,300 National Semiconductor Corp., $3.25 cvt. pfd. ................... 1,124,700
-----------
TEXTILES 1.2%
15,500 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A .............. 815,688
-----------
TRANSPORTATION 1.1%
16,500 bAmerican Airlines, Inc., $3.00 cvt. pfd. ........................ 715,688
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $24,598,003)....... 24,845,289
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS 54.8%
ADVERTISING 1.6%
$1,000,000 bOmnicom Group, cvt. deb., 4.50%, 09/01/00........................ $ 1,062,500
-----------
BROADCAST/MEDIA 1.6%
850,000 bAll American Communications, Inc., cvt. deb., 6.50%, 10/01/03.... 697,000
1,000,000 cTime Warner, Inc., cvt., LYONs, (original accretion rate 5.00%),
0.00%, 06/22/13................................................. 362,500
----------
1,059,500
----------
BUILDING MATERIALS .3%
175,000 Owens Corning Fiberglass Corp., cvt. junior sub. deb., 8.00%,
12/30/05........................................................ 195,781
----------
CABLE 3.5%
2,300,000 Comcast Corp., cvt. notes, 1.125%, 04/15/07 ..................... 971,750
3,705,000 cRogers Communication, Inc., cvt. sub. notes, LYONs, (original
accretion rate 5.50%), 0.00%, 05/20/13.......................... 1,352,325
----------
2,324,075
----------
CONGLOMERATES 3.5%
1,750,000 bHanson America, Inc., cvt. notes, 2.39%, 03/01/01................ 1,274,219
1,000,000 bThermo Electron Corp., cvt. deb., 5.00%, 04/15/01 ............... 1,095,000
----------
2,369,219
----------
CONSUMER PRODUCTS 2.0 %
975,000 American Brands, Inc., cvt. deb., 7.625%, 03/05/01............... 989,625
500,000 Bell Sports Corp., cvt. sub. deb., 4.125%, 11/15/00 ............. 361,250
----------
1,350,875
----------
CONSUMER SERVICES .9%
750,000 CTII Overseas Finance, cvt. guaranteed, 4.25%, 11/18/98.......... 596,250
----------
CONSTRUCTION .6%
500,000 bKumagai Gumi HK Finance Co., cvt. guaranteed, 4.875%, 12/08/98... 428,750
----------
FINANCIAL SERVICES 3.3%
750,000 bIndustrial Credit & Investment, cvt. deb., 2.50%, 04/03/00....... 667,500
1,100,000 bPeregrine Investment Finance, cvt. guaranteed, 4.50%, 12/01/00... 860,750
1,400,000 cUSF & G Corp., cvt. sub. notes, (original accretion rate 4.50%),
0.00%, 03/03/09................................................. 663,250
----------
2,191,500
----------
GROCERY/FOOD 2.0%
1,150,000 Chock Full O'Nuts, cvt. deb., 7.00%, 04/01/12 ................... 954,500
250,000 Kroger Co., cvt. junior sub. deb., 6.375%, 12/01/99 ............. 347,187
----------
1,301,687
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.) 54.8%
HEALTH CARE 5.5%
$ 600,000 bAbbey Healthcare Group, Inc., cvt. sub. notes, 6.50%, 12/01/12... $ 705,000
450,000 GranCare, Inc., cvt. sub. deb., 6.50%, 01/15/03 ................. 392,624
1,200,000 bMedical Care International, Inc., cvt. sub. deb., 6.75%,
10/01/06........................................................ 1,044,000
1,200,000 Pacific Physician Services, cvt. sub. deb., 5.50%, 12/15/03...... 996,000
500,000 Summit Health, cvt. sub. notes, 7.50%, 04/01/03 ................. 562,500
----------
3,700,124
----------
INDEPENDENT POWER PRODUCER 1.7%
1,145,000 AES Corp., cvt. deb., 6.50%, 03/15/02 ........................... 1,134,981
----------
INDUSTRIAL EQUIPMENT 1.8%
200,000 Raymond Corp., cvt. sub. deb., 6.50%, 12/15/03 .................. 240,000
950,000 Varlen Corp., cvt. sub. deb., 6.50%, 06/01/03 ................... 963,063
----------
1,203,063
----------
INSURANCE COMPANIES 2.1%
2,050,000 Fidelity National Financial, cvt. sub. notes, LYONs, (original
accretion rate 5.50%), 0.00%, 02/15/09.......................... 709,812
750,000 Leucadia National Corp., cvt. deb., 5.25%, 02/01/03 ............. 662,813
----------
1,372,625
----------
LONG DISTANCE/TELECOMMUNICATIONS 1.4%
500,000 b,cCellular Communications, Inc., cvt. sub. notes, (original
accretion rate 7.50%), 0.00%, 07/27/99.......................... 414,375
495,000 Cellular, Inc., cvt. sub. deb., 6.75%, 07/15/09................. 533,363
----------
947,738
----------
METAL & RESOURCES 2.5%
500,000 bHomestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ........... 504,375
350,000 Inco, Ltd., cvt. deb., 5.75%, 07/01/04 .......................... 409,062
800,000 Teck Corp., cvt. sub. deb., 3.75%, 07/15/06 ..................... 776,000
----------
1,689,437
----------
OIL & GAS 3.2%
725,000 Noble Affiliates, cvt. sub. notes, 4.25%, 11/01/03 .............. 715,937
550,000 Pennzoil Co., cvt. sub. deb., 6.50%, 01/15/03.................... 633,876
550,000 Presidio Oil Co., cvt. sub. deb., 9.00%, 03/15/15................ 286,000
500,000 bSeacor Holdings, Inc., cvt. sub. deb., 6.00%, 07/01/03........... 510,000
----------
2,145,813
----------
POLLUTION CONTROL .4%
400,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15.... 262,000
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONT.)
PUBLISHING/NEWSPAPERS .9%
$2,100,000 cHollinger, Inc., cvt. sub. notes, (original accretion rate
6.00%), 0.00%, 10/05/13.................................... $ 624,750
-----------
REAL ESTATE 2.1%
500,000 bHenderson Capital International, cvt. deb., 4.00%,
10/27/96................................................... 490,625
1,400,000 U.S. Home Corp., cvt. sub. notes, 4.875%, 11/01/05 ......... 927,500
-----------
1,418,125
-----------
REAL ESTATE INVESTMENT TRUSTS 2.6%
1,000,000 bHealth Care Properties Investment, Inc., cvt. sub.,
6.00%, 11/01/00............................................ 882,500
900,000 Liberty Property Trust, cvt. sub. deb., 8.00%, 07/01/01..... 858,375
-----------
1,740,875
-----------
RETAIL 1.8%
550,000 Carter Hawley Hale Stores, cvt. senior sub. notes,
6.25%, 12/31/00............................................ 602,250
200,000 Home Depot, Inc., cvt. sub. notes, 4.50%, 02/15/97.......... 241,250
500,000 Proffitt's, Inc., cvt. sub. deb. 4.75%, 11/01/03 ........... 363,750
-----------
1,207,250
-----------
SEMICONDUCTORS 2.1%
1,230,000 cMotorola, Inc., cvt. sub. notes, LYONs, (original accretion
rate 6.00%), 0.00%, 09/07/09............................... 1,329,938
-----------
SOFTWARE .5%
290,000 Sterling Software, Inc., cvt. sub. deb., 5.75%, 02/01/03.... 350,900
-----------
TECHNOLOGY 2.2%
700,000 Conner Peripherals, Inc., cvt. deb., 6.50%, 03/01/02........ 552,125
1,750,000 b,cSilicon Graphics, Inc., cvt. sub. deb., (original accretion
rate 4.15%), 0.00%, 11/02/13............................... 931,875
-----------
1,484,000
-----------
TELECOMMUNICATIONS 1.6%
475,000 bAspect Telecommunications Corp., cvt. sub. deb.,
5.00%, 10/15/03............................................ 486,281
500,000 California Microwave, cvt. sub. notes, 5.25%, 12/15/03...... 596,250
-----------
1,082,531
-----------
TRANSPORTATION 2.9%
1,315,000 Air Express International Corp., cvt. sub. deb., 6.00%,
01/15/03................................................... 1,298,562
700,000 Airborne Freight Corp., cvt. deb., 6.75%, 08/15/01 ......... 642,250
-----------
1,940,812
-----------
TOTAL CONVERTIBLE BONDS (COST $36,404,312) ............... 36,515,099
-----------
GOVERNMENT SECURITIES 4.4%
3,000,000 U.S. Treasury Notes, 5.125%, 03/31/96 (COST $2,985,480)..... 2,946,420
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $64,004,251)....................................... 64,310,438
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CONVERTIBLE SECURITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
g,hRECEIVABLES FROM REPURCHASE AGREEMENTS 2.2%
$1,539,884 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $1,504,507)
(COST $1,504,305)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 - 07/31/99....... $ 1,504,305
-----------
TOTAL INVESTMENTS (COST $65,508,556) 98.4% .................... 65,814,743
OTHER ASSETS AND LIABILITIES, NET 1.6% ........................ 1,054,283
-----------
NET ASSETS 100.0% .............................................. $66,869,026
===========
At October 31, 1994, the net unrealized appreciation based on the
cost of investments for income tax purposes of $65,508,556 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .............................. $ 3,292,787
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .............................. (2,986,600)
-----------
Net unrealized appreciation .............................................. $ 306,187
===========
</TABLE>
PORTFOLIO ABBREVIATION:
LYONS - Liquid Yield Option Notes
aNon-income producing.
bSee Note 8 regarding Rule 144A securities.
cZero coupon bonds. The current effective yield may vary. The original
accretion rate by security will remain constant.
gFace amount for repurchase agreements is for the underlying collateral.
hSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS 100.8%
76,822,612 U.S. Government ARM Portfolio (Note 1)............................. $705,999,804
------------
TOTAL INVESTMENTS (COST $772,055,642) 100.8% ................ 705,999,804
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.8)% ............ (5,382,982)
------------
NET ASSETS 100.0% ........................................... $700,616,822
============
At October 31, 1994, the net unrealized depreciation based on the
cost of investments for income tax purposes of $772,055,642 was
as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost................ $ --
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value................ (66,055,838)
------------
Net unrealized depreciation...................................... $(66,055,838)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN EQUITY INCOME FUND (NOTE 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 56.3%
CHEMICALS 4.4%
29,800 Chemed Corp. .........................................$1,016,925
19,800 Dow Chemical Co. ..................................... 1,455,300
35,500 Goodrich (B.F.) Co. .................................. 1,593,063
----------
4,065,288
----------
CONGLOMERATES 3.3%
90,400 Hanson, Plc., Sponsored ADR .......................... 1,683,700
65,300 Ogden Corp. .......................................... 1,403,950
----------
3,087,650
----------
FINANCE 1.9%
26,100 Ahmanson (H.F.) & Co. ................................ 499,162
68,300 Great Western Financial Corp. ........................ 1,220,862
----------
1,720,024
----------
INSURANCE 2.4%
30,000 Aetna Life & Casualty Co. ............................ 1,383,750
13,400 CIGNA Corp. .......................................... 882,725
----------
2,266,475
----------
MEDICAL SUPPLIES 1.5%
52,900 Baxter International, Inc. ........................... 1,375,400
----------
OIL-INTEGRATED-INTERNATIONAL 9.5%
16,800 Atlantic Richfield Co. ............................... 1,820,700
27,400 Chevron Corp. ........................................ 1,233,000
27,400 Exxon Corp. .......................................... 1,722,775
11,800 Mobil Corp. .......................................... 1,014,800
29,900 Pennzoil Co. ......................................... 1,539,850
22,500 Texaco, Inc. ......................................... 1,470,937
----------
8,802,062
----------
PAPER & FOREST PRODUCTS 2.9%
48,300 Federal Paper Board Co. .............................. 1,449,000
33,100 Potlatch Corp. ....................................... 1,266,075
----------
2,715,075
----------
PHARMACEUTICAL 8.1%
30,700 American Home Products Corp. ......................... 1,949,450
30,000 Bristol-Myers Squibb Co. ............................. 1,751,250
39,400 Merck & Co., Inc. .................................... 1,408,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN EQUITY INCOME FUND (NOTE 1)
----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
PHARMACEUTICAL (CONT.)
<S> <C> <C>
41,400 Upjohn Co. ...........................................$ 1,366,200
24,000 Zeneca Group, Plc., ADR .............................. 1,011,000
-----------
7,486,450
-----------
PUBLISHING 1.8%
28,300 Dun & Bradstreet Corp. ............................... 1,659,088
-----------
RETAIL STORES 1.7%
97,200 Kmart Corp. .......................................... 1,591,650
-----------
STEEL .8%
13,300 Carpenter Technology Corp. ........................... 751,450
-----------
TOBACCO 3.0%
35,600 American Brands, Inc. ................................ 1,237,100
25,500 Philip Morris Cos., Inc. ............................. 1,561,874
-----------
2,798,974
-----------
TRANSPORTATION 1.4%
65,000 Yellow Corp. ......................................... 1,267,500
-----------
UTILITIES - ELECTRIC 6.9%
34,500 American Electric Power Co. .......................... 1,104,000
52,300 Cinergy Corp. ........................................ 1,209,438
35,600 Dominion Resources, Inc. ............................. 1,321,650
52,500 Pacificorp ........................................... 925,313
31,300 SCEcorp .............................................. 434,288
43,000 Texas Utilities Co. .................................. 1,402,875
-----------
6,397,564
-----------
UTILITIES - TELEPHONE 6.7%
15,700 BellSouth Corp. ...................................... 836,025
51,200 GTE Corp. ............................................ 1,574,400
39,700 NYNEX Corp. .......................................... 1,558,225
41,300 Pacific Telesis Group ................................ 1,306,113
25,700 U.S. West, Inc. ...................................... 966,962
-----------
6,241,725
-----------
TOTAL COMMON STOCKS (COST $49,649,130) ......... 52,226,375
-----------
CONVERTIBLE PREFERRED STOCKS 21.9%
27,100 (b)American Airlines, Inc., $3.00 cvt. pfd. ............. 1,175,463
9,100 Battle Mountain Gold Co., $3.25 cvt. pfd. ............ 574,437
25,600 (b)Bethlehem Steel Corp., $3.50 cvt. pfd. ............... 1,404,800
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN EQUITY INCOME FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONT.)
35,000 Boise Cascade Corp., $1.58 cvt. pfd., Series G ........................ $ 861,875
29,200 bCatellus Development Corp., $3.625 cvt. pfd., Series B................. 1,324,950
27,800 Chemical Banking Corp., $5.00 cvt. pfd. ............................... 2,015,500
15,900 Evergreen Media Corp., $3.00 cvt. pfd., Series A ...................... 715,500
16,200 General Motors Corp., $3.25 cvt. pfd., Series C ....................... 909,225
60,000 James River Corp., 9.00% cvt. pfd., Series P .......................... 1,320,000
77,000 Kaufman & Broad Homes Corp., $1.52 cvt. pfd., Series B................. 1,164,625
20,700 bOccidental Petroleum Corp., $3.875 cvt. pfd. .......................... 1,102,275
21,500 bParker & Parsley Petroleum Co., 6.25% cvt. pfd. ....................... 1,109,938
150,000 RJR Nabisco Holdings Corp., 9.25% cvt. pfd., Series C.................. 1,031,250
8,900 Roosevelt Financial Group, $3.25 cvt. pfd. ............................ 525,100
99,000 Santa Fe Energy Resources, Inc., $0.73 cvt. pfd., Series A............. 903,375
21,100 bTransco Energy Co., $3.50 cvt. pfd. ................................... 902,025
21,100 Travelers Corp., $2.75 cvt. pfd. ...................................... 1,165,775
83,000 bWestinghouse Electric Co., $1.30 cvt. pfd., Series C................... 1,265,750
18,000 WHX Corp., $3.75 cvt. pfd., Series B .................................. 891,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $20,327,724)............ 20,362,863
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
- --------
<S> <C> <C>
SHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 7.3%
$ 7,000,000 U.S. Treasury Notes, 4.43% - 5.54%, 01/05/95 - 09/21/95
(COST $6,761,268) ................................................... 6,761,224
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $76,738,123)............................................. 79,350,462
-----------
g,hRECEIVABLES FROM REPURCHASE AGREEMENTS 14.6%
13,882,325 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $13,510,353)
(COST $13,508,543)
Collateral: U.S. Treasury Bills, 4.00% - 11.625%,
11/15/94 - 07/31/99................................................ 13,508,543
-----------
TOTAL INVESTMENTS (COST $90,246,666) 100.1%................. 92,859,005
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.1)% ........... (96,241)
-----------
NET ASSETS 100.0% .......................................... $92,762,764
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
VALUE
FRANKLIN EQUITY INCOME FUND (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
At October 31, 1994, the net unrealized appreciation based on the
cost of investments for income tax purposes of $90,257,730
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost ................. $ 4,286,449
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................ (1,685,174)
-----------
Net unrealized appreciation ......................................... $ 2,601,275
===========
</TABLE>
bSee Note 8 regarding Rule 144A securities.
gFace amount for repurchase agreements is for the underlying collateral.
hSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN ADJUSTABLE RATE SECURITIES FUND (NOTE 1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS 100.3%
2,542,902 Adjustable Rate Securities Portfolio (Note 1) ................................ $24,640,724
-----------
TOTAL INVESTMENTS (COST $25,555,241) 100.3% ........................... 24,640,724
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.3)% ...................... (76,484)
-----------
NET ASSETS 100.0% ..................................................... $24,564,240
===========
At October 31, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $25,561,113 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................... $ --
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................... (920,389)
-----------
Net unrealized depreciation ............................................. $ (920,389)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE
INCOME FUND SECURITIES FUND SECURITIES FUND
--------------- ----------------- ---------------
<S> <C> <C> <C>
Assets:
Investments:
At identified cost....................... $193,447,773 $231,271,813 $64,004,251
============ ============ ===========
At value................................. 180,007,372 224,848,983 64,310,438
Receivables from repurchase agreements at
value and cost........................... 6,221,031 12,053 1,504,305
Cash...................................... 94,453 -- 83,669
Receivables:
Dividends and interest................... 5,151,956 2,072,949 704,901
Investment securities sold............... 2,130,473 -- 655,059
Capital shares sold...................... 60,735 362,730 148,095
Unrealized appreciation on forward
foreign currency contracts (Note 2)...... 107,435 -- --
------------ ------------ -----------
Total assets......................... 193,773,455 227,296,715 67,406,467
------------ ------------ -----------
Liabilities:
Payables:
Investment securities purchased ......... 6,198,638 -- 367,100
Capital shares repurchased............... 174,436 1,387,888 27,205
Dividends to shareholders................ -- 382,907 --
Distribution fees........................ 36,238 41,000 33,150
Management fees.......................... 88,462 104,139 97,189
Shareholder servicing costs.............. 7,000 5,150 3,000
Accrued expenses and other payables....... 64,838 23,900 9,797
------------ ------------ -----------
Total liabilities.................... 6,569,612 1,944,984 537,441
------------ ------------ -----------
Net assets, at value....................... $187,203,843 $225,351,731 $66,869,026
============ ============ ===========
Net assets consist of:
Undistributed net investment income....... $ 16,291,164 $ 548,107 $ 201,976
Unrealized appreciation (depreciation) on
investments and translation of assets
and liabilities denominated in foreign
currencies............................... (13,129,616) (6,422,830) 306,187
Net realized gain (loss) from investments
and foreign currency transactions........ (15,963,546) (2,435,636) 3,803,783
Capital shares............................ 232,126 224,710 54,182
Additional paid-in capital................ 199,773,715 233,437,380 62,502,898
------------ ------------ -----------
Net assets, at value....................... $187,203,843 $225,351,731 $66,869,026
============ ============ ===========
Shares outstanding......................... 23,212,589 22,470,954 5,418,177
============ ============ ===========
Net asset value per share.................. $8.06 $10.03 $12.34
============ ============ ===========
Representative computation of net asset
value and offering price per share:
Net asset value and redemption price per
share (Global Government Income Fund)
($ 187,203,843 (/) 23,212,589). $8.06
============
Maximum offering price (100/95.75 of
$8.06+)*................................. $8.42
============
</TABLE>
+The maximum offering price for each of the other series of the Trust is
calculated as follows: Franklin Short-Intermediate U.S. Government Securities
Fund - 100/97.75 of $10.03; Franklin Convertible Securities Fund - 100/95.50 of
$12.34; Franklin Adjustable U.S. Government Securities Fund - 100/97.75 of
$9.20; Franklin Equity Income Fund - 100/95.50 of $14.14; Franklin Adjustable
Rate Securites Fund - 100/97.75 of $9.70
*On sales of $100,000 or more the offering price is reduced as stated in the
section of the Prospectus entitled "How to Buy Shares of the Fund."
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
OCTOBER 31, 1994
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN EQUITY ADJUSTABLE RATE
SECURITIES FUND INCOME FUND SECURITIES FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
Assets:
Investments:
At identified cost........................................... $772,055,642 $76,738,123 $25,555,241
============ =========== ===========
At value..................................................... 705,999,804 79,350,462 24,640,724
Receivables from repurchase agreements at value and cost ...... -- 13,508,543 --
Cash........................................................... 75,682 82,590 --
Receivables:
Dividends and interest....................................... -- 448,551 --
Capital shares sold.......................................... 30,761 150,942 --
------------ ----------- -----------
Total assets............................................ 706,106,247 93,541,088 24,640,724
------------ ----------- -----------
Liabilities:
Payables:
Investment securities purchased.............................. -- 531,255 --
Capital shares repurchased................................... 2,322,870 63,934 --
Dividends to shareholders.................................... 2,608,865 -- --
Distribution fees............................................ 440,006 44,761 15,009
Administration fees.......................................... 60,823 -- --
Management fees.............................................. -- 124,794 --
Shareholder servicing costs.................................. 17,220 4,100 400
Accrued expenses and other payables............................ 39,641 9,480 61,075
------------ ----------- -----------
Total liabilities....................................... 5,489,425 778,324 76,484
------------ ----------- -----------
Net assets, at value............................................. $700,616,822 $92,762,764 $24,564,240
============ =========== ===========
Net assets consist of:
Undistributed net investment income............................ $ 1,257,858 $ 83,999 $ --
Unrealized appreciation (depreciation) on investments ......... (66,055,838) 2,612,339 (914,517)
Net realized gain (loss) from investments...................... (51,494,986) 1,641,692 (419,837)
Capital shares................................................. 761,265 65,603 25,320
Additional paid-in capital..................................... 816,148,523 88,359,131 25,873,274
------------ ----------- -----------
Net assets, at value............................................. $700,616,822 $92,762,764 $24,564,240
============ =========== ===========
Shares outstanding............................................... 76,126,510 6,560,288 2,532,014
============ =========== ===========
Net asset value per share........................................ $9.20 $14.14 $9.70
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN SHORT-INTERMEDIATE FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE
INCOME FUND SECURITIES FUND SECURITIES FUND
------------ --------------- ---------------
<S> <C> <C> <C>
Investment income:
Interest (Note 1)......................... $ 18,524,791 $ 13,598,114 $ 2,096,835
Dividends................................. 380,806 -- 1,245,377
------------ ------------ -----------
Total income......................... 18,905,597 13,598,114 3,342,212
------------ ------------ -----------
Expenses:
Management fees, net (Note 7)............. 1,130,298 1,308,206 327,355
Shareholder servicing costs (Note 7)...... 83,167 62,422 31,185
Distribution fees (Note 7)................ 60,673 69,950 55,016
Reports to shareholders................... 114,849 93,767 32,155
Custodian fees............................ 309,375 26,564 7,212
Professional fees......................... 18,870 20,270 6,409
Trustees' fees and expenses............... 16,695 20,881 4,920
Registration & filing fees................ 35,336 26,905 20,624
Other..................................... 11,064 15,385 10,123
------------ ------------ -----------
Total expenses....................... 1,780,327 1,644,350 494,999
------------ ------------ -----------
Net investment income............... 17,125,270 11,953,764 2,847,213
------------ ------------ -----------
Realized and unrealized gain (loss) from investments:
Net realized gain (loss) from:
Investments.............................. (15,601,950) (2,434,010) 3,805,756
Foreign currency transactions............ (210,613) -- 400
Net realized gain on expired written
foreign currency options (Note 3)...... 90,000 -- --
Net unrealized depreciation on
investments and translation of
assets and liabilities denominated
in foreign currencies.................. (13,307,282) (14,853,553) (5,480,396)
------------ ------------ -----------
Net realized and unrealized loss
on investments.......................... (29,029,845) (17,287,563) (1,674,240)
------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations............... $(11,904,575) $ (5,333,799) $ 1,172,973
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
FRANKLIN
ADJUSTABLE FRANKLIN
U.S. GOVERNMENT FRANKLIN EQUITY ADJUSTABLE RATE
SECURITIES FUND INCOME FUND SECURITIES FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income:
Interest (Note 1).......................... $ -- $ 524,823 $ --
Dividends.................................. 43,807,494 3,068,530 1,743,780
----------- ----------- -----------
Total income.......................... 43,807,494 3,593,353 1,743,780
----------- ----------- -----------
Expenses:
Management fees, net (Note 7).............. -- 312,644 --
Administration fees, net (Note 7).......... 1,077,633 -- --
Shareholder servicing costs (Note 7)....... 266,924 38,937 9,864
Distribution fees (Note 7)................. 2,393,621 71,129 71,674
Reports to shareholders.................... 307,662 51,568 7,888
Custodian fees............................. -- 7,376 --
Professional fees.......................... 9,637 7,314 7,269
Trustees' fees and expenses................ 89,062 5,658 --
Registration & filing fees................. 31,731 22,934 --
Other...................................... 100,250 4,708 21,789
Payments from Manager (Note 7)............. -- -- (42,018)
------------ ----------- -----------
Total expenses........................ 4,276,520 522,268 76,466
------------ ----------- -----------
Net investment income................ 39,530,974 3,071,085 1,667,314
------------ ----------- -----------
Realized and unrealized gain (loss) from
investments:
Net realized gain (loss) from investments.. (41,756,476) 1,644,175 (419,700)
Net unrealized depreciation on
investments.............................. (30,761,861) (2,521,207) (878,448)
------------ ----------- -----------
Net realized and unrealized loss on
investments................................ (72,518,337) (877,032) (1,298,148)
------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations.................. $(32,987,363) $ 2,194,053 $ 369,166
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 1994 AND
FOR THE NINE MONTHS ENDED OCTOBER 31, 1993
<TABLE>
<CAPTION>
FRANKLIN GLOBAL FRANKLIN SHORT-INTERMEDIATE FRANKLIN CONVERTIBLE
GOVERNMENT INCOME FUND U.S. GOVERNMENT SECURITIES FUND SECURITIES FUND
------------------------ ------------------------------- ----------------------
YEAR NINE MONTHS YEAR NINE MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/94 10/31/93 10/31/94 10/31/93 10/31/94 10/31/93
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 17,125,270 $ 8,687,856 $ 11,953,764 $ 9,118,129 $ 2,847,213 $ 1,402,187
Net realized gain (loss) on
investments and foreign
currency transactions........ (15,812,563) 3,867,132 (2,434,010) 2,327,131 3,806,156 514,896
Net realized gain on expired
written foreign currency
options...................... 90,000 164,812 -- -- -- --
Net unrealized appreciation
(depreciation) on investments
and translation of assets
and liabilities denominated
in foreign currencies........ (13,307,282) 11,146,470 (14,853,553) 3,329,742 (5,480,396) 3,705,665
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in
net assets resulting
from operations.......... (11,904,575) 23,866,270 (5,333,799) 14,775,002 1,172,973 5,622,748
Distributions to shareholders from:
Undistributed net investment
income......................... (1,894,107) (8,687,856) (11,480,943) (9,354,403) (2,799,225) (1,518,536)
Net realized capital gains....... (1,855,676) -- (2,327,982) (114,640) (456,579) --
Distribution in excess of net
investment income.............. -- (2,174,626) -- -- -- --
Return of capital distribution
for tax purposes (Note 5)....... (14,044,105) -- -- -- -- --
Increase (decrease) in net assets
from capital share transactions
(Note 4).......................... 21,275,793 28,723,568 (29,183,526) 32,990,155 21,511,587 15,029,224
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in
net assets............... (8,422,670) 41,727,356 (48,326,250) 38,296,114 19,428,756 19,133,436
Net assets:
Beginning of period.............. $195,626,513 $153,899,157 $273,677,981 $235,381,867 $47,440,270 $28,306,834
------------ ------------ ------------ ------------ ----------- -----------
End of period.................... $187,203,843 $195,626,513 $225,351,731 $273,677,981 $66,869,026 $47,440,270
============ ============ ============ ============ =========== ===========
Undistributed net investment income
included in net assets:
Beginning of period............ $ 1,060,001 $ -- $ 75,286 $ 321,300 $ 153,988 $ 270,337
============ ============ ============ ============ =========== ===========
End of period.................. $ 16,291,164 $ 1,060,001 $ 548,107 $ 75,286 $ 201,976 $ 153,988
============ ============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEAR ENDED OCTOBER 31, 1994 AND
FOR THE NINE MONTHS ENDED OCTOBER 31, 1993
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE U.S. FRANKLIN ADJUSTABLE RATE
GOVERNMENT SECURITIES FUND FRANKLIN EQUITY INCOME FUND SECURITIES FUND
---------------------------- --------------------------- ---------------------------
YEAR NINE MONTHS YEAR NINE MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/94 10/31/93 10/31/94 10/31/93 10/31/94 10/31/93
--------- -------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.............. $ 39,530,974 $ 70,457,827 $ 3,071,085 $ 1,459,908 $ 1,667,314 $ 949,089
Net realized gain (loss) on
investments....................... (41,756,476) (7,642,575) 1,644,175 984,058 (419,700) (137)
Net unrealized appreciation
(depreciation) on investments..... (30,761,861) (11,107,442) (2,521,207) 2,263,533 (878,448) (40,575)
--------------- --------------- ----------- ----------- ------------ -----------
Net increase (decrease) in
net assets resulting from
operations................... (32,987,363) 51,707,810 2,194,053 4,707,499 369,166 908,377
Distributions to shareholders from:
Undistributed net investment
income............................ (35,166,432) (69,480,027) (3,312,595) (1,152,084) (1,667,314) (949,089)
Net realized capital gains -- -- (984,309) (205,929) -- (34)
Increase (decrease) in net assets
from capital share transactions
(Note 4)............................ (1,044,733,399) (1,140,147,375) 52,688,385 12,735,376 (11,946,617) 25,328,996
--------------- --------------- ----------- ----------- ------------ -----------
Net increase (decrease) in
net assets................... (1,112,887,194) (1,157,919,592) 50,585,534 16,084,862 (13,244,765) 25,288,250
Net assets:
Beginning of period................. $ 1,813,504,016 $ 2,971,423,608 $42,177,230 $26,092,368 $ 37,809,005 $12,520,755
--------------- --------------- ----------- ----------- ------------ -----------
End of period....................... $ 700,616,822 $ 1,813,504,016 $92,762,764 $42,177,230 $ 24,564,240 $37,809,005
=============== =============== =========== =========== ============ ===========
Undistributed net investment
income included in net assets:
Beginning of period.............. $ (3,106,684) $ -- $ 325,509 $ 16,794 $ -- $ --
=============== =============== =========== =========== ============ ===========
End of period.................... $ 1,257,858 $ (3,106,684) $ 83,999 $ 325,509 $ -- $ --
=============== =============== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Investors Securities Trust (the Trust) is an open-end management
investment company (mutual fund) registered under the Investment Company Act of
1940 as amended. The Trust currently has six separate funds (the Funds) in
operation consisting of five separate diversified Funds: Franklin
Short-Intermediate U.S. Government Securities Fund (the Short-Intermediate
Fund), Franklin Convertible Securities Fund (the Convertible Fund), Franklin
Adjustable U.S. Government Securities Fund (the Adjustable U.S. Government
Fund), Franklin Equity Income Fund (the Equity Income Fund), and Franklin
Adjustable Rate Securities Fund (the Adjustable Rate Fund); and one
non-diversified Fund: Franklin Global Government Income Fund (the Global Fund).
