As filed with the Securities and Exchange Commission on December 24, 1998.
File Nos.
33-18516
811-5387
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 26 (X)
and/or
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940
Amendment No. 27 (X)
FRANKLIN MUTUAL SERIES FUND INC.
(Exact Name of Registrant as Specified in Charter)
51 JOHN F. KENNEDY PARKWAY, SHORT HILLS, NJ 07078
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (201)912-2100
ELIZABETH N. COHERNOUR, 51 JOHN F. KENNEDY PARKWAY, SHORT HILLS, NJ 07078
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective on (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph b
[x] on January 1, 1999 pursuant to paragraph b
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Common Stock of:
Mutual Shares Fund - Class A
Mutual Shares Fund - Class B
Mutual Shares Fund - Class C
Mutual Qualified Fund - Class A
Mutual Qualified Fund - Class B
Mutual Qualified Fund - Class C
Mutual Beacon Fund - Class A
Mutual Beacon Fund - Class B
Mutual Beacon Fund - Class C
Mutual Financial Services Fund - Class A
Mutual Financial Services Fund - Class B
Mutual Financial Services Fund - Class C
Mutual European Fund - Class A
Mutual European Fund - Class B
Mutual European Fund - Class C
Mutual Discovery Fund - Class A
Mutual Discovery Fund - Class B
Mutual Discovery Fund - Class C
The Registrant's statement of additional information dated May 1, 1998, as
filed with the Securities and Exchange Commission under Form Type 497 on May
5, 1998 is hereby incorporated by reference. (File Nos. 33-18516 and
811-5387.)
PROSPECTUS
FRANKLIN
MUTUAL
SERIES FUND INC.
MAY 1, 1998
AS AMENDED JANUARY 1, 1999
INVESTMENT STRATEGIES
GROWTH AND INCOME O VALUE
MUTUAL SHARES FUND
GROWTH AND INCOME O VALUE
MUTUAL QUALIFIED FUND
GROWTH AND INCOME O VALUE
MUTUAL BEACON FUND
GROWTH AND INCOME O VALUE
MUTUAL FINANCIAL SERVICES FUND
GLOBAL O VALUE
MUTUAL EUROPEAN FUND
GLOBAL O VALUE
MUTUAL DISCOVERY FUND
CLASS A, B & C
Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how each fund invests
and the services available to shareholders.
This prospectus describes the Class A, B and C shares of the six series of
Franklin Mutual Series Fund Inc. ("Mutual Series"): Mutual Shares Fund
("Mutual Shares"), Mutual Qualified Fund ("Qualified"), Mutual Beacon Fund
("Beacon"), Mutual European Fund ("European"), Mutual Discovery Fund
("Discovery") and Mutual Financial Services Fund ("Financial Services"). Each
fund currently offers another share class with a different sales charge and
expense structure, which affects performance.
To learn more about each fund and its policies, you may request a copy of the
funds' Statement of Additional Information ("SAI"), dated May 1, 1998, which
we may amend from time to time. We have filed the SAI with the SEC and have
incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus, or
to receive a free copy of the prospectus for the funds' other share class,
contact your investment representative or call 1-800/DIAL BEN.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. MUTUAL
FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN MUTUAL SERIES FUND INC.
- ------------------------------------------------------------------------------
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO
SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
TABLE OF CONTENTS
ABOUT THE FUNDS
Expense Summary .................................................. 2
Financial Highlights ............................................. 5
How Do the Funds Invest Their Assets? ............................ 17
What Are the Risks of Investing in the Funds? .................... 28
Who Manages the Funds? ........................................... 34
How Taxation Affects the Funds
and Their Shareholders .......................................... 39
How Are the Funds Organized? ..................................... 43
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............................................. 44
May I Exchange Shares for Shares of Another Fund? ................ 53
How Do I Sell Shares? ............................................ 56
What Distributions Might I Receive From the Funds? ............... 59
Transaction Procedures and Special Requirements .................. 60
Services to Help You Manage Your Account ......................... 64
What If I Have Questions About My Account? ....................... 67
GLOSSARY
Useful Terms and Definitions ..................................... 67
Franklin
Mutual Series
Fund Inc.
May 1, 1998
as amended January 1, 1999
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
1-800/DIAL BEN(R)
ABOUT THE FUNDS
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in a
fund. It is based on the historical expenses of each class for the fiscal
year ended December 31, 1997. The expenses for Financial Services have been
annualized. Each fund's actual expenses may vary.
<TABLE>
<CAPTION>
A. Shareholder Transaction Expenses3
Mutual Financial
Shares Qualified Beacon Discovery European Services
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A1
Maximum Sales Charge
(as a percentage of Offering Price) 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
Paid at time of purchase4 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
Paid at redemption5 None None None None None None
Class B2
Maximum Sales Charge
(as a percentage of Offering Price) 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
Paid at time of purchase4 None None None None None None
Paid at redemption5 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
Class C1
Maximum Sales Charge
(as a percentage of Offering Price) 1.99% 1.99% 1.99% 1.99% 1.99% 1.99%
Paid at time of purchase4 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Paid at redemption5 0.99% 0.99% 0.99% 0.99% 0.99% 0.99%
B. Annual Fund Operating Expenses (as a percentage of average net assets)
Class A1
Management Fees 0.60%7 0.60%7 0.60%7 0.80%7 0.80%7 0.18%6
Rule 12b-1 Fees8 0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
Other Expenses 0.15% 0.18% 0.17% 0.20% 0.24% 0.82%
Total Fund Operating Expenses 1.10%7 1.13%7 1.12%7 1.35%7 1.39%7 1.35%6
Class B2
Management Fees 0.60%7 0.60%7 0.60%7 0.80%7 0.80%7 0.18%6
Rule 12b-1 Fees8 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses 0.15% 0.18% 0.17% 0.20% 0.25% 0.82%
Total Fund Operating Expenses 1.75%7 1.78%7 1.77%7 2.00%7 2.05%7 2.00%6
Class C1
Management Fees 0.60%7 0.60%7 0.60%7 0.80%7 0.80%7 0.18%6
Rule 12b-1 Fees8 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses 0.15% 0.18% 0.17% 0.20% 0.25% 0.82%
Total Fund Operating Expenses 1.75%7 1.78%7 1.77%7 2.00%7 2.05%7 2.00%6
C. Example
Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown. These
are the projected expenses for each $10,000 that you invest in a fund.
Mutual Financial
Shares Qualified Beacon Discovery European Services
- -------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C> <C> <C> <C>
1 Year9 ....................... $ 681 $ 684 $ 683 $ 705 $ 709 $ 763
3 Years ....................... $ 905 $ 913 $ 911 $ 978 $ 993 $1,158
5 Years ....................... $1,146 $1,161 $1,156 $1,272 $1,297 $1,576
10 Years ...................... $1,838 $1,871 $1,860 $2,105 $2,158 $2,739
Class B (Assuming you sold your shares at the end of the period)
1 Year ........................ $ 578 $ 581 $ 580 $ 603 $ 608 $ 665
3 Years ....................... $ 851 $ 860 $ 857 $ 927 $ 943 $1,114
5 Years ....................... $1,149 $1,164 $1,159 $1,278 $1,303 $1,590
10 Years10 .................... $1,891 $1,924 $1,913 $2,160 $2,213 $2,796
Class B (Assuming you stayed in the fund)
1 Year ........................ $ 178 $ 181 $ 180 $ 203 $ 208 $ 265
3 Years ....................... $ 551 $ 560 $ 557 $ 627 $ 643 $ 814
5 Years ....................... $ 949 $ 964 $ 959 $1,078 $1,103 $1,390
10 Years10 .................... $1,891 $1,924 $1,913 $2,160 $2,213 $2,796
Class C
1 Year11 ...................... $ 374 $ 377 $ 376 $ 399 $ 404 $ 460
3 Years ....................... $ 646 $ 655 $ 652 $ 721 $ 736 $ 906
5 Years ....................... $1,039 $1,055 $1,050 $1,167 $1,192 $1,476
10 Years ...................... $2,142 $2,174 $2,163 $2,404 $2,455 $3,024
</TABLE>
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
Each fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
1Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2Each fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended December 31, 1997. The Rule 12b-1 fees are based on the maximum
fees allowed under Class B's Rule 12b-1 plan.
3If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
4There is no front-end sales charge if you invest $1 million or more in Class
A shares. Although Class B and C have a lower front-end sales charge than
Class A, their Rule 12b-1 fees are higher. Over time you may pay more for
Class B and C shares. Please see "How Do I Buy Shares? - Choosing a Share
Class."
5A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more if you sell the shares within one year and to any Class C
purchase if you sell the shares within 18 months. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase if you sell the shares
within six years. A Contingent Deferred Sales Charge may also apply to
purchases by certain retirement plans that qualify to buy Class A shares
without a front-end sales charge. The charge is based on the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is
less. The number in the table shows the charge as a percentage of Offering
Price. While the percentage for Class C is different depending on whether the
charge is shown based on the Net Asset Value or the Offering Price, the
dollar amount you would pay is the same. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
6Franklin Mutual has agreed in advance to limit its management fee and to
assume as its own expense certain other expenses otherwise payable by
Financial Services so that Financial Services' aggregate annual operating
expenses do not exceed 1.35% for Class A and 2.00% for Class B and C for the
fund's initial twenty-four months of operations. Absent this reduction,
management fees were 0.80% and total operating expenses were 1.97% for Class
A and 2.62% for Class C for the fiscal year ended December 31, 1997. After
the first twenty-four months of operations, Franklin Mutual may terminate
this arrangement at any time.
7For the period shown, Franklin Mutual had agreed in advance to limit its
management fees. This agreement, which expires October 31, 1999, does not
apply to Financial Services, which was not in existence at the beginning of
the fiscal year. With this reduction, management fees and total operating
expenses were as follows:
MUTUAL
SHARES QUALIFIED BEACON DISCOVERY EUROPEAN
Management Fees 0.57% 0.57% 0.57% 0.78% 0.78%
Total Operating
Expenses:
Class A ............ 1.07% 1.10% 1.09% 1.33% 1.37%
Class C ............ 1.72% 1.75% 1.74% 1.98% 2.02%
8The combination of front-end sales charges and Rule 12b-1 fees could cause
long-term shareholders to pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
9Assumes a Contingent Deferred Sales Charge will not apply.
10Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
11For the same Class C investment, you would pay projected expenses of $276
(Mutual Shares), $279 (Qualified), $278 (Beacon), $301 (Discovery), $306
(European) and $362 (Financial Services) if you did not sell your shares at
the end of the first year. Your projected expenses for the remaining periods
would be the same.
FINANCIAL HIGHLIGHTS
This table summarizes each fund's financial history. The information for the
periods ended December 31, 1996 and 1997, has been audited by Ernst & Young
LLP, each fund's independent auditor. The audit report covering the periods
shown below appears in the fund's Annual Report to Shareholders for the
fiscal year ended December 31, 1997. The Annual Report to Shareholders also
includes more information about the fund's performance. For a free copy,
please call Fund Information.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 Period Ended December 31,
MUTUAL SHARES - CLASS A (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance++
(For a share outstanding throughout the period)
Net Asset Value, beginning of period $21.26 $18.56 $18.90
-----------------------------------------------------
Income from investment operations:
Net investment income .24 .34 .21
Net realized and unrealized gain 1.13 4.43 1.08
-----------------------------------------------------
Total from investment operations 1.37 4.77 1.29
-----------------------------------------------------
Less distributions from:
Net investment income - (.49) (.47)
Net realized gains - (1.58) (1.16)
-----------------------------------------------------
Total distributions - (2.07) (1.63)
Net Asset Value, end of period $22.63 $21.26 $18.56
=====================================================
Total Return* 6.44% 26.03% 6.91%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,702,262 $1,043,262 $35,634
Ratios to average net assets:
Expenses 1.08%** 1.07% 1.09%**
Expenses, excluding waiver and
payments by affiliate 1.11%** 1.10% 1.18%**
Net investment income 2.18%** 1.58% 2.44%**
Portfolio turnover rate 29.22% 49.61% 58.35%
Six Months Ended
June 30, 1998 Period Ended December 31,
MUTUAL SHARES - CLASS C (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance++
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $21.18 $18.56 $18.90
-----------------------------------------------------
Income from investment operations:
Net investment income .17 .20 .20
Net realized and unrealized gain 1.12 4.42 1.08
-----------------------------------------------------
Total from investment operations 1.29 4.62 1.28
-----------------------------------------------------
Less distributions from:
Net investment income - (.42) (.46)
Net realized gains - (1.58) (1.16)
-----------------------------------------------------
Total distributions - (2.00) (1.62)
-----------------------------------------------------
Net Asset Value, end of period $22.47 $21.18 $18.56
=====================================================
Total Return* 6.09% 25.17% 6.82%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,093,269 $636,838 $16,873
Ratios to average net assets:
Expenses 1.73%** 1.72% 1.71%**
Expenses, excluding waiver and
payments by affiliate 1.76%** 1.75% 1.80%**
Net investment income 1.53%** 0.92% 1.69%**
Portfolio turnover rate 29.22% 49.61% 58.35%
Six Months Ended
June 30, 1998 Period Ended December 31,
QUALIFIED - CLASS A (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance+++
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value beginning of period $18.14 $16.23 $16.40
------------------------------------------------------
Income from investment operations:
Net investment income .23 .28 .16
Net realized and unrealized gain 1.25 3.63 .89
------------------------------------------------------
Total from investment operations 1.48 3.91 1.05
------------------------------------------------------
Less distributions from:
Net investment income - (.60) (.41)
Net realized gains - (1.40) (.81)
------------------------------------------------------
Total distributions - (2.00) (1.22)
------------------------------------------------------
Net Asset Value, end of period $19.62 $18.14 $16.23
======================================================
Total Return* 8.16% 24.44% 6.47%
Ratios/Supplemental Data:
Net assets, end of period (000's) $665,293 $452,590 $20,381
Ratios to average net assets:
Expenses 1.09%** 1.10% 1.13%**
Expenses, excluding waiver and
payments by affiliate 1.13%** 1.13% 1.28%**
Net investment income 2.22% 1.48% 3.19%**
Portfolio turnover rate 25.10% 52.76% 65.03%
Six Months Ended
June 30, 1998 Period Ended December 31,
QUALIFIED - CLASS C (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance+++
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $18.09 $16.23 $16.40
------------------------------------------------------
Income from investment operations:
Net investment income .18 .16 .13
Net realized and unrealized gain 1.24 3.63 .91
------------------------------------------------------
Total from investment operations 1.42 3.79 1.04
------------------------------------------------------
Less distributions from:
Net investment income - (.53) (.39)
Net realized gains - (1.40) (.82)
------------------------------------------------------
Total distributions - (1.93) (1.21)
------------------------------------------------------
Net Asset Value, end of period $19.51 $18.09 $16.23
======================================================
Total Return* 7.85% 23.66% 6.37%
Ratios/Supplemental Data:
Net assets, end of period (000's) $365,618 231,721 $9,963
Ratios to average net assets:
Expenses 1.74%** 1.75% 1.78%**
Expenses, excluding waiver and
payments by affiliate 1.78%** 1.78% 1.93%**
Net investment income 1.58%** .84% 2.59%**
Portfolio turnover rate 25.10% 52.76% 65.03%
Six Months Ended
June 30, 1998 Period Ended December 31,
BEACON - CLASS A (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance++++
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $14.09 $12.98 $13.21
------------------------------------------------------
Income from investment operations:
Net investment income .19 .23 .16
Net realized and unrealized gain 1.23 2.65 .69
------------------------------------------------------
Total from investment operations 1.42 2.88 .85
------------------------------------------------------
Less distributions from:
Net investment income - (.51) (.33)
Net realized gains - (1.26) (.75)
------------------------------------------------------
Total Distributions - (1.77) (1.08)
------------------------------------------------------
Net Asset Value, end of period $15.51 $14.09 $12.98
======================================================
Total Return* 10.08% 22.52% 6.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,049,810 $753,519 $52,070
Ratios to average net assets:
Expenses 1.10%** 1.09% 1.03%**
Expenses, excluding waiver and
payments by affiliate 1.13%** 1.12% 1.13%**
Net investment income 2.56%** 1.58% 1.33%**
Portfolio turnover rate 26.68% 54.72% 66.87%
Six Months Ended
June 30, 1998 Period Ended December 31,
BEACON - CLASS C (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance++++
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $14.04 $12.98 $13.21
------------------------------------------------------
Income from investment operations:
Net investment income .14 .14 .13
Net realized and unrealized gain 1.23 2.63 .71
------------------------------------------------------
Total from investment operations 1.37 2.77 .84
------------------------------------------------------
Less distributions from:
Net investment income - (.45) (.32)
Net realized gains - (1.26) (.75)
------------------------------------------------------
Total distributions - (1.71) (1.07)
------------------------------------------------------
Net Asset Value, end of period $15.41 $14.04 $12.98
======================================================
Total Return* 9.76% 21.65% 6.45%
Ratios/Supplemental Data:
Net assets, end of period (000's) $545,305 $362,425 $16,263
Ratios to average net assets:
Expenses 1.74%** 1.74% 1.75%**
Expenses, excluding waiver and
payments by affiliate 1.78%** 1.77% 1.85%**
Net investment income 1.92%** .92% .84%**
Portfolio turnover rate 26.68% 54.72% 66.87%
Six Months Ended
June 30, 1998 Period Ended December 31,
DISCOVERY - CLASS A (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $18.83 $17.15 $17.66
------------------------------------------------------
Income from investment operations:
Net investment income .19 .27 .11
Net realized and unrealized gain 2.02 3.54 .74
------------------------------------------------------
Total from investment operations 2.21 3.81 .85
------------------------------------------------------
Less distributions from:
Net investment income - (.77) (.29)
Net realized gains - (1.36) (1.07)
------------------------------------------------------
Total distributions - (2.13) (1.36)
------------------------------------------------------
Net Asset Value, end of period $21.04 $18.83 $17.15
======================================================
Total Return* 11.74% 22.54% 4.85%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,060,189 $693,952 $29,903
Ratios to average net assets:
Expenses 1.33%** 1.33% 1.38%**
Expenses, excluding waiver and
payments by affiliate 1.36%** 1.35% 1.51%**
Net investment income 1.90%** 1.39% 0.74%**
Portfolio turnover rate 30.90% 58.15% 80.18%
Six Months Ended
June 30, 1998 Period Ended December 31,
DISCOVERY - CLASS C (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $18.79 $17.17 $17.66
------------------------------------------------------
Income from investment operations:
Net investment income .13 .15 .09
Net realized and unrealized gain 2.01 3.52 .76
------------------------------------------------------
Total from investment operations 2.14 3.67 .85
------------------------------------------------------
Less distributions from:
Net investment income - (.69) (.27)
Net realized gains - (1.36) (1.07)
------------------------------------------------------
Total distributions - (2.05) (1.34)
------------------------------------------------------
Net Asset Value, end of period $20.93 $18.79 $17.17
======================================================
Total Return* 11.39% 21.70% 4.90%
Ratios/Supplemental Data:
Net assets, end of period (000's) $652,517 $402,625 $18,038
Ratios to average net assets:
Expenses 1.98%** 1.98% 2.00%**
Expenses, excluding waiver and
payments by affiliate 2.01%** 2.00% 2.13%**
Net investment income 1.27%** 0.74% 0.13%**
Portfolio turnover rate 30.90% 58.15% 80.18%
Six Months Ended
June 30, 1998 Period Ended December 31,
EUROPEAN- CLASS A (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $12.56 $11.38 $10.84
------------------------------------------------------
Income from investment operations:
Net investment income .18 .24 .03
Net realized and unrealized gain 2.20 2.31 .58
------------------------------------------------------
Total from investment operations 2.38 2.55 .61
------------------------------------------------------
Less distributions from:
Net investment income - (.81) (.05)
Net realized gains - (.56) (.02)
------------------------------------------------------
Total distributions - (1.37) (.07)
------------------------------------------------------
Net Asset Value, end of period $14.94 $12.56 $11.38
======================================================
Total Return* 18.95% 22.61% 5.61%
Ratios/Supplemental Data:
Net assets, end of period (000's) $204,498 $93,231 $9,200
Ratios to average net assets:
Expenses 1.38%** 1.37% 1.32%**
Expenses, excluding waiver and
payments by affiliate 1.42%** 1.39% 1.42%**
Net investment income 2.61%** 1.84% 1.44%**
Portfolio turnover rate 30.50% 98.12% 36.75%
Six Months Ended
June 30, 1998 Period Ended December 31,
EUROPEAN- CLASS C (unaudited) 1997+++++ 1996+
- ----------------------------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the period)
<S> <C> <C> <C>
Net Asset Value, beginning of period $12.52 $11.38 $10.84
------------------------------------------------------
Income from investment operations:
Net investment income .14 .13 .02
Net realized and unrealized gain 2.21 2.33 .58
------------------------------------------------------
Total from investment operations 2.35 2.46 .60
------------------------------------------------------
Less distributions from:
Net investment income - (.76) (.04)
Net realized gains - (.56) (.02)
------------------------------------------------------
Total distributions - (1.32) (.06)
------------------------------------------------------
Net Asset Value, end of period $14.87 $12.52 $11.38
======================================================
Total Return* 18.77% 21.79% 5.52%
Ratios/Supplemental Data:
Net assets, end of period (000's) $112,075 $49,174 $2,754
Ratios to average net assets:
Expenses 2.03%** 2.02% 1.94%**
Expenses, excluding waiver and
payments by affiliate 2.07%** 2.05% 2.04%**
Net investment income 1.98%** 1.03% 0.79%**
Portfolio turnover rate 30.50% 98.12% 36.75%
August 19, 1997
Six Months Ended (Commencement
June 30, 1998 of Operations) to
FINANCIALSERVICES - CLASS A (unaudited)+++++ December 31, 1997
- ----------------------------------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the period)
<S> <C> <C>
Net Asset Value, beginning of period $12.27 $10.00
----------------------------------------------
Income from investment operations:
Net investment income .11 .03
Net realized and unrealized gain 1.91 2.35
----------------------------------------------
Total from investment operations 2.02 2.38
----------------------------------------------
Less distributions from:
Net investment income - (.02)
Net realized gains - (.09)
----------------------------------------------
Total distributions - (.11)
----------------------------------------------
Net Asset Value, end of period $14.29 $12.27
==============================================
Total Return* 16.46% 23.83%
Ratios/Supplemental Data:
Net assets, end of period (000's) $192,979 $78,249
Ratios to average net assets:
Expenses 1.35%** 1.35%**
Expenses, excluding waiver and payments by affiliate 1.48%** 1.97%**
Net investment income 1.58%** 1.02%**
Portfolio turnover rate 61.09% 42.26%
August 19, 1997
Six Months Ended (Commencement
June 30, 1998 of Operations) to
FINANCIALSERVICES - CLASS C (unaudited)+++++ December 31, 1997
- ----------------------------------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the period)
<S> <C> <C>
Net Asset Value, beginning of period $12.26 $10.00
----------------------------------------------
Income from investment operations:
Net investment income .07 .01
Net realized and unrealized gain 1.90 2.35
----------------------------------------------
Total from investment operations 1.97 2.36
----------------------------------------------
Less distributions from:
Net investment income - (.01)
Net realized gains - (.09)
----------------------------------------------
Total distributions - (.10)
----------------------------------------------
Net Asset Value, end of period $14.23 $12.26
==============================================
Total Return* 16.07% 23.57%
Ratios/Supplemental Data:
Net assets, end of period (000's) $132,288 $43,207
Ratios to average net assets:
Expenses 2.00%** 2.00%**
Expenses, excluding waiver and payments by affiliate 2.13%** 2.62%**
Net investment income .94%** 0.37%**
Portfolio turnover rate 61.09% 42.26%
</TABLE>
*Total return does not reflect sales commissions or the Contingent Deferred
Sales Charge and is not annualized.
**Annualized.
+For the period November 1, 1996 (effective date) to December 31, 1996
++Per share amounts for the period ended December 31, 1996, have been
restated to reflect a 5-for-1 stock split effective February 3, 1997.
+++Per share amounts for the period ended December 31, 1996, have been
restated to reflect a 2-for-1 stock split effective February 3, 1997.
++++Per share amounts for the period ended December 31, 1996, have been
restated to reflect a 3-for-1 stock split effective February 3, 1997.
+++++Based on average weighted shares outstanding.
HOW DO THE FUNDS INVEST THEIR ASSETS?
WHAT ARE THE FUNDS' GOALS?
The principal investment goal of Mutual Shares, Qualified, Beacon, European,
and Financial Services is capital appreciation, which may occasionally be
short-term. The secondary investment goal of each is income. The principal
investment goal of Discovery is long-term capital appreciation. Discovery
does not have a secondary investment goal.
These goals are fundamental, which means that they may not be changed without
shareholder approval.
WHAT KINDS OF SECURITIES DO THE FUNDS BUY?
Each fund may invest in equity securities, debt securities and securities
convertible into common stock (including convertible preferred and
convertible debt securities) ("convertible securities"). The features of each
type of security are described below. The funds generally invest in
securities which, in the opinion of Franklin Mutual, are available at prices
less than their actual value based on certain recognized objective criteria
("intrinsic value").
There are no limitations on the percentage of a fund's assets which may be
invested in equity securities, debt securities, convertible securities or
cash equivalent investments.
EQUITY SECURITIES are securities which entitle the holder to participate in a
company's general operating success or failure. The purchaser of an equity
security typically receives an ownership interest in the company as well as
certain voting rights. The owner of an equity security may participate in a
company's success through the receipt of dividends which are distributions of
earnings by the company to its owners. Equity security owners may also
participate in a company's success or lack of success through increases or
decreases in the value of the company's shares as traded in the public
trading market for such shares. The public trading market for such shares is
typically a stock exchange but can also be a market which arises between
broker-dealers seeking buyers and sellers of a particular security. Equity
securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well.
DEBT SECURITIES are securities issued by a company which represent a loan of
money by the purchaser of the securities to the company. A debt security
typically has a fixed payment schedule which obligates the company to pay
interest to the lender and to return the lender's money over a certain time
period. A company typically meets its payment obligations associated with its
outstanding debt securities before it declares and pays any dividends to
holders of its equity securities. While debt securities are typically used as
an investment to produce income to an investor as a result of the fixed
payment schedule, debt securities may also increase or decrease in value
depending upon factors such as interest rate movements and the success or
lack of success of a company. See "Debt Securities" below.
CONVERTIBLE SECURITIES are debt securities, or in some cases preferred stock,
which have the additional feature of converting into, or being exchanged for,
common stock of a company after certain periods of time or under certain
circumstances. Holders of convertible securities gain the benefits of being a
debt holder or preferred stockholder and receiving regular interest payments,
in the case of debt securities, or higher dividends, in the case of preferred
stock, with the expectation of becoming a common stockholder in the future. A
convertible security's value typically reflects changes in the company's
underlying common stock value.
CASH EQUIVALENT INVESTMENTS are investments in certain types of short-term
debt securities. A fund making a cash equivalent investment expects to earn
interest at prevailing market rates on the amount invested and there is
little, if any, risk of loss of the original amount invested. The funds' cash
equivalent investments are typically made in U.S. Treasury bills and
high-quality commercial paper issued by banks or others. U.S. Treasury bills
are direct obligations of the U.S. government and have initial maturities of
one year or less. Commercial paper consists of short-term debt securities
issued by a bank or other financial institution which carry fixed or floating
interest rates. A fixed interest rate means that interest is paid on the
investment at the same rate for the life of the security. A floating interest
rate means that the interest rate varies as interest rates on newly issued
securities in the marketplace vary.
GENERAL POLICIES AND STRATEGIES. Franklin Mutual selects investments for each
fund based upon its analysis and research. This analysis and research takes
into account the factors Franklin Mutual determines are relevant, which may
include, among other factors, (i) the relationship of a security's book value
to market value, (ii) cash flow and (iii) multiples of earnings of comparable
securities. The relationship of a security's "book value to market value" is
an analysis of the difference between the price at which a security is
trading in the market, as compared to the value of that security based upon
an analysis of certain information contained in a company's financial
statements. Cash flow analysis considers the inflow and outflow of money into
and out of a company. An analysis of "multiples of earnings of comparable
securities" involves a review of the market values of comparable companies as
compared to their earnings, and then comparing the results of this review
with a comparison of the earnings of the company in question with its market
value. These factors are not applied according to a predetermined formula.
Rather, Franklin Mutual examines each security separately. Franklin Mutual
has not established guidelines as to the size of an issuer, its earnings or
the industry in which it operates in order for a security to be excluded as
unsuitable for purchase by a fund.
Each fund may invest in securities that are traded on U.S. or foreign
securities exchanges, the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") national market system or in any
domestic or foreign over-the-counter ("OTC") market. U.S. or foreign
securities exchanges typically represent the primary trading market for U.S.
and foreign securities. A securities exchange brings together buyers and
sellers of the same securities. The NASDAQ national market system also brings
together buyers and sellers of the same securities through an electronic
medium which facilitates a sale and purchase of the security. Typically, the
companies whose securities are traded on the NASDAQ national market system
are smaller than the companies whose securities are traded on a securities
exchange. Finally, the OTC market refers to all other avenues whereby brokers
bring together buyers and sellers of securities.
Each fund may invest in any industry although no fund will concentrate its
investments in any one industry with the exception of Financial Services
which will concentrate its investments in the financial services industry.