Each of the Funds issues a separate series of the Trust's shares and maintains
a totally separate investment portfolio.
The Adjustable Rate Fund and the Adjustable U.S. Government Fund invest
substantially all of their assets in the Adjustable Rate Securities Portfolio
and the U.S. Government Adjustable Rate Mortgage Portfolio, respectively. Both
are open-end, diversified management investment companies having the same
investment objective as the Adjustable Rate Fund and Adjustable U.S. Government
Fund. The financial statements of the Adjustable Rate Securities Portfolio and
the U.S. Government Adjustable Rate Mortgage Portfolio, including the
Statements of Investments, are included elsewhere in this report and should be
read in conjunction with the financial statements of the Adjustable Rate Fund
and Adjustable U.S. Government Fund.
On June 15, 1993, the Board of Trustees authorized a change in the fiscal year
end of the Trust from January 31 of each year to October 31.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATIONS:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked prices. Other
securities for which market quotations are readily available are valued at
current market values, obtained from a pricing service, which are 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 securities. Portfolio securities which are
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market as determined
by the Manager. Other securities for which market quotations are not available,
if any, are valued in accordance with procedures established by the Board of
Trustees. Short-term securities and similar investments with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
value.
Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets are valued in a similar manner and these values are
translated into U.S. dollars at current market quotations of their respective
currency against U.S. dollars last quoted by a major bank or, if no such
quotation is available, at the rate of exchange determined in accordance with
policies established by the Board of Trustees.
The values of the Adjustable Rate Fund and the Adjustable U.S. Government Fund
reflect the Funds' proportionate interest in the net assets of the Adjustable
Rate Securities Portfolio and the U.S. Government Adjustable Rate Mortgage
Portfolio, respectively. At October 31, 1994, the Adjustable Rate Fund owns 59%
of the Adjustable Rate Securities Portfolio and the Adjustable U.S. Government
Fund owns 94% of the U.S. Government Adjustable Rate Mortgage Portfolio. The
Portfolios' shares held by the Funds are valued at the net asset value of the
Portfolios.
25
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
B. INCOME TAXES:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is
required. Each Fund is treated as a separate entity in the determination of
compliance with the Internal Revenue Code.
C. SECURITY TRANSACTIONS:
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses on security
transactions are determined on the basis of specific identification for both
financial statement and income tax purposes.
D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Bond discount is amortized as required by the Internal Revenue Code.
The Short-Intermediate Fund and the Adjustable Rate Fund normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the date of receipt of an
investor's funds. Dividends are normally declared each day the New York Stock
Exchange is open for business equal to an amount per day set from time to time
by the Board of Trustees, and are payable to shareholders of record at the
beginning of business on the ex-date. Once each month, dividends are reinvested
in additional shares of each Fund or paid in cash as requested by the
shareholders.
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of currency option contracts - see
Note 3.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sale transactions.
E. EXPENSE ALLOCATION:
Common expenses incurred by the Trust are allocated among the Funds based on
the ratio of the net assets of each Fund to the combined net assets. In all
other respects, expenses are charged to each Fund as incurred on a specific
identification basis.
F. FOREIGN CURRENCY TRANSLATION:
The accounting records of the Trust are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recognized when reported by the custodian
bank.
The Trust does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are
included in the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized between the trade dates and settlement dates on
securities transactions, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Trusts books and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange
26
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. FOREIGN CURRENCY TRANSLATION: (CONT.)
gains and losses arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from changes
in exchange rates.
G. CHANGE IN ACCOUNTING POLICY FOR FOREIGN CURRENCY PRESENTATION:
Effective October 31, 1994, the Fund adopted AICPA Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. The adoption of SOP 93-4 had no effect on net assets for
the fiscal year ended October 31, 1994, but affected the classification on the
income statement of foreign currency transactions from assets and liabilities
other than investments.
H. REPURCHASE AGREEMENTS:
The Trust may enter into a Joint Repurchase Agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers recognized by
the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the Joint Repurchase Agreement has been allocated
to the Funds based on its pro-rata interest at October 31, 1994.
In a repurchase agreement, the Trust purchases a U.S. government security from
a dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Trust to
the seller, collateralized by the underlying security. The transaction requires
the initial collateralization of the seller's obligation by U.S. Government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Funds, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At October 31, 1994, all outstanding repurchase agreements held
by the Trust had been entered into on that date.
2. FORWARD FOREIGN CURRENCY CONTRACTS
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.
The Global Fund may enter into forward contracts with the objective of
minimizing the risk to the Fund from adverse changes in the relationship
between currencies or to enhance income. The Fund may also enter into a forward
contract in relation to a security denominated in a foreign currency or when it
anticipates receipt in a foreign currency of dividends or interest payments in
order to "lock in" the U.S. dollar price of that security or the U.S. dollar
equivalent of such dividend or interest payments.
The Fund segregates in its custodian bank sufficient cash, cash equivalents or
readily marketable debt securities as deposits for commitments created by open
forward contracts. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
As of October 31, 1994, the Global Fund had the following forward foreign
currency contracts outstanding:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS TO SELL EXCHANGE FOR SETTLEMENT DATE GAIN (LOSS)
-------------------------------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
2,650,000 New Zealand Dollars. U.S.$ 1,613,453 11/30/94 U.S.$(13,643)
48,000,000 German Deutschemarks U.S.$32,021,134 11/04/94 121,078
----------- --------
$33,634,587 $107,435
=========== ========
</TABLE>
27
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
3. OPTION CONTRACTS
The Global Fund may write covered put and call options and purchase put and
call options which trade in the over-the-counter (OTC) market. OTC call options
give the holder the right to buy an underlying security or currency from an
option writer at a stated exercise price; OTC put options give the holder the
right to sell an underlying security or currency to an option writer at a
stated exercise price. OTC options are arranged directly with dealers, and
pricing is typically negotiated by reference to information from market makers.
Transactions in purchased options on currencies for the year ended October 31,
1994 were as follows:
<TABLE>
<CAPTION>
PUT
-----------------------
FACE
AMOUNT
COST OPTIONED
-------- -----------
<S> <C> <C>
Outstanding at October 31, 1993.................... $ -- --
Options purchased.................................. 130,225 23,368,984
Options exercised.................................. (46,000) (10,000,000)
Options expired.................................... (84,225) (13,368,984)
-------- -----------
Outstanding at October 31, 1994.................... $ -- --
======== ===========
</TABLE>
Transactions in written options on currencies for the year ended October 31,
1994 were as follows:
<TABLE>
<CAPTION>
CALL
------------------------
AMOUNT OF
AMOUNT OF CURRENCIES
PREMIUMS OPTIONED
--------- -----------
<S> <C> <C>
Outstanding at October 31, 1993.................... $ -- --
Options written.................................... 202,670 23,574,661
Options exercised.................................. (112,670) (13,574,661)
Options expired.................................... (90,000) (10,000,000)
--------- -----------
Outstanding at October 31, 1994.................... $ -- --
========= ===========
</TABLE>
The Global Fund realized a net short term capital loss of $541,919 on purchased
options and exercised written options, and a net short term capital gain of
$90,000 on premiums received on expired written options.
28
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
4. TRUST SHARES
At October 31, 1994 there were an unlimited number of shares of beneficial
interest authorized with a par value of $0.01 per share. Transactions in each
of the Trust's shares for the year ended October 31, 1994 and for the nine
months ended October 31, 1993 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN GLOBAL SHORT-INTERMEDIATE U.S. FRANKLIN CONVERTIBLE
GOVERNMENT INCOME FUND GOVERNMENT SECURITIES FUND SECURITIES FUND
------------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ --------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended October 31, 1994
Shares sold........................ 3,796,264 $ 33,419,371 4,313,964 $ 44,921,900 1,219,366 $ 15,220,916
Shares issued in reinvestment......
of distributions................. 990,104 8,503,475 830,236 8,591,490 168,878 2,090,918
Shares redeemed.................... (3,724,526) (32,088,082) (6,851,195) (70,807,735) (547,097) (6,756,318)
Changes from exercise of exchange
privilege:
Shares sold...................... 6,892,336 61,109,234 3,062,282 31,843,753 1,654,708 20,710,637
Shares redeemed.................. (5,719,956) (49,668,205) (4,225,285) (43,732,934) (786,883) (9,754,566)
----------- --------------- ---------- ------------ ---------- ------------
Net increase (decrease)....... 2,234,222 $ 21,275,793 (2,869,998) $(29,183,526) 1,708,972 $ 21,511,587
=========== =============== ========== ============ ========== ============
Nine months ended October 31, 1993
Shares sold........................ 3,132,310 $ 28,574,215 7,951,390 $ 85,374,158 901,908 $ 10,897,243
Shares issued in reinvestment of
distributions...................... 524,009 4,763,243 485,716 5,219,095 83,403 1,000,357
Shares redeemed.................... (1,993,767) (18,112,506) (4,536,268) (48,709,818) (233,556) (2,786,030)
Changes from exercise of exchange
privilege:
Shares sold...................... 4,720,174 43,119,821 1,390,826 14,928,987 949,792 11,424,393
Shares redeemed.................. (3,284,663) (29,621,205) (2,220,138) (23,822,267) (466,500) (5,506,739)
----------- --------------- ---------- ------------ ---------- ------------
Net increase.................. 3,098,063 $ 28,723,568 3,071,526 $ 32,990,155 1,235,047 $ 15,029,224
=========== =============== ========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE FRANKLIN FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND EQUITY INCOME FUND RATE SECURITIES FUND
------------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ --------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended October 31, 1994
Shares sold........................ 3,326,762 $ 31,759,086 1,527,023 $ 21,485,674 679,940 $ 6,750,951
Shares issued in reinvestment of
distributions.................... 2,149,801 20,490,985 228,516 3,222,627 122,836 1,210,194
Shares redeemed.................... (96,848,038) (924,096,481) (494,546) (6,953,175) (2,401,365) (23,641,545)
Changes from exercise of
exchange privilege:
Shares sold...................... 9,453,526 89,992,788 3,064,919 43,326,425 3,084,064 30,626,065
Shares redeemed.................. (27,618,581) (262,879,777) (594,376) (8,393,166) (2,719,427) (26,892,282)
------------ --------------- ---------- ------------ ---------- ------------
Net increase (decrease)....... (109,536,530) $(1,044,733,399) 3,731,536 $ 52,688,385 (1,233,952) $(11,946,617)
============ =============== ========== ============ ========== ============
</TABLE>
29
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
4. TRUST SHARES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN ADJUSTABLE FRANKLIN FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND EQUITY INCOME FUND RATE SECURITIES FUND
-------------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nine months ended
October 31, 1993
Shares sold..................... 31,420,134 $ 309,366,714 591,740 $ 8,424,387 1,678,030 $ 16,880,805
Shares issued in reinvestment
of distributions............... 4,017,124 39,542,565 72,561 1,028,509 70,418 708,233
Shares redeemed................. (119,230,775) (1,173,985,899) (199,709) (2,866,323) (529,605) (5,325,263)
Changes from exercise of
exchange privilege:
Shares sold.................... 10,303,356 101,458,808 914,654 12,979,279 2,459,907 24,746,127
Shares redeemed................ (42,291,571) (416,529,563) (489,111) (6,830,476) (1,161,218) (11,680,906)
------------ --------------- -------- ----------- ---------- ------------
Net increase (decrease) .... (115,781,732) $(1,140,147,375) 890,135 $12,735,376 2,517,532 $ 25,328,996
============ =============== ======== =========== ========== ============
</TABLE>
5. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1994, for tax purposes, the Funds had accumulated net realized
gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
GLOBAL SHORT-INTERMEDIATE FRANKLIN ADJUSTABLE FRANKLIN FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE U.S. GOVERNMENT EQUITY ADJUSTABLE RATE
INCOME FUND SECURITIES FUND SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND
----------- --------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Accumulated net realized gains.. -- $3,803,383 -- $1,652,756 --
======== ========== ========== =========== ========== ========
Capital loss carryovers
Expiring in:
October 31, 2000 ............. -- -- $ 1,918,358 -- --
October 31, 2001 ............. -- -- 7,708,871 -- --
October 31, 2002 ............. $793,547 $2,435,636 -- 41,867,757 -- $414,821
-------- ---------- ---------- ----------- ---------- --------
$793,547 $2,435,636 -- $51,494,986 $414,821
======== ========== ========== =========== ========== ========
</TABLE>
For income tax purposes, the aggregate cost of securities is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
October 31, 1994 by $33,247 in the Global Fund, $11,064 in the Equity Income
Fund and $5,872 in the Adjustable Rate Fund.
30
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
6. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended October 31, 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
GLOBAL SHORT-INTERMEDIATE FRANKLIN ADJUSTABLE U.S. FRANKLIN FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE GOVERNMENT EQUITY ADJUSTABLE RATE
INCOME FUND SECURITIES FUND SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND
----------- ------------------ --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Purchases..... $149,150,474 $248,291,750 $57,319,151 $ 64,575,675 $61,162,575 $31,412,482
============ ============ =========== ============== =========== ===========
Sales......... $139,985,147 $285,863,784 $37,885,029 $1,094,477,708 $25,065,768 $43,540,875
============ ============ =========== ============== =========== ===========
</TABLE>
7. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, office space and facilities to each Fund, and receives fees
computed monthly on the net assets on the last day of the month of each fund,
except for the Adjustable U.S. Government Fund and the Adjustable Rate Fund, as
follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE MONTH END NET ASSETS
------------------- ---------------------------------------------------
<S> <C>
.625 of 1% First $100 million
.500 of 1% over $100 million, up to and including $250 million
.450 of 1% over $250 million
</TABLE>
Under the terms of a separate administration agreement with the Adjustable U.S.
Government Fund and the Adjustable Rate Fund, Franklin Advisers, Inc. provides
various administrative, statistical, and other services, and receives fees
computed monthly based on the average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE AVERAGE MONTHLY NET ASSETS
------------------- ------------------------------------------------
<S> <C>
.100 of 1% First $5 billion
.090 of 1% over $5 billion, up to and including $10 billion
.080 of 1% over $10 billion
</TABLE>
The terms of these agreements provide that aggregate annual expenses of the
Funds be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations and administrative interpretations of the states
in which the Funds' shares are registered. The Funds' expenses did not exceed
these limitations; however, for the year ended October 31, 1994, Franklin
Advisers, Inc. agreed in advance to waive a portion of the management fees for
the Short-Intermediate Fund, Convertible Fund and Equity Income Fund of
$61,865, $45,999, and $124,686, respectively. In addition, Franklin Advisers,
Inc. agreed in advance to waive a portion of the administration fee for the
Adjustable Rate Securities Fund of $37,387 and made payments of $42,018 for
other expenses as reflected in the Statement of Operations.
In its capacity as underwriter for the shares of the Trust, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Trust's shares.
Commissions received by Franklin/Templeton Distributors, Inc., and the amounts
which were subsequently paid to other dealers for the year ended October 31,
1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
GLOBAL SHORT-INTERMEDIATE FRANKLIN ADJUSTABLE FRANKLIN FRANKLIN
GOVERNMENT U.S. GOVERNMENT CONVERTIBLE U.S. GOVERNMENT EQUITY ADJUSTABLE RATE
INCOME FUND SECURITIES FUND SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND
=========== =============== =============== =============== =========== ===============
<S> <C> <C> <C> <C> <C> <C>
Total commissions received... $1,226,772 $641,082 $465,108 $306,789 $697,331 $78,020
========== ======== ======== ======== ======== =======
Paid to other dealers........ $1,163,201 $544,575 $446,433 $267,958 $661,316 $67,930
========== ======== ======== ======== ======== =======
</TABLE>
31
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)
7. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Trust, and as such are not expenses of the Funds.
Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., the Funds pay costs on a per shareholder account basis. Such
costs incurred for the year ended October 31, 1994 aggregated $492,499 which
$441,720 was paid to Franklin/Templeton Investor Services, Inc.
Under the terms of a Distribution Agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Adjustable U.S. Government Fund and the
Adjustable Rate Fund will reimburse Franklin/Templeton Distributors, Inc. in an
amount up to 0.10% per annum of the Funds' average daily net assets for costs
incurred in the promotion, offering and marketing of the Fund's shares.
Effective May 1, 1994, the other four Funds implemented a similar plan of
distributiion. The maximum annual amount which the Global Fund, the
Short-Intermediate Fund, the Convertible Fund, and the Equity Income Fund may
pay to Franklin/Templeton Distributors, Inc., are 0.15%, 0.10%, 0.25%, and
0.25%, respectively. Cost incurred by the Funds under the agreement aggregated
$2,722,063 for the year ended October 31, 1994.
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
8. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Funds value these
securities as disclosed in Note 1.
At October 31, 1994, 144A securities were held as follows:
<TABLE>
<CAPTION>
FRANKLIN
GLOBAL FRANKLIN FRANKLIN
GOVERNMENT CONVERTIBLE EQUITY
INCOME FUND SECURITIES FUND INCOME FUND
---------------------------- -----------
<S> <C> <C> <C>
Value............................................ $2,601,841 $17,359,913 $8,285,201
========== =========== ==========
Ratio of value to net assets..................... 1.39% 25.96% 8.93%
========== =========== ==========
</TABLE>
See the accompanying statement of investments in securities and net assets for
specific information on such securities.
9. CREDIT RISKS
Although the Convertible Fund and the Equity Income Fund have diversified
portfolios, 65.47% and 14.90% of their portfolios are invested in lower rated
and comparable quality unrated high yield securities, respectively. Investments
in higher yield securities are accompanied by a greater degree of credit risk
and such lower quality securities tend to be more sensitive to economic
conditions than higher rated securities. The risk of loss due to default by the
issuer may be significantly greater for the holders of high yielding
securities, because such securities are generally unsecured and are often
subordinated to other creditors of the issuer.
Although each of the Funds has a diversified investment portfolio, there are
certain credit risks, foreign currency exchange risks, or event risks due to
the manner in which certain Funds are invested, which may subject the Funds
more significantly to economic changes occurring in certain industries or
sectors, as follows:
The Global Fund has investments in excess of 10% of its total net assets
in debt securities denominated in Australian Dollars and Canadian Dollars.
10. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
periods are set forth in the prospectus under the caption "Financial
Highlights."
32
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES 95.8%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) 28.8%
$ 7,354,680 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 5.125%, 11/01/16 ..... $ 7,288,194
8,470,613 FHLMC, Cap 11.60%, Margin 2.25% + CMT, Resets Annually, 5.716%, 11/01/21 ...... 8,682,336
3,806,379 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 6.992%, 07/01/20 .... 3,828,958
22,475,592 FHLMC, Cap 12.17%, Margin 2.18% + CMT, Resets Annually, 6.022%, 03/01/23 ...... 23,220,096
1,413,476 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 6.466%, 04/01/20 .... 1,419,653
4,818,550 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 6.593%, 07/01/20 .... 4,857,677
5,357,065 FHLMC, Cap 12.616%, Margin 2.167% + CMT, Resets Annually, 7.252%, 09/01/21 .... 5,464,179
1,120,550 FHLMC, Cap 12.68%, Margin 2.195% + CMT, Resets Annually, 6.717%, 02/01/19 ..... 1,133,693
3,324,146 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 6.463%, 04/01/19 .... 3,358,322
7,350,239 FHLMC, Cap 12.79%, Margin 2.07% + CMT, Resets Annually, 6.107%, 04/01/19 ...... 7,472,142
1,181,863 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 5.933%, 11/01/18 ...... 1,188,161
9,571,131 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 6.209%, 04/01/18 ..... 9,658,362
4,996,418 FHLMC, Cap 12.875%, Margin 1.875% + CMT, Resets Annually, 5.856%, 07/01/17 .... 5,146,286
8,305,049 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 6.187%, 09/01/19 ..... 8,379,686
8,524,163 FHLMC, Cap 13.045%, Margin 1.875% + CMT, Resets Annually, 6.166%, 12/01/18 .... 8,779,845
6,639,317 FHLMC, Cap 13.07%, Margin 2.12% + CMT, Resets Annually, 6.210%, 04/01/22 ...... 6,784,552
4,564,155 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 5.328%, 12/01/16 .... 4,543,360
2,640,188 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 6.289%, 07/01/19 ..... 2,665,473
4,887,886 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 6.87%, 10/01/18 ..... 4,953,384
2,190,279 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 6.005%, 05/01/19 .... 2,205,611
1,057,517 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 6.031%, 10/01/19 .... 1,066,018
3,368,250 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 5.816%, 03/01/19 .... 3,375,977
985,931 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 5.632%, 04/01/18 ..... 985,985
2,241,214 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 5.637%, 12/01/18 .... 2,239,981
3,460,141 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 6.472%, 07/01/20 ..... 3,495,279
6,895,684 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 6.256%, 07/01/19 .... 6,954,849
13,106,095 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 5.969%, 04/01/19 ...... 13,171,560
8,742,793 FHLMC, Cap 13.562%, Margin 2.388% + CMT, Resets Annually, 6.587%, 07/01/21 .... 8,834,252
12,418,183 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 6.457%, 07/01/20 ..... 12,542,513
16,272,820 FHLMC, Cap 13.74%, Margin 2.306% + CMT, Resets Annually, 6.407%, 04/01/21 ..... 16,476,149
963,999 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 5.686%, 02/01/19 ..... 963,907
7,166,308 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.042%, 11/01/19 .... 7,274,405
5,619,083 FHLMC, Cap 14.277%, Margin 2.412% + CMT, Resets Annually, 7.115%, 07/01/19 .... 5,705,948
3,940,234 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Annually, 7.601%, 12/01/21 ... 4,058,421
1,945,647 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 6.70%, 12/01/18 ...... 2,007,654
4,736,717 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 6.212%, 02/01/19 ..... 4,776,159
------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP. (COST $218,827,414) ................ 214,959,027
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)aa59.2%
$ 2,453,276 FNMA, Cap 11.49%, Margin 2.225% + CMT, Resets Annually, 7.60%, 09/01/21 ....... $ 2,501,924
5,728,096 FNMA, Cap 12.26%, Margin 1.725% + CMT, Resets Semi-Annually, 6.329%, 01/01/19 5,786,705
3,682,423 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually, 6.585%,
11/01/18 ..................................................................... 3,802,084
19,924,714 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.05%, 11/01/17 ....... 20,173,674
7,120,214 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 6.47%, 03/01/19 ........ 7,200,886
16,186,106 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually, 5.79%, 01/01/19 . 16,317,537
11,960,782 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 5.054%, 09/01/18 ...... 11,639,276
12,715,988 FNMA, Cap 12.729%, Margin 1.875% + NOI, Resets Annually, 5.823%, 07/01/29 ..... 12,890,769
5,239,485 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.454%, 01/01/19 ...... 5,272,205
5,977,277 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 6.533%, 11/01/20 ...... 6,045,155
20,649,548 FNMA, Cap 12.797%, Margin 1.75% + NCI, Resets Monthly, 5.625%, 12/01/28 ....... 20,881,752
9,193,762 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 5.842%, 05/01/19 ...... 9,244,143
4,549,263 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually, 6.842%,
06/01/17 ..................................................................... 4,654,465
8,921,850 FNMA, Cap 12.85%, Margin 2.078% + CMT, Resets Annually, 7.981%, 10/01/17 ...... 9,200,613
9,544,282 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually, 6.114%,
07/01/17 ..................................................................... 9,681,433
2,871,726 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually, 6.27%,
02/01/18 ..................................................................... 2,961,453
10,815,481 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 5.054%, 02/01/19 ...... 10,524,761
5,473,844 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 6.387%, 12/01/19 ..... 5,532,255
7,709,689 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 6.019%, 06/01/19 ........ 7,772,854
16,053,770 FNMA, Cap 13.017%, Margin 1.25% + COFI, Resets Monthly, 5.11%, 07/01/17 ....... 15,632,278
10,547,437 FNMA, Cap 13.021%, Margin 1.986% + CMT, Resets Annually, 6.465%, 07/01/22 ..... 10,778,162
16,751,007 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.836%, 02/01/20 ....... 16,855,617
8,694,386 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 5.846%,
12/01/20 ..................................................................... 8,786,720
7,998,755 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Monthly, 5.694%, 04/01/19 ...... 8,026,310
9,050,349 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 5.847%,
07/01/20 ..................................................................... 9,157,777
5,870,361 FNMA, Cap 13.108%, Margin 2.246% + CMT, Resets Annually, 6.424%, 01/01/20 ..... 5,932,141
33,918,927 FNMA, Cap 13.125%, Margin 1.25% + COFI, Resets Monthly, 5.109%, 04/01/18 ...... 33,007,186
6,321,511 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 6.328%, 04/01/19 ..... 6,386,193
4,661,550 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually, 6.443%,
11/01/26 ..................................................................... 4,834,890
4,661,069 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 6.031%, 06/01/19 ...... 4,699,854
6,570,495 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 6.338%, 10/01/19 ...... 6,638,204
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (CONT.)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONT.)
$ 8,886,885 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Semi-Annually, 7.433%, 04/01/03.. $ 8,931,275
18,407,487 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 6.322%, 09/01/22 ..... 18,602,975
15,652,775 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 6.242%, 01/01/18 ..... 15,812,231
9,596,917 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 6.382%, 03/01/21 ..... 9,690,103
12,065,101 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 6.416%, 12/01/20 ..... 12,191,085
5,399,057 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 5.801%, 03/01/19 ...... 5,425,069
6,828,249 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.786%,
07/01/24 ..................................................................... 6,836,751
6,265,875 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 5.756%, 02/01/19 ...... 6,290,876
4,635,385 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 5.639%, 12/01/18 ...... 4,651,818
10,298,111 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 6.429%, 01/01/19 ..... 10,411,019
3,166,559 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 5.977%, 03/01/21 ..... 3,250,298
17,224,751 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Annually, 8.033%, 05/01/21 ..... 17,762,938
11,838,930 FNMA, Cap 14.887%, Margin 1.720% + CMT, Resets Annually, 5.94%, 01/01/16 ...... 12,238,435
5,078,261 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 6.926%, 05/01/19 ..... 5,154,481
2,767,292 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 6.529%, 02/01/20 ..... 2,798,554
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $453,687,272) ......... 442,867,184
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 7.8%
12,471,767 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 07/20/23 ........ 12,221,209
7,917,654 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 08/20/23 ........ 7,758,589
10,000,000 dGNMA, Cap 12.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 10/20/17 ........ 9,956,251
19,736,825 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 5.75%, 02/20/16 ........ 18,868,405
9,979,713 GNMA, Cap 13.00%, Margin 1.50% + CMT, Resets Annually, 5.75%, 03/20/16 ........ 9,540,606
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $62,556,073) ....... 58,345,060
------------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $735,070,759) ........... 716,171,271
------------
GOVERNMENT SECURITIES 1.3%
10,000,000 U.S. Treasury Notes, 4.00% - 4.25%, 01/31/96 - 05/15/96 (COST $9,777,084) ..... 9,710,431
------------
Total Long Term Investments (COST $744,847,843) ......................... 725,881,702
------------
aSHORT TERM INVESTMENTS
GOVERNMENT SECURITIES 3.4%
26,630,000 U.S. Treasury Bills, 5.54% - 5.855%, 09/21/95 - 10/19/95 (COST $25,153,213) ... 25,156,431
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $770,001,056) ...... 751,038,133
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b,cRECEIVABLES FROM REPURCHASE AGREEMENTS
$ 5,634 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $5,355)
(COST $5,354)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 - 07/31/99 ............ $ 5,354
------------
TOTAL INVESTMENTS (COST $770,006,410) 100.5% ........................ 751,043,487
LIABILITIES IN EXCESS OF OTHERS ASSETS, NET (.5)% ................... (3,572,373)
------------
NET ASSETS 100.0% ................................................... $747,471,114
============
At October 31, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $770,011,327 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost .......................................... $ 386,754
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value .......................................... (19,354,594)
------------
Net unrealized depreciation .................................................... $(18,967,840)
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
CMT - 1 Year Constant Maturity Treasury Index
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
DR - Discount Rate
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
aCertain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of purchase by the Fund. Other
securities bear interest at the rates shown, payable at fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
cSee Note 1(f) regarding Joint Repurchase Agreement.
dSee Note 1(g) regarding securities purchased on a when-issued or delayed
delivery basis.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT ADJUSTABLE RATE SECURITIES PORTFOLIO (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
b,cADJUSTABLE RATE MORTGAGE SECURITIES 85.3%
$4,290,610 FBMS, Cap 10.816%, Margin 1.06% + 6 Month LIBOR, Resets Semi-Annually, 6.67%,
07/25/09............................................................................. $ 4,258,431
3,456,496 Glendale Federal Bank, Cap 12.25%, Margin 1.78% + CMT, Resets Annually, 7.39%,
03/25/30............................................................................. 3,462,977
1,442,684 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually,
6.00%, 01/25/18 ..................................................................... 1,426,453
2,599,638 PHMS, Cap 10.88%, Margin 2.50% + CMT, Resets Annually, 7.00%, 01/25/23 ............... 2,606,137
3,349,085 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 6.86%, 07/25/22 ............... 3,365,830
3,771,292 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.39%, 11/25/22 ................ 3,717,079
3,546,603 RFC, Cap 11.73%, Margin 1.00% + COFI, Resets Semi-Annually, 4.86%, 07/25/19 .......... 3,333,807
1,931,004 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 6.99%, 04/26/21..... 1,902,039
3,894,880 RTC, Cap 13.35%, Margin .90% + CMT, Resets Annually, 6.93%, 04/25/22 ................. 3,838,891
2,712,404 RTC, Cap 14.69%, Margin 1.55% + CMT, Resets Annually, 7.36%, 06/25/22 ................ 2,671,718
1,856,660 RTC, Cap 16.48%, Margin NACR - 0.13%, Resets Annually, 7.44%, 07/25/20 ............... 1,827,650
3,098,163 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96%+ NACR, Resets Annually,
7.39%, 12/25/17...................................................................... 3,109,782
-----------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST $36,966,456) ................... 35,520,794
-----------
GOVERNMENT SECURITIES 6.2%
2,625,000 U.S. Treasury Notes, 3.875%, 10/31/95 (COST $2,574,468) .............................. 2,567,578
-----------
TOTAL LONG TERM INVESTMENTS (COST $39,540,924) ................................. 38,088,372
-----------
SHORT TERM INVESTMENTS
aGOVERNMENT SECURITIES 7.9%
3,460,000 U.S. Treasury Bills, 5.335%, 08/24/95 (COST $3,303,173) ............................. 3,298,411
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $42,844,097) ............. 41,386,783
-----------
b,cRECEIVABLES FROM REPURCHASE AGREEMENTS .1%
23,951 Joint Repurchase Agreement, 4.824%, 11/01/94 (Maturity Value $23,061) (Cost $23,058)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%, 11/15/94 - 07/31/99 ............. 23,058
-----------
TOTAL INVESTMENTS (COST $42,867,155)aa99.5% ............................... 41,409,841
OTHER ASSETS AND LIABILITIES, NET .5% .................................... 208,912
-----------
NET ASSETS 100.0% ........................................................ $41,618,753
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994 (CONT.)
<TABLE>
<CAPTION>
VALUE
ADJUSTABLE RATE SECURITIES PORTFOLIO (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
At October 31, 1994, the net unrealized depreciation based on the cost of investments
for income tax purposes of $42,873,764 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ................................................... $ --
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ................................................... (1,463,923)
-----------
Net unrealized depreciation ....................................................... $(1,463,923)
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FBMS - First Boston Mortgage Securities Corp.
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate
aCertain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of purchase by the Fund. Other
securities bear interest at the rates shown, payable a fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
cSee Note 1(f) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------ --------------------
<S> <C> <C>
Assets:
Investments in securities:
At identified cost....................................................... $770,001,056 $42,844,097
============ ===========
At value................................................................. 751,038,133 41,386,783
Receivables from repurchase agreements, at value and cost................. 5,354 23,058
Receivables:
Capital shares sold...................................................... -- 21,008
Interest................................................................. 4,947,930 120,253
Investment securities sold............................................... 3,598,800 213,186
Unamortized organization costs (Note 2)................................... -- 4,941
------------ -----------
Total assets......................................................... 759,590,217 41,769,229
------------ -----------
Liabilities:
Payables:
Investment securities purchased on a when-issued basis (Note 1).......... 9,992,778 --
Capital shares repurchased............................................... 2,012,228 133,138
Management fees.......................................................... -- 8,199
Accrued expenses and other liabilities.................................... 114,097 9,139
------------ -----------
Total liabilities.................................................... 12,119,103 150,476
------------ -----------
Net assets, at value....................................................... $747,471,114 $41,618,753
============ ===========
Net assets consist of:
Unrealized depreciation on investments.................................... $(18,962,923) $(1,457,314)
Accumulated net realized loss............................................. (129,728,595) (2,103,106)
Capital shares............................................................ 813,678 42,970
Additional paid-in capital................................................ 895,348,954 45,136,203
------------ -----------
Net assets, at value....................................................... $747,471,114 $41,618,753
============ ===========
Shares outstanding......................................................... 81,367,809 4,297,010
============ ===========
Net asset value per share.................................................. $9.19 $9.69
============ ===========
Representative computation (U.S. Government Adjustable Rate Mortgage
Portfolio) of net asset value, offering price and redemption price per share:
(747,471,114 (/) 81,367,809).............................................. $9.19
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
U.S. GOVERNMENT
ADJUSTABLE RATE ADJUSTABLE RATE
MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------ --------------------
<S> <C> <C>
Investment income:
Interest (Note 1)......................................................... $ 48,150,402 $ 4,454,519
------------ -----------
Expenses:
Management fees, net (Note 6)............................................. -- 205,735
Custodian fees............................................................ 112,471 9,279
Professional fees......................................................... 61,443 9,756
Trustees' fees and expenses............................................... 9,319 55
Reports to shareholders................................................... 3,063 3,432
Amortization of organization costs (Note 2)............................... -- 2,196
Registration and filing fees.............................................. -- 1,250
Other..................................................................... -- 849
------------ -----------
Total expenses....................................................... 186,296 232,552
------------ -----------
Net investment income............................................... 47,964,106 4,221,967
------------ -----------
Realized and unrealized loss on investments:
Net realized loss......................................................... (67,057,492) (1,993,495)
Net unrealized depreciation............................................... (12,751,845) (1,410,266)
------------ -----------
Net realized and unrealized loss on investments............................ (79,809,337) (3,403,761)
------------ -----------
Net increase (decrease) in net assets resulting from operations............ $(31,845,231) $ 818,206
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 1994
AND THE NINE MONTHS ENDED OCTOBER 31, 1993
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE RATE
ADJUSTABLE RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
---------------------------------- --------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED NINE MONTHS YEAR ENDED NINE MONTHS
10/31/94 ENDED 10/31/93 10/31/94 ENDED 10/31/93
--------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................... $ 47,964,106 $ 106,502,915 $ 4,221,967 $ 2,658,795
Net realized gain (loss) from security
transactions.......................... (67,057,492) 7,294,889 (1,993,495) (51,910)
Net unrealized depreciation on
investments........................... (12,751,845) (31,684,300) (1,410,266) (61,448)
--------------- --------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations......... (31,845,231) 82,113,504 818,206 2,545,437
Distributions to shareholders from
undistributed net investment income
(Note 1)................................ (47,964,106) (106,502,915) (4,221,967) (2,658,795)
Increase (decrease) in net assets from
capital share transactions (Note 4)..... (1,302,948,561) (2,046,792,768) (79,286,725) 79,767,042
--------------- --------------- ------------ ------------
Net increase (decrease) in net
assets............................ (1,382,757,898) (2,071,182,179) (82,690,486) 79,653,684
Net assets (there is no undistributed net
investment income at beginning or end
of year):
Beginning of year...................... 2,130,229,012 4,201,411,191 124,309,239 44,655,555
--------------- --------------- ------------ ------------
End of year............................ $ 747,471,114 $ 2,130,229,012 $ 41,618,753 $124,309,239
=============== =============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is a no load, open-end,
diversified management investment company (mutual fund) registered under
the Investment Company Act of 1940 as amended. The Trust currently has two
separate portfolios (the Portfolios) consisting of the U.S. Government
Adjustable Rate Mortgage Portfolio (Mortgage Portfolio) and the Adjustable Rate
Securities Portfolio (Securities Portfolio). The shares of the Trust are
issued in private placements and are thus exempt from registration under the
Securities Act of 1933.
On June 15, 1993, the Board of Trustees authorized a change in the fiscal
year end of the Trust from January 31 of each year to October 31.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
for investment companies.
A. SECURITIES VALUATIONS:
Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such
reported sale, within the range of the most recent quoted bid and asked
prices. Other securities for which market quotations are readily
available are valued at current market values, obtained from a pricing
service, which are 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 securities.
Portfolio securities which are traded both in the over-the-counter market and
on a securities exchange are valued according to the broadest and most
representative market as determined by the Manager. Securities for which
market quotations are not readily available, if any, are valued at their fair
value as determined following procedures approved by the Board of Trustees.
Short-term securities and similar investments with remaining maturities of 60
days or less are valued at amortized cost, which approximates value.
B. INCOME TAXES:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from income and excise taxes. Therefore, no income tax provision
is required. Each Portfolio is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.
C. SECURITY TRANSACTIONS:
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses on security
transactions are determined on the basis of specific identification for both
financial statement and income tax purposes.
D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Distributions to shareholders are recorded on the ex-dividend date.
Interest income and estimated expenses are accrued daily. Bond discount, if
any, is amortized as required by the Internal Revenue Code. The Fund normally
declares dividends from its net investment income daily and distributes
monthly. Daily allocations of net investment income will commence on the date
of receipt of an investor's funds. Dividends are normally declared each day
the New York Stock Exchange is open for business equal to the Portfolio's
total net investment income and are payable to shareholders of record at
the beginning of business on the ex-date. Once each month, dividends are
reinvested in additional shares of the Portfolio or paid in cash as requested
by the shareholders.
Net realized capital losses differ for financial statement and tax purposes
primarily due to losses deferred from wash sale transactions.
42
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
E. EXPENSE ALLOCATION:
Common expenses incurred by the Trust are allocated among the
Portfolios based on the ratio of net assets of each Portfolio to the
combined net assets. In all other respects, expenses are charged to each
Portfolio as incurred on a specific identification basis.
F. REPURCHASE AGREEMENTS:
The Trust may enter into a Joint Repurchase Agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers
recognized by the Federal Board and/or member banks of the Federal Reserve
System. The value and face amount of the Joint Repurchase Agreement has been
allocated to the Trust based on its pro-rata interest at October 31, 1994.
In a repurchase agreement, the Trust purchases a U.S. Government security
from a dealer or bank subject to an agreement to resell it at a mutually
agreed upon price and date. Such a transaction is accounted for as a loan by
the Trust to the seller, collateralized by the underlying security. The
transaction requires the initial collateralization of the seller's obligation
by U.S. Government securities with market value, including accrued
interest, of at least 102% of the dollar amount invested by the Trust, with
the value of the underlying security marked to market daily to maintain
coverage of at least 100%. The collateral is delivered to the Trust's
custodian and held until resold to the dealer or bank. At October 31, 1994, all
outstanding joint repurchase agreements held by the Trust had been entered into
on that date.
G. SECURITIES PURCHASED ON A WHEN-ISSUED (WI) OR DELAYED DELIVERY BASIS:
The Trust may trade securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Trust will generally purchase these securities with the intention of
acquiring such securities, they may sell such securities before the
settlement date. These securities are identified on the accompanying
statement of investments in securities and net assets. The Trust has set
aside sufficient investment securities as collateral for these purchase
commitments.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Securities Portfolio are amortized on a
straight-line basis over a period of five years, from December 26, 1991, the
effective date of registration. In the event Franklin Resources, Inc.
(which was the sole shareholder prior to December 26, 1991) redeems its seed
money shares within the five-year period, the pro rata share of the
then-unamortized deferred organization cost will be deducted from the
redemption price paid to Franklin Resources, Inc. New investors purchasing
shares of the portfolio subsequent to that date bear such costs during the
amortization period only as such charges are accrued daily against investment
income.
43
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONT.)
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1994, for tax purposes, the Portfolios had accumulated capital
loss carryovers as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-------------------------- --------------------
<S> <C> <C>
Capital loss carryovers
Expiring in: 2000.................... $ 45,446,278 $ 57,701
2001.................... 17,175,340 50,908
2002.................... 67,102,060 1,987,888
------------ ----------
$129,723,678 $2,096,497
============ ==========
</TABLE>
For income tax purposes, the aggregate cost of securities is higher (and
unrealized depreciation is higher) than for financial reporting purposes
at October 31, 1994 by $4,917 in the Mortgage Portfolio and $6,609 in the
Securities Portfolio.
4. TRUST SHARES
At October 31, 1994, there was an unlimited number of $.01 par value
shares of beneficial interest authorized. Transactions in each of the
Portfolio's shares for the year ended October 31, 1994, and the nine months
ended October 31, 1993 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended October 31, 1994
Shares sold.................................. 3,234,621 $ 31,184,230 9,103,489 $ 90,799,027
Shares issued in reinvestment of distributions 5,053,223 47,948,131 426,689 4,211,388
Shares redeemed.............................. (143,954,457) (1,382,080,922) (17,497,118) (172,994,477)
Changes from exercise of the exchange
privilege:
Shares redeemed............................ -- -- (132,789) (1,302,663)
------------ --------------- ----------- -------------
Net decrease................................. (135,666,613) $(1,302,948,561) (8,099,729) $ (79,286,725)
============ =============== =========== =============
Nine months ended October 31, 1993
Shares sold.................................. 35,150,104 $ 347,867,956 12,949,265 $ 130,092,823
Shares issued in reinvestment of distributions 10,857,572 107,414,657 263,368 2,646,062
Shares redeemed.............................. (253,133,809) (2,502,075,381) (5,271,267) (52,971,843)
------------ --------------- ----------- -------------
Net increase (decrease)...................... (207,126,133) $(2,046,792,768) 7,941,366 $ 79,767,042
============ =============== =========== =============
</TABLE>
44
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONT.)
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales
of short-term securities) for the year ended October 31, 1994, were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE ADJUSTABLE RATE
RATE MORTGAGE PORTFOLIO SECURITIES PORTFOLIO
-------------------------- --------------------
<S> <C> <C>
Purchases..................... $ 669,730,162 $177,224,773
============== ============
Sales......................... $1,976,011,176 $266,835,786
============== ============
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to the
Trust, and receives fees computed monthly on the average daily net assets of
the Trust during the month. The Trust pays a fee equal to an annualized
rate of 40/100 of 1% for the first $5 billion of net assets, 35/100 of 1%
of net assets in excess of $5 billion up to and including $10 billion, 33/100
of 1% of net assets in excess of $10 billion up to and including $15 billion,
and 30/100 of 1% of net assets in excess of $15 billion. The terms of the
management agreement provide that aggregate annual expenses of the Trust
be limited to the extent necessary to comply with the limitations set forth in
the laws, regulations and administrative interpretations of the states in
which the Trust's shares are registered. The Trust's expenses did not exceed
these limitations; however, for the year ended October 31, 1994, Franklin
Advisers, Inc. agreed in advance to waive a portion of the management fees of
$4,787,133 and $166,584, for the Mortgage Portfolio and Securities Portfolio,
respectively.
As of October 31, 1994, 76,822,612 shares of the Mortgage Portfolio were owned
by the Franklin Adjustable U.S. Government Securities Fund and 4,545,197
shares were owned by the Franklin Institutional Adjustable U.S. Government
Securities Fund. This represents 94% and 6%, respectively, of the outstanding
shares of the Mortgage Portfolio.
As of October 31, 1994, 2,542,902 shares of the Securities Portfolio
were owned by the Franklin Adjustable Rate Securities Fund and 1,752,851
shares were owned by the Franklin Institutional Adjustable Rate Securities
Fund. This represents 59% and 41%, respectively, of the outstanding shares
of the Securities Portfolio. The remaining 1,257 shares of the Securities
Portfolio were owned by Franklin Resources, Inc.
Certain officers and Trustees of the Trust are also officers and/or directors
of Franklin Advisers, Inc., a wholly-owned subsidiary of Franklin Resources,
Inc.
45
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONT.)
7. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
year by Fund are as follows:
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------
NET
REALIZED & DISTRI- DISTRI- NET
NET ASSET NET UNREALIZED BUTIONS BUTIONS ASSET
YEAR VALUES AT INVEST- GAIN TOTAL FROM FROM NET FROM VALUES
ENDED BEGINNING MENT (LOSS) ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END TOTAL
JAN. 31, OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
- -------- --------- ------ ---------- ---------- ---------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Adjustable Rate Mortgage Portfolio
1992(1) $10.00 $.493 $ .013 $ .506 $(.493) $(.003) $(.496) $10.01 5.13%
1993 10.01 .544 (.100) .444 (.544) -- (.544) 9.91 4.53
1993** 9.91 .313 (.090) .223 (.313) -- (.313) 9.82 2.28
1994*** 9.82 .415 (.630) (.215) (.415) -- (.415) 9.19 (2.22)
Adjustable Rate Securities Portfolio
1992(2) 10.00 -- -- -- -- -- -- 10.00 --
1993 10.00 .599 .020 .619 (.599) -- (.599) 10.02 6.36
1993** 10.02 .368 .010 .378 (.368) -- (.368) 10.03 3.83
1994*** 10.03 .469 (.340) .129 (.469) -- (.469) 9.69 1.32
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF
NET EXPENSES RATIO OF NET
ASSETS TO AVERAGE INVESTMENT
YEAR AT END NET INCOME TO PORTFOLIO
ENDED OF YEAR ASSETS++ AVERAGE TURNOVER
JAN. 31, (IN 000'S) (SEE NOTE 6) NET ASSETS RATE
- -------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
U.S. Government Adjustable Rate Mortgage Portfolio
1992(1) $4,315,658 .31%* 7.25%* 48.96%
1993 4,201,411 .30 5.49 66.44
1993** 2,130,229 .27* 4.15* 76.55
1994*** 747,471 .02 4.01 58.43
Adjustable Rate Securities Portfolio
1992(2) -- -- -- --
1993 44,656 -- 5.80 88.92
1993** 124,309 .11* 4.76* 158.70
1994*** 41,619 .25 4.55 192.06
</TABLE>
*Annualized.
**For the nine months ended October 31, 1993.
***For the year ended October 31, 1994.
1For the period May 20, 1991 (effective date) to January 31, 1992.
2For the period December 26, 1991 (effective date) to January 31, 1992.
+Total return measures the change in value of an investment over the
period indicated. It assumes reinvestment of dividends and capital gains,
if any, at net asset value.
++During the periods indicated below, Franklin Advisers, Inc., the
investment manager, agreed to waive in advance a portion of its management
fees and made payments of other expenses incurred by the Portfolio. Had such
action not been taken, the ratios of expenses to average net assets would have
been as follows:
<TABLE>
<CAPTION>
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
<S> <C>
U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
1992.................................................................. .41%*
1993.................................................................. .42
1993**................................................................ .41*
1994***............................................................... .42
ADJUSTABLE RATE SECURITIES PORTFOLIO
1993.................................................................. .64
1993**................................................................ .47*
1994***............................................................... .43
</TABLE>
46
<PAGE>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
Adjustable Rate Securites Portfolios:
We have audited the accompanying statements of assets and liabilities of
the two portfolios comprising the Adjustable Rate Securities Portfolios (the
Trust), including each Portfolio's statement of investments in securities and
net assets, as of October 31, 1994, and the related statements of operations
for the year then ended, the statements of changes in net assets for the year
then ended and for the nine months ended October 31, 1993 and the financial
highlights for each of the periods indicated in Note 7. These financial
statements and financial highlights are the responsibility of the Trusts'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of October 31, 1994, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the two Portfolios comprising the Adjustable Rate Securities Portfolios as
of October 31, 1994, the results of each Portfolio's operations for the
year then ended, the changes in their net assets for the year then ended and
for the nine months ended October 31, 1993, and the financial highlights
for each of the periods indicated in Note 7 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 7, 1994
47
<PAGE>
FRANKLIN INVESTORS SECURITIES TRUST
File Nos. 33-11444 & 811-4986
FORM N-1A
PART C: Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements are incorporated herein by
reference to the Registrant's Annual Report to
Shareholders dated October 31, 1994 as filed with the
SEC on Form Type N-30D on February 24, 1995.
(i) Report of Independent Auditors - December 7, 1994
(ii) Statements of Investments in Securities and Net
Assets - October 31, 1994
(iii)Statements of Assets and Liabilities - October 31,
1994
(iv) Statements of Operations - for the year ended
October 31, 1994
(v) Statements of Changes in Net Assets - for the year
ended October 31, 1994 and for the nine months
ended October 31, 1993.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are attached herewith, except 6(ii), 8(ii)
and (iii), 14(i), (ii), (iii), (iv) and (v), and 16(i) which are
incorporated by reference as noted.
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated December
16, 1986
(ii) Certificate of Amendment to Agreement and
Declaration of Trust dated March 13, 1990
(iii)Certificate of Amendment of Agreement and
Declaration of Trust dated March 21, 1995
(2) copies of the existing By-Laws or instruments
corresponding thereto;
(i) By-Laws
(ii) Amendment to By-laws dated February 28, 1994
(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 dated April 15, 1987 between
Franklin Investors Securities Trust and Franklin
Advisers, Inc.
(ii) Administration Agreement dated June 3, 1991 between
Franklin Adjustable U.S. Government Securities Fund
and Franklin Advisers, Inc.
(iii)Administration Agreement dated December 26, 1991
between Franklin Adjustable Rate Securities Fund
and Franklin Advisers, Inc.
(iv) Subadvisory Agreement between Franklin Advisers,
Inc. and Templeton Investment Counsel, Inc.
providing for service to Franklin Investors
Securities Trust on behalf of the Franklin Global
Government Income Fund dated May 1, 1994.
(6) copies of each underwriting or distribution contract
between the Registrant and a principal underwriter, and
specimens or copies of all agreements between principal
underwriters and dealers;
(i) Form of Amended and Restated Distribution
Agreement between Registrant and Franklin/Templeton
Distributors, Inc.