Concentration is defined as investment by a fund of more than 25% of the
value of its assets in any one industry.
Financial Services will normally invest at least 65% of its total assets in
the securities issued by companies operating in the financial services
industry. For fund purposes, companies in the financial services industry are
considered to be companies which, on the basis of information supplied to and
analyzed by Franklin Mutual, are believed to have at least 50% of their
assets or revenues derived from the creation, purchase and sale of financial
instruments. Companies in the financial services industry include banks,
savings and loan organizations, credit card companies, brokerage firms,
finance companies, sub-prime lending institutions, investment advisers,
investment companies and insurance companies. Many companies within the
financial services industry are smaller capitalized companies and therefore
may be subject to certain risks not associated with larger companies.
Financial Services' investment policy of concentrating in the financial
services industry may not be changed without the approval of Financial
Services' shareholders.
INVESTMENT IN THE SECURITIES OF REORGANIZING COMPANIES AND COMPANIES SUBJECT
TO TENDER OR EXCHANGE OFFERS. Each fund also seeks to invest in the
securities of domestic or foreign companies which are in the process of
reorganizing or restructuring ("Reorganizing Companies") or as to which there
exist outstanding tender or exchange offers. The funds may from time to time
participate in such tender or exchange offers. A tender offer is an offer by
the company itself or by another company or person to purchase a company's
securities at a higher (or lower) price than the market value for such
securities. An exchange offer is an offer by the company or by another
company or person to the holders of the company's securities to exchange
those securities for different securities. Although there are no restrictions
limiting the extent to which each fund may invest in Reorganizing Companies,
no fund presently anticipates committing more than 50% of its assets to such
investments. In addition to typical equity and debt investments, the funds'
investments in Reorganizing Companies may include Indebtedness,
Participations and Trade Claims, as further described below.
INVESTING TO INFLUENCE OR CONTROL MANAGEMENT. The funds generally purchase
securities for investment purposes and not for the purpose of influencing or
controlling management of a company. However, in certain circumstances when
Franklin Mutual perceives that a fund may benefit, Franklin Mutual may use
the fund's ownership interest in a company to seek to influence or control
management. A fund also may invest in entities whose business is to acquire
securities of companies for the purpose of influencing or controlling
management or with the expectation of taking over such companies. The funds
may also invest in a particular company which Franklin Mutual believes may be
an attractive company to be taken over by another entity.
NON-U.S. SECURITIES. The funds may purchase securities of non-U.S. issuers
and Discovery may invest 50% or more of its assets in such securities.
European will normally invest at least 65% of its total assets in the
securities of issuers (i) organized under the laws of, (ii) whose principal
business operations are located in, or (iii) at least 50% of whose revenue is
earned from, European countries. For purposes of the fund's investments,
European countries means all of the countries that are members of the
European Union, the United Kingdom, Scandinavia, Eastern and Western Europe
and those regions of Russia and the former Soviet Union that are considered
part of Europe. European may also invest up to 35% of its total assets in
securities of U.S. issuers as well as in securities of issuers from the
Levant, the Middle East and the remaining regions of the world.
It is currently anticipated that European will invest primarily in securities
of issuers in Western Europe and Scandinavia. European will normally invest
in securities from at least five different countries although, from time to
time, it may invest all of its assets in a single country. Under normal
circumstances, European, at the close of each taxable year, will have at
least 50% of its assets invested in securities of foreign issuers.
The funds other than European expect to invest a lesser percentage of their
respective assets in securities of non-U.S. issuers than Discovery. Beacon
intends to invest the next largest percentage, followed by Qualified,
Financial Services and finally Mutual Shares. The funds may purchase
securities whose values are quoted and traded in any currency in addition to
the U.S. dollar. Where a security's value is quoted and traded in a non-U.S.
dollar currency, the funds bear the risk of a decrease (or gain the benefit
of an increase) in the value of the security as a result of changes in the
value of the currency as compared to the U.S. dollar in addition to typical
market price movements related to certain trading markets or the financial
strength or weakness of the security's issuer. In order to avoid these
unexpected fluctuations in value as a result of relative currency values, the
funds expect to employ an investment technique called "hedging," which
attempts to reduce or eliminate changes in a security's value resulting from
changing currency exchange rates. Hedging is further described below.
Each fund may invest in securities commonly known as American Depositary
Receipts, European Depositary Receipts and Global Depositary Receipts of
non-U.S. issuers. Such depositary receipts are interests in a pool of a
non-U.S. company's securities which have been deposited with a bank or trust
company. The bank or trust company then sells interests in the pool to
investors in the form of depositary receipts. Depositary receipts can be
unsponsored or sponsored by the issuer of the underlying securities or by the
issuing bank or trust company.
DIFFERENCES BETWEEN THE FUNDS. While Mutual Shares, Qualified, Beacon,
Discovery and European have identical basic investment restrictions, and
Mutual Shares, Qualified, Beacon, European and Financial Services have
identical investment goals, Franklin Mutual seeks to retain certain
historical differences among the funds on an informal basis. Specifically,
Mutual Shares, Qualified and Beacon have generally invested in larger and
medium sized companies with large share trading volume. Discovery seeks to
achieve its objective by investing proportionately more of its assets in
smaller sized companies than the other funds and may also invest more than
50% of its assets in foreign securities. Qualified was originally intended
for purchase by pension plans, profit sharing plans and other nontaxpaying
entities. Consequently, it was intended that its investment portfolio would
have greater flexibility due to reduced concerns about the tax effects on
shareholders. Depending on market conditions, and any future changes in tax
laws, Franklin Mutual expects that it will purchase securities for Qualified
which satisfy such a goal, although currently Qualified operates in the same
fashion as Mutual Shares and Beacon. Financial Services and European will
utilize the same investment philosophy but will apply it in the context of
investing in the financial services industry and European securities,
generally. Allocation of investments among the funds also depends upon, among
other things, the amount of cash in, and relative size of, each fund's
portfolio. In addition, the factors outlined above are not mutually exclusive
and a particular security may be owned by more than one fund.
Although the funds may invest in securities of companies of any size, Mutual
Shares, Qualified and Beacon tend to invest in securities of companies with
market capitalizations in excess of $1 billion due to the larger size of
these funds. The term "market capitalization" refers to the value of a
company as determined by the market price of its issued and outstanding
common stock. A company's market capitalization is calculated by multiplying
the number of outstanding shares of a company by the current market price of
a share. Discovery may invest 50% or more of its assets in foreign issuers
and expects to invest proportionately more of its assets in smaller
capitalized companies than the other funds. Investing in smaller capitalized
companies may involve greater risks than investing in securities of larger
companies. The smaller companies in which Discovery invests often are not
well known, their securities may trade in the securities markets below their
book values and may not be followed by established securities analysts.
DEBT SECURITIES. The funds may invest in a variety of debt securities,
including bonds and notes issued by domestic or foreign corporations and the
U.S. or foreign governments. Bonds and notes differ in the length of the
issuer's repayment schedule. Bonds typically have a longer payment schedule
than notes. Typically, debt securities with a shorter repayment schedule pay
interest at a lower rate than debt securities with a longer repayment
schedule.
The debt securities in which the funds may invest may be either unrated or
rated by one or more independent rating organizations such as S&P or Moody's.
Securities are given ratings by independent rating organizations which grade
the company issuing the securities based upon its financial soundness.
The debt securities which the funds may purchase may be rated in any rating
category established by the independent rating organizations. Generally, the
lower the rating category, the riskier the investment. Debt securities rated
BBB or lower by S&P or Moody's are considered to be high yield, high risk
debt securities, commonly known as "junk bonds." The lowest rating category
established by Moody's is "C," and by S&P, is "D." Debt securities with a D
rating are in default as to the payment of principal and interest which means
that the issuer does not have the financial soundness to meet its interest
payments or its repayment schedule to security holders. The funds may invest
to an unlimited degree in junk bonds.
The funds will generally invest in debt securities under circumstances
similar to those under which they will invest in equity securities; namely,
when, in Franklin Mutual's opinion, such debt securities are available at
prices less than their intrinsic value. Investment in fixed-income securities
under these circumstances may lead to the potential for capital appreciation.
Consequently, when investing in debt securities, a debt security's rating is
given less emphasis in Franklin Mutual's investment decision-making process.
Historically, the funds have invested in debt securities issued by
Reorganizing Companies because such securities often are available at less
than their intrinsic value. Debt securities of such companies typically are
unrated, lower rated, in default or close to default. While posing a greater
risk than higher rated securities with respect to payment of interest and
repayment of principal at the price at which the debt security was originally
issued, such debt securities typically rank senior to the equity securities
of Reorganizing Companies and may offer the potential for certain investment
opportunities. See "More Information About the Kinds of Securities the Funds
Buy - Medium and Lower Rated Corporate Debt Securities" under "How Do the
Funds Invest Their Assets?" in the SAI.
WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?
DIRECT INVESTMENT IN INDEBTEDNESS, PARTICIPATIONS AND TRADE CLAIMS. From time
to time, the funds may purchase the direct indebtedness of various companies
("Indebtedness"), or participations in such Indebtedness. Indebtedness can be
distinguished from traditional debt securities in that debt securities are
part of a large issue of securities to the general public which is typically
registered with a securities registration organization, such as the SEC, and
which is held by a large group of investors. Indebtedness may not be a
security, but rather, may represent a specific commercial loan or portion of
a loan which has been given to a company by a financial institution such as a
bank or insurance company. The company is typically obligated to repay such
commercial loan over a specified time period. By purchasing the Indebtedness
of companies, a fund steps into the shoes of the financial institution which
made the loan to the company prior to its restructuring or refinancing.
Indebtedness purchased by a fund may be in the form of loans, notes or bonds.
The length of time remaining until maturity on the Indebtedness is one factor
Franklin Mutual considers in purchasing a particular Indebtedness.
Indebtedness which represents a specific indebtedness of the company to a
bank is not considered to be a security issued by the bank selling it. The
funds purchase loans from national and state chartered banks as well as
foreign banks. The funds normally invest in the Indebtedness of a company
which Indebtedness has the highest priority in terms of payment by the
company, although on occasion lower priority Indebtedness also may be
acquired.
The funds may also purchase participation interests in Indebtedness
("Participations"). Participations represent fractional interests in a
company's Indebtedness. The financial institutions which typically make
Participations available are banks or insurance companies, governmental
institutions, such as the Resolution Trust Corporation, the Federal Deposit
Insurance Corporation or the Pension Benefit Guaranty Corporation, or certain
organizations such as the World Bank which are known as "supranational
organizations." Supranational organizations are entities established or
financially supported by the national governments of one or more countries to
promote reconstruction or development.
The funds may also purchase trade claims and other direct obligations or
claims ("Trade Claims") of Reorganizing Companies. Trade Claims generally
represent money due to a supplier of goods or services to such Reorganizing
Company.
Indebtedness, Participations and Trade Claims may be illiquid (as defined
below).
ILLIQUID SECURITIES. An illiquid security is a security that cannot be sold
within seven days in the normal course of business for approximately the
amount at which a fund has valued the security and carries such value on its
financial statements. Examples of illiquid securities are most restricted
securities, and repurchase agreements which terminate more than seven days
from their initial purchase date, as further described below. No fund may
purchase an illiquid security if, at the time of purchase, the fund would
have more than 15% of its net assets invested in such securities.
RULE 144A SECURITIES. The funds may invest in certain unregistered securities
which may be sold under Rule 144A of the Securities Act of 1933 ("144A
securities"). 144A securities are restricted, which generally means that a
legend has been placed on the share certificates representing the securities
which states that the securities were not registered with the SEC when they
were initially sold and may not be resold except under certain circumstances.
In spite of the legend, certain securities may be sold to other institutional
buyers provided that the conditions of Rule 144A are met. In the event that
there is an active secondary institutional market for 144A securities, the
144A securities may be treated as liquid. As permitted by the federal
securities laws, the Board has adopted procedures in accordance with Rule
144A which govern when specific 144A securities held by the funds may be
deemed to be liquid.
MORTGAGE-BACKED SECURITIES. Each fund may invest in securities representing
interests in an underlying pool of real estate mortgages ("mortgage-backed
securities"). The mortgage-backed securities which the funds may purchase may
be issued or guaranteed by the U.S. government, certain U.S. government
agencies or certain government sponsored corporations or organizations or by
certain private, non-government corporations, such as banks and other
financial institutions. Two principal types of mortgage-backed securities are
collateralized mortgage obligations (CMOs) and real estate mortgage
investment conduits (REMICs).
CMOs are debt securities issued by the entities listed above. The payment of
interest on the debt securities is dependent upon the scheduled payments on
the underlying mortgages and, thus, the CMOs are said to be "collateralized"
by the pool of mortgages. CMOs are issued in a number of classes or series
with different maturities. The classes or series are paid off completely in
sequence as the underlying mortgages are repaid. Certain of these securities
may have variable interest rates which adjust as interest rates in the
securities market generally rise or fall. Other CMOs may be stripped, which
means that only the principal or interest feature of the underlying security
is passed through to the fund.
REMICs, which were authorized under certain tax laws, are private entities
formed for the purpose of holding a fixed pool of mortgages. The mortgages
are, in turn, backed by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. Certain of these private-backed
securities are 100% collateralized at the time of issuance by securities
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities.
The funds may also invest directly in distressed mortgage obligations. A
direct investment in a distressed mortgage obligation involves the purchase
by the fund of a lender's interest in a mortgage granted to a borrower, where
the borrower has experienced difficulty in making its mortgage payments, or
for which it appears likely that the borrower will experience difficulty in
making its mortgage payments. As is typical with mortgage obligations,
payment of the loan is secured by the real estate underlying the loan. By
purchasing the distressed mortgage obligation, a fund steps into the shoes of
the lender from a risk point of view.
REAL ESTATE INVESTMENT TRUST ("REIT") INVESTMENTS. Among the funds' equity
investments may be investments in shares issued by REITs. A REIT is a pooled
investment vehicle which purchases primarily income-producing real estate or
real estate related loans or other real estate related interests. The pooled
vehicle, typically a trust, then issues shares whose value and investment
performance are dependent upon the investment experience of the underlying
real estate related investments.
SHORT SALES. The funds may engage in two types of short sale transactions,
"naked short sales" and "short sales against the box" transactions. In a
naked short sale transaction, a fund sells a security which it does not own
to a purchaser at a specified price. In order to complete the short sale
transaction, the fund must (i) borrow the security to deliver the security to
the purchaser; and (ii) buy the same security in the market in order to
return it to the borrower. In buying the security to replace the borrowed
security, the fund expects to buy the security in the market for less than
the amount it earned on the short sale, thereby yielding a profit. In some
circumstances, the fund may receive the security in connection with a
reorganization and, consequently, need not buy the security to be returned to
the borrower. Each fund may engage in naked short sale transactions up to 5%
of its assets.
The funds may also sell securities "short against the box" without limit. In
a short sale against the box, the fund actually holds in its portfolio the
securities which it has sold short. In replacing the borrowed securities in
the transaction, the fund may either buy securities in the open market or use
those in its portfolio. See "More Information About the Kinds of Securities
the Funds Buy - Short Sales" under "How Do the Funds Invest Their Assets?" in
the SAI for more discussion of these practices.
INVESTMENT COMPANY SECURITIES. Each fund may invest from time to time in
other investment company securities, subject to applicable law which
restricts such investments. Such laws generally restrict a fund's purchase of
another investment company's securities to three percent (3%) of the other
investment company's securities, no more than five percent (5%) of the fund's
assets in any single investment company's securities and no more than ten
percent (10%) of the fund's assets in all investment company securities.
REPURCHASE AGREEMENTS. Each fund may invest up to 10% of its assets in
repurchase agreements, including tri-party repurchase agreements. In a
repurchase agreement transaction, a fund purchases a U.S. Government security
from a bank or broker-dealer. The agreement provides that the security must
be sold back to the bank or broker-dealer at an agreed-upon price and date.
The bank or broker-dealer must transfer to the fund's custodian bank
securities with an initial value, including any earned but unpaid interest,
equal to at least 100% of the dollar amount invested by the fund in each
repurchase agreement. The value of the underlying U.S. government securities
is determined daily so that there is on deposit with the fund's custodian
bank at least 100% of the value of the repurchase agreement. In a tri-party
repurchase agreement, the security is maintained at the bank or
broker-dealer's custodian bank, as opposed to being transferred to and
maintained at the fund's custodian bank. There are certain risks associated
with such transactions which are described in the SAI.
LOANS OF SECURITIES. Each fund may also lend its portfolio securities to
banks or broker-dealers in order to realize additional income which the fund
receives as a loan premium. If a fund lends portfolio securities, for each
loan the fund must receive in return securities with a value at least equal
to 100% of the current market value of the loaned securities. Each fund
presently does not anticipate loaning more than 5% of its respective
portfolio securities. There are certain risks associated with loan
transactions which are described in the SAI.
BORROWING. While the funds are permitted to borrow under certain
circumstances as described in the SAI, under no circumstances will a fund
make additional investments while any amounts borrowed exceed 5% of the
fund's total assets.
SECURITIES OF COMPANIES IN THE FINANCIAL SERVICES INDUSTRY. Under the federal
securities law, each fund may not invest more than 5% of its total assets in
the securities of any company that receives more than 15% of its revenues
from securities related activities which means activities as a broker,
dealer, underwriter or investment advisor (a "securities issuer"). Further,
immediately after a purchase of equity securities of a securities issuer, a
fund may not own more than 5% of the outstanding securities of any class of
equity securities of a securities issuer, and immediately after a purchase of
debt securities of a securities issuer, a fund may not own more than 10% of
the outstanding principal amount of the securities issuer's debt securities.
HEDGING AND INCOME TRANSACTIONS. The funds may use various hedging
strategies. Hedging is a technique designed to reduce a potential loss to a
fund as a result of certain economic or market risks, including risks related
to fluctuations in interest rates, currency exchange rates between U.S. and
foreign securities or between different foreign currencies, and broad or
specific market movements. The hedging strategies that the funds may use are
also used by many mutual funds and other institutional investors. When
pursuing these hedging strategies, the funds may engage in the following
types of transactions among others: purchase and sell exchange-listed and OTC
put and call options on securities, equity and fixed-income indices and other
financial instruments; purchase and sell financial futures contracts and
options thereon; and enter into various currency transactions such as
currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all of the above are
called "Hedging Transactions"). Each of these Hedging Transactions is
described more fully in the SAI. From time to time, the funds may engage in
other hedging strategies with qualities similar to those described in this
prospectus.
Some examples of situations in which Hedging Transactions may be used are:
(i) to attempt to protect against possible changes in the market value of
securities held in or to be purchased for a fund's portfolio resulting from
changes in securities markets or currency exchange rate fluctuations; (ii) to
protect a fund's gains in the value of portfolio securities which have not
yet been sold; (iii) to facilitate the sale of certain securities for
investment purposes; and (iv) as a temporary substitute for purchasing or
selling particular securities.
Any combination of Hedging Transactions may be used at any time as determined
by Franklin Mutual. Use of any Hedging Transaction is a function of numerous
variables, including market conditions and the investment manager's expertise
in utilizing such techniques. The ability of a fund to utilize Hedging
Transactions successfully cannot be assured. Each fund will comply with
applicable regulatory requirements when implementing these strategies,
including the establishment of certain isolated accounts at the fund's
custodian bank. Hedging Transactions involving financial futures and options
on futures will be purchased, sold or entered into generally for bona fide
hedging, risk management or portfolio management purposes.
The various techniques described above as "Hedging Transactions" may also be
used by the funds for non-hedging purposes. For example, these techniques may
be used to produce income to a fund where the fund's participation in the
transaction involves the payment of a premium to the fund. A fund may also
use a hedging technique if Franklin Mutual has a view about the fluctuation
of certain indices, currencies or economic or market changes such as a
reduction in interest rates. No more than 5% of a fund's assets will be
exposed to risks of such types of instruments when entered into for
non-hedging purposes.
Any material changes in or to the Hedging Transactions used by the funds will
be described in the funds' prospectuses before being utilized.
TEMPORARY INVESTMENTS. Franklin Mutual typically keeps a portion of the
assets of each fund invested in short-term debt securities although it may
choose not to do so when circumstances dictate. These temporary investments
permit the funds to react quickly to market movements. The funds also may
make temporary investments while awaiting the accumulation of additional
monies to make larger investments. Temporary investments tend to be less
risky and less subject to fluctuations due to general market conditions than
other investments.
OTHER POLICIES AND RESTRICTIONS. Each fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about each fund's investment policies,
including those described above, please see "How Do the Funds Invest Their
Assets?" and "Restrictions and Limitations" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when a fund makes an investment. In most cases, the fund is not
required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions.
WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
GENERAL. There is no assurance that a fund will meet its investment goal.
Generally, if the securities owned by a fund increase in value, the value of
the shares of the fund which you own will increase. Similarly, if the
securities owned by a fund decrease in value, the value of your shares will
also decline. In this way, you participate in any change in the value of the
securities owned by a fund.
SHORT SALES. Short sales carry risks of loss if the price of the security
sold short increases after the sale. In this situation, when a fund replaces
the borrowed security by buying the security in the securities markets, the
fund may pay more for the security than it has received from the purchaser in
the short sale. A fund may, however, profit from a change in the value of the
security sold short, if the price decreases.
COMMON STOCKS. To the extent that a fund's investments consist of common
stocks, a decline in the market, expressed for example by a drop in any
securities index that is based on equity securities, such as the Dow Jones
Industrial or the Standard & Poor's 500 average, may also be reflected in a
fund's share price. Historically, there have been both increases and
decreases in securities prices generally and such increases and decreases may
reoccur unpredictably in the future.
DEBT SECURITIES GENERALLY. To the extent that a fund's investments consist of
debt securities, changes in interest rates will affect the value of the
fund's portfolio and its share price. Increased rates of interest which
frequently accompany higher inflation and/or a growing economy are likely to
have a negative effect on the value of your shares.
LOWER-RATED DEBT SECURITIES. To the extent a fund invests in lower-rated debt
securities, it will be subject to risks which are greater than those to which
a fund which limits its investments to higher grade debt securities would be
subject. Such risks include limitations on a fund's ability to re-sell the
lower-rated debt securities and less readily available market quotations for
such securities. If there are not readily available market quotations for a
debt security, its value is determined largely by the investment manager's
judgment. When and if the debt security is sold, the investment manager may
find that its estimation of the debt security's value is substantially
different than the sale price effected in the market.
144A SECURITIES. Due to changing markets or other factors, 144A securities
may be subject to a greater possibility of becoming illiquid than securities
which have been registered with the SEC for sale.
NON-U.S. SECURITIES. Investments in securities of non-U.S. issuers involve
certain risks not ordinarily associated with investments in securities of
U.S. issuers. Such risks include: fluctuations in the value of the currency
in which the security is traded or quoted as compared to the U.S. dollar;
unpredictable political, social and economic developments in the foreign
country where the security is issued or where the issuer of the security is
located; and the possible imposition by a foreign government of limits on the
ability of a fund to obtain a foreign currency or to convert a foreign
currency into U.S. dollars; or the imposition of other foreign laws or
restrictions. Since each fund may invest in securities issued, traded or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the value of securities in the fund's portfolio.
Franklin Mutual generally attempts to reduce such risk, known as "currency
risk," by using Hedging Transactions. In addition, in certain countries, the
possibility of expropriation of assets, confiscatory taxation, or diplomatic
developments could adversely affect investments in those countries.
Expropriation of assets refers to the possibility that a country's laws will
prohibit the return to the U.S. of any monies which a fund has invested in
the country. Confiscatory taxation refers to the possibility that a foreign
country will adopt a tax law which has the effect of requiring the fund to
pay significant amounts, if not all, of the value of the fund's investment to
the foreign country's taxing authority. Diplomatic developments means that
because of certain actions occurring within a foreign country such as
significant civil rights violations or because of the United States' actions
during a time of crisis in the particular country, all communications and
other official governmental relations between the country and the United
States could be severed. This could result in the abandonment of any U.S.
investors', such as the funds', money in the particular country, with no
ability to have the money returned to the United States.
There may be less publicly available information about a foreign company than
about a U.S. company. Foreign issuers may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or
as uniform as those of U.S. issuers. The number of securities traded, and the
frequency of such trading, in non-U.S. securities markets, while growing in
volume, is for the most part, substantially less than in U.S. markets. As a
result, securities of many foreign issuers are less liquid and their prices
more volatile than securities of comparable U.S. issuers. Transaction costs,
the costs associated with buying and selling securities, on non-U.S.
securities markets are generally higher than in the U.S. There is generally
less government supervision and regulation of exchanges, brokers and issuers
than there is in the U.S. Each fund's foreign investments may include both
voting and non voting securities, sovereign debt and participations in
foreign government deals. The funds may have greater difficulty taking
appropriate legal action with respect to foreign investments in non-U.S.
courts than with respect to domestic issuers in U.S. courts.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. If the fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which a fund may hold in its
portfolio, and their impact on the value of fund shares. To the extent a fund
holds non-U.S. dollar (euro or other) denominated securities, it will still
be exposed to currency risk due to fluctuations in those currencies versus
the U.S. dollar.
INVESTMENT COMPANY SECURITIES. Investors should recognize that a fund's
purchase of the securities of investment companies results in layering of
expenses. This layering may occur because investors in any investment
company, such as a fund, indirectly bear a proportionate share of the
expenses of the investment company, including operating costs, and investment
advisory and administrative fees.
DEPOSITARY RECEIPTS. Receipts of non-U.S. issuers may have certain risks,
including trading for a lower price, having less liquidity than their
underlying securities and risks relating to the issuing bank or trust
company. Holders of unsponsored Depositary Receipts have a greater risk that
receipt of corporate information and proxy disclosure will be untimely,
information may be incomplete and costs may be higher.
SPECIAL CONSIDERATIONS RELATING TO FINANCIAL SERVICES. As stated above,
Financial Services concentrates its investments in the financial service
industry. The fund's investments and performance, accordingly, will be
affected by general market and economic conditions as well as other risk
factors particular to the financial services industry. Financial services
companies are subject to extensive government regulation. This regulation may
limit both the amount and types of loans and other financial commitments a
financial services company can make, and the interest rates and fees it can
charge. Such limitations may have a significant impact on the profitability
of a financial services company since that profitability is attributable, at
least in part, to the company's ability to make financial commitments such as
loans. Profitability of a financial services company is largely dependent
upon the availability and cost of the company's funds, and can fluctuate
significantly when interest rates change. The financial difficulties of
borrowers can negatively impact the industry to the extent that borrowers may
not be able to repay loans made by financial services companies.
Insurance companies may be subject to severe price competition, claims
activity, marketing competition and general economic conditions. Particular
insurance lines will also be influenced by specific matters. Property and
casualty insurer profits may be affected by certain weather catastrophes and
other disasters. Life and health insurer profits may be affected by mortality
risks and morbidity rates. Individual insurance companies may be subject to
material risks including inadequate reserve funds to pay claims and the
inability to collect from the insurance companies which insure insurance
companies, so-called reinsurance carriers.
Congress is currently considering legislation that would reduce the
separation between commercial and investment banking businesses. Commercial
banks typically have been limited to certain non-securities activities such
as making loans and accepting deposits. Investment banks have typically
engaged in more extensive securities activities. If enacted, the proposed
legislation could significantly impact the industry and Financial Services.
While banks may be able to expand the services which they offer if
legislation broadening bank powers is enacted, expanded powers could expose
banks to well-established competitors, particularly as the historical
distinctions between banks and other financial institutions erode. In
addition, the financial services industry is an evolving and competitive
industry that is undergoing significant change. Such changes have resulted
from various consolidations as well as the continual development of new
products, structures and a regulatory framework that is anticipated to be
subject to further change.
HEDGING TRANSACTIONS. Hedging Transactions, whether entered into as a hedge
or for gain, have risks associated with them. The three most significant
risks associated with Hedging Transactions are: (i) possible default by the
other party to the transaction; (ii) illiquidity; and (iii) to the extent
Franklin Mutual's view as to certain market movements is incorrect, the risk
that the use of such Hedging Transactions could result in losses greater than
if they had not been used. Use of put and call options may (i) result in
losses to a fund, (ii) force the purchase or sale of portfolio securities at
inopportune times or for prices higher than or lower than current market
values, (iii) limit the amount of appreciation the fund can realize on its
investments, (iv) increase the cost of holding a security and reduce the
returns on securities or (v) cause a fund to hold a security it might
otherwise sell.
The use of currency transactions can result in a fund incurring losses as a
result of a number of factors including the imposition of controls by a
foreign or the U.S. government on the exchange of foreign currencies, the
inability of foreign securities transactions to be completed with the
security being delivered to the fund, or the inability to deliver or receive
a specified currency.
Although the use of futures and options transactions for hedging should tend
to minimize the risk of loss due to a decline in the value of the hedged
position, these transactions also tend to limit any potential gain which
might result from an increase in value of the position taken. As compared to
options contracts, futures contracts create greater ongoing potential
financial risks to a fund because the fund is required to make ongoing
monetary deposits with futures brokers. In an options transaction, a fund's
exposure is limited to the cost of the initial premium paid by the fund to
the broker to engage in the transaction. Losses resulting from the use of
Hedging Transactions can reduce Net Asset Value, and possibly income, and
such losses can be greater than if the Hedging Transactions had not been
utilized. The cost of entering into Hedging Transactions may also reduce a
fund's total return to investors.