(ii) Form of Dealer Agreement between Franklin/
Templeton Distributors, Inc. and securities dealers
Registrant: Frankin Federal Tax-Free Income Fund
Filing: Post Effective Amendment No. 17 to
Registration Statement on Form N1-A
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 trustees 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 renumeration;
(i) Custody Agreement between Registrant and Bank of
America National Trust and Savings Association
dated March 12, 1993
(ii) Amendment to Custodian Agreement between
Registrant and Bank of America National Trust and
Savings Association dated December 1, 1994:
Registrant: Franklin Premier Return Fund Filing:
Post-Effective Amendment No. 54 to Registration on
Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iii) Copy of Custodian Agreements between Registrant
and Citibank Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master
Agreement
3. Short Form Bank Agreement - Deposits and
Disbursements of Funds
Registrant: Franklin Premier Return Fund Filing:
Post-Effective Amendment No. 54 to Registration
on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(9) copies of all other material contracts not made in the
ordinary course of business which are to be performed in
whole or in part at or after the date of filing the
Registration Statement;
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
(12) all financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in
consideration for providing the initial capital between
or among the Registrant, the underwriter, adviser,
promoter or initial stockholders and written assurances
from promoters or initial stockholders that their
purchases were made for investment purposes without any
present intention of redeeming or reselling;
(i) Letter of Understanding dated April 12, 1995
(14) copies of the model plan used in the establishment of
any retirement plan in conjunction with which Registrant
offers its securities, any instructions thereto and any
other documents making up the model plan. Such form(s)
should disclose the costs and fees charged in connection
therewith;
(i) Franklin IRA Form
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(ii) Franklin 403(b) Retirement Plan
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(iii)Franklin Trust Company Insured CD IRA
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(iv)Franklin Business Retirement Plans
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(v) Franklin SEP-IRA (5305-SEP and 5305A-SEP)
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(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 between Franklin Global
Government Income Fund and Franklin/Templeton
Distributors, Inc., effective May 1, 1994
(ii) Distribution Plan between Franklin Short
Intermediate U.S. Government Securities Fund and
Franklin/Templeton Distributors, Inc., Effective
May 1, 1994
(iii)Distribution Plan between Franklin Convertible
Securities Fund and Franklin/Templeton
Distributors, Inc., effective May 1, 1994
(iv) Amended and restated Distribution Plan between
Franklin Adjustable U.S. Government Securities Fund
and Franklin/Templeton Distributors, Inc. effective
July 1, 1993
(v) Distribution Plan between Franklin Equity Income
Fund and Franklin/Templeton Distributors, Inc.,
effective May 1, 1994
(vi) Amended and restated Distribution Plan between
Franklin Adjustable Rate Securities Fund and
Franklin/Templeton Distributors, Inc., effective
July 1, 1993
(vii)Form of Class II Distribution Plan pursuant to Rule
12b-1 on behalf of Franklin Global Government
Income Fund
(viii)Form of Class II Distribution Plan pursuant to Rule
12b-1 on behalf of Franklin Equity Income Fund
(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
Registrant: Franklin Tax-Advantaged U.S.
Government Securities Fund
Filing: Post Effective Amendment No. 8 to
Registration Statement of Registrant on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995
(17) Power of Attorney
(i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
Item 25. Persons Controlled by or under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
As of February 28, 1995, the number of shareholders of record of
Registrant's shares were as follows:
<TABLE>
<C>
Record Holders
Class I Class II
<S> <C> <C>
Franklin Global Government Income Fund 12,484 None
</TABLE>
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 and/or directors for (1) the adviser's
corporate parent, Franklin Resources, Inc., and/or (2) other
investment companies in the Franklin Group of Funds. For
additional information, please see Part B.
Item 29. Principal Underwriters.
(a) Franklin/Templeton Distributors, Inc.("Distributors") also
acts as principal underwriter of shares of AGE High Income Fund,
Inc., Franklin Custodian Funds, Inc. , Franklin Tax-Exempt Money
Fund, Franklin Equity Fund, Franklin Gold Fund, Franklin Municipal
Securities Trust, Franklin California Tax-Free Income Fund, Inc.,
Franklin New York Tax-Free Income Fund, Inc., Franklin California
Tax-Free Trust, Franklin Premier Return Fund, Franklin Tax-Free
Trust, Franklin New York Tax-Free Trust, Franklin Strategic
Mortgage Portfolio, Franklin Strategic Series, Franklin
International Trust, Franklin Tax-Advantaged International Bond
Fund, Franklin Tax-Advantaged U.S. Government Securities Fund,
Franklin Tax-Advantaged High Yield Securities Fund, Franklin
Managed Trust, Franklin Balance Sheet Investment Fund, Franklin
Federal Tax- Free Income Fund, Institutional Fiduciary Trust,
Franklin Money Fund, Franklin Federal Money Fund,
Franklin/Templeton Global Trust, Templeton Global Investment
Trust, Templeton Variable Annuity Fund, Templeton Variable
Products Series Fund, Templeton Real Estate Securities Fund,
Templeton Growth Fund, Inc., Templeton Funds, Inc., Templeton
Smaller Companies Growth Fund, Inc., Templeton Income Trust,
Templeton Global Opportunities Trust, Templeton Institutional
Funds, Inc., Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., and Templeton Developing Markets Trust and
Franklin/Templeton Japan Fund.
(b) The information required by this Item 29 with respect to each
director and officer of Distributors is incorporated by reference
to Part B of this N-1A and Schedule A of Form BD filed by
Distributors with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934 (SEC File No. 85889).
(c) Not Applicable. Registrant's principal underwriter is 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 and the
Rules thereunder are kept by the Registrant or its shareholder
services agent, Franklin/Templeton Investor Services, Inc., both
of whose address is 777 Mariners Island Blvd., San Mateo,
California 94404.
Item 31. Management Services
There are no management-related service contracts not discussed in
Part A or Part B.
Item 32. Undertakings
(a) Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of
removal of any 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
communicating with other shareholders in accordance with the
requirements of Section 16(c) of the Investment Company Act of
1940.
(b) The Registrant hereby undertakes to comply with the
information requirement in Item 5A of the Form N-1A by including
the required information in the Trust's annual report and to
furnish each person to whom a prospectus is delivered a copy of
the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post
Effective Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this
Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of San
Mateo and the State of California, on the 24th day of April, 1995.
FRANKLIN INVESTORS SECURITIES TRUST
(Registrant)
By: Edward B. Jamieson*
Edward B. Jamieson, 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:
Edward B. Jamieson* Trustee and Principal Executive Officer
Edward B. Jamieson Dated: April 24, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: April 24, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: April 24, 1995
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: April 24, 1995
Harris J. Ashton* Trustee
Harris J. Ashton Dated: April 24, 1995
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: April 24, 1995
David W. Garbellano* Trustee
David W. Garbellano Dated: April 24, 1995
Charles B. Johnson* Trustee
Charles B. Johnson Dated: April 24, 1995
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: April 24, 1995
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: April 24, 1995
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: April 24, 1995
*By/s/Larry L. Greene
Larry L. Greene, Attorney-in-Fact
Pursuant to Power of Attorney filed herewith
FRANKLIN INVESTORS SECURITIES TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING
SYSTEM
EX-99.B1(i) Agreement and Declaration Attached
of Trust dated December 16,
1986
EX-99.B1(ii) Certificate of Amendment to Attached
Agreement and Declaration
of Trust dated August 11,
1987
EX-99.B1(iii) Certificate of Amendment to Attached
Agreement and Declaration
of Trust dated December 8,
1987
EX-99.B2(i) By-Laws Attached
EX-99.B2(ii) Amendment to By-laws dated Attached
February 28, 1994
EX-99.B5(i) Management Agreement Attached
between Registrant and
Franklin Advisors, Inc.
EX-99.B5(ii) Administration Agreement Attached
between Franklin Adjustable
U.S. Government Securiites
Fund and Franklin Advisors,
Inc.
EX-99.B5(iii) Administration Agreement Attached
between Franklin Adjustable
Rate Securities Fund and
Franklin Advisors, Inc.
EX-99.B5(iv) Sub-advisory Agreement Attached
between Franklin Advisers,
Inc. and Templeton
Investment Counsel, Inc.
Dated May 1, 1994
EX-99.B6(i) Amendmended and Restated Attached
Distribution Agreement
between Registrant and
Franklin Distributors Inc.
dated April 20, 1993
EX-99.B8(i) Custody Agreement between Attached
Registrant and Bank of
America National Trust and
Savings Association dated
March 12, 1993
EX-99.B8(ii) Amendment to Custodian *
Agreement between
Registrant and Bank of
America, National Trust and
Savings Association dated
December 1, 1994
EX-99.B8(iii) Copy of Custodian *
Agreements between
Registrant and Citibank
Delaware
EX-99.B10(i) Opinion and consent of *
counsel
EX-99.B11(i) Consent of Independent Attached
Auditors to Report for
Franklin Investors
Securities Trust
EX-99.B13(i) Letter of Understanding Attached
dated April 12, 1995
EX-99.B14(i) Franklin IRA Form Filed *
August 1, 1989
EX-99.B14(ii) Franklin 403(b) Retirement *
Plan filed August 1, 1989
EX- Franklin Trust Company *
99.B14(iii) Insured CD IRA Filed August
1, 1989
EX-99.B14(iv) Franklin Business *
Retirement Plans filed
August 1, 1989
EX-99.B14(v) Franklin SEP-IRA (5305-SEP *
and 5305A-SEP filedAugust
1, 1989
EX-99.B15(i) Amended and restated Attached
Distribution Plan between
Franklin Adjustable Rate
Securities Fund and
Franklin/Templeton
Distributors, Inc.
Effective July 1, 1993
EX-99.B15(ii) Amended and restated Attached
Distribution Plan between
Franklin Adjustable U.S.
Government Securities Fund
and Franklin/Templeton
Distributors, Inc.
Effective July 1, 1993
EX-9.B15(iii) Distribution plan between Attached
Franklin Convertible
Securities Fund and
Franklin/Templeton
Distributors, Inc.
Effective May 1, 1994
EX-99.B15(iv) Distribution Plan between Attached
Franklin Equity Income Fund
and Franklin/Templeton
Distributors, Inc.
Effective May 1, 1994
EX-99.B15(v) Distribution Plan between Attached
Franklin Global Government
Income Fund and
Franklin/Templeton
Distributors, Inc.
Effective May 1, 1994
EX-99B.15(vi) Distribution Plan between Attached
Franklin Short Intermediate
U.S. Goverment Securities
Fund and Franklin/Templeton
Distributors, Inc.
Effective Effective May 1,
1994
EX-9B.15(vii) Class II Distribution Plan Attached
between Franklin Investors
Securities Trust and
Franklin Global Government
Income Fund Class II and
Franklin/Templeton
Distributors, Inc. dated
March 30, 1995
EX- Class II Distribution Plan Attached
99B.15(viii) between Franklin Investors
Securities Trust and
Franklin Equity Income Fund
Class II and
Franklin/Templeton
Distributors, Inc. dated
March 30, 1995
EX-99.B16(i) Schedule for computation of *
performance quotation
EX-99.B17(i) Power of Attorney Attached
EX-99.B17(ii) Certificate of Secretary Attached
*Incorporated by Reference
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN INVESTORS SECURITIES TRUST
a Massachusetts Business Trust
Dated: December 16, 1986
TABLE OF CONTENTS
FRANKLIN INVESTORS SECURITIES TRUST
AGREEMENT AND DECLARATION OF TRUST
page No.
ARTICLE I Name and Definitions 1
1. Name l
2. Definitions 1
(a) Trust 1
(b) Trustees 1
(c) Shares 1
(d) Shareholder 2
(e) 1940 Act 2
(f) Commission and Principal Underwriter 2
(g) Declaration of Trust 2
(h) By-Laws 2
(i) Series Company 2
(j) Series 2
ARTICLE II Purpose of Trust 2
ARTICLE III Shares 2
1. Division of Beneficial Interest 2
2. Ownership of Shares 3
3. Investments in the Trust 3
4. Status of Shares and Limitation of
Personal Liability 3
5. Power of Trustees to Change Provisions
Relating to Shares 3
6. Establishment and Designation of Series 5
(a) Assets Belonging to Series 5
(b) Liabilities Belonging to Series 5
(c) Dividends, Distributions, Redemptions,
and Repurchases 6
(d) Voting 6
(e) Equality 6
(f) Fractions 6
(g) Exchange Privilege 6
(h) Combination of Series 7
(i} Elimination of Series 7
7. Indemnification of Shareholders 7
8. Initial Designation of Series 7
ARTICLE IV The Trustees 7
1. Election and Tenure 7
2. Effect of Death, Resignation, etc.
3. Powers 8
4. Payment of Expenses by the Trust 11
5. Payment of Expenses by Shareholders 11
6. Ownership of Assets of the Trust 11
7. Service Contracts 12
ARTICLE V Shareholders' Voting Powers and Meetings 13
l. Voting Powers 13
2. Voting Power and Meetings 14
3. Quorum and Required Vote 14
4. Action by Written Consent 14
5. Record Dates 14
6. Additional Provisions 15
ARTICLE VI Net Asset Value, Distributions, and Redemptions 15
1. Determination of Net Asset Value, Net
Income and Distributions 15
2. Redemptions and Repurchases 15
3. Redemptions at the Option of the Trust 16
ARTICLE VII Compensation and Limitation of
Liability of Trustees 16
1. Compensation 16
2. Limitation of Liability 16
3. Indemnification 17
ARTICLE VIII Miscellaneous 17
1. Trustees, Shareholders, etc.
Not Personally Liable; Notice 17
2. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety 18
3. Liability of Third Persons Dealing
with Trustees 18
4. Termination of Trust or Series 18
5. Merger and Consolidation 18
6. Filing of Copies, References, Headings 19
7. Applicable Law 19
8. Amendments 19
9. Trust Only 19
10. Use of the Name "Franklin" 19
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN INVESTORS SECURITIES TRUST
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered
into as of this 16th day of December, 1986 by the Trustees named
hereunder.
WHEREAS the Trustees desire and have agreed to manage all
property coming into their hands as trustees of a Massachusetts
business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that this
Agreement and Declaration of Trust be filed with the Secretary of
The Commonwealth of Massachusetts and do hereby declare that they
will hold all cash, securities and other assets, which they may
from time to time acquire in any manner as Trustees hereunder, IN
TRUST, and manage and dispose of the same upon the following
terms and conditions for the pro rata benefit of the holders of
Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the FRANKLIN
INVESTORS SECURITIES TRUST and the Trustees shall conduct the
business of the Trust under that name or any other name as they
may from time to time determine.
Section 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) "Trustees" refers to the persons named at the end of
this Declaration of Trust and constituting the Board of Trustees
of the Trust, so long as they continue in office in accordance
with the terms hereof, and all other persons who may from time to
time be duly elected or appointed to serve on the Board of
Trustees in accordance with Article IV hereof;
(c) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust or in the Trust
property belonging to any Series of the Trust (as the context may
require) shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended
from time to time;
(f) The terms "Commission" and "Principal Underwriter" shall
have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time;
(i) "Series Company" refers to the form of registered open-
end investment company described in Section 18(f)(2) of the 1940
Act or in any successor statutory provision; and
(j) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article
III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on
the business of a managed investment company registered under the
1940 Act through one or more portfolios invested primarily in
securities.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into an
unlimited number of Shares, with a par value of $ .01 per Share.
Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof,
and holders of the Shares of any Series shall be entitled to
receive dividends, when and as declared with respect thereto in
the manner provided in Article VI, Section 1 hereof. No Shares
shall have any priority or preference over any other Share of the
same Series with respect to dividends or distributions upon
termination of the Trust or of such Series made pursuant to
Article VIII, Section 4 hereof. All dividends and distributions
shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such
Shareholder on the record date for any dividend or on the date of
termination, as the case may be. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares
of that Series without thereby changing the proportionate
beneficial interest of the Shares of that Series in the assets
belonging to that Series or in any way affecting the rights of
Shares of any other Series.
Section 2. Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series. No certificates
certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the
transfer of Shares of each Series and similar matters. The
record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and as to the number of
Shares of each Series held from time to time by each.
Section 3. Investments in the Trust. The Trustees may
accept investments in the Trust from such persons, at such times,
on such terms, and for such consideration as they from time to
time authorize.
Section 4. Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving
only the rights provided in this instrument. Every Shareholder
by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but entitles such representative only
to the rights of said deceased Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees,
nor any officer, employee or agent of the Trust shall have any
power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to
pay.
Section 5. Power of Board of Trustees to Change Provisions
Relating to Shares. Notwithstanding any other provision of this
Declaration of Trust and without limiting the power of the Board
of Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Board of Trustees shall have the power to
amend this Declaration of Trust, at any time and from time to
time, in such manner as the Board of Trustees may determine in
their sole discretion, without the need for Shareholder action,
so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration
of Trust, provided that before adopting any such amendment
without Shareholder approval the Board of Trustees shall
determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law.
Without limiting the generality of the foregoing, the Board
of Trustees may, for the above-stated purposes, amend the
Declaration of Trust to:
(a) create one or more Series of Shares (in addition to any
Series already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment
therein as the Trustees shall determine and reclassify any or all
outstanding Shares as shares of a particular Series in accordance
with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III;
(c) combine one or more Series of Shares into a single
Series on such terms and conditions as the Trustees shall
determine;
(d) change or eliminate any eligibility requirements for
investment in Shares of any Series, including without limitation,
to provide for the issue of Shares of any Series in connection
with any merger or consolidation of the Trust with another trust
or company or any acquisition by the Trust of part or all of the
assets of another trust or investment company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among the
various Series of Shares;
(g) allocate any specific assets or liabilities of the Trust
or any specific items of income or expense of the Trust to one or
more Series of Shares;
(h) specifically allocate assets to any or all Series of
Shares or create one or more additional Series of Shares which
are preferred over all other Series of Shares in respect of
assets specifically allocated thereto or any dividends paid by
the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or
other rights with respect to such Series.
Section 6. Establishment and Designation of Series. Except
as set forth in Section 8 of this Article III, the establishment
and designation of any other Series of Shares shall be effective
upon the resolution by a majority of the then Trustees, setting
forth such establishment and designation and the relative rights
and preferences of such Series, or as otherwise provided in such
resolution. Such establishment and designation shall be set
forth in an amendment to this Declaration of Trust as provided in
Section 8 of Article VIII.
Shares of each Series established pursuant to this Section
6, unless otherwise provided in the resolution establishing such
Series, shall have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received
by the Trust for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and
proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from
whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that Series. In the event
that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable, and any General Asset so allocated to a particular
Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of
all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging
to each particular Series shall be charged with the liabilities
of the Trust in respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged
by the Trustees to and among any one or more of the Series in
such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein
referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the holders
of all Series for all purposes. Under no circumstances shall the
assets allocated or belonging to any particular Series be charged
with liabilities attributable to any other Series. All persons
who have extended credit which has been allocated to a particular
Series, or who have a claim or contract which has been allocated
to any particular Series, shall look only to the assets of that
particular Series for payment of such credit, claim, or contract.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of
Trust, including, without limitation, Article VI, no dividend or
distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series) with respect
to, nor any redemption or repurchase of, the Shares of any Series
shall be effected by the Trust other than from the assets
belonging to such Series, nor, except as specifically provided in
Section 7 of this Article III, shall any Shareholder of any
particular Series otherwise have any right or claim against the
assets belonging to any other Series except to the extent that
such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items
as capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a
matter shall vote separately by Series. That is, the
Shareholders of each Series shall have the right to approve or
disapprove matters affecting the Trust and each respective Series
as if the Series were separate companies. There are, however,
two exceptions to voting by separate Series. First, if the 1940
Act requires all Shares of the Trust to be voted in the aggregate
without differentiation between the separate Series, then all the
Trust's Shares shall be entitled to vote on a one-vote-per-Share
basis. Second, if any matter affects only the interests of some
but not all Series, then only the Shareholders of such affected
Series shall be entitled to vote on the matter.
(e) Equality. All the Shares of each particular Series
shall represent an equal proportionate interest in the assets
belonging to that Series (subject to the liabilities belonging to
that Series), and each Share of any particular Series shall be
equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share
of that Series, including rights with respect to voting, receipt
of dividends and distributions, redemption of Shares and
termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.
(h) Combination of Series. The Trustees shall have the
authority, without the approval of the Shareholders of any Series
unless otherwise required by applicable law, to combine the
assets and liabilities belonging to any two or more Series into
assets and liabilities belonging to a single Series.
(i) Elimination of Series. At any time that there are no
Shares outstanding of any particular Series previously
established and designated, the Trustees may amend this
Declaration of Trust to abolish that Series and to rescind the
establishment and designation thereof, such amendment to be
effected in the manner provided in Section 5 of this Article III.
Section 7. Indemnification of Shareholders. In case any
Shareholder or former Shareholder shall be held to be personally
liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or
for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal
representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out
of the assets of the Trust to be held harmless from and
indemnified against all loss and expense arising from such
liability.
Section 8. Initial Designation of Series. Subject to the
relative rights and preferences and other terms of this Agreement
and Declaration of Trust, the Trustees authorize the
establishment of two (2) initial Series to be designated as
follows: Franklin Short-Intermediate U.S. Government Securities
Fund and Franklin Convertible Securities Fund.
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of
Trustees constituting the Board of Trustees shall be nine (9),
unless such number shall be changed from time to time by a
written instrument signed by a majority of the Board of Trustees,
provided, however, that the number of Trustees shall in no event
be less than one nor more than 15. The Board of Trustees, by
action of a majority of the then Trustees at a duly constituted
meeting, may fill vacancies in the Board of Trustees or remove
Trustees with or without cause. Each Trustee shall serve during
the continued lifetime of the Trust until he dies, resigns, is
declared bankrupt or incompetent by a court of appropriate
jurisdiction, or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his
successor. Any Trustee may resign at any time by written
instrument signed by him and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some
other time. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee
removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on
account of such removal. The Shareholders may fix the number of
Trustees and elect Trustees at any meeting of Shareholders called
by the Trustees for that purpose.
Section 2. Effect of Death, Resignation, etc. of a Trustee.
The death, declination, resignation, retirement, removal, or
incapacity of one or more Trustees, or all of them, shall not
operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until
such vacancy is filled as provided in Article IV, Section 1, the
Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by this Declaration of Trust.
As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an
officer of the Trust or by a majority of the Board of Trustees.
In the event of the death, declination, resignation, retirement,
removal, or incapacity of all the then Trustees within a short
period of time and without the opportunity for at least one
Trustee being able to appoint additional Trustees to fill
vacancies, the Trust's investment adviser or investment advisers
jointly, if there is more than one, are empowered to appoint new
Trustees subject to the provisions of Section 16(a) of the 1940
Act.
Section 3. Powers. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing,
the Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the regulation and management
of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and
may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own
number and establish and terminate one or more committees
consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the
Trustees determine; employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities or with
a Federal Reserve Bank, retain a transfer agent or a shareholder
servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or
more Principal Underwriters or otherwise; redeem, repurchase and
transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and
in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian,
transfer or shareholder servicing agent, or Principal
Underwriter. Any determination as to what is in the interests of
the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the
Trustees.
Without limiting the foregoing, the Board of Trustees shall
have power and authority:
(a) To invest and reinvest cash, to hold cash uninvested,
and to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, own, hold, pledge, sell, assign, transfer,
exchange, distribute, write options on, lend or otherwise deal in
or dispose of contracts for the future acquisition or delivery of
fixed income or other securities, and securities of every nature
and kind, including, without limitation, all types of bonds,
debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit
or indebtedness, commercial paper, repurchase agreements,
bankers' acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all persons,
including, without limitation, states, territories, and
possessions of the United States and the District of Columbia and
any political subdivision, agency, or instrumentality thereof,
any foreign government or any political subdivision of the U.S.
Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the
United States or of any state, territory, or possession thereof,
or by any corporation or organization organized under any foreign
law, or in "when issued" contracts for any such securities, to
change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership
or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations, or
corporations to exercise any of said rights, powers, and
privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any
property rights relating to any or all of the assets of the
Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee, depositary or trustee, and to delegate to
them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion
of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of the
Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust or payment of
distributions and principal on its portfolio investments, and
insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, principal underwriters,
or independent contractors of the Trust, individually against all
claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any
such person as Trustee, officer, employee, agent, investment
adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the
power to indemnify such person against liability; and
(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trustees shall not in any way
be bound or limited by any present or future law or custom in
regard to investment by fiduciaries. The Trustees shall not be
required to obtain any court order to deal with any assets of the
Trust or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees
are authorized to pay or cause to be paid out of the principal or
income of the Trust, or partly out of the principal and partly
out of income, as they deem fair, all expenses, fees, charges,
taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including,
but not limited to, the Trustees' compensation and such expenses
and charges for the services of the Trust's officers, employees,
investment adviser or manager, principal underwriter, auditors,
counsel, custodian, transfer agent, Shareholder servicing agent,
and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper
to incur.
Section 5. Payment of Expenses by Shareholders. The
Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder, or each Shareholder of any
particular Series, to pay directly, in advance or arrears, for
charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by
the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of shares in the
account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all
of the assets of the Trust shall at all times be considered as
vested in the Trustees.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be
set forth in the By-Laws, the Trustees may, at any time and from
time to time, contract for exclusive or nonexclusive advisory
and/or management services for the Trust or for any Series with
any corporation, trust, association or other organization (the
"Manager"); and any such contract may contain such other terms as
the Trustees may determine, including without limitation,
authority for the Manager to determine from time to time without
prior consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion, if any, of
the assets of the Trust shall be held uninvested and to make
changes in the Trust's investments.
(b) The Trustees may also, at any time and from time to
time, contract with any corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor
or Principal Underwriter for the Shares of one or more of the
Series. Every such contract shall comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may
determine.
(c) The Trustees are also empowered, at any time and from
time to time, to contract with any corporations, trusts,
associations or other organizations, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract
shall comply with such requirements and restrictions as may be
set forth in the By-Laws or stipulated by resolution of the
Trustees.
(d) The Trustees are further empowered, at any time and from
time to time, to contract with any entity to provide such other
services to the Trust or one or more of the Series, as the
Trustees determine to be in the best interests of the Trust and
the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter,
distributor, or affiliate or agent of or for any
corporation, trust, association, or other organization, or
for any parent or affiliate of any organization with which
an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other type of service contract may
have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract
or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other type of service
contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's
or distributor's contract, or transfer, shareholder
servicing or other service contract with one or more other
corporations, trust, associations, or other organizations,
or has other business or interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of
Article III, Section 6(d), the Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Article
IV, Section 1, (ii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the
Trust or the Shareholders, (iii) with respect to the termination
of the Trust or any Series to the extent and as provided in
Article VIII, Section 4, and (iv) with respect to such additional
matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall
rest on the challenger. At any time when no Shares of a Series
are outstanding, the Trustees may exercise all rights of
Shareholders of that Series with respect to matters affecting
that Series, take any action required by law, this Declaration of
Trust or the By-Laws, to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven (7) days before such meeting, postage prepaid,
stating the time and place of the meeting, to each Shareholder at
the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his attorney thereunto authorized and filed
with the records of the meeting, shall be deemed equivalent to
such notice.
Section 3. Quorum and Required Vote. Except when a larger
quorum is required by applicable law, by the By-Laws or by this
Declaration of Trust, forty percent (40%) of the Shares entitled
to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series is to vote as a single class separate
from any other Shares which are to vote on the same matters as a
separate class or classes, forty percent (40%) of the Shares of
each such Series entitled to vote shall constitute a quorum at a
Shareholder's meeting of that Series. Any meeting of
Shareholders may be adjourned from time to time by a majority of
the votes properly cast upon the question of adjourning a meeting
to another date and time, whether or not a quorum is present, and
the meeting may be held as adjourned within a reasonable time
after the date set for the original meeting without further
notice. Subject to the provisions of Article III, Section 6(d),
when a quorum is present at any meeting, a majority of the Shares
voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision
of this Declaration of Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter
(or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust or by the By-Laws)
and holding a majority (or such larger proportion as aforesaid)
of the Shares of any Series entitled to vote separately on the
matter consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining
the Shareholders of any Series who are entitled to vote or act at
any meeting or any adjournment thereof, the Trustees may from
time to time fix a time, which shall be not more than ninety (90)
days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series
having the right to notice of and to vote at such meeting and any
adjournment thereof, and in such case only Shareholders of record
on such record date shall have such right, notwithstanding any
transfer of shares on the books of the Trust after the record
date. For the purpose of determining the Shareholders of any
Series who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such
dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to
receive such dividend or distribution. Without fixing a record
date the Trustees may for voting and/or distribution purposes
close the register or transfer books for one or more Series for
all or any part of the period between a record date and a meeting
of Shareholders or the payment of a distribution. Nothing in
this Section shall be construed as precluding the Trustees from
setting different record dates for different Series.
Section 6. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net Income,
and Distributions. Subject to Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall
set forth in the By-Laws or in a duly adopted vote of the
Trustees such bases and time for determining the per Share or net
asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases. The Trust shall
purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, as determined in
accordance with the By-Laws and applicable law, next determined.
Payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request
is made in proper form. The obligation set forth in this Section
2 is subject to the provision that in the event that any time the
New York Stock Exchange is closed for other than weekends or
holidays, or if permitted by the Rules of the Commission during
periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for the Trust to dispose
of the investments of the applicable Series or to determine
fairly the value of the net assets belonging to such Series or
during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or
postponed by the Trustees.
The redemption price may in any case or cases be paid wholly
or partly in kind if the Trustees determine that such payment is
advisable in the interest of the remaining Shareholders of the
Series for which the Shares are being redeemed. Subject to the
foregoing, the fair value, selection and quantity of securities
or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the
Trustees. In no case shall the Trust be liable for any delay of
any corporation or other person in transferring securities
selected for delivery as all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The
Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof
as described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series having an aggregate
net asset value of less than an amount determined from time to
time by the Trustees, but not to exceed $1,000; or (ii) to the
extent that such Shareholder owns Shares equal to or in excess of
a percentage, determined from time to time by the Trustees, of
the outstanding Shares of the Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may
fix the amount of such compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not
be responsible or liable in any event for any neglect or wrong-
doing of any officer, agent, employee, manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to
which he would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
Section 3. Indemnification. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for and to provide by resolution or
in the By-Laws for indemnification out of Trust assets for
liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with
any claim, action, suit or proceeding in which he becomes
involved by virtue of his capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations
concerning indemnification, may be set forth in detail in the By-
Laws or in a resolution of the Board of Trustees.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally
Liable; Notice. All persons extending credit to, contracting
with or having any claim against the Trust or any Series shall
look only to the assets of the Trust, or, to the extent that the
liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets
belonging to the relevant Series, for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor.
Nothing in this Declaration of Trust shall protect any Trustee
against any liability to which such Trustee would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued on behalf of the Trust by the Board of
Trustees, by any officers or officer or otherwise may include a
notice that this Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts and may recite
that the note, bond, contract, instrument, certificate, or
undertaking was executed or made by or on behalf of the Trust or
by them as Trustee or Trustees or as officers or officer or
otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders
individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series for the
benefit of which the Trustees have caused the note, bond,
contract, instrument, certificate or undertaking to be made or
issued, and may contain such further recital as he or they may
deem appropriate, but the omission of any such recital shall not
operate to bind any Trustee or Trustees or officer or officers or
Shareholders or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No
Bond or Surety. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable solely for his own wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with
Trustees. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
Section 4. Termination of Trust or Series. Unless
terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by
vote of at least two-thirds (66-2/3%) of the Shares of each
Series entitled to vote, voting separately by Series, or by the
Trustees by written notice to the Shareholders. Any Series may
be terminated at any time by vote of at least two-thirds (66-
2/3%) of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case
may be), after paying or otherwise providing for all charges,
taxes, expenses and liabilities belonging, severally, to each
Series (or the applicable Series, as the case may be), whether
due or accrued or anticipated as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets
belonging, severally, to each Series (or the applicable Series,
as the case may be), to distributable form in cash or shares or
other securities, or any combination thereof, and distribute the
proceeds belonging to each Series (or the applicable Series, as
the case may be), to the Shareholders of that Series, as a
Series, ratably according to the number of Shares of that Series
held by the several Shareholders on the date of termination.
Section 5. Merger and Consolidation. The Trustees may
cause the Trust or one or more of its Series to be merged into or
consolidated with another Trust or company or the Shares
exchanged under or pursuant to any state or Federal statute, if
any, or otherwise to the extent permitted by law. Such merger or
consolidation or Share exchange must be authorized by vote of a
majority of the outstanding Shares of the Trust, as a whole, or
any affected Series, as may be applicable; provided that in all
respects not governed by statute or applicable law, the Trustees
shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or
consolidation.
Section 6. Filing of Copies, References, Headings. The
original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of
each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any
such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as
if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any
such amendments. In this instrument and in any such amendment,
references to this instrument, and all expressions like "herein",
"hereof" and "hereunder", shall be deemed to refer to this
instrument as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of
which shall be deemed an original.
Section 7. Applicable Law. This Agreement and Declaration
of Trust is created under and is to be governed by and construed
and administered according to the laws of The Commonwealth of
Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be
amended at any time by an instrument in writing signed by a
majority of the then Trustees.
Section 9. Trust Only. It is the intention of the Trustees
to create only the relationship of Trustee and beneficiary
between the Trustees and each Shareholder from time to time. It
is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other
than a trust. Nothing in this Agreement and Declaration of Trust
shall be construed to make the Shareholders, either by themselves
or with the Trustees, partners or members of a joint stock
association.
Section 10. Use of the Name "Franklin." Franklin Advisers,
Inc., as the proposed Manager, has consented to the use by the
Trust of the identifying word "Franklin" as part of the name of
the Trust and in the name of any Series of Shares. Such consent
is conditioned upon the employment of the Manager, or an
affiliate of said Company, as Manager of the Trust and said
Series. The name or identifying words "Franklin" or any
variation thereof may be used from time to time in other
connections and for other purposes by the Manager or affiliated
entities. The Manager has the right to require the Trust to
cease using "Franklin" in the name of the Trust and in the names
of its Series if the Trust and said Series cease to employ, for
any reason, the Manager, or an affiliate of said Company, as the
investment manager or adviser of the Trust or such Series.
Future names adopted by the Trust for itself and its Series shall
be the property of the Manager and its affiliates, and the use of
such names shall be subject to the same conditions set forth in
this Section insofar as such name or identifying words require
the consent of the Manager.
IN WITNESS WHEREOF, the Trustees named below do hereby set
their hands as of the 16th day of December, 1986.
/s/ Charles B. Johnson /s/ Frank H. Abbott, III
CHARLES B. JOHNSON FRANK H. ABBOTT, III
/s/ Henry L. Jamieson /s/ Harris J. Ashton
HENRY L. JAMIESON HARRIS J. ASHTON
/s/ Zadoc W. Brown /s/ Frank W. T. LaHaye
ZADOC W. BROWN FRANK W. T. LAHAYE
/s/ Samuel G. Hanson /s/ David W. Garbellano
SAMUEL G. HANSON DAVID W. GARBELLANO
/s/ Jeremiah J. Bresnahan, Jr.
By: JEREMIAH J. BRESNAHAN, JR.
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST OF
FRANKLIN INVESTORS SECURITIES TRUST
The undersigned certify that:
1. They constitute a majority of the Trustees of Franklin
Investors Securities Trust, a Massachusetts business trust;
and
2. They hereby adopt the following amendments to the Agreement
and Declaration of Trust of this Trust:
a) Article III, Section 6 is hereby amended and restated
in its entirety to read as follows:
"Section 6. Establishment and Designation of
Series. Except as set forth in Section 8 of this
Article III, the establishment and designation of any
other Series of Shares, or the names of such Series,
shall be effective upon the resolution by a majority of
the then Trustees, setting forth such establishment,
and designation and the relative rights and preferences
of such Series, or as otherwise provided in such
resolution.
Shares of each Series established pursuant to this
Section 6, unless otherwise provided in the resolution
establishing such Series, shall have the following
relative rights and preferences:
(a) Assets Belonging to Series. All consideration
received by the Trust for the issue or sale of Shares
of a particular Series, together with all assets in
which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof from
whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong
to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the
books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof,
from whatever source derived, including, without
limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that Series. In
the event that there are any assets, income, earnings,
profits and proceeds thereof, funds or payments which
are not readily identifiable as belonging to any
particular Series (collectively "General Assets"), the
Trustees shall allocate such General Assets to, between
or among any one or more of the Series in such manner
and on such basis as they, in their sole discretion,
deem fair and equitable, and any General Asset so
allocated to a particular Series shall belong to that
Series. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all
Series for all purposes.
(b) Liabilities Belonging to Series. The assets
belonging to each particular Series shall be charged
with the liabilities of the Trust in respect to that
Series and all expenses, costs, charges and reserves
attributable to that Series, and any general
liabilities of the Trust which are not readily
identifiable as belonging to any particular Series
shall be allocated and charged by the Trustees to and
among any one or more of the Series in such manner and
on such basis as the Trustees in their sole discretion
deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities belonging to" that
Series. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all Series
for all purposes. Under no circumstances shall the
assets allocated or belonging to any particular Series
be charged with liabilities attributable to any other
Series. All persons who have extended credit which has
been allocated to a particular Series, or who have a
claim or contract which has been allocated to any
particular Series, shall look only to the assets of
that particular Series for payment of such credit,
claim, or contract.
(c) Dividends, Distributions, Redemptions, and
Repurchases. Notwithstanding any other provisions of
this Declaration of Trust, including, without
limitation, Article VI, no dividend or distribution
(including, without limitation, any distribution paid
upon termination of the Trust or of any Series) with
respect to, nor any redemption or repurchase of, the
Shares of any Series shall be effected by the Trust
other than from the assets belonging to such Series,
nor, except as specifically provided in Section 7 of
this Article III, shall any Shareholder of any
particular Series otherwise have any right or claim
against the assets belonging to any other Series except
to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series.
The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as
capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to
vote on a matter shall vote separately by Series. That
is, the Shareholders of each Series shall have the
right to approve or disapprove matters affecting the
Trust and each respective Series as if the Series were
separate companies. There are, however, two exceptions
to voting by separate Series. First, if the 1940 Act
requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate
Series, then all the Trust's Shares shall be entitled
to vote on a one-vote-per-Share basis. Second, if any
matter affects only the interests of some but not all
Series, then only the Shareholders of such affected
Series shall be entitled to vote on the matter.
(e) Equality. All the Shares of each particular
Series shall represent an equal proportionate interest
in the assets belonging to that Series (subject to the
liabilities belonging to that Series), and each Share
of any particular Series shall be equal to each other
Share of that Series.
(f) Fractions. Any fractional Share of a Series
shall carry proportionately all the rights and
obligations of a whole share of that Series, including
rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of
the Trust.
(g) Exchange Privilege. The Trustees shall have
the authority to provide that the holders of Shares of
any Series shall have the right to exchange said Shares
for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may
be established by the Trustees.
(h) Combination of Series. The Trustees shall have
the authority, without the approval of the Shareholders
of any Series unless otherwise required by applicable
law, to combine the assets and liabilities belonging to
any two or more Series into assets and liabilities
belonging to a single Series.
(i) Elimination of Series. The Trustees may, by a
resolution approved by a majority of the Board of
Trustees, abolish any Series and rescind the
establishment and designation thereof. Any such
dissolution shall take effect on a date set by the
Board's resolution, at which time any Shares then
outstanding shall be redeemed."
b) Article III, Section 8, is hereby amended and restated
in its entirety to read as follows:
"Section 8. Designation of Series. Subject to
the relative rights and preferences and other terms of
this Declaration of Trust, the Trust shall have six (6)
Series, designated as follows: Franklin Short-
Intermediate U.S. Government Securities Fund, Franklin
Convertible Securities Fund, Franklin Adjustable U.S.
Government Securities Fund, Franklin Special Equity
Income Fund, Franklin Global Opportunity Income Fund,
and Franklin Intermediate Municipal Securities Fund."
c) Article III is further amended by deleting Section 9 in
its entirety.
3. It is the determination of the Trustees that approval of the
shareholders of the Trust is not required by the Investment
Company Act of 1940, as amended, or other applicable law.
This amendment is made pursuant to Article III, Section 5 of
the Agreement and Declaration of Trust which empowers the
Trustees to change provisions relating to shares of the
Trust.
We declare under penalty of perjury that the matters set forth in
this certificate are true and correct of our own knowledge.
Dated: March 13, 1990
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
Frank H. Abbott, III Harris J. Ashton
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. Joseph Fortunato David W. Garbellano
/s/ Henry L. Jamieson /s/ Charles B. Johnson
Henry L. Jamieson Charles B. Johnson
/s/ Rupert H. Johnson, Jr. /s/ Edmund H. Kerr
Rupert H. Johnson, Jr. Edmund H. Kerr
/s/ Frank W. T. LaHaye
Frank W. T. LaHaye
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN INVESTORS SECURITIES TRUST
The undersigned certify that:
They constitute a majority of the Trustees of
FRANKLIN INVESTORS SECURITIES TRUST, a Massachusetts business
trust (the "Trust").
They hereby adopt the following amendment to the
Agreement and Declaration of Trust of the Trust, which deletes in
its entirety the Section of the Agreement and Declaration of
Trust entitled "Section 1. Division of Beneficial Interest." of
Article III and replaces such Section of Article III with the
following:
"Section 1. Division of Beneficial Interest.
The beneficial interest in the Trust shall at all times
be divided into an unlimited number of Shares, with a
par value of $.01 per Share. The Trustees may
authorize the division of the Shares into separate
Series and the division of Series into separate classes
or sub-series of Shares (subject to any applicable
rule, regulation or order of the Commission or other
applicable law or regulation). The different Series
and classes shall be established and designated and
shall have such preference, conversion or other rights,
voting powers, restrictions, limitations as to
dividends, qualifications, terms and conditions of
redemption and other characteristics as the Trustees
may determine.
Notwithstanding the provisions of Section 6(d) of this
Article III or any other provision of this Agreement
and Declaration of Trust, if any matter submitted to
shareholders for a vote affects only the interests of
one class of a Series then only such affected class
shall be entitled to vote on the matter. Each Share of
a Series shall have equal rights with each other Share
of that Series with respect to the assets of the Trust
pertaining to that Series. Notwithstanding any other
provision of this Agreement and Declaration of Trust,
the dividends payable to the holders of any Series (or
class) (subject to any applicable rule, regulation or
order of the Commission or any other applicable law or
regulation) shall be determined by the Trustees and
need not be individually declared, but may be declared
and paid in accordance with a formula adopted by the
Trustees. Except as otherwise provided herein, all
references in this Agreement and Declaration of Trust
to Shares or Series of Shares shall apply without
discrimination to the Shares of each Series.
Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities
issued by the Trust or any Series or class. The
Trustees may from time to time divide or combine the
Shares of any particular Series or class into a greater
or lesser number of Shares of that Series or class
without thereby changing the proportionate beneficial
interest of the Shares of that Series or class in the
assets belonging to that Series or class or in any way
affecting the rights of Shares of any other Series or
class."
It is the determination of the Trustees that
approval of the shareholders of the Trust is not required by the
Investment Company Act of 1940, as amended, or other applicable
law. This Amendment is made pursuant to Article III, Section 5
of this Agreement and Declaration of Trust which empowers the
Trustees to change provisions relating to Shares of the Trust.
We declare under penalty of perjury that the matters
set forth in this certificate are true and correct of our own
knowledge.
Dated March 21, 1995
/s/ Frank H. Abbott, III /s/ David W. Garbellano
Frank H. Abbott, III David W. Garbellano
/s/ Harris J. Ashton /s/ Charles B. Johnson
Harris J. Ashton Charles B. Johnson
/s/ S. Joseph Fortunato /s/ Rupert H. Johnson, Jr.
S. Joseph Fortunato Rupert H. Johnson, Jr.
/s/ Frank W.T. LaHaye /s/ Gordon S. Macklin
Frank W.T. LaHaye Gordon S. Macklin
BY-LAWS
OF
FRANKLIN INVESTORS SECURITIES TRUST
A Massachusetts Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall
fix and, from time to time, may change the location of the
principal executive office of the Trust at any place within or
outside The Commonwealth of Massachusetts.
Section 2. OTHER OFFICES. The Board of Trustees may at any
time establish branch or subordinate offices at any place or
places where the Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders
shall be held at any place within or outside The Commonwealth of
Massachusetts designated by the Board of Trustees. In the
absence of any such designation, shareholders' meetings shall be
held at the principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders
may be called at any time by the Board of Trustees or by the
chairman of the Board or by the president.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of
meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than seven
(7) nor more than seventy-five (75) days before the date of the
meeting. The notice shall specify (i) the place, date and hour
of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to
be elected also shall include the name of any nominee or nominees
whom at the time of the notice are intended to be presented for
election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a trustee has
a direct or indirect financial interest, (ii) an amendment of the
Declaration of Trust, (iii) a reorganization of the Trust, or
(iv) a voluntary dissolution of the Trust, the notice shall also
state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the
Trust for the purpose of notice. If no such address appears on
the Trust's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent
by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the Trust is returned
to the Trust by the United States Postal Service marked to
indicate that the Postal Service is unable to deliver the notice
to the shareholder at that address, all future notices or reports
shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the Trust
for a period of one year from the date of the giving of the
notice.
An affidavit of the mailing or other means of giving any
notice of any shareholder's meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the Trust
giving the notice and shall be filed and maintained in the minute
book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's
meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares
represented at that meeting, either in person or by proxy.
When any meeting of shareholders is adjourned to another
time or place, notice need not be given of the adjourned meeting
at which the adjournment is taken, unless a new record date of
the adjourned meeting is fixed or unless the adjournment is for
more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new
record date. Notice of any such adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 3 and 4 of
this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the
original meeting.
Section 6. VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of the Declaration of Trust, as in effect at
such time. The shareholders' vote may be by voice vote or by
ballot, provided, however, that any election for trustees must be
by ballot if demanded by any shareholder before the voting has
begun. On any matter other than elections of trustees, any
shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against
the proposal, but if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is
with respect to the total shares that the shareholder is entitled
to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
however called and noticed and wherever held, shall be as valid
as though had at a meeting duly held after regular call and
notice if a quorum be present either in person or by proxy and if
either before or after the meeting, each person entitled to vote
who was not present in person or by proxy signs a written waiver
of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any
meeting of shareholders.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects
at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened
and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at
the beginning of the meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action which may be taken at any meeting of
shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action so taken
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall
be maintained in the Trust's records. Any shareholder giving a
written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the
shareholder or their respective proxy holders may revoke the
consent by a writing received by the Secretary of the Trust
before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the action approved by
the shareholders without a meeting. This notice shall be given
in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a
trustee has a direct or indirect financial interest, (ii)
indemnification of agents of the Trust, and (iii) a
reorganization of the Trust, the notice shall be given at least
ten (10) days before the consummation of any action authorized by
that approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND
GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to action without a meeting the Board of Trustees may fix
in advance a record date which shall not be more than ninety (90)
days nor less than seven (7) days before the date of any such
meeting as provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on
which notice is given or if notice is waived, at the close of
business on the business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled to
give consent to action in writing without a meeting, (i) when no
prior action by the Board of Trustees has been taken, shall be
the day on which the first written consent is given, or (ii) when
prior action of the Board of Trustees has been taken, shall be at
the close of business on the day on which the Board of Trustees
adopt the resolution relating to that action or the seventy-fifth
day before the date of such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for
trustees or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to
the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice
of the death or incapacity of the maker of that proxy is received
by the Trust before the vote pursuant to that proxy is counted;
provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be
governed by the provisions of the General Corporation Law of the
State of California.
Section 11. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Trustees may appoint any persons other
than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders
or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may and on the request of any shareholder
or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and effect
of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of
the Declaration of Trust and these By-Laws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Trust shall be managed
and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact
number of trustees within the limits specified in the Agreement
and Declaration of Trust shall be nine (9), until changed by a
duly adopted amendment to the Declaration of Trust and these By-
Laws.
Section 3. VACANCIES. Vacancies in the Board of Trustees
may be filled by a majority of the remaining trustees, though
less than a quorum, or by a sole remaining trustee, unless the
Board of Trustees calls a meeting of shareholders for the
purposes of electing trustees. In the event that at any time
less than a majority of the trustees holding office at that time
were so elected by the holders of the outstanding voting
securities of the Trust, the Board of Trustees shall forthwith
cause to be held as promptly as possible, and in any event within
sixty (60) days, a meeting of such holders for the purpose of
electing trustees to fill any existing vacancies in the Board of
Trustees, unless such period is extended by order of the United
States Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the
Trust is a participant in or otherwise has in effect a Plan under
which the Trust may be deemed to bear expenses of distributing
its shares as that practice is described in Rule 12b-1 under the
Investment Company Act of 1940, then the selection and nomination
of the trustees who are not interested persons of the Trust (as
that term is defined in the Investment Company Act of 1940) shall
be, and is, committed to the discretion of such disinterested
trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
All meetings of the Board of Trustees may be held at any place
within or outside The Commonwealth of Massachusetts that has been
designated from time to time by resolution of the Board. In the
absence of such a designation, regular meetings shall be held at
the principal executive office of the Trust. Any meeting,
regular or special, may be held by conference telephone or
similar communication equipment, so long as all trustees
participating in the meeting can hear one another and all such
trustees shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board
of Trustees shall be held without call at such time as shall from
time to time be fixed by the Board of Trustees. Such regular
meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board
of Trustees for any purpose or purposes may be called at any time
by the chairman of the board or the president or any vice
president or the secretary or any two (2) trustees.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each trustee or sent by
first-class mail or telegram, charges prepaid, addressed to each
trustee at that trustee's address as it is shown on the records
of the Trust. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or to the telegraph company,
it shall be given at least forty-eight (48) hours before the time
of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the trustee or to a
person at the office of the trustee who the person giving the
notice has reason to believe will promptly communicate it to the
trustee. The notice need not specify the purpose of the meeting
or the place if the meeting is to be held at the principal
executive office of the Trust.
Section 7. QUORUM. A majority of the authorized number of
trustees shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of
the trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Declaration of Trust. A meeting
at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of trustees if any action
taken is approved by a least a majority of the required quorum
for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need
not be given to any trustee who either before or after the
meeting signs a written waiver of notice, a consent to holding
the meeting, or an approval of the minutes. The waiver of notice
or consent need not specify the purpose of the meeting. All such
waivers, consents, and approvals shall be filed with the records
of the Trust or made a part of the minutes of the meeting.
Notice of a meeting shall also be deemed given to any trustee who
attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given unless
the meeting is adjourned for more than forty-eight (48) hours, in
which case notice of the time and place shall be given before the
time of the adjourned meeting in the manner specified in Section
7 of this Article III to the trustees who were present at the
time of the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required
or permitted to be taken by the Board of Trustees may be taken
without a meeting if a majority of the members of the Board of
Trustees shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same
force and effect as a majority vote of the Board of Trustees.
Such written consent or consents shall be filed with the minutes
of the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees
and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be
fixed or determined by resolution of the Board of Trustees. This
Section 12 shall not be construed to preclude any trustee from
serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those
services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any
Trustee may, by power of attorney, delegate his power for a
period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall fewer than
two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration of Trust except as otherwise
expressly provided herein or by resolution of the Board of
Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees
may by resolution adopted by a majority of the authorized number
of trustees designate one or more committees, each consisting of
two (2) or more trustees, to serve at the pleasure of the Board.
The Board may designate one or more trustees as alternate members
of any committee who may replace any absent member at any meeting
of the committee. Any committee to the extent provided in the
resolution of the Board, shall have the authority of the Board,
except with respect to:
(a) the approval of any action which under applicable law
also requires shareholders' approval or approval of the
outstanding shares, or requires approval by a majority of the
entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in
any committee;
(c) the fixing of compensation of the trustees for serving
on the Board of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or
of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board
of Trustees which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the Trust, except
at a rate or in a periodic amount or within a designated range
determined by the Board of Trustees; or
(g) the appointment of any other committees of the Board of
Trustees or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these By-Laws,
with such changes in the context thereof as are necessary to
substitute the committee and its members for the Board of
Trustees and its members, except that the time of regular
meetings of committees may be determined either by resolution of
the Board of Trustees or by resolution of the committee. Special
meetings of committees may also be called by resolution of the
Board of Trustees, and notice of special meetings of committees
shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a
president, a secretary, and a treasurer. The Trust may also
have, at the discretion of the Board of Trustees, a chairman of
the board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held
by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the
Trust, except such officers as may appointed in accordance with
the provisions of Section 3 or Section 5 of this Article V, shall
be chosen by the Board of Trustees, and each shall serve at the
pleasure of the Board of Trustees, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may
appoint and may empower the president to appoint such other
officers as the business of the Trust may require, each of whom
shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to
the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Trustees at any regular or special meeting
of the Board of Trustees or except in the case of an officer upon
whom such power of removal may be conferred by the Board of
Trustees.
Any officer may resign at any time by giving written notice
to the Trust. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that
notice; and unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights,
if any, of the Trust under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
because of death, resignation, removal, disqualification or other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the
board, if such an officer is elected, shall if present preside at
meetings of the Board of Trustees and exercise and perform such
other powers and duties as may be from time to time assigned to
him by the Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers,
if any, as may be given by the Board of Trustees to the chairman
of the board, if there be such an officer, the president shall be
the chief executive officer of the Trust and shall, subject to
the control of the Board of Trustees, have general supervision,
direction and control of the business and the officers of the
Trust. He shall preside at all meetings of the shareholders and
in the absence of the chairman of the board or if there be none,
at all meetings of the Board of Trustees. He shall have the
general powers and duties of management usually vested in the
office of president of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees
or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability
of the president, the vice presidents, if any, in order of their
rank as fixed by the Board of Trustees or if not ranked, a vice
president designated by the Board of Trustees, shall perform all
the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the
president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Trustees or by these By-
Laws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office of the Trust or such
other place as the Board of Trustees may direct a book of minutes
of all meetings and actions of trustees, committees of trustees
and shareholders with the time and place of holding, whether
regular or special, and if special, how authorized, the notice
given, the names of those present at trustees' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office of the Trust or at the office of the
Trust's transfer agent or registrar, as determined by resolution
of the Board of Trustees, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Board of Trustees
required by these By-Laws or by applicable law to be given and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief
financial officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and
records of accounts of the properties and business transactions
of the Trust, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all
reasonable times be open to inspection by any trustee.
The treasurer shall deposit all monies and other valuables
in the name and to the credit of the Trust with such depositaries
as may be designated by the Board of Trustees. He shall disburse
the funds of the Trust as may be ordered by the Board of
Trustees, shall render to the president and trustee, whenever
they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and
shall have other powers and perform such other duties as may be
prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the
purpose of this Article, "agent" means any person who is or was a
trustee, officer, employee or other agent of this Trust or is or
was serving at the request of this Trust as a trustee, director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise or was a trustee, director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor of
another enterprise at the request of such predecessor entity;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to
indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the
right of this Trust) by reason of the fact that such person is or
was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good
faith and in a manner that person reasonably believed to be in
the best interests of this Trust and in the case of criminal
proceeding, had no reasonable cause to believe the conduct of
that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best
interests of this Trust or that the person had reasonable cause
to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or
in the right of this Trust to procure a judgment in its favor by
reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that
person believed to be in the best interests of this Trust and
with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar
circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding
any provision to the contrary contained herein, there shall be no
right to indemnification for any liability arising by reason of
willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the agent's
office with this Trust.
No indemnification shall be made under Sections 2 or 3 of
this Article:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and only
to the extent that the court in which that action was brought
shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason
of the disabling conduct set forth in the preceding paragraph and
is fairly and reasonably entitled to indemnity for the expenses
which the court shall determine; or
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or
of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval,
unless the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this Trust has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party trustees, also determines that based
upon a review of the facts, the agent was not liable by reason of
the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in
Section 5 of this Article, any indemnification under this Article
shall be made by this Trust only if authorized in the specific
case on a determination that indemnification of the agent is
proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because
of the disabling conduct set forth in Section 4 of this Article,
by:
(a) A majority vote of a quorum consisting of trustees who
are not parties to the proceeding and are not interested persons
of the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Trust before the
final disposition of the proceeding on receipt of an undertaking
by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article,
provided the agent provides a security for his undertaking, or a
majority of a quorum of the disinterested, non-party trustees, or
an independent legal counsel in a written opinion, determine that
based on a review of readily available facts, there is reason to
believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in
this Article shall affect any right to indemnification to which
persons other than trustees and officers of this Trust or any
subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance
shall be made under this Article, except as provided in Sections
5 or 6 in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Declaration of Trust, a resolution of the shareholders, or an
agreement in effect at the time of accrual of the alleged cause
of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid which prohibits or otherwise
limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase
such insurance, this Trust shall purchase and maintain insurance
on behalf of any agent of this Trust against any liability
asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent
against that liability under the provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan
in that person's capacity as such, even though that person may
also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right
to indemnification to which such a trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law
other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER.