REORGANIZING COMPANIES. There can be no assurance that any merger,
consolidation, liquidation, reorganization or tender or exchange offer
proposed at the time a fund makes its investment in a Reorganizing Company
will be consummated or will be consummated on the terms and within the time
period contemplated by Franklin Mutual.
INDEBTEDNESS AND PARTICIPATIONS. The purchase of Indebtedness of a troubled
company always involves a risk as to the creditworthiness of the issuer and
the possibility that the investment may be lost. Franklin Mutual believes
that the difference between perceived risk and actual risk creates the
opportunity for profit which can be realized through proper analysis. There
are no established markets for some of this Indebtedness and, thus, it is
less liquid than more heavily traded securities.
Participations are typically issued by financial institutions on a
non-recourse basis, which means that purchasers of the Participations must
rely on the financial institution issuing the Participation to assert any
rights against the Borrower with respect to the underlying Indebtedness.
Thus, when a fund purchases a Participation, it assumes the risk associated
with the financial soundness of the bank or other financial intermediary
issuing the Participation, as well as the credit risk associated with the
financial soundness of the issuer of the underlying Indebtedness.
RISKS RELATED TO REAL ESTATE-RELATED INVESTMENTS. The funds' investments in
real estate-related securities are subject to certain risks related to the
real estate industry in general. These risks include, among others: changes
in general and local economic conditions; possible declines in the value of
real estate; the possible lack of availability of money for loans to purchase
real estate; overbuilding in particular areas; prolonged vacancies in rental
properties; property taxes; changes in laws related to the use of real estate
in certain areas; costs resulting from the clean-up of, and liability to
third parties resulting from, environmental problems; the costs associated
with damage to real estate resulting from floods, earthquakes or other
material disasters not covered by insurance; and limitations on and
variations in rents and changes in interest rates.
DISTRESSED MORTGAGE OBLIGATIONS. Unlike mortgage-backed securities, which
generally represent an interest in a pool of loans backed by real estate,
investing in direct mortgage obligations involves the risks of a lender.
These risks include the ability or inability of a borrower to make its loan
payments and the possibility that the borrower will prepay the loan in
advance of its scheduled payment time period, curtailing an expected rate and
timing of return for the lender. Investments in direct mortgage obligations
of distressed borrowers involve substantially greater risks and are highly
speculative due to the fact that the borrower's ability to make timely
payments has been identified as questionable. Borrowers that are in
bankruptcy or restructuring may never pay off their loans, or may pay only a
small fraction of the amount owed. If, because of a lack of payment, the real
estate underlying the loan is foreclosed, which means that the borrower takes
possession of the real estate, a fund could become part owner of such real
estate. As an owner, a fund would bear any costs associated with owning and
disposing of the real estate and also may encounter difficulties in disposing
of the real estate in a timely fashion. In addition, there is no assurance
that a fund would be able profitably to dispose of properties in foreclosure.
TAX CONSIDERATIONS. Each fund's investments in options, futures, and forward
contracts, including foreign currency options and futures, foreign securities
and other complex securities are subject to special tax rules that may affect
the amount, timing or character of the income earned by the fund and
distributed to you. Each fund may also be subject to withholding taxes on
earnings from certain of its foreign securities. These special tax rules are
discussed in the "Additional Information on Distributions and Taxes" section
of the SAI.
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors Franklin Mutual considers.
Franklin Mutual will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S.
Franklin Mutual, of course, cannot audit each company and its major suppliers
to verify their Year 2000 readiness.
If a company in which a fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of a fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see "Year 2000 Problem" under "Who Manages the Funds?" for more information.
WHO MANAGES THE FUNDS?
THE BOARD. The Board oversees the management of each fund and elects its
officers. The officers are responsible for each fund's day-to-day operations.
The Board also monitors each fund to ensure no material conflicts exist among
the fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
Michael F. Price is Chairman of the Boards of Directors which oversee the
management of the funds and the investment manager.
INVESTMENT MANAGER. Franklin Mutual manages each fund's assets and makes its
investment decisions. It is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders
of Resources. Together, Franklin Mutual and its affiliates manage over $208
billion in assets. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the funds' Code of Ethics.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
fund portfolios is led by Peter Langerman, Chief Executive Officer, and
Robert Friedman, Chief Investment Officer, of Franklin Mutual. The team is
comprised of the following investment professionals who have portfolio
responsibility for all of the Franklin Mutual Series Fund Inc. portfolios.
These professionals have been associated with Franklin Mutual since:
Jeffrey A. Altman 1988
Senior Vice President of Franklin Mutual
Mr. Altman has a Bachelor of Science degree from Tulane University. Prior to
November 1996, Mr. Altman was employed as a Research Analyst and Trader for
Heine, the former investment manager for Franklin Mutual Series Fund Inc. He
is a Vice President of Franklin Mutual Series Fund Inc.
Robert L. Friedman 1988
Chief Investment Officer and Senior Vice President of Franklin Mutual
Mr. Friedman has a Bachelor of Arts degree in Humanities from Johns Hopkins
University and a Masters in Business Administration from the Wharton School,
University of Pennsylvania. Prior to November 1996, Mr. Friedman was a
Research Analyst for Heine, the former investment manager for Franklin Mutual
Series Fund Inc. He is a Vice President of Franklin Mutual Series Fund Inc.
Raymond Garea 1991
Senior Vice President of Franklin Mutual
Mr. Garea has a Bachelor of Science degree in Engineering from Case Institute
of Technology and a Masters in Business Administration from the University of
Michigan. Prior to November 1996, he was a Research Analyst for Heine, the
former investment manager for Franklin Mutual Series Fund Inc. He is a Vice
President of Franklin Mutual Series Fund Inc.
Peter A. Langerman 1986
Chief Executive Officer and Senior Vice President of Franklin Mutual
Mr. Langerman has a Bachelor of Arts degree from Yale University, a Masters
in Science from New York University Graduate School of Business and a Juris
Doctor from Stanford University Law School. Prior to November 1996, he was a
Research Analyst for Heine, the former investment manager for Franklin Mutual
Series Fund Inc. He is a Director and Executive Vice President of Franklin
Mutual Series Fund Inc.
David E. Marcus 1988
Senior Vice President of Franklin Mutual
Mr. Marcus has a Bachelor of Science degree in Business
Administration/Finance from Northeastern University. Prior to November 1996,
he was a Research Analyst for Heine, the former investment manager for
Franklin Mutual Series Fund Inc.
Lawrence N. Sondike 1984
Senior Vice President of Franklin Mutual
Mr. Sondike has a Bachelor of Arts degree from Cornell University and a
Masters in Business Administration from New York University Graduate School
of Business. Prior to November 1996, he was a Research Analyst for Heine, the
former investment manager for Franklin Mutual Series Fund Inc. He is a Vice
President of Franklin Mutual Series Fund Inc.
David J. Winters 1987
Senior Vice President of Franklin Mutual
Mr. Winters has a Bachelor of Arts degree in Economics from Cornell
University. He is a Chartered Financial Analyst (CFA). Prior to November
1996, he was a Research Analyst for Heine, the former investment manager for
Franklin Mutual Series Fund Inc.
In addition, Franklin Mutual employees Jim Agah and Jeff Diamond as Assistant
Portfolio Managers.
Jim Agah 1997
Assistant Portfolio Manager of Franklin Mutual
Mr. Agah has a Bachelor of Science degree in Business Administration from the
University of Michigan and a Masters of Management from the Kellogg Graduate
School of Management at Northwestern University. He is both a Chartered
Financial Analyst (CFA) and a Certified Public Accountant (CPA). Prior to
joining Franklin Mutual in 1997, he was a Vice President of Equity Sales for
Keefe, Bryette & Woods.
Jeff Diamond 1998
Assistant Portfolio Manager of Franklin Mutual
Mr. Diamond has a Bachelor of Science degree in Engineering from Cornell
University and a Masters in Business Administration/Finance from Columbia
University. Prior to joining Franklin Mutual in March of 1998, he was Vice
President and Co-Manager of Prudential Conservative Stock Fund.
The following Portfolio and Assistant Portfolio Managers have primary
responsibility for investments in the following funds:
Mutual Shares Fund .... Larry Sondike and David Marcus
Mutual Qualified Fund . Ray Garea and Assistant Portfolio Manager Jeff Diamond
Mutual Beacon Fund .... Larry Sondike and David Winters
Mutual Discovery Fund . Rob Friedman and David Marcus
Mutual European Fund .. David Marcus
Mutual Financial
Services Fund ......... Ray Garea and Assistant Portfolio Manager Jim Agah
MANAGEMENT FEES. During the fiscal year ended December 31, 1997, Franklin
Mutual had agreed in advance to limit its fees and to make certain payments
to reduce expenses. The table below shows the management fees and total
operating expenses paid by each fund, as a percentage of average daily net
assets.
MANAGEMENT TOTAL OPERATING
FEES BEFORE MANAGEMENT EXPENSES BEFORE TOTAL OPERATING
ADVANCE WAIVER FEES PAID ADVANCE WAIVER EXPENSES PAID
- ------------------------------------------------------------------------------
CLASS A
Mutual Shares....... 0.60% 0.57% 1.10% 1.07%
Qualified........... 0.60 0.57 1.13 1.10
Beacon.............. 0.60 0.57 1.12 1.09
European............ 0.80 0.78 1.39 1.37
Discovery........... 0.80 0.78 1.35 1.33
Financial Services*. 0.80 0.18 1.97 1.35
CLASS C
Mutual Shares....... 0.60% 0.57% 1.75% 1.72%
Qualified........... 0.60 0.57 1.78 1.75
Beacon.............. 0.60 0.57 1.77 1.74
European............ 0.80 0.78 2.05 2.02
Discovery........... 0.80 0.78 2.00 1.98
Financial Services*. 0.80 0.18 2.62 2.00
*Annualized
Each fund pays its own operating expenses. These expenses include Franklin
Mutual's management fees; taxes, if any; custodian, legal and auditing fees;
the fees and expenses of Board members who are not members of, affiliated
with, or interested persons of Franklin Mutual; fees of any personnel not
affiliated with Franklin Mutual; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the fund's Net Asset Value;
and printing and other expenses that are not expressly assumed by Franklin
Mutual.
Under their management agreements, the funds pay Franklin Mutual a management
fee equal to an annual rate of 0.60% of the average daily net assets of
Mutual Shares, Qualified and Beacon, and 0.80% of the average daily net
assets of Discovery, European and Financial Services. The fee is computed at
the close of business on the last business day of each month.
During Financial Services' start-up period, Franklin Mutual has agreed in
advance to limit its management fees and to assume as its own expense certain
expenses otherwise payable by the fund so that Financial Services' total
operating expenses do not exceed 1.35% of Class A's average daily net assets,
2.00% of Class B's average daily net assets and 2.00% of Class C's average
daily net assets for the fund's initial twenty-four months of operations.
After the first twenty-four months of operations, Franklin Mutual may end
this agreement at any time.
PORTFOLIO TRANSACTIONS. Franklin Mutual tries to obtain the best execution on
all transactions. If Franklin Mutual believes more than one broker or dealer
can provide the best execution, it may consider research and related services
and the sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. To the extent
that any fund owns more than 5% of the voting securities of a broker-dealer,
that broker-dealer may be considered an affiliated person of such fund. If
such fund places any portfolio transactions through that broker-dealer, the
fund would be required to comply with certain rules of the SEC relating to
the payment of brokerage commissions to an affiliated broker-dealer. Please
see "How Do the Funds Buy Securities for Their Portfolios?" in the SAI for
more information.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative services
and facilities for each fund. Under its administration agreement, each fund
pays FT Services a monthly administration fee equal to an annual rate of
0.15% of the fund's average daily net assets up to $200 million, 0.135% of
average daily net assets over $200 million up to $700 million, 0.10% of
average daily net assets over $700 million up to $1.2 billion, and 0.075% of
average daily net assets over $1.2 billion. During the fiscal year ended
December 31, 1997, administration fees totaling 0.08% of the average daily
net assets of each fund were paid to FT Services. These fees are included in
the amount of total expenses shown above. The administration fees for
Financial Services have been annualized. Please see "Investment Management
and Other Services" in the SAI for more information.
YEAR 2000 PROBLEM. The funds' business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the funds' operations could be adversely affected
if the computer systems used by Franklin Mutual, its service providers and
other third parties it does business with are not Year 2000 ready. For
example, the funds' portfolio and operational areas could be impacted,
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody
functions and others. The funds could experience difficulties in effecting
transactions if any of their foreign subcustodians, or if foreign
broker-dealers or foreign markets are not ready for Year 2000.
Franklin Mutual and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their
Year 2000 problems. Of course, the funds' ability to reduce the effects of
the Year 2000 problem is also very much dependent upon the efforts of third
parties over which the funds and Franklin Mutual may have no control.
THE RULE 12B-1 PLANS
Each class has a separate distribution or "Rule 12b-1" plan under which each
fund shall pay or may reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by each fund under the Class A plan may not exceed 0.35% per year of
Class A's average daily net assets. Of this amount, the fund may reimburse up
to 0.35% to Distributors or others, out of which 0.10% will generally be
retained by Distributors for distribution expenses. All distribution expenses
over this amount will be borne by those who have incurred them. During the
first year after certain Class A purchases made without a sales charge,
Securities Dealers may not be eligible to receive the Rule 12b-1 fees
associated with the purchase.
Under the Class B plan, each fund pays Distributors up to 0.75% per year of
Class B's average daily net assets to pay Distributors for providing
distribution and related services and bearing certain Class B expenses. All
distribution expenses over this amount will be borne by those who have
incurred them. Securities Dealers are not eligible to receive this portion of
the Rule 12b-1 fees associated with the purchase.
Each fund may also pay a servicing fee of up to 0.25% per year of Class B's
average daily net assets under the Class B plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the fund on behalf of customers, and similar servicing and account
maintenance activities. Securities Dealers may be eligible to receive this
portion of the Rule 12b-1 fees from the date of purchase. After 8 years, Class B
shares convert to Class A shares and Securities Dealers may then receive the
Rule 12b-1 fees applicable to Class A.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to the
initial sale of Class B shares. Further, the expenses relating to the Class B
plan may be used by Distributors to pay third party financing entities that
have provided financing to Distributors in connection with advancing
commission costs to Securities Dealers.
Under the Class C plan, each fund may pay Distributors up to 0.75% per year
of Class C's average daily net assets to pay Distributors or others for
providing distribution and related services and bearing certain Class C
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. During the first year after a purchase of Class C
shares, Securities Dealers may not be eligible to receive this portion of the
Rule 12b-1 fees associated with the purchase.
Each fund may also pay a servicing fee of up to 0.25% per year of Class C's
average daily net assets under the Class C plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish
and maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.
HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT
OF 1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE.
BECAUSE MANY OF THESE CHANGES ARE COMPLEX THEY ARE DISCUSSED IN THE SAI.
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TAXATION OF THE FUNDS' INVESTMENTS
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Each fund invests your money in the HOW DO THE FUNDS
stocks, bonds and other securities that EARN INCOME AND GAINS?
are described in the section "How Do the
Funds Invest Their Assets?" Special tax Each fund earns dividends and interest
rules may apply in determining the income (the fund's "income") on its investments.
and gains that each fund earns on its When a fund sells a security for a price
investments. These rules may, in turn, that is higher than it paid, it has a
affect the amount of distributions that a gain. When a fund sells a security for a
fund pays to you. These special tax rules price that is lower than it paid, it has
are discussed in the SAI. a loss. If a fund has held the security
for more than one year, the gain or loss
TAXATION OF THE FUNDS. As a regulated will be a long-term capital gain or loss.
investment company, each fund generally If a fund has held the security for one
pays no federal income tax on the income year or less, the gain or loss will be a
and gains that it distributes to you. short-term capital gain or loss. Each
fund's gains and losses are netted
together, and, if the fund has a net gain
(the fund's "gains"), that gain will
generally be distributed to you.
-------------------------------------------
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from a
fund's investments in foreign stocks and bonds. These taxes will reduce the amount of
the fund's distributions to you, but, depending upon the amount of the fund's assets
that are invested in foreign securities and foreign taxes paid, may be passed through
to you as a foreign tax credit on your income tax return. Each fund may also invest
in the securities of foreign companies that are "passive foreign investment
companies" ("PFICs"). These investments in PFICs may cause a fund to pay income taxes
and interest charges. If possible, each fund will adopt strategies to avoid PFIC
taxes and interest charges.
TAXATION OF SHAREHOLDERS
-------------------------------------------
DISTRIBUTIONS. Distributions from a fund, WHAT IS A DISTRIBUTION?
whether you receive them in cash or in
additional shares, are generally subject As a shareholder, you will receive your
to income tax. The fund will send you a share of a fund's income and gains on its
statement in January of the current year investments in stocks, bonds and other
that reflects the amount of ordinary securities. The fund's income and short
dividends, capital gain distributions and term capital gains are paid to you as
non-taxable distributions you received ordinary dividends. The fund's long-term
from the fund in the prior year. This capital gains are paid to you as capital
statement will include distributions gain distributions. If the fund pays you
declared in December and paid to you in an amount in excess of its income and
January of the current year, but which are gains, this excess will generally be
taxable as if paid on December 31 of the treated as a non-taxable distribution.
prior year. The IRS requires you to report These amounts, taken together, are what
these amounts on your income tax return we call the fund's distributions to you.
for the prior year. The fund's statement
for the prior year will tell you how much
of your capital gain distribution
represents 28% rate gain. The remainder of
the capital gain distribution represents
20% rate gain.
-------------------------------------------
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a Section 401(k) plan or IRA, are generally tax-deferred;
this means that you are not required to report fund distributions on your income tax
return when paid to your plan, but, rather, when your plan makes payments to you. Be
aware, however, that special rules apply to payouts from Roth and Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive from
a fund.
-------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares
of a fund for shares in another Franklin A redemption is a sale by you to the fund
Templeton Fund, you will generally have a of some or all of your shares in the
gain or loss that the IRS requires you to fund. The price per share you receive
report on your income tax return. If you when you redeem fund shares may be more
exchange fund shares held for 90 days or or less than the price at which you
less and pay no sales charge, or a reduced purchased those shares. An exchange of
sales charge, for the new shares, all or a shares in the fund for shares of another
portion of the sales charge you paid on Franklin Templeton Fund is treated as a
the purchase of the shares you exchanged redemption of fund shares and then a
is not included in their cost for purposes purchase of shares of the other fund.
of computing gain or loss on the exchange. When you redeem or exchange your shares,
If you hold your shares for six months or you will generally have a gain or loss,
less, any loss you have will be treated as depending upon whether the basis in your
a long-term capital loss to the extent of shares is more or less than your cost or
any capital gain distributions received by other basis in the shares.
you from the fund. All or a portion of any
loss on the redemption or exchange of your
shares will be disallowed by the IRS if
you purchase other shares in the fund
within 30 days before or after your
redemption or exchange.
-------------------------------------------
FOREIGN TAXES. If more than 50% of the WHAT IS A FOREIGN TAX CREDIT?
value of a fund's assets consist of
foreign securities, the fund may elect to A foreign tax credit is a tax credit for
pass-through to you the amount of foreign the amount of taxes imposed by a foreign
taxes it paid. If the fund makes this country on earnings of a fund. When a
election, your year-end statement will foreign company in which a fund invests
show more taxable income than was actually pays a dividend to the fund, the dividend
distributed to you. However, you will be will generally be subject to a
entitled to either deduct your share of withholding tax. The taxes withheld in
such taxes in computing your taxable foreign countries create credits that you
income or claim a foreign tax credit for may use to offset your U.S. federal
such taxes against your U.S. federal income tax.
income tax. Your year-end statement,
showing the amount of deduction or credit
available to you, will be distributed to
you in January along with other
shareholder information records including
your fund Form 1099-DIV.
-------------------------------------------
The 1997 Act includes a provision that allows you to claim thesecredits directly on
your income tax return (Form 1040) and eliminates the previous requirement that you
complete a detailed supporting form. To qualify, you must have $600 or less in joint
return foreign taxes ($300 or less on a single return), all of which are reported to
you on IRS Form 1099-DIV. THIS SIMPLIFIED PROCEDURE APPLIES ONLY FOR CALENDAR YEARS
1998 AND BEYOND, AND WAS NOT AVAILABLE IN 1997.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax
withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your fund shares.
Fund shares held by the estate of a non-U.S. investor may be subject to U.S. estate
tax. You may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in the fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive from
a fund, and gains arising from redemptions or exchanges of your fund shares will
generally be subject to state and local income tax. The holding of fund shares may
also be subject to state and local intangibles taxes. You may wish to contact your
tax advisor to determine the state and local tax consequences of your investment in a
fund.
-------------------------------------------
WHAT IS A BACKUP
BACKUP WITHHOLDING. When you open an WITHHOLDING?
account, IRS regulations require that you
provide your taxpayer identification Backup withholding occurs when the fund
number ("TIN"), certify that it is is required to withhold and pay over to
correct, and certify that you are not the IRS 31% of your distributions and
subject to backup withholding under IRS redemption proceeds. You can avoid backup
rules. If you fail to provide a correct withholding by providing the fund with
TIN or the proper tax certifications, the your TIN, and by completing the tax
fund is required to withhold 31% of all certifications on your shareholder
the distributions (including ordinary application that you were asked to sign
dividends and capital gain distributions) when you opened your account. However, if
and redemption proceeds paid to you. The the IRS instructs the fund to begin
fund is also required to begin backup backup withholding, it is required to do
withholding on your account if the IRS so even if you provided the fund with
instructs the fund to do so. The fund your TIN and these tax certifications,
reserves the right not to open your and backup withholding will remain in
account, or, alternatively, to redeem your place until the fund is instructed by the
shares at the current Net Asset Value, IRS that it is no longer required.
less any taxes withheld, if you fail to
provide a correct TIN or the proper tax
certifications, or if the IRS instructs
the fund to begin backup withholding on
your account.
-------------------------------------------
</TABLE>
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI.
HOW ARE THE FUNDS ORGANIZED?
Each fund is a diversified series of Mutual Series, an open-end management
investment company, commonly called a mutual fund. Mutual Series was
organized as a Maryland corporation on November 12, 1987, and is registered
with the SEC. Each fund offers four classes of shares: Mutual Shares Fund -
Class A, Mutual Shares Fund - Class B, Mutual Shares Fund - Class C, Mutual
Shares Fund - Class Z; Mutual Qualified Fund - Class A, Mutual Qualified Fund
- - Class B, Mutual Qualified Fund - Class C, Mutual Qualified Fund - Class Z;
Mutual Beacon Fund - Class A, Mutual Beacon Fund - Class B, Mutual Beacon
Fund - Class C, Mutual Beacon Fund - Class Z; Mutual European Fund - Class A,
Mutual European Fund - Class B, Mutual European Fund - Class C, Mutual
European Fund - Class Z; Mutual Discovery Fund - Class A, Mutual Discovery
Fund - Class B, Mutual Discovery Fund - Class C, Mutual Discovery Fund -
Class Z; Mutual Financial Services Fund - Class A, Mutual Financial Services
Fund - Class B, Mutual Financial Services Fund - Class C and Mutual Financial
Services Fund - Class Z. For all funds except Financial Services, all shares
outstanding before the offering of Class A and Class C shares on November 1,
1996, are considered Class Z shares. Financial Services was initially created
with Class A, Class C and Class Z shares. Additional series and classes of
shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the
fund and have the same voting and other rights and preferences as any other
class of the fund for matters that affect the fund as a whole. For matters
that only affect one class, however, only shareholders of that class may
vote. Each class will vote separately on matters affecting only that class,
or expressly required to be voted on separately by state or federal law.
Shares of each class of a series have the same voting and other rights and
preferences as the other classes and series of Mutual Series for matters that
affect Mutual Series as a whole.
Mutual Series has noncumulative voting rights. This gives holders of more
than 50% of the shares voting the ability to elect all of the members of the
Board. If this happens, holders of the remaining shares voting will not be
able to elect anyone to the Board.
Mutual Series does not intend to hold annual shareholder meetings. Mutual
Series or a fund may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the Board to consider the
removal of a Board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a Board member. A special meeting may also be called by the Board in its
discretion.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT THE FUNDS DO NOT
CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum
investments are:
o To open a regular, non-retirement account............. $1,000
o To open an IRA, IRA Rollover, Roth IRA, or Education IRA $ 250*
o To open a custodial account for a minor
(an UGMA/UTMA account)................................ $ 100
o To open an account with an automatic investment plan . $ 50**
o To add to an account.................................. $ 50***
*For all other retirement accounts, there is no minimum investment
requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs, or
Education IRAs, there is no minimum to add to an account.
We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed account application, including
the optional shareholder privileges section. By applying for privileges
now, you can avoid the delay and inconvenience of having to send an
additional application to add privileges later. PLEASE ALSO INDICATE
WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS, WE
WILL INVEST YOUR PURCHASE IN CLASS A SHARES. It is important that we
receive a signed application since we will not be able to process any
redemptions from your account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your check
made payable to the fund.
For additional investments:
Send a check made payable to the fund. Please
include your account number on the check.
- ------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.
2. For an initial investment you must also return
your signed account application to the fund.
IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds to
the fund by 3:00 p.m. Pacific time, we will credit
the purchase to your account that day. If we receive
your call after 1:00 p.m. or the bank receives the
wire after 3:00 p.m., we will credit the purchase to
your account the following business day.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your financial
representative can help you decide.
CLASS A* Class B* Class C*
- --------------------------------------------------------------------------------
o Front-end sales charge o No front-end sales o Front-end sales charge
of 5.75% or less charge of 1%
o Contingent Deferred o Contingent Deferred o Contingent Deferred
Sales Charge of 1% on Sales Charge of 4% or Sales Charge of 1%
purchases of $1 less on shares you on shares you sell
million or more sold sell within six years within 18 months
within one year
o Lower annual expenses o Higher annual expenses o Higher annual expenses
than Class B or C due than Class A (same as than Class A (same
to lower Rule 12b-1 Class C) due to higher as Class B) due to
fees Rule 12b-1 fees. higher Rule 12b-1
Automatic conversion fees. No conversion
to Class A shares to Class A shares,
after eight years, so annual expenses
reducing future annual do not decrease.
expenses
o No maximum purchase o Maximum purchase amount o Maximum purchase
amount of $249,999. We invest amount of $999,999.
any investment of We invest any
$250,000 or more in investment of $1
Class A shares, since million or more in
a reduced front-end Class A shares,
sales charge is since there is no
available and Class front-end sales
A's annual expenses charge and Class A's
are lower. annual expenses are
lower.
*Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The funds began offering Class B shares on
January 1, 1999. Class B shares are not available to all retirement plans.
Class B shares are only available to IRAs (of any type), Franklin Templeton
Trust Company 403(b) plans, and Franklin Templeton Trust Company qualified
plans with participant or earmarked accounts.
PURCHASE PRICE OF FUND SHARES
For Class A shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class C shares is
1% and, unlike Class A, does not vary based on the size of your purchase.
There is no front-end sales charge for Class B shares.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
OFFERING NET AMOUNT PERCENTAGE OF
AMOUNT OF PURCHASE AT OFFERING PRICE PRICE INVESTED
OFFERING PRICE
- ------------------------------------------------------------------------------
CLASS A
Under $50,000 .................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000 . 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.80%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.60%
$1,000,000 or more* ............ None None None
CLASS B* ....................... None None None
CLASS C
Under $1,000,000* .............. 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more and any Class C purchase. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase. Please see "How Do I
Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other
Payments to Securities Dealers" below for a discussion of payments
Distributors may make out of its own resources to Securities Dealers for
certain purchases.
SALES CHARGE REDUCTIONS AND WAIVERS
- - If you qualify to buy shares under one of the sales charge reduction or
waiver categories described below, please include a written statement with
each purchase order explaining which privilege applies. If you don't
include this statement, we cannot guarantee that you will receive the
sales charge reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS A ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class A purchase is added to
the cost or current value, whichever is higher, of your existing shares in
the Franklin Templeton Funds, as well as those of your spouse, children under
the age of 21 and grandchildren under the age of 21. If you are the sole
owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT - CLASS A ONLY. You may buy Class A shares at a reduced
sales charge by completing the Letter of Intent section of the account
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class A shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE ACCOUNT APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct. Our policy of reserving shares does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege,
please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in
the SAI or call Shareholder Services.
GROUP PURCHASES - CLASS A ONLY. If you are a member of a qualified group, you
may buy Class A shares at a reduced sales charge that applies to the group as
a whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the funds, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased Class A shares of the fund at a reduced
sales charge under the group purchase privilege before February 1, 1998,
however, may continue to do so.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the
sales charge waivers listed below apply to purchases of Class A shares only,
except for items 1 and 2 which also apply to Class B and C purchases.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of
shares. Certain exceptions apply, however, to Class C shareholders who
chose to reinvest their distributions in Class A shares of the fund
before November 17, 1997, and to Advisor Class or Class Z shareholders
of a Franklin Templeton Fund who may reinvest their distributions in
Class A shares of the fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares,
except proceeds from the sale of Class B shares will be reinvested in
Class A shares.
If you paid a Contingent Deferred Sales Charge when you sold your Class
A or C shares, we will credit your account with the amount of the
Contingent Deferred Sales Charge paid but a new Contingent Deferred
Sales Charge will apply. For Class B shares reinvested in Class A, a
new Contingent Deferred Sales Charge will not apply, although your
account will not be credited with the amount of any Contingent Deferred
Sales Charge paid when you sold your Class B shares. If you own both
Class A and B shares and you later sell your shares, we will sell your
Class A shares first, unless otherwise instructed.