This Trust shall keep at its principal executive office or at the
office of its transfer agent or registrar, if either be appointed
and as determined by resolution of the Board of Trustees, a
record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each
shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The
Trust shall keep at its principal executive office the original
or a copy of these By-Laws as amended to date, which shall be
open to inspection by the shareholders at all reasonable times
during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Trustees and any committee or
committees of the Board of Trustees shall be kept at such place
or places designated by the Board of Trustees or in the absence
of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form
or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person
or by an agent or attorney and shall include the right to copy
and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall
have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical
properties of the Trust. This inspection by a trustee may be
made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of
documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial
statements and any income statement of the Trust for each
quarterly period of each fiscal year and accompanying balance
sheet of the Trust as of the end of each such period that has
been prepared by the Trust shall be kept on file in the principal
executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to
any shareholder demanding an examination of any such statement or
a copy shall be mailed to any such shareholder.
The quarterly income statements and balance sheets referred
to in this section shall be accompanied by the report, if any, of
any independent accountants engaged by the Trust or the
certificate of an authorized officer of the Trust that the
financial statements were prepared without audit from the books
and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts, or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of or payable
to the Trust shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Trustees, except as otherwise provided in these By-Laws,
may authorize any officer or officers, agent or agents, to enter
into any contract or execute any instrument in the name of and on
behalf of the Trust and this authority may be general or confined
to specific instances; and unless so authorized or ratified by
the Board of Trustees or within the agency power of an officer,
no officer, agent, or employee shall have any power or authority
to bind the Trust by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of beneficial interest in any series of
the Trust may be issued to a shareholder upon his request when
such shares are fully paid. All certificates shall be signed in
the name of the Trust by the chairman of the board or the
president or vice president and by the treasurer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the series of shares owned by the
shareholders. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued,
it may be issued by the Trust with the same effect as if that
person were an officer, transfer agent or registrar at the date
of issue. Notwithstanding the foregoing, the Trust may adopt and
use a system of issuance, recordation and transfer of its shares
by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this
Section 4, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the Trust and cancelled at the same time. The Board of Trustees
may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the
Board of Trustees may require, including a provision for
indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD
BY TRUST. The chairman of the board, the president or any vice
president or any other person authorized by resolution of the
Board of Trustees or by any of the foregoing designated officers,
is authorized to vote or represent on behalf of the Trust any and
all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust.
The authority granted may be exercised in person or by a proxy
duly executed by such designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall
be fixed and refixed or changed from time to time by resolution
of the Trustees. The fiscal year of the Trust shall be the
taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be
amended or repealed by the affirmative vote or written consent of
a majority of the outstanding shares entitled to vote, except as
otherwise provided by applicable law or by the Declaration of
Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of
shareholders as provided in Section 1 of this Article to adopt,
amend or repeal By-Laws, and except as otherwise provided by
applicable law or by the Declaration of Trust, these By-Laws may
be adopted, amended, or repealed by the Board of Trustees.
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of Franklin Investors
Securities Trust (the "Trust"), a business trust organized under
the laws of the State of Massachusetts, do hereby certify that
the following resolution was adopted by a majority of the
trustees present at a meeting held at the offices of the Trust at
777 Mariners Island Boulevard, San Mateo, California, on January
18, 1994.
WHEREAS, the Trustees have determined that it is necessary
to amend Section 4 of Article II of the Trust's By-Laws in
order to remove the specification of using first class mail
for notice of any meeting of shareholders; it is
RESOLVED, that in accordance with Article IX, Section 2 of
the Trust's By-Laws, such By-Laws are hereby amended by
deleting reference to first class mail in the first
paragraph of Section 4 of Article II so that such paragraph
now reads as follows:
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE. Notice of any meeting of shareholders shall be
given either personally or by mail or telegraphic or
other written communication, charges prepaid, addressed
to the shareholder appearing on the books of the Trust
or its transfer agent or given by the shareholder to
the Trust for the purpose of notice. If no such
address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to
that shareholder by mail or telegraphic or other
written communication to the Trust's principal
executive office, or if published at least once in a
newspaper of general circulation in the county where
that office is located. Notice shall be deemed to have
been given at the time when delivered personally or
deposited in the mail or sent by telegram or other
means of written communication.
and it is
FURTHER RESOLVED, that the officers of the Trust be, and
they hereby are, authorized and directed to execute and
deliver any and all documents and take any and all other
actions that they may deem necessary or advisable in order
to effectuate the foregoing resolution.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
Dated: February 28, 1994 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
FRANKLIN INVESTORS SECURITIES TRUST
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN INVESTORS
SECURITIES TRUST, a Massachusetts business trust, hereinafter
called the "Trust" and FRANKLIN ADVISERS, INC., a California
Corporation, hereinafter called the "Manager."
WHEREAS, the Trust has been organized and intends to operate as
an investment company registered under the Investment Company Act
of 1940 for the purpose of investing and reinvesting its assets
in securities, as set forth in its Agreement and Declaration of
Trust, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933,
all as heretofore amended and supplemented; and the Trust desires
to avail itself of the services, information, advice, assistance
and facilities of an investment manager and to have an investment
manager perform various management, statistical, research,
investment advisory and other services for each of the Funds
currently or hereafter organized as separate series of the Trust
(the "Funds"); and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisor's Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Funds.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Manager. The Trust hereby employs the
Manager to manage the investment and rein vestment of each Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Trust, for the
period and on the terms hereinafter set forth. The Manager hereby
accepts such employment and agrees during such period to render
the services and to assume the obligations herein set forth for
the compensation herein provided. The Manager shall for all
purposes herein be deemed to be an independent contractor and
shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Funds or
the Trust.
2. Obligations of and Services to be Provided by the Manager. The
Manager undertakes to provide the services hereinafter set forth
and to assume the following obligations:
A. Office Space, Furnishings, Facilities, Equipment, and
Personnel. The Manager shall furnish to the Trust and the
Funds adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the affairs and conducting the business of the
Trust and the Funds, including complying with the securities
reporting requirements of the United States and the various
states in which the Trust does business, conducting
correspondence and other communications with the
shareholders of the Funds, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Funds' investment and business
activities, and computing net asset value. The Manager shall
employ or provide and compensate the executive, secretarial
and clerical personnel necessary to provide such services.
The Manager shall also compensate all officers and employees
of the Trust who are officers or employees of the Manager.
B. Investment Management Services.
(a) The Manager shall manage the assets of each Fund subject
to and in accordance with the investment objectives and
policies of each Fund and any directions which the Trust's
Board of Trustees may issue from time to time. In pursuance
of the foregoing, the Manager shall make all determinations
with respect to the investment of the assets of each Fund
and the purchase and sale of their portfolio securities, and
shall take such steps as may be necessary to implement the
same. Such determinations and services shall also include
determining the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining
to the Funds' portfolio securities shall be exercised. The
Manager shall render regular reports to the Trust, at
regular meetings of the Board of Trustees and at such other
times as may be reasonably requested by the Trust's Board of
Trustees, of (i) the decisions which it has made with
respect to the investment of the assets of each Fund and the
purchase and sale of their portfolio securities, (ii) the
reasons for such decisions and (iii) the extent to which
those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue
from time to time, shall place, in the name of the Funds,
orders for the execution of the Funds' portfolio
transactions. When placing such orders, the Manager shall
seek to obtain the best net price and execution for the
Funds, but this requirement shall not be deemed to obligate
the Manager to place any order solely on the basis of
obtaining the lowest commission rate if the other standards
set forth in this section have been satisfied. The parties
recognize that there are likely to be many cases in which
different brokers are equally able to provide such best
price and execution and that, in selecting among such
brokers with respect to particular trades, it is desirable
to choose those brokers who furnish research, statistical
quotations and other information to the Funds and the
Manager in accord with the standards set forth below.
Moreover, to the extent that it continues to be lawful to do
so and so long as the Board determines that the Funds will
benefit, directly or indirectly, by doing so, the Manager
may place orders with a broker who charges a commission for
that transaction which is in excess of the amount of
commission that another broker would have charged for
effecting that transaction, provided that the excess
commission is reasonable in relation to the value of
"brokerage and research services" (as defined in Section
28(e)(3) of the Securities Exchange Act of 1934) provided by
that broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Funds'
portfolio transactions from among:
(i) Those brokers and dealers who provide quotations
and other services to the Funds, specifically including
the quotations necessary to determine the Funds' net
assets, in such amount of total brokerage as may
reasonably be required in light of such services;
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which the Manager or its affiliates may
lawfully and appropriately use in their investment
advisory capacities, which relate directly to portfolio
securities, actual or potential, of the Funds or which
place the Manager in a better position to make
decisions in connection with the management of the
Funds' assets and portfolios, whether or not such data
may also be useful to the Manager and its affiliates in
managing other portfolios or advising other clients, in
such amount of total brokerage as may reasonably be
required.
Provided that the Trust's officers are satisfied that the
best execution is obtained, the sale of shares of any of the
Funds may also be considered as a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
(c) When the Manager has determined that any Fund should
tender securities pursuant to a "tender offer solicitation,"
Franklin Distributors, Inc. ("Distributors") shall be
designated as the "tendering dealer" so long as it is
legally permitted to act in such capacity under the Federal
securities laws and rules thereunder and the rules of any
securities exchange or association of which it may be a
member. Neither the Manager nor Distributors shall be
obligated to make any additional commitments of capital,
expense or personnel beyond that already committed (other
than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National
Association of Securities Dealers, Inc.) as of the date of
this Agreement and this Agreement shall not obligate the
Manager or Distributors (i) to act pursuant to the foregoing
requirement under any circumstances in which they might
reasonably believe that liability might be imposed upon them
as a result of so acting, or (ii) to institute legal or
other proceedings to collect fees which may be considered to
be due from others to it as a result of such a tender,
unless the Trust shall enter into an agreement with the
Manager to reimburse them for all expenses connected with
attempting to collect such fees including legal fees and
expenses and that portion of the compensation due to their
employees which is attributable to the time involved in
attempting to collect such fees.
(d) The Manager shall render regular reports to the Trust,
not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager with
brokers falling into each of the foregoing categories and
the manner in which the allocation has been accomplished.
(e) The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for
allocation in accordance with the foregoing, and that the
right to make such allocation of brokerage shall not
interfere with the Manager's paramount duty to obtain the
best net price and execution for each of the Funds.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will make
available and provide accounting and statistical information
required by the Underwriter of the Funds in the preparation
of registration statements, reports and other documents
required by Federal and state securities laws and with such
information as the Underwriter may reasonably request for
use in the preparation of such documents or of other
materials necessary or helpful for the underwriting and
distribution of the Funds' shares.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of
Trustees and officers of the Trust for consultation and
discussions regarding the administrative management of the
Funds and their investment activities.
3. Expenses of the Funds. It is understood that each Fund will
pay all of its own expenses other than those expressly assumed by
the Manager herein, which expenses payable by the Funds shall
include:
A. Fees to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of each Funds' net assets;
E. Salaries and other compensation of any of its executive
officers who are not officers, trustees, stockholders or
employees of the Manager;
F. Taxes levied against the Trust or any Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for each Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees, reports
to the Trust to its shareholders, the filing of reports with
regulatory bodies and the maintenance of the Trust's legal
existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of each Funds'
shares for sale;
K. Costs of printing share certificates representing shares of
each Fund;
L. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates;
M. Trade association dues; and
N. Its pro rata portion of the fidelity bond insurance premium.
4. Compensation of the Manager. Each Fund shall pay a monthly
management fee in cash to the Manager based upon a percentage of
the value of the respective Fund's net assets, calculated as set
forth below, on the first business day of each month in each year
as compensation for the services rendered and obligations assumed
by the Manager during the preceding month. The initial management
fee under this Agreement shall be payable on the first business
day of the first month following the effective date of this
Agreement, and shall be reduced by the amount of any advance
payments made by the Trust relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of each Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as such Fund uses to compute
the value of its net assets in connection with the
determination of the net asset value of such Fund's shares,
all as set forth more fully in such Fund's current
prospectus. The rate of the monthly management fee payable
by each Fund shall be as follows:
5/96 of 1% of the value of its net assets up to and
including $100,000,000; and
1/24 of 1% of the value of its net assets over
$100,000,000 up to and including $250,000,000; and
9/240 of 1% of the value of it s net assets in excess
of $250,000,000.
B. The Management fee payable by each Fund shall be reduced or
eliminated to the extent that Distributors has actually
received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection
therewith; and to the extent necessary to comply with the
limitations on expenses which may be borne by the each Fund
as set forth in the laws, regulations and administrative
interpretations of those states in which the Funds' shares
are registered.
C. If this Agreement is terminated prior to the end of any
month for any Fund, the monthly management fee for such Fund
shall be prorated for the portion of any month in which this
Agreement is in effect which is not a complete month
according to the proportion which the number of calendar
days in the fiscal quarter during which the Agreement is in
effect bears to the number of calendar days in the month,
and shall be payable within 10 days after the date of
termination.
5. Activities of the Manager. The services of the Manager to the
Funds hereunder are not to be deemed exclusive, and the Manager
and any of its affiliates shall be free to render similar
services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and By-Laws of the Trust and
to Section 10(a) of the Investment Company Act of 1940, it is
understood that Trustees, officers, agents and shareholders of
the Trust are or may be interested in the Manager or its
affiliates as trustees, directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in the Trust as Trustees, officers, agents,
shareholders or otherwise, that the Manager or its affiliates may
be interested in the Funds as shareholders or otherwise; and that
the effect of any such interests shall be governed by said
Agreement and Declaration of Trust, the By-Laws and the
Investment Company Act of 1940.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not
be subject to liability to the Trust or any of the Funds or
to any shareholder of the Funds for any act or omission in
the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security by any of the
Funds.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Funds for any and all costs, expenses, and
counsel and trustees' fees reasonably incurred by the Funds
in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or Trustees, the
conduct of factual investigations, any legal or
administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange
Commission) which the Funds incur as the result of action or
inaction of the Manager or any of its affiliates or any of
their officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transactions or
proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or control)
which shall have been undertaken without the prior, express
approval of the Trust's Board of Trustees; or, (ii) is
within the control of the Manager or any of its affiliates
or any of their officers, trustees, employees or
shareholders. The Manager shall not be obligated pursuant to
the provisions of this Subsection 6(B), to reimburse the
Funds for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust
or a Funds shareholder seeking to recover all or a portion
of the proceeds derived by any shareholder of the Manager or
any of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is in
effect the Manager shall pay to the Funds the amount due for
expenses subject to this Subsection 6(B) Agreement within 30
days after a bill or statement has been received by the
Manager therefor. This provision shall not be deemed to be a
waiver of any claim the Funds may have or may assert against
the Manager or others for costs, expenses or damages
heretofore incurred by the Funds or for costs, expenses or
damages the Funds may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any Trustee or officer of the Trust, or director or officer
of the Manager, from liability in violation of Sections
17(h) and (i) of the Investment Company Act of 1940.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years. The
Agreement is renewable annually thereafter for each Fund for
successive periods not to exceed one (1) year (i) by a vote
of a majority of the outstanding voting securities of each
Fund or by a vote of the Board of Trustees of the Trust and
(ii) by a vote of a majority of the Trustees of the Trust
who are not parties to the Agreement or interested persons
of any parties to the Agreement (other than as Trustees of
the Trust) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
(i) may at any time be terminated with respect to any of the
Funds without the payment of any penalty either by vote of
the Board of Trustees of the Trust or by vote of a majority
of the outstanding voting securities of the Fund seeking to
terminate the Agreement, on 30 days' written notice to the
Manager;
(ii) shall immediately terminate with respect to all of the
Funds in the event of its assignment and
(iii) may at any time be terminated by the Manager with
respect to any of the Funds on 30 days' written notice to
the applicable Fund.
C. As used in this Section the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such
terms in the Investment Company Act of 1940, as amended.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other
party at any office of such party.
8. Severability. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
10. Limitation of Liability. The Manager acknowledges that it has
received notice of and accepts the limitations of the Trust's
liability as set forth in Article VIII of its Agreement and
Declaration of Trust. The Manager agrees that the Trust's
obligations hereunder shall be limited to the assets of each
Fund, and that the Manager shall not seek satisfaction of any
such obligation from any shareholders of the Funds nor from any
trustee, officer, employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and effective on the 15th day of April, 1987.
FRANKLIN INVESTORS SECURITIES TRUST
/s/ Charles B. Johnson
By: Charles B. Johnson
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson Jr.
By: Rupert H. Johnson Jr.
FRANKLIN INVESTORS SECURITIES TRUST
FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made between FRANKLIN
INVESTORS SECURITIES TRUST, a Massachusetts business trust
hereinafter called the "Trust," on behalf of FRANKLIN ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND (the "Fund"), a separate series
of the Trust, and FRANKLIN ADVISERS, INC., a California
Corporation, hereinafter called the "Administrator."
WHEREAS, the Trust has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of
Trust, its By-Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933,
all as heretofore amended and supplemented;
WHEREAS, the Fund, as a separate series of the Trust,
desires to avail itself of the services, assistance and
facilities of an administrator and to have an administrator
perform various administrative and other services for it; and,
WHEREAS, the Administrator is engaged in the business of
rendering administrative services to investment companies, and
desires to provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and
conditions hereinafter set forth, it is agreed as follows:
1. Employment of the Administrator. The Fund hereby
employs the Administrator to administer its affairs, subject to
the direction of the Board of Trustees and the officers of the
Trust, for the period and on the terms hereinafter set forth. The
Administrator hereby accepts such employment and agrees during
such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The
Administrator shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or
authorized (whether herein or otherwise), have no authority to
act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
2. Obligations of and Services to be Provided by the
Administrator. The Administrator undertakes to provide the
services hereinafter set forth and to assume the following
obligations:
A. Office Space, Furnishings, Facilities, Equipment,
and Personnel.
The Administrator shall furnish to the Fund
adequate (i) office space, which may be space within
the offices of the Administrator or in such other place
as may be agreed upon from time to time, and (ii)
office furnishings, facilities and equipment as may be
reasonably required for managing the affairs and
conducting the business of the Fund, including
complying with the securities reporting requirements of
the United States and the various states in which the
Fund does business, conducting correspondence and other
communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting,
auditing services and records in connection with the
Fund's investment and business activities, and
computing its net asset value. The Administrator shall
employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide
such services. The Administrator shall also compensate
all officers and employees of the Trust who are
officers or employees of the Administrator.
B. Provision of Information Necessary for
Preparation of Securities Registration Statements,
Amendments and Other Materials. The Administrator, its
officers and employees will make available and provide
accounting and statistical information required by the
Fund or its Underwriter in the preparation of
registration statements, reports and other documents
required by Federal and state securities laws and with
such information as the Fund or its Underwriter may
reasonably request for use in the preparation of such
documents or of other materials necessary or helpful
for the underwriting and distribution of the Fund's
shares.
C. Other Obligations and Services. The Administrator
shall make available its officers and employees to the
Board of Trustees and officers of the Trust for
consultation and discussions regarding the
administration of the Fund and its activities.
3. Expenses of the Fund. It is understood that the
Fund will pay all of its own expenses other than those expressly
assumed by the Administrator herein, which expenses payable by
the Fund shall include:
A. Fees to the Administrator as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar,
custodian, dividend disbursing agent and
shareholder record-keeping services;
D. Expenses, if any, of obtaining quotations for
calculating the value of the Fund's net
assets;
E. Salaries and other compensation of any of its
executive officers who are not officers,
trustees, stockholders or employees of the
Administrator;
F. Taxes levied against the Trust or the Fund;
G. Costs, including the interest expense, of
borrowing money;
H. Costs incident to meetings of the Board of
Trustees, reports to the Trust to its
shareholders, the filing of reports with
regulatory bodies and the maintenance of the
Trust's legal existence;
I. Legal fees, including the legal fees related
to the registration and continued
qualification of the Fund's shares for sale;
J. Costs of printing share certificates
representing shares of the Fund;
K. Trustees' fees and expenses to trustees who
are not directors, officers, employees or
stockholders of the Administrator or any of
its affiliates;
L. Trade association dues; and
M. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers
errors and ommissions insurance premium.
4. Compensation of the Administrator. The Fund shall
pay a monthly administration fee in cash to the Administrator
based upon a percentage of the value of the Fund's net assets,
calculated as set forth below, on the first business day of each
month in each year as compensation for the services rendered and
obligations assumed by the Administrator during the preceding
month. The initial administration fee under this Agreement shall
be payable on the first business day of the first month following
the effective date of this Agreement, and shall be reduced by the
amount of any advance payments made by the Trust relating to the
previous month.
A. For purposes of calculating such fee, the value of
the net assets of the Fund shall be the average daily
net assets during the month for which the payment is
being made, determined in the same manner as the Fund
uses to compute the value of its net assets in
connection with the determination of the daily net
asset value of its shares, all as set forth more fully
in the Fund's current prospectus. The annual rate of
the administration fee payable by the Fund shall be as
follows:
10/100 of 1% of the value of its net assets
up to and including $5,000,000,000;
9/100 of 1% of the value of its net assets in
excess of $5,000,000,000 up to and including
$10,000,000,000; and
8/100 of 1% of the value of its net assets in
excess of $10,000,000,000.
B. If this Agreement is terminated prior to the end
of any month, the monthly administration fee for the
Fund shall be prorated for the portion of any month in
which this Agreement is in effect which is not a
complete month according to the proportion which the
number of calendar days in the fiscal quarter during
which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within
10 days after the date of termination.
5. Activities of the Administrator. The services of
the Administrator to the Fund hereunder are not to be deemed
exclusive, and the Administrator and any of its affiliates shall
be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-
Laws of the Trust and to Section 10(a) of the Investment Company
Act of 1940, it is understood that Trustees, officers, agents and
shareholders of the Trust are or may be interested in the
Administrator or its affiliates as trustees, directors, officers,
agents or stockholders, and that directors, officers, agents or
stockholders of the Administrator or its affiliates are or may be
interested in the Trust as Trustees, officers, agents,
shareholders or otherwise, and that the Administrator or its
affiliates may be interested in the Fund as shareholders or
otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, the By-Laws
and the Investment Company Act of 1940.
6. Liabilities of the Administrator.
A. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Administrator,
the Administrator shall not be subject to liability to
the Trust or the Fund or to any shareholder of the Fund
for any act or omission in the course of, or connected
with, rendering services hereunder.
B. Notwithstanding the foregoing, the Administrator
agrees to reimburse the Fund for any and all costs,
expenses, and counsel and trustees' fees reasonably
incurred by the Fund in the preparation, printing and
distribution of proxy statements, amendments to its
Registration Statement, holdings of meetings of its
shareholders or Trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or
determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of
action or inaction of the Administrator or any of its
affiliates or any of their officers, directors,
employees or shareholders where the action or inaction
necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed
transaction in the shares or control of the
Administrator or its affiliates (or litigation related
to any pending or proposed or future transaction in
such shares or control); or, (ii) is within the control
of the Administrator or any of its affiliates or any of
their officers, trustees, employees or shareholders.
The Administrator shall not be obligated pursuant to
the provisions of this Subsection 6(B), to reimburse
the Fund for any expenditures related to the
institution of an administrative proceeding or civil
litigation by the Trust or a shareholder seeking to
recover all or a portion of the proceeds derived by any
shareholder of the Administrator or any of its
affiliates from the sale of his shares of the
Administrator, or similar matters. So long as this
Agreement is in effect, the Administrator shall pay to
the Fund the amount due for expenses subject to
Subsection 6(B) of this Agreement within 30 days after
a bill or statement has been received by the
Administrator therefor. This provision shall not be
deemed to be a waiver of any claim the Fund may have or
may assert against the Administrator or others for
costs, expenses or damages heretofore incurred by the
Fund or for costs, expenses or damages the Fund may
hereafter incur which are not reimbursable to it
hereunder.
C. No provision of this Agreement shall be construed
to protect any Trustee or officer of the Trust, or
director or officer of the Administrator, from
liability in violation of Sections 17(h) and (i) of the
Investment Company Act of 1940.
7. Duration and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect until
terminated by the Trust or the Administrator on 60 days
written notice to the other.
B. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid,
to the other party at any office of such party.
8. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be
affected thereby.
9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
California.
10. Limitation of Liability. The Administrator
acknowledges that it has received notice of and accepts the
limitations of the Trust's liability as set forth in Article VIII
of its Agreement and Declaration of Trust. The Administrator
agrees that the Trust's obligations hereunder shall be limited to
the assets of the Fund, and that the Administrator shall not seek
satisfaction of any such obligation from any shareholders of the
Fund nor from any trustee, officer, employee or agent of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 3rd day of June,
1991.
By: FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Adjustable
U.S. Government Securities Fund
/s/ Charles B. Johnson
By: Charles B. Johnson
President
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
President
FRANKLIN INVESTORS SECURITIES TRUST
FRANKLIN ADJUSTABLE RATE SECURITIES FUND
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made between FRANKLIN
INVESTORS SECURITIES TRUST, a Massachusetts business trust
hereinafter called the "Trust," on behalf of FRANKLIN ADJUSTABLE
RATE SECURITIES FUND (the "Fund"), a separate series of the
Trust, and FRANKLIN ADVISERS, INC., a California Corporation,
hereinafter called the "Administrator."
WHEREAS, the Trust has been organized and operates as an
investment company registered under the Investment Company Act of
1940 for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of
Trust, its By- Laws and its Registration Statements under the
Investment Company Act of 1940 and the Securities Act of 1933,
all as heretofore amended and supplemented;
WHEREAS, the Fund, as a separate series of the Trust,
desires to avail itself of the services, assistance and
facilities of an administrator and to have an administrator
perform various administrative and other services for it; and,
WHEREAS, the Administrator is engaged in the business of
rendering administrative services to investment companies, and
desires to provide these services to the Fund;
NOW THEREFORE, in consideration of the terms and
conditions hereinafter set forth, it is agreed as follows:
1. Employment of the Administrator. The Fund hereby
employs the Administrator to administer its affairs, subject to
the direction of the Board of Trustees and the officers of the
Trust, for the period and on the terms hereinafter set forth. The
Administrator hereby accepts such employment and agrees during
such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The
Administrator shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or
authorized (whether herein or otherwise), have no authority to
act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
2. Obligations of and Services to be Provided by the
Administrator. The Administrator undertakes to provide the
services hereinafter set forth and to assume the following
obligations:
A. Office Space, Furnishings, Facilities,
Equipment, and Personnel.
The Administrator shall furnish to the Fund
adequate (i) office space, which may be space
within the offices of the Administrator or in such
other place as may be agreed upon from time to
time, and (ii) office furnishings, facilities and
equipment as may be reasonably required for
managing the affairs and conducting the business
of the Fund, including complying with the
securities reporting requirements of the United
States and the various states in which the Fund
does business, conducting correspondence and
other communications with the shareholders of the
Fund, maintaining all internal bookkeeping,
accounting, auditing services and records in
connection with the Fund's investment and
business activities, and computing its net asset
value. The Administrator shall employ or provide
and compensate the executive, secretarial and
clerical personnel necessary to provide such
services. The Administrator shall also compensate
all officers and employees of the Trust who are
officers or employees of the Administrator.
B. Provision of Information Necessary for
Preparation of Securities Registration
Statements, Amendments and Other Materials.
The Administrator, its officers and employees will
make available and provide accounting and
statistical information required by the Fund or
its Underwriter in the preparation of registration
statements, reports and other documents required
by Federal and state securities laws and with such
information as the Fund or its Underwriter may
reasonably request for use in the preparation of
such documents or of other materials necessary or
helpful for the underwriting and distribution of
the Fund's shares.
C. Other Obligations and Services. The
Administrator shall make available its officers
and employees to the Board of Trustees and
officers of the Trust for consultation and
discussions regarding the administration of the
Fund and its activities.
3. Expenses of the Fund. It is understood that the
Fund will pay all of its own expenses other than those expressly
assumed by the Administrator herein, which expenses payable by
the Fund shall include:
A. Fees to the Administrator as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar,
custodian, dividend disbursing agent and
shareholder record-keeping services;
D. Expenses, if any, of obtaining quotations for
calculating the value of the Fund's net assets;
E. Salaries and other compensation of any of its
executive officers who are not officers, trustees,
stockholders or employees of the Administrator;
F. Taxes levied against the Trust or the Fund;
G. Costs, including the interest expense, of
borrowing money;
H. Costs incident to meetings of the Board of
Trustees, reports to the Trust to its
shareholders, the filing of reports with
regulatory bodies and the maintenance of the
Trust's legal existence;
I. Legal fees, including the legal fees related
to the registration and continued qualification of
the Fund's shares for sale;
J. Costs of printing share certificates
representing shares of the Fund;
K. Trustees' fees and expenses to trustees who
are not directors, officers, employees or
stockholders of the Administrator or any of its
affiliates;
L. Trade association dues; and
M. Its pro rata portion of the fidelity bond
insurance premium and trustees and officers errors
and omissions insurance premium.
4. Compensation of the Administrator. The Fund shall
pay a monthly administration fee in cash to the Administrator
based upon a percentage of the value of the Fund's net assets,
calculated as set forth below, on the first business day of each
month in each year as compensation for the services rendered and
obligations assumed by the Administrator during the preceding
month. The initial administration fee under this Agreement shall
be payable on the first business day of the first month following
the effective date of this Agreement, and shall be reduced by the
amount of any advance payments made by the Trust relating to the
previous month.
A. For purposes of calculating such fee, the
value of the net assets of the Fund shall be the
average daily net assets during the month for
which the payment is being made, determined in the
same manner as the Fund uses to compute the value
of its net assets in connection with the
determination of the daily net asset value of its
shares, all as set forth more fully in the Fund's
current prospectus. The annual rate of the
administration fee payable by the Fund shall be as
follows:
10/100 of 1% of the value of its net assets
up to and including $5,000,000,000;
9/100 of 1% of the value of its net assets in
excess of $5,000,000,000 up to and including
$10,000,000,000; and
8/100 of 1% of the value of its net assets in
excess of $10,000,000,000.
B. If this Agreement is terminated prior to the
end of any month, the monthly administration fee
for the Fund shall be prorated for the portion of
any month in which this Agreement is in effect
which is not a complete month according to the
proportion which the number of calendar days in
the fiscal quarter during which the Agreement is
in effect bears to the number of calendar days in
the month, and shall be payable within 10 days
after the date of termination.
5. Activities of the Administrator. The services of
the Administrator to the Fund hereunder are not to be deemed
exclusive, and the Administrator and any of its affiliates shall
be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-
Laws of the Trust and to Section 10(a) of the Investment Company
Act of 1940, it is understood that Trustees, officers, agents and
shareholders of the Trust are or may be interested in the
Administrator or its affiliates as trustees, directors, officers,
agents or stockholders, and that directors, officers, agents or
stockholders of the Administrator or its affiliates are or may be
interested in the Trust as Trustees, officers, agents,
shareholders or otherwise, and that the Administrator or its
affiliates may be interested in the Fund as shareholders or
otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, the By- Laws
and the Investment Company Act of 1940.
6. Liabilities of the Administrator.
A. In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of
obligation or duties hereunder on the part of the
Administrator, the Administrator shall not be
subject to liability to the Trust or the Fund or
to any shareholder of the Fund for any act or
omission in the course of, or connected with,
rendering services hereunder.
B. Notwithstanding the foregoing, the
Administrator agrees to reimburse the Fund for any
and all costs, expenses, and counsel and trustees'
fees reasonably incurred by the Fund in the
preparation, printing and distribution of proxy
statements, amendments to its Registration
Statement, holdings of meetings of its
shareholders or Trustees, the conduct of factual
investigations, any legal or administrative
proceedings (including any applications for
exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as the
result of action or inaction of the Administrator
or any of its affiliates or any of their officers,
directors, employees or shareholders where the
action or inaction necessitating such expenditures
(i) is directly or indirectly related to any
transactions or proposed transaction in the shares
or control of theAdministrator or its affiliates
(or litigation related to any pending or proposed
or future transaction in such shares or control);
or, (ii) is within the control of the
Administrator or any of its affiliates or any of
their officers, trustees, employees or
shareholders. The Administrator shall not be
obligated, pursuant to the provisions of this
Subsection 6(B), to reimburse the Fund for any
expenditures related to the institution of an
administrative proceeding or civil litigation by
the Trust or a shareholder seeking to recover all
or a portion of the proceeds derived by any
shareholder of the Administrator or any of its
affiliates from the sale of his shares of the
Administrator, or similar matters. So long as
this Agreement is in effect, the Administrator
shall pay to the Fund the amount due for expenses
subject to Subsection 6(B) of this Agreement
within 30 days after a bill or statement has been
received by the Administrator therefor. This
provision shall not be deemed to be a waiver of
any claim the Fund may have or may assert against
the Administrator or others for costs, expenses or
damages heretofore incurred by the Fund or for
costs, expenses or damages the Fund may hereafter
incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be
construed to protect any Trustee or officer of the
Trust, or director or officer of the
Administrator, from liability in violation of
Sections 17(h) and (i) of the Investment Company
Act of 1940.
7. Duration and Termination.
A. This Agreement shall become effective on the
date written below and shall continue in effect
until terminated by the Trust or the Administrator
on 60 days written notice to the other.
B. Any notice under this Agreement shall be
given in writing, addressed and delivered, or
mailed post-paid, to the other party at any office
of such party.
8. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be
affected thereby.
9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
California.
10. Limitation of Liability. The Administrator
acknowledges that it has received notice of and accepts the
limitations of the Trust's liability as set forth in its
Agreement and Declaration of Trust. The Administrator agrees
that the Trust's obligations hereunder shall be limited to the
assets of the Fund, and that the Administrator shall not seek
satisfaction of any such obligation from any shareholders of the
Fund nor from any trustee, officer, employee or agent of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and effective on the 26th day of
December, 1991.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Adjustable
Rate Securities Fund
By /s/ Charles B. Johnson
Charles B. Johnson
President
FRANKLIN ADVISERS, INC.
By /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President
f:\agree\fist-tici.agr
SUBADVISORY AGREEMENT
FRANKLIN INVESTORS SECURITIES TRUST
(on behalf of the Franklin Global Government Income Fund)
THIS SUBADVISORY AGREEMENT made as of the 1st day of May,
1994, by and between FRANKLIN ADVISERS, INC., a corporation
organized and existing under the laws of the State of California
(hereinafter called "FAI"), and TEMPLETON INVESTMENT COUNSEL,
INC., a Florida corporation (hereinafter called "TICI").
W I T N E S S E T H
WHEREAS, FAI is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act"), and is
engaged in the business of supplying investment advice, and
investment management services, as an independent contractor; and
WHEREAS, FAI has been retained to render investment
management services to Franklin Global Government Income Fund
(the "Fund"), a series of Franklin Investors Securities Trust
(the "Trust"), an investment management company registered with
the U.S. Securities and Exchange Commission (the "SEC") pursuant
to the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, FAI desires to retain TICI to render investment
advisory, research and related services to the Fund pursuant to
the terms and provisions of this Agreement, and TICI is
interested in furnishing said services.
NOW, THEREFORE, in consideration of the covenants and the
mutual promises hereinafter set forth, the parties hereto,
intending to be legally bound hereby, mutually agree as follows:
1. FAI hereby retains TICI and TICI hereby accepts such
engagement, to furnish certain investment advisory services with
respect to the assets of the Fund, as more fully set forth
herein.
(a) Subject to the overall policies, control,
direction and review of the Trust's Board of Trustees (the
"Board") and to the instructions and supervision of FAI, TICI
will provide a continuous investment program for the Fund,
including allocation of the Fund's assets among the various
securities markets of the world and, investment research and
advice with respect to securities and investments and cash
equivalents in the Fund. So long as the Board and FAI determine,
on no less frequently than an annual basis, to grant the
necessary delegated authority to TICI, and subject to paragraph
(b) below, TICI will determine what securities and other
investments will be purchased, retained or sold by the Fund, and
will place all purchase and sale orders on behalf of the Fund
except that orders regarding U.S. domiciled securities and money
market instruments may also be placed on behalf of the Fund by
FAI.
(b) In performing these services, TICI shall adhere to
the Fund's investment objectives, policies and restrictions as
contained in its Prospectus and Statement of Additional
Information, and in the Trust's Declaration of Trust, and to the
investment guidelines most recently established by FAI and shall
comply with the provisions of the 1940 Act and the rules and
regulations of the SEC thereunder in all material respects and
with the provisions of the United States Internal Revenue Code of
1986, as amended, which are applicable to regulated investment
companies.
(c) Unless otherwise instructed by FAI or the Board,
and subject to the provisions of this Agreement and to any
guidelines or limitations specified from time to time by FAI or
by the Board, TICI shall report daily all transactions effected
by TICI on behalf of the Fund to FAI and to other entities as
reasonably directed by FAI or the Board.
(d) TICI shall provide the Board at least quarterly,
in advance of the regular meetings of the Board, a report of its
activities hereunder on behalf of the Fund and its proposed
strategy for the next quarter, all in such form and detail as
requested by the Board. TICI shall also make an investment
officer available to attend such meetings of the Board as the
Board may reasonably request.
(e) In carrying out its duties hereunder, TICI shall
comply with all reasonable instructions of the Fund or FAI in
connection therewith. Such instructions may be given by letter,
telex, telefax or telephone confirmed by telex, by the Board or
by any other person authorized by a resolution of the Board,
provided a certified copy of such resolution has been supplied to
TICI.
2. In performing the services described above, TICI shall
use its best efforts to obtain for the Fund the most favorable
price and execution available. Subject to prior authorization of
appropriate policies and procedures by the Board, TICI may, to
the extent authorized by law and in accordance with the terms of
the Fund's Prospectus and Statement of Additional Information,
cause the Fund to pay a broker who provides brokerage and
research services an amount of commission for effecting a
portfolio investment transaction in excess of the amount of
commission another broker would have charged for effecting that
transaction, in recognition of the brokerage and research
services provided by the broker. To the extent authorized by
applicable law, TICI shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or
otherwise solely by reason of such action.
3. (a) TICI shall, unless otherwise expressly provided
and authorized, have no authority to act for or represent FAI or
the Fund in any way, or in any way be deemed an agent for FAI or
the Fund.
(b) It is understood that the services provided by
TICI are not to be deemed exclusive. FAI acknowledges that TICI
may have investment responsibilities, or render investment advice
to, or perform other investment advisory services, for
individuals or entities, including other investment companies
registered pursuant to the 1940 Act, ("Clients") which may invest
in the same type of securities as the Fund. FAI agrees that TICI
may give advice or exercise investment responsibility and take
such other action with respect to such Clients which may differ
from advice given or the timing or nature of action taken with
respect to the Fund.
4. TICI agrees to use its best efforts in performing the
services to be provided by it pursuant to this Agreement.
5. FAI has furnished or will furnish to TICI as soon as
available copies properly certified or authenticated of each of
the following documents:
(a) the Trust's Declaration of Trust, as filed with
the Secretary of State of the
Commonwealth of Massachusetts on December 16, 1986, and any other
organizational documents and all amendments thereto or
restatements thereof;
(b) resolutions of the Trust's Board of Trustees
authorizing the appointment of TICI and approving this Agreement;
(c) the Trust's original Notification of Registration
on Form N-8A under the 1940 Act as filed with the SEC and all
amendments thereto;
(d) the Trust's current Registration Statement on Form
N-1A under the Securities Act of 1933, as amended and under the
1940 Act as filed with the SEC, and all amendments thereto, as it
relates to the Fund;
(e) the Fund's most recent Prospectus and Statement of
Additional Information; and
(f) the Management Agreement between the Fund and FAI.
FAI will furnish TICI with copies of all amendments of or
supplements to the foregoing documents.
6. TICI will treat confidentially and as proprietary
information of the Fund all records and other information
relative to the Fund and prior, present or potential
shareholders, and will not use such records and information for
any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval
in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where TICI may be exposed to
civil or criminal contempt proceedings for failure to comply when
requested to divulge such information by duly constituted
authorities, or when so requested by the Fund.
7. FAI shall pay a monthly fee in cash to TICI based upon
a percentage of the value of the Fund's net assets, calculated as
set forth below, on the first business day of each month in each
year as compensation for the services rendered and obligations
assumed by TICI during the preceding month. The advisory fee
under this Agreement shall be payable on the first business day
of the first month following the effective date of this
Agreement, and shall be reduced by the amount of any advance
payments made by FAI relating to the previous month.
(a) For purposes of calculating such fee, the value of
the net assets of the Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as the Fund uses to compute the
value of its net assets in connection with the determination of
the net asset value of its shares, all as set forth more fully in
the Fund's current Prospectus. The monthly fee payable to TICI
shall be based upon the following annual rates:
.35% of the value of its net assets up to and
including $100,000,000;
.25% of the value of its net assets over
$100,000,000 up to and including $250,000,000; and
.20% of the value of its net assets over
$250,000,000.
(b) FAI and TICI shall share equally in any voluntary
reduction or waiver by FAI of the management fee due FAI under
the Management Agreement between FAI and the Fund.
(c) If this Agreement is terminated prior to the end
of any month, the monthly fee shall be prorated for the portion
of any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of
calendar days in the month during which the Agreement is in
effect bears to the total number of calendar days in the month,
and shall be payable within 10 days after the date of
termination.
8. Nothing herein contained shall be deemed to relieve or
deprive the Board of its responsibility for and control of the
conduct of the affairs of the Fund.
9. (a) In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of its obligations or
duties hereunder on the part of TICI, neither TICI nor any of its
directors, officers, employees or affiliates shall be subject to
liability to FAI or the Fund or to any shareholder of the Fund
for any error of judgment or mistake of law or any other act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security by the Fund.
(b) Notwithstanding paragraph 9(a), to the extent that
FAI is found by a court of competent jurisdiction, or the SEC or
any other regulatory agency to be liable to the Fund or any
shareholder (a "liability"), for any acts undertaken by TICI
pursuant to authority delegated as described in Paragraph 1(a),
TICI shall indemnify and save FAI and each of its affiliates,
officers, directors and employees (each a "Franklin Indemnified
Party") harmless from, against, for and in respect of all losses,
damages, costs and expenses incurred by a Franklin Indemnified
Party with respect to such liability, together with all legal and
other expenses reasonably incurred by any such Franklin
Indemnified Party, in connection with such liability.
(c) No provision of this Agreement shall be construed
to protect any director or officer of FAI or TICI, from liability
in violation of Sections 17(h) or (i), respectively, of the 1940
Act.
10. During the term of this Agreement, TICI will pay all
expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Fund. The Fund
and FAI will be responsible for all of their respective expenses
and liabilities.
11. This Agreement shall be effective as of May 1, 1994,
and shall continue in effect for two years. It is renewable
annually thereafter for successive periods not to exceed one year
each (i) by a vote of the Board or by the vote of a majority of
the outstanding voting securities of the Fund, and (ii) by the
vote of a majority of the Trustees of the Trust who are not
parties to this Agreement or interested persons thereof, cast in
person at a meeting called for the purpose of voting on such
approval.
12. This Agreement may be terminated at any time, without
payment of any penalty, by the Board or by vote of a majority of
the outstanding voting securities of the Fund, upon sixty (60)
days' written notice to FAI and TICI, and by FAI or TICI upon
sixty (60) days' written notice to the other party.
13. This Agreement shall terminate automatically in the
event of any transfer or assignment thereof, as defined in the
1940 Act, and in the event of any act or event that terminates
the Management Agreement between FAI and the Fund.
14. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, TICI hereby agrees that all records which it
maintains for the Fund are the property of the Fund and further
agrees to surrender promptly to the Fund, or to any third party
at the Fund's direction, any of such records upon the Fund's
request. TICI further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required
to be maintained by Rule 31a-1 under the 1940 Act.
15. This Agreement may not be materially amended,
transferred, assigned, sold or in any manner hypothecated or
pledged without the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of the
Fund and may not be amended without the written consent of FAI
and TICI.
16. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise,
the remainder of this Agreement shall not be affected thereby.
17. The terms "majority of the outstanding voting
securities" of the Fund and "interested persons" shall have the
meanings as set forth in the 1940 Act.
18. This Agreement shall be interpreted in accordance with
and governed by the laws of the State of California of the United
States of America.
19. TICI acknowledges that it has received notice of and
accepts the limitations of the Trust's liability as set forth in
its Agreement and Declaration of Trust. TICI agrees that the
Trust's obligations hereunder shall be limited to the assets of
the Fund, and that TICI shall not seek satisfaction of any such
obligation from any shareholders of the Fund nor from any
trustee, officer, employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested by their duly
authorized officers.
FRANKLIN ADVISERS, INC.
By /s/ R. H. Johnson, Jr.
Title: President
TEMPLETON INVESTMENT COUNSEL, INC.
By /s/ Martin L. Flanagan
Title: Executive Vice President
Franklin Global Government Income Fund hereby acknowledges and
agrees to the provisions of paragraphs 9(a) and 10 of this
Agreement.
FRANKLIN INVESTORS SECURITIES TRUST on behalf of
FRANKLIN GLOBAL GOVERNMENT INCOME FUND
By /s/ E. R. Jamieson
Title: President
FRANKLIN INVESTORS SECURITIES 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
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.
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 INVESTORS SECURITIES TRUST
By:_______________________________
Accepted:
Franklin/Templeton Distributors, Inc.
By:__________________________________
DATED: ______________
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and
entered into as of March 12, 1993, by and between FRANKLIN
INVESTORS SECURITIES TRUST, a Delaware business trust (the
"Trust"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a banking association organized under the laws of
the United States (the "Custodian").
RECITALS
A. The Trust is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment
Company Act") that invests and reinvests, on behalf of its
series, in Domestic Securities and Foreign Securities.
B. The Custodian is, and has represented to the Trust
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 Trust and the Custodian desire to provide for
the retention of the Custodian as a custodian of the assets of
the series of the Trust, FRANKLIN GLOBAL OPPORTUNITY INCOME FUND,
FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND,
FRANKLIN CONVERTIBLE SECURITIES FUND, FRANKLIN ADJUSTABLE U.S.
GOVERNMENT SECURITIES FUND, FRANKLIN SPECIAL EQUITY INCOME FUND,
FRANKLIN ADJUSTABLE RATE SECURITIES FUND and such subsequent
series as the parties hereto may determine from time-to-time, 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. DEFINITIONS
For purposes of this Agreement, the following terms
shall have the respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board of Trustees" shall mean the Board of Trustees of
the Trust.
"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 America National Trust
and Savings Association.
"Domestic Securities" shall have the meaning provided
in Subsection 2.1 hereof.
"Executive Committee" shall mean the executive
committee of the Board of Trustees.
"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.
"Trust" shall mean the Franklin Investors Securities
Trust and any separate series of the Trust hereinafter organized.
"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.
"Shares" shall mean shares of beneficial interest of
the Trust.
"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 the Trust.
"Writing" shall mean a communication in writing, a
communication by telex, the Custodian's Global Custody
Instruction SystemTM, 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. The Trust hereby
appoints and designates the Custodian as a custodian of the
assets of the Trust including cash, securities the Trust 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 the Trust delivered to it hereunder in the manner
provided for herein.
2.2 Delivery of Assets. The Trust agrees to deliver
to the Custodian Securities and cash owned by the Trust, payments
of income, principal or capital distributions received by the
Trust with respect to Securities owned by the Trust from time to
time, and the consideration received by it for such Shares or
other securities of the Trust as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever
for any property or assets of the Trust held or received by the
Trust 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 Trust under the terms of this
Agreement shall be in "street name" or other good delivery form
as determined by the Custodian.
2.3 Subcustodians. Upon receipt of Proper
Instructions and a certified copy of a resolution of the Board of
Trustees or of the Executive Committee certified by the Secretary
or an Assistant Secretary of the Trust, the Custodian may from
time to time appoint one or more Subcustodians or Foreign
Custodians to hold assets of the Trust 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 the Trust
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 TRUST 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 the Trust, all non-cash property delivered by
the Trust 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 the Trust 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 Trust 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 Trust;
(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 Trust, or (ii) a tender offer or
repurchase by the Trust 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 Trust, 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 Trust, but only against receipt by the
Custodian, a Subcustodian or a Foreign Custodian of adequate
collateral as determined by the Trust (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 Trust prior to the receipt of
such collateral;
(k) for delivery as security in connection with
any borrowings by the Trust requiring a pledge of assets by the
Trust, 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 Trust, 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 Trust;
(m) for delivery in accordance with the
provisions of any agreement among the Trust, 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 Trust;
(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 Trustees or of the Executive Committee
certified by the Secretary or an Assistant Secretary of the
Trust, 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 Trust, in the name or nominee name of the Custodian
or in the name or nominee name of any Subcustodian or Foreign
Custodian. The Trust 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 the Trust,
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 the Trust, other than
cash maintained by the Trust in a bank account established and
used in accordance with Rule 17f-3 under the Investment Company
Act. Funds held by the Custodian for the Trust may be deposited
by it to its credit as Custodian in the banking departments of
the Custodian, a Subcustodian or a Foreign Custodian. It is
understood and agreed by the Custodian and the Trust that the
rate of interest, if any, payable on such funds (including
foreign currency deposits) that are deposited with the Custodian
may not be a market rate of interest and that the rate of
interest payable by the Custodian to the Trust shall be agreed
upon by the Custodian and the Trust from time to time. Such
funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
3.5 Collection of Income; Trade Settlement; Crediting
of Accounts. The Custodian shall collect income payable with
respect to Securities owned by the Trust, settle Securities
trades for the account of the Trust and credit and debit the
Trust's account with the Custodian in connection therewith as
follows:
(a) Upon receipt of Proper Instructions, the
Custodian shall effect the purchase of a Security by charging the
account of the Trust on the contractual settlement date. The
Custodian shall have no liability of any kind to any person,
including the Trust, if the Custodian effects payment on behalf
of the Trust as provided for herein or in Proper Instructions,
and the seller or selling broker fails to deliver the Securities
purchased.
(b) Upon receipt of Proper Instructions, the
Custodian shall effect the sale of a Security by delivering a
certificate or other indicia of ownership, and shall credit the
account of the Trust with the proceeds of such sale on the
contractual settlement date. The Custodian shall have no
liability of any kind to any person, including the Trust, if the
Custodian delivers such a certificate(s) or other indicia of
ownership as provided for herein or in Proper Instructions, and
the purchaser or purchasing broker fails to effect payment to
the Trust 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 Trust in connection with such sale.
(c) The Trust 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 Trust, 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
Trust with interest income payable on interest bearing Securities
on payable date. Interest income on cash balances will be
credited monthly to the account of the Trust on the first
Business Day (on which the Custodian is open for business)
following the end of each month. Dividends and other amounts
payable with respect to Domestic Securities and Foreign
Securities shall be credited to the account of the Trust 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 Trust. The
collection of income due the Trust on Domestic Securities loaned
pursuant to the provisions of Subsection 3.2(j) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Trust with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the Custodian
of the income to which the Trust is entitled. The Custodian
shall have no liability to any person, including the Trust, if
the Custodian credits the account of the Trust with such income
or other amounts payable with respect to Securities owned by the
Trust (other than Securities loaned by the Trust 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 Trust.
3.6 Payment of Trust Monies. Upon receipt of Proper
Instructions the Custodian shall pay out monies of the Trust 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
Trust 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 Trust 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 Trust 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 Trust;
(b) in connection with conversion, exchange or
surrender of Securities owned by the Trust as set forth in
Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares
issued by the Trust;
(d) for the payment of any expense or liability
incurred by the Trust, including but not limited to the following
payments for the account of the Trust: custodian fees, interest,
taxes, management, accounting, transfer agent and legal fees and
operating expenses of the Trust 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 of Trustees with respect to
the Shares.
3.7 Appointment of Subcustodians. The Custodian may,
upon receipt of Proper Instructions, appoint 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 the Trust 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 Trust 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 Trust which are maintained in a
Securities System shall identify by book-entry those Domestic
Securities belonging to the Trust;
(c) the Custodian shall pay for Domestic
Securities purchased for the account of the Trust 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 Trust.
The Custodian shall transfer Domestic Securities sold for the
account of the Trust 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 Trust. Copies of all
advices from the Securities System of transfers of Domestic
Securities for the account of the Trust shall be maintained for
the Trust by the Custodian and be provided to the Trust at its
request. Upon request, the Custodian shall furnish the Trust
confirmation of each transfer to or from the account of the Trust
in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the
Trust 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 the Trust,
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 Trust, 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 Trust, (ii)
for purposes of segregating cash or securities in connection with
options purchased, sold or written by the Trust or commodity
futures contracts or options thereon purchased or sold by the
Trust 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 of Trustees 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 the Trust 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 the Trust all
proxies, all proxy soliciting materials and all notices relating
to such Securities. If the Securities are registered otherwise
than in the name of the Trust or a nominee of the Trust, 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 Trust Portfolio
Securities. The Custodian shall transmit promptly to the Trust
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 Trust and the maturity of futures
contracts purchased or sold by the Trust) received by the
Custodian from issuers of Securities being held for the Trust.
With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Trust 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 the Trust desires to take action
with respect to any tender offer, exchange offer or any other
similar transaction, the Trust 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. Custodian shall each
business day furnish the Trust with a statement summarizing all
transactions and entries for the account of the Fund for the
preceding day. At the end of every month Custodian shall furnish
the Trust with a list of the portfolio securities showing the
quantity of each issue owned, the cost of each issue and the
market value of each issue at the end of each month. Such
monthly report shall also contain separate listings of (a)
unsettled trades and (b) when-issued securities. Custodian shall
furnish such other reports as may be mutually agreed upon from
time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH
RESPECT TO ASSETS OF THE TRUST HELD OUTSIDE
THE UNITED STATES
4.1 Custody outside the United States. The Trust
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 Board of Trustees or the 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 of Trustees or of the Executive Committee
certified by the Secretary or an Assistant Secretary of the
Trust. 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 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 Investment Company Act,
and (ii) cash and cash equivalents in such amounts as the
Custodian or the Trust may determine to be reasonably necessary
to effect the Trust's Foreign Securities transactions.
4.3 Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Custodian and the
Trust, assets of the Trust shall be maintained in Foreign
Securities Depositories only through arrangements implemented by
the Custodian or Foreign Custodians pursuant to the terms hereof.
4.4 Segregation of Securities. The Custodian shall
identify on its books and records as belonging to the Trust, the
Foreign Securities of the Trust held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each
agreement with a Foreign Custodian shall provide generally that:
(a) the Trust's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
Foreign Custodian or its creditors, except a claim of payment for
their safe custody or administration; (b) beneficial ownership
for the Trust's assets will be freely transferable without the
payment of money or value other than for custody or
administration; (c) adequate records will be maintained
identifying the assets as belonging to the Trust; (d) the
independent public accountants for the Trust, will be given
access to the records of the Foreign Custodian relating to the
assets of the Trust or confirmation of the contents of those
records; (e) the disposition of assets of the Trust held by the
Foreign Custodian will be subject only to the instructions of the
Custodian or its agents; (f) the Foreign Custodian shall
indemnify and hold harmless the Custodian and the Trust from and
against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Foreign Custodian's
performance of its obligations under such agreement; (g) to the
extent practicable, the Trust's assets will be adequately insured
in the event of loss; and (h) the Custodian will receive periodic
reports with respect to the safekeeping of the Trust's assets,
including notification of any transfer to or from the Trust's
account.
4.6 Access of Independent Accountants of the Trust.
Upon request of the Trust, the Custodian will use its best
reasonable efforts to arrange for the independent accountants of
the Trust 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 Trust.