Proceeds immediately placed in a Franklin Bank CD also may be
reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This waiver does not apply to shares you buy and sell under our
exchange program. Shares purchased with the proceeds from a money fund
may be subject to a sales charge.
3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
5. Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank
CD or a Franklin Templeton money fund, you may reinvest them as
described above. The proceeds must be reinvested within 365 days from
the date the CD matures, including any rollover, or the date you redeem
your money fund shares.
6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you sold your Class
A shares from a Templeton Global Strategy Fund, we will credit your
account with the amount of the contingent deferred sales charge paid
but a new Contingent Deferred Sales Charge will apply.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
7. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
Various individuals and institutions also may buy Class A shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets
held in a fiduciary, agency, advisory, custodial or similar capacity
and over which the trust companies and bank trust departments or other
plan fiduciaries or participants, in the case of certain retirement
plans, have full or shared investment discretion. We will accept orders
for these accounts by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of
business on the next business day following the order.
2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs. The minimum
initial investment is $250.
4. Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
5. Registered Securities Dealers and their affiliates, for their investment
accounts only
6. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
7. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies. The minimum initial
investment is $100.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
9. Accounts managed by the Franklin Templeton Group
10. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
11. Group annuity separate accounts offered to retirement plans
12. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without a front-end sales
charge. Retirement plans that are not Qualified Retirement Plans, SIMPLEs or
SEPs must also meet the requirements described under "Group Purchases - Class
A Only" above to be able to buy Class A shares without a front-end sales
charge. We may enter into a special arrangement with a Securities Dealer,
based on criteria established by the fund, to add together certain small
Qualified Retirement Plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of
the Franklin Templeton Funds or terminated within 365 days of the retirement
plan account's initial purchase in the Franklin Templeton Funds. Please see
"How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the
funds. Plan documents are required for all retirement plans. Franklin
Templeton Trust Company, an affiliate of Distributors and a wholly owned
subsidiary of Resources, can provide the plan documents for you and serve as
custodian or trustee.
Franklin Templeton Trust Company can provide you with brochures containing
important information about its plans. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing
a retirement plan. Your investment representative or advisor can help you
make investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for Class B and C purchases and certain Class A purchases
made without a sales charge. The payments are subject to the sole discretion
of Distributors, and are paid by Distributors or one of its affiliates and
not by the fund or its shareholders.
1. Class A purchases of $1 million or more - up to 1% of the amount invested.
2. Class B purchases - up to 4% of the amount invested.
3. Class C purchases - up to 1% of the purchase price.
4. Class A purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.
5. Class A purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of
clients participating in comprehensive fee programs - up to 0.25% of the
amount invested.
6. Class A purchases by Chilean retirement plans - up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1, 3 or 6 above or a payment of up
to 1% for investments described in paragraph 4 will be eligible to receive
the Rule 12b-1 fee associated with the purchase starting in the thirteenth
calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of a fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
If you own Class A shares, you may exchange into any of our money funds
except Franklin Templeton Money Fund. Franklin Templeton Money Fund is the
only money fund exchange option available to Class B and C shareholders.
Unlike our other money funds, shares of Franklin Templeton Money Fund may not
be purchased directly and no drafts (checks) may be written on Franklin
Templeton Money Fund accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have
different investment minimums. Some Franklin Templeton Funds do not offer
Class B or C shares.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for the
shares you want to exchange
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You can exchange shares between most Franklin Templeton Funds, generally
without paying any additional sales charges. If you exchange shares held for
less than six months, however, you may be charged the difference between the
front-end sales charge of the two funds if the difference is more than 0.25%.
If you exchange shares from a money fund, a sales charge may apply no matter
how long you have held the shares.
CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund. The purchase price for determining a Contingent Deferred Sales
Charge on exchanged shares will be the price you paid for the original shares.
For accounts with shares subject to a Contingent Deferred Sales Charge, we
will first exchange any shares in your account that are not subject to the
charge. If there are not enough of these to meet your exchange request, we
will exchange shares subject to the charge in the order they were purchased.
If you exchange Class A shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class B or C shares for the same
class of shares of Franklin Templeton Money Fund, however, the time your
shares are held in that fund will count towards
the completion of any Contingency Period.
For more information about the Contingent Deferred Sales Charge, please see
"How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the same class. If you exchange your
Class B shares for the same class of shares of another Franklin Templeton
Fund, the time your shares are held in that fund will count towards the
eight year period for automatic conversion to Class A shares.
o Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. Please notify us in
writing if you do not want this option to be available on your account.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
o Franklin Templeton Trust Company IRA or 403(b) retirement plan accounts may
exchange shares as described above. Restrictions may apply to other types
of retirement plans. Please contact Retirement Plan Services for
information on exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described
in this paragraph, you will be considered a Market Timer. Currently, the
funds do not allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and
the account number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under
court jurisdiction may have other requirements.
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $100,000 or less. Institutional
accounts may exceed $100,000 by completing a
separate agreement. Call Institutional Services to
receive a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the fund
o Unless the address on your account was changed by
phone within the last 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH
YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the funds are not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the funds nor their agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. A certified or cashier's check may clear in
less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
FRANKLIN TEMPLETON TRUST COMPANY RETIREMENT PLAN ACCOUNTS
Before you can sell shares in a Franklin Templeton Trust Company retirement
plan, you may need to complete additional forms. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
CONTINGENT DEFERRED SALES CHARGE
For Class A purchases, if you did not pay a front-end sales charge because
you invested $1 million or more or agreed to invest $1 million or more under
a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell
all or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class A investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class C
purchase, a Contingent Deferred Sales Charge may apply if you sell the shares
within the Contingency Period. The charge is 1% of the value of the shares
sold or the Net Asset Value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan is
transferred out of the Franklin Templeton Funds or terminated within 365 days
of the account's initial purchase in the Franklin Templeton Funds.
For Class B shares, there is a Contingent Deferred Sales Charge if you sell
your shares within six years, as described in the table below. The charge is
based on the value of the shares sold or the Net Asset Value at the time of
purchase, whichever is less.
THIS % IS DEDUCTED
IF YOU SELL YOUR CLASS B FROM YOUR PROCEEDS AS A
SHARES WITHIN THIS MANY CONTINGENT DEFERRED
YEARS AFTER BUYING THEM SALES CHARGE
- ------------------------- -----------------------
1 Year ............. 4
2 Years ............ 4
3 Years ............ 3
4 Years ............ 3
5 Years ............ 2
6 Years ............ 1
7 Years ............ 0
For each class, we will first redeem any shares in your account that are not
subject to a Contingent Deferred Sales Charge. If there are not enough of
these to meet your request, we will redeem shares subject to the charge in
the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Sales of Class A shares purchased without a front-end sales charge by
certain retirement plan accounts if (i) the account was opened before May
1, 1997, or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the Securities Dealer of
record has entered into a supplemental agreement with Distributors
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan, up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually of your account's Net Asset
Value depending on the frequency of your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R) (not applicable to Class B)
o Distributions from IRAs due to death or disability or upon periodic
distributions based on life expectancy (for Class B, this applies to all
retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?
Each fund intends to pay a dividend at least semiannually representing its
net investment income. Capital gains, if any, may be distributed twice a
year. The amount of these distributions will vary and there is no guarantee
the funds will pay dividends. The funds do not pay "interest" or guarantee
any fixed rate of return on an investment in their shares.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the funds' distributions will vary. Please keep in mind that
if you invest in a fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of
a taxable distribution. If you would like information on upcoming record
dates for the funds' distributions, please call 1-800/DIAL BEN.
Dividends and capital gains are calculated and distributed the same way for
each class. The amount of any income dividends per share will differ,
however, generally due to the difference in the Rule 12b-1 fees of each class.
DISTRIBUTION OPTIONS
You may receive your distributions from a fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may reinvest distributions you
receive from the fund in additional shares of the fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). This is a
convenient way to accumulate additional shares and maintain or increase your
earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a
sales charge or imposition of a Contingent Deferred Sales Charge). Many
shareholders find this a convenient way to diversify their investments.
Please note that distributions may only be directed to an existing account.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive your distributions from a
fund in cash. If you have the money sent to another person or to a checking
or savings account, you may need a signature guarantee. If you send the money
to a checking or savings account, please see "Electronic Fund Transfers"
under "Services to Help You Manage Your Account."
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class C shareholders who chose to reinvest their distributions
in Class A shares of the fund or another Franklin Templeton Fund before
November 17, 1997, may continue to do so; and (ii) Class B and C shareholders
may reinvest their distributions in shares of any Franklin Templeton money
fund.
PLEASE INDICATE ON YOUR APPLICATION THE DISTRIBUTION OPTION YOU HAVE CHOSEN,
OTHERWISE WE WILL REINVEST YOUR DISTRIBUTIONS IN THE SAME SHARE CLASS OF THE
FUND. You may change your distribution option at any time by notifying us by
mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Franklin Templeton Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share of the class you wish to purchase, plus any applicable sales
charges. When you sell shares, you receive the Net Asset Value per share
minus any applicable Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you
buy or sell shares through your Securities Dealer, however, we will use the
Net Asset Value next calculated after your Securities Dealer receives your
request, which is promptly transmitted to the fund. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The funds are open for business each day the NYSE is open. We determine the
Net Asset Value per share of each class as of the close of the NYSE, normally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value
and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the fund, determined by the value of the shares of each class. Each class,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To
calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called
net assets, is divided by the number of shares of the class outstanding. Each
fund's assets are valued as described under "How Are Fund Shares Valued?" in
the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, the fund
accepts written instructions signed by only one owner for transactions and
account changes that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $100,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up
to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone.
Please refer to the sections of this prospectus that discuss the transaction
you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls.
If our lines are busy or you are otherwise unable to reach us by phone, you
may wish to ask your investment representative for assistance or send us
written instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we
are not reasonably satisfied that the instructions are genuine. If this
occurs, we will not be liable for any loss. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights
and ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of
survivorship" is shown as "Jt Ten" on your account statement. For any account
with two or more owners, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. If you would like another person or owner to sign for you,
please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help
avoid delays in processing your transactions while we verify who may sign on
the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify
the trustees, or
2. A certification for trust
- ------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the
shares to the street or nominee name account of another Securities Dealer.
Both dealers must have an agreement with Distributors or we cannot process
the transfer. Contact your Securities Dealer to initiate the transfer. We
will process the transfer after we receive authorization in proper form from
your delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the
funds. Telephone instructions directly from your representative will be
accepted unless you have told us that you do not want telephone privileges to
apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50
for employee accounts and custodial accounts for minors. We will only do this
if the value of your account fell below this amount because you voluntarily
sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of
your account to $1,000, or $100 for employee accounts and custodial accounts
for minors. These minimums do not apply to IRAs and other retirement plan
accounts or to accounts managed by the Franklin Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in a fund.
Under the plan, you can have money transferred automatically from your
checking or savings account to the fund each month to buy additional shares.
If you are interested in this program, please refer to the account
application included with this prospectus or contact your investment
representative. The market value of each fund's shares may fluctuate and a
systematic investment plan such as this will not assure a profit or protect
against a loss. You may discontinue the program at any time by calling
Shareholder Services.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or
annual basis. The value of your account must be at least $5,000 and the
minimum payment amount for each withdrawal must be at least $50. For
retirement plans subject to mandatory distribution requirements, the $50
minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the account application included
with this prospectus and indicate how you would like to receive your
payments. You may choose to direct your payments to buy the same class of
shares of another Franklin Templeton Fund or have the money sent directly to
you, to another person, or to a checking or savings account. If you choose to
have the money sent to a checking or savings account, please see "Electronic
Fund Transfers" below. Once your plan is established, any distributions paid
by the fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan may
also be subject to a Contingent Deferred Sales Charge. Please see "Contingent
Deferred Sales Charge" under "How Do I Sell Shares?"
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares? - Systematic Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a systematic withdrawal plan sent directly to a checking or savings
account. If the account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. We will send any payments made during that time to the
address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class A, B or C accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each class to use TeleFACTS. The code
numbers for Class A, B and C are:
CODE NUMBER
------------------------------
FUND NAME CLASSA CLASS B CLASS C
- ----------------------------------------------------------
Mutual Shares 474 974 574
Qualified 475 975 575
Beacon 476 976 576
Discovery 477 977 577
European 478 978 578
Financial Services 479 979 579
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the funds will be sent every six months. To reduce
fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if you
would like an additional free copy of the funds' financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the fund may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida
33733-8030. The funds and Franklin Mutual are located at 51 John F. Kennedy
Parkway, Short Hills, New Jersey 07078. Distributors is located at 777
Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777. You
may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Directors of Mutual Series
CD - Certificate of deposit
CLASS A, CLASS B, CLASS C AND CLASS Z - The funds offer four classes of
shares, designated "Class A," "Class B," "Class C," and "Class Z." The four
classes have proportionate interests in each fund's portfolio. They differ,
however, primarily in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class A shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. The contingency period is six
years for Class B shares and 18 months for Class C shares. The holding period
begins on the day you buy your shares. For example, if you buy shares on the
18th of the month, they will age one month on the 18th day of the next month
and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A or C shares within the Contingency Period. For Class
B, the maximum CDSC is 4% and declines to 0% after six years.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the funds are legally permissible investments and that can only buy shares of
the funds without paying sales charges.
FRANKLIN MUTUAL - Franklin Mutual Advisers, Inc., the funds' investment
manager
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the funds' administrator
HEINE - Heine Securities Corporation, the funds' former investment manager
that was acquired by Resources on October 31, 1996
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the funds'
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange
shares based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established
under section 408(k) of the Code
SIMPLE (SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the funds and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Class I
Class B - New Share Class
Class C - Formerly Class II
SUPPLEMENT DATED JANUARY 1, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN MUTUAL SERIES FUND INC.
DATED MAY 1, 1998
The Statement of Additional Information is amended as follows:
I. As of January 1, 1999, each fund offers four classes of shares: Class
A, Class B, Class C and Class Z. Before January 1, 1999, Class A shares
were designated Class I and Class C shares were designated Class II. All
references in the Statement of Additional Information to Class I shares
are replaced with Class A, and all references to Class II shares are
replaced with Class C.
II. The first sentence of the second paragraph on the cover is replaced
with the following:
This SAI describes each fund's Class A, B and C shares.
III.The section "Nonfundamental Policies," found under "Restrictions
and Limitations," is deleted.
IV. The following is added to the "Officers and Directors" section:
As of November 25, 1998, the officers and Board members, as a group,
owned of record and beneficially the following shares of each fund:
approximately 146,157 shares of Mutual Shares - Class Z, 103,594 shares
of Qualified - Class Z, 168,973 shares of Beacon - Class Z, 167,707
shares of Discovery - Class Z, 32,767 shares of European - Class Z and
26,466 shares of Financial Services - Class Z, or less than 1% of the
total outstanding shares of each fund's Class Z shares.
V. The first sentence in the section "Additional Information on
Exchanging Shares," found under "How Do I Buy, Sell and Exchange
Shares?", is replaced with the following:
If you request the exchange of the total value of your account, declared
but unpaid income dividends and capital gain distributions will be
reinvested in the fund and exchanged into the new fund at Net Asset
Value when paid.
VI. In the section "The Rule 12b-1 Plans," found under "The Funds'
Underwriter,"
(a) the first sentence is replaced with the following:
Each class has a separate distribution or "Rule 12b-1" plan that was
adopted pursuant to Rule 12b-1 of the 1940 Act.
(b) the following paragraphs are added after the section "The Class I
Plan":
THE CLASS B PLAN. Under the Class B plan, each fund pays Distributors up
to 0.75% per year of the class' average daily net assets, payable
quarterly, to pay Distributors or others for providing distribution and
related services and bearing certain expenses. All distribution expenses
over this amount will be borne by those who have incurred them. Each
fund may also pay a servicing fee of up to 0.25% per year of the class'
average daily net assets, payable quarterly. This fee may be used to pay
Securities Dealers or others for, among other things, helping to
establish and maintain customer accounts and records, helping with
requests to buy and sell shares, receiving and answering correspondence,
monitoring dividend payments from the fund on behalf of customers, and
similar servicing and account maintenance activities.
The expenses relating to the Class B plan are also used to pay
Distributors for advancing the commission costs to Securities Dealers
with respect to the initial sale of Class B shares. Further, the
expenses relating to the Class B plan may be used by Distributors to pay
third party financing entities that have provided financing to
Distributors in connection with advancing commission costs to Securities
Dealers.
(c) and the section "The Class I and Class II Plans" is renamed "The
Class A, B and C Plans."
VII.In the section "How Do the Funds Measure Performance?",
(a) the first two paragraphs are replaced with the following:
Performance quotations are subject to SEC rules. These rules require the
use of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a fund be accompanied
by certain standardized performance information computed as required by
the SEC. Average annual total return quotations used by the funds are
based on the standardized methods of computing performance mandated by the
SEC. An explanation of these and other methods used by the funds to
compute or express performance follows. Regardless of the method used,
past performance does not guarantee future results, and is an indication
of the return to shareholders only for the limited historical period used.
Before November 1, 1996, only a single class of fund shares was offered
without a sales charge and Rule 12b-1 expenses. Returns shown are a
restatement of the original class to include both the Rule 12b-1 fees and
the current sales charges applicable to each share class as though in
effect from the fund's inception.
(b) and the following replaces the performance figures under "Total
Return":
TOTAL RETURN
The average annual total returns for the indicated periods ended June
30, 1998, were:
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------
CLASS A
Mutual Shares 11.37% 17.60% 14.49%
Qualified 11.77% 17.84% 14.71%
Beacon 13.40% 17.41% 14.76%
Discovery* 13.50% 20.09% N/A
European** 21.73% N/A N/A
Financial Services*** N/A N/A N/A
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------
CLASS B
Mutual Shares xx xx xx
Qualified xx xx xx
Beacon xx xx xx
Discovery* xx xx xx
European** xx xx xx
Financial Services*** xx xx xx
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------
CLASS C
Mutual Shares 15.20% 17.92% 14.08%
Qualified 15.66% 18.18% 14.30%
Beacon 17.34% 17.75% 14.41%
Discovery* 17.54% 20.48% N/A
European** 26.33% N/A N/A
Financial Services*** N/A N/A N/A
*Discovery commenced operations on December 31, 1992. The average annual
total return from inception was 21.15% for Class A, xx% for Class B and
21.44% for Class C.
**European commenced operations on July 3, 1996. The average annual
total return from inception was 25.49% for Class A, xx% for Class B and
27.91% for Class C.
***Financial Services commenced operations on August 19, 1997.
The cumulative total returns for the indicated periods ended June 30,
1998, were:
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------
CLASS A
Mutual Shares 11.37% 124.94% 287.06%
Qualified 11.77% 127.28% 294.35%
Beacon 13.40% 123.14% 296.18%
Discovery* 13.50% 149.72% N/A
European** 21.73% N/A N/A
Financial Services*** N/A N/A N/A
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------
CLASS B
Mutual Shares xx xx xx
Qualified xx xx xx
Beacon xx xx xx
Discovery* xx xx xx
European** xx xx xx
Financial Services*** xx xx xx
--------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------
CLASS C
Mutual Shares 15.20% 127.99% 273.35%
Qualified 15.66% 130.56% 280.59%
Beacon 17.34% 126.41% 284.16%
Discovery* 17.54% 153.80% N/A
European** 26.33% N/A N/A
Financial Services*** N/A N/A N/A
*Discovery commenced operations on December 31, 1992. The cumulative
total return from inception was 187.19% for Class A, xx% for Class B and
190.96% for Class C.
**European commenced operations on July 3, 1996. The cumulative total
return from inception was 57.17% for Class A, xx% for Class B and 63.28%
for Class C.
***Financial Services commenced operations on August 19, 1997. The
cumulative total return from inception was 35.93% for Class A and 41.01%
for Class C.
VIII.Under "Miscellaneous Information," the following is added:
The Information Services & Technology division of Resources established
a Year 2000 Project Team in 1996. This team has already begun making
necessary software changes to help the computer systems that service the
funds and their shareholders to be Year 2000 compliant. After completing
these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources
continues to seek reasonable assurances from all major hardware,
software or data-services suppliers that they will be Year 2000
compliant on a timely basis. Resources is also beginning to develop a
contingency plan, including identification of those mission critical
systems for which it is practical to develop a contingency plan.
However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems,
especially mission critical systems, or supplies of electricity or long
distance voice and data lines are limited.
As of November 25, 1998, the principal shareholders of the funds,
beneficial or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
- ------------------------------------------------------------------------
EUROPEAN FUND - CLASS Z
Michael F. Price
Peapacton Farm
P.O. Box 434
Far Hills, NJ 07931 8,354,152 20.52%
IX. The following is added to the section "Financial Statements":
The unaudited financial statements contained in the Semiannual Report to
Shareholders of Mutual Series, for the six-month period ended June 30,
1998, are incorporated herein by reference.
X. In the "Useful Terms and Definitions" section, the definitions of
"Class I, Class II and Class Z" and "Offering Price" are replaced with
the following:
CLASS A, CLASS B, CLASS C AND CLASS Z - Each fund offers four classes of
shares, designated "Class A," "Class B," "Class C" and "Class Z." The
four classes have proportionate interests in the fund's portfolio. They
differ, however, primarily in their sales charge and expense structures.
OFFERING PRICE - The public offering price is based on the Net Asset
Value per share of the class and includes the front-end sales charge.
The maximum front-end sales charge is 5.75% for Class A and 1% for Class
C. There is no front-end sales charge for Class B. We calculate the
offering price to two decimal places using standard rounding criteria.
Please keep this supplement for future reference.
FRANKLIN MUTUAL SERIES FUND INC.
FORM N-1A
PART C
Other Information
Item 24 financial Statements and Exhibits
a) Financial Statements
(1) Unaudited Financial Statements incorporated herein by reference
to the Mutual Shares Fund's Semi-Annual Report to Shareholders
dated June 30, 1998, as filed with the SEC electronically on
Form Type N-30D on September 2, 1998.
(i) Financial Highlights
(ii) Statements of Investments, June 30, 1998 (unaudited)
(iii) Statement of Assets and Liabilities - June 30, 1998
(unaudited)
(iv) Statement of Operations - for the six months ended June
30, 1998 (unaudited)
(v) Statements of Changes in Net Assets - for the six months
ended June 30, 1998 (unaudited) and the year ended
December 31, 1997
(vi) Notes to Financial Statements
(2) Unaudited Financial Statements incorporated herein by reference
to the Mutual Qualified Fund's Semi-Annual Report to
Shareholders dated June 30, 1998, as filed with the SEC
electronically on Form Type N-30D on September 2, 1998.
(i) Financial Highlights
(ii) Statements of Investments, June 30, 1998 (unaudited)
(iii) Statement of Assets and Liabilities - June 30, 1998
(unaudited)
(iv) Statement of Operations - for the six months ended June
30, 1998 (unaudited)
(v) Statements of Changes in Net Assets - for the six months
ended June 30, 1998 (unaudited) and the year ended
December 31, 1997
(vi) Notes to Financial Statements
(3) Unaudited Financial Statements incorporated herein by reference
to the Mutual Discovery Fund's Semi-Annual Report to
Shareholders dated June 30, 1998, as filed with the SEC
electronically on Form Type N-30D on September 2, 1998.
(i) Financial Highlights
(ii) Statements of Investments, June 30, 1998 (unaudited)
(iii) Statement of Assets and Liabilities - June 30, 1998
(unaudited)
(iv) Statement of Operations - for the six months ended June
30, 1998 (unaudited)
(v) Statements of Changes in Net Assets - for the six months
ended June 30, 1998 (unaudited) and the year ended
December 31, 1997
(vi) Notes to Financial Statements
(4) Unaudited Financial Statements incorporated herein by reference
to the Mutual Beacon Fund's Semi-Annual Report to Shareholders
dated June 30, 1998, as filed with the SEC electronically on
Form Type N-30D on September 2, 1998.
(i) Financial Highlights
(ii) Statements of Investments, June 30, 1998 (unaudited)
(iii) Statement of Assets and Liabilities - June 30, 1998
(unaudited)
(iv) Statement of Operations - for the six months ended June
30, 1998 (unaudited)
(v) Statements of Changes in Net Assets - for the six months
ended June 30, 1998 (unaudited) and the year ended
December 31, 1997
(vi) Notes to Financial Statements
(5) Unaudited Financial Statements incorporated herein by reference
to the Mutual European Fund's Semi-Annual Report to Shareholders
dated June 30, 1998, as filed with the SEC electronically on
Form Type N-30D on September 2, 1998.
(i) Financial Highlights
(ii) Statements of Investments, June 30, 1998 (unaudited)
(iii) Statement of Assets and Liabilities - June 30, 1998
(unaudited)
(iv) Statement of Operations - for the six months ended June
30, 1998 (unaudited)
(v) Statements of Changes in Net Assets - for the six months
ended June 30, 1998 (unaudited) and the year ended
December 31, 1997
(vi) Notes to Financial Statements
(6) Unaudited Financial Statements incorporated herein by reference
to the Mutual Financial Services Fund's Semi-Annual Report to
Shareholders dated June 30, 1998, as filed with the SEC
electronically on Form Type N-30D on September 2, 1998.
(i) Financial Highlights
(ii) Statements of Investments, June 30, 1998 (unaudited)
(iii) Statement of Assets and Liabilities - June 30, 1998
(unaudited)
(iv) Statement of Operations - for the six months ended June
30, 1998 (unaudited)
(v) Statements of Changes in Net Assets - for the six months
ended June 30, 1998 (unaudited) and the year ended
December 31, 1997
(vi) Notes to Financial Statements
(7) Audited Financial Statements incorporated herein by reference to
the Mutual Shares Fund's Annual Report to Shareholders dated
December 31, 1997, as filed with the SEC electronically on Form
Type N-30D on February 25, 1998.
(i) Financial Highlights
(ii) Statements of Investments, December 31, 1997
(iii) Statement of Assets and Liabilities - December 31, 1997
(iv) Statement of Operations - for the year ended December
31, 1997
(v) Statements of Changes in Net Assets - years ended
December 31, 1997 and 1996
(vi) Notes to Financial Statements
(vii) Report of Ernst and Young LLP, Independent Auditors,
dated January 30, 1998
(8) Audited Financial Statements incorporated herein by reference to
the Mutual Qualified Fund's Annual Report to Shareholders dated
December 31, 1997, as filed with the SEC electronically on Form
Type N-30D on February 25, 1998.
(i) Financial Highlights
(ii) Statements of Investments, December 31, 1997
(iii) Statement of Assets and Liabilities - December 31, 1997
(iv) Statement of Operations - for the year ended December
31, 1997
(v) Statements of Changes in Net Assets - years ended
December 31, 1997 and 1996
(vi) Notes to Financial Statements
(vii) Report of Ernst and Young LLP, Independent Auditors,
dated January 30, 1998
(9) Audited Financial Statements incorporated herein by reference to
the Mutual Discovery Fund's Annual Report to Shareholders dated
December 31, 1997, as filed with the SEC electronically on Form
Type N-30D on February 25, 1998.
(i) Financial Highlights
(ii) Statements of Investments, December 31, 1997
(iii) Statement of Assets and Liabilities - December 31, 1997
(iv) Statement of Operations - for the year ended December
31, 1997
(v) Statements of Changes in Net Assets - years ended
December 31, 1997 and 1996
(vi) Notes to Financial Statements
(vii) Report of Ernst and Young LLP, Independent Auditors,
dated January 30, 1998
(10) Audited Financial Statements incorporated herein by reference to
the Mutual Beacon Fund's Annual Report to Shareholders dated
December 31, 1997, as filed with the SEC electronically on Form
Type N-30D on February 25, 1998.
(i) Financial Highlights
(ii) Statements of Investments, December 31, 1997
(iii) Statement of Assets and Liabilities - December 31, 1997
(iv) Statement of Operations - for the year ended December
31, 1997
(v) Statements of Changes in Net Assets - years ended
December 31, 1997 and 1996
(vi) Notes to Financial Statements
(vii) Report of Ernst and Young LLP, Independent Auditors,
dated January 30, 1998
(11) Audited Financial Statements incorporated herein by reference to
the Mutual European Fund's Annual Report to Shareholders dated
December 31, 1997, as filed with the SEC electronically on Form
Type N-30D on February 25, 1998.
(i) Financial Highlights
(ii) Statements of Investments, December 31, 1997
(iii) Statement of Operations - for the year ended December
31, 1997
(v) Statements of Changes in Net Assets - years ended
December 31, 1997 and 1996
(vi) Notes to Financial Statements
(vii) Report of Ernst and Young LLP, Independent Auditors,
dated January 30, 1998
(12) Audited Financial Statements incorporated herein by reference to
the Mutual Financial Services Fund's Annual Report to
Shareholders dated December 31, 1997, as filed with the SEC
electronically on Form Type N-30D on February 25, 1998.
(i) Financial Highlights
(ii) Statements of Investments, December 31, 1997
(iii) Statement of Assets and Liabilities - December 31, 1997
(iv) Statement of Operations - for the period August 19, 1997
(commencement of operations) to December 31, 1997
(v) Statement of Changes in Net Assets - for the period
August 19, 1997 (commencement of operations) to December
31, 1997
(vi) Notes to Financial Statements
(vii) Report of Ernst & Young LLP, Independent Auditors dated
January 30, 1998
b) The following exhibits are incorporated by reference except 6(vii),
8(i), 8(ii), 8(iii), 11(i), 15(xiii), 15(xiv), 15(xv), 15(xvi), 15(xvii),
15(xviii), 18(i), 18(ii), 18(iii), 18(iv), 18(v) and 18(vi) which are
attached.