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 the Trust, 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 the Trust 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 the Trust and delivery of Foreign
Securities maintained for the account of the Trust 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 the Trust 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 require the
Foreign Custodian to exercise reasonable care in the performance
of its duties and to indemnify and hold harmless the Custodian
and the Trust 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. At the
election of the Trust, 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
Trust has not been made whole for any such loss, damage, cost,
expense, liability or claim.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform the Trust
in the event that the Custodian learns of a material adverse
change in the financial condition of a Foreign Custodian or is
notified by (i) a foreign banking institution employed as a
Foreign Custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally
accepted United States accounting principles) and denominated in
U.S. dollars, or (ii) a subsidiary of a United States bank or
bank holding company acting as a Foreign Custodian that there
appears to be a substantial likelihood that its shareholders'
equity will decline below $100 million or that its shareholders'
equity has declined below $100 million (in each case computed in
accordance with generally accepted United States accounting
principles) and denominated in U.S. dollars.
(b) The custodian will furnish such information
as may be reasonably necessary to assist the Trust's Board of
Trustees 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 the Trust 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
Writing by an Authorized Person, but the Trust will hold the
Custodian harmless for its failure to send such confirmation in
writing, the failure of such confirmation to conform to the
telephone instructions received or the Custodian's failure to
produce such confirmation at any subsequent time. Unless
otherwise expressly provided, all Proper Instructions shall
continue in full force and effect until cancelled 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 Trust
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 Trust shall safeguard any testkeys, identification
codes or other security devices which the Custodian shall make
available to it. 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 the Trust as have been designated by a
resolution of the Board of trustees or of the Executive
Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Trust 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 the Trust:
(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 Trust;
(b) endorse for collection, in the name of the
Trust, 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 Trust 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 the Trust. The Custodian may receive
and accept a certified copy of a resolution of the Board of
Trustees 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 of
Trustees 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 Board
of Trustees to keep the books of account of the Trust and/or
compute the net asset value per Share of the outstanding Shares
of the Trust.
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 Trust 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 Trust and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Trust's
request, supply the Trust with a tabulation of Securities owned
by the Trust and held by the Custodian and shall, when requested
to do so by the Trust and for such compensation as shall be
agreed upon between the Trust 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 the Trust and the
Custodian.
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 the Trust for any
loss which shall occur as the result of the failure of a Foreign
Custodian or a Foreign Securities Depository engaged by such
Foreign Custodian or the Custodian to exercise reasonable care
with respect to the safekeeping of securities and other assets of
the Trust to the same extent that the Custodian would be liable
to the Trust if the Custodian itself were holding such securities
and other assets. In the event of any loss to the Trust by
reason of the failure of the Custodian, a Foreign Custodian or a
Foreign Securities Depository engaged by such Foreign Custodian
or the Custodian to utilize reasonable care, the Custodian shall
be liable to the Trust to the extent of the Trust'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. The Trust 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 any of them in connection
with the performance of this Agreement, 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 or Foreign Securities Depository. The Custodian shall
be entitled to rely, and may act, on advice of counsel (who may
be counsel for the Trust) 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 the Trust.
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 Trust. 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 of Trustees and may rely on the genuineness of any such
documents which it may in good faith believe to be validly
executed. The Custodian shall not be liable for any loss
resulting from, or caused by, the direction of the Trust 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 the Trust held by
the Custodian.
Section 12. LIMITED LIABILITY OF THE TRUST
The Custodian acknowledges that it has received notice
of and accepts the limitations of the Trust's liability as set
forth in its Agreement and Declaration of Trust. The Custodian
agrees that the Trust's obligation hereunder shall be limited to
the assets of the Trust, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the
Trust nor from any Trustee, officer, employee, or agent of the
Trust.
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 the Trust or the Custodian by 60 days notice in
Writing to the other provided that any termination by the Trust
shall be authorized by a resolution of the Board of Trustees, 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 Trust held by it. If notice of
termination is given by the Custodian, the Trust shall, within 60
days following the giving of such notice, deliver to the
Custodian a certified copy of a resolution of the Board of
Trustees specifying the names of the persons to whom the
Custodian shall deliver assets of the Trust held by it. 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 Trust assets to the
persons so specified). If within 60 days following the giving of
a notice of termination by the Custodian, the Custodian does not
receive from the Trust a certified copy of a resolution of the
Board of Trustees specifying the names of the persons to whom the
Custodian shall deliver the assets of the Trust held by it, 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 the Trust or (ii) be
construed as or constitute a prohibition against the provision by
the Custodian or any of its affiliates to the Trust 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 the Trust :
Franklin Investors Securities Trust
c/o Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Trust Manager
if to the Custodian:
Bank of America NT&SA
1455 Market Street
16th Floor, Dept. 5014
San Francisco, CA 94104
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 California (without giving effect to
principles of conflict of laws).
14.8 Force Majeure. Subject to 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 Trust and the Custodian and their
respective successors and assigns, if any.
14.14 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto and supersedes all
prior agreements and understandings between the parties hereto
relating to the subject matter hereof.
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.
"Custodian": BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ illegible
Its Vice President
"Trust": FRANKLIN INVESTORS SECURITIES TRUST
By /s/ C. B. Johnson
Its President
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors of
Franklin Investors Securities Trust
We consent to the incorporation by reference in Post-Effective
Amendment No. 15 to the Registration Statement of Franklin
Investors Securities Trust on Form N-1A (File No. 33-11444) of
our report dated December 7, 1994 on our audit of the financial
statements and financial highlights of the Trust, which report is
included in the Annual Report to Shareholders for the year ended
October 31, 1994, which is incorporated by reference in the
Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
April 14, 1995
To: All Franklin Templeton Funds Listed on Schedule A
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to invest $100.00 in the Class II shares (the "Shares") of
each of the Funds listed on the attached Schedule A (the "Funds"), on the
business day immediately preceding the effective date for each Fund's Class
II shares, at a purchase price per share equivalent to the net asset value
per share of each Fund's Class I shares on the date of purchase. We will
purchase the Shares in a private offering prior to the effectiveness of the
post-effective amendment to the Form N-1A registration statement under which
each Fund's Class II shares are initially offered, as filed by the Fund under
the Securities Act of 1933. The Shares are being purchased to serve as the
seed money for each Fund's Class II shares prior to the commencement of the
public offering of Class II shares.
In connection with such purchase, we understand that we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired.
We consent to the filing of this Investment Letter as an exhibit to the
form N-1A registration statement of each Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
Date: April 12, 1995
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
</TABLE>
FRANKLIN INVESTORS SECURITIES TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Investors Securities Trust (the
"Trust") for the use of Franklin Global Government Income Fund
(the "Fund"), which Plan shall take effect on the 1st day of May,
1994 (the "Effective Date of the Plan"). The Plan has been
approved by a majority of the Board of Trustees of the Trust (the
"Board of Trustees"), including a majority of the trustees who
are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested trustees"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the terms of the Underwriting
Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board
of Trustees concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, Distributors, or others or by Advisers or
Distributors to others may be deemed to constitute distribution
expenses of the Fund. Accordingly, the Board of Trustees
determined that the Plan should provide for such payments and
that adoption of the Plan would be prudent and in the best
interest of the Fund and its shareholders. Such approval included
a determination that in the exercise of their reasonable business
judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Trust on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the trustees, including the non-
interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.15% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested trustees cast in person at a meeting called
for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust and Distributors as evidenced
by their execution hereof.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Global Government Income Fund
/s/ Deborah Gatzek
By: Deborah Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
FRANKLIN INVESTORS SECURITIES TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Investors Securities Trust (the
"Trust") for the use of Franklin Short Intermediate U.S.
Government Securities Fund (the "Fund"), which Plan shall take
effect on the 1st day of May, 1994 (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of
Trustees of the Trust (the "Board of Trustees"), including a
majority of the trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in
the operation of the Plan (the "non-interested trustees"), cast
in person at a meeting called for the purpose of voting on such
Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the terms of the Underwriting
Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board
of Trustees concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, Distributors, or others or by Advisers or
Distributors to others may be deemed to constitute distribution
expenses of the Fund. Accordingly, the Board of Trustees
determined that the Plan should provide for such payments and
that adoption of the Plan would be prudent and in the best
interest of the Fund and its shareholders. Such approval included
a determination that in the exercise of their reasonable business
judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Trust on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the trustees, including the non-
interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.10% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested trustees cast in person at a meeting called
for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust and Distributors as evidenced
by their execution hereof.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Short-Intermediate U.S. Government Securities
Fund
/s/ Deborah R. Gatzek
By: Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
FRANKLIN INVESTORS SECURITIES TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Investors Securities Trust (the
"Trust") for the use of Franklin Convertible Securities Fund (the
"Fund"), which Plan shall take effect on the 1st day of May, 1994
(the "Effective Date of the Plan"). The Plan has been approved by
a majority of the Board of Trustees of the Trust (the "Board of
Trustees"), including a majority of the trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested trustees"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the terms of the Underwriting
Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board
of Trustees concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, Distributors, or others or by Advisers or
Distributors to others may be deemed to constitute distribution
expenses of the Fund. Accordingly, the Board of Trustees
determined that the Plan should provide for such payments and
that adoption of the Plan would be prudent and in the best
interest of the Fund and its shareholders. Such approval included
a determination that in the exercise of their reasonable business
judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Trust on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the trustees, including the non-
interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.25% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested trustees cast in person at a meeting called
for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust and Distributors as evidenced
by their execution hereof.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Convertible Securities Fund
/s/ Deborah R. Gatzek
By: Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
FRANKLIN INVESTORS SECURITIES TRUST
Preamble to Amended and Restated Distribution Plan
The following Amended and Restated Distribution Plan (the
"Plan") has been adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") by the Franklin
Adjustable U.S. Government Securities Fund (the "Fund"), a series
of the Franklin Investors Securities Trust (the "Trust"). The
Plan has been approved by a majority vote of the Board of
Trustees of the Trust (the "Board of Trustees"), including a
majority of the trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in
the operation of the Plan (the "non-interested trustees"), cast
in person at a meeting called for the purpose of voting on such
Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Administration
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the Management Agreement between
Adjustable Rate Securities Portfolios, a separate registered
management investment company, on behalf of a series entitled
U.S. Government Adjustable Rate Mortgage Portfolio, in which the
Fund invests substantially all of its assets, and Advisers, and
the Fund's indirect portion of fees payable to Advisers pursuant
to such Management Agreement, and the terms of the Distribution
Agreement between the Trust and Franklin/Templeton Distributors,
Inc. (the "Underwriter"). The Board of Trustees concluded that
the compensation of Advisers, under the Administration Agreement
and Management Agreement and of the Underwriter, under the
Distribution Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, the Underwriter or others or by Advisers or the
Underwriter to others may be deemed to constitute distribution
expenses. Accordingly, the Board of Trustees determined that the
Plan should provide for such payments and that adoption of the
Plan would be prudent and in the best interests of the Fund and
its shareholders.
Such approval included a determination that in the exercise
of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
AMENDED AND RESTATED DISTRIBUTION PLAN
l. The Fund shall pay the Underwriter or others, at the end of
each month, an amount equal to the average daily assets of the
Fund multiplied by that portion of 0.25% which the number of days
in the month bears to 365. Such payment represents reimbursement
for expenses incurred by the Underwriter or others for the
promotion and distribution of the shares of the Fund, including,
but not limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes,
expenses of preparation and distribution of sales literature and
related expenses, advertisements, other distribution-related
expenses, including a prorated portion of the Underwriter's
overhead expenses attributable to the distribution of Fund
shares, and fees paid to dealers or others as a distribution or
service fee for servicing shareholders of the Fund, pursuant to
an agreement, the form of which has been approved from time to
time by the trustees, including the non-interested trustees.
2. In addition to the payments which the Fund is authorized to
make pursuant to paragraph 1 hereof, to the extent that the Fund,
Advisers, the Underwriter or other parties on behalf of the Fund,
Advisers or the Underwriter make payments that are deemed to be
payments for the financing of any activity primarily intended to
result in the sale of shares issued by the Fund within the
context of Rule 12b-1 under the Act, then such payments shall be
deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges,
which include payments specified in paragraph 1, 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).
3. The Underwriter shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies paid to it and to others under the Plan, and shall furnish
the Board of Trustees with such other information as the Board of
Trustees may reasonably request in connection with the payments
made under the Plan in order to enable the Board of Trustees to
make an informed determination of whether the Plan should be
continued.
4. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
5. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund, or
by vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by the Underwriter, 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 Administration Agreement between the Fund
and Advisers, the Management Agreement between Adjustable Rate
Securities Portfolios, on behalf of the U.S. Government
Adjustable Rate Mortgage Portfolio and Advisers, or the
Distribution Agreement between the Trust and the Underwriter.
6. 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 and servicing of Fund shares pursuant to
Paragraph 2 hereof without approval by a majority of the Fund's
outstanding voting securities.
7. All material amendments to the Plan, or any agreements
entered into with third parties pursuant to this Plan, shall be
approved by a vote of the non-interested trustees, cast in person
at a meeting called for the purpose of voting on any such
amendment.
8. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
9. In accordance with the limitations of liability contained in
the Declaration of Trust of the Trust, notice and acceptance of
which is hereby acknowledged, the Fund's obligations under the
Plan shall be limited to the Fund and the assets of the Fund, and
no party shall seek satisfaction of any such obligation from any
shareholder, Trustee, officer, employee or agent of the Fund or
the Trust.
10. This Plan shall take effect on the 1st day of July, 1993.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust, on behalf of the Fund, and
the Underwriter as evidenced by their execution hereof.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Adjustable U.S.
Government Securities Fund
By: /s/ Charles B. Johnson
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Rupert H. Johnson, Jr.
FRANKLIN INVESTORS SECURITIES TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Investors Securities Trust (the
"Trust") for the use of Franklin Equity Income Fund (the "Fund"),
which Plan shall take effect on the 1st day of May, 1994 (the
"Effective Date of the Plan"). The Plan has been approved by a
majority of the Board of Trustees of the Trust (the "Board of
Trustees"), including a majority of the trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested trustees"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the terms of the Underwriting
Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board
of Trustees concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, Distributors, or others or by Advisers or
Distributors to others may be deemed to constitute distribution
expenses of the Fund. Accordingly, the Board of Trustees
determined that the Plan should provide for such payments and
that adoption of the Plan would be prudent and in the best
interest of the Fund and its shareholders. Such approval included
a determination that in the exercise of their reasonable business
judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with the Trust on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the trustees, including the non-
interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.25% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested trustees cast in person at a meeting called
for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust and Distributors as evidenced
by their execution hereof.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Equity Income Fund
/s/ Deborah R. Gatzek
By: Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Harmon E. Burns
By: Harmon E. Burns
FRANKLIN INVESTORS SECURITIES TRUST
Preamble to Amended and Restated Distribution Plan
The following Amended and Restated Distribution Plan (the
"Plan") has been adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") by the Franklin
Adjustable Rate Securities Fund (the "Fund"), a series of the
Franklin Investors Securities Trust (the "Trust"). The Plan has
been approved by a majority vote of the Board of Trustees of the
Trust (the "Board of Trustees"), including a majority of the
trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the
Plan (the "non-interested trustees"), cast in person at a meeting
called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Administration
Agreement between the Trust on behalf of the Fund and Franklin
Advisers, Inc. ("Advisers") and the Management Agreement between
Adjustable Rate Securities Portfolios, a separate registered
management investment company, on behalf of a series entitled
Adjustable Rate Securities Portfolio, in which the Fund invests
substantially all of its assets, and Advisers, and the Fund's
indirect portion of fees payable to Advisers pursuant to such
Management Agreement and the terms of the Distribution Agreement
between the Trust and Franklin/Templeton Distributors, Inc. (the
"Underwriter"). The Board of Trustees concluded that the
compensation of Advisers, under the Administration Agreement and
Management Agreement, and of the Underwriter, under the
Distribution Agreement, was fair and not excessive; however, the
Board of Trustees also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the
Fund to Advisers, the Underwriter or others, or by Advisers or
the Underwriter to others may be deemed to constitute
distribution expenses. Accordingly, the Board of Trustees
determined that the Plan should provide for such payments and
that adoption of the Plan would be prudent and in the best
interests of the Fund and its shareholders.
Such approval included a determination that in the exercise of
their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
AMENDED AND RESTATED DISTRIBUTION PLAN
l. The Fund shall pay the Underwriter or others, at the end of
each month, an amount equal to the average daily assets of the
Fund multiplied by that portion of 0.25% which the number of days
in the month bears to 365. Such payment represents reimbursement
for expenses incurred by the Underwriter or others for the
promotion and distribution of the shares of the Fund, including,
but not limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes,
expenses of preparation and distribution of sales literature and
related expenses, advertisements, other distribution-related
expenses, including a prorated portion of the Underwriter's
overhead expenses attributable to the distribution of Fund
shares, and fees paid to dealers or others as a distribution or
service fee for servicing shareholders of the Fund, pursuant to
an agreement, the form of which has been approved from time to
time by the trustees, including the non-interested trustees.
2. In addition to the payments which the Fund is authorized to
make pursuant to paragraph 1 hereof, to the extent that the Fund,
Advisers, the Underwriter or other parties on behalf of the Fund,
Advisers or the Underwriter make payments that are deemed to be
payments for the financing of any activity primarily intended to
result in the sale of shares issued by the Fund within the
context of Rule 12b-1 under the Act, then such payments shall be
deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges,
which include payments specified in paragraph 1, 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).
3. The Underwriter shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies paid to it and to others under the Plan, and shall furnish
the Board of Trustees with such other information as the Board of
Trustees may reasonably request in connection with the payments
made under the Plan in order to enable the Board of Trustees to
make an informed determination of whether the Plan should be
continued.
4. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Trustees,
including the non-interested trustees, cast in person at a
meeting called for the purpose of voting on the Plan.
5. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund, or
by vote of a majority of the non-interested trustees, on not more
than sixty (60) days' written notice, or by the Underwriter, 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 Administration Agreement between the Fund
and Advisers, the Management Agreement between Adjustable Rate
Securities Portfolios on behalf of Adjustable Rate Securities
Portfolio and Advisers, or the Distribution Agreement between the
Trust and the Underwriter.
6. 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 and servicing of Fund shares pursuant to
Paragraph 2 hereof without approval by a majority of the Fund's
outstanding voting securities.
7. All material amendments to the Plan, or any agreements
entered into with third parties pursuant to this Plan, shall be
approved by a vote of the non-interested trustees, cast in person
at a meeting called for the purpose of voting on any such
amendment.
8. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
9. In accordance with the limitations of liability contained in
the Declaration of Trust of the Trust, notice and acceptance of
which is hereby acknowledged, the Fund's obligations under the
Plan shall be limited to the Fund and the assets of the Fund, and
no party shall seek satisfaction of any such obligation from any
shareholder, Trustee, officer, employee or agent of the Fund or
the Trust.
10. This Plan shall take effect on the 1st day of July, 1993.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust, on behalf of the Fund, and
the Underwriter, as evidenced by their execution hereof.
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of Franklin Adjustable Rate Securities Fund
/s/ Charles B. Johnson
By:_Charles B. Johson
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
/s/ Rupert H. Johnson
By: Rupert H. Johnson
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN INVESTORS SECURITIES TRUST
II. Fund and Class: FRANKLIN GLOBAL GOVERNMENT INCOME FUND - CLASS II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.50%
B. Service Fee: 0.15%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Act") by the Investment Company named above ("Investment Company") for
the class II shares (the "Class") of each Fund named above ("Fund"), which
Plan shall take effect as of the date class II shares are first offered
(the "Effective Date of the Plan"). The Plan has been approved by a
majority of the Board of Directors or Trustees of the Investment Company
(the "Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no direct, or
indirect financial interest in the operation of the Plan (the "non-
interested Board members"), cast in person at a meeting called for the
purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature
of payments and terms of the Management Agreement between the Investment
Company and Franklin Advisers, Inc. and the terms of the Underwriting
Agreement between the Investment Company and Franklin/Templeton
Distributors, Inc. ("Distributors"). The Board concluded that the
compensation of Advisers, under the Management Agreement, and of
Distributors, under the Underwriting Agreement, was fair and not
excessive. The approval of the Plan included a determination that in the
exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee not to
exceed the above-stated maximum distribution fee per annum of the Class'
average daily net assets represented by shares of the Class, as may be
determined by the Board from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to Distributors for payment to dealers or others, or (ii)
directly to others, an amount not to exceed the above-stated maximum
service fee per annum of the Class' average daily net assets represented
by shares of the Class, as may be determined by the Fund's Board from time
to time, as a service fee pursuant to servicing agreements which have been
approved from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it pursuant to
Paragraph 1(a) above to assist in the distribution and promotion of shares
of the Class. Payments made to Distributors under the Plan may be used
for, among other things, the printing of prospectuses and reports used for
sales purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead expenses
attributable to the distribution of Class shares, as well as for
additional distribution fees paid to securities dealers or their firms or
others who have executed agreements with the Investment Company,
Distributors or its affiliates, which form of agreement has been approved
from time to time by the Trustees, including the non-interested trustees.
In addition, such fees may be used to pay for advancing the commission
costs to dealers or others with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall
be used to pay dealers or others for, among other things, furnishing
personal services and maintaining shareholder accounts, which services
include, among other things, assisting in establishing and maintaining
customer accounts and records; assisting with purchase and redemption
requests; arranging for bank wires; monitoring dividend payments from the
Fund on behalf of customers; forwarding certain shareholder communications
from the Fund to customers; receiving and answering correspondence; and
aiding in maintaining the investment of their respective customers in the
Class. Any amounts paid under this paragraph 2(b) shall be paid pursuant
to a servicing or other agreement, which form of agreement has been
approved from time to time by the Board.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund,
Advisers, Distributors or other parties on behalf of the Fund, Advisers or
Distributors make payments that are deemed to be payments by the Fund for
the financing of any activity primarily intended to result in the sale of
Class shares issued by the Fund within the context of Rule 12b-1 under the
Act, then such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges which
include payments specified in paragraphs 1 and 2, plus any other payments
deemed to be made pursuant to the Plan under this paragraph, exceed the
amount permitted to be paid pursuant to the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., Article III, Section
26(d).
4. Distributors shall furnish to the Board, for its review, on a
quarterly basis, a written report of the monies reimbursed to it and to
others under the Plan, and shall furnish the Board with such other
information as the Board may reasonably request in connection with the
payments made under the Plan in order to enable the Board to make an
informed determination of whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one
year only so long as such continuance is specifically approved at least
annually by the Board, including the non-interested Board members, cast in
person at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan,
may be terminated at any time, without penalty, by vote of a majority of
the outstanding voting securities of the Fund or by vote of a majority of
the non-interested Board members, on not more than sixty (60) days'
written notice, or by Distributors on not more than sixty (60) days'
written notice, and shall terminate automatically in the event of any act
that constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan,
may not be amended to increase materially the amount to be spent for
distribution pursuant to Paragraph 1 hereof without approval by a majority
of the Fund's outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered
into pursuant to this Plan, shall be approved by the non-interested Board
members cast in person at a meeting called for the purpose of voting on
any such amendment.
9. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Board members shall be committed to the
discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted
and agreed to by the Investment Company and Distributors as evidenced by
their execution hereof.
Date: __________________, 1995
Investment Company
By:________________________________
Franklin/Templeton Distributors, Inc.
By:_____________________________________
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN INVESTORS SECURITIES TRUST
II. Fund and Class: FRANKLIN EQUITY 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: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by the Investment Company named above
("Investment Company") for the class II shares (the "Class") of
each Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors or Trustees of the Investment Company (the
"Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and
nature of payments and terms of the Management Agreement between
the Investment Company and Franklin Advisers, Inc. and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting
Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee
not to exceed the above-stated maximum distribution fee per annum
of the Class' average daily net assets represented by shares of
the Class, as may be determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or
others, or (ii) directly to others, an amount not to exceed the
above-stated maximum service fee per annum of the Class' average
daily net assets represented by shares of the Class, as may be
determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved
from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to assist in the distribution
and promotion of shares of the Class. Payments made to
Distributors under the Plan may be used for, among other things,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead
expenses attributable to the distribution of Class shares, as
well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements
with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by
the Trustees, including the non-interested trustees. In
addition, such fees may be used to pay for advancing the
commission costs to dealers or others with respect to the sale of
Class shares.
(b) The monies to be paid pursuant to paragraph 1(b)
above shall be used to pay dealers or others for, among other
things, furnishing personal services and maintaining shareholder
accounts, which services include, among other things, assisting
in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf
of customers; forwarding certain shareholder communications from
the Fund to customers; receiving and answering correspondence;
and aiding in maintaining the investment of their respective
customers in the Class. Any amounts paid under this paragraph
2(b) shall be paid pursuant to a servicing or other agreement,
which form of agreement has been approved from time to time by
the Board.
3. In addition to the payments which the Fund is authorized
to make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of Class shares issued
by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review,
on a quarterly basis, a written report of the monies reimbursed
to it and to others under the Plan, and shall furnish the Board
with such other information as the Board may reasonably request
in connection with the payments made under the Plan in order to
enable the Board to make an informed determination of whether the
Plan should be continued.
5. The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically
approved at least annually by the Board, including the non-
interested Board members, cast in person at a meeting called for
the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to
this Plan, may be terminated at any time, without penalty, by
vote of a majority of the outstanding voting securities of the
Fund or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to
this Plan, may not be amended to increase materially the amount
to be spent for distribution pursuant to Paragraph 1 hereof
without approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested Board members cast in person at a meeting called for
the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be
committed to the discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Investment Company and Distributors
as evidenced by their execution hereof.
Date: __________________, 1995
Investment Company
By:________________________________
Franklin/Templeton Distributors, Inc.
By:_____________________________________
POWER OF ATTORNEY
The undersigned officers and trustees of Franklin Investors
Securities Trust (the "Registrant") hereby appoint MARK H.
PLAFKER, HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE
AND LARRY L. GREENE (with full power to each of them to act
alone) his attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to below
relating to Post-Effective Amendments to the Registrant's
registration statement on Form N-1A under the Investment Company
Act of 1940, as amended, and under the Securities Act of 1933
covering the sale of shares by the Registrant under prospectuses
becoming effective after this date, including any amendment or
amendments increasing or decreasing the amount of securities for
which registration is being sought, with all exhibits and any and
all documents required to be filed with respect thereto with any
regulatory authority. Each of the undersigned grants to each of
said attorneys, full authority to do every act necessary to be
done in order to effectuate the same as fully, to all intents and
purposes as he could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this
Power of Attorney as of this 16th day of February 1995.
/s/ edward B. Jamieson /s/ Charles B. Johnson
Edward B. Jamieson, Charles B. Johnson,
Principal Executive Officer Trustee
and Trustee
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
Frank H. Abbott, III, Harris J. Ashton,
Trustee Trustee
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. Joseph Fortunato, David W. Garbellano,
Trustee Trustee
/s/ Rupert H. Johnson, Jr. /s/ Frank W. T. LaHaye
Rupert H. Johnson, Jr., Frank W. T. LaHaye,
Trustee Trustee
/s/Gordon S. Macklin /s/ Martin L. Flanagan
Gordon S. Macklin, Martin L. Flanagan
Trustee Principal Financial Officer
/s/ Diomedes Loo-Tam
Diomedes Loo-Tam,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of
Franklin Investors Securities Trust (the "Trust").
As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust
present at a meeting held at 777 Mariners Island Boulevard, San
Mateo, California, on February 16, 1995.
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
Board, appointing Harmon E. Burns, Deborah R. Gatzek,
Larry L. Greene, Karen L. Skidmore, and Mark H. Plafker
as attorneys-in-fact for the purpose of filing
documents with the Securities and Exchange Commission,
be executed by each Trustee and designated officer.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Deborah R. Gatzek
Dated: February 16, 1995 Deborah R. Gatzek
Secretary