(1) copies of the charter as now in effect:
(i) Articles of Incorporation dated November 12, 1987
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(ii) Articles of Amendment dated December 30, 1987
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(iii) Articles Supplementary dated September 18, 1992
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(iv) Articles Supplementary dated January 26, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(v) Articles Supplementary dated June 17, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(2) copies of the existing By-Laws or instruments corresponding
thereto;
(i) By-Laws
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(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) Investment Advisory Agreement between Franklin Mutual
Advisers, Inc. and Registrant on behalf of Mutual
Shares Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(ii) Investment Advisory Agreement between Franklin Mutual
Advisers, Inc. and Registrant on behalf of Mutual
Qualified Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(iii) Investment Advisory Agreement between Franklin Mutual
Advisers, Inc. and Registrant on behalf of Mutual
Beacon Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(iv) Investment Advisory Agreement between Franklin Mutual
Advisers, Inc. and Registrant on behalf of Mutual
Discovery Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(v) Investment Advisory Agreement between Franklin Mutual
Advisers, Inc. and Registrant on behalf of Mutual
European Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(vi) Investment Advisory Agreement between Franklin Mutual
Advisers, Inc. and Registrant on behalf of Mutual
Financial Services Fund dated August 1, 1997
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: February 19, 1998
(vii) Administration Agreement between Franklin Templeton
Services, Inc. and Registrant on behalf of Mutual
Shares Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(viii) Administration Agreement between Franklin Templeton
Services, Inc. and Registrant on behalf of Mutual
Qualified Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(ix) Administration Agreement between Franklin Templeton
Services, Inc. and Registrant on behalf of Mutual
Beacon Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(x) Administration Agreement between Franklin Templeton
Services, Inc. and Registrant on behalf of Mutual
Discovery Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(xi) Administration Agreement between Franklin Templeton
Services, Inc. and Registrant on behalf of Mutual
European Fund dated November 1, 1996
Filing: Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(xii) Administration Agreement between Franklin Templeton
Services, Inc. and Registrant on behalf of Mutual
Financial Services Fund dated August 1, 1997
Filing: Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: February 19, 1998
(6) copies of each underwriting or distribution contract between the
Registrant and principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers;
(i) Distribution Agreement between Registrant on behalf of
Mutual Financial Services Fund and Franklin/Templeton
Distributors, Inc. dated August 19, 1997
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: February 19, 1998
(ii) Distribution Agreement between Registrant on behalf of
Mutual Shares Fund and Franklin/Templeton Distributors,
Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(iii) Distribution Agreement between Registrant on behalf of
Mutual Beacon Fund and Franklin/Templeton Distributors,
Inc dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(iv) Distribution Agreement between Registrant on behalf of
Mutual Qualified Fund and Franklin/Templeton
Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(v) Distribution Agreement between Registrant on behalf of
Mutual Discovery Fund and Franklin/Templeton
Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(vi) Distribution Agreement between Registrant on behalf of
Mutual European Fund and Franklin/Templeton Distributors,
Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(vii) Forms of Dealer Agreements effective as of March 1, 1998
between Franklin/Templeton Distributors, Inc. and
Securities Dealers
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
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 Investment Company Act of 1940 (the "1940
Act"), with respect to securities and similar investments of the
Registrant, including the schedule of renumeration;
(i) Master Custody Agreement between Registrant and Bank of
New York dated February 16, 1996
(ii) Amendment dated May 7, 1997 to Master Custody Agreement
between Registrant and Bank of New York dated February
16, 1996
(iii) Amendment dated February 27, 1998 to Master Custody
Agreement between Registrant and Bank of New York dated
February 16, 1996
(9) copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part
at or after the date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and nonassessable;
(i) Opinion and Consent of Miles and Stockbridge as to legality
of shares dated December 18, 1992
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(ii) Opinion and Consent of Miles and Stockbridge as to legality
of shares dated June 17, 1996
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(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) Form of Subscription Agreement by Sole Shareholder
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers its
securities, any instructions thereto and any other documents
making up the model plan. Such form(s) should disclose the costs
and fees charged in connection therewith;
Not Applicable
(15) copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act, which describes all material aspects of
the financing of distribution of Registrant's shares, and any
agreements with any person relating to implementation of such
plan;
(i) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Financial Services Fund -
Class I and Franklin Templeton/Distributors, Inc. dated
August 19, 1997
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: February 19, 1998
(ii) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Financial Services Fund -
Class II and Franklin Templeton/Distributors, Inc. dated
August 19, 1997
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: February 19, 1997
(iii) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Shares Fund - Class I and
Franklin Templeton/Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1998
(iv) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Beacon Fund - Class I and
Franklin/Templeton Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(v) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Qualified Fund - Class I
and Franklin Templeton/Distributors, Inc dated November 1,
1996
Filing: Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(vi) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Discovery Fund - Class I
and Franklin/Templeton Distributors, Inc. dated November
1, 1996
Filing: Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(vii) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual European Fund - Class I and
Franklin/Templeton Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: January 31, 1997
(viii) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Shares Fund - Class II and
Franklin/Templeton Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: June 5, 1997
(ix) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Qualified Fund - Class II
and Franklin/Templeton Distributors, Inc. dated November
1, 1996
Filing: Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: June 5, 1997
(x) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Beacon Fund - Class II and
Franklin/Templeton Distributors, Inc. dated November 1, 1996
Filing: Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: June 5, 1997
(xi) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual Discovery Fund - Class II
and Franklin/Templeton Distributors, Inc. dated November
1, 1996
Filing: Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: June 5, 1997
(xii) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Mutual European Fund - Class II
and Franklin/Templeton Distributors, Inc. dated November
1, 1996
Filing: Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A
File No. 33-18516
Filing Date: June 5, 1997
(xiii) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Mutual Shares Fund - Class B
(xiv) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Mutual Qualified Fund - Class B
(xv) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Mutual Discovery Fund - Class B
(xvi) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Mutual Beacon Fund - Class B
(xvii) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Mutual European Fund - Class B
(xviii) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Mutual Financial Services Fund
- Class B
(16) schedule for computation of each performance quotation provided
in the registration statement in response to Item 22 (which need
not be audited);
Not Applicable
(17) Power of Attorney;
(i) Power of Attorney
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(ii) Certificate of Secretary
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 33-18516
Filing Date: April 30, 1997
(18) copies of any plan entered into by Registrant pursuant to Rule
18f-3 under the 1940 Act.
(i) Form of Multiple Class Plan on behalf of Mutual Shares
Fund
(ii) Form of Multiple Class Plan on behalf of Mutual Qualified
Fund
(iii) Form of Multiple Class Plan on behalf of Mutual Discovery
Fund
(iv) Form of Multiple Class Plan on behalf of Mutual Beacon Fund
(v) Form of Multiple Class Plan on behalf of Mutual European
Fund
(vii) Form of Multiple Class Plan on behalf of Mutual Financial
Services Fund
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
NONE
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
a) The officers and directors of the Registrant's manager also serve as
officers and directors for (1) the manager's corporate parent, Franklin
Resources, Inc., and/or (2) other investment companies in the Franklin
Templeton Group of Funds. In addition Mr. Charles B. Johnson was
formerly a director of General Host Corporation. For additional
information please see Part B and Schedules A and D of Form ADV of the
Funds' Investment Manager (SEC File 801-53068), incorporated herein by
reference, which sets forth the officers and directors of the Investment
Manager and information as to any business, profession, vocation or
employment of a substantial nature engaged in by those officers and
directors during the past two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
b) The information required by this item 29 with respect to each director
and officer of Distributors is incorporated by reference to Part B of
this N-1A and Schedule A of Form BD filed by Distributors with the
Securities and Exchange Commission pursuant to the Securities Act of
1934 (SEC File No.8-5889).
c) Not applicable. Registrant's principal underwriter is an affiliated
person of an affiliated person of the Registrant.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder will be
maintained at the offices of Franklin Mutual Series Fund Inc., located at 51
John F. Kennedy Parkway, Short Hills, New Jersey 07078, or at the State
Street Bank and Trust Company, 1776 Heritage Drive, John Adams Building #2,
North Quincy, Massachusetts 02171 or at Franklin/Templeton Investor Services,
Inc., 777 Mariners island Boulevard, 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) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal
of any director or directors when requested in writing to do so by
the record holders of not less than 10 percent of the Registrant's
outstanding shares to assist its shareholders in the communicating
with other shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940.
(b) The Registrant hereby undertakes to comply with the information
requirement in Item 5 of the Form N-1A by including the required
information in the Registrant'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 Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of
California, on the 23rd day of December, 1998.
FRANKLIN MUTUAL SERIES FUND INC.
(Registrant)
By: PETER A. LANGERMAN*
Peter A. Langerman
Executive Vice 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 date indicated:
PETER A. LANGERMAN* Principal Executive Officer and
Peter A. Langerman Director
Dated: December 23, 1998
JAMES R. BAIO* Principal Financial and
James R. Baio Accounting Officer
Dated: December 23, 1998
EDWARD I. ALTMAN* Director
Edward I. Altman Dated: December 23, 1998
ANN TORRE GRANT* Director
Ann Torre Grant Dated: December 23, 1998
ANDREW H. HINES, JR.* Director
Andrew H. Hines, Jr. Dated: December 23, 1998
WILLIAM J. LIPPMAN* Director
William J. Lippman Dated: December 23, 1998
BRUCE A. MACPHERSON* Director
Bruce A. MacPherson Dated: December 23, 1998
FRED R. MILLSAPS* Director
Fred R. Millsaps Dated: December 23, 1998
MICHAEL F. PRICE* Director
Michael F. Price Dated: December 23, 1998
CHARLES RUBENS III Director
Charles Rubens III Dated: December 23, 1998
LEONARD RUBIN* Director
Leonard Rubin Dated: December 23, 1998
VAUGHN R. STURTEVANT*, M.D. Director
Vaughn R. Sturtevant, M.D. Dated: December 23, 1998
ROBERT E. WADE* Director
Robert E. Wade Dated: December 23, 1998
*By: /S/ LARRY L. GREENE
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney previously filed)
FRANKLIN MUTUAL SERIES FUND INC.
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Articles of Incorporation *
EX-99.B1(ii) Articles of Amendment *
EX-99.B1(iii) Articles supplementary *
EX-99.B1(iv) Articles supplementary *
EX-99.B1(v) Articles supplementary *
EX-99.B2(i) By-Laws *
EX-99.B5(i) Investment Advisory Agreement between *
Franklin Mutual Advisers, Inc. and the
Registrant on behalf of Mutual Shares Fund
dated November 1, 1996
EX-99.B5(ii) Investment Advisory Agreement between *
Franklin Mutual Advisers, Inc. and the
Registrant on behalf of Mutual Qualified
Fund dated November 1, 1996
EX-99.B5(iii) Investment Advisory Agreement between *
Franklin Mutual Advisers, Inc. and the
Registrant on behalf of Mutual Beacon Fund
dated November 1, 1996
EX-99.B5(iv) Investment Advisory Agreement between *
Franklin Mutual Advisers, Inc. and the
Registrant on behalf of Mutual Discovery
Fund dated November 1, 1996
EX-99.B5(v) Investment Advisory Agreement between *
Franklin Mutual Advisers, Inc. and the
Registrant on behalf of Mutual European Fund
dated November 1, 1996
EX-99.B5(vi) Investment Advisory Agreement between *
Franklin Mutual Advisers, Inc. and the
Registrant on behalf of Mutual Financial
Services Fund dated August 1, 1997
EX-99.B5(vii) Administration Agreement between Franklin *
Templeton Services, Inc. and Registrant on
behalf of Mutual Shares Fund dated November
1, 1996
EX-99.B5(viii) Administration Agreement between Franklin *
Templeton Services, Inc. and Registrant on
behalf of Mutual Qualified Fund dated
November 1, 1996
EX-99.B5(ix) Administration Agreement between Franklin *
Templeton Services, Inc. and Registrant on
behalf of Mutual Beacon Fund dated November
1, 1996
EX-99.B5(x) Administration Agreement between Franklin *
Templeton Services, Inc. and Registrant on
behalf of Mutual Discovery Fund dated
November 1, 1996
EX-99.B5(xi) Administration Agreement between Franklin *
Templeton Services, Inc. and Registrant on
behalf of Mutual European Fund dated
November 1, 1996
EX-99.B5(xii) Administration Agreement between Franklin *
Templeton Services, Inc. and Registrant on
behalf of Mutual Financial Services Fund
dated August 1, 1997
EX-99.B6(i) Distribution Agreement between Registrant on *
behalf of Mutual Financial Services Fund and
Franklin/Templeton Distributors, Inc. dated
August 19, 1997
EX-99.B6(ii) Distribution Agreement between Registrant on *
behalf of Mutual Shares Fund and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B6(iii) Distribution Agreement between Registrant on *
behalf of Mutual Beacon Fund and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B6(iv) Distribution Agreement between Registrant on *
behalf of Mutual Qualified Fund and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B6(v) Distribution Agreement between Registrant on *
behalf of Mutual Discovery Fund and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B6(vi) Distribution Agreement between Registrant on *
behalf of Mutual European Fund and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B6(vii) Dealer Agreements effective as of March 1, Attached
1998 between Franklin/Templeton
Distributors, Inc. and dealers
EX-99.B8(i) Master Custody Agreement between Registrant Attached
and Bank of New York dated February 16, 1996
EX-99.B8(ii) Amendment dated May 7, 1997 to Master Attached
Custody Agreementbetween Registrant and Bank
of New York dated February 16, 1996
EX-99.B8(iii) Amendment dated February 27, 1998 to Master Attached
Custody Agreement between Registrant and
Bank of New York dated February 16, 1996
EX-99.B10(i) Opinion and Consent of Miles and Stockbridge *
as to legality of shares dated December 18,
1992
EX-99.B10(ii) Opinion and Consent of Miles and Stockbridge *
as to legality of shares dated June 17, 1996
EX-99.B11(i) Consent of Independent Auditors Attached
EX-99.B13(i) Form of Subscription Agreement by Sole *
Shareholder
EX-99.B15(i) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Financial Services Fund - Class I and
Franklin/Templeton Distributors, Inc. dated
August 19, 1997
EX-99.B15(ii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Financial Services Fund - Class II and
Franklin/Templeton Distributors, Inc. dated
August 19, 1997
EX-99.B15(iii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Shares Fund - Class I and Franklin/Templeton
Distributors, Inc. dated August 19, 1997
EX-99.B15(iv) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Qualified Fund - Class I and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(v) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Beacon Fund - Class I and Franklin/Templeton
Distributors, Inc. dated November 1, 1996
EX-99.B15(vi) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Discovery Fund - Class I and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(vii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
European Fund - Class I and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(viii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Shares Fund - Class II and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(ix) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Qualified Fund - Class II and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(x) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Beacon Fund - Class II and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(xi) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
Discovery Fund - Class II and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(xii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of Mutual
European Fund - Class II and
Franklin/Templeton Distributors, Inc. dated
November 1, 1996
EX-99.B15(xiii) Form of Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on behalf of
Mutual Shares Fund - Class B
EX-99.B15(xiv) Form of Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on behalf of
Mutual Qualified Fund - Class B
EX-99.B15(xv) Form of Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on behalf of
Mutual Discovery Fund - Class B
EX-99.B15(xvi) Form of Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on behalf of
Mutual Beacon Fund - Class B
EX-99.B15(xvii) Form of Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on behalf of
Mutual European Fund - Class B
EX-99.B15(xviii) Form of Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on behalf of
Mutual Financial Services Fund - Class B
EX-99.B17(i) Power of Attorney *
EX-99.B17(ii) Certificate of Secretary *
EX-99.B18(i) Form of Multiple Class Plan on behalf of Attached
Mutual Shares Fund
EX-99.B18(ii) Form of Multiple Class Plan on behalf of Attached
Mutual Qualified Fund
EX-99.B18(iii) Form of Multiple Class Plan on behalf of Attached
Mutual Discovery Fund
EX-99.B18(iv) Form of Multiple Class Plan on behalf of Attached
Mutual Beacon Fund
EX-99.B18(v) Form of Multiple Class Plan on behalf of Attached
Mutual European Fund
EX-99.B18(vi) Form of Multiple Class Plan on behalf of Attached
Mutual Financial Services Fund
* Incorporated by reference
DEALER AGREEMENT
Effective: March 1, 1998
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites you to
participate in the distribution of shares of the Franklin Templeton
investment companies (the "Funds") for which we now or in the future serve as
principal underwriter, subject to the terms of this Agreement. We will notify
you from time to time of the Funds which are eligible for distribution and
the terms of compensation under this Agreement. This Agreement supersedes any
prior dealer agreements between us, as stated in Section 18, below.
1. LICENSING.
(a) You represent that you are (i) a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are presently
licensed to the extent necessary by the appropriate regulatory agency of each
jurisdiction in which you will offer and sell shares of the Funds, or (ii) a
broker, dealer or other company licensed, registered or otherwise qualified to
effect transactions in securities in a country (a "foreign country") other than
the United States of America (the "U.S.") where you will offer or sell shares of
the Funds. You agree that termination or suspension of such membership with the
NASD, or of your license to do business by any regulatory agency having
jurisdiction, at any time shall terminate or suspend this Agreement forthwith
and shall require you to notify us in writing of such action. If you are not a
member of the NASD but are a broker, dealer or other company subject to the laws
of a foreign country, you agree to conform to the Conduct Rules of the NASD.
This Agreement is in all respects subject to the Conduct Rules of the NASD,
particularly Conduct Rule 2830 of the NASD, which shall control any provision to
the contrary in this Agreement.
(b) You agree to notify us immediately in writing if at any time you are
not a member in good standing of the Securities Investor Protection Corporation
("SIPC").
2. SALES OF FUND SHARES. You may offer and sell shares of each Fund and class of
each Fund only at the public offering price which shall be applicable to, and in
effect at the time of, each transaction. The procedures relating to all orders
and the handling of them shall be subject to the terms of the applicable then
current prospectus and statement of additional information (hereafter, the
"prospectus") and new account application, including amendments, for each such
Fund and each class of such Fund, and our written instructions from time to
time. This Agreement is not exclusive, and either party may enter into similar
agreements with third parties.
3. DUTIES OF DEALER: You agree:
(a) To act as principal, or as agent on behalf of your customers, in all
transactions in shares of the Funds except as provided in Section 4 hereof. You
shall not have any authority to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any respect, nor will you
represent to any third party that you have such authority or are acting in such
capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds only from us
and only for the purpose of covering purchase orders you have already received
from your customers or for your own bona fide investment.
(d) To maintain records of all sales, redemptions and repurchases of shares
made through you and to furnish us with copies of such records on request.
(e) To distribute prospectuses and reports to your customers in compliance
with applicable legal requirements, except to the extent that we expressly
undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for shares so as
to profit yourself as a result of such withholding or place orders for shares in
amounts just below the point at which sales charges are reduced so as to benefit
from a higher sales charge applicable to an amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are repurchased or
redeemed by any of the Funds within seven business days after such confirmation
of your original order, you shall forthwith refund to us the full concession,
allowed to you on such orders, including any payments we made to you from our
own resources as provided in Section 6(b) hereof with respect to such orders. We
shall forthwith pay to the appropriate Fund the share, if any, of the sales
charge we retained on such order and shall also pay to such Fund the refund of
the concession we receive from you as herein provided (other than the portion of
such concession we paid to you from our own resources as provided in Section
6(b) hereof). We shall notify you of such repurchase or redemption within a
reasonable time after settlement. Termination or suspension of this Agreement
shall not relieve you or us from the requirements of this subsection.
(h) That if payment for the shares purchased is not received within the
time customary or the time required by law for such payment, the sale may be
canceled without notice or demand and without any responsibility or liability on
our part or on the part of the Funds, or at our option, we may sell the shares
which you ordered back to the Funds, in which latter case we may hold you
responsible for any loss to the Funds or loss of profit suffered by us resulting
from your failure to make payment as aforesaid. We shall have no liability for
any check or other item returned unpaid to you after you have paid us on behalf
of a purchaser. We may refuse to liquidate the investment unless we receive the
purchaser's signed authorization for the liquidation.
(i) That you shall assume responsibility for any loss to the Funds caused
by a correction made subsequent to trade date, provided such correction was not
based on any error, omission or negligence on our part, and that you will
immediately pay such loss to the Funds upon notification.
(j) That if on a redemption which you have ordered, instructions in proper
form, including outstanding certificates, are not received within the time
customary or the time required by law, the redemption may be canceled forthwith
without any responsibility or liability on our part or on the part of any Fund,
or at our option, we may buy the shares redeemed on behalf of the Fund, in which
latter case we may hold you responsible for any loss to the Fund or loss of
profit suffered by us resulting from your failure to settle the redemption.
(k) To obtain from your customers all consents required by applicable
privacy laws to permit us, any of our affiliates or the Funds to provide you
either directly or through a service established for that purpose with
confirmations, account statements and other information about your customers'
investments in the Funds.
4. DUTIES OF DEALER: RETIREMENT ACCOUNTS. In connection with orders for the
purchase of shares on behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone, or wire, you
shall act as agent for the custodian or trustee of such plans (solely with
respect to the time of receipt of the application and payments), and you shall
not place such an order until you have received from your customer payment for
such purchase and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan and enrollment in
the plan. You agree to indemnify us and Franklin Templeton Trust Company and/or
Templeton Funds Trust Company as applicable for any claim, loss, or liability
resulting from incorrect investment instructions received from you which cause a
tax liability or other tax penalty.
5. CONDITIONAL ORDERS; CERTIFICATES. We will not accept from you any conditional
orders for shares of any of the Funds. Delivery of certificates or confirmations
for shares purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your concession and our
portion of the sales charge, if any, on such sale. No certificates for shares of
the Funds will be issued unless specifically requested.
6. DEALER COMPENSATION.
(a) On each purchase of shares by you from us, the total sales charges and
your dealer concessions shall be as stated in each Fund's then current
prospectus, subject to NASD rules and applicable laws. Such sales charges and
dealer concessions are subject to reductions under a variety of circumstances as
described in the Funds' prospectuses. For an investor to obtain these
reductions, we must be notified at the time of the sale that the sale qualifies
for the reduced charge. If you fail to notify us of the applicability of a
reduction in the sales charge at the time the trade is placed, neither we nor
any of the Funds will be liable for amounts necessary to reimburse any investor
for the reduction which should have been effected.
(b) In accordance with the Funds' prospectuses, we or our affiliates may,
but are not obligated to, make payments to you from our own resources as
compensation for certain sales which are made at net asset value ("Qualifying
Sales"). If you notify us of a Qualifying Sale, we may make a contingent advance
payment up to the maximum amount available for payment on the sale. If any of
the shares purchased in a Qualifying Sale are repurchased or redeemed within
twelve months of the month of purchase, we shall be entitled to recover any
advance payment attributable to the repurchased or redeemed shares by reducing
any account payable or other monetary obligation we may owe to you or by making
demand upon you for repayment in cash. We reserve the right to withhold advances
to you, if for any reason we believe that we may not be able to recover unearned
advances from you. Termination or suspension of this Agreement shall not relieve
you or us from the requirements of this subsection.
7. REDEMPTIONS OR REPURCHASES. Redemptions or repurchases of shares of the Funds
will be made at the net asset value of such shares, less any applicable deferred
sales or redemption charges, in accordance with the applicable prospectuses.
Except as permitted by applicable law, you agree not to purchase any shares from
your customers at a price lower than the net asset value of such shares next
computed by the Funds after the purchase (the "Redemption/Repurchase Price").
You shall, however, be permitted to sell shares of the Funds for the account of
the record owner to the Funds at the Redemption/Repurchase Price for such
shares.
8. EXCHANGES. Telephone exchange orders will be effective only for
uncertificated shares or for which share certificates have been previously
deposited and may be subject to any fees or other restrictions set forth in the
applicable prospectuses. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold with a sales
charge to a Fund which carries a higher sales charge may be subject to a sales
charge in accordance with the terms of the applicable Fund's prospectus. You
will be obligated to comply with any additional exchange policies described in
the applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
9. TRANSACTION PROCESSING. All orders are subject to acceptance by us and by the
Fund or its transfer agent, and become effective only upon confirmation by us.
If required by law, each transaction shall be confirmed in writing on a fully
disclosed basis and if confirmed by us, a copy of each confirmation shall be
sent simultaneously to you if you so request. All sales are made subject to
receipt of shares by us from the Funds. We reserve the right in our discretion,
without notice, to suspend the sale of shares of the Funds or withdraw the
offering of shares of the Funds entirely. Orders will be effected at the
price(s) next computed on the day they are received if, as set forth in the
applicable Fund's current prospectus, the orders are received by us, an agent
appointed by us or the Funds prior to the time the price of the Fund's shares is
calculated. Orders received after that time will be effected at the price(s)
computed on the next business day. All orders must be accompanied by payment in
U.S. Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a
U.S. bank, for the full amount of the investment.
10. MULTIPLE CLASSES. We may from time to time provide to you written compliance
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of shares (each, a "Class") with different sales charges and
distribution related operating expenses. In addition, you will be bound by any
applicable rules or regulations of government agencies or self-regulatory
organizations generally affecting the sale or distribution of shares of
investment companies offering multiple classes of shares.
11. RULE 12B-1 PLANS. You are invited to participate in all distribution plans
(each, a "Plan") adopted for a Class of a Fund or for a Fund that has only a
single Class (each, a "Plan Class") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act").
To the extent you provide administrative and other services, including, but
not limited to, furnishing personal and other services and assistance to your
customers who own shares of a Plan Class, answering routine inquiries regarding
a Fund or Class, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, we shall pay you
a Rule 12b-1 servicing fee. To the extent that you participate in the
distribution of Fund shares that are eligible for a Rule 12b-1 distribution fee,
we shall also pay you a Rule 12b-1 distribution fee. All Rule 12b-1 servicing
and distribution fees shall be based on the value of shares attributable to
customers of your firm and eligible for such payment, and shall be calculated on
the basis and at the rates set forth in the compensation schedule then in effect
for the applicable Plan (the "Schedule"). Without prior approval by a majority
of the outstanding shares of a particular Class of a Fund which has a Plan, the
aggregate annual fees paid to you pursuant to such Plan shall not exceed the
amounts stated as the "annual maximums" in such Plan Class' prospectus, which
amount shall be a specified percent of the value of such Plan Class' net assets
held in your customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as such Plan Class uses to compute its
net assets as set forth in its effective prospectus).
You shall furnish us and each Fund that has a Plan Class (each, a "Plan
Fund") with such information as shall reasonably be requested by the Board of
Directors, Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Plan Fund with respect to the fees paid to you pursuant to
the Schedule of such Plan Fund. We shall furnish to the Boards of Directors of
the Plan Funds, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
Each Plan and the provisions of any agreement relating to such Plan must be
approved annually by a vote of the Directors of the Fund that has such Plan,
including such persons who are not interested persons of such Plan Fund and who
have no financial interest in such Plan or any related agreement ("Rule 12b-1
Directors"). Each Plan or the provisions of this Agreement relating to such Plan
may be terminated at any time by the vote of a majority of the Rule 12b-1
Directors, or by a vote of a majority of the outstanding shares of the Class
that has such Plan, on sixty (60) days' written notice, without payment of any
penalty. A Plan or the provisions of this Agreement may also be terminated by
any act that terminates the Underwriting Agreement between us and the Fund that
has such Plan, and/or the management or administration agreement between
Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and such Plan Fund. In the event of the termination of a Plan for any
reason, the provisions of this Agreement relating to such Plan will also
terminate.
Continuation of a Plan and provisions of this Agreement relating to such
Plan are conditioned on Rule 12b-1 Directors being ultimately responsible for
selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, a Plan Fund is permitted to implement or continue a Plan or the
provisions of this Agreement relating to such Plan from year-to-year only if,
based on certain legal considerations, the Board of Directors of such Plan Fund
is able to conclude that such Plan will benefit the Plan Class. Absent such
yearly determination, such Plan and the provisions of this Agreement relating to
such Plan must be terminated as set forth above. In addition, any obligation
assumed by a Fund pursuant to this Agreement shall be limited in all cases to
the assets of such Fund and no person shall seek satisfaction thereof from
shareholders of a Fund. You agree to waive payment of any amounts payable to you
by us under a Fund's Plan until such time as we are in receipt of such fee from
the Fund.
The provisions of the Plans between the Plan Funds and us shall control
over the provisions of this Agreement in the event of any inconsistency.
12. REGISTRATION OF SHARES. Upon request, we shall notify you of the states or
other jurisdictions in which each Fund's shares are currently noticed,
registered or qualified for offer or sale to the public. We shall have no
obligation to make notice filings of, register or qualify, or to maintain notice
filings of, registration of or qualification of, Fund shares in any state or
other jurisdiction. We shall have no responsibility, under the laws regulating
the sale of securities in any U.S. or foreign jurisdiction, for the
registration, qualification or licensed status of persons offering or selling
Fund shares or for the manner of offering or sale of Fund shares. If it is
necessary to file notice of, register or qualify Fund shares in any foreign
jurisdictions in which you intend to offer the shares of any Funds, it will be
your responsibility to arrange for and to pay the costs of such notice filing,
registration or qualification; prior to any such notice filing, registration or
qualification, you will notify us of your intent and of any limitations that
might be imposed on the Funds, and you agree not to proceed with such notice
filing, registration or qualification without the written consent of the
applicable Funds and of ourselves. Except as stated in this section, we shall
not, in any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by us in this Agreement shall
be implied. Nothing in this Agreement shall be deemed to be a condition,
stipulation or provision binding any person acquiring any security to waive
compliance with any provision of the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, the rules and regulations of the U.S. Securities and Exchange
Commission, or any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offer or sale of shares of the Funds, or to relieve the parties hereto from any
liability arising under such laws, rules and regulations.
13. CONTINUOUSLY OFFERED CLOSED-END FUNDS. This Section 13 relates solely to
shares of Funds that represent a beneficial interest in the Franklin Floating
Rate Trust and shares issued by any other continuously offered closed-end
investment company registered under the 1940 Act for which we or an affiliate of
ours serve as principal underwriter and that periodically repurchases its shares
(each, a "Trust"). Shares of a Trust that are offered to the public will be
registered under the 1933 Act, and are expected to be offered during an offering
period that may continue indefinitely ("Continuous Offering Period"). There is
no guarantee that such a continuous offering will be maintained by a Trust. The
Continuous Offering Period, shares of a Trust and certain of the terms on which
such shares are offered shall be as described in the prospectus of the Trust.
As set forth in a Trust's then current prospectus, we may, but are not
obligated to, provide you with appropriate compensation for selling shares of
the Trust. In addition, you may be entitled to a fee for servicing your clients
who are shareholders in a Trust, subject to applicable law and NASD Conduct
Rules. You agree that any repurchases of shares of a Trust that were originally
purchased as Qualifying Sales shall be subject to Subsection 6(b) hereof.
You expressly acknowledge and understand that, notwithstanding anything to
the contrary in this Agreement:
(a) No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or
have any obligation to pay, any compensation directly or indirectly to
you.
(b) Shares of a Trust will not be repurchased by either the Trust (other
than through repurchase offers by the Trust from time to time, if any)
or by us and no secondary market for such shares exists currently, or
is expected to develop. Any representation as to a repurchase or
tender offer by a Trust, other than that set forth in the Trust's then
current prospectus, notification letters, reports or other related
material provided by the Trust, is expressly prohibited.
(c) An early withdrawal charge payable by shareholders of a Trust to us
may be imposed on shares accepted for repurchase by the Trust that
have been held for less than a stated period, as set forth in the
Trust's then current Prospectus.
(d) In the event your customer cancels his or her order for shares of a
Trust after confirmation, such shares will not be repurchased,
remarketed or otherwise disposed of by or though us.
14. FUND INFORMATION. No person is authorized to give any information or make
any representations concerning shares of any Fund except those contained in the
Fund's then current prospectus or in materials issued by us as information
supplemental to such prospectus. We will supply reasonable quantities of
prospectuses, supplemental sales literature, sales bulletins, and additional
information as issued by the Fund or us. You agree not to use other advertising
or sales material relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offering or sale of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in whole or in part
upon notice to you, and you shall, upon receipt of such notice, immediately
discontinue the use of such sales literature, sales material and advertising.
You are not authorized to modify or translate any such materials without our
prior written consent.
15. INDEMNIFICATION. You agree to indemnify, defend and hold harmless us, the
Funds, and the respective officers, directors and employees of the Funds and us
from any and all losses, claims, liabilities and expenses arising out of (1) any
alleged violation of any statute or regulation (including without limitation the
securities laws and regulations of the U.S. or any state or foreign country) or
any alleged tort or breach of contract, in or related to the offer or sale by
you of shares of the Funds pursuant to this Agreement (except to the extent that
our negligence or failure to follow correct instructions received from you is
the cause of such loss, claim, liability or expense), (2) any redemption or
exchange pursuant to telephone instructions received from you or your agents or
employees, or (3) the breach by you of any of the terms and conditions of this
Agreement. This Section 15 shall survive the termination of this Agreement.
16. TERMINATION; SUCCESSION; ASSIGNMENT; AMENDMENT. Each party to this Agreement
may terminate its participation in this Agreement by giving written notice to
the other parties. Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally to the other
parties or any officer or member thereof, or was mailed postpaid or delivered by
electronic transmission to the other parties' chief legal officers at the
addresses shown herein or in the most recent NASD Manual. This Agreement shall
terminate immediately upon the appointment of a Trustee under the Securities
Investor Protection Act or any other act of insolvency by you. The termination
of this Agreement by any of the foregoing means shall have no effect upon
transactions entered into prior to the effective date of termination. A trade
placed by you subsequent to your voluntary termination of this Agreement will
not serve to reinstate the Agreement. Reinstatement, except in the case of a
temporary suspension of a dealer, will be effective only upon written
notification by us to you. This Agreement will terminate automatically in the
event of its assignment by us. For purposes of the preceding sentence, the word
"assignment" shall have the meaning given to it in the 1940 Act. This Agreement
may not be assigned by you without our prior written consent. This Agreement may
be amended by us at any time by written notice to you and your placing of an
order or acceptance of payments of any kind after the effective date and receipt
of notice of any such Amendment shall constitute your acceptance of such
Amendment.
17. SETOFF; DISPUTE RESOLUTION. Should any of your concession accounts with us
have a debit balance, we may offset and recover the amount owed to us or the
Funds from any other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this Agreement, either
party may require the dispute to be submitted to binding arbitration under the
commercial arbitration rules of the NASD or the American Arbitration
Association. Judgment upon any arbitration award may be entered by any court
having jurisdiction. This Agreement shall be construed in accordance with the
laws of the State of California, not including any provision that would require
the general application of the law of another jurisdiction.
18. ACCEPTANCE; CUMULATIVE EFFECT. This Agreement is cumulative and supersedes
any agreement previously in effect. It shall be binding upon the parties hereto
when signed by us and accepted by you. If you have a current dealer agreement
with us, your first trade or acceptance of payments from us after your receipt
of this Agreement, as it may be amended pursuant to Section 16, above, shall
constitute your acceptance of its terms. Otherwise, your signature below shall
constitute your acceptance of its terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
415/312-2000
700 Central Avenue
St. Petersburg, Florida 33701-3628
813/823-8712
- --------------------------------------------------------------------------------
Dealer: If you have NOT previously signed a Dealer Agreement with us, please
complete and sign this section and return the original to us.
__________________________________
DEALER NAME:
By _______________________________
(Signature)
Name:_____________________________
Title: ___________________________
Address: ______________________________
_______________________________________
_______________________________________
Telephone: _______________________
NASD CRD # _______________________
- --------------------------------------------------------------------------------
Franklin Templeton Dealer # ______________________
(Internal Use Only)
- --------------------------------------------------------------------------------
Version 12/31/97
232567.4
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
May 15, 1998
Re: Amendment of Dealer Agreement - Notice Pursuant to Section 16
Dear Securities Dealer:
This letter constitutes notice of amendment of the current Dealer Agreement (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("we" or "us") and
you pursuant to Section 16 of the Agreement. The Agreement is hereby amended as
follows:
1. Defined terms in this amendment have the meanings as stated in the
Agreement unless otherwise indicated.
2. Section 6 is modified to add a subsection 6(c), as follows:
(c) The following limitations apply with respect to shares of each Trust as
described in Section 13 of this Agreement.
(1) Consistent with the NASD Conduct Rules, the total compensation to
be paid to us and selected dealers and their affiliates, including you and your
affiliates, in connection with the distribution of shares of a Trust will not
exceed the underwriting compensation limitation prescribed by NASD Conduct Rule
2710. The total underwriting compensation to be paid to us and selected dealers
and their affiliates, including you and your affiliates, may include: (i) at the
time of purchase of shares a payment to you or another securities dealer of 1%
of the dollar amount of the purchased shares by the Distributor; and (ii) a
quarterly payment at an annual rate of .50% to you or another securities dealer
based on the value of such remaining shares sold by you or such securities
dealer, if after twelve (12) months from the date of purchase, the shares sold
by you or such securities dealer remain outstanding.
(2) The maximum compensation shall be no more than as disclosed in the
section "Payments to Dealers" of the prospectus of the applicable Trust.
Pursuant to Section 16 of the Agreement, your placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute your acceptance of this amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
--------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
MUTUAL FUND PURCHASE AND SALES AGREEMENT
FOR ACCOUNTS OF BANK AND TRUST COMPANY CUSTOMERS
EFFECTIVE: APRIL 1, 1998
1. INTRODUCTION
The parties to this Agreement are the undersigned bank or trust company
("Bank") and Franklin/Templeton Distributors, Inc. ("FTDI"). This Agreement sets
forth the terms and conditions under which FTDI will execute purchases and
redemptions of shares of the Franklin or Templeton investment companies or
series of such investment companies for which FTDI now or in the future serves
as principal underwriter (each, a "Fund"), at the request of the Bank upon the
order and for the account of Bank's customers ("Customers"). In this Agreement,
"Customer" shall include the beneficial owners of an account and any agent or
attorney-in-fact duly authorized or appointed to act on the owners' behalf with
respect to the account; and "redemptions" shall include redemptions of shares of
Funds that are open-end management investment companies and repurchases of
shares of Funds that are closed-end investment companies by the Fund that is the
issuer of such shares. FTDI will notify Bank from time to time of the Funds
which are eligible for distribution and the terms of compensation under this
Agreement. This Agreement is not exclusive, and either party may enter into
similar agreements with third parties.
2. REPRESENTATIONS AND WARRANTIES OF BANK
Bank warrants and represents to FTDI and the Funds that:
a) Bank is a "bank" as defined in section 3(a)(6) of the Securities
Exchange Act of 1934, as amended (the "1934 Act");
b) Bank is authorized to enter into this Agreement as agent for the
Customers, and Bank's performance of its obligations and receipt of
consideration under this Agreement will not violate any law,
regulation, charter, agreement, or regulatory restriction to which
Bank is subject; and
c) Bank has received all regulatory agency approvals and taken all legal
and other steps necessary for offering the services Bank will provide
to Customers and receiving any applicable compensation in connection
with this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL UNDERWRITER
FTDI warrants and represents to Bank that:
a) FTDI is a broker/dealer registered under the 1934 Act; and
b) FTDI is the principal underwriter of the Funds.
4. COVENANTS OF BANK
a) For each purchase or redemption transaction under this Agreement
(each, a "Transaction"), Bank will:
1) be authorized to engage in the Transaction;
2) act as agent for the Customer, unless Bank is the Customer;
3) act solely at the request of and for the account of the Customer,
unless Bank is the Customer;
4) not submit an order unless Bank has already received the order
from the Customer, unless Bank is the Customer;
5) not offer to sell shares of Fund(s) or submit a purchase order
unless Bank has already delivered to the Customer a copy of the
then current prospectuses for the Fund(s) whose shares are
offered or are to be purchased;
6) not withhold placing any Customer's order for the purpose of
profiting from the delay or place orders for shares in amounts
just below the point at which sales charges are reduced so as to
benefit from a higher Fee (as defined in Paragraph 5(e) below)
applicable to a Transaction in an amount below the breakpoint;
7) have no beneficial ownership of the securities in any purchase
Transaction (the Customer will have the full beneficial
ownership), unless Bank is the Customer (in which case, Bank will
not engage in the Transaction unless the Transaction is legally
permissible for Bank);
8) not accept or withhold any Fee (as defined in Paragraph 5(e) of
this Agreement) otherwise allowed under Paragraphs 5(d) and (e)
of this Agreement, if prohibited by the Employee Retirement
Income Security Act of 1974, as amended, or trust or similar laws
to which Bank is subject, in the case of Transactions of Fund
shares involving retirement plans, trusts, or similar accounts;
9) maintain records of all Transactions of Fund shares made through
Bank and furnish FTDI with copies of such records on request; and
10) distribute prospectuses, statements of additional information and
reports to Customers in compliance with applicable legal
requirements, except to the extent that FTDI expressly undertakes
to do so on behalf of Bank.
b) While this Agreement is in effect, Bank will:
1) not purchase any Fund shares from any person at a price lower
than the redemption or repurchase price as applicable next
determined by the applicable Fund;
2) repay FTDI the full Fee received by Bank under Paragraphs 5(d)
and (e) of this Agreement, and any payments FTDI or its
affiliates made to Bank from their own resources under Paragraph
5(e) of this Agreement ("FTDI Payments"), for any Fund shares
purchased under this Agreement which are redeemed or repurchased
by the Fund within 7 business days after the purchase; in turn,
FTDI shall pay to the Fund the amount repaid by Bank (other than
any portion of such repayment that is a repayment of FTDI
Payments) and will notify Bank of any such redemption within a
reasonable time (termination or suspension of this Agreement
shall not relieve Bank or FTDI from the requirements of this
subparagraph);
3) in connection with orders for the purchase of Fund shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, act as agent for the custodian or trustee of such plans
(solely with respect to the time of receipt of the application
and payments) and shall not place such an order until Bank has
received from its Customer payment for such purchase and, if such
purchase represents the first contribution to such a plan, the
completed documents necessary to establish the plan and
enrollment in the plan (Bank agrees to indemnify FTDI and
Franklin Templeton Trust Company and/or Templeton Funds Trust
Company as applicable for any claim, loss, or liability resulting
from incorrect investment instructions received from Bank which
cause a tax liability or other tax penalty);
4) be responsible for compliance with all laws and regulations,
including those of the applicable federal and state bank and
securities regulatory authorities, with regard to Bank and Bank's
Customers; and
5) obtain from its Customers any consents required by applicable
federal and/or state privacy laws to permit FTDI, any of its
affiliates or the Funds to provide Bank with confirmations,
account statements and other information about Customers'
investments in the Funds.
5. TERMS AND CONDITIONS FOR TRANSACTIONS
a) Price
Purchase orders for Fund shares received from Bank will be accepted only at
the public offering price and in compliance with procedures applicable to each
purchase order as set forth in the then current prospectus and statement of
additional information (hereinafter, collectively, "prospectus") for the
applicable Fund. All purchase orders must be accompanied by payment in U.S.
Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a U.S.
bank, for the full amount of the investment. All sales are made subject to
receipt of shares by FTDI from the Funds. FTDI reserves the right in its
discretion, without notice, to suspend the sale of shares or withdraw the
offering of shares entirely.
b) Orders and Confirmations
All orders are subject to acceptance or rejection by FTDI and by the Fund
or its transfer agent at their sole discretion, and become effective only upon
confirmation by FTDI. Transaction orders shall be made using the procedures and
forms required by FTDI from time to time. Orders received by FTDI or an agent
appointed by FTDI or the Funds on any business day after the time for
calculating the price of Fund shares as set forth in each Fund's current
prospectus will be effected at the price determined on the next business day. No
order will be accepted unless Bank or the Customer shall have provided FTDI with
the Customer's full name, address and other information normally required by
FTDI to open a customer account, and FTDI shall be entitled to rely on the
accuracy of the information provided by Bank. A written confirming statement
will be sent to Bank and to Customer upon settlement of each Transaction.
c) Multiple Class Guidelines
FTDI may from time to time provide to Bank written compliance guidelines or
standards relating to the sale or distribution of Funds offering multiple
classes of shares (each, a "Class") with different sales charges and
distribution-related operating expenses. Bank will comply with FTDI's written
compliance guidelines and standards, as well as with any applicable rules or
regulations of government agencies or self-regulatory organizations generally
affecting the sale or distribution of investment companies offering multiple
classes of shares, whether or not Bank deems itself otherwise subject to such
rules or regulations.
d) Payments by Bank for Purchases
On the settlement date for each purchase, Bank shall either (i) remit the
full purchase price by wire transfer to an account designated by FTDI, or (ii)
following FTDI's procedures, wire the purchase price less the Fee allowed by
Paragraph 5(e) of this Agreement. Twice monthly, FTDI will pay Bank Fees not
previously paid to or withheld by Bank. Each calendar month, FTDI, as
applicable, will prepare and mail an activity statement summarizing all
Transactions.
e) Fees and Payments
Where permitted by the prospectus for a Fund, a charge, concession, or fee
(each of the foregoing forms of compensation, a "Fee") may be paid to Bank,
related to services provided by Bank in connection with Transactions in shares
of such Fund. The amount of the Fee, if any, is set by the relevant prospectus.
Adjustments in the Fee are available for certain purchases, and Bank is solely
responsible for notifying FTDI when any purchase or redemption order is
qualified for such an adjustment. If Bank fails to notify FTDI of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither FTDI nor any of the Funds will be liable for amounts necessary
to reimburse any Customer for the reduction which should have been effected.
In accordance with the Funds' prospectuses, FTDI or its affiliates may, but
are not obligated to, make payments from their own resources to Bank as
compensation for certain sales that are made at net asset value ("Qualifying
Sales"). If Bank notifies FTDI of a Qualifying Sale, FTDI may make a contingent
advance payment up to the maximum amount available for payment on the sale. If
any of the shares purchased in a Qualifying Sale are redeemed or repurchased
within twelve months of the month of purchase, FTDI shall be entitled to recover
any advance payment attributable to the redeemed or repurchased shares by
reducing any account payable or other monetary obligation FTDI may owe to Bank
or by making demand upon Bank for repayment in cash. FTDI reserves the right to
withhold any one or more advances, if for any reason FTDI believes that FTDI may
not be able to recover unearned advances. Termination or suspension of this
Agreement does not relieve Bank from the requirements of this paragraph.
f) Rule 12b-1 Plans
Bank is also invited to participate in all distribution plans (each, a
"Plan") adopted for a Class of a Fund or for a Fund that has only a single Class
(each, a "Plan Class") pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended (the "1940 Act").
To the extent Bank provides administrative and other services, including,
but not limited to, furnishing personal and other services and assistance to
Customers who own shares of a Plan Class, answering routine inquiries regarding
a Fund or Class, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, FTDI shall pay
Bank a Rule 12b-1 servicing fee. To the extent that Bank participates in the
distribution of Fund shares that are eligible for a Rule 12b-1 distribution
fee,FTDI shall also pay Bank a Rule 12b-1 distribution fee. All Rule 12b-1
servicing and distribution fees shall be based on the value of shares
attributable to Customers and eligible for such payment, and shall be calculated
on the basis and at the rates set forth in the compensation schedule then in
effect for the applicable Plan (the "Schedule"). Without prior approval by a
majority of the outstanding shares of a particular Class of a Fund, the
aggregate annual fees paid to Bank pursuant to such Plan shall not exceed the
amounts stated as the "annual maximums" in such Plan Class' prospectus, which
amount shall be a specified percent of the value of such Plan Class' net assets
held in Customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as such Plan Class uses to compute its
net assets as set forth in its effective Prospectus).
Bank shall furnish FTDI and each Fund that has a Plan Class (each, a "Plan
Fund") with such information as shall reasonably be requested by the Board of
Directors, Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Plan Fund with respect to the fees paid to Bank pursuant to
the Schedule of such Plan Fund. FTDI shall furnish to the Boards of Directors of
the Plan Funds, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
Each Plan and the provisions of any agreement relating to such Plan must be
approved annually by a vote of the Directors of the Fund that has such Plan,
including such persons who are not interested persons of such Plan Fund and who
have no financial interest in such Plan or any related agreement ("Rule 12b-1
Directors"). Each Plan or the provisions of this Agreement relating to such Plan
may be terminated at any time by the vote of a majority of Rule 12b-1 Directors
of the Fund that has such Plan, or by a vote of a majority of the outstanding
shares of the Class that has such Plan on sixty (60) days' written notice,
without payment of any penalty. A Plan or the provisions of this Agreement may
also be terminated by any act that terminates the Underwriting Agreement between
FTDI and the Fund that has such Plan, and/or the management or administration
agreement between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc.
or their affiliates and such Plan Fund. In the event of the termination of a
Plan for any reason, the provisions of this Agreement relating to such Plan will
also terminate.
Continuation of a Plan and the provisions of this Agreement relating to
such Plan are conditioned on Rule 12b-1 Directors being ultimately responsible
for selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, a Plan Fund is permitted to implement or continue a Plan or the
provisions of this Agreement relating to such Plan from year-to-year only if,
based on certain legal considerations, the Board of Directors of such Plan Fund
is able to conclude that the Plan will benefit the Plan Class. Absent such
yearly determination, a Plan and the provisions of this Agreement relating to
such Plan must be terminated as set forth above. In addition, any obligation
assumed by a Fund pursuant to this Agreement shall be limited in all cases to
the assets of such Fund and no person shall seek satisfaction thereof from
shareholders of a Fund. Bank agrees to waive payment of any amounts payable to
Bank by FTDI under a Fund's Plan until such time as FTDI is in receipt of such
fee from the Fund.
The provisions of the Plans between the Plan Funds and FTDI shall control
over the provisions of this Agreement in the event of any inconsistency.
g) Other Distribution Services
From time to time, FTDI may offer telephone and other augmented services in
connection with Transactions under this Agreement. If Bank uses any such
service, Bank will be subject to the procedures applicable to the service,
whether or not Bank has executed any agreement required for the service.
h) Conditional Orders; Certificates
FTDI will not accept any conditional Transaction orders. Delivery of
certificates or confirmations for shares purchased shall be made by a Fund only
against constructive receipt of the purchase price, subject to deduction of any
Fee and FTDI's portion of the sales charge, if any, on such sale. No
certificates for shares of the Funds will be issued unless specifically
requested.
i) Cancellation of Orders
If payment for shares purchased is not received within the time customary
or the time required by law for such payment, the sale may be canceled without
notice or demand, and neither FTDI nor the Fund(s) shall have any responsibility
or liability for such a cancellation; alternatively, at FTDI's option, the
unpaid shares may be sold back to the Fund, and Bank shall be liable for any
resulting loss to FTDI or to the Fund(s). FTDI shall have no liability for any
check or other item returned unpaid to Bank after Bank has paid FTDI on behalf
of a purchaser. FTDI may refuse to liquidate the investment unless FTDI receives
the purchaser's signed authorization for the liquidation.
j) Order Corrections
Bank shall assume responsibility for any loss to a Fund(s) caused by a
correction made subsequent to trade date, provided such correction was not based
on any error, omission or negligence on FTDI's part, and Bank will immediately
pay such loss to the Fund(s) upon notification.
k) Redemptions; Cancellation
Redemptions or repurchases of shares will be made at the net asset value of
such shares, less any applicable deferred sales or redemption charges, in
accordance with the applicable prospectuses. If Bank sells shares for the
account of the record owner to the Funds, Bank shall be deemed to represent to
FTDI that Bank is doing so as agent for the Customer and that Bank is authorized
to do so in such capacity. Such sales to the Funds shall be at the redemption or
repurchase price then currently in effect for such shares. If on a redemption
which Bank has ordered, instructions in proper form, including outstanding
certificates, are not received within the time customary or the time required by
law, the redemption may be canceled forthwith without any responsibility or
liability on the part of FTDI or any Fund, or at the option of FTDI, FTDI may
buy the shares redeemed on behalf of the Fund, in which latter case FTDI may
hold Bank responsible for any loss to the Fund or loss of profit suffered by
FTDI resulting from Bank's failure to settle the redemption.
l) Exchanges
Telephone exchange orders will be effective only for uncertificated shares
or for which share certificates have been previously deposited and may be
subject to any fees or other restrictions set forth in the applicable
prospectuses. Exchanges from a Fund sold with no sales charge to a Fund which
carries a sales charge, and exchanges from a Fund sold with a sales charge to a
Fund which carries a higher sales charge may be subject to a sales charge in
accordance with the terms of the applicable Fund's prospectus. Bank will be
obligated to comply with any additional exchange policies described in the
applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
m) Qualification of Shares; Indemnification
Upon request, FTDI shall notify Bank of the states or other jurisdictions
in which each Fund's shares are currently noticed, registered or qualified for
offer or sale to the public. FTDI shall have no obligation to make notice
filings of, register or qualify, or to maintain notice filings of, registration
of or qualification of, Fund shares in any state or other jurisdiction. FTDI
shall have no responsibility, under the laws regulating the sale of securities
in any U.S. or foreign jurisdiction, for the registration, qualification or
licensed status of Bank or any of its agents or sub-agents in connection with
the purchase or sale of Fund shares or for the manner of offering, sale or
purchase of Fund shares. Except as stated in this paragraph, FTDI shall not, in
any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by FTDI in this Agreement
shall be implied. If it is necessary to file notice of, register or qualify
shares of any Fund in any country, state or other jurisdiction having authority
over the purchase or sale of Fund shares that are purchased by a Customer, it
will be Bank's responsibility to arrange for and to pay the costs of such notice
filing, registration or qualification; prior to any such notice filing,
registration or qualification, Bank will notify FTDI of its intent and of any
limitations that might be imposed on the Funds, and Bank agrees not to proceed
with such notice filing, registration or qualification without the written
consent of the applicable Funds and of FTDI. Nothing in this Agreement shall be
deemed to be a condition, stipulation, or provision binding any person acquiring
any security to waive compliance with any provision of the Securities Act of
1933, as amended (the "1933 Act"), the 1934 Act, the 1940 Act, the rules and
regulations of the U.S. Securities and Exchange Commission, or any applicable
laws or regulations of any government or authorized agency in the U.S. or any
other country having jurisdiction over the offer or sale of shares of the Funds,
or to relieve the parties hereto from any liability arising under such laws,
rules or regulations.
Bank further agrees to indemnify, defend and hold harmless FTDI, the Funds,
their officers, directors and employees from any and all losses, claims,
liabilities and expenses, arising out of (1) any alleged violation of any
statute or regulation (including without limitation the securities laws and
regulations of the United States of America or any state or foreign country) or
any alleged tort or breach of contract, in or related to any offer, sale or
purchase of shares of the Funds involving Bank or any Customer pursuant to this
Agreement (except to the extent that FTDI's negligence or failure to follow
correct instructions received from Bank is the cause of such loss, claim,
liability or expense), (2) any redemption or exchange pursuant to telephone
instructions received from Bank or its agents or employees, or (3) the breach by
Bank of any of the terms and conditions of this Agreement. This Paragraph 5(m)
shall survive the termination of this Agreement.
n) Prospectus and Sales Materials; Limit on Advertising
No person is authorized to give any information or make any representations
concerning shares of any Fund except those contained in the Fund's current
prospectus or in materials issued by FTDI as information supplemental to such
prospectus. FTDI will supply prospectuses, reasonable quantities of supplemental
sale literature, sales bulletins, and additional information as issued. Bank
agrees not to use other advertising or sales material or other material or
literature relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offering or sale of shares of the Funds, and (b) is approved in writing by FTDI
in advance of such use. Such approval may be withdrawn by FTDI in whole or in
part upon notice to Bank, and Bank shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales material and
advertising. Bank is not authorized to modify or translate any such materials
without the prior written consent of FTDI.
o) Customer Information
1) DEFINITION. For purposes of this Paragraph 5(o), "Customer
Information" means customer names and other identifying
information pertaining to one or more Customers which is
furnished by Bank to FTDI in the ordinary course of business
under this Agreement. Customer Information shall not include any
information obtained from any sources other than the Customer or
the Bank.
2) PERMITTED USES. FTDI may use Customer Information to fulfill its
obligations under this Agreement, the Distribution Agreements
between the Funds and FTDI, the Funds' prospectuses, or other
duties imposed by law. In addition, FTDI or its affiliates may
use Customer Information in communications to shareholders to
market the Funds or other investment products or services,
including without limitation variable annuities, variable life
insurance, and retirement plans and related services. FTDI may
also use Customer Information if it obtains Bank's prior written
consent.
3) PROHIBITED USES. Except as stated above, FTDI shall not disclose
Customer Information to third parties, and shall not use Customer
Information in connection with any advertising, marketing or
solicitation of any products or services, provided that Bank
offers or soon expects to offer comparable products or services
to mutual fund customers and has so notified FTDI.
4) SURVIVAL; TERMINATION. The agreements described in this paragraph
5(o) shall survive the termination of this Agreement, but shall
terminate as to any account upon FTDI's receipt of valid
notification of either the termination of that account with Bank
or the transfer of that account to another bank or dealer.
6. CONTINUOUSLY OFFERED CLOSED-END FUNDS
This Paragraph 6 relates solely to shares of Funds that represent a
beneficial interest in the Franklin Floating Rate Trust or that are issued by
any other continuously offered closed-end investment company registered under
the 1940 Act for which FTDI or an affiliate of FTDI serves as principal
underwriter and that periodically repurchases its shares (each, a "Trust").
Shares of a Trust being offered to the public will be registered under the 1933
Act and are expected to be offered during an offering period that may continue
indefinitely ("Continuous Offering Period"). There is no guarantee that such a
continuous offering will be maintained by the Trust. The Continuous Offering
Period, shares of a Trust and certain of the terms on which such shares are
being offered are more fully described in the prospectus of the Trust.
As set forth in a Trust's then current prospectus, FTDI shall provide Bank
with appropriate compensation for purchases of shares of the Trust made by the
Bank for the account of Customers or by Customers. In addition, Bank may be
entitled to a fee for servicing Customers who are shareholders in a Trust,
subject to applicable law. Bank agrees that any repurchases of shares of a Trust
that were originally purchased as Qualifying Sales shall be subject to Paragraph
5(e) hereof.
Bank expressly acknowledges and understands that, notwithstanding anything
to the contrary in this Agreement:
a) No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or
have any obligation to pay, any compensation directly or indirectly to
Bank.
b) Shares of a Trust will not be repurchased by either the Trust (other
than through repurchase offers by the Trust from time to time, if any)
or by FTDI and no secondary market for such shares exists currently,
or is expected to develop. Any representation as to a repurchase or
tender offer by the Trust, other than that set forth in the Trust's
then current Prospectus, notification letters, reports or other
related material provided by the Trust, is expressly prohibited.
c) An early withdrawal charge payable by shareholders of a Trust to FTDI
may be imposed on shares accepted for repurchase by the Trust that
have been held for less than a stated period, as set forth in the
Trust's then current Prospectus.
d) In the event a Customer cancels his or her order for shares of a Trust
after confirmation, such shares will not be repurchased, remarketed or
otherwise disposed of by or though FTDI.
7. GENERAL
a) Successors and Assignments
This Agreement shall extend to and be binding upon the parties hereto and
their respective successors and assigns; provided that this Agreement will
terminate automatically in the event of its assignment by FTDI. For purposes of
the preceding sentence, the word "assignment" shall have the meaning given to it
in the 1940 Act. Bank may not assign this Agreement without the advance written
consent of FTDI.
b) Paragraph Headings
The paragraph headings of this Agreement are for convenience only, and
shall not be deemed to define, limit, or describe the scope or intent of this
Agreement.
c) Severability
Should any provision of this Agreement be determined to be invalid or
unenforceable under any law, rule, or regulation, that determination shall not
affect the validity or enforceability of any other provision of this Agreement.
d) Waivers
There shall be no waiver of any provision of this Agreement except a
written waiver signed by Bank and FTDI. No written waiver shall be deemed a
continuing waiver or a waiver of any other provision, unless the waiver
expresses such intention.
e) Sole Agreement
This Agreement is the entire agreement of Bank and FTDI and supersedes all
oral negotiations and prior writings.
f) Governing Law
This Agreement shall be construed in accordance with the laws of the State
of California, not including any provision which would require the general
application of the law of another jurisdiction, and shall be binding upon the
parties hereto when signed by FTDI and accepted by Bank, either by Bank's
signature in the space provided below or by Bank's first trade entered after
receipt of this Agreement.
g) Arbitration
Should Bank owe any sum of money to FTDI under or in relation to this
Agreement for the purchase, sale, redemption or repurchase of any Fund shares,
FTDI may offset and recover the amount owed by Bank to FTDI or the Funds from
any amount owed by FTDI to Bank or from any other account Bank has with FTDI,
without notice or demand to Bank. Either party may submit any dispute under this
Agreement to binding arbitration under the commercial arbitration rules of the
American Arbitration Association. Judgment upon any arbitration award may be
entered by any court having jurisdiction.
h) Amendments
FTDI may amend this Agreement at any time by depositing a written notice of
the amendment in the U.S. mail, first class postage pre-paid, addressed to
Bank's address given below. Bank's placement of any Transaction order or
acceptance of any payments after the effective date and receipt of notice of any
such amendment shall constitute Bank's acceptance of the amendment.
i) Term and Termination
This Agreement shall continue in effect until terminated and shall
terminate automatically in the event that Bank ceases to be a "bank" as set
forth in paragraph 2(a) of this Agreement. FTDI or Bank may terminate this
Agreement at any time by written notice to the other, but such termination shall
not affect the payment or repayment of Fees on Transactions prior to the
termination date. Termination also will not affect the indemnities given under
this Agreement.
j) Acceptance; Cumulative Effect
This Agreement is cumulative and supersedes any agreement previously in
effect. It shall be binding upon the parties hereto when signed by FTDI and
accepted by Bank. If Bank has a current agreement with FTDI, Bank's first trade
or acceptance of payments from FTDI after receipt of this Agreement, as it may
be amended pursuant to paragraph 7(h), above, shall constitute Bank's acceptance
of the terms of this Agreement.
Otherwise, Bank's signature below shall constitute Bank's acceptance of
these terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Greg Johnson
-----------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal
notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, Florida 33716
813/299-8712
- --------------------------------------------------------------------------------
To the Bank or Trust Company: If you have not previously signed an agreement
with FTDI for the sale of mutual fund shares to your customers, please complete
and sign this section and return the original to us.
BANK OR TRUST COMPANY:
____________________________________
(Bank's name)
By: ____________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
May 15, 1998
Re: Amendment of Mutual Fund Purchase and Sales Agreement for Accounts of
Bank and Trust Company Customers - Notice Pursuant to Paragraph 7(h)
Dear Bank or Trust Company:
This letter constitutes notice of amendment of the current Mutual Fund Purchase
and Sales Agreement for Accounts of Bank and Trust Company Customers (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("FTDI") and the bank
or trust company ("the Bank") pursuant to Paragraph 7(h) of the Agreement. The
Agreement is hereby amended as follows:
1. Defined terms in this amendment have the meanings as stated in the
Agreement unless otherwise indicated.
2. Paragraph 5(e) is modified to add the following language:
With respect to shares of each Trust as described in Paragraph 6 of this
Agreement, the total compensation to be paid to FTDI and selected dealers and
their affiliates, including the Bank and the Bank's affiliates, in connection
with the distribution of shares of a Trust will not exceed the underwriting
compensation limitation prescribed by NASD Conduct Rule 2710. The total
underwriting compensation to be paid to FTDI and selected dealers and their
affiliates, including the Bank and the Bank's affiliates, may include: (i) at
the time of purchase of shares a payment to the Bank or a securities dealer of
1% of the dollar amount of the purchased shares by FTDI; and (ii) a quarterly
payment at an annual rate of .50% to the Bank or a securities dealer based on
the value of such remaining shares sold by the Bank or such securities dealer,
if after twelve (12) months from the date of purchase, the shares sold by the
Bank or such securities dealer remain outstanding.
The maximum compensation shall be no more than as disclosed in the section
"Payments to Dealers" of the prospectus of the applicable Trust.
Pursuant to Paragraph 7(h) of the Agreement, the Bank's placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute the Bank's acceptance of this
amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for each
of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby appoints
and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust Company
as a Subcustodian to hold assets of the Funds in accordance with the provisions
of this Agreement. In addition, upon receipt of Proper Instructions and a
certified copy of a resolution of the Board or of the Executive Committee, and
certified by the Secretary or an Assistant Secretary, of an Investment Company,
the Custodian may from time to time appoint one or more other Subcustodians or
Foreign Custodians to hold assets of the affected Funds in accordance with the
provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS
HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in Subsection
3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall release
and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a Subcustodian
or a Foreign Custodian in connection with any repurchase agreement related to
such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities System,
in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities are
called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in accordance
with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities made
by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only against receipt by
the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent for
delivery to the Transfer Agent or to the holders of Shares in connection with
distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of Proper
Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts. The
Custodian shall collect income payable with respect to Securities owned by each
Fund, settle Securities trades for the account of each Fund and credit and debit
each Fund's account with the Custodian in connection therewith as stated in this
Subsection 3.5. This Subsection shall not apply to repurchase agreements, which
are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions the
Custodian shall pay out monies of a Fund in the following cases or as otherwise
directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or options
on futures contracts for the account of the Fund but only, except as otherwise
provided herein, (i) against the delivery of such securities, or evidence of
title to futures contracts or options on futures contracts, to the Custodian or
a Subcustodian registered pursuant to Subsection 3.3 hereof or in proper form
for transfer; (ii) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Subsection 3.8 hereof; or
(iii) in the case of repurchase agreements entered into between the Fund and the
Custodian, another bank or a broker-dealer (A) against delivery of the
Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the account of the
Fund: custodian fees, interest, taxes, management, accounting, transfer agent
and legal fees and operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred expenses; and
(e) for the payment of any dividends or distributions declared by
the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in the
Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased for
the account of the Fund upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Securities System Account, and
(ii) the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall transfer
Domestic Securities sold for the account of the Fund upon (A) receipt of advice
from the Securities System that payment for such securities has been transferred
to the Securities System Account, and (B) the making of an entry on the records
of the Custodian to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Securities System of transfers of Domestic
Securities for the account of the Fund shall be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of the transfer to or from the
account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with any
report obtained by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding domestic securities
deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities held
hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of a
Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from a
Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information in
its possession (to the extent permissible under applicable law) to the entity or
entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and accepts
the limitations of liability as set forth in each Investment Company's Agreement
and Declaration of Trust, Articles of Incorporation, or Agreement of Limited
Partnership. The Custodian agrees that each Fund's obligation hereunder shall be
limited to the assets of the Fund, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the Fund nor from
any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its execution
and shall continue in full force and effect until terminated as hereinafter
provided. This Agreement may be terminated by each Investment Company, on behalf
of a Fund, or by the Custodian by 90 days notice in Writing to the other
provided that any termination by an Investment Company shall be authorized by a
resolution of the Board, a certified copy of which shall accompany such notice
of termination, and provided further, that such resolution shall specify the
names of the persons to whom the Custodian shall deliver the assets of the
affected Funds held by the Custodian. If notice of termination is given by the
Custodian, the affected Investment Companies shall, within 90 days following the
giving of such notice, deliver to the Custodian a certified copy of a resolution
of the Boards specifying the names of the persons to whom the Custodian shall
deliver assets of the affected Funds held by the Custodian. In either case the
Custodian will deliver such assets to the persons so specified, after deducting
therefrom any amounts which the Custodian determines to be owed to it hereunder
(including all costs and expenses of delivery or transfer of Fund assets to the
persons so specified). If within 90 days following the giving of a notice of
termination by the Custodian, the Custodian does not receive from the affected
Investment Companies certified copies of resolutions of the Boards specifying
the names of the persons to whom the Custodian shall deliver the assets of the
Funds held by the Custodian, the Custodian, at its election, may deliver such
assets to a bank or trust company doing business in the State of California to
be held and disposed of pursuant to the provisions of this Agreement or may
continue to hold such assets until a certified copy of one or more resolutions
as aforesaid is delivered to the Custodian. The obligations of the parties
hereto regarding the use of reasonable care, indemnities and payment of fees and
expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the other
party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of an agreement or instrument executed on
behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this Agreement,
or the application of any such provision to any person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context hereof,
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: /s/ Fred Ricciardi
Its: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Their: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Their: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax-Free Income Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities
Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Tax-Advantaged International California Limited
Bond Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Investment Grade Intermediate Bond Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Adjustable U.S. Government Fund
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.
It is hereby agreed as follows:
A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as modified
hereby, the Agreement is confirmed in all respects. Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Agreement.
B. The Agreement shall be amended to add a new Section 4. 1 0 as follows:
4.10 ADDITIONAL DUTIES WITH RESPECT TO RUSSIAN SECURITIES.
(a) Upon [2] business days prior notice from a Fund that it will
invest in any security issued by a Russian issuer ("Russian Security"), the
Custodian shall to the extent required and in accordance with the terms of the
Subcustodian Agreement between the Custodian and Credit Suisse ("Foreign
Custodian") dated as of August 8, 1996 (the "Subcustodian Agreement") direct the
Foreign Custodian to enter into a contract ("Registrar Contract") with the
entity providing share registration services to the Russian issuer ("Registrar")
containing substantially the following protective provisions:
(1) REGULAR SHARE CONFIRMATIONS. Each Registrar Contract must
establish the Foreign Custodian's right to conduct regular share confirmations
on behalf of the Foreign Custodian's customers.
(2) PROMPT RE-REGISTRATIONS. Registrars must be obligated to
effect re-registrations within 72 hours (or such other specified time as the
United States Securities and Exchange Commission (the "SEC") may deem
appropriate by rule, regulation, order or "no-action" letter) of receiving the
necessary documentation.
(3) USE OF NOMINEE NAME. The Registrar Contract must establish
the Foreign Custodian's right to hold shares not held directly in the beneficial
owner's name in the name of the Foreign Custodian's nominee.
(4) AUDITOR VERIFICATION. The Registrar Contract must allow the
independent auditors of the Custodian and the Custodian's clients to obtain
direct access to the share register for the independent auditors of each of the
Foreign Custodian's clients.
(5) SPECIFICATION OF REGISTRAR'S RESPONSIBILITIES AND
LIABILITIES. The contract must set forth: (1) the Registrar's responsibilities
with regard to corporate actions and other distributions; (ii) the Registrar's
liabilities as established under the regulations applicable to the Russian share
registration -system and (iii) the procedures for making a claim against and
receiving compensation from the registrar in the event a loss is incurred.
(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share confirmations,
which shall require the Foreign Custodian to (1) request either a duplicate
share extract or some other sufficient evidence of verification and (2)
determine if the Foreign Custodian's records correlate with those of the
Registrar. For at least the first two years following the Foreign Custodian's
first use of a Registrar in connection with a Fund investment, and subject to
the cooperation of the Registrar, the Foreign Custodian will conduct these share
confirmations on at least a quarterly basis, although thereafter they may be
conducted on a less frequent basis, but no less frequently than annually, if the
Fund's Board of Directors, in consultation with the Custodian, determine it
appropriate.
(c) The Custodian shall, pursuant to the Subcustodian Agreement,
direct the Subcustodian to maintain custody of the Fund's share register
extracts or other evidence of verification obtained pursuant to paragraph (b)
above.
(d) The Custodian shall, pursuant to the Subcustodian Agreement,
direct the Foreign Custodian to comply with the rules, regulations, orders and
"no-action" letters of the SEC with respect to
(1) the receipt, holding, maintenance, release and delivery of
Securities; and
(2) providing notice to the Fund and its Board of Directors of
events specified in such rules, regulations, orders and letters.
(e) The Custodian shall have no liability for the action or inaction
of any Registrar or securities depository utilized in connection with Russian
Securities except to the extent that any such action or inaction was the result
of the Custodian's negligence. With respect to any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees (collectively,
"Losses") incurred by a Fund as a result of the acts or the failure to act by
any Foreign Custodian or its subsidiary in Russia ("Subsidiary"), the Custodian
shall take appropriate action to recover such Losses from the Foreign Custodian
or Subsidiary. The Custodian's sole responsibility and liability to a Fund with
respect to any Losses shall be limited to amounts so received from the Foreign
Custodian or Subsidiary (exclusive of costs and expenses incurred by the
Custodian) except to the extent that such losses were the result of the
Custodian's negligence.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE BANK OF NEW YORK
By: /S/ STEPHEN E. GRUNSTON
Name: Stephen E. Grunston
Title: Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT
By: /S/ DEBORAH R. GATZEK
Name: Deborah R. Gatzek
Title: Vice President
By: /S/ KAREN L. SKIDMORE
Name: Karen L. Skidmore
Title: Assistant Vice President
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Delaware Business Trust
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Trust Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Trust Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities
Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
INTERVAL FUND:
Franklin Floating Rate Trust Delaware Business Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amendment to Master Custody Agreement
Effective February 27, 1998, The Bank of New York and each of the Investment
Companies listed in the Attachment appended to this Amendment, for themselves
and each series listed in the Attachment, hereby amend the Master Custody
Agreement dated as of February 16, 1996 by:
1. Replacing Exhibit A with the attached; and
2. Only with respect to the Investment Companies and series thereof listed in
the Attachment, deleting paragraphs (a) and (b) of Subsection 3.5 and
replacing them with the following:
(a) Promptly after each purchase of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase;
(g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian shall, upon
receipt of Securities purchased by or for the Fund, pay to the broker
specified in the Proper Instructions out of the money held for the account
of such Series the total amount payable upon such purchase, provided that
the same conforms to the total amount payable as set forth in such Proper
Instructions.
(b) Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c)
the number of shares or the principal amount sold, and accrued interest, if
any; (d) the date of sale; (e) the sale price per unit; (f) the total
amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Proper
Instructions against payment of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as
set forth in such Proper Instructions.
Investment Companies The Bank of New York
By: /s/ Elizabeth N. Cohernour By: /s/ Stephen E. Grunston
-------------------------- -----------------------
Name: Elizabeth N. Cohernour Name: Stephen E. Grunston
Title: Authorized Officer Title: Vice President
Attachment
INVESTMENT COMPANY SERIES
Franklin Mutual Series Fund Inc. Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin Valuemark Funds Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin New York Tax-Free Income Fund Delaware Business Trust
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Trust Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income
Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Valuemark Funds (cont.) Massachusetts Business Trust Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Growth Investments Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business Trust
Franklin Principal Maturity Trust Massachusetts Business Trust
Franklin Universal Trust Massachusetts Business Trust
INTERVAL FUND
Franklin Floating Rate Trust Delaware Business Trust
- ------------------------------------------- -------------------------------- -------------------------------------------------------
</TABLE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Class A, B and C Prospectus and "Investment Management and
Other Services" and "Financial Statements" in the Class A, B and C Statement
of Additional Information, which is incorporated by reference, and to the
incorporation by reference in the Post-Effective Amendment No. 26 to
Registration Statement Number 33-18516 on Form N1-A of our reports dated
January 30, 1998, on the financial statements and financial highlights of
Mutual Shares Fund, Mutual Qualified Fund, Mutual Beacon Fund, Mutual
Discovery Fund, Mutual European Fund, and Mutual Financial Services Fund
(each a portfolio of Franklin Mutual Series Fund, Inc.) included in the 1997
Annual Reports to Shareholders.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 23, 1998
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN MUTUAL SERIES FUND INC.
II. Fund: MUTUAL SHARES FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class B 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 B 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 B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect
as of the date Class B shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors
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 Investment Advisory Agreement between the
Investment Company and Franklin Mutual 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 Investment Advisory 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.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the
Class pursuant to which Distributors may assign its rights to the fees
payable hereunder to such third party. The Board further recognizes that it
has an obligation to act in good faith and in the best interests of the Fund
and its shareholders when considering the continuation or termination of the
Plan and any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly 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 Investment Company'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) The monies paid to Distributors pursuant to Paragraph 1(a)
above shall be treated as compensation for Distributors' distribution-related
services including compensation for amounts advanced to securities dealers or
their firms or others selling shares of the Class who have executed an
agreement with the Investment Company, Distributors or its affiliates, which
form of agreement has been approved from time to time by the Board, including
the non-interested Board members, with respect to the sale of Class shares.
In addition, such monies may be used to compensate Distributors for other
expenses incurred 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, or
for certain promotional distribution charges paid to broker-dealer firms or
others, or for participation in certain distribution channels. None of such
payments are the legal obligation of Distributors or its designee.
(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. None of such payments are the legal
obligation of Distributors or its designee.
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 Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its 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 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. (a) Distributors may assign, transfer or pledge ("Transfer") to
one or more designees (each an "Assignee"), its rights to all or a designated
portion of the fees to which it is entitled under paragraph 1 of this Plan
from time to time (but not Distributors' duties and obligations pursuant
hereto or pursuant to any distribution agreement in effect from time to time,
if any, between Distributors and the Fund), free and clear of any offsets or
claims the Fund may have against Distributors. Each such Assignee's
ownership interest in a Transfer of a specific designated portion of the fees
to which Distributors is entitled is hereafter referred to as an "Assignee's
12b-1 Portion." A Transfer pursuant to this Section 5(a) shall not reduce or
extinguish any claims of the Fund against Distributors.
(b) Distributors shall promptly notify the Fund in writing of
each such Transfer by providing the Fund with the name and address of each
such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's
12b-1 Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from Distributors,
make all payments required directly to the Assignee in accordance with the
information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors
may direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent designated
by any Assignee, which depository or collection agent may be delegated the
duty of dividing such fees between the Assignee's 12b-1 Portion and the
balance (such balance, when distributed to Distributors by the depository or
collection agent, the "Distributors' 12b-1 Portion"), in which case only
Distributors' 12b-1 Portion may be subject to offsets or claims the Fund may
have against Distributors.
6. 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. In
determining whether there is a reasonable likelihood that the continuation of
the Plan will benefit the Fund and its shareholders, the Board may, but is
not obligated to, consider that Distributors has incurred substantial cost
and has entered into an arrangement with a third party in order to finance
the distribution activities for the Class.
7. This Plan and any agreements entered into pursuant to this Plan
may be terminated with respect to the shares of the Class, without penalty,
at any time by vote of a majority of the non-interested Board members of the
Investment Company, or by vote of a majority of outstanding Shares of such
Class. Upon termination of this Plan with respect to the Class, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such Class shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Class shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete
Termination of this Plan in respect of such Class, as defined below, are
met. For purposes of this Section 7, a "Complete Termination" of this Plan
in respect of the Class shall mean a termination of this Plan in respect of
such Class, provided that: (i) the non-interested Board members of the
Investment Company shall have acted in good faith and shall have determined
that such termination is in the best interest of the Investment Company and
the shareholders of the Fund and the Class; (ii) and the Investment Company
does not alter the terms of the contingent deferred sales charges applicable
to Class shares outstanding at the time of such termination; and (iii) unless
Distributors at the time of such termination was in material breach under the
distribution agreement in respect of the Fund, the Fund shall not, in respect
of such Fund, pay to any person or entity, other than Distributors or its
designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. 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 outstanding voting securities of the Class of the Fund.
9. 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.
10. 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: _______________________
FRANKLIN MUTUAL SERIES FUND INC.
By: ___________________________
Elizabeth Cohernour
General Counsel & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: __________________________
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN MUTUAL SERIES FUND INC.
II. Fund: MUTUAL QUALIFIED FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class B 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 B 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 B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect
as of the date Class B shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors
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 Investment Advisory Agreement between the
Investment Company and Franklin Mutual 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 Investment Advisory 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.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the
Class pursuant to which Distributors may assign its rights to the fees
payable hereunder to such third party. The Board further recognizes that it
has an obligation to act in good faith and in the best interests of the Fund
and its shareholders when considering the continuation or termination of the
Plan and any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly 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 Investment Company'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) The monies paid to Distributors pursuant to Paragraph 1(a)
above shall be treated as compensation for Distributors' distribution-related
services including compensation for amounts advanced to securities dealers or
their firms or others selling shares of the Class who have executed an
agreement with the Investment Company, Distributors or its affiliates, which
form of agreement has been approved from time to time by the Board, including
the non-interested Board members, with respect to the sale of Class shares.
In addition, such monies may be used to compensate Distributors for other
expenses incurred 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, or
for certain promotional distribution charges paid to broker-dealer firms or
others, or for participation in certain distribution channels. None of such
payments are the legal obligation of Distributors or its designee.
(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. None of such payments are the legal
obligation of Distributors or its designee.
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 Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its 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 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. (a) Distributors may assign, transfer or pledge ("Transfer") to
one or more designees (each an "Assignee"), its rights to all or a designated
portion of the fees to which it is entitled under paragraph 1 of this Plan
from time to time (but not Distributors' duties and obligations pursuant
hereto or pursuant to any distribution agreement in effect from time to time,
if any, between Distributors and the Fund), free and clear of any offsets or
claims the Fund may have against Distributors. Each such Assignee's
ownership interest in a Transfer of a specific designated portion of the fees
to which Distributors is entitled is hereafter referred to as an "Assignee's
12b-1 Portion." A Transfer pursuant to this Section 5(a) shall not reduce or
extinguish any claims of the Fund against Distributors.
(b) Distributors shall promptly notify the Fund in writing of
each such Transfer by providing the Fund with the name and address of each
such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's
12b-1 Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from Distributors,
make all payments required directly to the Assignee in accordance with the
information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors
may direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent designated
by any Assignee, which depository or collection agent may be delegated the
duty of dividing such fees between the Assignee's 12b-1 Portion and the
balance (such balance, when distributed to Distributors by the depository or
collection agent, the "Distributors' 12b-1 Portion"), in which case only
Distributors' 12b-1 Portion may be subject to offsets or claims the Fund may
have against Distributors.
6. 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. In
determining whether there is a reasonable likelihood that the continuation of
the Plan will benefit the Fund and its shareholders, the Board may, but is
not obligated to, consider that Distributors has incurred substantial cost
and has entered into an arrangement with a third party in order to finance
the distribution activities for the Class.
7. This Plan and any agreements entered into pursuant to this Plan
may be terminated with respect to the shares of the Class, without penalty,
at any time by vote of a majority of the non-interested Board members of the
Investment Company, or by vote of a majority of outstanding Shares of such
Class. Upon termination of this Plan with respect to the Class, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such Class shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Class shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete
Termination of this Plan in respect of such Class, as defined below, are
met. For purposes of this Section 7, a "Complete Termination" of this Plan
in respect of the Class shall mean a termination of this Plan in respect of
such Class, provided that: (i) the non-interested Board members of the
Investment Company shall have acted in good faith and shall have determined
that such termination is in the best interest of the Investment Company and
the shareholders of the Fund and the Class; (ii) and the Investment Company
does not alter the terms of the contingent deferred sales charges applicable
to Class shares outstanding at the time of such termination; and (iii) unless
Distributors at the time of such termination was in material breach under the
distribution agreement in respect of the Fund, the Fund shall not, in respect
of such Fund, pay to any person or entity, other than Distributors or its
designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. 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 outstanding voting securities of the Class of the Fund.
9. 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.
10. 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:________________________
FRANKLIN MUTUAL SERIES FUND INC.
By:_____________________________
Elizabeth Cohernour
General Counsel & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:_____________________________
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN MUTUAL SERIES FUND INC.
II. Fund: MUTUAL DISCOVERY FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class B 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 B 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 B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect
as of the date Class B shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors
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 Investment Advisory Agreement between the
Investment Company and Franklin Mutual 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 Investment Advisory 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.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the
Class pursuant to which Distributors may assign its rights to the fees
payable hereunder to such third party. The Board further recognizes that it
has an obligation to act in good faith and in the best interests of the Fund
and its shareholders when considering the continuation or termination of the
Plan and any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly 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 Investment Company'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) The monies paid to Distributors pursuant to Paragraph 1(a)
above shall be treated as compensation for Distributors' distribution-related
services including compensation for amounts advanced to securities dealers or
their firms or others selling shares of the Class who have executed an
agreement with the Investment Company, Distributors or its affiliates, which
form of agreement has been approved from time to time by the Board, including
the non-interested Board members, with respect to the sale of Class shares.
In addition, such monies may be used to compensate Distributors for other
expenses incurred 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, or
for certain promotional distribution charges paid to broker-dealer firms or
others, or for participation in certain distribution channels. None of such
payments are the legal obligation of Distributors or its designee.
(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. None of such payments are the legal
obligation of Distributors or its designee.
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 Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its 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 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. (a) Distributors may assign, transfer or pledge ("Transfer") to
one or more designees (each an "Assignee"), its rights to all or a designated
portion of the fees to which it is entitled under paragraph 1 of this Plan
from time to time (but not Distributors' duties and obligations pursuant
hereto or pursuant to any distribution agreement in effect from time to time,
if any, between Distributors and the Fund), free and clear of any offsets or
claims the Fund may have against Distributors. Each such Assignee's
ownership interest in a Transfer of a specific designated portion of the fees
to which Distributors is entitled is hereafter referred to as an "Assignee's
12b-1 Portion." A Transfer pursuant to this Section 5(a) shall not reduce or
extinguish any claims of the Fund against Distributors.
(b) Distributors shall promptly notify the Fund in writing of
each such Transfer by providing the Fund with the name and address of each
such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's
12b-1 Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from Distributors,
make all payments required directly to the Assignee in accordance with the
information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors
may direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent designated
by any Assignee, which depository or collection agent may be delegated the
duty of dividing such fees between the Assignee's 12b-1 Portion and the
balance (such balance, when distributed to Distributors by the depository or
collection agent, the "Distributors' 12b-1 Portion"), in which case only
Distributors' 12b-1 Portion may be subject to offsets or claims the Fund may
have against Distributors.
6. 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. In
determining whether there is a reasonable likelihood that the continuation of
the Plan will benefit the Fund and its shareholders, the Board may, but is
not obligated to, consider that Distributors has incurred substantial cost
and has entered into an arrangement with a third party in order to finance
the distribution activities for the Class.
7. This Plan and any agreements entered into pursuant to this Plan
may be terminated with respect to the shares of the Class, without penalty,
at any time by vote of a majority of the non-interested Board members of the
Investment Company, or by vote of a majority of outstanding Shares of such
Class. Upon termination of this Plan with respect to the Class, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such Class shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Class shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete
Termination of this Plan in respect of such Class, as defined below, are
met. For purposes of this Section 7, a "Complete Termination" of this Plan
in respect of the Class shall mean a termination of this Plan in respect of
such Class, provided that: (i) the non-interested Board members of the
Investment Company shall have acted in good faith and shall have determined
that such termination is in the best interest of the Investment Company and
the shareholders of the Fund and the Class; (ii) and the Investment Company
does not alter the terms of the contingent deferred sales charges applicable
to Class shares outstanding at the time of such termination; and (iii) unless
Distributors at the time of such termination was in material breach under the
distribution agreement in respect of the Fund, the Fund shall not, in respect
of such Fund, pay to any person or entity, other than Distributors or its
designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. 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 outstanding voting securities of the Class of the Fund.
9. 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.
10. 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:________________________
FRANKLIN MUTUAL SERIES FUND INC.
By:__________________________
Elizabeth Cohernour
General Counsel & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:__________________________
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN MUTUAL SERIES FUND INC.
II. Fund: MUTUAL BEACON FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class B 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 B 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 B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect
as of the date Class B shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors
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 Investment Advisory Agreement between the
Investment Company and Franklin Mutual 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 Investment Advisory 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.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the
Class pursuant to which Distributors may assign its rights to the fees
payable hereunder to such third party. The Board further recognizes that it
has an obligation to act in good faith and in the best interests of the Fund
and its shareholders when considering the continuation or termination of the
Plan and any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly 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 Investment Company'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) The monies paid to Distributors pursuant to Paragraph 1(a)
above shall be treated as compensation for Distributors' distribution-related
services including compensation for amounts advanced to securities dealers or
their firms or others selling shares of the Class who have executed an
agreement with the Investment Company, Distributors or its affiliates, which
form of agreement has been approved from time to time by the Board, including
the non-interested Board members, with respect to the sale of Class shares.
In addition, such monies may be used to compensate Distributors for other
expenses incurred 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, or
for certain promotional distribution charges paid to broker-dealer firms or
others, or for participation in certain distribution channels. None of such
payments are the legal obligation of Distributors or its designee.
(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. None of such payments are the legal
obligation of Distributors or its designee.
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 Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its 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 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. (a) Distributors may assign, transfer or pledge ("Transfer") to
one or more designees (each an "Assignee"), its rights to all or a designated
portion of the fees to which it is entitled under paragraph 1 of this Plan
from time to time (but not Distributors' duties and obligations pursuant
hereto or pursuant to any distribution agreement in effect from time to time,
if any, between Distributors and the Fund), free and clear of any offsets or
claims the Fund may have against Distributors. Each such Assignee's
ownership interest in a Transfer of a specific designated portion of the fees
to which Distributors is entitled is hereafter referred to as an "Assignee's
12b-1 Portion." A Transfer pursuant to this Section 5(a) shall not reduce or
extinguish any claims of the Fund against Distributors.
(b) Distributors shall promptly notify the Fund in writing of
each such Transfer by providing the Fund with the name and address of each
such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's
12b-1 Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from Distributors,
make all payments required directly to the Assignee in accordance with the
information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors
may direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent designated
by any Assignee, which depository or collection agent may be delegated the
duty of dividing such fees between the Assignee's 12b-1 Portion and the
balance (such balance, when distributed to Distributors by the depository or
collection agent, the "Distributors' 12b-1 Portion"), in which case only
Distributors' 12b-1 Portion may be subject to offsets or claims the Fund may
have against Distributors.
6. 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. In
determining whether there is a reasonable likelihood that the continuation of
the Plan will benefit the Fund and its shareholders, the Board may, but is
not obligated to, consider that Distributors has incurred substantial cost
and has entered into an arrangement with a third party in order to finance
the distribution activities for the Class.
7. This Plan and any agreements entered into pursuant to this Plan
may be terminated with respect to the shares of the Class, without penalty,
at any time by vote of a majority of the non-interested Board members of the
Investment Company, or by vote of a majority of outstanding Shares of such
Class. Upon termination of this Plan with respect to the Class, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such Class shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Class shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete
Termination of this Plan in respect of such Class, as defined below, are
met. For purposes of this Section 7, a "Complete Termination" of this Plan
in respect of the Class shall mean a termination of this Plan in respect of
such Class, provided that: (i) the non-interested Board members of the
Investment Company shall have acted in good faith and shall have determined
that such termination is in the best interest of the Investment Company and
the shareholders of the Fund and the Class; (ii) and the Investment Company
does not alter the terms of the contingent deferred sales charges applicable
to Class shares outstanding at the time of such termination; and (iii) unless
Distributors at the time of such termination was in material breach under the
distribution agreement in respect of the Fund, the Fund shall not, in respect
of such Fund, pay to any person or entity, other than Distributors or its
designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. 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 outstanding voting securities of the Class of the Fund.
9. 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.
10. 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:_______________________
FRANKLIN MUTUAL SERIES FUND INC.
By:_____________________________
Elizabeth Cohernour
General Counsel & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN MUTUAL SERIES FUND INC.
II. Fund: MUTUAL EUROPEAN FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class B 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 B 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 B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect
as of the date Class B shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors
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 Investment Advisory Agreement between the
Investment Company and Franklin Mutual 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 Investment Advisory 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.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the
Class pursuant to which Distributors may assign its rights to the fees
payable hereunder to such third party. The Board further recognizes that it
has an obligation to act in good faith and in the best interests of the Fund
and its shareholders when considering the continuation or termination of the
Plan and any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly 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 Investment Company'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) The monies paid to Distributors pursuant to Paragraph 1(a)
above shall be treated as compensation for Distributors' distribution-related
services including compensation for amounts advanced to securities dealers or
their firms or others selling shares of the Class who have executed an
agreement with the Investment Company, Distributors or its affiliates, which
form of agreement has been approved from time to time by the Board, including
the non-interested Board members, with respect to the sale of Class shares.
In addition, such monies may be used to compensate Distributors for other
expenses incurred 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, or
for certain promotional distribution charges paid to broker-dealer firms or
others, or for participation in certain distribution channels. None of such
payments are the legal obligation of Distributors or its designee.
(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. None of such payments are the legal
obligation of Distributors or its designee.
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 Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its 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 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. (a) Distributors may assign, transfer or pledge ("Transfer") to
one or more designees (each an "Assignee"), its rights to all or a designated
portion of the fees to which it is entitled under paragraph 1 of this Plan
from time to time (but not Distributors' duties and obligations pursuant
hereto or pursuant to any distribution agreement in effect from time to time,
if any, between Distributors and the Fund), free and clear of any offsets or
claims the Fund may have against Distributors. Each such Assignee's
ownership interest in a Transfer of a specific designated portion of the fees
to which Distributors is entitled is hereafter referred to as an "Assignee's
12b-1 Portion." A Transfer pursuant to this Section 5(a) shall not reduce or
extinguish any claims of the Fund against Distributors.
(b) Distributors shall promptly notify the Fund in writing of
each such Transfer by providing the Fund with the name and address of each
such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's
12b-1 Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from Distributors,
make all payments required directly to the Assignee in accordance with the
information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors
may direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent designated
by any Assignee, which depository or collection agent may be delegated the
duty of dividing such fees between the Assignee's 12b-1 Portion and the
balance (such balance, when distributed to Distributors by the depository or
collection agent, the "Distributors' 12b-1 Portion"), in which case only
Distributors' 12b-1 Portion may be subject to offsets or claims the Fund may
have against Distributors.
6. 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. In
determining whether there is a reasonable likelihood that the continuation of
the Plan will benefit the Fund and its shareholders, the Board may, but is
not obligated to, consider that Distributors has incurred substantial cost
and has entered into an arrangement with a third party in order to finance
the distribution activities for the Class.
7. This Plan and any agreements entered into pursuant to this Plan
may be terminated with respect to the shares of the Class, without penalty,
at any time by vote of a majority of the non-interested Board members of the
Investment Company, or by vote of a majority of outstanding Shares of such
Class. Upon termination of this Plan with respect to the Class, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such Class shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Class shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete
Termination of this Plan in respect of such Class, as defined below, are
met. For purposes of this Section 7, a "Complete Termination" of this Plan
in respect of the Class shall mean a termination of this Plan in respect of
such Class, provided that: (i) the non-interested Board members of the
Investment Company shall have acted in good faith and shall have determined
that such termination is in the best interest of the Investment Company and
the shareholders of the Fund and the Class; (ii) and the Investment Company
does not alter the terms of the contingent deferred sales charges applicable
to Class shares outstanding at the time of such termination; and (iii) unless
Distributors at the time of such termination was in material breach under the
distribution agreement in respect of the Fund, the Fund shall not, in respect
of such Fund, pay to any person or entity, other than Distributors or its
designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. 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 outstanding voting securities of the Class of the Fund.
9. 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.
10. 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:_______________________
FRANKLIN MUTUAL SERIES FUND INC.
By:________________________
Elizabeth Cohernour
General Counsel & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:________________________
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN MUTUAL SERIES FUND INC.
II. Fund: MUTUAL FINANCIAL SERVICES FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class B 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 B 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 B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect
as of the date Class B shares are first offered (the "Effective Date of the
Plan"). The Plan has been approved by a majority of the Board of Directors
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 Investment Advisory Agreement between the
Investment Company and Franklin Mutual 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 Investment Advisory 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.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the
Class pursuant to which Distributors may assign its rights to the fees
payable hereunder to such third party. The Board further recognizes that it
has an obligation to act in good faith and in the best interests of the Fund
and its shareholders when considering the continuation or termination of the
Plan and any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly 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 Investment Company'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) The monies paid to Distributors pursuant to Paragraph 1(a)
above shall be treated as compensation for Distributors' distribution-related
services including compensation for amounts advanced to securities dealers or
their firms or others selling shares of the Class who have executed an
agreement with the Investment Company, Distributors or its affiliates, which
form of agreement has been approved from time to time by the Board, including
the non-interested Board members, with respect to the sale of Class shares.
In addition, such monies may be used to compensate Distributors for other
expenses incurred 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, or
for certain promotional distribution charges paid to broker-dealer firms or
others, or for participation in certain distribution channels. None of such
payments are the legal obligation of Distributors or its designee.
(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. None of such payments are the legal
obligation of Distributors or its designee.
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 Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its 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 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. (a) Distributors may assign, transfer or pledge ("Transfer") to
one or more designees (each an "Assignee"), its rights to all or a designated
portion of the fees to which it is entitled under paragraph 1 of this Plan
from time to time (but not Distributors' duties and obligations pursuant
hereto or pursuant to any distribution agreement in effect from time to time,
if any, between Distributors and the Fund), free and clear of any offsets or
claims the Fund may have against Distributors. Each such Assignee's
ownership interest in a Transfer of a specific designated portion of the fees
to which Distributors is entitled is hereafter referred to as an "Assignee's
12b-1 Portion." A Transfer pursuant to this Section 5(a) shall not reduce or
extinguish any claims of the Fund against Distributors.
(b) Distributors shall promptly notify the Fund in writing of
each such Transfer by providing the Fund with the name and address of each
such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's
12b-1 Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from Distributors,
make all payments required directly to the Assignee in accordance with the
information provided in such notice and Monthly Calculation upon the same
terms and conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors
may direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent designated
by any Assignee, which depository or collection agent may be delegated the
duty of dividing such fees between the Assignee's 12b-1 Portion and the
balance (such balance, when distributed to Distributors by the depository or
collection agent, the "Distributors' 12b-1 Portion"), in which case only
Distributors' 12b-1 Portion may be subject to offsets or claims the Fund may
have against Distributors.
6. 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. In
determining whether there is a reasonable likelihood that the continuation of
the Plan will benefit the Fund and its shareholders, the Board may, but is
not obligated to, consider that Distributors has incurred substantial cost
and has entered into an arrangement with a third party in order to finance
the distribution activities for the Class.
7. This Plan and any agreements entered into pursuant to this Plan
may be terminated with respect to the shares of the Class, without penalty,
at any time by vote of a majority of the non-interested Board members of the
Investment Company, or by vote of a majority of outstanding Shares of such
Class. Upon termination of this Plan with respect to the Class, the
obligation of the Fund to make payments pursuant to this Plan with respect to
such Class shall terminate, and the Fund shall not be required to make
payments hereunder beyond such termination date with respect to expenses
incurred in connection with Class shares sold prior to such termination date,
provided, in each case that each of the requirements of a Complete
Termination of this Plan in respect of such Class, as defined below, are
met. For purposes of this Section 7, a "Complete Termination" of this Plan
in respect of the Class shall mean a termination of this Plan in respect of
such Class, provided that: (i) the non-interested Board members of the
Investment Company shall have acted in good faith and shall have determined
that such termination is in the best interest of the Investment Company and
the shareholders of the Fund and the Class; (ii) and the Investment Company
does not alter the terms of the contingent deferred sales charges applicable
to Class shares outstanding at the time of such termination; and (iii) unless
Distributors at the time of such termination was in material breach under the
distribution agreement in respect of the Fund, the Fund shall not, in respect
of such Fund, pay to any person or entity, other than Distributors or its
designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. 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 outstanding voting securities of the Class of the Fund.
9. 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.
10. 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:________________________
FRANKLIN MUTUAL SERIES FUND INC.
By:___________________________
Elizabeth Cohernour
General Counsel & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:___________________________
Deborah R. Gatzek
Senior Vice President &
Assistant Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
MUTUAL SHARES FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Directors of FRANKLIN MUTUAL SERIES FUND INC. (the "Investment
Company") for its series, MUTUAL SHARES FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole.
The Plan sets forth the provisions relating to the establishment of multiple
classes of shares of the Fund, and supersedes any Plan previously adopted for
the Fund.
1. The Fund shall offer four classes of shares, to be known as Class
A Shares, Class B Shares, Class C Shares and Class Z Shares.
2. Class A Shares shall carry a front-end sales charge ranging from
0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Class Z Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall
be assessed a CDSC of 4% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (b) Class B Shares
redeemed within the third and fourth years of their purchase shall be
assessed a CDSC of 3% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (c) Class B Shares
redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on
the lesser of the then-current net asset value or the original net asset
value at the time of purchase; and (d) Class B Shares redeemed within 6 years
of their purchase shall be assessed a CDSC of 1% on the lesser of the
then-current net asset value or the original net asset value at the time of
purchase. The CDSC is waived in certain circumstances described in the
Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
A 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 Investment Company for the Class A Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be
retained by Distributor to compensate Distributor for amounts advanced to
securities dealers or their firms or others with respect to the sale of Class
B Shares. In addition, such payments may be retained by the Distributor to
be used in the promotion and distribution of Class B Shares in a manner
similar to that described above for Class A Shares. The second component is
a shareholder servicing fee to be paid to securities dealers or others who
provide personal assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component
is an asset-based sales charge to be retained by the Distributor during the
first year after the sale of shares, and in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the promotion and
distribution of Class C Shares, in a manner similar to that described above
for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares
and, therefore, the Class Z Shares shall not be subject to deductions
relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B,
Class C, and Class Z Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the
Rule 12b-1 Plan expenses of another Class, such classes shall be subject to
the same expenses.
6. There shall be no conversion features associated with the Class
A, Class C, and Class Z Shares. Each Class B Share, however, shall be
converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Franklin Mutual Series Fund's Board of Directors and as described, in each
fund's prospectus relating to the Class B Shares, as such prospectus may be
amended from time to time; provided, however, that the Class B Shares shall
be converted automatically into Class A Shares to the extent and on the terms
permitted by the Investment Company Act of 1940 and the rules and regulations
adopted thereunder.
7. Shares of Class A, Class B, Class C and Class Z may be exchanged
for shares of another investment company within the Franklin Templeton Group
of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted
by the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the Board members
interests of the various classes of shares. The Board members, including a
majority of the independent Board members, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop.
Franklin Mutual Advisers, Inc. and Franklin/Templeton Distributors, Inc.
shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Elizabeth Cohernour, Secretary of the Franklin Mutual Series
Fund Inc., do hereby certify that this Multiple Class Plan was adopted by the
Investment Company, on behalf of its series MUTUAL SHARES FUND, by a majority
of the Directors of the Fund on ______________.
-------------------------
Elizabeth Cohernour
General Counsel & Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
MUTUAL QUALIFIED FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Directors of FRANKLIN MUTUAL SERIES FUND INC. (the "Investment
Company") for its series, MUTUAL QUALIFIED FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole.
The Plan sets forth the provisions relating to the establishment of multiple
classes of shares of the Fund, and supersedes any Plan previously adopted for
the Fund.
1. The Fund shall offer four classes of shares, to be known as Class
A Shares, Class B Shares, Class C Shares and Class Z Shares.
2. Class A Shares shall carry a front-end sales charge ranging from
0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Class Z Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall
be assessed a CDSC of 4% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (b) Class B Shares
redeemed within the third and fourth years of their purchase shall be
assessed a CDSC of 3% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (c) Class B Shares
redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on
the lesser of the then-current net asset value or the original net asset
value at the time of purchase; and (d) Class B Shares redeemed within 6 years
of their purchase shall be assessed a CDSC of 1% on the lesser of the
then-current net asset value or the original net asset value at the time of
purchase. The CDSC is waived in certain circumstances described in the
Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
A 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 Investment Company for the Class A Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be
retained by Distributor to compensate Distributor for amounts advanced to
securities dealers or their firms or others with respect to the sale of Class
B Shares. In addition, such payments may be retained by the Distributor to
be used in the promotion and distribution of Class B Shares in a manner
similar to that described above for Class A Shares. The second component is
a shareholder servicing fee to be paid to securities dealers or others who
provide personal assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component
is an asset-based sales charge to be retained by the Distributor during the
first year after the sale of shares, and in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the promotion and
distribution of Class C Shares, in a manner similar to that described above
for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares
and, therefore, the Class Z Shares shall not be subject to deductions
relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B,
Class C, and Class Z Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the
Rule 12b-1 Plan expenses of another Class, such classes shall be subject to
the same expenses.
6. There shall be no conversion features associated with the Class
A, Class C, and Class Z Shares. Each Class B Share, however, shall be
converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Franklin Mutual Series Fund's Board of Directors and as described, in each
fund's prospectus relating to the Class B Shares, as such prospectus may be
amended from time to time; provided, however, that the Class B Shares shall
be converted automatically into Class A Shares to the extent and on the terms
permitted by the Investment Company Act of 1940 and the rules and regulations
adopted thereunder.
7. Shares of Class A, Class B, Class C and Class Z may be exchanged
for shares of another investment company within the Franklin Templeton Group
of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted
by the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the Board members
interests of the various classes of shares. The Board members, including a
majority of the independent Board members, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop.
Franklin Mutual Advisers, Inc. and Franklin/Templeton Distributors, Inc.
shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Elizabeth Cohernour, Secretary of the Franklin Mutual Series
Fund Inc., do hereby certify that this Multiple Class Plan was adopted by the
Investment Company, on behalf of its series MUTUAL QUALIFIED FUND, by a
majority of the Directors of the Fund on ______________.
-------------------------
Elizabeth Cohernour
General Counsel & Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
MUTUAL DISCOVERY FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Directors of FRANKLIN MUTUAL SERIES FUND INC. (the "Investment
Company") for its series, MUTUAL DISCOVERY FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole.
The Plan sets forth the provisions relating to the establishment of multiple
classes of shares of the Fund, and supersedes any Plan previously adopted for
the Fund.
1. The Fund shall offer four classes of shares, to be known as Class
A Shares, Class B Shares, Class C Shares and Class Z Shares.
2. Class A Shares shall carry a front-end sales charge ranging from
0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Class Z Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall
be assessed a CDSC of 4% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (b) Class B Shares
redeemed within the third and fourth years of their purchase shall be
assessed a CDSC of 3% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (c) Class B Shares
redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on
the lesser of the then-current net asset value or the original net asset
value at the time of purchase; and (d) Class B Shares redeemed within 6 years
of their purchase shall be assessed a CDSC of 1% on the lesser of the
then-current net asset value or the original net asset value at the time of
purchase. The CDSC is waived in certain circumstances described in the
Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
A 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 Investment Company for the Class A Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be
retained by Distributor to compensate Distributor for amounts advanced to
securities dealers or their firms or others with respect to the sale of Class
B Shares. In addition, such payments may be retained by the Distributor to
be used in the promotion and distribution of Class B Shares in a manner
similar to that described above for Class A Shares. The second component is
a shareholder servicing fee to be paid to securities dealers or others who
provide personal assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component
is an asset-based sales charge to be retained by the Distributor during the
first year after the sale of shares, and in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the promotion and
distribution of Class C Shares, in a manner similar to that described above
for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares
and, therefore, the Class Z Shares shall not be subject to deductions
relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B,
Class C, and Class Z Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the
Rule 12b-1 Plan expenses of another Class, such classes shall be subject to
the same expenses.
6. There shall be no conversion features associated with the Class
A, Class C, and Class Z Shares. Each Class B Share, however, shall be
converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Franklin Mutual Series Fund's Board of Directors and as described, in each
fund's prospectus relating to the Class B Shares, as such prospectus may be
amended from time to time; provided, however, that the Class B Shares shall
be converted automatically into Class A Shares to the extent and on the terms
permitted by the Investment Company Act of 1940 and the rules and regulations
adopted thereunder.
7. Shares of Class A, Class B, Class C and Class Z may be exchanged
for shares of another investment company within the Franklin Templeton Group
of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted
by the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the Board members
interests of the various classes of shares. The Board members, including a
majority of the independent Board members, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop.
Franklin Mutual Advisers, Inc. and Franklin/Templeton Distributors, Inc.
shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Elizabeth Cohernour, Secretary of the Franklin Mutual Series
Fund Inc., do hereby certify that this Multiple Class Plan was adopted by the
Investment Company, on behalf of its series MUTUAL DISCOVERY FUND, by a
majority of the Directors of the Fund on _____________.
--------------------------
Elizabeth Cohernour
General Counsel & Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
MUTUAL BEACON FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Directors of FRANKLIN MUTUAL SERIES FUND INC. (the "Investment
Company") for its series, MUTUAL BEACON FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole.
The Plan sets forth the provisions relating to the establishment of multiple
classes of shares of the Fund, and supersedes any Plan previously adopted for
the Fund.
1. The Fund shall offer four classes of shares, to be known as Class
A Shares, Class B Shares, Class C Shares and Class Z Shares.
2. Class A Shares shall carry a front-end sales charge ranging from
0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Class Z Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall
be assessed a CDSC of 4% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (b) Class B Shares
redeemed within the third and fourth years of their purchase shall be
assessed a CDSC of 3% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (c) Class B Shares
redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on
the lesser of the then-current net asset value or the original net asset
value at the time of purchase; and (d) Class B Shares redeemed within 6 years
of their purchase shall be assessed a CDSC of 1% on the lesser of the
then-current net asset value or the original net asset value at the time of
purchase. The CDSC is waived in certain circumstances described in the
Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
A 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 Investment Company for the Class A Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be
retained by Distributor to compensate Distributor for amounts advanced to
securities dealers or their firms or others with respect to the sale of Class
B Shares. In addition, such payments may be retained by the Distributor to
be used in the promotion and distribution of Class B Shares in a manner
similar to that described above for Class A Shares. The second component is
a shareholder servicing fee to be paid to securities dealers or others who
provide personal assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component
is an asset-based sales charge to be retained by the Distributor during the
first year after the sale of shares, and in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the promotion and
distribution of Class C Shares, in a manner similar to that described above
for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares
and, therefore, the Class Z Shares shall not be subject to deductions
relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B,
Class C, and Class Z Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the
Rule 12b-1 Plan expenses of another Class, such classes shall be subject to
the same expenses.
6. There shall be no conversion features associated with the Class
A, Class C, and Class Z Shares. Each Class B Share, however, shall be
converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Franklin Mutual Series Fund's Board of Directors and as described, in each
fund's prospectus relating to the Class B Shares, as such prospectus may be
amended from time to time; provided, however, that the Class B Shares shall
be converted automatically into Class A Shares to the extent and on the terms
permitted by the Investment Company Act of 1940 and the rules and regulations
adopted thereunder.
7. Shares of Class A, Class B, Class C and Class Z may be exchanged
for shares of another investment company within the Franklin Templeton Group
of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted
by the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the Board members
interests of the various classes of shares. The Board members, including a
majority of the independent Board members, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop.
Franklin Mutual Advisers, Inc. and Franklin/Templeton Distributors, Inc.
shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Elizabeth Cohernour, Secretary of the Franklin Mutual Series
Fund Inc., do hereby certify that this Multiple Class Plan was adopted by the
Investment Company, on behalf of its series MUTUAL BEACON FUND, by a majority
of the Directors of the Fund on _____________.
--------------------------
Elizabeth Cohernour
General Counsel & Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
MUTUAL EUROPEAN FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Directors of FRANKLIN MUTUAL SERIES FUND INC. (the "Investment
Company") for its series, MUTUAL EUROPEAN FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole.
The Plan sets forth the provisions relating to the establishment of multiple
classes of shares of the Fund, and supersedes any Plan previously adopted for
the Fund.
1. The Fund shall offer four classes of shares, to be known as Class
A Shares, Class B Shares, Class C Shares and Class Z Shares.
2. Class A Shares shall carry a front-end sales charge ranging from
0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Class Z Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall
be assessed a CDSC of 4% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (b) Class B Shares
redeemed within the third and fourth years of their purchase shall be
assessed a CDSC of 3% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (c) Class B Shares
redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on
the lesser of the then-current net asset value or the original net asset
value at the time of purchase; and (d) Class B Shares redeemed within 6 years
of their purchase shall be assessed a CDSC of 1% on the lesser of the
then-current net asset value or the original net asset value at the time of
purchase. The CDSC is waived in certain circumstances described in the
Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
A 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 Investment Company for the Class A Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be
retained by Distributor to compensate Distributor for amounts advanced to
securities dealers or their firms or others with respect to the sale of Class
B Shares. In addition, such payments may be retained by the Distributor to
be used in the promotion and distribution of Class B Shares in a manner
similar to that described above for Class A Shares. The second component is
a shareholder servicing fee to be paid to securities dealers or others who
provide personal assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component
is an asset-based sales charge to be retained by the Distributor during the
first year after the sale of shares, and in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the promotion and
distribution of Class C Shares, in a manner similar to that described above
for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares
and, therefore, the Class Z Shares shall not be subject to deductions
relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B,
Class C, and Class Z Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the
Rule 12b-1 Plan expenses of another Class, such classes shall be subject to
the same expenses.
6. There shall be no conversion features associated with the Class
A, Class C, and Class Z Shares. Each Class B Share, however, shall be
converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Franklin Mutual Series Fund's Board of Directors and as described, in each
fund's prospectus relating to the Class B Shares, as such prospectus may be
amended from time to time; provided, however, that the Class B Shares shall
be converted automatically into Class A Shares to the extent and on the terms
permitted by the Investment Company Act of 1940 and the rules and regulations
adopted thereunder.
7. Shares of Class A, Class B, Class C and Class Z may be exchanged
for shares of another investment company within the Franklin Templeton Group
of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted
by the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the Board members
interests of the various classes of shares. The Board members, including a
majority of the independent Board members, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop.
Franklin Mutual Advisers, Inc. and Franklin/Templeton Distributors, Inc.
shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Elizabeth Cohernour, Secretary of the Franklin Mutual Series
Fund Inc., do hereby certify that this Multiple Class Plan was adopted by the
Investment Company, on behalf of its series MUTUAL EUROPEAN FUND, by a
majority of the Directors of the Fund on ______________.
------------------------
Elizabeth Cohernour
General Counsel & Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
MUTUAL FINANCIAL SERVICES FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Directors of FRANKLIN MUTUAL SERIES FUND INC. (the "Investment
Company") for its series, MUTUAL FINANCIAL SERVICES FUND (the "Fund"). The
Board has determined that the Plan, including the expense allocation, is in
the best interests of each class of the Fund and the Investment Company as a
whole. The Plan sets forth the provisions relating to the establishment of
multiple classes of shares of the Fund, and supersedes any Plan previously
adopted for the Fund.
1. The Fund shall offer four classes of shares, to be known as Class
A Shares, Class B Shares, Class C Shares and Class Z Shares.
2. Class A Shares shall carry a front-end sales charge ranging from
0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Class Z Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall
be assessed a CDSC of 4% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (b) Class B Shares
redeemed within the third and fourth years of their purchase shall be
assessed a CDSC of 3% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase; (c) Class B Shares
redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on
the lesser of the then-current net asset value or the original net asset
value at the time of purchase; and (d) Class B Shares redeemed within 6 years
of their purchase shall be assessed a CDSC of 1% on the lesser of the
then-current net asset value or the original net asset value at the time of
purchase. The CDSC is waived in certain circumstances described in the
Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
A 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 Investment Company for the Class A Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be
retained by Distributor to compensate Distributor for amounts advanced to
securities dealers or their firms or others with respect to the sale of Class
B Shares. In addition, such payments may be retained by the Distributor to
be used in the promotion and distribution of Class B Shares in a manner
similar to that described above for Class A Shares. The second component is
a shareholder servicing fee to be paid to securities dealers or others who
provide personal assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component
is an asset-based sales charge to be retained by the Distributor during the
first year after the sale of shares, and in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the promotion and
distribution of Class C Shares, in a manner similar to that described above
for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares
and, therefore, the Class Z Shares shall not be subject to deductions
relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B,
Class C, and Class Z Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the
Rule 12b-1 Plan expenses of another Class, such classes shall be subject to
the same expenses.
6. There shall be no conversion features associated with the Class
A, Class C, and Class Z Shares. Each Class B Share, however, shall be
converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Franklin Mutual Series Fund's Board of Directors and as described, in each
fund's prospectus relating to the Class B Shares, as such prospectus may be
amended from time to time; provided, however, that the Class B Shares shall
be converted automatically into Class A Shares to the extent and on the terms
permitted by the Investment Company Act of 1940 and the rules and regulations
adopted thereunder.
7. Shares of Class A, Class B, Class C and Class Z may be exchanged
for shares of another investment company within the Franklin Templeton Group
of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted
by the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the Board members
interests of the various classes of shares. The Board members, including a
majority of the independent Board members, shall take such action as is
reasonably necessary to eliminate any such conflict that may develop.
Franklin Mutual Advisers, Inc. and Franklin/Templeton Distributors, Inc.
shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Elizabeth Cohernour, Secretary of the Franklin Mutual Series
Fund Inc., do hereby certify that this Multiple Class Plan was adopted by the
Investment Company, on behalf of its series MUTUAL FINANCIAL SERVICES FUND,
by a majority of the Directors of the Fund on ______________.
--------------------------
Elizabeth Cohernour
General Counsel & Secretary
